Infrastructure development and construction materials supply group Raubex managed to maintain sufficient capacity to participate in any improvement in the sector, while simultaneously undertaking rightsizing initiatives has seen the company’s roads and earthworks division return to profitability.
CEO Rudolf Fourie says the company had seen a “substantial increase” in tender activity in the second half of the financial year, which ended on February 29.
The company is now hopeful that relevant State-owned enterprises will continue to adjudicate and award these tender contracts as a means to stimulate the South African economy and create jobs following the Covid-19 restrictions.
In the company’s financial update, published on May 29, Raubex reported that revenue for the financial year had increased by 2.5% to R8.7-billion, while operating profit had increased by 132.1% to R480.5-million.
Profit, before tax, increased by 146.9% to R446.2-million, with the effective tax rate having decreased to 32.5%.
The group’s operating margin increased to 5.5%, while earnings a share increased by 335.7% to 139c, with headline earnings a share having increased by 183.7% to 161.7c.
In February, the group disposed of its interest in Raubex Property Investments to Acorn Black Investments.
The transaction has been accounted for as a sale and leaseback under the International Financial Reporting Standards (IFRS) 16, which resulted in a loss on sale and leaseback of R68.5-million.
The loss on sale and leaseback has been excluded from the headline earnings a share.
Cash generated from operations increased by 0.2% to R790.2-million before finance charges and taxation. Net finance costs increased to R34.3-million, which is mainly attributable to the adoption of IFRS 16.
Further, the group maintained a strong balance sheet during the year, although there was a net increase in working capital, which was mainly owing to the milestone payment profile relating to projects in the renewable energy sector under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) as well as the Douala Grand Mall, in Cameroon.
Trade and other receivables increased by 8.4% to R1.6-billion. The net trade and other receivables balance includes the reallocation of an R85-million provision which was previously disclosed under contract liabilities.
According to Raubex, this relates to work in progress on the suspended Zambia Road Development Agency (RDA) contacts and has now been effectively included as a provision for doubtful debts.
Contract assets increased by 10.1% to R323.7-million, while inventories decreased by 16.2% to R641.7-million, which was mainly owing to the disposal of property development stock of R111.6-million.
Trade and other payables, meanwhile, increased by 3.7% to R1.4-billion, while contract liabilities decreased by 30.6% to R226.8-million. The decrease in contract liabilities is mainly owing to the reallocation of R85-million relating to work in progress on the suspended Zambia RDA contracts.
Capital expenditure (capex) on property, plant and equipment increased by 38.2% to R581.5-million, while net capex increased by 29% to R465.4-million. The increase in capex was mainly owing to plant requirements to service new coal mining operations in South Africa, and replacing diamond operations in Namibia.
Borrowings increased by 20.6% to R797.8-million as a result of the increase in capex and consist mainly of instalment sale agreements relating to plant and equipment, repayable in monthly instalments.
The materials division contributed 67% of group operating profit for the year and has continued to diversify the group from the construction industry.
A combination of factors impacted on the performance of the division during the first half of the year including community unrest, which has affected a number of commercial quarry operations across the country; completion of certain materials handling contracts in the diamond mining sector in Namibia; and establishment costs and lower production volumes initially achieved following transition to new materials handling contracts in the coal mining sector in South Africa.
The transition from the diamond mining contracts to new coal mining contracts was completed during the year and production efficiencies improved in the second half of the year.
Commercial quarry operations also reported an improvement in their second-half results for the year, although community unrest has continued to impact certain operations in specific geographic locations.
Contract crushing operations continue experiencing weak demand in line with the low level of activity in the overall construction sector. Revenue for the division decreased 0.1% to R2.7-billion while operating profit increased 2.5% to R367.7-million.
The divisional operating profit margin increased to 13.4%, and the division incurred capex of R431.7-million during the year.
The division has a secured order book of R1.8-billion.
The roads and earthworks division, meanwhile, has continued to experience a lack of work resulting from weak trading conditions in the South African road construction sector and is still carrying some excess capacity to that which is required for the current volume of work on hand.
While the division has been able to replace some of its order book with work on roads operated by private concessionaires, public sector spend has remained low during the year.
Rightsizing initiatives undertaken mainly in the prior year, have curtailed the losses that were reported in the previous corresponding period and the division is now much better positioned to manage the lower volume of work while it has maintained sufficient capacity to participate in an expected improvement in the sector, according to Raubex.
Revenue for the division decreased by 10.9% to R3.2-billion and operating profit increased 101.3% to R3.1-million.
The divisional operating profit margin increased to 0.1%, and the division incurred capex of R61.4-million during the year.
The division has a secured order book of R5.4-billion.
The company’s infrastructure division experienced strong growth during the year from its participation in the REIPPPP and it has also been active in the affordable housing and commercial building sector in the South African market.
In Western Australia, consistent results have continued to be reported across various projects. Consistent results have been reported by Westforce Construction and the group says it will continue with a cautious approach to growing its business model organically in the country, while exploring synergies and transferring skills between its South African and Australian operations.
Revenue for the division increased 28.8% to R2.7-billion and operating profit increased 89% to R178.2-million.
The divisional operating profit margin increased to 6.5%, and the division incurred capex of R88.5-million.
The division has a secured order book of R2.8-billion.
Regarding the group’s other international operations, activities in Botswana have reported consistent results for the year and include commercial quarry operations in Gaborone, as well as bitumen and asphalt supply operations.
In Cameroon, the Onomo hotel in Douala was successfully completed during the year. The Douala Grand Mall is estimated to be completed before the end of July 2020 and although good progress has been made in delivering a top quality mall to the client, this project reported a R35-million operating loss for the year, owing to difficult operating conditions.
In Namibia, the materials division has continued to service the copper mining operations of the Tschudi mine near Tsumeb, while bitumen supply operations through Tosas are ongoing in the country.
The materials division also established a footprint in Mozambique during the year and is currently involved in commercial crushing operations in the country.
The decrease in the international operating margin is mainly related to activities in Namibia, where certain materials handling contracts in the diamond mining sector were completed in the prior year and replaced with work in the South African coal sector at lower margins.
In Cameroon, overall activities have not been profitable and have also weighed on the international operating margin.
International reporting has now been split into separate geographical segments for the “rest of Africa” and “Australia”, the company said.
In the rest of Africa, revenue decreased by 9.1% to R1.1-billion while operating profit decreased by 0.5% to R109.7-million.
Operating profit margin increased to 10%, and was impacted by a present value charge and work in progress adjustment that was incurred with respect to the overdue accounts receivable balance due from the RDA in Zambia for a combined value of R116.7-million before tax.
In Australia revenue increased 69.3% to R548-million while operating profit increased by 63.3% to R26.2-million.
Operating profit margin decreased to 4.8%.
The order book for the rest of Africa decreased to R482.7-million, while the order book for Australia increased to R452.1-million.
The international order book is included in the individual divisional order books.