Picture: ISTOCK
Picture: ISTOCK

Road-builder Raubex said on Monday that while its full-year earnings would fall by up to 80%, partly because of the dearth of construction projects in SA, its balance sheet remained “strong”.

A number of builders have become financially distressed in recent years owing to the dire state of SA’s construction sector, with industry stalwarts Group Five, Basil Read and Esor currently in business rescue.

“The company has continued to experience weak trading conditions in the South African construction industry during the second half of the financial year, particularly in the road construction sector,” Raubex said.

This weighed on the group’s roads business and its asphalt and bitumen supply operations, it said.

PODCAST: How the construction industry contributed to its own demise.

The company said its “rightsizing” programme continued in the second half of the year “to further reduce capacity in line with the current low level of demand”.

Headline earnings per share for the year ended February would be between 70% and 80% lower than the prior year, the group said. It expected to declare a final dividend per share of between 15c and 23c, versus 33c in the prior year.

Headline earnings were dented by outstanding debts owed by the Road Development Agency (RDA) in Zambia of R116.7m, which Raubex said it would “aggressively pursue”.

The outstanding debt relates to two road contracts in the landlocked country that have been suspended until the “funding impasse” is over.

The company said it also included a goodwill impairment charge, of R51.5m, linked to the asphalt unit within the road surfacing and rehabilitation division.

That business “experienced a significant decrease in earnings” due to the lower volume of asphalt supplied to the road construction sector. It was also reducing capacity through “rightsizing initiatives”, Raubex said.

Lower asphalt volumes were attributable to a decline in road maintenance projects by the South African National Roads Agency (Sanral).

On the other hand, Raubex said its materials division, which contributed 54.5% of its operating profit in the previous financial year, “has experienced stable operating conditions”.

“Its diversified operations including material handling services to the mining sector and commercial aggregate supply, have continued to support the company’s earnings,” the group said.

The infrastructure division, meanwhile, benefited from “favourable conditions” in the affordable housing sector.

That division was also “well positioned” to benefit from SA’s renewable energy independent power producer procurement programme. The company had so far secured four contracts worth a combined R729m.

“Notwithstanding the challenging conditions being faced by the South African construction industry, the company has maintained a strong balance sheet throughout the year and is well positioned to participate in any future opportunities in the sector should conditions begin to improve,” Raubex said.

The group, which expects to report its annual results on 13 May, said operating cash flows remained positive.

hedleyn@businesslive.co.za