WBHO to recognise R1.3bn provision in its next financial reporting period

This will be used to settle its obligation to financial institutions in Australia on behalf of its Australian operations.
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JSE-listed construction and engineering group WBHO has confirmed it will recognise a provision of R1.3 billion in its next financial reporting period for the settlement of its obligations given to financial institutions in Australia on behalf of the group’s Australian operations.

This follows WBHO last week announcing it had taken a decision to discontinue its financial support of its investments in Australia after experiencing severe challenges in its businesses in that country over the past decade.

Read: WBHO quits Australia, blames ‘hardline’ Covid response

WBHO said the impact of this event will also result in the next reporting period in the Australian operations being disclosed as discontinued operations, the derecognition of the associated net assets, liabilities and non-controlling interests and the recycling through profit and loss of the foreign currency translation reserve.

Analysts were critical of WBHO for not fully disclosing last week the anticipated financial impact of its decision to withdraw from Australia, particularly the guarantees provided by the holding company to its businesses in Australia.

WBHO disclosed in its financial results for the six months to end-December 2021, which were released on Tuesday, that the Australian businesses have been unable to complete projects on time nor been able to recover variation and delay claims, resulting in material losses of R988 million in the reporting period.

Read: WBHO: ‘Secrecy’ around holding company guarantees exposure to Australia irks analysts

It attributed this to the intended sale of the group’s Australian building business not materialising and the project delivery capacity of its Australian operations being negatively affected by the contractual environment and unplanned Covid-19 restrictions.

“Through a combination of border restrictions, snap lockdowns and mandatory work-from-home regulations for many sectors, the Australian government’s approach to managing Covid-19 infections has had a considerable impact on the construction industry,” it said.

WBHO noted that cash of R318 million was utilised in operations to fund losses incurred in Australia in the six months to end-December 2021.

It added that the future business climate in Australia is highly uncertain and difficult to predict.

Australia-China tensions

It said the current political tension between Australia and China and recent collapse of the Chinese property sector and subsequent financial difficulties being experienced by some Chinese developers, creates further uncertainty as Chinese developers have historically formed a large proportion of Probuild’s client base.

Probuild is WBHO’s Australian building subsidiary and one of the major operating companies of WBHO Australia.

China is also a major supplier of goods to the construction industry in Australia, it said.

“After lengthy deliberation and analysis, the board concluded that the additional funding and parent company guarantees necessary to support the Australian operations, in an environment where a return to profitability is materially uncertain, presents too great a risk to the group and its stakeholders,” it said.

Listen: WBHO management needs to repair its reputation

WBHO disclosed that over the past few years its Australian operations have required about R2 billion in equity funding from South Africa alongside significant parent company support given to guarantee providers in order to continue to operate.

“The group has the necessary support from South African financial institutions to honour its parent company obligations to financial institutions in Australia.

“The board has assessed liquidity and solvency of the group taking into consideration the honouring of its parent company obligations and is of the opinion that the group will remain a going concern for the next 12 months,” it said.

WBHO said the group faced a demanding six-month period in an environment that produced widely varying performances in the regions in which it operates.

Group revenue declined by 22% to R15.9 billion in the six months to end-December 2021 from R20.3 billion in the prior comparative period.

It said revenue was primarily affected by reduced activity in Australia and the UK.

“The operations in both regions experienced low levels of new work procurement, while the Australian operations were further hampered by reduced productivity levels arising from Covid-19 lockdown restrictions.

Read: New evidence in Cape Town’s R429.47m civil damages claim against construction companies

“Revenue from South Africa grew by 7% while revenue generated from the rest of Africa declined by 35%, mostly a result of reduced activity levels in Mozambique following the various suspensions and termination of projects on the LNG gas project in Palma last year,” it said.

Attacks by Islamic State-linked militants on Palma led to most businesses suspending work on projects, including the suspension by Total of its $20 billion natural gas export project.

Operating loss

WBHO reported an operating loss of R1.06 billion compared to a profit of R74.14 million in the prior period.

Diluted headline earnings per share deteriorated to a loss of 1 613 cents from the 81 cents earnings in the prior year. A dividend was not declared.

WBHO’s total order book increased by 7% to R29.8 billion from R27.9 billion.

It said order book levels within each geographic region remained consistent with those at end-June 2021.

WBHO said the group will likely face a challenging period ahead as it navigates through the consequences of its decision to cease funding of the Australian operations.

However, it noted that the outlook for both the African and UK operations remains positive and the waning severity of Covid-19 experienced during the fourth wave of infections worldwide will hopefully limit the scale of disruptions to economies and businesses in the near future.

“Declining government support for economies, rising interest rates and growing business confidence all indicate a sense of normality slowly returning to global markets, however, meaningful growth will probably remain muted over the short term,” it said.

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