Market ignores Sanyati troubles

Johannesburg - Construction firm Sanyati has shrugged off a reported two-thirds interim profit decline as its share price rose over 4% on Tuesday. Earlier in the day, it reported a decline in earnings per share to 3.73c for the six months to end-August, down from 12.58c in the previous corresponding period, while headline share earnings were more than 10c lower at 3.78c.

Operating profit was more than a third higher, but exceptional items consisting of impairments, over-estimation of contracts and under-estimation of bad debts ripped out R50m from the pre-tax profit line.

This resulted from a review of contracts in progress, debtors and value of properties within its property development division, according to chief financial officer John Deep.

"If the change in accounting estimates were to be excluded, normalised headline earnings would have increased by 16%," said CEO Malcolm Lobban, who was appointed in May.

He said the changes were not the result of fraud or impropriety. "Contract accounting is not an exact or simple science. The devil is in the detail. At any point in time you have work in progress, which has risks, profits and costs which are key issues," he said,

Lobban said management of the firm's balance sheet was "critical" in the months ahead.

"In this regard, capital expenditure has been kept to a minimum as certain plant and equipment is readily available for hire at competitive rates," said Lobban in commentary to the firm's results published earlier on Tuesday.

"The total capital expenditure for the period is R21.5m, which compares favourably to the R31m spent in the prior period," he said.

"The business [Sanyati's concrete sliding division] is well positioned to benefit from an upturn in the mining industry and from future anticipated Eskom projects," Lobban said.

Civils a high point

Even though Sanyati is attempting to reach an even keel, it was boosted by a strong performance from its civils department.

"The core civils divisions' businesses (comprising Civils Inland in Gauteng, Civils Coastal in KwaZulu-Natal, Civils Central in the Free State and Northern Cape and Civils North in Mpumalanga) delivered impressive results despite increased competition in the industry," said Lobban.

The department's revenue grew by 62.6% to R903.3m and operating profit was 172.5% higher at R90.7m. The operating profit margin rose to 10% from 6% in the same period in 2008.

A R1.9bn contract by the SA National Roads Agency Ltd for the upgrade of the 18km freeway between the 14th Avenue and Buccleuch interchange in Gauteng was listed as a major prospect for the firm.

Other promising contracts under way include the eThekwini AC replacement water pipeline contract in KwaZulu-Natal, an upgrade of the 800km Sishen-Saldanha railway line, and the upgrading of the R40 road from Nelspruit to White River.

The current order book as at August 31 2009 stood at R1.8bn, of which R600m had been carried over into the 2011 financial year. In addition to the confirmed order book, the group tendered on projects to the value of R741m which are pending award.

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