WBHO aims for Africa and higher margins with new division

2nd September 2013

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Construction group Wilson Bayley Holmes Ovcon (WBHO) has established an international civil engineering and building division to drive further growth in Central and West Africa, adding to the work the company’s roads and earthworks division was already doing on the continent.

WBHO CEO Louwtjie Nel said a range of its clients had asked WBHO to do work for them in Africa, but that it had “been a battle” for the company as it had too much work servicing existing clients in South Africa.

“The existing divisions got too stretched. We made a decision at the beginning of the year to formalise a civil and building division in Africa, and we put a formal division in place with a MD and estimating team.”

The division had already started work on its first project – a shopping centre in Ghana for a South African property developer.

“We are currently negotiating three more commercial developments in that same area for South African clients.”

The division has also secured work in Zambia and three building contracts in Northern Mozambique.

“Fortunately, we can ride a little bit on the back of our roads and earthworks team that has been there [in Africa] for so many years. It’s all about logistics; if you can get the logistics right, the jobs aren’t so difficult,” said Nel.

“This division is a little bit of a light in this darkness we have been going through in the last year,” he added.

“We prefer working in South Africa, but you do get better margins if you go to Africa.”

Nel’s comments came as the construction group on Monday reported a 32.9% increase in revenue, to R23.77-billion, for the year ended June 30, compared with the previous financial year, but a 5.4% drop in profit for the year, to R675-million.

The growth in revenue was assisted by a weak rand against both the US and Australian dollars.

WBHO’s operating margin dropped to 4%, down from the previous year’s 5.5%.

In South Africa, WBHO’s building division was doing well and was literally turning work away “on a daily basis”, said Nel.

“We are really through that trough, so margins are slightly better. It gives us the opportunity to select the type of work we prefer, the clients, the teams. That is a good news story,” noted Nel.

“Civil has been flat in the past year and will be difficult in the next year. The mines are not spending money – the only real work we are doing is on the coal mines. There are about four or five mines on hold. We don’t expect any fireworks this year. It is going to be a tough one.”

Nel said WBHO’s roads and earthworks division was “holding its own” in South Africa, but that the market remained “very competitive”. He believed it would be difficult for this division to show good growth in the current financial year.

In general, he expected WBHO’s business in the South Africa construction market to lift its head again, with the group perhaps now matured in Australia, with 51% of revenue in the past year earned in this country.

WBHO was currently battling three problem projects in Australia, in Melbourne, Sydney and Perth respectively.

Looking ahead into the current financial year, Nel said WBHO was “quietly optimistic” of a general improvement in its performance.

“We hope we can improve our margins going forward. We have to focus on protecting quality margins.”

WBHO’s order book stood at R24-billion on June 30, up 15.1% over the previous year’s number.

Just under 50% of this work was in South Africa, up from 33% in the previous financial year. Australia made up 45% of the order book, down from 58% on June 30, 2012. Africa made up the remaining 6%.

Competition Commission Update
South Africa’s Competition Commission in June imposed a collective R1.46-billion in penalties on 15 companies in the industry for collusive tendering related to projects concluded between 2006 and 2011.

WBHO received a penalty of R311-million, which the group said “had been fully provided for within current and previous reporting periods”.

However, the group had one remaining case to settle with the commission. This transgression fell outside of the fast-track settlement process, with no provision made to date.

Nel said the commission did not want to include the case in the fast-track process, as it had already started investigating the incident prior to the start of the fast-track process.

He said the group did not expect a “material fine” to result from the matter.

Edited by Creamer Media Reporter

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