THE BOTTOM LINE
PPC and Raubex results add to the grim construction outlook
Some smaller companies will have to exit the market before competition for projects gets back to normal
PPC’s results statement for the year ended March offers yet another reminder that there is no sign of the state’s infrastructure drive materialising any time soon.
The cement producer said economic growth in its home market is likely to be anaemic over the next year, while the outlook for its materials division “is also muted as it is linked to infrastructure investment growth”.The group’s lime division is mainly exposed to the steel industry and the readymix and aggregates business relies on construction projects, and both units are not expecting any fireworks.
Also on Monday, Raubex said its interim earnings would fall at least 20% because of “continued weak conditions in the South African construction industry, particularly in the road construction sector”.
PPC and Raubex’s comments follow the grim news from Basil Read on Friday that it’s been forced to file for business rescue. Eyal Shevel, head of corporate ratings for Africa at Global Credit Ratings (GCR), said on Friday lender support for construction firms is “very weak” as no one knows where work will come from. Group Five managed to secure lender support last month, though it had to use its healthy European concessions business as security.
Shevel thinks consolidation within the construction industry is probably necessary to keep small- and mid-sized players alive. He says it is likely that “one or two” of these companies will have to exit the market before competition for projects gets back to normal.