Raubex Group is a key player in infrastructure and the supply of construction material in South Africa. The company’s first half numbers have been crushed by the Covid-19 lockdown and related border closures. While its Australian operations were barely affected, the local lockdown legislation tested Raubex in ways it had never imagined. Raubex has released a set of results that clearly reflect an ongoing struggle. – Melani Nathan
Raubex H1 Results
“This period has proven the resilience of the Raubex Group and the commitment of its management and employees. Although earnings for the period declined as a result of the Covid-19 lockdowns, strict working capital management resulted in strong cash generation which exceeded our expectations. We are encouraged by recent contract awards and look forward to participating in the South African government’s plan to stimulate the economy through infrastructure spend.”, says Rudolf Fourie, CEO of Raubex Group.
- Revenue decreased 10.5% to R3.94 billion while operating profit decreased 90.0% to R21.7 million from the
corresponding prior period, mainly as a result of the Coronavirus (“Covid-19”) lockdowns which impacted
operations in various jurisdictions. - Profit before tax decreased 95.8% to R8.5 million (H1 2020: R200.8 million).
- The taxation charge for the period amounted to R36.6 million (H1 2020: R60.5 million). The increase in the
effective tax rate is mainly attributable to certain tax losses incurred for which deferred tax assets have not been recognised as well as dividend withholding taxes payable on dividends declared by subsidiaries in Botswana and Namibia. - Group operating margin decreased to 0.6% (H1 2020: 4.9%).
Earnings per share decreased 139.0% to a loss per share of 25.2 cents (H1 2020: earnings per share of
64.6 cents) with headline earnings per share decreasing 145.4% to a headline loss per share of 26.6 cents
(H1 2020: headline earnings per share of 58.6 cents). - Net finance costs decreased to R12.3 million (H1 2020: R16.3 million). Finance costs include R17.1 million
(H1 2020: R11.4 million) interest attributable to lease payments accounted for in terms of IFRS 16: Leases.
Cash generated from operations increased 72.4% to R715.0 million (H1 2020: R414.8 million) before finance
charges and taxation, with the strong cash generation during the period attributable to a decrease in working
capital. - Trade and other receivables decreased by 13.9% to R1.40 billion from R1.63 billion at 29 February 2020 while
contract assets increased by 3.2% to R334.2 million from R323.7 million at 29 February 2020. The decrease in
trade and other receivables is a result of a combination of healthy cash collection from a broad base of customers despite the financial pressure exerted by the Covid-19 lockdowns, as well as the settlement of some key accounts related to the Renewable Energy Independent Power Producer Procurement Programme (“REIPPPP”) projects. - Inventories decreased by 1.9% to R629.7 million from R641.7 million at 29 February 2020.
- Trade and other payables increased 8.9% to R1.54 billion from R1.42 billion at 29 February 2020, while contract liabilities increased 57.4% to R357.1 million from R226.8 million at 29 February 2020 due to an increase in progress billings in excess of costs incurred plus profits recognised during the period.
Capital expenditure on property, plant and equipment increased 15.2% to R167.0 million (H1 2020: R145.0 million). - Borrowings increased 5.8% to R844.4 million from R797.8 million at 29 February 2020.
The group had a net cash inflow for the period of R598.7 million with total cash and cash equivalents at the end
of the period growing to R1.63 billion from R1.01 billion at 29 February 2020.
The group commenced the period with a solid order book of R10.14 billion and had completed rightsizing
initiatives within certain business units that had positioned it to execute the available work profitably. Operations during the period were severely and unpredictably impacted by the respective lockdowns declared in response to the Covid-19 pandemic.
In South Africa, a National State of Disaster was declared on 15 March 2020, followed by a 21-day national
lockdown which commenced on 26 March 2020 and a further 14-day extension to 30 April 2020. All businesses other than those providing essential services as defined by legislation were required to be closed for the duration of the lockdown. On 23 April 2020, the government announced a risk adjusted strategy for a gradual and phased reopening of the economy. The country moved from a level 5 to a level 4 lockdown status from 1 May 2020, allowing, inter alia, certain construction activities as well as mining operations to recommence under strict health and safety regulations. South Africa has now moved through the various lockdown levels, relaxing restrictions and is currently on a level 1 status with effect from 21 September 2020.
The majority of Raubex operations in South Africa were able to commence under level 4 lockdown status, with
a gradual increase in efficiencies to near normal levels of operation towards the end of July 2020. All of the
group’s South African operations are now fully operational.
Internationally, in Western Australia, operations performed well during the period and were not materially
impacted by Covid-19. In the rest of Africa, Botswana imposed a 48-day lockdown which ended on 20 May
2020, during which time all operations in the country were suspended, while in Mozambique and Namibia,
materials handling and crushing operations experienced cross-border logistical issues which impacted
production efficiencies during the period. In Cameroon, operations were more severely impacted by Covid-19
challenges, including travel restrictions and quarantine periods that personnel were required to comply with
both in South African and Cameroonian jurisdictions.
Materials Division
The materials division, which diversifies the group from the construction industry, comprises three main disciplines including commercial quarries, contract crushing and materials handling and processing services for the mining industry.
The division continued to service a number of materials handling and processing operations in the South African
mining sector which were classified as essential services during the initial Covid-19 lockdown level 5, although
contributions during the level 5 lockdown were limited. Cross-border logistical issues impacted operations in
other southern African jurisdictions including Botswana, Mozambique and Namibia throughout the lockdown
period. The division recovered well once restrictions in South Africa were eased and the demand for materials
exceeded expectations, recovering rapidly to normal levels. The division’s results were supported by materials
handling operations in the coal sector as well as commercial quarry operations. Contract crushing operations
continued to experience weak demand in line with the construction industry which was already under severe
pressure prior to the lockdown.
- Revenue for the division decreased 9.4% to R1.23 billion (H1 2020: R1.36 billion) and operating profit decreased by 26.1% to R106.4 million (H1 2020: R144.1 million)
- The divisional operating profit margin decreased to 8.6% (H1 2020: 10.6%)
- The division incurred capital expenditure of R90.0 million during the period (H1 2020: R87.0 million)
The division has a secured order book of R1.81 billion (H1 2020: R1.95 billion)
Roads and Earthworks Division
This division specialises in road construction and earthworks as well as road surfacing and rehabilitation which
includes the manufacturing and laying of asphalt, chip and spray, surface dressing, enrichments, slurry seals
and the manufacture and distribution of value added bituminous products throughout southern Africa.
In South Africa, construction was not classified as an essential service during level 5 lockdown, unlike some
other international jurisdictions, and all construction works were suspended with only essential safety-related,
traffic control and security services ongoing to maintain and protect project sites. Although operations were
permitted to recommence under level 4, the division was severely impacted by the Covid-19 lockdown and the
recommencement of operations came with a number of challenges and inefficiencies.
Besides the pressure resulting from the Covid-19 lockdown, operationally conditions in this division remained
challenging during the period, particularly in the asphalt and bitumen supply operations which are volume driven and suffering from extremely low levels of demand for their product and services which are traditionally more at the back-end of the road construction process and order book.
- Revenue for the division decreased by 18.4% to R1.43 billion (H1 2020: R1.76 billion) and an operating loss of
- R66.1 million was incurred (H1 2020: R5.1 million operating loss)
- The divisional operating loss margin was 4.6% (H1 2020: 0.3% operating loss margin)
- The division incurred capital expenditure of R33.7 million during the period (H1 2020: R7.7 million)
- The division has a secured order book of R6.81 billion (H1 2020: R4.06 billion)
Infrastructure Division
The infrastructure division specialises in disciplines that are primarily outside of the road construction sector,
including energy (with a specific focus on renewable energy), rail, telecommunications, pipeline construction
and housing infrastructure and commercial building projects.
Similar to the roads and earthworks division, all South African construction works in the infrastructure division were suspended during level 5 lockdown with certain commercial building and housing projects only commencing under level 3 status. The recommencement of operations came with a number of challenges and inefficiencies with operations only normalising toward the end of the period.
International operations
In Cameroon, cross-border logistical issues, as well as travel restrictions and quarantine periods that
professional personnel and consultants were required to comply with, had a severe impact on the Douala Grand Mall project and the imposed lockdowns came at a very sensitive time with respect to the stage of completion of the project.
- The group’s operations in Western Australia performed well during the period supporting this division’s result.
- Revenue for the division decreased 0.7% to R1.27 billion (H1 2020: R1.28 billion) and an operating loss of R18.7 million was incurred (H1 2020: R77.3 million operating profit)
- The divisional operating loss margin was 1.5% (H1 2020: 6.0% operating profit margin)
- The division incurred capital expenditure of R43.3 million during the period (H1 2020: R50.3 million)
- The division has a secured order book of R3.12 billion (H1 2020: R3.07 billion), of which R227.8 million relates
to REIPPPP projects and R870.4 million to operations in Western Australia.
The group’s international operations consist of materials supply and mining services as well as construction
activities. These operations are located in the African jurisdictions of Botswana, Cameroon, Mozambique,
Namibia, Zambia and Zimbabwe as well as in Western Australia.
The Covid-19 lockdowns resulted in various cross-border logistical issues throughout the period which
impacted the group’s operations in neighbouring southern African states as well as the completion of the
Douala Grand Mall in Cameroon which incurred a R54.6 million operating loss for the period and is now
substantially complete. In Botswana the lockdowns impacted commercial quarry and bitumen supply
operations, while materials handling operations and crushing operations were impacted in Mozambique and
Namibia.
- In Western Australia, all operations performed well as the group continues to establish itself in this developed
market. - In the rest of Africa revenue decreased by 43.7% to R359.2 million (H1 2020: R638.3 million) while operating
profit decreased to R0.5 million (H1 2020: R64.5 million). Operating profit margin decreased to 0.1% (H1 2020: 10.1%). - In Western Australia revenue increased 144.7% to R526.9 million (H1 2020: R215.3 million) while operating
profit increased by 56.0% to R36.1 million (H1 2020: R23.1 million). - Operating profit margin decreased to 6.8% (H1 2020: 10.7%).
The order book for the rest of Africa decreased to R252.9 million (H1 2020: R681.2 million) while the order book for Western Australia increased to R870.4 million (H1 2020: R450.0 million). The international order book is included in the individual divisional order books.
Prospects
The South African construction industry has continued to endure extremely challenging economic
conditions, brought on by a low level of public infrastructure spend and a lack of investor confidence in the
private sector over the past few years. These existing conditions were exacerbated during the period by
the various lockdowns declared in response to the Covid-19 pandemic. Although the Covid-19 pandemic
remains fluid and unpredictable, the group is optimistic about its future prospects in the period ahead and
over the medium term.
On 21 April 2020, the South African government announced an economic recovery strategy which would
include interventions such as “a substantial infrastructure build programme”. We are further encouraged by the notice published in South African Government Gazette No. 43547 on 24 July 2020, in which the Presidential Infrastructure Coordinating Commission designated 18 Strategic Integrated Projects (“SIPs”) including 50 subprojects. These designated projects emanated from the Sustainable Infrastructure Development Symposium which was hosted by President Cyril Ramaphosa on 23 June 2020 and focused on the prioritisation of infrastructure development to support structural transformation, growth and job creation. The group is well positioned to participate in these SIP sub-projects, in particular projects in the Renewable Energy, Transport and Human Settlements categories.
Read also: SA’s R2.3trn infrastructure plan to kick-start employment growth
Renewable Energy
In the Renewable Energy sector, the group remains encouraged by South Africa’s Integrated Resource Plan
2019 (“IRP 2019”) which is an electricity infrastructure development plan which identifies the preferred
generation technology required to meet the expected demand growth in South Africa. The IRP 2019 has made
provision for significant roll out of renewable energy up to the year 2030, providing for 6 000MW additional
capacity from photovoltaic and 14 400MW additional capacity from wind. The group is well positioned to benefit
from the roll out of work in the REIPPPP and the commitment by government to renewable energy in the electricity supply mix, will further support the prospects of the infrastructure division over the medium term.
Although the medium-term prospects are very encouraging, it is anticipated that there will be a short-term
interlude in the group’s work flow as the current order book runs off in the second half of the year. The opening
of bid round 5 in the REIPPPP is anticipated in December 2020, with works emanating from round 5 expected
to commence towards the end of the following year.
Tendered Contracts & PPP’s
As mentioned in the group’s year-end results announcement released on 29 May 2020, the group tendered on
a substantial amount of work between October 2019 and March 2020 in the South African road construction
sector. We were pleased to advise shareholders in the group’s trading update on 8 October 2020, that Raubex
had been awarded a significant contract from the South African National Roads Agency SOC Limited
(“SANRAL”) for the upgrade of National Route 3, Section 2 from Dardanelles (36.6km) to Lynnfield Park
(30.6km) in the amount of R1.48 billion (including VAT) for a contract period of 45 months. A number of smaller
contracts were also awarded during the period by SANRAL to the market. In the affordable housing sector, the group’s participation in the Lufhereng Integrated Housing Development in Soweto is ongoing and its affordable housing development at Woodwind Estates in Midrand will continue to be rolled out in a phased approach.
The group is selectively considering opportunities to participate in Public Private Partnership (“PPP”) projects
which have started coming to the fore in the South African market and participation in these projects is part of
the group’s strategy for future growth.
“The rest of Africa” and Western Australia
In the rest of Africa, the upgrade and maintenance of the Beitbridge border post in Zimbabwe remains an
exciting prospect for the group and the concessionaire has continued to make good progress towards financial
close of this project. Overall though, the group has adopted a more conservative strategy to working in the rest
of Africa and will only consider projects with suitable risk and reward profiles.
In Western Australia, the construction sector in the country continues to be buoyant and a number of new
projects have been secured to support the order book. The group will continue to explore this market and look
for growth opportunities.
The group’s secured order book has increased 29.7% to R11.74 billion (H1 2020: R9.08 billion) with 9.6%
consisting of contracts outside of South Africa in the rest of Africa and Western Australia. The contract
opportunities which have been tendered on in the South African construction sector and are still pending
adjudication are significant and the group will be looking to participate in these projects from both a construction
and materials supply perspective.
With a solid order book secured, management teams will be focused on the efficient execution of this work in
the period ahead. The group’s strong balance sheet and cash position will ensure the sustainability of the group
and position it well for future growth.
Dividend declaration
No final dividend was declared for the year ended 29 February 2020 due to the uncertainty created by the
Covid-19 pandemic and the resulting cash preservation measures adopted by the group. Although the Covid-19
lockdown impacted earnings for the period and resulted in a loss per share for the six months ended 31 August
2020, cash generation during the period was strong. With all contract sites now fully operational, a significant
increase in the group’s secured order book and growing cash balances being observed, the directors have
declared a gross interim cash dividend from income reserves of 24 cents per share on 9 November 2020 for the
six-month period ended 31 August 2020.
*Note: The figures presented in brackets are related to the preceding half year, which ended in February 2020.
