WBHO expects H1 HEPS up between 20% and 25%

Louwtjie Nel WBHO

Wilson Bayly Holmes-Ovcon (WBO) expects its headline earnings per share from continuing operations to increase by between 20% and 25% to between 626c and 652c in the six months ended December 31 from 521.7c in the year-earlier period‚ the building and civil engineering company said in a trading statement on Friday.

The interim results are expected to be released on February 23.

At 4.15pm the counter was trading 7.19% higher at R122.73 from a close of R114.50 on Thursday.



Master Builders Association of the Western Cape awards Apprentice of the year award to Donald Perreira


Apprentice of the Year Award to Mr. Donald Perreira. The Award is given to the leading apprentice chosen, from all those registered on the organisation’s Apprenticeship Training Programme.

According to the MBAWC’s Group Skills Facilitator, Tony Keal, “For the past few years we have been giving people the opportunity to earn while they learn through the Programme. The MBAWC pays for the apprentices’ training and places them with our member organisations for experience.

In doing so, we equip them with the skills and experience they need to become master builders. Apprenticeships not only create skilled people, but also future entrepreneurs in the industry.”

Perreira, who had worked for 10 years as a joiner in a furniture factory, decided to pursue a career in construction. He says, “This field offers many areas of opportunity, from plumbing and electrical works to civil construction.

” He joined the Programme in 2013 and completed all of his theoretical and practical training. He has also done in-service, on-site training with a number of MBAWC member companies and is currently fulfilling his internship with one of South Africa’s leading construction companies, GVK-Siyazama.

This husband and father of one, hopes to one day become a foreman with a view to, ultimately, becoming a site agent.

Of winning the accolade of Apprentice of the Year, he says, “It was a complete surprise. There are many other deserving people in the Programme. I have always tried to be a hard worker and do exactly what the foreman says.”

“This is the 10th year that this award has been in existence and is extremely sought-after by aspiring apprentices. Donald was one of the first group of MBA Apprentices. Apart from being a good carpenter, he has shown incredible leadership capabilities,” shares Keal.



Development capital boosts African infrastructure


A new report sponsored by global law firm Baker & McKenzie finds that the funding gap for African infrastructure has narrowed to about $25bn a year, based on a continental need of $90bn worth of infrastructure spend annually. This is good news in the context of the globally squeezed construction sector, and the dismal state that many JSE-listed infrastructure companies find themselves in.

But the survey also shows that in more than seven years of world economic turmoil, the quantum of need has remained static even as the funding gap has narrowed. The World Bank in 2009 estimated that $93bn was needed each year for continental power, transport, ports, water and sanitation projects, but that only about half of that was raised and spent.

The survey, independently researched by the Economist Group, was first released in the UK last month. It assesses 22 African countries. Based on interviews with development finance institutions (DFIs), export credit agencies (ECAs) and commercial banks, it analyses sources of capital inputs for African projects.

Major findings indicate that development finance institutions and export credit agencies are by far the largest funders. Between 2009 and 2014, an estimated total of $328bn was spent on six main categories of African infrastructure.

Private capital and commercial lenders fund only about $10bn of infrastructure each year, partly because of a lack of “bankable” project environments in many African jurisdictions. But private sector capital flows have grown by more than 300% between 2010 and 2013, the report says.

“I have never come across a deal in Africa that is financed purely by commercial banks,” says Jen Stolp, partner in the banking and finance practice group of Baker & McKenzie in Johannesburg.

She says China tends to go it alone when it comes to funding, and that three-quarters of this comes from the Export-Import Bank of China. Meanwhile, development finance institutions are not entirely altruistic. The money to close the African funding gap is there, she says, but the “enabling environment is challenging” in the face of local regulation, project risk, corruption, and increasing demands for local skills and enterprise development. China is the largest single funder, while Nigeria, Kenya, SA and Ethiopia are among the largest recipients.

SA received the bulk of development finance institutions and export credit agencies funding in 2009-14 — about 28% of the total, worth $26bn — followed by Nigeria, Egypt, Morocco, Kenya and Ethiopia. But despite some impressive gains, and China’s substantial presence in African mining and infrastructure markets, the continent still lacks power, roads, water and irrigation.

The report says 50% or more of the populations of about 24 countries in the subSaharan region lack access to electricity grids.

Meanwhile, Chinese growth has slowed considerably, along with that of Brazil, whose giant Odebrecht construction group is a big infrastructure player in Angola and Mozambique. Ghana as well.

China’s ministry of commerce says imports from the continent plummeted about 40% last year. Meanwhile, Nigeria and SA have seen their currencies fall to record lows, mainly on the global minerals commodities rout.

Global Credit Ratings, which focuses on emerging markets, has just issued a negative outlook for SA’s construction industry. Patricia Zvarayi, senior corporate analyst, says factors such as regulatory uncertainty, low levels of public infrastructure spend and falling global commodity prices have “converged to create turmoil in the sector”.

But the Baker & McKenzie report quotes Zhao Changhui, an Export-Import Bank of China chief risk analyst, as saying cumulative Chinese investment in Africa will amount to at least 1-trillion in the next 10 years.

Last month, Johannesburg was the venue for the sixth China-Africa co-operation summit. China committed 60bn to African development funding in the next three years, including by debt forgiveness, grants and soft loans.

But private sector capital flows have grown more than 300% between 2010 and 2013.

Business Day



Buildmax forced to close civils unit after projects dry up


Open-cast miner and equipment supplier Buildmax is winding down its Diesel Power Civils business due to “tough trading conditions” in SA, especially in construction.

The group expects to complete the process by the end of next month, saying prospects for civils contractors have “been depressed in the past two years”, and that there are “no meaningful projects on the horizon”.

“Despite management’s efforts within the civils division to tender competitively for the scarce civils jobs available, we have been unable to secure any meaningful future projects,” the group said yesterday.

This had led to job losses among some contract workers and to some voluntary retrenchments.

Certain technical skills would be kept within the Diesel Power Opencast Mining business, of which Diesel Power Civils was a division, so Buildmax could still tender for civils work that was strategic to its mining activities.

“Because mining and construction are so tough, we have to have a lean operating structure,” CEO Terry Bantock said. He said low commodity prices and a lack of government spend on large infrastructure projects had forced the decision to shut down the civils unit.

“It’s sad for us to close it down, but we are up against the majors.”

These firms included JSE-listed construction and engineering groups such as Murray & Roberts, WBHO, Aveng and Stefanutti Stocks, which competed with Buildmax in bulk earthworks markets, along with private contractors.

“There aren’t many projects around — guys are fighting over scraps,” Mr Bantock said. “We couldn’t afford the luxury of carrying the overhead during the down time.”

The average contribution to group turnover of Diesel Power Civils has been about 15% in the past three years, or about R450m of about R3bn.

From 2008, the group had repositioned itself as an open-cast coal mining contractor and supplier of construction materials. Subsequent difficult trading conditions made worse by a drop in mining and construction equipment resale markets had contributed to significant impairments that put pressure on profits.

Investec economist Kamilla Kaplan said yesterday the downturn in SA’s manufacturing sector activity had intensified last month, with the business activity sub-index sinking to its lowest level since the 2008-09 recession. She said fewer new orders signalled a worsening of weak conditions in the mining and energy sectors.

Business Day



The fall of the Big Five


We often put the largest companies on a pedestal – so much so that these industry heavyweights become familiar household names.

These companies usually dominate their sectors for years, increasing the barriers to entry as they form monopolies. Investors find comfort in investing in these industry darlings as they are large, prominent and familiar to all. Invariably they have also performed very well.

In telecoms, we have MTN and Vodacom. Within banking it is the usual suspects: Nedbank, Absa, FirstRand (FNB) and Standard Bank (and more recently Capitec too). In the construction industry, it is Wilson Bayle Holmes, Murray & Roberts, Basil Read, Group Five, Aveng … or rather it was.

Remarkably, the Big Five of the construction industry have fallen from their high-rise status. The graph below depicts the rise and fall of the Big Five or, perhaps more aptly, the Small Five. From 2007, the Big Five has lost 79% of its value. This represents the complete destruction of shareholder wealth, a total loss of R60 billion in value and the equivalent of a whole Capitec!

Whilst it is no secret that both the resources and construction industries have been termed “dog sectors”, it is encouraging to see that, despite this, there are still a handful of companies that have been able to increase shareholder value during this tough period. Let’s be honest, the boom leading up to 2008 is never coming back.

Things have structurally changed with China shifting from an investment-driven economy to a consumption-led one. Certainly, there are other fast-growing emerging markets; however, they are not nearly large enough to pick up the great fall in demand and growth to compensate for China’s economic slowdown and structural shift.

Certain industries are cyclical and there will be peaks and troughs. This we should accept. However, we need companies to be able to adapt, be flexible, innovative and entrepreneurial during these challenging times.

Given the deplorable fall of the Big Five, one would assume that the construction industry is in dire shape, if not dead (a little dramatic, but so fitting). This is certainly not the case, and just looking out of the window from a Sandton high rise, a number of cranes can be spotted with ongoing activity as head offices keep popping up.

CEO of Afrimat, Andries van Heerden re-iterated this at the group’s results presentation recently, stating that the construction industry is active and the previously large companies are stuck in the past, basing their strategies on an outdated industry profile. Government spend on roads has also never been this great, as can be seen in the graph below.

While the spend is not on stadiums, it is being directed at other vital pockets such as roads, housing and water infrastructure which are currently very buoyant. We need companies to be agile, with management teams that are able to do business in challenging times.

Whilst the Big Five were falling, the likes of Calgro M3 and Afrimat were rising. Nothing stopped the previous darlings from adapting and navigating as times changed, yet they continue to look in the rear view mirror, missing today’s opportunities that lie straight in front of them.

At Cannon Asset Managers, we continue to believe that opportunities are found in places where others do not bother to look. We are looking to invest in tomorrow’s Top 40, rather than today’s falling heroes.



EC contractor ordered to rebuild sub-standard houses

Helen Sauls-August

The houses were found to be non-compliant with the country’s building regulations. The shoddy workmanship was discovered by inspectors from the department and National Home Builders’ Registration Council (NHBRC) during an inspection of sites at Mqangqweni and Lujizweni in Ngqeleni.

The department said the contractor started casting slabs but upon inspection of platforms and the slabs that were casted, it was discovered that they were not done according to the required department and NHBRC standards.

“Prior to the certification of the slabs, the contractor proceeded to constructing walls which were also sub-standard. In some houses there was no brick force used on the designated courses of the wall as it progresses up. In the houses where brick force was used, it was of inferior quality (rusting) and is less than the required diameter of 2.8mm.

“The types of windows and door frames used were not SABS approved and this was compromising the bearing load above the windows and doors level. The window frames used required that the contractor use lintels above window openings to endure the load of the roof, but the lintels were bending already before the roof was put up,” said Human Settlements MEC Helen Sauls-August.

She said there was also the problem of the internal wall that was dividing the kitchen from the lounge area and this was posing a danger to the occupants after the house was completed.

“As the department and NHBRC do not certify sub-standard work, the contractor was issued with non-compliance certificates on the dissatisfactory work. The contractor’s engineer was asked to submit remedial action for the work that could not be certified.”

The department said it pays on value created and the value created must be certified by a quality assurance inspector in order for the contractor to proceed to the next milestone of the house.

All the work which has not been certified by the quality assurance inspectorate is not paid by the department and the contractor bears liability.

MEC Sauls-August has warned all contractors working in the province to adhere to building regulations or face wrath of the department.

“There is no way contractors will be allowed to build shoddy houses. We will not compromise on the quality of houses because of the rush to complete a project. This should serve as an indication to all contractors that the department will not pay and accept poor quality houses,” she said.



Calgro M3 further strengthens corporate governance


In addition, Calgro M3 is delighted to welcome Ms Venete Klein CD(SA), with impeccable corporate governance credentials, as an independent Non-Executive Director with effect from 1 January 2016. Ms Klein adds to the Board’s diversified knowledge and experience and will assist in taking the company to the next level of governance.

Ms Klein has in excess of 30 years’ experience as a senior executive in the financial services industry. Amongst her directorships were appointments as Executive Director of Absa Retail Bank and Retail Business Bank Ecobank Transnational, and appointments as Non- Executive Director of Post Bank SA, AllPay Consolidated Investment Holdings, Absa Trust, Absa Brokers, National Business Initiative, The Banking Association of South Africa, Ombudsman for Banking Services, ACSIS Wealth Managers and The South African Bureau of Standards. She was also a trustee of The Community Impact Trust.

Ms Klein is currently one of the Governors of Chartered Directors South Africa, the Chairperson of the Institute of Directors of South Africa, a Non-Executive Director on the boards of The South African Reserve Bank, ESKOM, Old Mutual Wealth and PG Group Holdings, and a Trustee of The SANDF Education Trust. Ms Klein also serves on a number of Audit, Risk, Social & Ethics and Remuneration Committees of the boards of directors that she serves on.

Ms Klein’s vast experience in the financial services industry combines neatly with her solid knowledge of governance with deep rooted business principles, which places her in a position to add significant value to the Board.

As announced in May 2015, Mr John Gibbon will resign his post as Non-Executive Director with effect 1 January 2016. Mr Gibbon was appointed to the Board of Directors of the Company on 1 November 2008 and has served the Company with enthusiasm and distinction. His contribution to the Company as Non-Executive Director has been immense and the Board wishes him well with his well-deserved retirement.



A new secondary school for Zwelethemba


This R57 million project was commissioned by the Department of Transport and Public Works on behalf of the Western Cape Education Department (WCED). Vusisizwe currently has 1 518 learners, which is well over the WCED limit of 1 200. The new school will have a capacity of 1 250 learners.

Most of the school buildings will comprise a framed concrete structure and a mixture of face brick and painted infill walls. Teaching facilities will comprise 33 standard classrooms, five specialist rooms and one multi-media room with a library. The complex will also have a hall with toilet facilities, an administrative building and caretaker’s facilities.

All classrooms will enjoy a lot of natural light and be adequately ventilated. The site will be landscaped with a combination of grass and perennial flowering plants, including planters in the courtyard. Trees will be planted in and around the school to provide shade.

The Department is committed to creating Expanded Public Works Programme (EPWP) work opportunities through the project, including the vital skills training component. A total of R7 million is expected to go towards targeted contractor businesses, R2 million to suppliers and manufacturers and R4 million to targeted local labour.

Construction began in July 2015 and is expected to have been completed towards the end of 2016.



Real value of building plans passed decreased 0.2% y/y


The real value of recorded building plans passed (at constant 2010 prices) decreased 0.2% (R113m) year on year during January to October 2015.

Nonresidential buildings fell by 6.7% (R1.120bn)‚ according to data released by Statistics SA on Thursday.

The real value of buildings reported as completed (at constant 2010 prices) increased 3.4% (R1.182bn) year on year during January to October 2015.

Residential buildings rose 9.9% (R1.824bn).



Supreme Court of Appeal upholds appeal lodged by Aurecon against the City of Cape Town


The court action initiated by the City of Cape Town was intended to clarify appointment of consulting engineers involved in pre-feasibility studies (upstream work) in the downstream phase of work.

The matter which was before the Supreme Court of Appeal entailed the very strict interpretation of the word “involved” in Clause 27(4) of the Municipal Finance Management Act No. 56 of 2003 Regulations, by the City of Cape Town to exclude Service Providers with minimal involvement in upstream work from tendering for downstream work.

If not challenged, South Africa ran the risk of the “upstream” phase of engineering, arguably the most important aspect of infrastructure and engineering services delivery, being neglected allowing for sub-optimal subsequent phases with huge financial cost uncertainties with respect to the end product.

Consulting engineering firms faced with a choice between the phases as interpreted by the City of Cape Town, would typically opt for the more profitable “downstream” phase at the expense of the “upstream” phase. This means that fewer firms suited to the “upstream” phase become available and the overall level of expertise which the project demands, is diminished. This is not in the National or Client’s interest as the “upstream” phase requires the most experienced, the best and the most innovative of engineering talent.

The problem would have been compounded in that many other municipalities, government departments and State-owned entities could possibly have emulated this stance which ultimately then would have been to the detriment of good engineering practice and client value for money.

On Wednesday, the Supreme Court of Appeal upheld the appeal lodged by Aurecon and dismissed the application with costs.

The Judgement augers well for the industry because CESA has always held the view, accepted by both Clients and Service Providers in the construction sector for many years, that full disclosure by the Client of information from the “upstream” phase of the project which is relevant to firms tendering downstream, would eliminate any unfair advantage and place all tenderers on the same ethical and commercial footing in competing for the award of work in subsequent phases of a project.

This is an essential principle to uphold in safeguarding the excellence and sustainability of the Sector whilst ensuring that our Client bodies derive fair and qualitative value for money.