Raubex Group Limited (RBX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the group's financial audited results presentation for the financial year. We will go through the agenda of the year-end review. Obviously, this financial year has been very tough year due to the COVID and what happened due to the COVID. The group has proven its resilience over the past year in its ability to navigate tough industry conditions and unforeseen challenges like the COVID-19 pandemic. The group's results were severely impacted during the first half of the financial year by the COVID-19 lockdowns. A good recovery was made in the second half of the year with operations reverting to the normal levels of efficiency. We are very pleased with this. It was a really -- it was a 2 -- a year of 2 halves. The COVID results and then -- recover in the second half. A diversified business model supported by strong Materials division afforded the group protection from both negative cycle conditions of the construction industry as well as the pandemic. A significant increase in tender activity was observed in the second half of the year with some major contracts being awarded to the group. We're pleased to announce that our order book is at record levels of ZAR 17,1 billion. And there's still a lot of -- quite a few recent bets that's still under a dedication which we believe we could be in the running for. The tender activity as a whole is quite active at the moment, and the group is tendering on quite a number of projects at the moment. Operationally, we focus on getting employees back to work safely following the lockdown as well as execution of work under COVID-19 regulations. Now construction does land in to social distancing, so we are able to operate at the moment at 100% of capacity. And now COVID stats is looking much better than a year ago. Financially, the group is focused on cash preservation and maintaining a strong balance sheet. Our group financial highlights. Revenue up slightly 1,3% to ZAR 8,85 billion. Operating profit, down 24,1% to ZAR 364,5 million. As you recall, the first half was breakeven and it's mainly due to COVID that operating profit is down. Group operating profit margin of 4,1% is down 49,4% to ZAR 0.819 per share. Cash generated from operations is up 68,2% to ZAR 1,33 billion. Cash and cash equivalents of ZAR 1,88 billion compared to the ZAR 1 billion previous year. So that was quite a good performance on the cash generating side. CapEx expenditure of ZAR 417,2 million compared to ZAR 581 million. During COVID, we did that restrictions moratorium on CapEx. So obviously, that's why the figure came down. As I mentioned earlier, the good news is our order book is offset -- is up to ZAR 17,1 billion. And final cash dividends of ZAR 0.29 per share will be declared. I will hand you over to James Gibson, our Financial Director, to take you through the income statement.

Thank you, Rudolf. Good morning, everyone, and thank you for listening in to our annual results presentation this morning. As an opening comment, I think it's quite a remarkable set of results for the year under the circumstances. It's not about the earnings this year. It's all about the balance sheet and the cash generation of the group. If we look at some of the income statement indicators, we've got revenue relatively flat, ZAR 8,8 billion, operating profit down 24% to ZAR 364 million. Like Rudolf mentioned, that's really a story of 2 halves. It was only ZAR 22 million of operating profit reported in the first half of the year due to the COVID lockdowns and a good recovery coming through in the second half of the year. Net finance costs decreased to ZAR 21,9 million. There's a lot of IFRS accounting going on in that number. We've given you the breakdown in the full announcement to enable you to reconcile that back to a cash basis. Profit before tax of ZAR 341 million, profit after tax of ZAR 203 million, an effective tax rate of 40,6%. That higher tax charge is mainly due to certain deferred tax assets not being recognized, and that was mainly on losses, including Cameroon. And there was also some withholding tax on dividends which was paid on the repatriation of cash from Namibia and Botswana during the year. On a normalized basis, I believe the tax rate will settle down at around 30%. Then below the line, we've got profit from noncontrolling interests relatively stable, ZAR 44,8 million. That's due to good results coming through from operations in Western Australia as well as the material supply operations in South Africa and Botswana, which performed marginally low. Earnings per share down 37% to ZAR 0.874. And the dividend per share for the full year, ZAR 0.53. Now that consists of an interim dividend of ZAR 0.24 per share, which was calculated based on the 2020 year-end results. You'll recall that that final dividend was fit as a COVID cash preservation measure and a final dividend of ZAR 0.29 per share has been calculated based on the 2021 financial year-end results. Going forward, the group is going to revert back to a 3x cover policy. And the salient dates for that final dividend declaration have been set up in the full results announcement. Shares in issue and treasury shares, both unchanged for the year. The number of employees slightly down to 7,161 employees. Okay, moving on to the balance sheet. Some items to highlight on the asset side and the noncurrent assets, property, plant and equipment of ZAR 2,3 billion. That's slightly down due to lower CapEx spend during the year. The right-of-use assets decreasing to ZAR 295 million on some lease terminations and the depreciation charge in terms of IFRS 16 accounting. Intangible assets, relatively unchanged, just over ZAR 1 billion. There were no acquisitions during the year. So no impact on that number. Okay. Then there's a new line coming into the balance sheet, investment in service concessions, ZAR 22,7 million. Now that relates to an equity investment in the Zim borders concession, the equivalent of $1.5 million. Deferred tax assets increased to ZAR 155 million. Now that increase is due to assessed losses in some of the South African entities, which we have recognized deferred tax assets on and we believe will be settled against future taxable income. Other financial assets increased to ZAR 188 million. Now that increase relates also to the Zim borders concession. We've got a $3.5 million shareholders loan. It tracks interest of 13% per annum. So the total investment in the Zim borders concession is split between an equity investment and the shareholders' loan totaling $5 million. Under current assets, we've got inventories increasing to ZAR 688 million. That's on higher bitumen stock as well as profit and development stock. We've got trade and other receivables decrease to ZAR 1,3 billion. That was due to a good recovery of debtors during the year despite some COVID lockdowns. That recovery actually exceeded our expectations. Other financial assets decreased to ZAR 6,8 million, down from ZAR 187 million, and that's due to receipts coming through from the sale and leaseback debtor which provided a nice cash injection for the year. And then the cash increasing to ZAR 1,8 billion. Just note that cash balance includes quite a healthy advance payment on the Zim borders project of ZAR 354 million. Okay. On the equities and liability side of the balance sheet, total equity, ZAR 4,6 billion. Noncurrent liabilities coming down to ZAR 1,22 billion. Both borrowings and lease liabilities decreasing. And the current liabilities increasing to ZAR 2,5 billion. Some of the bigger variances here being the current portion of borrowings increasing to ZAR 398 million. And then the big number, contract liabilities increasing to ZAR 666 million. And that's due to the advance payment of ZAR 354 million on the Zim border project and also an increase in progress billings on various other contracts. At the bottom of the slide, we'll see total borrowings stable at ZAR 795 million. Gearing on a debt-to-equity basis decreasing to 17%. And net cash of just over ZAR 1 billion. The statement of cash flows. This is one of the highlights of the results for the year. Cash generated from operations increasing to ZAR 1,3 billion. That's supported by the Zim borders advance payment, also an increase in various progress billings and also a good recovery of accounts receivable during the year. Net finance costs, an outflow of ZAR 18 million, taxation of ZAR 190 million. It's cash generated from operating activities, ZAR 1,1 billion. And under investing activities, we've got purchases of property, plant and equipment coming in lower this year, ZAR 417 million outflow. Proceeds from sale of plant and equipment, ZAR 101 million inflow. And then a nice cash inflow coming through from a sale and leaseback debtor of ZAR 180 million. That gives us cash used in investing activities of ZAR 136 million. If we move on to the financing activities. Proceeds from borrowings, ZAR 354 million. Raised a repayment of borrowings of ZAR 363 million, slightly lower than it would have been. You'll recall in the first half of the year, there were 2 step payments of ZAR 23 million per month, and that was as a result of cash preservation measures during the COVID lockdown. There's a repayment of lease liabilities of ZAR 35 million and a dividend paid of ZAR 67 million. That gives us cash used in financing activities of ZAR 112 million outflow. And all of that resulting in a net increase in cash and cash equivalents for the year of ZAR 872 million and a closing balance at the end of the year of ZAR 1,8 billion. Yes. This slide gives you an overview of the different segment results. Rudolf's going to take you through the detail of these in the following slides. But you can see from this another good result coming through from the Materials division, operating profit of ZAR 301 million of the total ZAR 364 million operating profit. Margins there 12,3%. And there was also a good second half recovery coming through from the roads and earthworks division and the infrastructure division, which were both loss-making in the first half due to the COVID lockdowns. The bottom of the slide, under the geographical segments. We'll see a little loss coming through under the rest of Africa segment, and that was as a result of losses incurred on the Douala Mall project in Cameroon. And then you'll also see a good result coming through from the operations in Western Australia, where we've got revenue just over ZAR 1 billion, operating profit of ZAR 74 million and margins of 6,8%. Okay. Thank you. I'm going to hand you back to Rudolf now. He's going to go through the rest of the presentation with you.

Yes. So this unpacked the year-end review on the different divisions. And I'll take you through each division to unpack each detail of each division. So in the Materials division, revenue decreased 10,8% to ZAR 2.45 billion. Operating profit decreased 17,9% to ZAR 301,8 million. Operating margins decreased 12,3% to 212,3%. CapEx due to the moratorium in the first half, the expenditure went down to ZAR 215,8. Traditionally, this is where we spent most of our CapEx of the group. Order book of ZAR 1,85 billion. All operations were impacted by COVID-19 lockdown in H1. Especially, first order operations like Botswana, Mozambique, Namibia, and I'll later unpack Cameroon under a different division. So working in Africa during COVID-19 was almost impossible, and we're still battling and coming to goods with the impact of it. Demand for materials recovered rapidly to normal levels once lockdown eased with a strong demand for aggregates from commercial quarries in the second half of the year. So all our commercial parties is producing aggregates at the moment at a good pace. A number of materials handling contracts in the mining sector have been priced and negotiations to secure this work are ongoing. And this is quite encouraging. So we've not landed any project. So we're busy pricing a number of, as I said, material handling contracts in the mining space with mines busy developing or opening new mines. Now this is on the back of strong commodity prices, so we're quite excited about the pipeline of potential work in this area and we will watch it closely in the next 12 months. And then lastly, a strategic partnership have been established with [indiscernible] Bauba Resources Limited which will provide opportunity to participate in materials handling contracts. So also that is exciting opportunity at this stage. So that's the Materials division. We were quite surprised about the strong demand for aggregates after COVID, and it's still ongoing, which is quite pleasing. Then we come to roads and earthworks division. Revenue increased slightly to 9,7% to -- by 9,7% to ZAR 3,55 billion. Operating profit increased to ZAR 10,4 million. Operating margin increased to ZAR 0,3 million. CapEx of ZAR 108 million. And this is where the biggest change in order book has come. Order book has increased to ZAR 11,06 billion. All construction operations were impacted by the COVID lockdown in H1 with conditions normalizing in the second half of the year. Asphalt and bitumen supply operations remain under pressure throughout the year due to industry conditions. So the volumes in these businesses is low. It's volume driven businesses. And we're only expecting it to pick up in the second half of this year. Some major contracts were awarded by SANRAL in the second half of the year, and there's a significant increase in tender activity is currently being experienced. A good base load of work has been secured. And the division will be looking for higher-margin opportunities to support this order book. So at this stage, the margins in the construction industry is still under pressure. It's because of the low base, what's happened in the last 2, 3 years of no work. So the people needs -- the other contractors need to get full before we see a swing in the margins. So the margin is still single-digit margins. But hopefully, once everybody's order book has picked up, we could see a change in that. Infrastructure division. Revenue increased 3,5% to ZAR 3,84 billion. Operating profit decreased 70,7% to ZAR 52,2 million. I'll unpack that now. Operating margin decreased to 1,8%. CapEx expenditure of ZAR 93,3 million and an order book of ZAR 4,21 billion in this division. This division was severely impacted by COVID-19 lockdown in H1. A strong recovery was seen in the second half of the year from commercial building and housing operations in South Africa as well as renewable energy projects. The completion of Douala Grand Mall in Cameroon continue to be problematic. I need to unpack that as I'll go in the International division and I'll unpack this problem. Encouraging prospects exist in the renewable energy sector, where a significant volume of work has been priced in the investment adjudication program. The division has aligned itself to participate in Bid Window 5, as you know, it's open now and closes by the end of the year. And which offers encouraging prospects over the medium term to the group. This is just to give you some sort of idea what type of numbers we're talking about, what has been presented by the government on a renewable rollout in the next couple of years. So you can see it's quite dramatic, the increase in activity. International revenue decreased 48,5% to ZAR 564,9 million. Operating profit decreased 11% to a loss of ZAR 12,8 million. Operating margin decreased to a loss margin of 2,3%. The order book has increased to ZAR 4,36 billion, supported by the Beitbridge Border post project in Zimbabwe, with an EPC contract value of USD 172,2 million. So this is the group's biggest single project to date, it's quite exciting project and progress is going well at the moment. And unfortunately, our operating loss of ZAR 95,4 million was experienced on the Douala Grand Mall project in Cameroon. Now I need to unpack this for especially for shareholders so they need to understand what happens here. As reported at 12 months ago, just before COVID, we had delays on this project due to logistics issues at the harbor of importing -- project importing goods into Cameroon, which caused a delay. And then unfortunately, COVID happened. And while people were stuck in Cameroon, we couldn't get any materials into Cameroon. We can't get any people to commission the lifts, the elevators and the aircons on the project, and we were closed and locked off for another 6 months. The COVID impact alone was an order of ZAR 60 million. We completed this project. We've got some de establishment issues getting stuff back to South Africa because we're pulling out of Cameroon in total. So we believe that's the final loss. It's unfortunate because this is the only project we've made a loss on. But hopefully, we're at the end of that now. But that's a sequence of events that happened in the Grand Mall. I will later show you pictures of it. I believe we've built a world-class mall to world-class tenants. So there's no quality issues there and our guys in the very thriving conditions, I think, did an excellent job. And I think this is what was outside of their control, it was unfortunate. But I think the time would be happy and you'll see on the photos later on. Materials and operations in Namibia reduced to mining by the client. It's mainly our big project on copper and the north of Namibia that came to an end. A cautious approach to being adopted with regards to crushing operations in Mozambique in the light of insurgence in the northern region. Now just to update to all our shareholders. So obviously, once we moved a lot of plant into Mozambique on projects there, we've taken all our people out of Mozambique. All the work has been suspended at the moment. Our people is out of Mozambique and we're waiting to see and which way or direction this will be going, which is unfortunate because we had a lot of work in Mozambique. But at this stage, all operations in Mozambique is suspended. The group has adopted a more conservative strategy for genuine work in Africa and only will consider the projects of suitable risk and reward profiles. Just to unpack it to the shareholders. So traditionally, as you recall, Africa was always about 50% of our order book. But I mean, we recently had promise, as you know, in Zambia and in Cameroon. We have different issues. So you need to secure your income and you -- make sure that you get paid. You also need to understand the logistic both of each country to import project -- products to that country. But with COVID this first has increased. It's very tough to work in Africa cross-borders due to COVID. So as a group, we decided there's enough projects in Africa. And so South Africa, we concentrate on. The Zim border project, we handle almost African project, so that is not affected. So the focus in the year ahead in this division will be on efficiencies and timely execution of work on the Beitbridge Border post project in Zimbabwe. So that's international. Then we get to Australia. So this is the good news story. Now to start with, and I think I mentioned in the slide, COVID-19 didn't have the impact on our Australian operations. They worked right through COVID. Revenue increased 100% to ZAR 1,1 billion, which we're quite pleased about. Now this revenue increase in growth in Australia was down organically. We sent some engineers from South Africa from this site to the [indiscernible] business. And we've seen some good results because of that. The operating profit increased 184% to ZAR 74,3 million. Operating margin increased to 6,8%, which we believe is quite good margins for the Australian market which is quite a developed market. And we believe we should be able to maintain this level of margins. The order book increased quite nicely to ZAR 848,3 million. As I said, there was no material impact of COVID-19 in the group's Australian operations. The market currently in Western Australia is buoyant and the government is looking to stimulate the economy for infrastructure spend. So the group for this, in the meantime, we'll continue to focus on Western Australia, our efforts. Stable results are reported by Westport's construction for the year. The new Raubex Construction business unit focused on roads and earthworks is now well established in value market share and also very profitable. Roadworks will continue with a cautious approach to explore the Australian market. And we would look to grow its footprint organically at a measured pace as we've done at the moment. And operations, as I said, are to remain focused on Western Australia only for this stage. Our biggest thing is -- unfortunately, our biggest frustration is we aren't able to get to Australia. So our whole management processes via Zoom. But hopefully, in the next 12 months, we are able to get to Australia. To unpack our order book. Now a few things here, as I said, we're still waiting, pending some awards. Our 3 service could change. At this stage, it's all-time high of ZAR 17,1 billion. And for the first time, we've got a bigger, a slightly longer view than 3 years. You can see the order book beyond 3 years is almost ZAR 2 billion which gives us a bit of continuation, which is quite nice. If you look at the pie chart, international is 50% due to basically that Zim borders project. SANRAL is back at 37% and that is basically in line with normal activities. Next slide?. Now just to unpack that slide, I think this is quite important. If you look at the right-hand side column, International is up to ZAR 5,2 billion, basically because of Zim borders. Private is slightly down. Provincial, slightly down. Concessions, slightly down. And the big upstream is obviously the SANRAL order book. Now if you unpack this at the high, it was ZAR 2,3 billion. It's now ZAR 6,3 billion. So that's quite comfortable constantly. So significant new awards executed in the second half was the N2 job for Kwamashu to Umdloti River Bridge ZAR 1.43 billion. Cato Ridge to Dardanelles now ZAR 1,44 billion. Dardanelles to Lynnfield ZAR 1,48 billion. And then Bierspruit, Moloto Road and obviously, as I mentioned, that our biggest contract to date the contract Beitbridge Border upgrade in Zim. We're operating at pharmacy in our site on the South African site, and it's a ZAR 2,5 billion project. So that's our order book unpacked. I mean, I've got some photos for you just to show you our current operations. Now this, you can see from this photo, this is the Douala Mall in Cameroon. And you can see it's quite high-class finishing and quite a high-class mall. So despite the fact that we are unfortunately due to difficult conditions, we still produced a high-quality product to the client. Okay. This is our Greefspan solar for Raubex Infra. This is a typical solar project. This is a Jewellery Manufacturing Precinct in Raubex Building. It's building in Johannesburg. This is the inside, it's quite a big foyer -- quite an impressive foyer that they're building in there. This is Raubex Building: refurbishing of 80 Plein Street in Johannesburg CBD. So this was office space converted to flex, and it seems there's been quite a demand for this. This is our own development, Woodwind Estate Development. As you can see, it's growing quite nicely. We're doing it in stages, and we're very pleased with what's happening on this project. That's also Woodwind Estate development. There is 3 walkup which is busily in progress. This is a Musina Ring Road. What we're doing for SANRAL at Bierspruit Musina. As I explained, we're quite a big base now in the Musina because we operate Zim borders and this project out of one base. This is a signature bridge at Musina, those is 2 hands. It's welcoming rest of Africa into South Africa. So it's quite a nice bridge. This is a pouring of our bridge deck. This company reducing the concrete OMV is obviously one of the good companies producing good concrete. And at the same budget, National Asphalt is producing the ash level and those heaps behind on the materials was also crushed by one of our companies. So we've got about 5 different companies operating on that project. This is Bakwena Platinum Corridor. We do the chip and spray with our closes binder company producing it. [indiscernible] That is just chipping on the Bakwena on that shipment on the same project. This is at Queenstown, where B&E International is equating for one of our own projects we were operating. This is our coal mining operations in Mpumalanga but done by one of our companies. It's quite a big operation, you can see of those yellow metal equipment. Same job in Mpumalanga, the Mpumalanga plant here. This is SPH also one of our companies doing material handling for plants platinum mine in the Northwest. Okay. This is our Zim borders project in the background, you can see the activity happening there. There's quite a lot of activity happening at the same time. So it's quite busy at the moment. There you can see a more detailed photos of the buildings, the parking areas and the access rates are basically constructed. Now we move over to Australia. Now typically, what they do there is on the construction side, they do landfill projects. This is Onslow and also all of them in Western Australia, that's how the project looks. Another landfill Anderson and full capping and also in Western Australia. And then as I mentioned, we started doing a road construction like we do in South Africa. Just on a smaller scale, smaller projects versus Capel Busselton Highway, one of our first bigger projects. To give you idea, so the type of project we do there, this one is about ZAR 150 million worth. This is U.S. Airport. We just the Namibia where we replaced a runway, and it was done by Raudev Road Servicing. All right. That brings us to conclusion. So the South African government's economy reconstruction and recovery plan is quite engaging. The government is busy spending mining and construction. And we believe Raubex is well positioned to participate in renewable energy, transport, which is basic SANRAL and Human Settlement Projects. The materials division will continue to diversify the group to each operations in the mining sector. Strategic partnership with mineral source owners are being pursued with poring commodity prices and are supportive of increase in activity with a number of material handling contracts currently being priced. None of this in the order books, we haven't secured anything. But we will advise the market once we secure some projects. Workflow from SANRAL has resumed and some major projects have been order to be good, which is quite exciting. Local subcontractors will need to be developed, vented and boarded in order for them to participate in the manager allocation of work. Increase in construction sector activity will also benefit the goods material supply operations, including the supply of aged asphalt and bitumen products. In Southern Africa, the Beitbridge Border update in Zimbabwe is a key project and focus will be on efficient and dam exclusion of this work. In Western Australia, the group will look to grow this business organically at the measured space, as I discussed. In the cases, the construction cycle may finally be turning in the South African market and a good strong management team supported by healthy balance sheet, which is in Raubex well for the future growth. All right. Thank you. That's our presentations. We will open it now for questions and answers on it. And we will answer it as it absolute.

Thank you, Rudolf. There were a few questions come through. The first one is from Marc Ter-Mors from Standard Bank, "With Mozambique operations suspended, do you anticipate losses for the financial year '22 year-end? And if so, what is the level?"

Okay. It's quite a difficult answer. Yes, it will have an impact. It won't have a material impact like Cameroon, but it will all depend on how long the operations will be suspended. So it's not exact same yet, but it will have impact. There is no doubt about it.

The next question is from Rohan Golar from Chronic Research. "Please can you talk through your capacity in the Roads division? You have to cut back, but the order book is up struggling now. Do you have the right people to execute?"

Okay. Quite interesting. So just to take you back, remember, we had to rightsize due to industry conditions. But we always maintained a level of unused capacity because we knew this was coming. We just weren't certain of the timing. And then unfortunately, COVID happened, we delayed the timing. So yes, for the current order book, we've got capacity, we are looking at increasing our capacity because it's not the current order book that's issued. It's a potential pipeline, which is quite big. So obviously, for that, we haven't got capacity at the moment. So we would like to grow that capacity. But the current order book, we should be able to execute.

The next question is from Glen Heinrich of Perpetua. "Are the margins for the new SANRAL work good relative to East Ring? Will the full order book prevent you from bidding for potentially higher margin work that may come to the market in the next year or 2? And then the last part of the question, what are the margins like for the Zim border project?"

Okay. So the SANRAL margins currently is in a normal standard activity, 5% to 7% margins as we always operate it. As I said, there's still margin pressure. We have increased our margins now. But I mean, we are not the lowest on increasing the margins. As I said, the capacity to reach it, everybody's got work before we see a margin improvement. We will be tendering on selective jobs at better margins going forward. So of all the work out, depending our success rate will be lower, but hopefully, it will be at better margins. We are looking at improving our capacity. For the first time in my history after the World Cup, our management meeting is now about effectively utilizing our capacity. Normally, we were just scratching for any work. So it's quite a big change. We will manage that. And hopefully, we will be able to increase the margins and our capacity going forward. But that's our biggest -- one of our biggest challenges at the moment. The Zim border margins is normal, double-digit Africa margins. So that profit should -- that project should be financially good for us.

The next question is from [indiscernible] from Standard Bank. "what are the time lines on executing the ZAR 6 billion SANRAL orders?"

It's quite interesting. So the projects varies from 6-month contracts in 5-year contracts. But on average, I will say back between 2 and 3 years. As you saw, we unpacked the order book there. We got quite a strong -- so for the next 3 years, we at least got work. So the time line is on average about 3 years.

The next question is from Katherine Birch from Granite Asset Management. "You mentioned that roads and earthworks is still very competitive, and there's low margin. What will it take for margins to start picking up again?"

We need all the construction companies or the industry what is left to get to some sort of full order book before the margins pick up. My personal belief, we could be very close. But as we sit here, we're not there yet. We just saw results on Friday, where we picked up the margins to 10%, and we were quite way off that price. So -- but I believe it could be sorted out on the medium term, 6 to 12 months.

The next question is from Chris Reddy from All Weather. "Apart from the Bauba transaction, are you seeing further acquisition opportunities? And if so, in which segment or geographies?"

Yes, especially Chris, on the mining side, we are looking at opportunities, but I must explain that, it's small opportunities. So it's not major type of opportunities. But we are looking at quite a few opportunities in all in chrome, zinc, titanium. But it's not -- it's typically, to give you idea, it's like ZAR 30 million, ZAR 40 million, ZAR 50 million opportunities. So we are looking at small stakes in mining operations. I need to emphasize this, we're not going to become a mining company. We are a materials handling company, which we've done on quite a large scale already in Southern Africa.

The next question is from [indiscernible] from Enter Capital. "What is the total amount of projects to be adjudicated the fund that Raubex has tended for this far? And how much of that total does management expect to secure?"

So this is very difficult to answer in the sense we've got a total of pipeline of potential new work of ZAR 20 billion. But let me clarify it immediately. We're not going to get ZAR 20 billion. And it's very difficult to predict how much. But I would hope, and this is just a personal indication to get at least 50% of that work which we could be in the running. Because remember now it's subject to litigation. It's subject to technicality on our bids, but this is where we are pricing-wise in the running and it's subject to the projects obviously going ahead. So it's -- So that's just the type of ranges we are looking at.

The next question is from Zwelakhe Mzwakhe from Benguela Global Fund Managers. "We are seeing other South African companies that struggled in Australia. Recently your competitor Wooden [indiscernible]. What is the long-term strategy for Australia? And what is your thinking in terms of how big the business can become in the overall Raubex business? So what is your medium-term product?"

Okay. I need to clarify our position in Australia. We in Australia, a Level 3 company, which means we're not one of the big construction companies. We do specialized work, we specialize people. I believe we've got the right people. And so what we have managed a decided we go will stay, remain focused on smaller, specialized work contracts in Australia. The big Tier 1 contracts, we believe, is too competitive in Australia and there's no margins. So we will continue to do specialized work. And so organically, we're going to grow it like we can at a measured pace. So typically, we're going to remain focused in Western Australia, which we believe is a good market. Once COVID is come and gone, hopefully, we could see some more South African engineers over there make quite a demand there. And we would develop a market with increasing the staff. But we're not going to do major design and build contracts in Australia. That, I need to make very clear. So we're going to work typically on your remeasure type of tender work. We're going to do smaller projects. Now to give you the type of -- so we're not going to do it in sales scale South Africa. Typically, a big project for us has been in rand terms been between, in rand terms, between ZAR 100 million and ZAR 150 million. And you just see in South Africa, we do ZAR 1.5 billion of work per contract. So -- and we will remain -- that's going to be our focus in Australia, and we're not going to do the bigger contracts because we believe for this profile as A, too big. And the margin is not sufficient. So our Australian focus will to remain a specialized contacting, working for clients like defense, the water boards and Western Australia roads and the mines. So that's really our client base, and we're not going to change that.

The next question is from [ Totia ] of Nedbank. "Are there contractual protections included in SANRAL work to mitigate against community risk?"

Now SANRAL has widen community risk out. So it's a contractors risk. We are managing at the moment. But SANRAL as a client is assisting us a lot in managing the process. So they've heard in it, so the risk profile is with us, the contractor, I need to make that clear. But SANRAL is assisting us with community engagements and that type of thing.

The next question is from Arun from Capital Asset Management. "Could you please provide guidance for CapEx for financial year 2022?"

So advanced stage CapEx will be normalized. James?

Yes. Normal replacement CapEx should be in the order of ZAR 500 million for 2022.

Which is in our normal range. But the one thing I need to mention here, if we land one of these big mining and material handling contracts, the profile will change. But obviously, the returns will be measured against the CapEx. So at this stage, the CapEx is normalized. But it could change if we win one of the very big mining projects that this coming up that are in at the moment.

There is another question from [ Ruth ] from Capital Asset Management. "Could you please elaborate more on the potential pipeline, mostly related to SANRAL and solar? And also, do you look for interesting new construction capabilities or only your existing type of work?"

Now currently, I'll answer the last one first. We would like to focus on our current core value type of projects. So we're not going to start building nuclear stations and that type of thing. Of course, simply because we believe we got it using work out there going forward. Now the pipeline is, to give you idea -- so there's a lot of tenders that's closed, which I've told you about and said what the potential pipeline is. But on top of that, on construction, we got about ZAR 20 billion work we pricing in the last few months. Now I must make it clear, we're not going to be ZAR 20 billion. So don't start writing that in. But this gives you a feel for what's happening at the moment. So construction is at all-time high activity -- in activity levels. SANRAL has made statements in the media last week that they're going to do quite a substantial work allocation this year. So that's quite exciting.

And then we have a question from [indiscernible] from Oyster Capital Investments. "Given pipeline of work and needs to increase capacity in the medium term, how should we think about the medium-term target gearing ratio of the group?"

The gearing ratio is obviously at 17% at the moment. And the balance sheet is very healthy. So we can gear up quite a bit if needed. But it won't come from the roads and earthworks side or activity in the construction side of the business. That will come in if we get 1 or 2 of the bigger mining contacts that Rudolf was being -- was alluding to. So there's no fixed target for the gearing but there's a lot of headroom in our facilities to gear up a bit, it will be on a project-specific basis.

Thank you, Rudolf, and James. I don't see any further questions coming through.

Okay. Thank you for everybody for joining us for today. And later construction in South Africa will be Buoyant going forward. Thank you very much.