WBHO makes provision for A$50m loss on Australian contract |
SHARES in Wilson Bayly Holmes-Ovcon (WBHO) rose by 3.20 percent on the JSE yesterday to close at R116 after reporting a significant negative impact on its financial results for the six months to December from an unprecedented A$50 million (R497m) loss provision on a contract in Australia. WBHO earlier this month in a trading update notified shareholders about the loss-making contract.
The group has also lamented the poor construction environment in South Africa. WBHO yesterday reported an 80 percent reduction in diluted earnings a share to 145.5 cents from 726.6c in the prior period, despite revenue growth of 11.2 percent to R20.1 billion from R18.1bn.
But total operating profit slumped to R3m from R510m as WBHO provided for the anticipated losses to be incurred on the Western Roads Upgrade (WRU) project in Australia.
The Australian business made a R445m operating loss compared to a R143m operating profit in the prior period. A dividend was not declared.
WBHO’s total order book grew by 1.9 percent to R50.1bn at end-December from June last year.
Louwtjie Nel, the chief executive of WBHO, said strong delivery from both the building business and the western region of the infrastructure business in Australia in the reporting period was overshadowed by the material loss identified and provided for on the WRU project in Melbourne.
“The size of the loss provision recognised is unprecedented, not only for the Australian business but for the entire WBHO group,” he said.
Nel said the main reason behind the loss recognised related to interpretation of the technical specification, which resulted in the underestimation of the physical work required to be performed to meet the output specifications of the contract.
He said an extensive due diligence was performed, with the outcome of this exercise leading to a loss provision of A$50m being recognised together with a write-back of A$6.9m in profit recognised in the 2018 financial year.
“There are a number of recovery options available to the group in terms of both delivery of the project and claims. Significant focus is being placed on the resolution of these options,” he said.
The South African business grew operating profit by 4.8 percent to R273.96m, the Rest of Africa by 6 percent to R69.4m and the UK by 4.1 percent to R104.4m.
Nel said the uncertain South African political and business environment over recent years has had a devastating effect on the local construction industry, particularly over the last 12 months.
“The failure of various mid-tier contractors together with financial distress within a number of large listed companies have had profound consequences that have extended into the subcontractor market, resulting in significant job losses for the South African workforce,” he said.
But Nel said reduced capacity within the construction industry as a whole had meant that WBHO should substantially maintain activity levels over the short term.