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CONCO'S HOLDING COMPANY BUILDWORKS: INTERIM PROFIT MORE THAN DOUBLES

19 May 2010

AltX-listed building materials supplier and power distribution company Buildworks has boosted its interim profit by 141% to R41-million, it reported on Tuesday.
Buildworks, which bought unlisted power distribution company CONCO last year, has described its transformation from a building materials supplier to a turnkey developer of high-voltage electrical substations and a provider of overhead cabling, as "extremely positive" for the company.
The group's turnover for the first six months ended February 2010, jumped by 360% over the previous comparable period to R629-million.
Some 84% of the group's turnover now comes from the power sector, with building materials, supplied through the West End Clay Brick and Drift Supersand divisions, making up the balance.

Power company CONCO posted a turnover of R529-million.

CEO Raoul Gamsu said conditions in the power distribution market were volatile with the major utilities, municipalities, mines and industry re-evaluating their power priorities and order placement.
However, he said conditions were expected to improve as capital markets eased and the global resource companies continue with their planned capital investments.
CONCO has a forward order book of R1,1-billion, which represented one year's work for the division.
"Over the past 24 years, CONCO has experienced a 35% growth in its order book. But with the worsening global economic conditions and a decline in electricity usage, this growth has tapered off.

"However, it is evident from the number of enquiries we have received that substantial demand still exists for our products and services. The execution of new orders is constrained only by our clients' access to capital, capacity to adjudicate the allocation of work and their reluctance to assume additional risk," Gamsu said.

The building materials division was impacted on by the sharp downturn in residential and commercial building activity and did not perform nearly as well as the power sector.

Although turnover at West End Clay bricks increased by 41% to R43-million - mainly because of the sale of roofing tiles from the newly-commissioned roof tile plant - the business delivered an operating loss for the six months. Buildworks explained that it was largely a function of the weak demand for building products, which, in turn, impacted on selling prices and gross margins.

Drift Supersand managed to increase its turnover by 19% to R57-million, mainly by switching its focus away from the commercial and residential building sector to the roads sector. Although the volumes of sand supplied were 29% higher than the previous period, margins were lower. Nevertheless, earnings were in line with those of the first half in 2009.

Looking ahead, Gamsu said the group's strategic positioning as the supplier of infrastructure to the African power market provided it with a "fairly robust buffer" against the market's volatility.
Further, the imbalances between higher demand for power generation and transmission and current supply levels was likely to continue.
As a result, Gamsu said Buildworks had been investing heavily in the renewable energy sector, its Middle East operation and the requisite skills base to ensure that it had the capacity to execute future projects.

He said the company had demonstrated that it had the technical expertise to provide wind-farm energy projects by commissioning the country's first wind farm in Darling in the Western Cape. However, while he believed this activity would provide significant medium-term growth opportunities for the business, uncertainty persisted over the implementation timeframe of these projects.
"The challenging economic conditions created by the fallout from the global financial crisis appear to be abating, even if the speed of the recovery remains uncertain. Our balance sheet remains strong (the group ended the period with R241-million cash in hand) our gearing remains conservative and we have the capacity to seek out further acquisition opportunities going forward," Gamsu said.

Buildworks has also appointed three new directors, including two independent nonexecutive directors, as part of the preparations for the company's migration to the main board later this year.