ROADS AND EARTHWORKS

  ROADS AND EARTHWORKS
GROUP MANAGING DIRECTOR: Kobie Botha
       
             
      2010
R’000
  2009
R’000
 
  Revenue 4 609 889   4 469 874  
  Operating profit before non-trading items 629 779   601 178  

ROADS AND EARTHWORKS   ROADS AND EARTHWORKS
     
ROADS AND EARTHWORKS   ROADS AND EARTHWORKS

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

OVERVIEW

After significant growth in 2008 and 2009 the Roads and Earthworks division began a process of consolidation and realignment to provide each individual business unit with the appropriate resources, skills and management to deliver the required performance at these increased activity levels.

The division has maintained revenue at the same level as that achieved in 2009 but through the consolidation process has improved margins further in the current period.

Roads and Earthworks contributed to the success of the World Cup through the completion of the civils package for the new King Shaka International Airport (KSIA), various aprons and taxiways at Oliver Tambo International Airport and a number of road upgrades. The most significant of the road upgrades was the division’s R1,2 billion section of the Gauteng Freeway Improvement Project (GFIP) which extended from the Buccleuch interchange to the 14th Avenue off ramp and was handed over to SANRAL ahead of schedule. Additional completed upgrades for SANRAL included the Polokwane and Nelspruit bypasses as well as the N2 interchange in KwaZulu-Natal which provides access to the new airport.

The R2,1 billion civils package of KSIA has been one of the most challenging and exciting projects undertaken by the division. Over and above the 3,7km runway and associated taxiways and aprons, the package also included several kilometres of internal roads, a fuel farm, two water treatment plants and other infrastructure which comprised 15km of sewer lines and 28km of water lines. The completion of this project in a record time is an achievement of which we are immensely proud.

At the outset of the year the outlook for the mining sector did not seem overly promising, however, the division secured a number of contracts comprising bulk earthworks, haul roads, dams and services infrastructure resulting in a satisfactory performance within this market.

Internationally the division has a footprint in a number of Southern, Central and West African countries where we have maintained a successful track record. Projects in these regions are primarily mining related and include work in Botswana, Zimbabwe, Zambia, Ghana and recently Sierra Leone where the division has secured an $80 million contract African Minerals’ Tonkilili mine. Furthermore, the division secured additional work in Mozambique on two mines near Tete.

Through Insitu Pipelines, the division secured pipeline related projects on both Kusile and Medupi, the new coal fired power stations under construction for Eskom.

FINANCIAL PERFORMANCE AND HIGHLIGHTS

Having achieved growth of 65% in the prior year, we are pleased to have maintained revenue at the same levels in 2010. Revenue increased by 2% to R4,6 billion (2009: R4,5 billion) while operating profits increased by 8% to R630 million (2009: R586 million).

Primarily as a result of the GFIP the North division showed growth of over 30% this year, however having now completed the project it is not expected that revenue will remain at this level in the year ahead. Construction continues on the Braamhoek and Bedford dams near Harrismith which from part of the Ingula Pumped Storage Scheme and are scheduled for completion in February 2011. The division also began construction of a tailings dam on the South Deep mine near Western Area.

The Central division saw a decline in revenue as the mining houses curbed capital expenditure in the latter half of 2009 and early 2010. As commodity prices re-strengthened activity improved in the second half of 2010. Following the award of a R1 billion contract for the upgrade of six stretches of road in the Free State Province we anticipate solid growth for the Central division in the year ahead.

Following its contribution to KSIA the Coastal division showed growth of 27% in revenue. However, with the project complete and a reduction in available projects in the coastal construction markets, revenue at this level is not sustainable in 2011. Significant highlights this year include the completion of the Ethekwini Pipe Replacement Project, where 821km of pipeline was replaced in the Durban city centre as well as the group’s first venture into rural housing which has proven to be successful.

With exposure to the international mining sector the International division also experienced declines in revenue this year but was able to improve operating profits. In addition to the various mining projects the division also completed the extensions to the runway of the Sir Seretse Khama International Airport in Gaborone.

SUBSIDIARIES

Edwin Construction’s primary revenue stream is derived through road upgrade and rehabilitation contracts in the Limpopo and Mpumalanga provinces where it is a well established contractor. During the year the company also contributed resources to both KSIA and the Ingula Pumped Storage Scheme. As a joint venture partner with the Central division in the Free State roads project, Edwin Construction should experience moderate growth in the next financial year.

Insitu Pipelines showed significant growth this year and increased revenue by 50%. The division acquired Insitu Pipelines in 2007 with a view to gaining exposure to this particular market and providing the company with the necessary resources to facilitate further growth. The strategy has proven to be successful with Insitu showing exceptional growth over three years. The company secured a 146km pipeline project for Sasol in the second half of the year and this project will continue into the 2011 financial period. The contract is being executed in joint venture with the Central division.

Roadspan Holdings which is active in the road resurfacing and asphalt markets had a disappointing first quarter of the financial period. In October the division acquired a controlling interest in the company and replaced key management positions which proved successful with the company showing some profitability by the final quarter. In light of the condition of the country’s provincial roads the division views Roadspan as a strategic acquisition in a possible growth market.

The local market for new golf courses has essentially collapsed with the result that WBHO Golf experienced another quiet year. The business unit has been down sized and will now cater for the refurbishment of golf courses locally while investigating the possibility of new work in the rest of Africa where some opportunities are still present.

MARKETS

As with other segments within the construction industry the local roads and earthworks market saw a decrease in the number of projects available in the first half of the year resulting in increased competition for what work was on offer. Current projects being secured are at lower margins than those experienced in the last few years and these pressures are likely to continue in the short term.

As the demand for resources has recovered, both international and local mining houses have resumed investment in infrastructure projects with a consequent increase in tender activity and the division is optimistic that this trend will continue.

PROSPECTS AND ORDER BOOK

At 1 July 2010, the order book for the Roads and Earthworks division amounted to R3,8 billion which is equivalent to the order book at this time last year.

Government‘s continued undertaking to improve service delivery should see an increase in road, water and sanitation projects in both rural and urban areas. Furthermore the water, oil and gas reticulation infrastructure in South Africa requires upgrading and expansion and should provide a project pipeline for some time to come. However, there remains concern that budgeted infrastructural spend may be delayed as a result of lower tax collections or through earmarked funds being diverted to other social pressures.

Phase two of the SANRAL’s Gauteng freeway improvement project is expected to commence in 2012 and submissions for two toll road tenders are due in the year ahead.

While trading conditions are substantially tougher than those of recent years, the project pipeline is robust and presents sufficient opportunities for the established contractors. While growth is unlikely in this environment the division believes current activity levels should be maintained although at lower margins.

GAUTENG FREEWAY IMPROVEMENT PROJECT

GAUTENG FREEWAY IMPROVEMENT PROJECT   GAUTENG FREEWAY IMPROVEMENT PROJECT
  GAUTENG FREEWAY IMPROVEMENT PROJECT

GAUTENG FREEWAY IMPROVEMENT PROJECT   GAUTENG FREEWAY IMPROVEMENT PROJECT

GAUTENG FREEWAY IMPROVEMENT PROJECT

GAUTENG FREEWAY IMPROVEMENT PROJECT