Erbacon swings back into the black

Construction sector seems to have turned corner, says CEO

HOPE of an upswing in SA’s construction sector emerged yesterday when Erbacon Investment Holdings reported a return to operating profitability for the six months ended August.

Erbacon increased revenue 37% to R758m after seeing strong growth in both its civil and building construction activities. The group made a profit of R26m for the period before depreciation and bank interest charges.

Erbacon CEO Sean Flanagan said the outlook for the construction sector and the company was bright. “The low interest rate environment, increased randdenominated mineral prices and the need for government to deliver on its infrastructure programme, should ensure that the group continues to increase its revenue and profitability.”

Erbacon’s forward order book had grown to R1.3bn, and construction activity in the mining and resources industry remained vibrant. Furthermore, tender activity from the government had improved.

A recapitalisation saw the total ordinary equity of the group rise to R272m as at the end of August from R151m a year ago.

The group’s liquidity position had materially improved, with cash on hand of R97m, assetbased financing debt of R12m, and unutilised overdraft facilities of R40m.

Erbacon’s civil construction division, Civcon, increased revenue 15%. Most of the division’s contracts were completed profitably and several commercial claims were resolved in its favour. Mr Flanagan said completion costs incurred on some “poorly selected tenders” in difficult trading conditions negated some of these benefits.

The Civcon unit was involved in construction activities at the Medupi and Kusile power stations, urban renewal programmes and road contracts.

The commercial and industrial division, Armstrong Construction, increased revenue 116%. It undertook projects in KwaZulu-Natal, the Eastern Cape and Gauteng during the period.

Armstrong’s main projects included building a R200m warehouse for a private client and a R135m government school.

The Municipal Demarcation Board said in a report yesterday there was a chronic shortage of municipal engineers in SA. “There is a large infrastructure asset value present in municipalities.

“They, however, do not have the engineering capacity to manage these assets.”

Engineering Council of SA president Cyril Gamede said last month that money the National Treasury allocated to municipalities was “usually a challenge to spend”. This was because they did not have the “capacity to attract engineers as core staff”.

Work was instead passed on to “very expensive” consultants. The state’s engineering capacity had dropped from 40% to 15%.

The Municipal Demarcation Board said the shortage was acute in rural district municipalities.