Raubex closes two businesses amid low govt infrastructure spend

JSE-listed construction group Raubex has closed two businesses – L&R Civils and Strata Civils – as government spend on infrastructure remains low.

Reporting its results for the financial year ended February 28, on Monday, Raubex said challenging market conditions in the South African construction sector require it to focus on new opportunities to supplement revenue and maintain growth.

The group’s earnings decreased by 5.1% year-on-year to R8.4-billion. The value of construction contracts in progress decreased by 15.9% to R280.9-million, owing to lower operating activity in the construction divisions, particularly in the second half of the year.

“Orders from the South African National Roads Agency Limited (Sanral) halved to R962-million owing to a lack of tenders being released to the market throughout the second half of the year,” CEO Rudolf Fouriesaid.

Construction orders from provincial government fell 54% and from municipalities by 11%. The company’s road surfaces division was directly affected by lack of government spend and, to compensate, focused on rehabilitation and maintenance contracts on the toll roads operated by concessionaires, with several contract awards supporting the current order book.

“Sanral’s lower spend has resulted in increased competition for limited work available to the rehabilitation and maintenance teams to tender for and has also resulted in lower volumes of asphalt and bitumen being supplied to the external market,” he said.

The division’s revenue decreased by 9.1% to R3.25-billion and operating profit decreased by 14.1% to R222.4-million.

The roll-out of waterinfrastructure in the country remained slow, with extremely competitive tendering conditions experienced for a limited amount of work available.

Raubex has, therefore, made the decision to discontinue the operations of L&R Civils, a company acquired in July 2012, in anticipation of the much-needed roll-out of waterinfra-structureprojects.

The group also decided to discontinue the operations of Strata Civils, which specialises in small-scale civil infrastructureprojects, particularly in urban environments in the Western and Eastern Cape. Raubex expects conditions in the South African construction sector to remain challenging, particularly in the roadconstruction divisions, which are largely dependent on Sanral.

“It is imperative that South African State-owned companies and provincial and municipal governments, start investing in the country’s deteriorating infrastructure. “This will alleviate current pressure in the construction sector, leading to several business failures and severe job losses, and also better position the country for future economic growth,” Fourie stated.