Johannesburg - Wilson Bayly Holmes-Ovcon (WBHO) has voiced its concern about the potential impact of the current low growth economic environment on the public sector’s ability to fund future infrastructure projects.
The listed construction and engineering group made this comment in the context of its roads and earthworks division in recent years successfully redirecting resources into other markets as mining opportunities dried up.
Louwtjie Nel, the chief executive of WBHO, said yesterday that roads and earthworks activity had tapered off over the second half of the group’s financial year but had subsequently again shown improvement with the SA National Road Agency recently releasing a number of projects.
Nel said the challenging conditions within civil markets were evident in the 25 percent decrease in the roads order book to R3.7 billion in June from R5.1bn the previous year.
However, Nel said contracts worth R687m had been secured subsequent to the year-end.
Nel added that construction of the bus rapid transit projects in KwaZulu-Natal and Sandton and upgrades to the R24 to Rustenburg and N2 to Grahamstown would form the bulk of the local work from this sector in WBHO’s 2016 financial year.
Australian upsets
A disappointing performance by WBHO’s businesses in Australia, partly caused by four loss-making contracts by the civil engineering businesses together with various impairments totalling R161 million to the group’s Australian civil engineering businesses, hurt the financial performance of WBHO in the year to June.
The group also embarked on processes to right size its southern African civil engineering business and downsized both WBHO Civil and Probuild Civil in Australia during the year.
It has impaired all the goodwill in the group’s Australian civil engineering businesses, which amounts to R50m; impaired Monaco Hickey, a business focusing on the competitive Australian pharmaceutical and health-care markets, by R57m; and made impairments totalling R54m to the carrying value of plant and equipment within WBHO Civils (R45m) and Probuild Civils (R9m).
This resulted in earnings a share from continuing operations falling by 28.5 percent to 908.6c in the year to June from 1 270.8c in the previous year.
Headline earnings a share from continuing operations, which exclude the effects of the impairments, decreased by 13.5 percent to 1 105.7c. Revenue rose 15 percent to R29.5bn.
Operating profit slumped by 38.5 percent to R602.1m as the operating margin deteriorated.
Nel attributed this primarily to the operating margin achieved in Australia declining to 0.1 percent from 2 percent.
“Four loss-making projects within the group’s Australian civil businesses, combined with poor trading conditions in general, were the main contributors behind this disappointing performance,” he said.
An unchanged dividend of 368c for the year was declared.
WBHO’s total order book grew by 3.5 percent to R37.4bn.
Nel said this growth reflected increases to the order books of the group’s building divisions locally and in the rest of Africa and Australia.
The heavier weighting of lower-margin building and roadwork included in the order book meant margins were likely to stay at the lower end of the targeted range, he added.
Shares in WBHO on the JSE rose by 0.4 percent yesterday to close at R95.
BUSINESS REPORT