South Africa's construction industry was heading for a tough period in 2011 and 2012, said Wilson Bayly Holmes – Ovcon Limited (WBHO) chairperson Mike Wylie on Monday, announcing the construction group's financial results for the year ended June 30.
“At the moment, 2010 is still looking good.”
Wylie said it seemed as if government's planned R787-billion infrastructure programme was experiencing some funding pressure on the back of the economic crisis.
WBHO CEO Louwtjie Nel concurred, noting that 20% of this infrastructure budget was due to be spent in WBHO's markets, which meant a R150-billion pipeline of possible work for the company.
“In reality it could be half of this. Eskom and others are worrying us. There is pressure on funding.”
Wylie added that margins were tightening, and that they were much more likely to move downwards over the next two years, rather than upwards.
The company's operating margin dropped from 8,3% last year to 7,1% this year, reflecting the tighter conditions the construction sector had been experiencing at home and abroad.
However, Wylie believed WBHO was well-positioned to tackle the difficult times ahead, pinning his hopes on the company's R15,3-billion order book, as well as a strong balance sheet, which included R4-billion in cash.
Only R1,9-billion of the order book was World Cup related.
The order book stood at R18,3-billion at the same time last year.
Wylie said WBHO's strong cash position provided the company with “great opportunities for acquisitions”.
“It may be good . . . to fill up gaps we might have.”
Group turnover for the financial year ended June 30 was 37% higher, at R14,8-billion, while operating profit was up 16%, at R1-billion.
Headline earnings a share were 27% higher.
Wylie said he was pleased with this increase, considering that headline earnings growth had exceeded 70% for the past three years.
WBHO declared a final dividend of 200c, resulting in a total dividend for the year of 300c.
Divisionally, the roads and earthworks division had an exceptional year, with a 70% increase in turnover to R4,6-billion, said Wylie.
The division was busy on a host of major projects, including a R1,9-billion share in the Gauteng Freeway Improvement Project; the new King Shaka International Airport in Durban; a R700-million waterline replacement project for the eThekwini Metro; as well as several large mining and infrastructure projects in Botswana, Ghana, Zambia, the Democratic Republic of the Congo, and Mozambique.
The building and civil engineering division, which was more reliant on the private sector than the public sector, had been impacted negatively by the diminishing pool of development finance and the reduced global demand for commodities and resources, said Wylie.
However, the division still increased its revenue to R10,2-billion, with the Australian operation making a R4,7-billion contribution.
The division had already completed work on the new central terminal building at OR Tambo International Airport, as well as the Morningside shopping centre, and had started work on a number of shopping centres in Tshwane, Polokwane, Sandton, Rosebank, and the Eastern Cape.
In addition, the division was still active on construction work at the Peter Mokaba stadium, in Polokwane, and the Moses Mabhida stadium and the King Shaka International Airport, in Durban.
Included here were three hotels for 2010.
Offshore, WBHO’s Australian subsidiary, Probuild Constructions, increased turnover by 51% to A$661-million.
Sales in the company’s two property developments were slow because of the fall-off in the real estate market.
Similarly, conditions in the industrial division, where the group was invested in companies associated with steel pipe-making, ready-mix and quarrying operations, were also depressed because of the unfavourable economic climate.
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