WBHO believes SA’s construction cycle has bottomed

Despite the changing political landscape in South Africa, the construction industry, which has been in the doldrums over the last 24 months, will not immediately experience a change in fortunes, warns Wilson Bayly Holmes-Ovcon (WBHO) CEO Louwtjie Nel.

However, an increase in fixed investment arising from renewed business and investor confidence, together with added public spending should the economy improve, could only serve to benefit the construction industry in the long run.

“We have confidence we have reached the bottom of the cycle,” says Nel.WBHO’s interim results show that it continues to outperform the struggling South African construction industry.The group reported a 67.6% increase in operating profit to R485-million for the six months ended December 31, compared with the same period in 2016.

Revenue improved by 17.3% to R18.1-billion and entailed 29% growth in Australia following the award of a number of large‐scale projects, 64% growth from the rest of Africa, owing to increased activity in Botswana, and progress on mininginfrastructureprojects in Ghana, Guinea and Burkina Faso, and a 6% decline in revenue from South Africa, partly owing to a retreating building market.

The increase in profit was associated with revenue growth in Australia and within the Roads and Earthworks business. This was, however, diluted by lower profitability from the Building and Civil Engineering division, as building revenues contracted and margins came under pressure.

WBHO’s expansion into the UK has not yielded profit yet. Byrne Group, in which WBHO holds a 40% share, earned R1.1-billion in revenue for the period under review, but suffered a R68-million operating loss. 

Revenue at the Building and Civil Engineeringbusiness declined by 9.6% to R3.9-billion. Operating profit declined from R217-million to R169-million.The Roads and Earthworks business saw a 33.6% increase in revenue to R2.8-billion, with operating profit up from R144-million to R190-million.In Australia, revenue grew by 28.7% to R11.1-billion, with operating profit up from R101-million to R143-million.

WBHO’s Construction Materials business experienced an 8.3% decline in revenue to R397-million, while operating profit increased marginally to R10-million.The group’s order book as at December 31 increased by 17% to R52-billion, up from R45-billion at June 30, 2017.The South African Roads Agency Limited’s (Sanral’s) proposed new procurement requirements, which stipulate 51% black ownership for prospective bidders, remain a concern for the large industry players, “particularly listed companies with limited influence over their shareholders”.

The end of an empowerment scheme at WBHO has seen the group drop back under the 51% mark.