Sephaku sees glimmer of government infrastructure spending being on the mend
Companies / 15 November 2019, 3:30pm / Edward West
CAPE TOWN - Sephaku Holdings yesterday said there were signs that government infrastructure spending was on the mend, despite taking a massive hit in profits.
Chief executive Lelau Mohuba said the group was looking on the rehabilitation of national roads by the SA National Roads Agency Limited (Sanral) and state-owned entities to revive the ailing construction industry.
Mohuba said the the green shoots included Sanral’s upgrades to the N2/N3 road network in KwaZulu-Natal and tenders issued for the upgrades to O R Tambo International and Cape Town International airports.
Mohuba said the outlook for construction in the private sector, however, remained weak, because of forecasts that economic growth would slow down until the end of 2022.
Sephaku slipped to a R7.7million net loss for the six months to end September from a R26.5m profit the prior year, due to falling infrastructure investment and aggressive marketing tactics by competitors to secure market share.
Mohuba, who took a pay cut as part of cost reductions and who is retiring due to ill health, said the tactics included the growth of cement blenders due to the price competition in bulk supply and irrational pricing.
He said state-owned companies were the single largest contributor to capital investment and were projected to spend more than R339 billion over the next three years.
Sephaku’s headline loss came to 4.11cents per share, versus headline earnings of 12.59percent in the previous interim period.
The net asset value per share came to 518.51c, slightly up from 512.30c.
Group consolidated revenue fell 8.9percent to R425.8m from R467.9m.
Subsidiary Métier’s taxed profit slid markedly to R7.7m from R20.3m.
Sales volumes in KwaZulu-Natal in particular decreased by 15.7percent due to the suspension of several large construction projects.
Reduced earnings had caused debt covenant pressure, and a sale and leaseback agreement was reached for the Midrand offices in an attempt to provide for the debt service requirement.
In addition, it had become a challenge to refinance a R100m revolving credit facility payable in April 2020.
A non-renounceable partially underwritten rights issue was proposed to raise funds to reduce the net debt position and to fund improvements in Métier’s competitiveness in terms of market reach and efficiencies.
At Métier, zero increases in administration and management expenses were targeted by March 31, 2020, while below inflation increases for input costs would be negotiated.
In addition the outsourced fleet would be reduced.
The sales strategy would be improved, while value added concrete supply contracts would be sought. Credit limits for customers would be reviewed, while the proportion of cash sales would be increased to minimise defaults.
Sales at associate Dangote Cement SA fell to R996.9m in the first half, compared to R1.2bn during the comparative period last year.
Sephaku shares closed unchanged at R1.25 on the JSE yesterday.