JSE-listed Raubex Group continued to experience challenging conditions in the South African construction industry in the six months ended August 31, particularly in the road construction sector, reporting a 57.4% decline in operating profit to R157-million, compared with the R370-million profit recorded for the first half of the 2018 financial year.
The low volume of work during the period under review resulted in the group’s rightsizing of its asphalt and bitumen supply operations to adjust to the current level of demand.
During the period under review there was a significant reduction in the volume of work brought out to tender by the South African National Roads Agency Limited (Sanral). The road surfacing and maintenance teams were able to partially replace their order book with work on roads operated by concessionaires.
However, the subsidiaries that supply asphalt and bitumen to Raubex contracts and the external road maintenance market experienced a significant decrease in
earnings, as a result of the absence of Sanral work.
The volume of asphalt sold decreased by around 35% from the comparable prior period.
The division has, however, retained some excess capacity in anticipation of Sanral resuming its budget spend and will review its position and market conditions in the second half of the current financial year.
The rightsizing initiatives have resulted in 280 employees being retrenched in the division, with one-off retrenchment costs of R13-million incurred.
The division incurred an operating loss of R18.3-million, compared with a R115-million operating profit in the prior comparable period.
Raubex stated that its order book for Sanral decreased by 61.4% to R562-million, compared with R1.46-billion in the prior comparable period.
“This work has been replaced by work on road infrastructure managed by concessionaires as well as an increase in the order book from private clients mainly in the affordable housing and commercial building sector, as well as work secured in the Renewable Energy Independent Power Producer Procurement Programme,” said Raubex.
Meanwhile, the company reported a 72.8% decline in headline earnings a share to 35.7c apiece, compared with 131c apiece in the prior comparable period. The group declared an interim dividend of 12c apiece.
“The materials division, which has for many years diversified the group from exposure to the road construction sector, has been the main contributor to earnings for the period, with stable conditions in the mining services operations, supported by some volume growth from the group’s commercial quarry operations,” Raubex CEO Rudolf Fourie pointed out.
He added that stable conditions have been experienced in the mining services sector, where operations focused on diamonds, gold, coal, copper, platinum and iron-ore during the reporting period.
The group has a secured order book of R1.76-billion for the materials division.
Moreover, the infrastructure division has made good progress in the execution of projects in Cameroon and is well positioned to participate in the rollout of further renewable energy projects in South Africa, where execution has started on secured work.
Operating profit for the infrastructure division increased by 37.5% to R26.9-million, compared with R19.5-million in the prior comparable period.
The group has been closely managing its working capital, with a focus on strict credit control and inventory management, in a period of elevated customer credit risk.
Raubex stated that the diversified operations and revenue streams from the materials division would continue to support group earnings. Stable conditions are expected in the operations exposed to the mining sector in the second half of the year and it is anticipated that the positive progress made by government with the new mining charter will encourage more investment in mining.
However, the group expects overall conditions in the South African construction sector to remain challenging and the short-term outlook is uncertain, with the sector under pressure from the slow rollout of general infrastructure spend in the country and current lower volume work from Sanral.
Raubex is looking to the rest of Africa for growth and some large project opportunities are being negotiated in both the southern and eastern African jurisdictions, including the Beitbridge border post upgrade in Zimbabwe and work related to the Lamu Port and Lamu-Southern Sudan-Ethiopia transport corridor corridor in Kenya, which should supplement the current order book over the medium term.