Wrap Text
Operational Update for the year ended 28 February 2018
Raubex Group Limited
(Incorporated in the Republic of South Africa)
Registration number 2006/023666/06
Share Code: RBX
ISIN Code: ZAE000093183
(“Raubex” or the “Group”)
OPERATIONAL UPDATE FOR THE YEAR ENDED 28 FEBRUARY 2018
Shareholders are advised that Raubex will be participating in the Bank of America Merrill Lynch 19th
Annual Sun City Conference on Tuesday, 6th March 2018 and Wednesday 7th March 2018. The Group
wishes to provide shareholders with the following operational update ahead of the conference.
The South African construction environment has not been conducive to growth during the past year.
Against this backdrop, Raubex has continued to explore opportunities, both locally and internationally,
to supplement its revenue streams while current local conditions remain subdued.
Good progress has been made during the second half of the year with regard to international
expansion opportunities and replacement of the construction order book, which will better position
the Group for the year ahead.
Materials Division
The materials division has continued to contribute consistently to the Group’s total operating profit
for the year. The diversified revenue streams from this division, including commercial quarry
operations, contract crushing and material handling and processing services for the mining industry,
differentiates Raubex from its peers in the construction sector.
The slow-down in aggregate sales experienced during the first half of the year at this division’s South
African commercial quarry operations and in particular in the Gauteng region, continued during the
second half of the year. Operations in Botswana performed above expectations in the second half of
the year. Material handling and processing operations in the mining sector performed consistently
throughout the year. Contract crushing and plant hire operations remained challenging in line with
conditions in the overall construction sector.
Construction Divisions
Road surfacing and rehabilitation
The road surfacing and rehabilitation division executed its order book well throughout the year. The
first half of the year saw lower volumes of work released from SANRAL which situation has continued
through the second half of the year. The division has targeted rehabilitation and maintenance
contracts on the toll roads operated by concessionaires with some degree of success. Contracts
awarded during the second half of the year included the rehabilitation of the N3 between Vaal River
and Malanskraal for the N3 Toll Concession valued at R100 million, the rehabilitation of the N4 Toll
Route MDC section 2D and 2E for Trans African Concessions (TRAC) valued at R139 million and the
resurfacing of the N4 from Section 10 to Section 13 for the Bakwena Platinum Corridor Concessionaire
valued at R96 million. The lower SANRAL spend will subdue the overall performance of this division in
the short term due to the resulting lower volumes of asphalt and bitumen supplied to the market. The
division is however well positioned to capitalise on anticipated SANRAL spend in the year ahead.
Road construction and earthworks
The road construction and earthworks division executed its order book well throughout the year with
some major contracts substantially completed in the first half of the year, including the N1
Bloemfontein bypass and the two N8 contracts between Bloemfontein and Thaba Nchu. The division
continued to experience tough competitive conditions throughout the year which has been
exacerbated by the lower volume of SANRAL work out to tender.
The order book for the division however improved during the second half of the year with the award
of contracts for the Bakwena Platinum Corridor Concessionaire for the construction of the second
carriageway of the N4 between the Garankuwa interchange to Brits interchange to the value of R619
million over a 36 month period and also a contract for the upgrading of the P35/1 (R511) interchange
for R59 million. These two contracts were awarded subsequent to the release of the Group’s interim
results in November 2017 and will alleviate pressure on the order book, it is however important that
SANRAL resumes its budget spend in line with historical levels in the year ahead to absorb excess
capacity in the division.
Raubex Infrastructure
The infrastructure division, which specialises in disciplines outside of the road construction sector,
experienced good growth in the affordable housing sector throughout the year and has also
established a good reputation and client base in the commercial building space. The increase in work
secured in the building sector has enabled the division to partially offset the delay in the roll out of
projects related to the Renewable Energy Independent Power Producer Procurement Programme
(“REIPPP”). The division is well positioned to participate in the construction works related to REIPPP
projects in the year ahead which are dependent on Eskom signing the power purchase agreements.
The roll out of water infrastructure in South Africa has been slow during the year, with extremely
competitive tendering conditions experienced for the limited amount of work available. With no signs
of improvement in the short term, the Group has made the decision to discontinue the operations of
L&R Civils (Pty) Ltd, a company acquired in July 2012 in anticipation of the much needed roll out of
water infrastructure projects in the country, which did not materialise.
The Group has also made a decision to discontinue the operations of Strata Civils (Pty) Ltd, which
specialises in small scale civil infrastructure projects, particularly in urban environments in the
Western and Eastern Cape provinces. This market is not aligned to the Group’s core businesses and
the inability to execute this work profitably has led to the discontinuation of this business unit.
In order to further support growth in the infrastructure division, the Group has entered the niche
market of renovating commercial buildings, including shopping malls and hotels, through the
establishment of Raubex Renovo. This new business unit has made good progress during the year by
securing an order book of R926 million including the renovation of Preller Mall in Bloemfontein, South
Africa, as well as construction of a hotel for the French based Onomo Hotel Group and a shopping mall
for Actis and its local partner, Craft Development, in Douala, Cameroon.
International
The Group’s African operations performed consistently during the year, with stable conditions in the
mining sector and current commodity prices supporting the international operations in the materials
division, particularly in the copper and diamond mining operations in Namibia.
The construction market in Namibia has however experienced depressed conditions during the year
which led to the discontinuation of the plant hire business of Burma Plant Hire (Namibia) (Pty) Ltd in
the country.
The completion of the road contract between Rosh Pinah and Oranjemund in Namibia supported
results in the first half of the year and the road construction and earthworks division continues to seek
high margin replacement work in Africa to compliment the South African order book. Work on the link
8000 contracts in Zambia remains suspended due to the fiscal constraints experienced by the Zambian
Government, although solutions to this funding impasse continue to be explored.
In Cameroon, the opportunities unlocked through Raubex Renovo are encouraging with the efficient
execution and delivery of a quality product to the client being top priority in the period ahead while
Raubex Renovo establishes itself in this new market.
The Group has made good progress with its strategy to look for growth in more developed
international markets. Effective 1 January 2018, Raubex acquired 70% of the Westforce Construction
Group (“Westforce”), based in Perth, Western Australia. Westforce was established in 2006 as a civil
engineering contractor and has grown and diversified into a multi-disciplined contractor providing
services to the power, water, defence, transport, industrial and mining sectors across Western
Australia. Raubex acquired a 70% interest in Westforce for a consideration of A$6,5 million that was
settled in cash. The purchase price is contingent on Westforce achieving its profit forecast for the 12
months ended 30 June 2018. The Group is encouraged by the prospects in Western Australia and the
opportunities that can be unlocked through the Westforce acquisition.
Industry matters
Shareholders are referred to the announcement released on SENS on 11 October 2016 in which they
were advised that Raubex had entered into a settlement agreement with the Government of the
Republic of South Africa. In terms of the settlement agreement, Raubex undertook to develop and
mentor two emerging contractors i.e. Enza Construction (Pty) Ltd (“Enza”) and Umso Construction
(Pty) Ltd (“Umso”). On 21 February 2018, the Competition Tribunal approved the economic alliance
between Raubex (Pty) Ltd, Enza and Umso subject to certain conditions. This approval by the
Competition Tribunal cleared the path for the Group to launch development initiatives and joint
ventures with Enza and Umso that will deliver on the objectives of the settlement agreement.
Conclusion
On balance, the Group has experienced weaker second half trading conditions during the year. In spite
of these challenging conditions in the South African market, the Group has maintained a strong
balance sheet throughout the year and is well positioned to take advantage of local and international
opportunities in the period ahead.
The release of the results for the year ended 28 February 2018 is anticipated to be published on or
about 7 May 2018.
Centurion
5 March 2018
Sponsor
Investec Bank Limited
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