Nightmare Down Under
Once the bluest of construction blue chips, WBHO has suffered the humbling collapse of its Australian business, Probuild, leading to an unprecedented first-half loss of R1.5bn for the period ended December. The FM spoke to CFO Charles Henwood.
There was some uncertainty over whether WBHO has fully quantified its liabilities in Australia — are there going to be any more financial shocks?
CH: We’ve disclosed the two company guarantees. One is for the WRU [western roads upgrade] project — the project that caused us probably the most pain in Australia — that guarantees the contractor’s obligations to do the work. That guarantee we’ve got to commercial acceptance, and we need to get to final completion. You can’t put a value on that guarantee, it’s about performance, not value — in other words, getting the job completed.
Then we’ve got a guarantee that supports a facility with the Commonwealth Bank of Australia and that is A$119m. Included in that facility is the maintenance guarantee for WRU of A$16m.
Is anything at all salvageable from Australia?
CH: The board decided not to fund Australia because the consequences of these continued losses just got too much. We’ve provided R1.25bn and the only parts that could be salvageable is if we spend less than the R1.25bn. Only time will tell.
Did WBHO wait too long to pull the trigger? Were you too hopeful that things would improve?
CH: Hindsight is a wonderful science, but the reality is that these guarantee facilities that we are now exposed to were at much higher levels in the past. We believed that things would improve so we kept funding it, and we needed to get WRU through to commercial acceptance otherwise the exposure there could have been double what it is now.
The Australian Financial Review suggested that Probuild’s collapse could be the start of a “broken system” — would you agree, or was it WBHO’s own missteps that led to this?
CH: The difficult thing in Australia, I suppose, is the risk-reward, and the risk from a contractual perspective is much higher than we see here in SA. And the reward is not high in proportion to that risk. And the consequences of Covid made it extremely difficult in Australia. The rules weren’t clear-cut and when it’s not clear-cut then everyone thinks the responsibility doesn’t sit with them.
There are fears that WBHO might need to do a rights issue.
CH: We certainly haven’t planned for a rights offer. What was really important in making this decision [to close Probuild] is that we had SA financial institutions supporting us. It was like cutting off a cancerous leg and the rest of the business is strong, but we needed their support. If we didn’t have their support it would have been much more difficult. We think the business is able to honour its commitments and work through this issue.
But is the rest of the business as strong as you say? Revenue in the UK fell 29% in rand terms and operating profit almost halved, for example.
CH: In the UK, work dropped off quite significantly and that’s really due to Brexit and then Covid. But developers are starting new projects; we’ve put a lot of work into the UK and we think there’s opportunity for that to improve. We still think there’ll be a bit of a lull to our financial year to end-June but 2023 will start to pick up again. The other two divisions [SA and Africa] have held their own and done reasonably well.
WBHO’s results may have punctured the hope that things were finally starting to come right for the sector. How do you see it?
It was so difficult to put a pin on what Australia was actually going to cost us
CH: From an SA perspective, there’s a huge amount of work sitting in the infrastructure space that’s taking quite some time to be awarded. So I think there’s a lot of opportunity there, and from an Africa perspective as well.
Commodities have also helped us manage a delay in the state awarding work, so the mining sector has helped quite considerably. Often we would see opportunities where, if we’d invested some money, we could have created work for ourselves and some good returns, but because we were having to send money to Australia we just weren’t doing that.
It was so difficult to put a pin on what Australia was actually going to cost us.
To be honest, at the end of the last financial year we thought we’d got through: we paid a dividend, we had commercial acceptance and then all these issues started popping out. It got terribly bad in December, and from December to when the board made the decision it got even worse.