JSE-listed construction and engineering group WBHO is hopeful of a potential return to work in Mozambique, where it has a major contract for a camp facility at TotalEnergies’ liquefied natural gas (LNG) project and several Sasol contracts.
The group has also reported a 51% growth in its roads and earthworks division order book, to its highest level in 12 years.
Read: Wealth fund for $96bn Mozambique gas haul seen this year [2022]
The TotalEnergies gas infrastructure project in Mozambique was suspended in 2021 following insurgent attacks in the Cabo Delgado province, where it is situated. Presenting WBHO’s interim results on Wednesday, Group CEO Wolfgang Neff said positive signs are emerging that activity on the project may resume later in 2023.
Neff said towards the end of the six months to end-December 2022, the roads and earthworks division was awarded a contract for the advance site infrastructure works related to the large-scale gas infrastructure for Total, which may be a precursor to the resumption of the main works later in the year.
He said the group started with small enabling works to get the site ready for recommencement of work on the camp project.
Neff said Total has to take a decision on the recommencement of work and the overall number of people who can come back onto the project (given the risk of attacks).
“It’s all about evacuation. You can start with a small crew. You evacuate those quickly, but if you have thousands of people, the evacuation process is not that fast.
“That is really what it depends on and that is a decision that lies in Total’s hands. We are hopeful the work will still commence in this year, but we can’t really determine that with absolute certainly,” he said.
Neff admitted there are still some sporadic attacks throughout the top third of Mozambique.
He is however unconcerned about the possible financial risk to the group if work recommences and is then suspended again.
“When you talk about the insurgents, I think the suspension during the first incident has really set precedents on how we deal with mobilisations and demobilisations. Total have been very fair to us so we don’t believe there is financial risk for us if there is insurgency. What it will do is it will stop the revenue from flowing, but Total have been very fair and do settle on things that are out of your control,” he said.
Neff said that WBHO is not only targeting work in Palma (in Cabo Delgado) on the Total LNG project, but also has a number of projects in the Temane gas fields for Sasol, in southern Mozambique.
He added that the group has four different projects that are currently under construction in Temane.
Roads and earthworks’ growth
The roads and earthworks division grew its order book to R9.68 billion in the six months to end-December from R6.4 billion in the prior period.
It has secured further work since the end of the reporting period, totalling R5.7 billion, of which WBHO’s share amounts to R3.6 billion.
Neff said these include two mega project awards from the South African National Roads Agency (Sanral) on the N2, but stressed that these are long-term projects with the revenue feeding into the group over four years.
The growth in the roads and earthworks’ order book contributed to WBHO’s group order book increasing by 43% to record levels, at R26.5 billion at end-December, from R11.05 billion in the prior period.
Other markets
Neff said improved market sentiment is translating into consistent new work procurement, with private renewable energy opportunities remaining prevalent and increased opportunities within the London and Manchester markets in the UK.
He said the Australian chapter of the group’s history is fully finalised, with no further exposure.
This is a reference to the group’s decision in February 2022 to exit Australia, with the operating losses and ultimate derecognition of the Australian operations eroding about R4.5 billion in equity over three years.
Read:
Recovery to 12-year best
WBHO this week reported a 15% growth in group revenue from continuing operations to R10.3 billion in the six months to end-December, from R9 billion in the prior period.
Operating profit increased by 10% to R482 million from R438 million, with the overall margin contracting to 4.5% from 4.7% because of lower margins achieved in the UK.
The loss per share attributable to the discontinued Australian operations reduced to 188 cents per share in the current period from 3 131 cents at 31 December 2021.
This resulted in earnings per share from total operations of 640 cents, recovering from a loss of 2 535 cents per share.
The headline loss per share of 1 613 cents in the prior period improved to earnings of 630 cents per share.
Neff said the group’s earnings are now at their best levels in 12 years, and the order book and forward-looking pipeline have set a foundation for a growth trajectory, while the restrengthening of the group’s balance sheet is now progressing.
Read: WBHO grows order book by 43%, despite Australia exit
WBHO did not declare a dividend.
Cautious optimism
Rowan Goeller, an analyst at Chronux Research, said that without Australia, WBHO is “back to the old steady Wilson Bayly Holmes Ovcon”.
Goeller said “optimistic” is a strong word in the construction world, but WBHO’s management is reasonably confident about the outlook in South Africa and Africa for the next couple of years, which is coming through in the group’s order book.
He admitted the construction cycle has “not exactly been flying” but there is a very short list of large construction companies that are reliable, dependable, well-resourced and have the balance sheet to execute major projects.
“You are starting to see order books grow and margins will probably follow, which puts companies like WBHO and Raubex in a reasonable position,” he said.
“It means WBHO will be picking up market share.
“Overall, in a construction world where there haven’t been many management teams sounding fairly confident about their future, we are hearing that from WBHO.”
Shares in WBHO declined by 1.15% on Wednesday to close at R102.80 per share.
