Construction company Wilson Bayly Holmes-Ovcon (WBHO) has made a provision of A$20m (R202.4m) for expected losses in the roads project it is working on in Melbourne, Australia, says CEO Wolfgang Neff.
This adds to the company’s losses on the project after a previous A$50m loss provision on the Western Roads Upgrade (WRU) project in Australia.
After Woolworths, WBHO has become the latest company to struggle in Australia. Woolworths has struggled to turn around the fortunes of its David Jones brand, which it bought in 2014.
The company is the only remaining construction giant that has held on to most of its value after several of its former peers, such as Basil Read and Group Five, succumbed to the dearth of construction work and filed for business rescue in 2018 and 2019, respectively.
Aveng and Murray & Roberts, the other former leading construction companies, have sold their local construction assets and exited the troubled industry.
WBHO has stayed afloat largely due to the success of its diversification strategy, especially the foray into the Australian market. Its subsidiary, Probuild, is one of Australia’s largest building construction companies.
But WBHO’s work in Australia has been in the spotlight since the group reported problems in the WRU project just more than a year ago. The loss-making contract loomed large over WBHO’s previous interim results. It sliced earnings per share and headline earnings per share for the six months to end-December 2018 by 82% and 80%, respectively.
The A$1.8bn WRU project entails eight high-priority road upgrades, road widening and intersection upgrades. WBHO is responsible for the project’s construction works. The project also includes the upgrading and duplication of six suburban arterial roads and the construction of two interchanges.
WBHO suffered the losses due to misinterpretation of the project’s technical specifications, resulting in the underestimation of the physical construction work required.
Neff said WBHO has made a further provision of A$20m for losses to be incurred on the WRU project.
Pursue claims
The contract is made up of eight separate packages. Neff said work on two of the packages has been completed, while the remaining six packages will be delivered between March and October 2020.
He said the company will proceed with plans to pursue claims against the design consultants, whom he declined to name.
The company also intends to pursue claims against the State of Victoria, the client in the project, he said.
Attempts to reach an amicable settlement with the design consultants have failed and the business will now pursue its legal rights as contemplated under the contract, WBHO said.
In another setback for the company in Australia, Probuild’s profits were hampered by delays in a construction project in Brisbane — the construction of a A$200m residential tower in the Brisbane city centre. Due to the delays, the company reported a A$12m loss on the project.
WBHO increased revenue from R20.1bn to R22.9bn. It attributed the increase to improved revenue from Australia and the UK. Revenue from the African operations was up 7%, with income from SA rising 6.9%.
Revenue from the UK increased 37% to R3.5bn, while operating profit was up from R104m to R149m.
It said Manchester-based contractor Russel WBHO increased revenue to £73.7m (R1.44bn) from £47.3m. The company said Russel benefited from a buoyant construction environment in Manchester.
WBHO shares fell 4.03% to R99.49 on Tuesday.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.