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Operations
& prospects
Year-end results 2007
  Group Five year end results home  > Operations & prospects > Construction
Operations & prospects
Operational review
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Construction
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Prospects
 
OPERATIONS & PROSPECTS
 
CONSTRUCTION
 
The group's largest contributor at 83.2% (2006: 86.5%) of revenue continued its strong growth and remains well positioned for future growth in the sector, both locally and internationally. 
 
Overall construction revenue increased by 26.1% from R5 076 million to R6 401 million and operating profit increased by a significant 65.3% from R143 million to R236 million, resulting in an overall operating profit margin percentage of 3.7% (2006: 2.8%). The group is confident that given the current market conditions, a medium term operating profit margin percentage of 5% is achievable for the overall construction business. In fact, this business sector achieved a margin of 5% for the six months ending 30 June 2007. 
 
Building and Housing revenue increased by 12.0% from R2 788 million (73% local) to R3 122 million (73% local), while operating profit increased by 6.8% from R78,9 million to R84,3 million, resulting in the overall operating margin percentage remaining constant at around 2.7% (2006: 2.8%). 
 
As noted in the interim announcement, the prior year's margins were positively affected by the completion of higher-margin East African contracts. Margins continue to remain tight in the local market and the group has started transferring skills to work in joint venture with the Civil Engineering business where higher-margin work is coming through, particularly on the large contracts such as the King Shaka Airport and the Moses Mabhida Durban Soccer Stadium for the 2010 World Cup. Accordingly, the secured one year order book is R1,9 billion (100% local) compared to R2,5 billion at 30 June 2006. 
 
Civil Engineering revenue increased by 49% from R1 663 million (35% local) to R2 484 million (33% local), while operating profit more than doubled to R105 million from R50,2 million, resulting in an operating profit margin percentage increase to 4.2% (2006: 3%). Civil Engineering activity locally, in Africa and Dubai continues to improve and Dubai, in particular, produced its best results to date. The secured one-year order book stands at R2,2 billion (45% local), the highest of the construction businesses and surpassing Building and Housing for the first time in many years, reflecting the increased activity in this sector. This compares favourably to a secured one-year order book of R1,8 billion at 30 June 2006. 
 
Subsequent to year-end, an agreement was reached with the group's sponsors in Dubai, Al Naboodah Construction Group, to form a new joint venture company to grow the current civil engineering business and set up an engineering projects business in the mechanical, electrical and piping market. This should ensure sustainable growth in this region going forward. 
 
Engineering Projects had an impressive year following the disappointing results in the prior year. Revenue increased by 27.2% from R624 million (33% local) to R794 million (26% local) and operating profit more than trebled from R14 million to R47 million, with operating profit margin percentage improving to 5.9% (2006: 2.2%). Activity in the mining and power sectors in Africa remains buoyant and, as noted above, an opportunity exists to enter Dubai. The secured one-year order book stands at R735 million (27% local), which, prior to this year, is equal to or greater than the annual revenues achieved in this business in the previous five years. This compares favourably to the secured one-year order book at 30 June 2006 of R400 million. 
 
 
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