JSE-listed Protech Khuthele on Monday confirmed its return to profitability, reporting a strong turnaround in group operating profit before interest for the year ended February 28, to R46-million, from a R3.8-million loss in 2012.

The diversified infrastructure services group attributed its improved results to a strategic turnaround programme, which saw it move away from a culture of owner management to one led by a professional core management team.

Protech’s strengthened financial position resulted in it reporting improved earnings a share of 4.4c for the period, from a loss of 3.1c a share in the prior year.

Revenue growth for the year of 6% to R1.03-billion was in line with management’s decision to avoid the aggressive pursuit of new projects at margins that inadequately reflect the inherent project risks.

This tighter project selection criteria, which included a formal tender risk review process that had been fully embedded into the tender process, had enhanced life-cycle risk and contributed to improved project margins, the company said.

Revenue from mining-related contracts continued to contribute most of the group’s revenue, while 23% of revenue was generated outside South Africa. 

Meanwhile, Protech started the new financial year with a strong order book of some R1-billion, of which R360-million was related to contracts in the final negotiation stage.

The company valued its total qualified pipeline of opportunities at R3.1-billion.

While mining would remain a key focus for the group, it would also pursue greater revenues from the public sector, particularly through work for parastatals in the transport sector. 

Having completed the implementation of its strategic turnaround during 2013, the company’s focus in the 2014 financial year would be on embedding and adapting the principals of the strategy to deliver further margin improvement.

“With its healthy cash balances and low gearing ratio, the group has the capacity to pursue attractive opportunities. Accordingly, we are [well] positioned to improve our financial performance in the year ahead,” Protech said.

Flat Market Conditions
The company noted that conditions in the African construction and mining sectors remained largely stagnant, with long lead times on the awarding of new public sector infrastructure projects exacerbated by funding constraints.

Protech would, however, focus on developing its civil engineering and earthworks resources to benefit from anticipated opportunities in this sector, particularly targeting the rail and road transport space. 

Further, in response to signs of recovery in the commercial and industrial sector, the group said it would, through national expansion and the broadening of its offerings, aim to grow its ability to service this sector. 

Meanwhile, in the mining infrastructure sector, the company had increasingly observed the decision by mining houses to segment projects into smaller packages.

“As a result, an increasing number of smaller players submit tenders, putting pressure on margins. This is countered by more stringent safety requirements, which create barriers to entry and enables Protech to leverage its strong safety protocols and systems,” the company noted. 

Beyond South Africa, the company believed that private sector investment in new mining projects, as well as general commercial and industrial infrastructure, would continue to create growth opportunities.

As a result, it would maintain its selective approach in its core target countries of Zambia, Zimbabwe and Mozambique.

Eqstra Offer
Following a R146-million offer by construction and mining equipment group Eqstra Holdings to acquire the 67.2% interest in Protech it did not already own, Protech maintained its position that the offer was “unfair and unreasonable”, and “strongly recommended” that shareholders reject the offer.

The offer from Eqstra to acquire all outstanding shares at 60c a share had been extended to July 31, and, despite PricewaterhouseCoopers Corporate Finance having valued Protech at between 79c a share and 88c a share, Eqstra has stated that there was no scope to increase the offer price.

Protech believed the offer discounted the long-term value-creation potential of its construction- and infrastructure-related activities.

“We believe there is limited scope for synergies between Protech and Eqstra and any benefits of a merger will, in any event, accrue to Eqstra shareholders,” the company said.