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Weak domestic growth forces Raubex to look abroad

Nov 06 2017 22:25
Lameez Omarjee


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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg - Weak domestic growth saw construction company Raubex [JSE:RBX] suffer a drop in revenue, operating profit and bottom line, leading it to find growth prospects internationally.

This is according to its interim results report for the six months ended August 31, released on Monday.

“The South African construction environment is currently not conducive to growth and we will continue to explore opportunities to supplement our revenue streams internationally through acquisitions for our materials division which accounts for nearly half of the group’s profits,” CEO Rudolph Fourie said in the report to shareholders.

Revenue was down 2% to R4.67bn, from R4.76bn reported in the same period in 2016. Operating profit was down 6.1% to R379.6m, from R394.7m reported last year. Net profit was down 3.3% to R254.9m, from R263.3m.

Earnings per share, however, were up 1% to 134c, and headline earnings per share were up 0.4% to 131.1c. This improvement is a result of a decrease in earnings attributable to non-controlling interests, the group explained in the report. An interim dividend of 45c was declared.

Capital expenditure increased to R253.2m compared to R234.9m reported previously.

The group has embarked on a strategy for longer-term growth in more “developed international markets”.

Opportunities in Australia are being considered. “The group has adopted a conservative approach to entering the Australian market with a view to acquiring a smaller tier civil construction company that is well positioned for growth as opposed to a larger more established business with associated risks,” the group said in its report.

The group’s secured order book decreased 8.2% to R7.52bn, compared to R8.19bn reported previously. Of these orders, 28.8% represent contracts outside of South Africa, in the rest of Africa.

The group expects conditions in the South African construction sector to remain “challenging”.

“The group will look for medium-term growth from a combination of high margin opportunities in Africa and further acquisitions in the local commercial aggregate sector to support the materials division,” the group said.

Division reports

The group plans to look for acquisition opportunities in the commercial aggregates sector in southern Africa, and is particularly looking at expanding its materials division. This division contributed strongly to the group’s overall operating profit and to “differentiate” Raubex from its competitors.

It involves commercial quarries, contract crushing, materials handling and processing services for the mining industry. About 46.3% of the group’s operating profit is generated from materials supply and mining-related services, according to the report.

The division’s revenue increased 7.7% to R1.38bn. However operating profit decreased 10.3% to R171.5m. The division incurred capital expenditure of R173.9m, compared to R136.7m reported in 2016. The division has also secured an order book of R1.98bn, compared to R1.75bn reported previously.

The constructions division experienced “favourable operating conditions” and had a “healthy” order book, the group said. However, revenue decreased 7.4% to R1.77bn, compared to R1.91bn reported previously. Operating profit decreased 0.6% to R115.6m from R116.3m reported previously.

The division’s secured order book decreased R2.23bn, from R3.04bn reported previously. This is due to a lower volume of maintenance contracts put out to tender from the South African National Roads Agency (Sanral). Previously an “exceptionally high volume” of tender activity was experienced for reseal contracts on certain roads taken over from provincial authorities.

But the group explained the decline in Sanral contracts and provincial and municipal work had been offset by an increase in private clients mainly for affordable housing and the commercial building sector.

The road construction and earthworks division, which involves road and civil infrastructure construction operations focused on new road construction and heavy road rehabilitation, experienced “tough competitive conditions”. There was a slower roll out of road contracts compared to previous periods, the report read.

The group managed to grow revenue by 5.3% to R834.1m, up from R792.4m and operating profit increased 21% to R63.9m, up from R52.8m. The division incurred capital expenditure of R8.6m, up from R35.7m. The division has a secured order book of R1.73bn, down from R2bn reported previously. Of these contracts, R841.5m is related to Zambia’s road construction and rehabilitation project Link 8000. Work has been remains suspended due to payment delays from the RDA, the report said.

Affordable housing and commercial building helped support the Raubex infrastructure division. Other areas of focus include energy, particularly renewable energy, rail and telecommunications, among others.

The division’s results, however, were negatively affected by the delay in sign-off of the Renewable Energy Independent Power Producer Procurement Programme (REIPPP) by Eskom. Other challenges include the slow roll-out of water infrastructure work.

“The timing of contract awards under the REIPPP programme remains uncertain but the group is well positioned to benefit if Eskom signs the Power Purchase Agreements,” the report read. So far work has been secured with clients on two wind farms, amounting to R678m.

“These projects have not been included in the Group's order book due to the policy uncertainty surrounding the REIPPP programme,” the group said.

Revenue for the division was down 12.3% to R678.6m from R773.5m. Operating profit decreased 43.4% to R19.5m, from R34.5m. Capital expenditure amounted to R9.8m during the period compared to R19.3m previously.

The division has a secured order book of R1.59bn, compared to R1.4bn previously.

Delayed receipts

The group’s international operations, which include business units in African countries Namibia, Botswana and Zambia, saw international revenue decrease 15.9% to R541.1m, compared to R643.7m reported previously. Operating profit increased 3.8% to R109.8m from R105.7m.

Payments from the Zambian Road Development Agency (RDA) had become more consistent during the period, payments worth R24m were received. A further R12.7m was received after August 31, in September and October. “The cycle of payments from the RDA has become more consistent, but due to the amount of outstanding debt, work on the Link 8000 road contracts remains suspended.”

Accounts receivable from RDA at August 31, amounted to R156.2m. Although this work is suspended, Raubex believes Zambia's engagements with the International Monetary Fund and the improvement in the copper price will benefit the country and work could be resumed over the medium term.

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