Construction and Engineering Industry is set for a challenging and volatile year

Posted On Tuesday, 13 January 2015 14:03 Published by
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The construction and engineering industry is set for a challenging and volatile year‚ suggest the latest stock exchange updates.

 

Kobus Verster

Aveng‚ which has the largest turnover among construction groups listed on the JSE‚ says that headline earnings per share for the six months ended December last year are anticipated to plunge at least 45% from the previous comparative period. It reported low levels of infrastructure-related spending in SA in November‚ as well as lower mining activity‚ labour disruptions and problematic legacy contracts that were expected to hit earnings for the period.

Headline earnings are also expected to be negatively affected by a "substantially higher" net finance expense due to a lower net cash position‚ higher commitment fees in support of Aveng's liquidity‚ and a higher interest rate on its convertible bond. Aveng said that it was unable to comment as it was in a closed period. But the head of corporate ratings at Global Credit Ratings‚ Eyal Shevel‚ said late last year that activity in SA's construction sector was likely to remain muted for the next 12-24 months.

However‚ opportunities outside SA should continue to support growth for larger firms‚ Mr Shevel said. He also said that with the substantial write-offs incurred in past years now largely completed‚ SA's larger listed construction companies were "financially sound". Murray & Roberts executives were not available for comment yesterday.

But in its results for the year to the end of June 2014‚ the geographically diversified company said that over the past three years‚ it had restored financial stability in the group‚ and returned to profitability by reorganising and re-energising its businesses and resuming dividend payments. It was now proceeding with its longer-term strategic plan to become a leading international‚ diversified‚ project engineering‚ procurement and construction group by 2020 in selected natural resources markets.

These were oil and gas‚ mining‚ energy and the industrial sector‚ along with infrastructure and building. But labour unrest‚ big delays at some of the country's major construction projects including Eskom's new Medupi power station and poor economic growth last year have hurt the industry‚ according to PwC's South African construction report for 2014‚ released in November. Overall industry revenue increased 9% in the year to November but total profits were down 4% as margins were squeezed.

The report showed that growth in public expenditure fell in the year and that growth to 2016 was likely to be below the top end of SA's 3%-6% official inflation target band. The report looked at nine "heavy" construction entities on the JSE‚ including Murray & Roberts‚ Aveng‚ Group Five‚ WBHO and cement maker PPC. Group Five fell as much as 20% in mid-November after saying it expected headline earnings per share for the six months to Dec-ember to fall more than 20%.

The share has since languished. This came after it posted good results in tough market conditions for the year to June 2014‚ boasting nil net gearing. Meanwhile‚ WBHO saw disposals of noncore and nonperforming businesses gouge R527m from the R775m profit from continuing operations in the year to June last year. This left profit for the year hundreds of millions of rand down on financial 2013. Group trading losses‚ impairment losses and disposal losses resulted in a fall in earnings per share of 30.8% in the year.

Last modified on Tuesday, 13 January 2015 14:11

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