Probuild collapse: Owner WBHO would have pulled the plug earlier
Probuild’s parent company has finally commented on the construction firm’s demise, saying there were ‘red flags’ for years.
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Probuild’s parent company said in hindsight it would have pulled the pin earlier on the failed construction firm that went into administration owing $14m to workers and more to creditors.
South African parent company Wilson Bayly Holmes-Ovcon (WBHO) told an interim results presentation on Wednesday night in Johannesburg they had to take into account a number of factors including their exposure before calling in voluntary administrators.
However, WBHO chief executive Wolfgang Neff said in hindsight they would have exited Australia operations earlier as “red flags” were raised with the business sustaining mounting losses.
Last week administrators were appointed to Probuild after WBHO refused further financial support its troubled Australian arm.
On Wednesday it was revealed that Probuild owed its 786 workers across 19 projects $14m and untold amounts to more than 2300 creditors, as administrators Deloitte conceded they faced a “nightmarish” scenario in salvaging the company’s projects.
“If we knew everything we know today we would have pulled the plug years ago,” Mr Neff said.
“The reality of it was the exposure in terms of the guarantee facility over the last 18 months restricted this decision. The risk versus reward became untenable,”
Mr Neff said the Australian business was “out of kilter” with the rest of the company, contributing around 60 per cent of WBHO’s revenue since 2017, but only minimally to the company’s profit.
Over the four-year period the Australian arm had $223m in material losses mainly from the 443 Queen St apartment tower in Brisbane and the Western Road Upgrade Project in Melbourne. Losses in the current period in Australia were about $91m.
“Over time, the South Africa business provided substantial parent guarantee support, which peaked at $178m in October last year, and is now at $119m,” Mr Neff said.
He said efforts to contain costs and restore profitability were negated by the impact of Covid-19 and the specific hard line regulations in Australia.
“The outlook for the Australian construction industry became quite bleak due to Australia’s hardline approach to manage Covid and its effect on the construction industry, which resulted in a much lower number of projects to bid on, and of course the political tensions between Australia and China,” he said.
“Also, inflation on materials and labour costs added to the pressure.
“It’s noteworthy that we have not been able to travel to Australia in the last two years.”
When asked about claim that a part of Probuild’s problem stemmed from undercutting rival project bids by too much, Mr Neff said it was a difficult to comment.
“It’s competitors who are saying we were undercutting the market, to be honest,” he said.
“Our people were over there and had the local knowledge.”
Mr Neff said the process of exiting Australia should take no longer than 12 months.
“Exiting the Australian market will be a challenge and we will be dealing with a bit of short-term pressure to manage the Australian exposure,” he said.
“That exit plan with the support of the South African financial institutions, should result in little or no impact to the group’s remaining operations. The group has a solid foundation to move forward from, with a significantly reduced amount of risk to the profitable operations in the business.”
Meanwhile, it has emerged that Probuild retains a building licence in Queensland for now, leaving the door open for the company’s administrators to restart work on the troubled Queen St project.
The Queensland Building and Construction Commission (QBCC) usually starts the process of cancelling a company’s building licence once a company has entered administration or liquidation.
But under the law, there is a 28-day grace period during which a builder can show it is financially capable of continuing to work under their current licence.
Deloitte has indicated it wants to keep the company operating as a going concern while it seeks a buyer of the business. That includes continuing work on the company’s unfinished projects around Australia, including the 47-level 443 Queen St apartment tower project.
The Queen St project has been a nightmare for Probuild, with losses reportedly topping $100m, and is already two years overdue.
Creditors are due to meet Friday to discuss the future of the company. Subbies United spokesman John Goddard says there is growing scepticism about whether anyone would be willing to step up as a buyer.
“They were undercutting on projects so anyone taking on the company would have to deal with that,” Mr Goddard said. “I can’t see anyone wanting to do it.”
Mr Goddard said he knows of subbies owed up to a quarter of a million dollars on Probuild projects. Deloitte placed ads in the national press over the weekend offering the company for sale and describing it as a “unique opportunity to secure a leading civil construction firm.”
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