Friday, 13 March 2009 02:00

Fund puts $20m in SA firm

Global investment company Kingdom Zephyr has invested $20m in South African power infrastructure and heavy building materials company Buildworks.

Thursday, 22 January 2009 02:00

Construction contracts lost

THE global credit crisis and reduced oil prices in the Middle East are taking their toll on South African construction companies, with Murray & Roberts and Group Five announcing cancellations of contracts.

Construction IndustryWith dismal global economic news pointing to deteriorating energy demand and keeping oil prices under pressure, the Middle East is now forced to slash or cancel ambitious infrastructure projects, affecting construction companies’ bottom lines.

Dubai has announced a review of its own infrastructure capital project programme as a result of the worsening economic crisis.

Group Five said yesterday Dubai authorities had terminated a R3,3bn contract and had suspended one for R654m.

However, the group said other contracts to the value of R563m in Dubai, Abu Dhabi and Jordan were not affected.

“Such suspension and termination action is catered for in the contracts, such that the contractor has recovery rights and will be fully compensated for its costs incurred, with a reasonable margin,” it said.

Group Five said it remained committed to the Middle East and continued to review its prospects in light of these developments and against the ongoing opportunities that existed in the region’s economies that had energy resources and industrialisation strategies that suited its capabilities.

The group said that its African and eastern European operations remained buoyant and it expected a strong improvement in earnings for the full year.

Group Five said yesterday it expected headline earnings per share to be 45%-55% higher for the six months to the end of last month, compared with the previous half.

On Tuesday Murray & Roberts said one of its contracts in the Middle East had been scrapped.

The group said it would close out its position in terms of the contract and it was not expected there would be any material effect on the financial results for the year to June.

 

Monday, 19 January 2009 02:00

Construction groups bank on state work

Construction companies are counting on the government’s multi billion-rand spending programme in infrastructure projects to see them through the lean economic times caused by the global credit crunch, which has seen work from the private sector dwindle.

Construction IndustryThe global economic meltdown has created a lot of uncertainty for construction companies, most of which saw private sector work decline towards the end of last year.

A number of private sector clients of construction companies have suffered cash flow problems due to the financial crisis, which has affected certain projects.

From the second quarter of last year, the construction sector has been severely downgraded by the stock market on fears of a recession and depleted future work opportunities.

With commodity prices plummeting in recent months, the mining sector, which provides a big chunk of work to several construction companies, has scaled back on capital expenditure.

However, with the government reiterating that it will not put the brakes on its infrastructure spending programme, construction companies will be seeking more exposure to this public sector investment.

In his medium-term budget speech last year, Finance Minister Trevor Manuel said the government would continue to invest in several areas of infrastructure, including rail, roads, ports and energy in a bid to boost economic growth.

Group Five CEO Mike Upton said last week the group had a “reasonably good” order book to see it through the turmoil. “This (the order book) is quite well in tune with the public sector spending. The private sector has taken a turn for the worst, with capital spending, especially in mining, expected to drop significantly,” he said.

At the end of June last year, the group's one-year order book stood at R8,5bn, which it said at the time reflected its strategic positioning in the public infrastructure cycle with a mix of 65:35 in favour of public works.

“We are not negative at this stage but cautious.

“Our projections are not the same as last year, and we are not seeing the same security of work as we did six months ago. We have seen a number of projects from private sector clients that have been curtailed in recent months due to the credit crunch.”

WBHO CEO Louwtjie Nel said with work from the private sector drying up, the company was shifting emphasis towards government projects.

He said whereas two years ago the split between public and private sector work was about 20:80, that split was now about 50:50.

“We were traditionally focused on private sector clients, but we are now swinging in a big way towards government infrastructure work, such as roads, energy and hospitals — which should get us through 2009 quite comfortably.

“Beyond that, nobody really knows what is going to happen,” he said.

Nel said the group’s civils division was feeling the pinch the most as work, especially from the mining sector, had almost dried up.

“But overall we are now getting well exposed to government spend.”

Murray & Roberts said its outlook for this year had not changed from what it was in November when the group reported that it had been forced to restructure its operations in the light of the global credit squeeze.

The group said then that it had delayed or suspended some of its projects as some of its clients felt the pinch of the credit crunch.

“There are a number of significant public works and other strategic opportunities in the group's domestic and international project pipeline that are likely to proceed and which will provide stability through the difficult times ahead,” it said.

 

An official of world football governing body Fifa says whether or not the Mthatha stadium is completed by 2010, it would make no difference to the World Cup.

Friday, 12 December 2008 02:00

Racec earnings up by 84%

Racec Group Ltd, the AltX-listed rail and electrification infrastructure solution company, on Thursday reported an 84% rise to 16 cents.

ALTX-listed distributor of tower cranes SA French’s profit fell in the year to June, knocked down by costs of expansion and acquisitions of additional units to meet an upsurge in demand in the rental market.

Quentin van BredaThe costs were associated with new branches opened early this year in Cape Town and Durban as well as finance charges linked to the acquisition of additional units for the rental market.

Net profit fell to R6,9m compared with R12,7m in the previous year and headline earnings per share dropped to 4,68c from 10,12c. Revenue increased 25,7% to R152m from R121m while operating profit declined 36,8% to R12,9m.

The company’s gross profit margin decreased 2,7% from 25,2% to 22,5%, which it said was largely because of currency volatility.

CEO Quentin van Breda said the results were “satisfactory” despite “challenging” market conditions.

He the said opening of new branches and the acquisition of the new fleet was a capital intensive exercise that required a substantial investment on the company's part.

While developing infrastructure was costly and the initial costs were in most cases once off, management felt strongly that it was necessary to establish a national presence.

Van Breda said most of the expenses were budgeted for and SA French expected the investment to pay dividends in both the short and long term. “It is, however, undoubtedly the correct route to follow and as an emerging business model it will certainly generate substantial future cash flows,” he said.

“Despite challenging market conditions we have delivered satisfactory maiden results. We can now boast the biggest and most comprehensive tower crane rental fleet in Africa. The benefits and annuity income generated by a new fleet of tower cranes with an average lifespan of 20 years are undeniable.”

The company had to acquire new rental units after a spike in demand for crane rentals as a result of the uncertainty caused by the electricity shortages, the company said.

The electricity supply crisis earlier this year caused uncertainty for many of its key clients in the construction industry. This resulted in delays in the awarding of several infrastructure projects and construction companies responded by restricting or delaying capital expenditure decisions such as the purchase of tower cranes, it said.

“This change in market dynamic resulted in a change of focus in SA French’s business. The group has experienced an increase in demand for crane rentals as many of its clients were seeking to keep costs variable until there was certainty on power supply,” SA French said.

 

Sunday, 14 September 2008 02:00

The science of getting lucky

There is nothing like a bit of success to get chief executives deciding that they would like to speak to the press, after all.

Roger JardineRoger Jardine, who made history in 1994 when he became South Africa’s youngest director-general at 29, became chief executive of construction group Aveng two months ago, when its share price had tanked to R50 and things weren’t looking great. He gave his secretary firm instructions not to allow the media, or certainly this newspaper, anywhere near him.

Fast forward to Monday last week. The share price had recovered almost R20 and Jardine was basking in the glow of a strong set of results and a bursting order book.

Now, about that interview, asked his publicist.

Which for me raised an old question. How much are good results down to the chief executive and how much merely a matter of the company being in the right industry at the right time?

“Somebody once said you must never mistake luck for genius,” responds Jardine with a dry chuckle.

The question could be asked of any listed company with operating subsidiaries, he says.

“It depends on what goes on at the centre, generally elevated from the day-to-day operations.”

But if there’s a world cup round the corner, stadiums to be built and contracts lining up to be signed?

CEOs would soon be in big trouble if they just signed willy-nilly, he says.

“Things like managing risk are more carefully scrutinised than they would be if you were just chasing the next contract.

“There are a number of areas where head offices play a constructive role.”

Risk management is one of the most important.

“If that flies out of the window, all sorts of things can go wrong.

“When we are about to put in bids on major contracts we look at contract risk, execution risk, political risk.”

Execution risk?

“If you take on a big job, can you do it? Will you be able to deliver on what you promised?”

The biggest potential constraining factor for Aveng, “given the amount of work in the pipeline”, is capacity, he agrees.

“You have to make sure you have the people to do the job, and, if you don’t have them, where are you going to get them from?”

It is no secret that the construction industry is short of engineers, and Aveng is no exception.

“There is a shortage of skills,” says Jardine. “But there’s a package of measures you can put in place to make sure you attract and retain people.”

Offering new challenges to your engineers and other specialists is essential.

“When you win a big mandate, people are attracted to that. You attract people from elsewhere. That’s why it’s important for companies to win big, prestigious contracts.”

On this score, Aveng is doing well.

“Our order book is currently sitting at 123% of this year’s revenue,” he says, although the only projects he can name off the top of his head are Soccer City, the Port Elizabeth stadium and the new Heineken brewery on the East Rand.

Of course, his competitors are also getting big, prestigious contracts to entice a limited pool of bright engineers and keep them happy.

“That’s why you have to be on top of the game when it comes to winning the war for talent,” says Jardine.

Keeping the contracts coming is just one of the battles.

“We need to give people a sense of belonging, and to be proud of working for Aveng.

“We spend a lot of resources on testing the mood of our people, and investing in them through training and development (R30-million in the past year).

“In addition, you need to make sure that people are feeling properly compensated for their investment in the business,” says Jardine.

For qualified artisans, engineers, surveyors, project managers — you name it — South Africa should be their oyster right now.

But schools and universities are not producing the required skilled people.

Fifteen years into the new South Africa and Jardine’s skilled workforce is still overwhelmingly white. And that is not, as the employment equity commission would have it, because of racist recruitment policies.

Like its competitors, Aveng invests big money and resources, at schools, universities and through in-house training programmes, to identify, nurture and develop black skills. Nothing less than the sustainability of the industry depends on it, says Jardine.

But the skills are still not much in evidence.

As the former director-general of the Department of Science and Technology, Jardine knows better than most why not.

“We don’t have a culture of science and technology in society at large,” he says.

“We have to look at promoting a culture of science where, from a very young age, children can aspire to be great scientists one day.”

Where are the science museums, he asks? Where are the libraries to provide access to the kind of reading that might fire young minds?

How much money is going into our research institutions?

“There’s a whole chain of things that we need to pay attention to.”

Jardine, 43, grew up in the decidedly unintellectual environment of Riverlea township, south of Johannesburg, and became a physicist.

“The way I decided that I was going to be a physicist one day was that when I was at high school I opened the Sunday Times and there was an article about a black physicist. That was the first inkling I had of, hey, wait a minute, physics is open to me. I think role models are very important for young people in pursuing these careers.”

After matriculating at Woodmead school, in the northern suburbs of Johannesburg, Jardine went to the university of the Witwatersrand for a year and then won a scholarship to study in the US. He got his BSc and MSc in radiological physics but practised only “very briefly” at a medical centre for cancer patients before returning to South Africa in 1992 to work at ANC headquarters and become a civil servant.

A waste of scarce resources or what, I ask?

“There was debate when I came home that some in the ANC felt I was wasting my education. But I felt very strongly that I wanted to be part of rebuilding South Africa. I was very passionate about being part of those who were preparing for the democratic stage of our country.”

After leaving government, he ran Kagiso Media and Kagiso Trust Investments for eight years. When the chairman, Eric Molobi, died Jardine moved on.

“I was very close to him, he was a mentor to me. His death caused me to think about my own path in life and I thought I needed a change.”

Aveng approached him.

“I liked the idea that it was infrastructure at the interface between where you develop people and where you develop the economy as a whole.”

Engineers are a politically conservative bunch, so how was the culture shock, I ask?

Don’t talk to him about culture shock, he says. He went straight from Shell House to the former national department of education. Aveng was a cinch.

“One of the good things about engineers or people in this industry is that they’re very straight talkers,” he says. “That is something I took notice of, but I find it refreshing.”

His first celebratory lunch with one of his teams was at a pub.

“It wasn’t in a fancy restaurant somewhere. I think that’s refreshing.”

 

Private and public sector partnerships are among the quickest ways for SA to fund major infrastructure projects and underpin economic growth.

The Construction Transformation Charter Group announces that the Construction Industry Charter was submitted to the Department of Trade and Industry with the full endorsement of Minister Thoko Didiza.

Construction IndustryCo-Chairman of the Integrated Management Committee, Mr Mike Wylie, said:

“This is a big step forward on the road to transformation of our industry and we would like to thank you all for the four years of commitment to this process.

“We would especially like to thank Minister Thoko Didiza for her guidance, advice and support.

“However, we believe this is only the end of the beginning of a journey into the future that will see our industry delivering the infrastructure to South Africa and transforming into an entity of which all of us, our Government and South Africa, can be proud.”

 

Government is to spend R70 billion to upgrade and improve some road networks in Gauteng through the Gauteng Freeway Improvement Project (GFIP) budgetted over various phases until 2018.

Page 17 of 26

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