JSE-listed construction group Wilson Bayly Holmes – Ovcon (WBHO) said on Monday that profit for the 2010 financial year ended June 30 had increased 7% to reach more than R1-billion, but warned that 2011 and 2012 would be difficult years for the group, as well as the local construction industry.

WBHO CEO Louwtjie Nel said that the South African construction industry had seen “a supercycle, and then we had the World Cup on top of that. Things have to normalise again”.

He added that the recovery from the global financial crisis had been slower than expected initially, and that the construction industry still tended to lag the economic cycle by between six and 18 months.

Nel said it was possible that the local construction industry had now reached the bottom of the trough, but added that “it could be a long trough”.

This downturn was reflected in the fact that WBHO had been forced to consolidate its business by cutting its staff complement by 15%, or by roughly 300 people, half of whom were permanent employees.

“The coastal areas are just dead,” said Nel. “Margins are also under severe pressure and it looks as if it will remain this way.”

However, some better news was that there were still pockets of work available.

Nel said that some good opportunities were presenting themselves in the mining sector in Africa – especially from Canadian and Australian mining companies – as well as the continent’s building sector.

As Asia had not been affected by the global crisis to the same degree as the industrialised world, this region continued to achieve reasonable growth, especially China and India. This was increasing the demand for resources, particularly from Australia and Africa.

WBHO was also shopping for a possible acquisition in Australia in the civils industry, where it had not been active before, noted Nel.

Other good news was that government’s private–public partnership (PPP) project pipeline was finally gaining momentum, especially in the hospital and prison sectors.

THE NUMBERS

WBHO achieved an operating margin of 8,4% for the 2010 financial year, up from the 2009 margin of 7,1%, which had been eroded by a material debt write-off.    

Earnings a share improved 7% to 1 742c, and headline earnings a share were up 8,5% increasing to 1 747c.

Revenue for the 2010 financial year increased to R15,2-billion from the previous year’s R14,8-billion.

The construction group’s order book at July 1 stood at R12,1-billion, down from 2009’s R15,3-billion.

The group’s net cash position shrank slightly to R3,9-billion, down from 2009’s R4-billion, owing to factors such as a drop in the interest rate and the strengthening of the rand.

Capital expenditure amounted to R256-million in 2010. The group said it had approved capital expenditure of R401-million for the next financial year, the majority of which would be used to equip itself for new contracts in Africa, and to replace existing items of plant. 

WBHO also noted that the group had increased its shareholding in Roadspan Holdings from 30% to 70% during the financial year under review, while also acquiring a further 6,8% interest in its Australian subsidiary, Probuild Constructions. This had increased the total effective interest in Probuild to 69,4%.   

Probuild’s revenue of R4,5-billion for the year was just below the record R4,7-billion achieved in 2009. As a result of stronger contract profit margins, year-on-year operating profits increased from R125-million to R152-million.

This was the tenth consecutive year of improvement in profits for Probuild.

However, margins had declined throughout Australia, and WBHO warned that the company would be challenged to achieve the same level of profit in 2011 as was achieved this year.    

WBHO declared a final dividend of 220c a share which, together with the interim dividend of 110c, amounted to a total dividend of 330c for the year.