CANBERRA: Construction firm Wilson Bayly Holmes-Ovcon (WBHO) reported a 38% drop in full year operating profit as four loss-making projects in Australia, together with various impairments, offset strong revenue growth from that region.
The contracts in the civil engineering business included two road-building contracts in Queensland, a solar farm project in New South Wales and an ammonium nitrate project in North West Australia.
“We did not understand the complete risk of these projects at the bid stage,” WBHO CEO Louwtjie Nel said on Monday. “Some were poorly managed during the operational stage and in some areas, they ran over time,” he said.
Operating profit declined to R602m in the year ended June from R978m in the previous comparable period. Three of the four contracts were completed. The ammonium nitrate project is expected to be finished in October. WBHO wrote off assets to the value of R161m during the 2015 financial year, mainly in the Australian civil engineering business.
Included in the total impairments for the year was the R57m write-down of the group’s struggling Monaco Hickey unit, which operates in that country’s pharmaceutical and healthcare market. Despite the decline in operating profits during the year, Mr Nel was confident the group would deliver an improved performance in the next financial year.
He said the downsizing of the Australian civil engineering division had improved efficiencies, which boded well for future earnings. About 300 jobs were lost in the unit in the past year.
The Australian order book, which increased by 7% to R24.5bn during the period, had minimal exposure to civil engineering, where margins were expected to continue to remain pressured as plunging commodity prices cause mining companies to scale back expenditure.
The group’s total order book was up 3.5% to R37.4bn over the year. The group’s building markets division, Probuild, delivered strong top-line growth of 42% in the 2015 financial year. The division has secured a NZ$390m contract in New Zealand, the company said.
Management said it intended to increase its focus on securing public sector infrastructure projects in Melbourne and Sydney in the year ahead. “We currently have six projects we are bidding for in Australia’s public sector,” Mr Nel said.
WBHO recorded double digit revenue growth in its other African operations, although revenue in its home market continued to stall as government delayed spending on key infrastructure projects. Revenue from its local operations increased by 3%, while the rest of Africa grew revenue by 23%.
PSG portfolio manager Jan Mouton said he was pleased with WBHO’s performance, saying it fared better than its rivals Group Five and Aveng. He made specific reference to the company’s final dividend of 258c per share, which was 11% higher than the previous year. This brought the company’s total dividend to 368c.
