In a trading update released to Johannesburg Stock Exchange, SA French said a review of financial results for the year to 30 June 2008 suggest profits could be 66%-73% lower than predicted. The company made the original forecast in the prospectus it issued on 29 October 2007, prior to its initial listing on AltX, the country’s alternative investments market.
SA French said that rather than the estimated profits of ZAR21.8m (EUR1.89m) predicted in the prospectus, it now expects profits for the full year of ZAR5.9m–ZAR7.4m (EUR513,000–EUR643,000). The company explained that problems with electricity supply across the country had caused uncertainty for many of its clients in the construction industry.
In January, South Africa’s national grid came close to collapsing. Since then, state owned electricity supplier Eskom has used rolling blackouts to ration supply. At the time of the first problems, many mines and other businesses had to close their doors for days at a time.
SA French said, “The electricity supply crisis that hit South Africa in January 2008 caused uncertainty for many of SA French’s key clients in the construction industry. This resulted in delays in the awarding of several infrastructure projects and construction companies responded by restricting or delaying capital expenditure decisions such as the purchase of tower cranes.
“This change in market dynamic resulted in a change of focus in SA French’s business. In particular, SA French has experienced an increase in demand for crane rentals as many of its clients seek to keep costs variable until there is clarity on the power supply issue. An increase in the rental of instead of the sale of tower cranes has had an effect on SA French’s financial statements. Firstly, from a balance sheet perspective SA French has made a significant investment in its rental fleet. Secondly, from a revenue and profitability perspective short-term profitability has been replaced by longer-term revenues from rentals.
Last month, Eskom chairman Valli Moosa predicted, during the company’s annual results presentation, that there would be no blackouts this winter. In its trading update, SA French said, “As a result of the more predictable and reliable power supply experienced over the last couple of months, SA French has seen more consistency in the demand for its products.
It added: “SA French has concluded a contract for the sale, delivery and erection of two tower cranes on a major infrastructure contract. The order equates to 25% of annual turnover. These units will be delivered by March 2009. At the time of release of this announcement, the client had issued a gagging order. Further information will be released once the client has given approval. With more certainty regained in the construction industry and long-term projects that have been awarded, SA French is currently involved in negotiations regarding several other large contracts, the outcome of which will be known by the end of this quarter.”
