WBHO held back by Australian losses


WBHO held back by Australian losses

Published Date: 2019-09-04 | Source: Stephen Gunnion | Author: Stephen Gunnion

WBHO held back by Australian losses

The engineering and construction group says a number of new large public sector contacts could reignite the local industry.

Wilson Bayly Holmes-Ovcon (WBHO) has taken a big hit from a roads project in Western Australia, marring an otherwise positive year for the engineering and construction group.

It said solid performances from its operations across Africa and the UK were overshadowed by the recognition of a significant provision it's made in anticipation of losses on the Western Roads Upgrade project.

The project is aimed at widening roads and upgrading intersections in Melbourne's western suburbs. WBHO Infrastructure is the lead contractor responsible for the delivery of the project to the concession company. It said the scope of work had been misjudged. Following a due diligence study, it decided to recognise a loss provision of $50 million together with a write-back of $6.9 million in profit that was recognised last year. It has to make provisions this year for the losses it expects to incur over the next 18 months in line with International Financial Reporting Standards.

Despite the losses it provided for, it said market conditions in Australia remained buoyant and its building and infrastructure businesses in the Western region continued to perform satisfactorily.

In the UK, the London-based Byrne Group returned to profitability and the Manchester market remained healthy, resulting in a solid performance from the newly-acquired Russells Limited. Although overall SA construction activity continued to subside, it said its local business held up in difficult conditions to sustain revenue levels. In the rest of Africa, building and mining activity in West Africa remained heavily subdued, but was offset by increased activity in Botswana and Zambia.

Revenue rose 16% to R40.6 billion in the year to end-June, buoyed by the first-time consolidation of its UK operations. But operating profit dropped 50% to R513 million due to the impact of the Australian loss provision. Earnings per share (EPS) fell 39% to 939c and headline EPS declined by 34% to 932c. It didn't pay an interim dividend but has declared a final dividend of 190c per share. Last year's total dividend amounted to 475c.

Its order book declined by 4% to R47 billion at the end of June.

WBHO said it was well positioned for its 2020 financial year and that a number of state-owned enterprises including the Airports Company SA, Transnet and SANRAL had advertised multiple multi-billion rand construction contracts, which could result in an improvement in the local construction environment over the medium term. However, it said the capacity of the industry had been severely reduced with the spate of corporate failures and exits from the market, resulting in minimal training within the sector and a significant emigration of skills.

The group's shares closed 4.2% higher at R105 yesterday.

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