Serious bitumen shortages drive WBHO to consider imports as earnings decline

SERIOUS shortages of bitumen and persistent supply problems have resulted in construction and engineering group Wilson Bayly Holmes-ovcon (WBHO) considering importing the product itself.

Also known as asphalt or tar, bitumen is a crucial ingredient in the building and rehabilitation of roads.

Louwtjie Nel, WBHO’S chief executive, said yesterday that the shortages of bitumen were serious and the group operated on “a bit of a shoestring” every time there was a supply delay.

Nel said WBHO could not have a business that depended on one product, given the supply problems.

Feasibility studies on the import of bitumen should be completed next month.

Nel said there was a cost premium of between 10 percent and 20 percent on imported bitumen, but he stressed that the standing costs on road projects were high.

However, not all the road contract problems experienced by WBHO were related to bitumen shortages.

WBHO has six Free State road projects worth a total of about R1.2 billion, each with four contractual milestone payment events. The first payment was made in October 2010 but the second was only partially paid, resulting in suspended work. A total of R245 million was owed and WBHO would only recommence work once full payment was received.

The group was involved in discussions with the client to resolve the short payment but it only expected this to happen once the Free State provincial government received its next budget allocation in April.

Margin pressure and a loss by WBHO’S civil business in Australia hurt the financial performance of the group in the six months to December.

Headline earnings a share slid by 19.5 percent to R6.33 from the corresponding period before, while revenue advanced 16.5 percent to R8.4bn.

Operating profit fell by 15 percent to R480.8m and the firm’s operating margin dipped to 5.5 percent from 8.5 percent.

However, Nel stressed that the operating profit performance of the group was comparable with the second half of its previous financial year.

He believed the group’s performance for this financial year would be “flat or going in the right direction”.

Cash from operations rose 14 percent to R315m and an unchanged interim dividend of R1.10 a share was declared.

Nel said although the business environment was still affected by the uncertain global markets, the group’s order book increased to R21.1bn at the beginning of this year from R16.2bn in June last year.

About 50 percent of its order book was in Australia, with the balance split equally between building and civil engineering and roads and earthworks.

The geographical split of the group’s order book was now 61 percent 39 percent local.

Nel said the group would keep going where the work was and although it was likely to boost its South African turnover, WBHO did not want to lose the work it had obtained on the African continent.

He confirmed he was “quietly optimistic” about the government’s latest commitment to infrastructure expenditure, although there had been delays in the past.

The group had more than

foreign and doubled its order book in Africa over the past year and expected some growth from Australia but was “treading water” in South Africa.

Nel said there were good opportunities in renewable energy. If the government’s infrastructure spending came through it would create a fantastic platform for the group, and the construction operating environment could improve “a lot quicker than you think”.

The shares rose 1.38 percent to R117.80 on the JSE yesterday.