JSE-listed Raubex has named Enza Construction and Umso Construction as the two emerging contractors that the company will mentor as part of an industry settlement agreement with government aimed at promoting transformation in the sector.

To meet commitments under the Voluntary Rebuilding Programme (VRP), which seven listed construction companies agreed to in October last year, Raubex has to facilitate workflow to Enza and Umso equivalent to 25% of its turnover.

CEO Rudolf Fourie said on Monday that Raubex believed the agreement paved the way for a “healthy working relationship” with government.

Besides partnering with emerging contractors, Raubex will also have to contribute towards a R1.5-billion development fund over a 12-year period, which will cost the company R15-million a year.

Meanwhile, Raubex reported that expenses related to the VRP resulted in the company posting a 6.9% decrease in operating profit to R661.7-million in the year ended February 28, 2017. Operating profit included a nonrecurring expense of R119.9-million to account for the settlement agreement. Before the VRP expense, operating profit increased by 10% to R781.6-million.

Headline earnings a share were down 14% to 201.7c a share while earnings a share decreased 14% to 203.7c a share. However, if the VRP expense was excluded, earnings a share would have increased by 14.4% to 271.1c s a share and headline earnings a share would have increased by 14.8% to 269.1c a share.

The company’s operating profit margin before the VRP expense decreased to 8.7% while cash generated from operations increased 16.5% to R1.22-billion.

Raubex reported a 13.6% increase in revenue to R9.01-billion.

Fourie described the year-end results as a “strong performance” and noted that this was supported by a consistent supply of bitumen, which facilitated a recovery in its road surfacing and asphalt operations.

The group has a secured order book of R8.03-billion, compared with R8.27-billion in 2016. Nearly 24% of the order book represents contracts outside of South Africa in the rest of Africa.

Raubex said some large civil construction projects were expected to come to the market in the medium term, including the Msikaba and Mtentu bridges on the N2 Wild Coast Highway, for which tenders had already closed, the Moloto Road upgrade for the South African National Road Agency, the expansion of the Durban Port for Transnet and various works for the Passenger Rail Agency of South Africa.

“The timely award of these projects would go some way in absorbing the current overcapacity in the industry.”