CHIEF EXECUTIVE OFFICER’S REPORT

Louwtjie Nel  
ON REFLECTION, THE 2010 FINANCIAL YEAR HAS BEEN THE BUSIEST AND MOST EXCITING PERIOD IN THE FORTY YEAR HISTORY OF THE GROUP. Our staff and labour force watched with pride as the World Cup kicked off in June knowing they had played an integral part in some of South Africa’s greatest projects ever, all constructed on time and to international quality standards. WBHO was involved in three stadiums, two major airports, a large number of major road improvements and various new hotels and hospitals.

The global financial recovery has been slower than anticipated and while the South African economy is showing some signs of recovery, the construction industry lags the real economy by 12 to 18 months and remains influenced by the recession. Capacity in the industry currently outweighs the number of contracts on offer resulting in pressure on profit margins. Resource-based industries in Africa have also shown signs of recovery and we expect this market to continue growing. In Australia, the government has rolled out spending on education, health and infrastructure as a means of boosting the economy, and this has favoured the construction industry.

The Building and Civil Engineering division produced a pleasing result and while revenue remained stable the division was able to improve its margins. The coastal regions saw a significant decline in construction activity in the latter half of the year, however strong relationships with loyal clients allowed the division to negotiate a number of building projects in Gauteng and the surrounding provinces during the year. In 2009 the civil division saw capex spend curtailed by the mining sector, however activity has improved this year as commodity prices have re-strengthened.

Having grown revenue by 65% to R4,5 billion in 2009 the Roads and Earthworks division has successfully maintained revenue at this level in 2010 showing marginal growth of 3% but further improving operating profits by 5% to R630 million. Locally, most of the division’s contracts are won on tender and in light of current market conditions we anticipate increased competition and further margin pressures in the year ahead. With this in mind, focus will be on growth in African resource markets where the division has already been successful. The division has a footprint in various Central and West African countries, most recently Sierra Leone where we have been awarded a contract for the construction of a portion of the railway line from the Tonkolili mine to the harbour near Freetown.

In Australia, revenues were slightly down on the record highs of the previous year but the Probuild group again showed an impressive improvement of 22% in operating profit.

Probuild is now firmly established as a tier one contractor in Australia and has operations in all of the states and major cities. Historically, Probuild has principally been engaged in private projects, however increased state and governmental spending in education and healthcare present expansion opportunities. Chinese demand for resources has shielded the Australian economy from some of the effects of the global financial crisis and this is a market where the group has identified further growth opportunities.

The construction materials sector has been severely affected by the recession. Capital Africa Steel , an associated company in which the group has a 50% investment, has incurred losses for the first time since its inclusion within the group. Capital Star Steel, a greenfields pipe factory in Maputo which has taken longer than anticipated to reach optimum production, and 3Q Concrete, a readymix business, were the major contributors to the losses. The steel businesses and quarry operations produced credible results. Globally, the demand for ERW pipe is improving and CSS is expected to reach profitability in the next financial year.

The lost time injury frequency ratio (LTIFR) provides management with a measure of the safety standards being maintained on the group’s various construction sites. Each year we set targets aimed at improving these safety standards. The LTIFR target set for the 2010 financial year was 2,0 and I am pleased to report that, as we continue the downward trend in the group LTIFR, not only did we meet this target but significantly bettered it, recording an LTIFR of 1,5. Despite continuing improvements in safety standards within the group it is with regret that we report the loss of life of four valued employees as a result of fatal accidents this year (2009: three) and extend our deepest sympathies to their families. As a further commitment to the safety and well-being of our employees, compliance with the international health and safety standard, ISO:18000 is a focus this year.

We have made good progress in monitoring and reporting on the impact of our activities on the environment and we are currently in the process of becoming ISO 14000 compliant. Intensive training of operational staff is imperative in achieving the objectives of the environmental management system. This year, as part of the carbon disclosure project, we publicly disclosed our carbon footprint and as a member of the Green Building Council we support and encourage the design and construction of environmentally friendly buildings.

With the World Cup successfully behind us the order book has returned to levels at which we are accustomed to under pre-boom trading conditions. As at 1 July 2010 the group order book of R12,3 billion represents approximately 81% of FY10 revenue. This is within the range of 75% and 85% where management is comfortable that there are currently sufficient projects secured for the group to produce a satisfactory result in the financial year ahead.

Our ability to consistently deliver quality projects on time and within budget has cemented relationships with a number of loyal clients in the course of the group’s history. It is on the strength of these relationships that we are able to negotiate projects even in a declining market.

Government has employed additional resources to fast track some of the public-private partnerships (PPPs) which have been in limbo for some time. The consortium in which WBHO is a partner was announced as the preferred bidder for the Department of Rural Development and Land Reform building and PPPs for both healthcare and the prisons show signs of forward movement as well.

Chinese demand for resources continues to fuel expansion in mining projects both in Africa and Australia and with a strong footprint in both these regions we are closely monitoring potential projects.

Probuild is tracking and pursuing AU$4,0 billion worth of opportunities that have scheduled commencement dates within the next 12 months. These projects are widely spread across the retail, health, educational and residential sectors. This increase in prospects is representative of the underlying emerging optimism currently being experienced by most sectors of the Australian economy.

While the construction landscape has changed from 18 months ago the project pipeline remains stable and there are opportunities in various sectors to be monitored. Hence, we are reasonably confident that WBHO is well positioned to maintain its activity levels in the next financial year.

While current trading conditions are likely to persist through FY11 and possibly FY12, thereafter government infrastructure spending and a continuing recovery from the global financial crisis should see signs of improvement within the construction environment .

Finally to you our staff who have gone the “extra mile” in order to deliver on every deadline, we extend our gratitude for your commitment, loyalty and the long hours worked. We thank you and your families for making WBHO the great company that it is.

Louwtjie Nel
Chief Executive Officer