Management reviews > Review of operations

 

1: Nelson Mandela Bay Multipurpose Stadium, Port Elizabeth, 2: Cape Town International Airport, Cape Town, 3: Medupi Power Station, Lephalale, 4: Sedibeng Brewery, Randvaal, Gauteng.

     
  2009  
Rm  
2008  
Rm  
Revenue   9 831,0   8 783,1  
Capital expenditure   327,4   239,4  
Major markets   Southern Africa   Southern Africa  
Employees   16 033   10 887  

  • Revenue growth of 12% to R9,8 billion with 30% improvement in operating margin.
  • Good performances from the Civil Engineering, Building and Earthworks Engineering business units.
  • Operating profits continue to climb, as the benefits of the turnaround gained momentum.
  • R10,1 billion two year secured order book.
  • Poised for further margin improvement.


Operating environment

The construction industry in South Africa has been impacted by delays in decision making, but first-tier contractors were largely shielded from the downturn in 2009, having previously secured strong order books to support activity levels through to 2010. However, activity in the mining sector has been affected by decreasing commodity prices which have had a direct impact on infrastructure investments among mining houses.

Government’s confirmed three-year infrastructure budget of R787 million is expected to cushion the downturn in spending from the mining sector in which the rate of contract awards continues to be slow. SANRAL, the national road agency, is making good progress with its upgrades to the national road infrastructure and successfully raised funding in the external capital markets.

Eskom’s infrastructure upgrade, which had been expected to buoy activity levels after 2010 has been severely impacted by funding issues and delays in tariff increases. In addition to the nuclear power projects being put on hold, other power related projects have been postponed including the Tubetse pumped storage project in Mpumalanga, Upington’s concentrated solar power plant, the wind farm in the Northern Cape and the Majuba rail venture. Despite the delays in awarding the nuclear power projects, the environmental impact analyses have continued. Eskom also has a stated policy to reduce its reliance on coal and it is envisaged that pressure will increase at year-end after the Kyoto Protocol is updated. Eskom is proceeding with the Medupi, Kusile and Ingula projects. Grinaker-LTA is involved in a number of contracts on the Medupi Power Station.

In the private sector, there are a number of significant infrastructure projects which could support demand in the medium term. In the petrochemical sector, Sasol is currently scoping and conducting environmental impact analyses for an 80 000 barrel-a-day production plant, Project Mafutha, which is anticipated to commence in 2012, and which will afford substantial downstream opportunities for the industry.

PetroSA is also looking at significant expansion projects in Coega which could catalyse further developments in the region.

Refurbishments and shopping centre upgrades have offered some support in the building segment. Although Grinaker-LTA has not been active in the upmarket residential housing market for more than two years, the downturn in new housing developments has had a knock-on effect for related commercial developments, as well as multipurpose nodes.

KwaZulu-Natal, which had enjoyed heightened activity levels in the building sector saw a marked downturn in construction activity as financial institutions adopted more stringent lending terms. This lack of credit has led to a slowdown in new retail development, which is expected to persist for the medium term. However, the new airport under construction at La Mercy is expected to channel new economic activity to the area, which could include industrial and commercial developments in the vicinity. In addition, this new airport will open up re-development opportunities in Durban’s southern industrial basin, the site of the existing Durban International Airport which will become defunct.

The tighter credit environment has also impacted concessions where projects and partnerships are predicated on the availability of long-term funding.

Increased competition for contracts has seen some contractors becoming responsive to accepting more onerous contract conditions to secure work than they would have in positive markets. Clients have also become more risk averse, increasingly selecting contractors with strong balance sheets and long-standing track records. This has created barriers to entry for second-tier contractors who have been unable to secure large infrastructure projects and could result in consolidation opportunities in the markets.

Safety

Although Grinaker-LTA achieved a 25% reduction in its DIFR to 0,42 (2008: 0,56), the operating group suffered four fatalities during the year.

Safety achievements included 2 million and 1 million disabling injury-free hours on the Medupi Power Station and Soccer City projects, respectively (both in JV).