Wilson Bayly Holmes Ovcon (WBHO), the largest remaining construction firm on the JSE, has warned of a R1bn profit hit after Covid-19 disrupted projects and spooked its clients.
The pandemic has resulted in lengthy project delays as activity either reduced or ceased entirely, WBHO said in an update, further warning that its order book is weak, and a resurgence of the pandemic in Australia and the UK has further hit productivity.
WBHO expects a headline loss per share of up to 979c in its year to end-June, from profit of 932.3c previously. This implies a profit swing of just over R1bn for the group, which was valued at about R5.8bn on the JSE on Wednesday.
The group said profits fell in Africa and rose in the UK, and while revenue grew in Australia, it was overshadowed by even more problems for its embattled Western Roads upgrade project in Melbourne.
The project has proved a major headache for WBHO, although its offshore diversification has helped it survive even as its local peers faded. The company is the only remaining construction giant that has held on to most of its value after several of its former peers either filed for business rescue or sold their construction businesses as the sector lost its shine.
Former construction greats, Basil Read and Group Five, filed for business rescue in 2018 and 2019, respectively. Group Five and civil engineering group Esor, which had also gone into business rescue, delisted from the JSE in June.
Aveng and Murray & Roberts, the other former leading construction companies, have sold their local construction assets and exited the industry, pursuing mining and engineering contracting, respectively.
WBHO had misinterpreted the technical specification of the A$1.8bn (R21bn) project in Melbourne Australia, leading to cost overruns, which it first informed the market of in early 2019.
The project entails eight high-priority road upgrades, the widening of road and intersection upgrades, with WBHO responsible for construction works.
WBHO said on Wednesday that it had reached payment terms with the state of Victoria for the project, thus reducing risks regarding its cash flow. Unfortunately, costs continued to rise, amid issues, including design finalisation, utility provider delays, and subcontractor failures, the group said.
Revenue from the Australian operations is expected to increase by between 10% and 20%, however, the material losses incurred, worsened by Covid-19, have resulted in the operating loss for that business increasing by between 260% and 270% — or a loss of about R900m.
WBHO entered the Australian market in 2001 after acquiring an initial 40% interest in Probuild, which it has steadily increased to 88%. The business generated about 40% of the group’s revenue in its 2019 year.
The group announced in June that it had received an offer for Probuild, saying on Wednesday that agreement has been reached on a majority of key terms, and that negotiations are well advanced.
WBHO also said it is “exceptionally difficult” to forecast in the current environment of economic uncertainty, but while it expected short-term pressure, it had R7bn in cash reserves at the end of June.
“The knock-on effect of Covid-19 on the global economy resulted in a number of imminent awards being delayed,” the group said. “The negligible intake of new work over the last quarter of the reporting period has had a detrimental effect on the secured order book and forward-looking pipeline of the group,” the statement read.
In morning trade on Wednesday, WBHO’s share was down 4.34% to R96.26, on track for its worst day in about two months.
The group’s share has fallen some 30% so far in 2020.
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