Competitive pressures are “levelling off slightly” in the road construction indus- try, says Raubex Group CEO Rudolf Fourie.
Discussing the road specialist’s results for the financial year ended February 28, he says the lower margins seen in the road industry in recent years have not been sustainable. Evidence of this is the fact that nine of the group’s competitors have either recently been liquidated or now find themselves locked in business rescue operations.
Capacity in the roads industry increased by up to 300% in the run-up to the 2010 World Cup, says Fourie.
“We always said that con- ditions would normalise.”
Fourie expects the market to return to the median in the next two to three years, with five to six companies expected to tender for road contracts –similar to pre-World Cup condi- tions – down from the current 12 to 13 com-panies.
Fourie also notes that Raubex has signed an agreement with the Competition Commission to pay a R58.8-million penalty, following a nationwide investigation into collusion in the construction industry.
The Competition Tribunal still has to approve the agreement. Following that, Raubex is expected to make the payment in July.
The company has already made provision for this payment in the financial year ended February 28.
Raubex reports that revenue increased 12% for the year, to R5.64-billion, compared with the previous financial year.
Operating profit was down 9% to R483.8-million (up 2.1% without the Competition Commission provision), while the group’s operating profit margin dropped to 8.6%, down from 10.6%.
Capital expenditure increased to R460.9-million, up from R286.6-million.
Raubex declared a final dividend of 35c a share.
The group’s order book stood at R5.2-billion at the end of the financial year, up from R4.6-billion.
A new contributor to this order book is Raubex Infra, a division focused on renewable energy, housing, telecommunications, rail and pipeline construction projects.
This division was established in an effort to better balance the Raubex portfolio and diversify the group’s revenue streams.
“We are quite excited about the growing markets in these disciplines,” says Fourie.
With only six months on the books, Raubex Infra recorded revenue of R162.8-million, with operating profit of R3.7-million.
It was also responsible for R768-million of the group’s order book.
Fourie will like to see the division grow to a R1-billion-turnover business.
He says Raubex Infra, and Raubex, in general, have acquired significant expertise from the spate of liquidations seen recently among construction companies.
Internationally, Raubex saw a contraction of business activities in the past financial year, with revenue decreasing 48.1% to R461.7-million, mainly as a result of the completion of a Namibian road contract and reduced activity in Zambia.
Fourie says Africa is not cooling off as a market, but that Raubex will rather work at single-digit margins locally, if it fails to secure double-digit margins abroad.