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R1.88bn government office accommodation project goes to WBHO

As group reports increase in public sector projects but further losses in Australia.
The Department of Rural Development and Land Reform’s new offices will be situated in the Pretoria CBD. Image: Waldo Swiegers, Bloomberg

JSE-listed construction and engineering group WBHO has been awarded a R1.88 billion public-private partnership (PPP) contract to build new office accommodation for the Department of Rural Development and Land Reform.

It is to be developed on the site of the old Berea Park cricket and soccer grounds at the southern entrance to Pretoria’s central business district.

WBHO said public sector infrastructure spending has been fast-tracked, with many shovel-ready projects accelerated across all of the group’s operations.

It said there has been a noticeable increase in South Africa in the availability of new projects from state-owned entities, including national roads agency Sanral, Eskom, Transnet, passenger rail agency Prasa and Rand Water.

Read: Infrastructure spending boost in the budget (Feb 24)

The group said renewable energy projects have also gained momentum under Eskom’s emergency energy round and that bidding in respect of Round 5 is expected to be launched in the second quarter of 2021.

However, WBHO continued to bleed from the troublesome Western Roads Upgrade (WRU) project in Australia in the six months to December 2020, which had a significant negative impact on the group’s financial performance for the period.

WBHO CEO Wolfgang Neff said on Wednesday the group was awarded the Department of Rural Development and Land Reform PPP project last week and started work on it the next day.

“We have been working on that PPP for 10 years to get it awarded,” he said.

Neff said the group’s road and earthworks division’s forward-looking pipeline in South Africa has improved significantly over the last quarter.

“For example, we have R10 billion of tenders in the office for Sanral and there is R5 billion of projects we have priced that still need to be awarded that we believe we have a reasonable chance of securing,” he said.

Read: Civil project awards increase to highest level in four years (Dec 2020)

Neff said Eskom has released large-scale projects at various power stations and, encouragingly, mining infrastructure opportunities have picked up as commodity prices have recently gained strength.

He said the renewable energy sector also offers opportunities for the group’s road and earthworks division.

Neff said the group’s project pipeline includes R11 billion of renewable energy projects, which is massive.

He said the projects pipeline comprises projects worth about R249.3 billion but these are only projects it believes will be awarded in the next 24 months.

Neff added that there was a notable reduction in the group’s project pipeline in Australia compared with the order book, but this is in line with the plan to reduce Australia to a smaller percentage of the business relative to the other divisions.

The group’s order book was largely maintained across all operating segments despite the challenging environment; it was at R35.36 billion at end-December 2020 compared with R35.77 billion the previous year.

The numbers

WBHO reported a 11% decline in group revenue to R20.4 billion in the six months to December from R22.9 billion in the previous corresponding period.

Revenue from Australia declined by 27% in Australian dollar terms due to the lockdown restrictions implemented in Melbourne and strict project selection aimed at securing more manageable and lower-risk projects for the right clients.

Operating profit before non-trading items slumped by 58% to R111 million from R264 million.

The decrease was primarily a result of the impact of Covid-19 on the Australian building business and an additional loss of Au$28 million provided for on the WRU project compared with the recognition of a loss of Au$20 million on this contract in the prior period.

Headline earnings per share plunged by 80% to 81 cents from 411 cents.

WBHO financial director Charles Henwood said the WRU project has been a material loss to the business and that the group has in essence accounted for a loss on this project of Au$160 million.

“It’s a huge huge loss to the business. In the period, we sent Au$34 million to Australia in effect to fund the losses on WRU. We are still anticipating an outflow to Australia to June of Au$37 million to close out WRU,” he said.

Henwood said the group is still below its operating profit margin target of 3% at 0.6% but if the loss on the WRU project was added back, it would have had a 2.2% profit margin.

“To get to 3%, we would have needed to achieve a profit margin in Australia based on the current mix of about 1.5%.

“We still think that with a reasonable result from Australia we can get within that operating profit margin range. The rest of our businesses are operating well above the bottom end of that range,” he said.

Further provisions on WRU ‘disappointing’

Peregrine Capital executive chair David Fraser said WBHO’s financial results were a mixed bag and it was disappointing that there were further provisions on the WRU project in Australia.

Fraser said WBHO has now made five provisions for the WRU project.

“They are just lucky they had such a strong balance sheet because this would have taken out most people [companies].

“There are not many companies that can write a R2 billion cheque and live to see the other side,” said Fraser.

He added that South African infrastructure contracts and potential contracts are “clearly the bright spot on the horizon”, adding that WBHO is obviously tendering smart on Sanral and probably happy to lose the first wave of contracts and perhaps get the second wave contracts at slightly better margins.

He said WBHO’s UK business has helped the group over the last 18 months but seems to now be coming off the boil, which is a little bit of a concern.

Shares in WBHO rose 0.16% on Wednesday to close at R99.50.

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What do Dept.of Rural Development and Land Reform need new offices for? What is wrong with the old offices. Not that this department did much work, rather close it down.

With thousands of empty office blocks in Pretoria one has to wonder why ?

I cannot believe that as the countries poor sink into homelessness and starvation, that the Govt can spend this kind of taxpayers money on another vanity project, it beggars belief.Somebody up there, please help us.

Some government and ANC officials pockets will be nicely lined. Project costs will explode to 4x plus the original budget. Just another vanity project to plunder tax payer’s money.

Nevermind WBHO: WHAT does dept of Land Affairs want to do with an office of ….R188bn!
If it was a bridge or road infrastructure, sure. But an OFFICE!

Sounds like something similar to Cele’s corrupt police offices deal at the Sanlam centre, Pretoria, a few years back

Moral of the story. South African companies and South Africans need to get out of Oz! Small and difficult market unless you want to be an employee for the rest of your life.

End of comments.

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