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May 20, 2008

Sanyati confident about future growth as earnings surge

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© Reuse this AltX-listed civil engineering and construction group Sanyati Holdings realised an almost threefold increase in turnover, to R1-billion for the year ended February 2008, and headline earnings a share increased 89,4% to 22,31c a share, up from 11,78c a share in 2007.

The results exceeded the group’s revised projections, and in addition to organic growth, which accounted for 74% of the growth in turnover, Sanyati concluded three strategic acquisitions, restructured operations and attained the highest Construction Industry Development Board (CIDB) rating.

“The group is on track to set a new benchmark with budgeted turnover of about R1,8-billion in the coming year,” declared Sanyati CEO Rick Jackson. This was within the broader target of reaching R3,7-billion in turnover by 2012.

He was confident that growth in the industry was sustainable, supported by projections of the South African Federation of Civil Engineering Contractors, that current industry conditions should continue beyond 2014. “Sanyati is also involved in private and public sector building and civil engineering projects across Africa, where growth prospects look strong,” he added.

Jackson stated that 78%, or R1,4-billion, of Sanyati’s order book to February 2009 was already in hand. He noted that the company was involved in about 70 projects at any one time, and since its listing on the JSE and acqiring a number of companies, the company’s geographic reached has broadened significantly.

The company is also involved in construction in Botswana, Zambia, and Rwanda, where Sanyati was awarded the contract to construct a training stadium for the under 19 FIFA World Cup. The contract is worth just under $20-million, and mark-ups were said to be high, taking the risk into account.

“We are not desperately seeking work right now – we are going to be very selective in the last R400-million worth of work. We need to be selective and make sure our profit margins stay healthy,” indicated Jackson.

For an AltX-listed construction company Sanyati saw itself as one of the bigger players, but said that with turnover of about R1-billion, it would be one of the smaller companies on the JSE main board. That said, the company said it was mulling a shift to the main board, which would allow Sanyati to expand its shareholder base.

Sanyati is involved in a number of major infrastructure projects including the King Shaka International Airport, the Bloemfontein stadium for the FIFA 2010 World Cup, as well as projects for Eskom, Gautrain and the South African National Roads Agency (Sanral), as well as working for a number of large corporates such as Tongaat Hulett Properties, Vodacom and Richards Bay Minerals.

“We have always adopted the strategy that you try and mix your public and private client base, we prefer to try and split it 50:50, so that you are never fully reliant on either public sector services or private sector. This tends to reduce your risks in terms of interest rate increases and public money not being available,” Jackson said.

In the period under review, Sanyati acquired Gauteng-based Ruthcon Civil Contractors and Gem Earthworks, which operate in Mpumulanga and the Eastern Cape, as well as the Meyker Group, which operates largely in the telecoms infrastructure sector in the Free State, Northern Cape, Limpopo as well as in Botswana.

“The Ruthcon and GEM acquisitions have integrated well and significantly contributed to growth, while the Meyker group, which exposes Sanyati to telecoms infrastructure spend and related niche markets, was concluded a month from year-end and offers good growth prospects for the future,” said Jackson.

The acquisitions extended the company’s geographical footprint beyond KwaZulu-Natal across South Africa and into Africa, and boosted black ownership. The group’s black direct share ownership stood at 43%.

“The consolidation of subsidiaries into clear divisions under the Sanyati brand led to the group’s CIDB rating being ramped up to a level nine. This is the highest possible rating and will pave the way for accelerated growth, allowing us to tender on any size contracts in South Africa, which is a significant competitive advantage in seizing greater market share. Sanyati’s strong empowerment credentials will further help position the group as candidate for large government tenders,” Jackson stated.

TELECOMS GROWTH

“We see the laying of fibre optics cables as a big growth market for the future,” said Sanyati financial director Marc Krouse, and added that there was a requirement for about 20 000 km of fibre optics to be laid by the major players in the telecoms market in the next three to four years.

With the acquisition of the Meyker Group, this allowed for “great opportunities in telecoms for Sanyati,” as the company owned some of the only direct fibre laying equipment in South Africa.

The telecoms sector was also said to have the best margins in the industry, of between 25% to 30%.

This said the telecoms sector still remained only a portion of Sanyati’s diversified construction services, and would likely only account for about 5% of the groups total turnover.

The group was involved in the laying of a major fibre optic link between Johannesburg and Durban, via Piet Retief and Paul Pietersberg. “The R17-million contract is for Dark Fibre Africa, and will stretch some 1 400 km. Survey has started and well will probably start laying that line in the next few weeks,” commented Krouse.

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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