John Abbott  
IN LIGHT OF CURRENT TRADING CONDITIONS THE GROUP HAS PRODUCED A COMMENDABLE PERFORMANCE SHOWING MARGINAL REVENUE GROWTH OF 3%. AN IMPROVEMENT IN MARGIN TO 8,4% INCREASED OPERATING PROFIT BEFORE NON-TRADING ITEMS TO R1,27 BILLION (2009: R1,05 BILLION). However operating profits to 30 June 2009 included irrecoverable debts of R220 million which if excluded from the results would have seen a margin of 8,6%, thus on a like-for-like comparison the group has essentially maintained its results in the current period. Headline earnings per share increased by 9% to 1 761 cents (2009: 1 624 cents) and return on shareholders’ interests is in excess of 30% for a third consecutive year.

World Cup related revenue constituted only 14% of the group’s total revenue which is down from 20% in 2009 and amounts to R825 million which was successfully replaced this year.

Capital Africa Steel (CAS) posted significant losses during the period. Low demand for ERW pipe resulted in losses for Capital Star Steel, a greenfields pipe mill which was commissioned and began production during the year. We do however anticipate that the mill will reach profitability in the forthcoming financial year. The aggregate and readymix business also contributed towards losses after tough trading conditions.

Group cash balances have been maintained at R3,9 billion (2009: R4 billion) and while new acquisitions and funding opportunities are given appropriate consideration as and when they arise a higher degree of liquidity is considered necessary in a challenging trading environment. A decrease in finance income is indicative of significant reductions in interest rates not only locally but internationally as well. Finance costs have been decreasing over the last few years in line with a decrease in capital expenditure and consequentially the number of assets for which finance is required.

The taxation rate has increased to 31% (2009: 29%) this year due to a larger proportion of the group’s profits being earned in African countries where the tax rates are higher than that in South Africa.

Roadspan Holdings has been consolidated into the results subsequent to the group increasing its interest in the company from 30% to 70%. After posting continuing losses the group acquired a controlling interest in the company with an aim to replacing key management positions and returning the company to profitability which was achieved in the final quarter of the reporting period. The additional 40% interest was acquired at a cost of R65 million. Further shares in Probuild were acquired during the year, increasing the group’s investment from 62,6% to 69,4% at a net cost of R107 million. Goodwill increased by R87 million as a result of these transactions.

Capital expenditure of R256 million was incurred during the year against an approved budget of R244 million set at the beginning of the year. Due to the uncertainty facing the construction industry following the effects of the global financial crisis, management curtailed capital expenditure in FY08 and FY09 to the replacement of crucial plant items. Additional plant acquired during this period was approved on a project by project basis. The group’s plant replacement philosophy aims to maintain the fleet at an optimum age thereby increasing availability and decreasing maintenance costs. The recent curtailment of capital expenditure has seen planned replacements falling behind programme which has resulted in a forecasted increase in spend in the year ahead. The board approved capital expenditure of R401 million for the 2011 financial year of which R68 million has been committed.

A final dividend of 220 cents per share (2009: 200 cents) has been declared which together with the interim dividend of 110 cents per share gives a total dividend of 330 cents per share (2009: 300 cents) an increase of 10%.

In most countries the recovery from the global financial crisis is proving to be a gradual process and trading conditions within the construction industry are likely to remain challenging in the short term. Cash management and working capital management are of crucial importance in an environment where recessionary effects are evident both on the group and our clients. As part of its strategy to procure additional projects, the group has provided mezzanine finance to select clients where appropriate security has been obtained. The group further utilises its financial health and strong balance sheet to facilitate growth within its subsidiaries and associated companies through guarantee support and loan finance. The risk of non-payment both from clients and group companies is continuously monitored through the group’s credit committee. The group has minimal debt besides certain plant and equipment financed under instalment sale agreements and the monthly servicing thereof places little strain on the group’s cash flows.

The group begins the new financial year with an order book of R12,3 billion. At 81% of the group’s revenue in 2010 the order book is back in line with the levels seen prior to the “global boom” and World Cup spike. Subsequent to 30 June 2010 WBHO has secured additional projects to the value of R2,3 billion. Maintaining current levels of revenue and profit will be difficult over the next two years however the group is in a sound financial position and management is optimistic that conditions will improve in the near future.

In an effort to improve the timing and effectiveness of the group reporting process, Finance has recently undertaken a project to see Probuild, as well as all other subsidiaries acquired in recent years, adopt the group’s accounting and reporting platform. To date all local subsidiaries have completed the adoption and we anticipate that Probuild will have achieved the same by the next financial reporting period.

The board would like to thank all administrative and service employees for supporting those employees at the “coal face” achieve every project deadline, especially for the 2010 World Cup.

John Abbott
Chief Financial Officer