A strong performance from Raubex’s materials division and good progress made by its infrastructure division, have offset the impact of margin pressures in the South African road construction industry and lifted the group’s profit for the six months ended August 31 to R211.5-million.

CEO Rudolph Fourie told Engineering News Online on Monday that the diversified heavy engineering company delivered “good results in a tough environment”, with recent earnings-enhancing acquisitions having been successfully “bedded down”.

“We are looking forward to their positive contributions in the second half of the year. Internationally, the higher-margin work secured in Zambia during the period will fill capacity in our construction division and allow us to be more selective and secure better margins in the work that we tender for in South Africa,” he outlined.

Revenue for the half-year increased 15.7% to R3.73-billion and operating profit rose 9.6% to R300.8-million compared with the corresponding period the year before.

Earnings a share increased 5.9% to 103.5c, with headline earnings a share increasing 5.5% to 101.6c, while the group declared a gross interim cash dividend from income reserves of 35c a share for the period.

Group operating margin decreased to 8.1%, despite cash generated from operations increasing a hefty 50.3% to R537.4-million before finance charges and taxation, and was supported by advance payments received of R77-million.

“These advances exclude those due on the Zambia Link 8000 contracts, which were outstanding at balance sheet date. These contracts are worth some R1.5-billion,” said Fourie.

The Link Zambia 8000 project, launched in 2012, was a five-year, $5-billion to $6-billion initiative aimed at upgrading 8 000 km of road network in Zambia, linking provinces nationwide.

JSE-listed Raubex was set to upgrade 117 km of the Mpika–Nabwalya–Mfuwe road, in the north-eastern Muchinga province after securing the nearly R940-million, 30-month contract in June.

This came a month after the group was awarded a R460-million contract to upgrade about 94 km of the Safwa to Chinsali road.

The value of construction contracts in progress, meanwhile, increased 18.2% to R378.7-million, mainly owing to contractual terms in the infrastructure division, where billing on certain projects was triggered by the achievement of contractual milestones.

The group’s net cash inflow for the period was R18.3-million, while total cash and cash equivalents at the end of the period increased to R889.7-million.

Fourie emphasised the group’s solid order book at the end of the six months, adding that it had hit an all-time high of R7.5-billion, up from R6.2-billion in the first half of the prior year.

“Some 30% of the order book is attributable to contracts in Africa. Internationally, the higher-margin work secured in Zambia during the period will fill capacity in our construction division and allow us to be more selective and secure better margins in the work that we tender for in South Africa,” he commented.

ROADMAC
Looking to divisional performance, asphalt manufacturer and laying subsidiary Roadmac delivered a “stable” performance for the period and the volume of tender work was sufficient to maintain its order book.

“Conditions in the light rehabilitation and maintenance market have been competitive but stable. Conditions in the asphalt supply market have been more challenging and aggressive pricing has been experienced,” the group outlined.

The division’s revenue increased 7.7% to R1.31-billion and operating profit increased 1.2% to R96.4-million.

The division closed the half-year with an order book of R1.79-billion.

RAUBEX CONSTRUCTION
Road and civil infrastructure construction division Raubex Construction focused on road construction and heavy road rehabilitation and its performance reflected the competitiveness of the current South African road construction market as the low-margin contracts in the order book continued to be realised, Fourie noted.

“The volume of work out to tender remains healthy and the division has secured a solid order book for the period ahead. Progress made on the Zambia Link 8000 contracts was limited to site establishment activities during the period,” he said.

Revenue for the division remained flat, at R774.9-million, while operating profit decreased 46.1% to R20.4-million and the divisional operating profit margin decreased to 2.6%.

The division had an order book of R3.03-billion, with R1.57-billion relating to contracts in Zambia and Namibia.

RAUMIX
Materials division Raumix delivered a strong performance during the period, supported by commercial quarrying operations, where good demand was being experienced from the residential and commercial building markets, as well as road infrastructure works.

“The July acquisition of [crushers from] crushing and ready-mix concrete operations Oranje Mynbou en Vervoer Company made a positive contribution to earnings. Conditions were favourable for the mining and material-handling operations, where production volumes increased to meet client requirements,” Fourie noted.

Margins remained under pressure in the contract crushing market and these operations had continued to feel the effect of the competitive conditions in the local construction market, he added.

Revenue for the division increased 16.7% to R968.2-million and operating profit increasing 26.5% to R162.5-million.

The divisional operating profit margin increased to 16.8%, from 15.5% in the first half of the prior year, with the division having closed the six months with an order book of R1.58-billion.

RAUBEX INFRASTRUCTURE
Raubex’s infrastructure division, meanwhile, continued to make progress in building its reputation in the market and was supported by a growing order book of work focused chiefly on civil construction works related to government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and mine infrastructure development, including mine housing solutions.

Revenue for the division increased 53.4% to R484.7-million and operating profit increased 43.8% to R27.5-million.

The divisional operating profit margin improved from 6.1% in the first half of the prior year to 5.7% in the period under review.

The division had an order book of R1.02-billion at the end of the period.

TOSAS
Fourie outlined that bituminous products manufacturer Tosas had made progress during the period, with lost volume being recaptured and short-term synergies realised through the efficient supply of bitumen to internal contract sites.

“Conditions in the modified bitumen industry have been competitive and the lower volume winter months were loss-making. Initiatives are in progress to right-size the business, which is forecast to be profitable for the financial year,” he said.

The division contributed external revenues of R183.4-million and an operating loss of R6.1-million, while total revenue, including intergroup supply, amounted to R298.1-million.

Tosas incurred capital expenditure of R2.2-million during the period and had
an order book of R127.6-million.

INTERNATIONAL
Raubex’s international operations, which referred to its interests elsewhere in Africa, reported stable results for the period, supported by the Namibian operations, where work on the upgrading of the road from Rosh Pinah to Oranjemund was under way, as well as various road maintenance and material handling contracts across the country.

The two Zambia Link 8000 contracts were in progress, with site establishment now completed and bush-clearing under way on the Safwa to Chinsali road.

“The redesign and realignment is being finalised on the Mpika–Nabwalya–Mfuwe road and major construction activities are forecast to start after the rainy season towards the end of March next year,” said the group.

International revenue increased 19.7% to R299.7-million and operating profit decreased by 1.6% to R48.5-million.

Operating profit margins decreased to 16.2%.

PROSPECTS
Looking ahead, Fourie said conditions in the South African road construction industry were expected to be stable but challenging in the period ahead, with competitive pressure to continue.

“Improvement in the sector remains dependent on the roll-out and execution of the government infrastructure development plan, which will absorb excess capacity in the industry.

“The progress made by the South African [National] Roads Agency in expanding its strategic network of roads previously under provincial administration is encouraging and is expected to support a healthy volume of maintenance work in future,” he noted.

Moreover, the award of the two Zambia Link 8000 contracts had ensured a mix of higher-margin work in the current order book and would also see the road construction division operating near capacity, which would allow for more strategic tendering on opportunities in the South African market.

The volume of work in this division was expected to remain healthy, albeit at a low margin.

“In the infrastructure division, progress continues to be made to secure work related to [the] REIPPPP and in the fields of mine housing infrastructure and civil works.

“The 70% acquisition of concrete structures business Empa Structures for R25.5-million in November will strengthen the skills required for concrete works and structures and will further enhance the vertical integration of the group,” Fourie outlined.

Meanwhile, the “favourable” conditions experienced by the materials division in the commercial quarry and the materials handling operations were expected to continue in the period ahead.