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UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2012 RELIABILITY IS AT THE CORE OF THE GROUP‘S BRAND AND CULTURE AND IS AN INTEGRAL PART OF OUR DAILY OPERATIONS HIGHLIGHTS COMMENTARY WILSON BAYLY HOLMES – OVCON LIMITED Building and civil engineering contractors (Registration no. 1982/011014/06) ISIN No: ZAE 000009932 Share code: WBO Sponsor: Investec Bank Limited www.wbho.co.za CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE % change Unaudited December 2012 R‘000 Unaudited December 2011 R‘000 Audited June 2012 R‘000 Revenue 43,4 12 021 058 8 383 564 17 893 351 Operating profit before non-trading items 21,7 566 304 465 269 975 702 Impairment of goodwill (9 112) (18 125) (23 220) Purchase consideration refund 9 720 – – Fair value adjustments to investments – (82) (80) Impairment of financial assets (5 000) (3 000) (9 398) Profit on disposal of investments – 41 903 41 982 Share-based payment expense (11 232) (5 131) (10 420) Operating profit 550 680 480 834 974 566 Share of profits and losses from associates (9 604) (17 010) (39 538) Income from investments 66 776 94 054 195 029 Operating income 607 852 557 878 1 130 057 Finance costs (11 307) (6 364) (13 894) Profit before taxation 596 545 551 514 1 116 163 Taxation (184 150) (168 865) (403 003) Profit for the period 7,8 412 395 382 649 713 160 Operating margin 4,7% 5,5% 5,5% Profit attributable to Equity shareholders of Wilson Bayly Holmes-Ovcon Limited 380 120 360 626 648 754 Non-controlling interests 32 275 22 023 64 406 412 395 382 649 713 160 Reconciliation of headline earnings Attributable profit 380 120 360 626 648 754 Adjusted for: Impairment of goodwill – group 9 112 18 125 23 220 Impairment of goodwill – associates – 1 498 6 334 Impairment of financial assets – group 5 000 3 000 9 398 Impairment of investment – associates 14 669 – – Loss/(profit) on disposal of investments – group – (41 903) (41 982) Loss/(profit) on disposal of investments – associates 91 (1 024) 2 919 Loss/(profit) on disposal of property, plant and equipment 3 454 700 (4 582) Tax effect thereof (3 250) 5 328 (4 795) Headline earnings 18,1 409 196 346 350 639 266 Ordinary shares Issued (‘000) 66 000 66 000 66 000 Weighted average number of shares (‘000) 55 574 54 727 54 795 Diluted weighted average number of shares (‘000) 56 130 54 917 55 092 Earnings per share (cents) 3,8 684,0 659,0 1 184,0 Diluted earnings per share (cents) 3,1 677,2 656,7 1 177,6 Headline earnings per share (cents) 16,3 736,3 632,9 1 166,7 Diluted headline earnings per share (cents) 15,6 729,0 630,7 1 160,4 Dividend per share (cents) 22,7 135,0 110,0 352,0 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited December 2012 R‘000 Unaudited December 2011 R‘000 Audited June 2012 R‘000 Profit for the period 412 395 382 649 713 160 Translation of foreign entities 33 351 110 653 82 435 Share of associates‘ comprehensive income/(loss) (1 250) (5 558) 6 646 Total comprehensive income for the period 444 496 487 744 802 241 Total comprehensive income attributable to Equity shareholders of Wilson Bayly Holmes-Ovcon Limited 412 221 465 721 737 835 Non-controlling interests 32 275 22 023 64 406 444 496 487 744 802 241 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Unaudited December 2012 R‘000 Unaudited December 2011 R‘000 Audited June 2012 R‘000 ASSETS Non-current assets 3 232 518 2 700 544 2 947 975 Property, plant and equipment 1 874 988 1 609 474 1 657 974 Goodwill 469 361 413 139 460 063 Investment in associates 409 122 410 332 420 362 Other non-current assets 479 047 267 599 409 576 Current assets 7 637 156 6 380 676 8 298 365 Other current assets 4 634 308 3 650 257 5 229 481 Cash and cash equivalents 3 002 848 2 730 419 3 068 884 Total assets 10 869 674 9 081 220 11 246 340 EQUITY AND LIABILITIES Capital and reserves 4 300 096 3 975 565 4 228 160 Ordinary share capital and reserves 4 043 449 3 674 690 3 955 781 Non-controlling interests 256 647 300 875 272 379 Non-current liabilities 174 017 207 419 163 033 Long-term financial liabilities 142 557 177 647 151 411 Other non-current liabilities 31 460 29 772 11 622 Current liabilities 6 395 561 4 898 236 6 855 147 Other current liabilities 6 395 561 4 898 236 6 855 147 Total equity and liabilities 10 869 674 9 081 220 11 246 340 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Unaudited December 2012 R‘000 Unaudited December 2011 R‘000 Audited June 2012 R‘000 Ordinary share capital and reserves at the beginning of the year 3 955 781 3 371 904 3 371 904 Profit for the period 380 120 360 626 648 754 Other comprehensive income for the period 32 101 105 095 89 081 Share of movement in associates‘ equity (983) 2 175 7 969 Dividend paid (143 324) (139 020) (203 613) Treasury shares sold/(acquired) (1 023) – 47 512 Share-based payment expense 11 232 5 131 10 420 Goodwill arising from business combinations (190 455) (31 221) (16 246) Ordinary share capital and reserves at the end of the period 4 043 449 3 674 690 3 955 781 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited December 2012 R‘000 Unaudited December 2011 R‘000 Audited June 2012 R‘000 Cash generated from operations 637 581 315 161 1 021 546 Income from investments 59 045 94 054 116 570 Finance costs (11 307) (6 364) (13 593) Taxation paid (93 685) (215 366) (381 377) Dividends paid (143 324) (139 020) (203 613) Cash retained from operations 448 310 48 465 539 533 Net cash flow from investing activities (589 398) (295 551) (300 748) Net cash flow from financing activities 75 052 111 126 (36 280) Net (decrease)/increase in cash and cash equivalents (66 036) (135 960) 202 505 Cash and cash equivalents at the beginning of the year 3 068 884 2 866 379 2 866 379 Cash and cash equivalents at the end of the period 3 002 848 2 730 419 3 068 884 SEGMENTAL INFORMATION % margin Unaudited December 2012 R‘000 Unaudited December 2011 R‘000 Audited June 2012 R‘000 Segment revenue – Building and civil engineering 3 154 710 2 615 515 5 233 396 – Roads and earthworks 2 683 731 1 924 161 4 279 162 – Australia 6 168 007 3 811 648 8 291 229 – Other operations 14 610 32 240 89 564 12 021 058 8 383 564 17 893 351 Segment operating profit – Building and civil engineering 4,4 138 933 142 876 272 028 – Roads and earthworks 10,7 287 579 230 662 492 124 – Australia 2,2 133 821 81 181 203 373 – Other operations 40,9 5 971 10 550 8 177 566 304 465 269 975 702 BASIS OF ACCOUNTING The unaudited consolidated interim financial statements have been prepared in accordance with the framework concepts, the recognition and measurement criteria of International Financial Reporting Standards (IFRS), the information required by International Accounting Standard 34: Interim Financial Reporting, the JSE Listing Requirements and the requirements of the Companies Act of 2008 as amended. The accounting policies adopted in the preparation of these financial statements are consistent with those used to prepare the comparative interim financial statements and the annual financial statements for the period ended 30 June 2012. The information disclosed in these statements has not been reviewed nor reported on by the group’s auditors. OVERVIEW OF RESULTS The group increased revenue by 43,4% from R8,4 billion to R12 billion for the six months to December 2012. All divisions showed increased revenue with a major increase of 61% for Australia resulting from increased activity in the high rise residential market. The effect of the competitive conditions within both the local and Australian markets and the effect of increased revenue in Australia is evident in the overall reduction of the group’s operating margin from 5,5% to 4,7%. Operating profit before non-trading items increased by 21,7% to R566 million following the increase in revenue. Earnings per share increased by 3,8% to 684 cents per share (2011: 659 cents per share) and headline earnings per share increased by 16,3% to 737 cents per share (2011: 633 cents per share). Headline earnings per share has been adjusted for WBHO’s share of Capital Africa Steel’s (CAS) impairment of investment in Alert Steel of R15 million, Renniks’ goodwill impairment of R9 million and the impairment of a minor investment in a hotel in Sandton of R5 million. Investment income has decreased by R27 million as a result of interest not being charged on the CAS loans as the group is in the final stages of formalising the capital structure of CAS. Cash generated from operations amounts to R638 million compared to R315 million generated in the comparative period. The group’s capital expenditure to date amounts to R345 million against an authorised budget of R733 million for the financial period ending 30 June 2013. Cash balances have decreased by R66 million for the six months ended 31 December 2012 to R3 billion due to capital expenditure and transactions with owners in Australia. Financial guarantees issued to third parties amount to R5,1 billion compared to R4,5 billion as at 30 June 2012. TRANSACTIONS WITH OWNERS On 2 July 2012 WBHO Australia Pty Ltd entered into a share sale agreement to sell its 100% ownership in WBHO-CARR Pty Ltd for a consideration of 5 million shares in WBHO Civils Pty Ltd. The effect of the transaction was to change the shareholding of WBHO Civils Pty Ltd as follows: Before After WBHO Australia Pty Ltd 46,3% 70,9% Probuild Construction (Aust) Pty Ltd 46,6% 25,0% Non-controlling interest 7,5% 4,1% Goodwill of AUD$1,3 million was recognised in the consolidated statement of changes in equity. On 20 September 2012 WBHO Australia Pty Ltd purchased a further 2,73% from the non-controlling shareholders of WBHO Civils Pty Ltd for AUD$0,9 million. On 5 September 2012 the group acquired an additional 4% interest from a founding shareholder in Probuild in terms of the shareholders agreement at a cost of AUD$10 million. Thereafter Probuild acquired the remaining 49,9% interest in Contexx. The purchase consideration of AUD$32 million was settled partly in cash to the value of AUD$19 million and the balance of AUD$13 million through the issue of 2,3 million shares in Probuild. The effect of the share issue reduces the group’s interest in Probuild from 82,5% to 76,6%. Goodwill of AUD$21,4 million was recognised in the consolidated statement of changes in equity. On 26 October 2012, the group increased its interest in Renniks from 60% to 70% as a result of the shareholders exercising put and call options. Negative goodwill of R0,2 million was recognised in the consolidated statement of changes in equity. BUILDING AND CIVIL ENGINEERING The last six months have shown an increase in activity in the industry, particularly in the building sector, however, the pressure on margins remains. Revenue increased by 21% to R3,2 billion with an operating profit of R139 million. The North division has secured new office block developments in Sandton and Rosebank, the extension and redevelopment of the Rosebank Mall and additional work in Lynnwood and Menlyn Maine for existing clients. The division also managed to secure its first job in Ghana, a new retail centre in Accra, for an existing South African client. Work continued on the Standard Bank offices in Rosebank which will be completed in the next period as well as a retail centre in Bethlehem. The Western Cape division has managed to secure the Amalfi apartments in Cape Town and the Kathu Solar Power Project in the Northern Cape. The mixed used development in Mauritius was completed and opened in December and work on the Cape Town harbour for Transnet is due for completion in the next six months. Work continues on the Santam Head Office in Tygervalley, the No. 1 Silo project at the Waterfront and residential developments in Greenpoint for repeat clients. The Eastern Cape division was awarded the FAW truck assembly facility as a design and construct project and is building the new Kinako Shopping Centre in Port Elizabeth together with the KZN building division. A refurbishment and an extension to the hotel at the Hemingways Casino in East London, together with a retail development in Queenstown were completed during the period under review. Our contract in the Durban harbour for Transnet is progressing well and the KZN division has been awarded a further contract for Transnet. The division secured its first contract in Mozambique for Builders Warehouse. Work on the new call centre for ABSA continues and a new Nedbank office block in Umhlanga is due to start. The civil engineering market remains depressed with uncertainty in the mining sector and very little Government spend to date. Projects for Sasol, the new production line for Xstrata in Steelpoort, a new brewery in Zambia and continual work on Kusile Power Station have ensured that activities remain at similar levels to the prior period. Work on the Tweefontein mine for Xstrata Coal commenced in the period. ROADS AND EARTHWORKS Trading conditions for the division have remained very competitive and the environment in the local market resulted in lower margins. The division has maintained its momentum through focusing on the resources sector in Africa. Revenue increased by 40% to R2,7 billion and operating profit increased by 25% to R288 million. A settlement agreement on the Free State Roads contracts has been signed with the Free State provincial government. In terms of the agreement, all outstanding payments should be paid by 30 March 2014. The turnaround strategy for Roadspan was completed and this business unit performed satisfactorily. The shortage of bitumen remains a risk and additional storage capacity has been introduced to manage the situation. WBHO Pipelines has, in JV with a specialist French piping company, successfully completed and commissioned the 160km, 26 inch gas line from Sasolburg to Secunda for Sasol. Work has begun on the R1,4 billion North South Carrier pipeline which is being executed in JV with an international contracting company, Consolidated Contractors Company in Botswana. The international division is currently executing contracts in Botswana, Mozambique, Ghana, Sierra Leone and Guinea. The division remains focused on the procurement of mining infrastructure projects in Africa. AUSTRALIA Despite a competitive construction market, the core businesses of Probuild and WBHO Civil increased their respective operating profits. Revenue has increased in Probuild while reducing in WBHO Civils as opportunities in the Pilbara region were delayed due to uncertainty regarding the demand for iron ore. The civil contribution to Australian revenue reduced from 32% to 20%, however, the total revenue for the period under review increased by 61% to R6,1 billion and the operating profit increased by 65% to R134 million. From a geographical perspective, Probuild’s building businesses in Victoria, New South Wales and Western Australia contributed to this growth, as did its subsidiaries, Contexx and Monaco Hickey. The revenue derived from the Queensland based civil business was in line with the previous period where the key project completed during the first six months was the AUD$115 million Warrego Highway rectification. The Probuild building business continued with works at the AUD$210 million Highpoint retail project, the AUD$100 million Crown Casino complexes in Western Australia and Victoria as well as twelve separate high density residential projects delivering over 2 000 residential units with a combined value in excess of AUD$1 billion. In this subdued market Probuild was awarded new projects with a combined value of AUD$0,4 billion taking its order book to AUD$1,1 billion (June 2012: AUD$1,29 billion). WBHO Civil provides construction services to the resources sector from its operations strategically located in Karratha, Geraldton, Kwinana and Kalgorie with its Head Office in Perth. The order book has increased to AUD$0,22 billion (June 2012: AUD$0,14 billion). WBHO Civil experienced a delay in projects in the Pilbara region but has subsequent to 31 December 2012 secured a AUD$100 million project on the Tan Burrup Project for Tecnicas Reunidas SA from Spain. OTHER OPERATIONS Property Simbithi Eco Estate sales in the period slowed in comparison to the prior period and no further sales occurred at St Francis Links development. Associates Capital Africa Steel The market for construction material products generally has overcapacity and still remains very competitive. Although the long steel products, steel pipe and ready-mix businesses were negatively impacted by the prolonged South African mining strikes they performed satisfactorily in the first half of the financial period. The long steel products and ready-mix businesses are expanding organically with new operations opening throughout Southern Africa while the steel pipe business has doubled its output in comparison to the prior period. Our quarry business has secured the mining rights to expand into Northern Mozambique. The 47% investment in Alert Steel was sold on 8 February 2013 subject to certain conditions precedent being met. The Alert Steel trading loss to December 2012 and the anticipated loss on the sale of CAS’s investment in Alert Steel negatively affected the share of associated income by R18,3 million. COMPETITION COMMISSION WBHO has continued to co-operate with the Competition Commission pursuant to the commission’s invitation to the construction industry. We have submitted the calculation of the expected fine quantum and await a response from the Commission. Based on our submission to the Commission our best estimate of the settlement amount provided for in the prior period has not changed. We hope to conclude this process shortly, at which stage stakeholders will be advised accordingly. SAFETY The group’s LTIFR has improved markedly to 1,32 (2012: 1,53) and in particular the LTIFR for the African businesses improved to 0,88 (2012: 0,94). We regret to report two subcontractor fatalities this period and our condolences go to their families, friends and fellow workers. We are continually working towards improving our safety awareness. PROSPECTS Our order book at 31 December 2012 was satisfactory, amounting to R22,8 billion (June 2012: R20,9 billion). The order book now comprises 55% foreign projects and the balance is South African. The percentage of order book split by segment is illustrated below: Building and Civil Engineering 31% Roads and Earthworks 21% Australia 48% 100% In general margins have stabilised and have shown small improvements in specific areas and disciplines. South Africa and Africa The civil engineering division has experienced a slow-down on projects coming to the market. Work for Eskom, Transnet, Sasol and the coal mining industry continues. Our building divisions are operating at full capacity and we anticipate several additional large projects coming to the market from private clients in Gauteng as well as in the coastal areas. In West Africa the roads and earthworks division has experienced a tender slow-down with regard to projects in the six months to 31 December 2012. However, subsequent to 31 December 2012 this activity has increased. In South Africa and SADEC, road works and mining infrastructure is still providing a steady flow of projects. Australia The Probuild building market is subdued with key targeted retail prospects that were expected to have been bid and awarded in the period being delayed. The damage caused by floods in Queensland should provide opportunities for Probuild Civils. WBHO Civils Pty Ltd is strategically placed to prosper from the resource sector in Western Australia. APPRECIATION The directors and management would like to thank their clients and staff for their continued support and loyalty. DIVIDEND DECLARATION Notice is hereby given that the directors have declared a gross interim dividend of 135 cents per share (2011: 110 cents) payable to all shareholders recorded in the register on 19 April 2013. The dividend is subject to dividend withholding tax of 15% and accordingly the net dividend will be 114,75 cents per share for those shareholders who are not exempt from such dividend withholding tax. The company has no STC credits. The number of shares in issue at date of declaration amount to 66 000 000 (55 525 741 exclusive of treasury shares) and the company’s tax reference number is 9999597710. In order to comply with the requirements of Strate, the relevant details are: Last date to trade cum dividend: 12 April 2013 Trading ex dividend commences: 15 April 2013 Record date: 19 April 2013 Payment date: 22 April 2013 Shares may not be dematerialised or rematerialised between 15 April 2013 and 19 April 2013, both dates inclusive. By order of the board MS Wylie EL Nel CV Henwood Johannesburg Chairman Chief Executive Officer Chief Financial Officer 22 February 2013 22% 18% 23% Dividend per share Revenue Operating profit Headline earnings 43% up up up up
