WBHO moves to adjust to lower commodities outlook

11th September 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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The slow Australian market and a declining mining sector took their toll on construction group Wilson Bayly Holmes-Ovcon (WBHO) for the year ended June 30, with operating profit sliding to R602-million, down sharply from the previous year’s R978-million.

Earnings a share of continuing operations were down 29%, to 908.6c a share. Revenue from continuing operations, however, was up 15%, to R29.5-billion.

The decrease in operating profit was primarily due to the Australian margin declining to 0.1% (2014: 2%), resulting in a decrease in the overall margin from 4% to 2.7%.

Four lossmaking projects within the group’s Australian civils businesses, combined with poor trading conditions in general, were the main contributors to the disappointing performance.

“We saw this coming over the last 18 months as commodity prices started dipping,” said WBHO CEO Louwtjie Nel.

During the year the group disposed of its interests in Bela-Bela, a quarry in Botswana, as well as Dywidag Systems International.

The groups’ building and civil engineering businesses increased operating profit from R329-million, to R352-million for the year ended June 30.

The buildings business was performing well, said Nel.

In the civil engineering business construction of the main civil works at the Kusile power station was complete.

An agreement has been reached with Eskom in respect of the variations and outstanding claims relating to the project, added Nel. He did not want to divulge the value of the agreement, noting only that it “was amicable. We were treated fairly”.

Following the low activity levels within the mining sector, which continued to impact the volume of work on hand, and the release of a significant number of resources from Kusile, a process of ‘right-sizing’ the division was completed in the second half of the financial year.

Around 1 600 permanent jobs were cut, said Nel, making WBHO the latest in a string of local construction firms to reduce staff numbers sharply.

The Road and Earthworks division experienced weak trading conditions, with operating profit declining from R414-million, to R380-million.

In the Australian division operating profit for the year ended June 30 fell from R250-million in the previous year to R11-million.

The building market in Australia was viewed as buoyant, but margins were still competitive.

Revenue from civils in Australia decreased by 29% as mining activity in Western Australia remained subdued. Probuild Civil had also been unable to replace work secured in the flood relief programmes in Queensland.

Of four lossmaking projects still on WBHO’s books in this business, three were completed in the second half of the year, with the remaining project due for completion in October. Claims relating to these projects would be finalised in the first half of the new financial year.

Around 300 permanent posts were made redundant in WBHO’s civils businesses in Australia, said Nel.

WBHO’s order book on June 30 had increased by 3.5% over the prior period, to R37.4-billion, reflecting increases in the group’s building divisions locally, as well as in the rest of Africa and Australia.

Around 66% of the order book was in Australia.

Nel expected South African civils turnover and margins to remain under pressure in the new financial year. In Australia building would remain strong, with no more downside expected in the civils businesses.

“Until commodities come back, this is the new normal we are operating under, and we will keep on adjusting our business to this environment.”

Competition Commission
WBHO continued “to develop its defence” with regard to the World Cup Stadia case, referred to the Competition Tribunal, and the civil claim received from the City of Cape Town on the stadium built in the Western Cape capital.

Both of these cases linked to the Competition Commission’s successful probe into collusion in the local construction industry.

WBHO was confident it could defend these cases and had not made a provision in this regard.

Nel said there had not been significant progress on either case, in what appeared would be drawn-out legal wrangles.

A newer development was that the Construction Industry Development Board had given notice to the 15 contractors who had agreed a R1.46-billion settlement with the Competition Commission following the collusion investigation, of its intention to launch an inquiry into the conduct of these contractors.

“We are challenging this inquiry,” said Nel. “We are opposing the process on the basis that the code we are being held liable for did not apply at the time. We also believe the State has already dealt with the issue through the Competition Commission.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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