COMMENTARY

BASIS OF ACCOUNTING

The unaudited consolidated interim financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting, the International Financial Reporting Standards (IFRS) and Schedule 4 of the Companies Act. 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 year ended 30 June 2011. 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 16,5% from R7,2 billion to R8,4 billion for the six months to December 2011. This increase is predominantly a result of increased activity levels in Australia across both traditional markets and the mining and resources sector in Western Australia. However the effect of the competitive conditions within both the local and Australian markets is evident in the reduction of the group’s operating margin from 8,5% to 5,5%. While the operating profit before non-trading items declined by 23,6% to R466 million when compared to the comparative period of R609 million, it remains comparable with the profits from the second half of FY2011 which amounted to R481 million.

Earnings per share declined by 8,6% to 659 cents per share (2010: 721 cents) and headline earnings per share declined by 19,5% to 633 cents per share (2010: 786 cents)

Headline earnings per share included in the published results for the period ended 31 December 2010 had not been adjusted for the impairment of the loan to associate. However, the impairment of the loan to associate was adjusted for in the calculation of headline earnings per share included in the audited published results at 30 June 2011. The headline earnings per share for the period ending 31 December 2010 was adjusted for the impairment of the loan to associate when calculating the headline earnings per share for the period ended 31 December 2011.

During the first six months the group finalised the sale of its minority holding in a mining company which has prospecting rights for coal in Mpumalanga. The group’s share in the profit thereon amounted to R42 million. Goodwill of R18 million relating to the initial acquisition of WBHO-CARR has been impaired during the period, however fluctuations in exchange rates have resulted in an increase in goodwill in the statement of financial position.

Cash generated from operations amounts to R315 million compared to R276 million generated in the comparative period. The group’s capital expenditure to date amounts to R246 million against an authorised budget of R437 million. Cash balances have decreased by R136 million over the six months ended 31 December 2011.

Financial guarantees issued to third parties amount to R3,4 billion compared to R3,6 billion as at 30 June 2011.

ACQUISITIONS

In terms of the shareholders’ agreement, on 30 September 2011, the group interest in Probuild Constructions (Australia) Pty Limited (Probuild) increased from 76,6% to 78,5% as a result of a share buy-back valued at R41 million. Goodwill of R31 million was recognised in the statement of changes in equity.

BUILDING AND CIVIL ENGINEERING

Although industry conditions have remained depressed over the last six months the division has successfully increased its revenue by 7,6% to R2,6 billion (2010: R2,4 billion), however as yet there has been no recovery from the margin pressures experienced in the latter half of FY2011.

The North division has again produced a strong result following progress on a number of significant projects including the Standard Bank building in Rosebank, the Alexander Forbes offices in Sandton, the successful procurement of work in the Menlyn area as well as a number of retail centres, namely the Nicolway Shopping Centre and Middelburg Mall. New awards include the Alice Lane Standard Bank development, a shopping centre in Bethlehem, a further extension to the Highveld Mall and the refurbishment of the Grayston Drive Hotel for Sun International. During the period the division, in joint venture, successfully completed the iconic extension to Sandton City.

In the Western Cape all projects are fiercely contested and we are privileged to have been awarded the new development by Growthpoint at the Waterfront for Allan Gray as well as office blocks for the Ingenuity Property fund. Ongoing construction at the harbour for Transnet and on certain apartment blocks, continues to provide secure revenue streams for the division. The multi-use development in Mauritius is progressing well and is due for completion within the next 12 months.

At the outset of the financial year the potential for work in the Eastern Cape was limited. The award of the extension to, and refurbishment of, the Hemingway Casino for Tsogo Sun, a new shopping centre in Queenstown and the Oncology Unit at Livingstone Hospital have contributed toward the order book.

The KZN division remains busy with the expansion of the Empangeni Hospital, the new K-Rith building for the medical faculty at the University of KZN and the refurbishment of the Wild Coast Sun. We have recently been awarded our first project in the Durban harbour for Transnet. While the order book is currently at reasonable levels, it has a relatively short horizon and replacing current work is anticipated to prove challenging.

Mining activity within the Civil division continues to present opportunities for growth and additional resources have been focused on this sector to meet the expected expansion, however, some project delays together with other projects not being awarded hindered the growth prospects for the six months to December 2011. Progress on the Kusile project continues and the international projects in both Botswana and Zambia are proving to be successful. Renniks, the group’s new subsidiary, is finding it difficult to replace its order book both in sliding and mining services while the industrial side of the business remains busy.

ROADS AND EARTHWORKS

Trading conditions for the division have proved difficult over the six months with sustained competition within the local market continuing to hold margins at low levels. In order to replace falling revenue streams within South Africa the division has successfully relocated its resources to African mining projects. Overall the division has managed to maintain revenue at the same levels compared to 31 December 2010, while operating profits have declined by 13% to R230,6 million (2010: R264,6 million).

The six Free State Roads projects have four contractual milestone payment events. The first payment was made in October 2010, the second, which was due in mid 2011 and has only been partially paid. As a result the works were suspended in October 2011 and will only recommence once full payment is received. The total amount owing amounts to R245 million (VAT inclusive). Stop/go facilities have been maintained on all contracts to ensure access and safety. We are currently in discussions with the client to resolve the short payment and are confident that we will be paid for the work executed thus far.

Work for the mining houses and SANRAL continues in the North West, Mpumalanga, Limpopo, Eastern Cape and Gauteng.

The shortage of bitumen has hampered the turn-around strategy for Roadspan, however all operational restructuring has been implemented and the business is well placed to capitalise on the promised infrastructure work announced by government. Insitu Pipelines is currently completing a number of major pipe contracts and has recently commenced a gas line project between Secunda and Sasolburg in joint venture with a specialist French pipe company. Of further significance is the company’s involvement in a joint venture which is the preferred bidder for the North South Carrier in Botswana. Edwin Construction is on budget for the year and is performing well.

The international division focuses primarily on the mining infrastructure environment and is currently executing projects for mining houses in Zambia, Botswana, Mozambique, Ghana, Sierra Leone and recently Guinea.

AUSTRALIA

Probuild has increased its revenue but operating profit is down due to the competitive Australian building market. The majority of this growth is derived from market growth in Perth, the inclusion of the Contexx acquisition and the Queensland Civil operations which secured key infrastructure rectification projects following last year’s devastating floods.

Projects completed during the first six months include the AU$200 million Harvey Norman and Ikea Retail Precinct, Perth’s CBD AU$120 million Raine Square Commercial Tower, as well as three high-rise residential apartment projects in Victoria with a combined value in excess of AU$220 million.

Probuild was awarded new projects with a combined value of AU$787 million during the first six months and the division remains well positioned for further revenue growth with the order book increasing to AU$1,3 billion (June 2011: AU$1 billion).

WBHO Civils and WBHO-CARR have benefited from the resource sector in Western Australia resulting in growth in revenues. WBHO Civils is performing well with operating profit better than forecast. WBHO-CARR’s operating profit is still adversely affected by logistical challenges in extremely remote areas in Western Australia and reported a loss for the period.

WBHO’s management information systems have now been implemented within both companies.

OTHER OPERATIONS

Property

Sales continue at the Simbithi Eco-Estate development near Ballito in KZN as it remains a popular choice within both the first and second home markets. The St Francis Links development remains quiet. There are no new developments that have been identified for the immediate future.

Associates

Capital Africa Steel (CAS) generated earnings before interest and tax of R11 million compared to the prior period loss of R20 million when including the share of its associates. The newly appointed CEO, Edwin Hewitt, has settled in well however the restructuring of the CAS balance sheet is still in progress.

The pipe factory has been downsized which has improved working capital requirements as well as profitability. Shelving and racking and long steel products have shown improvement in the current period. The aggregate and ready mix business is impacted by a loss-making supply contract on the Kusile Power Station and limited opportunities in Botswana, resulting in a poor financial performance in the current period.

COMPETITION COMMISSION

The Competition Commission continues with the process of assessing the group’s submissions and we continue to cooperate with the Commission. The outcome of the process will only be known later in 2012 and the group has made provision for a possible penalty. Compliance education is an ongoing process for all senior staff.

PROSPECTS

Locally, WBHO is pursuing a number of opportunities within the renewable energy sector and we believe these will materialise in the short term. Following the President’s “State of the Nation” address we are encouraged by the anticipated increase in the potential public spend.

There is still capacity in the private sector building market for new retail centres and upgrades to existing centres which we will actively pursue, as well as building and civil projects in the rest of Africa with existing clients.

The group is pursuing further opportunities for mining infrastructure work in South Africa and the rest of Africa.

New work prospects across Australia remain promising with the 12 to 18 month tracked project pipeline amounting to AU$7,5 billion, slightly higher than the pipeline of AU$7,4 billion at 30 June 2011. The contracting market in Western Australia remains buoyant due to strong global demand for commodities and significant investment in oil, gas and mining infrastructure. Penetration of the civil engineering market in Western Australia is progressing as we consolidate the businesses and enhance the WBHO brand.

Although the business environment is still impacted by the uncertain global economic and financial markets, the order book for the group at the beginning of 2012 is R21,1 billion compared to R16,2 billion in June 2011 an increase of R4,9 billion. Approximately 50% of the book is in Australia, with the balance split equally between Building and Civil Engineering and Roads and Earthworks. The geographical split of the order book is now 61% foreign and 39% local.

EMPOWERMENT AND HEALTH AND SAFETY

This year saw the vesting of the first tranche of shares issued to employees through Akani,the group’s broad-based employment equity share scheme. 1 090 employees were awarded between 305 and 508 shares each and this occasion marked a very special event in WBHO’s history. We congratulate all the participants for their loyal service to the group.

In July the group was assessed against the Construction Sector scorecard and we are pleased to report that we have improved our rating to that of a Level 2 contributor. We thank all employees and suppliers for their commitment to transformation.

The group has maintained an LTIFR of less than one over the period,however, regrettably, three employees and one subcontractor were involved in fatal accidents in the six months to December 2011. The board continues to treat safety as its highest priority

APPRECIATION

The Directors and Management would like to thank their clients and staff for their continuous support and loyalty.

By order of the board

MS Wylie EL Nel CV Henwood Johannesburg
Chairman Chief Executive Officer Chief Financial Officer 17 February 2012