A South African construction company that still makes a profit is a rare sight these days, yet Wilson Bailey Holmes-Ovcon (WBHO) this financial year yet again managed to buck the depressing trend of failing domestic construction companies, owing largely to gains made in geographies outside South Africa.
The group on Tuesday reported a 10% increase in revenue for the year ended June 30, to R35-billion, driven by 18% growth in the Australian market.
The operating profit before non-trading items of the group increased by 6%, to R1.05-billion, compared with R986-million in the previous year, resulting in an operating margin of 3%.
Included in non-trading items is the financial effect of the additional interest acquired in the Byrne Group, in the UK. The group in June increased its interest in the company from 40% to 80%.
WBHO said market sentiment in Australia and the UK was positive, while the local construction environment deteriorated rapidly.
In addition, activity in the group’s targeted markets in the rest of Africa remained relatively stagnant.
WBHO said revenue from the African business decreased by 2%, comprising a 7% decrease in South Africa and a 32% increase in revenue from the rest of Africa.
The decrease in local revenue was primarily attributable to lower activity within building markets and the knock-on effect on the construction materials business.
While local revenue from the Roads and Earthworks division was broadly in line with the previous year, the division showed growth across all regions in the rest of Africa.
The growth in Australia and the rest of Africa resulted in an increased contribution toward group revenue from 58% to 63%, and 6% to 7%, respectively, while the South African contribution dropped from 36% to 30%.
Operating profit from Australia increased by 7%, to R278-million.
The Building and Civil Engineering division saw a decline in operating profit from R385-million to R332-million.
Operating profit at the Road and Earthworks division increased from R342-million to R371-million.
In the UK, the Byrne Group suffered a R101-million loss.
WBHO said the Byrne Group had had a disappointing year owing to a lower order intake and a delay in the start of a number of secured projects.
Construction materials made a R5-million operating profit, up from R2-million in the previous financial year.
The group’s total order book at June 30 increased by 10%, from R45-billion to R49-billion.
The increase comprises a 32% and 17% decrease in the order books of the Roads and Earthworks and Building and Civil
Engineering divisions respectively, a marginal increase of 3% in the Australian order book and the inclusion of the Byrne Group order book in the UK.
The inclusion of Russells would add a further R4.6-billion to the UK order book, bringing the total order book to R53.8-billion.
WBHO on July 18 concluded an agreement in which it acquired a controlling 60% interest in Russells, a main contracting business located in Manchester.
South Africa makes up only 18% of the order book, with the rest of Africa at 3%, Australia at 66% and the UK at 13%.
No New Acquistions
WBHO was not currently looking at any new acquisitions in the UK, said CEO Louwtjie Nel on Tuesday.
“We have done two acquisitions in the UK and we need time to bed them down to make sure they produce the expected results.”
He said the construction group was not too worried about Brexit.
“There was a slowdown about 18 months ago when we purchased Byrnes. You could see the order book dropping a little bit, but it normalised again. We are not too concerned. We are a very small player in a very big market over there.”
Nel expected Byrnes to return to profitability in the new financial year.
South Africa also offered little opportunity for acquisitions.
“Our order book is down 26% in South Africa for the first time in as long as I can remember,” noted Nel.
“So things are really not good in South Africa. We can’t be much bigger here than we are currently. It would be difficult for us to grow in any sphere of the construction industry.
“Over the past seven years we have grown a total of 5% to 6% in South Africa, which is less than inflation, which means we have shrunk consistently for the past seven years in South Africa.
“This year looks like a big drop-off considering the order book here. Hopefully our work in the UK will balance us going forward.”