BUILDING AND CIVIL ENGINEERING

  BUILDING AND CIVIL ENGINEERING
GROUP MANAGING DIRECTOR: Paul Foley
       
             
      2010
R’000
  2009
R’000
 
  Revenue 5 469 684   5 363 391  
  Operating profit before non-trading items 430 024   294 496  

BUILDING AND CIVIL ENGINEERING   BUILDING AND CIVIL ENGINEERING
     
BUILDING AND CIVIL ENGINEERING   BUILDING AND CIVIL ENGINEERING

REVENUE (Rm)   OPERATING PROFIT (Rm)
REVENUE (Rm)   OPERATING PROFIT (Rm)

OVERVIEW

This year must be counted as the most eventful year ever experienced by the division after the completion of numerous projects and hotels on time for the World Cup. The division is immensely proud of the part that it played in enabling the successful hosting of the largest tournament in the world and trusts that all soccer fans enjoyed the use of the world class stadiums and airports created by our dedicated teams.

In Gauteng the North division had an extremely busy year securing more projects than it could execute alone. Fortuitously, this burst of activity in Gauteng coincided with a decline in activity in the coastal divisions which enabled them to redeploy excess resources to assist the North division. Following a decline in activity in the mining sector the Civil Engineering division concentrated on projects for Eskom and Sasol and also contributed to the civil works on two World Cup stadiums. A strong presence has been maintained in the Western Cape where over and above its contribution to the successful completion of the Green Point Stadium the Cape division engaged in residential, commercial, education and healthcare related projects. In anticipation of a decline in the Cape market the division expanded into Zambia in 2009 in order to exploit opportunities in that country. This has proved to be successful and further projects are currently being negotiated. This year the bulk of the work in KwaZulu-Natal related to the World Cup but hospital projects for Netcare and some commercial developments continued to be a source of work. The Coega Development Zone, a quasi-governmental initiative to create industrial opportunities in Port Elizabeth and the surrounding areas has been an ongoing source of projects for the Eastern Cape division and will remain a focus area in the year ahead. Private and provincial hospital work constituted the remainder of the division’s work in this region.

FINANCIAL PERFORMANCE AND HIGHLIGHTS

The financial performance of the Building and Civil Engineering division this year was in line with projections at the outset of the year. The division achieved a revenue of R5,5 million comparable with that achieved in 2009 of R5,4 million. This year’s operating profit of R430 million is up 46% on that of 2009, however this is largely a result of the irrecoverable debt of R95,4 million written off in the preceding year. R14,4 million of that amount was successfully recovered in the current period. A comparison of year on year operating profits without the effects of the irrecoverable debt shows an increase of 11%.

It has been pleasing to note that while revenue relating to 2010 projects dropped from 41% of the total divisional revenue in 2009 to 29% in 2010 the division as a whole has been successful in replacing this work in the current year.

The North division had an exceptional year with revenue growth of 26% and anticipates further growth in the 2011 financial period. Notable achievements for the division include the completion of two airports, the King Shaka International Airport and the central terminal building of the Oliver Tambo International Airport, one stadium, the Peter Mokaba Stadium in Polokwane, and three hotels namely the Holiday Inn in Rosebank, the Town Lodge in Centurion and a Southern Sun hotel at Monte Casino in Sandton. Significant ongoing projects include the 70 000m2 Mall of the North in Polokwane and Phase one of the Sandton City upgrade. The division has recently been awarded a R1,2 billion contract for the construction of the new Standard Bank offices in Rosebank.

The Civil Engineering division maintained revenue levels this year showing marginal growth of 4% and is likely to maintain these levels next year. The division is a partner in the joint venture for the civil works at Kusile Power Station and work on this project will continue until 2012. In Polokwane the division contributed to the successful completion of the Peter Mokaba Stadium and was responsible for the construction of six bridges on the new ring road. Projects for Sasol included the completion of a tank farm, an oxygen plant and work on the tenth reactor. Recently, the division was awarded an additional contract with Sasol for the construction of a new wax plant. Other significant projects during the year include the construction of a bottling plant for Valpré and completion of a crusher and concentrator for African Rainbow Minerals at its Nkomati Mine.

Revenues in the coastal divisions have declined when compared to the 2009 figures but were in line with expectations. The divisions have struggled to replace revenues generated from World Cup related projects and further declines in revenue are possible in the forthcoming period. The year was however not without its highlights, the Cape division completed the Green Point Stadium and the berth deepening and quay extensions at the Ben Schoeman Harbour continue into 2013. One and a half of the four berths have been handed over. The KwaZulu-Natal division contributed to the successful completion of the Moses Mabhida Stadium and the King Shaka International Airport and also handed over the new Investec divisional head office. In the Eastern Cape major projects completed include a large multi-use centre for the CDC and a 38 000m2 parts distribution centre for General Motors both within the Coega Development Zone as well as the Livingston Hospital for the provincial government.

RADISSON HOTELMARKETS

The awarding of the World Cup to South Africa coupled with strong economic growth prior to the global financial crisis saw a drastic increase in construction activity between 2007 and 2009. Whilst by now the economy has essentially weathered the recession, the effects thereof on the construction environment are still evident through a noticeable decrease in the number of projects available for tender. Consequently, construction capacity in the building market currently exceeds demand and margins have been under sustained pressure over the last 12 months. Until there is either an increase in demand through planned government spending or shrinkage in capacity we foresee margins remaining at low levels in the short to medium term.

In the Northern provinces there is a steady pipeline of commercial developments mainly in the retail and office sectors. Retail developments are mainly being focused in outlying areas in Limpopo and Mpumalanga while commercial office space is centred in Gauteng.

Various universities have begun upgrading their facilities and the division has secured three contracts in this sector.

Falling commodity prices resulting from the global crisis saw a decline in activity in the mining sector towards the beginning of the year. A gradual improvement was noticeable in the latter half of the year and recently the market has picked up further. However, while there are a number of projects available for tender few are being awarded timeously. Continued volatility in global markets coupled with uncertainty surrounding proposed mining legislation are possible factors contributing towards these delays.

Construction activity in the coastal divisions has returned to levels significantly lower than even those experienced prior to the World Cup and increased competition has resulted in margin pressures being most evident in these regions. The majority of the building activity is in the commercial sector but renewed interest in residential apartments in the Western Cape is evident. Healthcare and education are a primary focus of the provincial governments in the coastal regions but delivery of these projects is hampered by a lack of funding.

PROSPECTS AND ORDER BOOK

The Building and Civil Engineering division starts the 2011 financial year with an order book of R4,3 billion (2009: R5,8 billion).

A proven track record of reliability combined with long-term relationships with loyal clients continue to be a source of ongoing commercial projects for the division which is well positioned to maintain its activity levels in the year ahead.

Project finance is still proving to be difficult to obtain for some developers and the division continues to secure additional work through the provision of mezzanine finance on selected projects.

With service delivery a prime focus for the current government, the low cost housing market is seen as a possible opportunity for the division, however inherent payment problems in this market warrant a cautious approach.

New developments in Zambia seem promising and following the tough conditions in the South African market the division is looking to venture further into West Africa where opportunities in various countries are currently under investigation. A large development in Mauritius is also in the final stages of negotiations.

PETER MOKABA STADIUM

PETER MOKABA STADIUM   PETER MOKABA STADIUM