Moderate growth across all Wilson Bayly Holmes-Ovcon (WBHO) business segments has resulted in an 11%, or R14.7-billion, increase in revenue from continuing operations in the six months ended December 31, the JSE-listed construction company reported on Monday.

The group also noted a 4% increase in its overall earnings per share (EPS), up from 548c year-on-year to 570c, while overall headline earnings per share (HEPS)  decreased by 8% to 541c from 586c in the comparative period.

EPS and HEPS in respect of continuing operations decreased by 14% and 18%, respectively, over the comparative period owing to the poor performance of the group’s operations in Australia, which related to losses incurred within Australian civil businesses, as a result of three material lossmaking contracts, together with a particularly subdued market.

“[Our revenue] is on quite a high level at the moment in industry, as our building divisions are really doing well, both here and in Australia, but the civil and roads markets are under pressure,” WBHO CEO Louwtjie Nel told Engineering News Online in a telephone interview on Monday.

“I forecast that it [will] not grow much in the short term,” he added.

Revenue in respect of the continuing operations within the construction  materials segment, including the reinforcing and ready-mix businesses, also achieved growth of 12%. Operating profit from continuing operations before nontrading items decreased by 26% to R39-million, at a margin of 2.7%, compared with R535-million at a margin of 4.1% reported in the previous comparative period.

The margin of 4.4% achieved by the building and civil engineering division was in line with that of the prior half-year period, while the roads and earthworks margin continued to decline, owing to competitive conditions across all markets and an underperforming project in Botswana.

The margin of 2.5% achieved from continuing operations within the construction materials segments showed some improvement from the 1.1% achieved as at June 2014, but remained lower than the 3% achieved in the prior comparative period.

PROJECTS
Meanwhile, the group noted that the 9% growth achieved by its building and civil engineering division, increasing the division’s revenue to R3.8-billion from R3.5-billion in the previous comparative half-year, continued to reflect the strength within local building markets.

In Gauteng, strong revenue growth was supported by construction at eight different shopping centres and mixed-use developments, seven of which were completed and handed over in the six-month period.

Construction at the Mall of Africa shopping centre, in Waterfall City, Midrand, would continue well into the 2016 financial year, while ongoing construction at various corporate office precincts contributed  significantly during the period following the start of new phases at Menlyn Maine, in Pretoria, and Alice Lane, in Sandton.

Construction of the serviced accommodation for Statistics South Africa, secured through the group’s projects division, was also progressing well.

In the Western Cape, activity over the current six months consisted of construction of several projects at the V&A Waterfront, including the new Museum of Contemporary African Art, a new hospital for Netcare and various apartments, retail and office developments.

Further, the group’s projects team, together with the Western Cape division, successfully achieved practical completion at the Kathu solar photovoltaic (PV) farm, in the Northern Cape.

In KwaZulu-Natal, various corporate office projects in Umhlanga, ongoing construction at both private and public hospitals, and work for State-owned freight logistics company Transnet contributed toward good growth in the region.

Market conditions in the Eastern Cape had improved since the second half of the 2014 financial year and contributed toward the province’s growth during the period, supported by new work at the Coega industrial development zone and extensions to the Greenacres shopping centre, in Port Elizabeth.

In Ghana, the West Hills and Junction malls were successfully completed and handed over during the period under review, while construction at the Achimota Mall, awarded toward the end of last year, was on schedule.

Construction of the main civil works at the Mpumalanga-based Kusile coal-fired power station, including construction of the ash dam and coal stock yard, was also nearing completion. This project continued to contribute strongly towards the division’s revenue during the six-month period.

The group’s road and earthworks division saw 12.9% growth year-on-year, reporting R2.8-billion compared with the R2.5-billion reported for the prior comparative period.

Meanwhile, WBHO reported that mining opportunities remained scarce; however, further construction at Glencore’s Tweefontein mine was progressing well. The mining division also secured some medium-sized contracts, as well as a number of smaller-scale contracts and extensions to existing local contracts, as well as contracts in Ghana, Mozambique  and Botswana.

Revenue from the Southern African Development Community region was broadly in line with that of the previous comparative period, supported by Sasol’s Shondoni mine and the Husab uranium mine, in Namibia. In Botswana, Lucara Diamond’s three-year long AK6 mining project had been completed, while the government’s raw water North South Carrier Pipeline would start commissioning in 2016, following the award for the replacement of a 28 km section of the existing pipeline to Gaborone. Various delays affected the profitability of this project.

Revenue from Mozambique had shown good growth during the period under reivew owing to WBHO securing new mining infrastructure projects at the Brazilian mining giant Vale’s Moatize mine and ongoing construction in respect of the Ressano Garcia power station and the EN4 road rehabilitation contracts.

Asked whether WBHO would look to broaden its horizons outside Africa and Australia, Nel said that there was “nothing on our radar”.

“We always look at opportunities that come past, but [we are] certainly not [expanding in] Europe, South America or the United Arab Emirates. But, in terms of the next year, we have to make sure that we don't have any lossmaking projects and we [will] really concentrate on the work at hand.

“[We need to ensure] that we get through the next 18 months and hopefully, if things [become] a little bit brighter out there, we will start looking abroad again,” he noted.

ORDER BOOK AND OUTLOOK
WBHO reported a 5% increase in its order book for the six months under review, up from R36.2-billion for the six months to June 2014, to R38.1-billion, reflecting a 14% increase in the Australian book, while the roads and earthworks book declined by 22%.

This had resulted in further dilution of the contribution from Africa to 31%.

The current mining sector environment together with the reduced activity within the road sector saw a decline in the roads and the earthworks order book in the six months under review; however, a number Rea-Vaya bus rapid transport (BRT) contracts in KwaZulu-Natal and Gauteng would provide work in the sector into 2016. “We have been fortunate to pick up six of these BRT contracts, much to the irritation of everybody who drives around town, I’m afraid,” he quipped.

WBHO subsidiaries Roadspan and Edwin Construction, which falls under the company's roads divison and both of which rely heavily on the road sector, had sufficient work on hand for the current year; however, replacement of these contracts was a concern.  “They are about 90% dependent on road contracts coming from government, [which means that] if government doesn't spend, these businesses will downscale,” Nel warned.

Activity levels in Botswana have been low for some time, although the pipeline sector in the region would continue to offer opportunities, the roads and earthworks division also secured a further phase on the North South Carrier Pipeline. Prospects in the mining, rail and road sectors in Mozambique were limited and the current low level of the oil price could delay the start-up of projects from the oil and gas sector.

In West Africa, the division was able to find sufficient work to keep the remaining resources there occupied.  The renewable-energy sector as well as opportunities in Africa remained a focus for the group’s projects team.

“It is really difficult to add anything positive in this climate. I think our industry is really facing a tough year or two ahead,” he noted. However, Nel pointed out that WBHO’s involvement in the $200-million,100 MW gas-fired power plant in Mozambique put the company’s foot in the door for future gas-related projects.

AUSTRALIA
In Australia, revenue in dollar terms increased by 6%, consisting of an 18% increase in revenue from the building division being partially offset by a 39% decline in revenues from the civils businesses. In rand terms, Australian revenue increased by 12%.

The building sectors in Melbourne, Sydney and Brisbane continued to provide significant opportunities for the construction industry.

“A growing  population is driving residential growth and the large-scale residential towers market, which has been particularly strong in Melbourne, is now also spreading to Brisbane and Sydney,” WBHO said.

Revenue from its Probuild subsidiary increased by 18% in dollar terms, where good growth across most of the building divisions was partially offset by a decline in revenue from Probuild Civils, as a result of three problematic contracts.

However, it secured two new major tower projects in Melbourne over the period under review and, having only recently entered the Brisbane building market, would be selective on which projects to bid.

Residential opportunities with Asian developers have also grown in Sydney and Probuild was “carefully” entering this market as it grew its teams and capacity in the city.

Retail remained a good source of projects in Melbourne and was also showing signs of improving in Sydney. Activity in the Perth building market, which has leveraged off the mining boom in the city in recent years, had slowed owing to the difficult conditions that faced this sector.

The traditional civil market in Western Australia declined, following the mining boom over recent years, while in Queensland the completion of all flood-related works had resulted in a declining market.

Both WBHO Civils and Probuild Civils were in the process of restructuring for the current environment, with future infrastructure spend likely to be directed toward Sydney and Melbourne.

Revenue from WBHO Civils declined by 18% as a result of declining commodity prices negatively impacting on the Australian mining sector. Completion of the Yara Pilbara Nitrates, formerly Burrup Nitrates, technical ammonia nitrate production facility in the Pilbara region and the Nyngan solar PV farm in New South Wales (NSW) have been problematic with significant losses  incurred in the current period. Both projects would be completed in the six months to June.

For the six months under review, WBHO declared a dividend of 110c a share.