Construction group Wilson Bayly Holmes Ovcon (WBHO) saw a 9.6% drop in profit for the financial year ended June 30, at R713-million, compared with R789-million in the previous 12-month period.

Operating margin declined from 7.4% to 5.5%. WBHO attributed this to competitive conditions in South Africa and Australia, as well as revenue growth within the inherently lower-margin Australian market.

Group revenue increased by 21.2% from R14.8-billion to R17.9-billion.

WBHO’s net cash position increased to R3.1-billion for the year, up from 2011’s R2.9-billion. Cash generated from operations amounted to R1-billion, compared with R345-million generated in the previous period.

Looking at the divisions within the group, WBHO’s building and civil engineering division increased revenue for the year by 20% to R5.2-billion. However, margins decreased from 7.6% to 5.2% owing to the current competitive market and two loss-making projects.

WBHO said a large percentage of the building division’s revenue was driven by the procurement of major building projects in Gauteng, which included the Standard Bank and Alexander Forbes buildings, as well as the refurbishment of the Grayston Hotel and the redevelopment of the Alice Lane precinct, in Sandton.

The division recently secured eight new retail and commercial office developments with a combined value of more than R1.5-billion.

The civil engineering division “had a difficult year”, noted WBHO, but it completed extensions to the Konkola mine, in Zambia, while work continued on the Kusile power station, in South Africa, which “contributed significantly” towards the division's revenue this year.

New projects were secured at the Tweefontein coal mine, in Mpumalanga, as well as in Phase 2 of Project Lion, in Limpopo. In Zambia the division clinched the expansion of a brewery, in Ndola.

The building and civil engineering division’s order book at June 30 amounted to R4.2-billion, compared with R5.7-billion at the same date in 2011, with additional projects to the value of R2.1-billion secured post June 30.

“However, while margin pressures have improved, they remain competitive,” noted the group.

The roads and earthworks division increased revenue in the financial year by 4% to R4.3-billion, after a drop of 11% in the previous year.

Operating profits declined by 6% to R492-million, owing to persistent margin pressures in the local market.

The major focus of the roads and earthworks division remained the strengthening of foreign revenue through the procurement of higher margin projects in Central and West Africa, said WBHO.

Work in Africa included various mining projects in Botswana, Mozambique, Sierra Leone, Ghana, Guinea and Zambia. In Botswana the division secured further contracts for the runways and taxiways at Kasane Airport, and was recently awarded the R1.4-billion north-south carrier pipeline for the Botswana government's Department of Water Affairs.

This project was an engineering, procurement and construction joint venture (JV) with an international contracting company, and would provide work in the region until the 2014 financial year. The division's participation in the JV was 50%.

Locally the division focused on projects for industrial clients in the mining and energy sectors and projects in the national road system.

WBHO Pipelines was progressing well with a gas-line project for Sasol, between Secunda and Sasolburg, executed in JV with a specialist French pipe company.

Work on the Free State Roads projects had been suspended in October 2011, owing to non-payment.

“We are pleased to advise that we have reached a settlement with the provincial government and work on the project will recommence once payment is received,” reported WBHO.

The roads and earthworks division’s order book increased by more than 90% by the end of 2012 to R4.6-billion, compared with R2.4-billion in 2011.

In Australia, WBHO’s operations were able to increase revenue by 39% to R8.3-billion. Although margins decreased to 2.5% from 2011’s 2,9%, operating profit increased by 19% to R203-million.

Highlights for the year included the Melbourne-based Contexx business securing six high-rise-apartment projects with a combined value of A$515-million.

The Queensland-based civil engineering business Probuild Civil completed the $195-million Springvale Homemaker Centre. In Perth, the $120-million Raine Square commercial tower was completed, as was the $100-million Bank Apartments project in Melbourne.

The backbone of the Australian economy is the resources sector, particularly in Western Australia, stated WBHO.

“In order to position the operations to capitalise on the strength of the resources sector, the remaining 49% of WBHO-CARR was acquired during the year and the three Western Australia roads and earthworks businesses with operations that stretch from Kwinana (south of Perth), through Geraldton (Mid West), and up to Karratha, in the far north Pilbara region, were rebranded as WBHO Civil, and formally merged on July 2.”

The revenue from the combined businesses grew by 34% year-on-year.

WBHO Civil and Probuild Civil now represented 33% of total Australian revenue, up from 22%. Capital expenditure of R225-million had been approved to facilitate the expansion of the business.

The Australian operations began the new financial year with a significant growth in order book to R12-billion, up from R7.7-billion.

As for the South African Competition Commission, WBHO said on Monday that it had now provided for possible penalties under the commission's investigation into collusion in the local construction industry.

“The group . . . expects to be advised of the outcome of the settlement process before the end of the calendar year. We have provided for our best estimate of the settlement amount in the current year.”

Looking ahead, WBHO said it was experiencing an increase in the number of projects coming to market, especially in the private sector, where long-awaited contracts had now materialised.

The order book for the group at July 1, 2012, was R20.9-billion, compared with R16.2-billion at July 1, 2011 – an increase of R4.6-billion.

The order book now comprised 67% foreign projects, with the balance of work located in South Africa. Building and civil engineering had 20% of the order book, roads and earthworks 22% and Australia 58%.

The group had also secured R4.2-billion in additional projects post June 30, which comprised “many large new private projects”.

The order book at the end of August was R21.8-billion.

WBHO noted that mining infrastructure work remained positive in Africa, but that this had slowed in South Africa. Gas-related infrastructure in Mozambique offered opportunities in the
longer term.

“The resource sector continues to underpin the prosperity of the Australian economy,” the group added. “Target-market segments that continue to provide opportunities are high-rise residential [projects] in Melbourne and Sydney and, driven by mining, central business district commercial and airport expansion works in Perth.

“Australian universities remain an attractive market segment providing a steady flow of campus and research centre expansion and refurbishment projects. Pipeline opportunities being
tracked in Australia, the majority of which will commence in the 2013 financial year, are in the order of $8-billion.”

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