Sep 14, 2012
For the first time, contractor earns more abroad than at homeBack
Renewable-Energy|South African National Roads Agency Limited|Australia|South Africa|Big Mining Groups|Louwtjie Nel|Wilson Bayly Holmes Ovcon|The 2010 World Cup
© Reuse this
WBHO revenue for the year ended June 30 increased by 21.2%, from R14.8-billion in the previous year to R17.9-billion. Profit for the year dropped 9.6% to R713-million. The operating margin declined from 7.4% to 5.5%.
Nel regards the slow place of South African-related revenue growth as “disappointing, as this is home, and this is where we want to be, but we have to go where the work is”.
The company’s future South African earnings “will not be going much lower. We are pretty much in good balance now”.
However, Nel also notes that WBHO does not have a strategy to earn a certain percentage of its revenue in a certain geographic area – “our strategy is to find the best work we can”.
The current WBHO order book comprises 67% of foreign projects, with the balance of work located in South Africa. The order book for the group as at July 1 was R20.9-billion, compared with R16.2-billion as at July 1, 2011 – an increase of R4.6-billion.
“There is a big order book in Australia at the moment,” says Nel.
The negative effect of doing so much business in Australia, however, is that margins are tight there. Nel is hopeful of some improvement going forward.
With big mining groups also cutting down on capital expenditure as global financial jitters continue to spread, Nel admits that WBHO’s exposure to Australia is “a risk” for the company.
He points out, though, that the group is only “a small player” in Australia’s mining industry, involved largely in upgrade and maintenance projects.
“We just upgraded from our bakkie. We have a lot of potential. We are not an engineering, procurement and construction contractor in that field.”
Nel says he can imagine the Australian resources boom potentially cooling down, but that WBHO is confident of a “reasonable run” as it can still secure some market share from the “big guys”.
As for the local market, Nel believes that some segments have bottomed out, with a slight improvement in margins, but notes that it will “take a long time to really come back – in the short term, we don’t expect it to improve much”.
WBHO will “do well to stay in the 5% to 6% [margin] bracket”, he adds, especially as Australia has traditionally been “below 3%.”
Nel says the local construction industry has probably been somewhat “spoilt” by the boom in the run-up to the 2010 World Cup, with contractor margins after tax before this “always” between 3% and 4% – a level the market is again closing in on.
“There is potential in South Africa. We can see the work coming in from the private sector and a little bit on the South African National Roads Agency Limited (Sanral) and Transnet side.”
He adds that the private sector is “keeping most of the contractors alive at the moment”, with the industry still in a bit “of a survivalist mode”.
However, Nel notes that WBHO is also a bit “more bullish” on government spend than a year ago.
“We see two . . . three new tenders floating through our offices each week for roads, either provincial or for Sanral. “We have a lot of pipeline work on the go. If these renewable-energy projects go, it will make a huge difference.”
He says the potential work from Transnet also seems promising, but that this is still “a year away”.
Nel says he is hopeful of enough public-sector work coming to market so that “everyone could get a fair share”.
“I think we have to be patient and, in about a year to 18 months, we we will hopefully really see the work flow through and then we can get going again.”
Free State Roads Update A problem area for WBHO in the past financial year has been nonpayment on a Free State government roads project, which saw work suspended in October 2011.
However, Nel says WBHO has reached a settlement with the provincial government and that work on the project will restart once payment is received.
He says the company has reached a payment agreement “in writing” in a settlement process which has also involved the National Treasury. WBHO received “a small portion” of the payment owing to the company at the beginning of August.
Nel does not want to release the quantum of money WBHO is to be paid, saying only that he is confident the company will get 100% of the “finally negotiated sum”.
“We think we got a fair deal.”
As for another thorny issue, namely the South African Competition Commission’s investigation into collusion in the local construction industry, Nel says WBHO has provided for possible penalties in this long-running process, unlike last year, as it now “has a better idea what that provision should be”.
Nel says the group hopes for finality on the issue in the “next two to three months”.
He does not want to quantify the value of the provision as WBHO has not yet agreed on this with the Competition Commission, saying only that the group has provided for its “best estimate” of the settlement amount.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines
Other Property Developments News
Arrowhead Properties has concluded an agreement with Coronation Fund Managers to acquire 84.9-million linked units, or 31.7%, of the Vividend Income Fund. The acquisition would be discharged through the allotment and issue of 63.6-million Arrowhead linked units to...
In a bid to boost JSE-listed Vukile Property Fund’s investment exposure to retail property and the Western Cape region, the company has concluded an agreement to acquire 52.3-million B-linked units in Synergy Income Fund, representing a 34% interest in the fund,...
JSE-listed Vunani Property Investment Fund (VPIF) has entered into an agreement with Magakabye Property Services to buy rental enterprise Wellington Road, in Parktown, Gauteng, measuring 12 140 m2 collectively, for R102.5-million. This transaction was a step towards...
Recent Research Reports
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 Report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
Projects in Progress - Second Edition (PDF Report)
Creamer Media’s second Projects in Progress supplement considers some of the major project developments under way, including high-profile energy and transport projects, as well as a few of the lower-profile public and private developments. What remains apparent is...
Water 2013: A review of South Africa’s water sector (PDF Report)
Creamer Media’s Water 2013 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Canadian Mining Roundup for June 2013 (PDF Report)
The June 2013 roundup includes details of the development of TSX-V-listed Aldridge Minerals’ flagship Yenipazar polymetallic project, in Turkey; the Canadian Nuclear Safety Commission’s renewal of Cameco’s uranium mining licence pertaining to the Cigar Lake...
This Week's Magazine
Mitsubishi Motors South Africa (MMSA) has introduced a 4x2 derivative of its Pajero Sport sports-utility vehicle (SUV), which will give it access to a substantial slice of the full-size SUV market, where it will compete with the likes of the Ford Everest, Chevrolet...
South African Energy Minister Ben Martins has affirmed that the government wants the country to be globally competitive in the nuclear sector. "Our responsibility has always been ... to ensure that, in nuclear energy, South Africa can compete with the rest of the...
Mercedes-Benz South Africa (MBSA) president and CEO Dr Martin Zimmermann describes the new S-Class as “a special place to be”, with the car creating a sense of “wellness” once you are seated inside the German brand’s flagship model. It is difficult to argue...
Water scarcity and water-quality issues are broadly recognised and understood in most political, business and civil organisations in South Africa, but solving water issues will require wide and continuous action in catchments and municipalities by organisations and...
Work is well under way on the R212-million Imvutshane dam, 30 km north-west of Stanger, in KwaZulu-Natal, which is a key link in supplying people in rural Maphumulo with a reliable source of safe drinking water.