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BSR - Basil Read Holdings Limited - Audited results for the year ended 31
December 2010 and dividend declaration
BASIL READ HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1984/007758/06)
("Basil Read" or "the group")
ISIN: ZAE000029781 Share code: BSR
www.basilread.co.za
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010 AND DIVIDEND DECLARATION
+16%
Revenue
(R5,4 billion)
-5%
Operating profit
(R408,8 million)
+5%
Order book
(R8,5 billion)
Summarised consolidated income statement
Audited Audited
12 months 12 months
31 December 31 December
2010 2009
R`000 R`000
Revenue 5 389 769 4 662 492
Operating profit for the year 408 798 429 238
Amortisation of intangible assets (39 303) (20 488)
Net finance income 619 3 019
Share of profits from jointly controlled 1 662 -
entities
Share of profits from associates (188) 10
Profit for the year before taxation 371 588 411 779
Taxation (119 370) (140 869)
Profit for the year after taxation 252 218 270 910
Profit for the year attributable to the
following:
Equity shareholders of the company 260 753 274 270
Non-controlling interests (8 535) (3 360)
Net profit for the year 252 218 270 910
Earnings per share (cents) 210,63 317,15
Diluted earnings per share (cents) 210,63 316,49
Dividend paid per share (cents) 42,00 58,00
Dividend declared per share (cents)* 30,00 42,00
*Based on the year to which the dividend relates
Summarised consolidated statement of comprehensive income
Audited Audited
12 months 12 months
31 December 31 December
2010 2009
R`000 R`000
Net profit for the year 252 218 270 910
Other comprehensive income for the year (2 697) (4 125)
Movement in foreign currency translation (8 622) (4 404)
reserve
Movement in fair value adjustment reserve 6 222 279
Deferred tax effect on other comprehensive (297) -
income
Total comprehensive income for the year 249 521 266 785
Total comprehensive income for the year
attributable to the following:
Equity shareholders of the company 259 463 269 495
Retained income 260 753 274 270
Other reserves (1 290) (4 775)
Non-controlling interests (9 942) (2 710)
Total comprehensive income for the year 249 521 266 785
Summarised consolidated statement of financial position
Restated
Audited Audited
31 December 31 December
2010 2009
R`000 R`000
ASSETS
Non-current assets 1 854 008 1 742 164
Property, plant and equipment 873 390 781 855
Intangible assets 843 183 832 667
Investments in jointly controlled entities 20 423 19 467
Investments in associates 1 413 1 383
Available-for-sale financial assets 36 264 25 414
Deferred income tax asset 79 335 81 378
Current assets 2 430 905 2 442 783
Inventories 47 700 18 890
Development land 351 938 280 718
Trade and other receivables 842 692 779 360
Work in progress 150 775 111 729
Current income tax asset 26 250 6 047
Cash and cash equivalents 1 011 550 1 246 039
Non-current assets held-for-sale 92 558 -
4 377 471 4 184 947
EQUITY AND LIABILITIES
Capital and reserves 1 715 289 1 499 704
Stated capital 948 667 948 667
Retained income 758 472 549 213
Other reserves 1 746 3 036
Non-controlling interests 6 404 (1 212)
Non-current liabilities 439 156 500 465
Interest-bearing borrowings 337 658 350 852
Other borrowings 26 188 79 357
Deferred income tax liability 75 310 70 256
Current liabilities 2 219 938 2 184 778
Trade and other payables 970 223 997 903
Amounts due to customers 583 399 484 581
Current portion of borrowings 438 836 459 979
Provisions for other liabilities and charges 152 235 150 802
Current income tax liability 42 351 67 279
Bank overdraft 32 894 24 234
Liabilities directly associated with non- 3 088 -
current assets classified as held-for-sale
4 377 471 4 184 947
Statement of changes in equity
Audited Audited
12 months 12 months
31 December 31 December
2010 2009
R`000 R`000
Issued capital
Ordinary share capital
Balance at the beginning of the year 948 667 466 134
Issued to share incentive scheme (net of - 10
treasury shares)
Acquisition of subsidiary - 482 523
Balance at the end of the year 948 667 948 667
Retained income
Balance at the beginning of the year 549 213 315 607
Total comprehensive income for the year 260 753 274 270
Share based payment - equity settled 1 193 9 612
Transactions with minorities (697) (128)
Dividend declared (51 990) (50 148)
Balance at the end of the year 758 472 549 213
Other reserves
Balance at the beginning of the year 3 036 7 811
Total comprehensive income for the year (1 290) (4 775)
Balance at the end of the year 1 746 3 036
Non-controlling interests 6 404 (1 212)
Summarised consolidated statement of cash flows
Restated
Audited Audited
12 months 12 months
31 December 31 December
2010 2009
R`000 R`000
Operating cash flow 616 878 624 756
Movements in working capital (200 245) (121 160)
Net cash generated by operations 416 633 503 596
Net finance income 619 3 019
Dividends paid (51 558) (50 623)
Taxation paid (165 672) (203 095)
Cash flow from operating activities 200 022 252 897
Cash flow from investing activities (123 095) (142 336)
Cash flow from financing activities (320 076) 167 487
Movement in cash and cash equivalents (243 149) 278 048
Cash and cash equivalents at the beginning of 1 221 805 943 757
the year
Net cash and cash equivalents at the end of 978 656 1 221 805
the year
Summarised consolidated segment report
Operating Operating Operating
Revenue profit/(loss) margin margin
31 December 31 December 31 December 31 December
2010 2010 2010 2009
R`000 R`000 % %
Construction 3 900 481 293 024 7,51 7,90
Buildings 845 753 (15 105) (1,79) 2,05
Civils 759 509 39 126 5,15 5,18
Roads 2 295 219 269 003 11,72 11,74
Mining 801 718 111 346 13,89 16,77
Developments 24 191 4 653 19,23 9,08
Engineering 663 379 (225) (0,03) -
Total 5 389 769 408 798 7,58 9,21
Additional information to the annual financial statements
Audited Audited
12 months 12 months
31 December 31 December
2010 2009
Number of shares in issue (`000) 123 798 123 798
Headline earnings per share (cents) 209,25 333,12
Diluted headline earnings per share (cents) 209,25 332,43
Reconciliation of basic earnings to headline R `000 R `000
earnings
Basic earnings 260 753 274 270
Adjusted by:
- Loss on sale of subsidiary - 130
- (Profit)/loss on sale of property, plant and (2 234) 2 151
equipment
-Impairment of fixed assets 531 11 528
Headline earnings 259 050 288 079
Reconciliation between weighted average number `000 `000
of shares and diluted average number of shares
Weighted average number of shares 123 798 86 479
Adjusted by - Share Incentive Scheme - 181
Diluted average number of shares 123 798 86 660
Net asset value per share (cents) 1 380,39 1 212,40
Tangible net asset value per share (cents) 699,29 539,79
Capital expenditure for the period (R`000) 422 798 170 675
Depreciation (R`000) 220 794 171 669
Impairment (R`000) 531 11 528
Amortisation of intangible asset (R`000) 39 303 20 488
Commentary
The consolidated abridged annual financial statements have been prepared in
terms of International Financial Reporting Standards, IAS 34 on Interim
Financial Reporting, AC 500 Standards, Schedule 4 of the South African Companies
Act 61 of 1973, as amended, and the JSE Listings Requirements. The accounting
policies used in the preparation of these annual financial statements are
consistent with those applied in the annual financial statements for the year
ended 31 December 2009.
Audit report
These financial results have been audited by the group`s auditors,
PricewaterhouseCoopers Inc, whose unqualified audit report is available for
inspection at Basil Read`s registered office.
Restatement of prior year balances
On 21 December 2009, the group acquired the TWP group for a provisional purchase
consideration of R661,4 million. The TWP group`s core business is the provision
of engineering, procurement and construction management for clients.
During the current financial year, the purchase consideration and purchase price
allocation relating to the acquisition of the TWP group was finalised, resulting
in a revised allocation to the fair values of assets, liabilities and goodwill.
On 1 September 2009, the group finalised the acquisition of the Gerolemou/Mvela
group for a provisional purchase consideration of R351,5 million. The
Gerolemou/Mvela group`s core business is the construction of buildings for
clients in South Africa. The group finalised the purchase consideration for the
acquisition of the Gerolemou/Mvela group in the year under review, which led to
a revised amount of goodwill.
In terms of the guidance provided in IFRS3: Business Combinations the group has
restated its statement of financial position and statement of cash flows to
reflect the abovementioned changes as if they had occurred at the acquisition
date. These changes did not impact the income statement, statement of
comprehensive income and statement of changes in equity.
The effect of these changes is detailed below.
The TWP group
Details of net assets acquired and goodwill are as follows:
As
previously
Restated reported
R`000 R`000
Purchase consideration:
- cash paid 179 862 178 890
- equity shares issued 482 523 482 523
Total purchase 662 385 661 413
consideration
Fair value of net assets (209 836) (340 843)
acquired
Goodwill 452 549 320 570
The assets and liabilities as of 21 December 2009 arising from the
acquisition are:
As As
previously previously
Restated Restated reported reported
Acquiree`s Acquiree`s
carrying carrying
Fair value amount Fair value amount
R`000 R`000 R`000 R`000
Cash and cash equivalents 111 111 111 111
Property, plant and 59 266 59 266 75 901 75 901
equipment
Intangible assets 45 663 207 467 68 436 210 245
Investments in jointly 6 176 6 176 13 033 13 033
controlled entities
Deferred income tax 19 380 19 380 10 502 10 502
assets
Available-for-sale 5 900 5 900 5 900 5 900
financial assets
Inventory 46 46 6 084 6 084
Contract and trade 173 114 173 114 258 741 258 741
debtors
Receivables and 13 852 13 852 16 454 16 454
prepayments
Current income tax assets 3 835 3 835 8 817 8 817
Interest-bearing (7 652) (7 652) (7 652) (7 652)
borrowings
Other borrowings (19 927) (19 927) (19 927) (19 927)
Deferred income tax (12 786) - (28 269) (9 885)
liabilities
Trade and other payables (50 944) (50 944) (52 092) (52 092)
Provisions for other (20 690) (20 690) (62) (62)
liabilities and charges
Current income tax (5 508) (5 508) (15 134) (15 134)
liabilities
Net assets 209 836 384 426 340 843 501 036
Purchase consideration 179 862 178 890
settled in cash
Cash and cash equivalents (111) (111)
in subsidiary acquired
Cash outflow on 179 751 178 779
acquisition
The Gerolemou/Mvela Group
Details of net assets acquired and goodwill are as follows:
As
previously
Restated reported
R`000 R`000
Purchase consideration:
- cash paid 246 033 245 746
- liability raised 105 800 105 800
Total purchase 351 833 351 546
consideration
Fair value of net assets (181 593) (181 593)
acquired
Goodwill 170 240 169 953
The assets and liabilities as of 1 September 2009 arising from the
acquisition are:
As As
previously previously
Restated Restated reported reported
Acquiree`s Acquiree`s
carrying carrying
Fair value amount Fair value amount
R`000 R`000 R`000 R`000
Cash and cash equivalents 371 501 371 501 371 501 371 501
Property, plant and 40 732 40 732 40 732 40 732
equipment
Intangible assets 32 197 - 32 197 -
Deferred income tax 12 842 12 842 12 842 12 842
assets
Available-for-sale 6 6 6 6
financial assets
Contract and trade 50 826 50 826 50 826 50 826
debtors
Receivables and 34 895 34 895 34 895 34 895
prepayments
Interest-bearing (1 274) (1 274) (1 274) (1 274)
borrowings
Deferred income tax (11 525) (2 510) (11 525) (2 510)
liabilities
Trade and other payables (333 902) (333 902) (333 902) (333 902)
Provisions for other (1 627) (1 627) (1 627) (1 627)
liabilities and charges
Current income tax (13 078) (13 078) (13 078) (13 078)
liabilities
Net assets 181 593 158 411 181 593 158 411
Purchase consideration 246 033 245 746
settled in cash
Cash and cash equivalents (371 501) (371 501)
in subsidiary acquired
Cash inflow on (125 468) (125 755)
acquisition
Overall review
The review period was one of two halves: in the first half, activity levels were
high amid final preparations for the 2010 FIFA World Cup, supporting confidence
that an economic recovery was unfolding. In the second half, however, this
confidence waned in line with sharply decreased activity levels in many sectors
as it became evident that the economic recovery would be protracted, exacerbated
by the strength of the local currency against those of major trading partners.
A strong order book and equally strong relationships with clients, suppliers and
subcontractors again enabled the group to manage these conditions effectively.
The board is pleased to report a satisfactory set of results despite difficult
trading conditions, with revenue of R5,4 billion (2009: R4,7 billion), a notable
increase of 16%. Gross operating profit increased by 15% to R820,4 million
(2009: R713,3 million).
Margins came under pressure in the year under review with gross operating margin
decreasing slightly from 15,3% in 2009 to 15,1% for the 2010 financial year.
Overhead costs increased sharply by 23%, largely driven by the under recovery of
staff costs in the TWP group, and much of the year ahead will be focused on
efforts to contain these costs. This translated into a decrease in the net
operating margin from 8,8% in the 2009 reporting period to 7,0% for the current
financial year. Net margin was 4,7% (2009: 5,8%) for the year.
Earnings decreased by 4,9% to R260,8 million (2009: R274,3 million). Earnings
per share decreased by 33,6% from 317,15 cents in 2009 to 210,63 cents in 2010,
largely impacted by the issue of 37,3 million shares to fund the acquisition of
the TWP group in December 2009. The effect of the acquisition is detailed in the
table below.
R`000 Weighted Earnings
average per share
number of (cents)
shares
Earnings for the year, 271 680 86 479 314,15
excluding the TWP group
Loss for the year for the TWP (10 927) 37 319
group (including amortisation
of intangibles)
Earnings for the year for the 260 753 123 798 210,63
group
The poor performance of the TWP group, which was in line with expectations, can
be attributed to the slow recovery in the commodities market resulting in an
under recovery of staff utilisation and recovery ratios as mining houses remain
cautious regarding the commissioning of new projects. Our rationale for this
acquisition remains unchanged and with sentiment in the mining industry becoming
more positive, we expect TWP`s performance to improve in future years. We are
already seeing an improvement in staff utilisation and recovery ratios for the
2011 financial year.
Further impacting the results for the year was the amortisation of intangible
assets which was at a level of R39,3 million, almost double the amortisation
charge of R20,5 million reported in 2009. Intangible assets are raised at the
time of acquisition and comprise standard accounting entries relating to the
future benefits that are expected to accrue to the group from contracts that
exist at the time of acquisition. A valuation is performed on all contracts that
the acquired company has secured at the time of acquisition. This valuation
considers inter alia the expected profits that the contract is expected to
generate after taking working capital, plant and staff costs into account. The
resultant value gives rise to an intangible asset that is amortised over the
life of these contracts. The expected amortisation of intangibles charge for the
2011 financial year is R10,8 million.
Cash on hand at the reporting date was R1,0 billion (2009: R1,2 billion) with
cash flow from operating activities satisfactory at R200,0 million (2009: R252,9
million). The decrease in operating cash flows was largely as a result of an
increase in working capital requirements as debtors terms extended due to the
prevailing economic environment and additional funds that were invested in
property developments, classified as development land held for sale. A
significant portion of the group`s cash is tied up in its property portfolio,
which comprises land held for both residential and industrial developments.
While the residential sector has been slow to recover from the economic crisis,
momentum is gathering in the industrial space and the group expects to realise a
portion of this cash in the foreseeable future.
The group continues to monitor debt levels and repaid R320,1 million of debt in
the year under review. Total borrowings decreased to R802,7 million (R890,2
million). The gearing ratio of the group, defined as net debt divided by total
capital, was 0% (2009: 0%) at the reporting date. Net debt is calculated as
total borrowings less cash and cash equivalents. The debt equity ratio at 31
December 2010 was 21,3% (2009: 28,7%).
In support of the group`s mining operations and the acquisition of plant for
cross border contracts, the group invested in new plant to the value of R422,8
million (R170,8 million), of which R199,4 million (2009: R45,6 million) was
funded by instalment sale agreements and R223,4 million (2009: R125,2 million)
was purchased with the group`s own cash resources. Total capital expenditure
budgeted for in the 2011 financial year is R360 million (2010: R150 million).
The group experienced moderate balance sheet growth, with total assets at a
level of R4,4 billion (2009: R4,2 billion), and considers the balance sheet to
be appropriately structured to enable further growth.
The group secured new contracts in the period under review in the amount of R5,1
billion (2009: R6,5 billion) and the order book at year end was a healthy R7,8
billion (2009: R8,1 billion). Since the year end date, the group has secured
additional contracts to the value of R1,3 billion and the order book at the
reporting date is R8,5 billion.
At the reporting date, the group had issued guarantees in the amount of R2,0
billion (2009: R1,8 billion). These guarantees have arisen in the ordinary
course of business and it is not expected that any loss will arise out of the
issue of these guarantees.
Basil Read has maintained its rating as a level 4 BBBEE contributor, meaning
that companies are entitled to recognise 100% of the amounts spent with our
group in calculating their procurement spend. We are making every effort to
attain level 3 status in 2011.
The group still faces challenges in certain areas to reach its goal of real,
sustainable economic empowerment, specifically management control, employment
equity and skills development. Several initiatives are under way to address
these areas, including the monitoring of middle to senior black management and
the provision of support and mentoring to all previously disadvantaged
individuals in the group`s employ. These efforts have culminated in the
appointment of 22 previously disadvantaged individuals to senior management
positions during the year.
Corporate activity
Basil Read`s strategy has been to grow its business, not only through organic
growth, but also through acquisition. During the 2009 financial year the group
made significant progress in this regard through a number of transactions.
During 2010, the group continued with acquisitive growth through the strategic
acquisition of two smaller groups.
On 1 May 2010, the group acquired 100% of the share capital of Sladden
International (Botswana) (Pty) Limited through an initial cash payment of R30,5
million and the recognition of a deferred payment liability of R38,0 million.
Part of the deferred payment liability is dependent on the company achieving BWP
67,6 million net profit after tax in the three years post-acquisition. The first
of these profit warranties was not met, and the group released R11,8 million of
the deferred payment liability in the year under review. Based on the purchase
price allocation, the acquisition gave rise to the recognition of goodwill of
R32,4 million. Sladden International has been operating in Botswana and
neighbouring countries for more than 40 years and has an established reputation
with a valued client base. The acquisition provides Basil Read with the ideal
opportunity to expand its African footprint for a relatively low initial
investment.
On 1 June 2010, the group increased its stake in Newport Construction (Pty)
Limited to 100% (2009: 70%) through the buyout of the remaining minorities. The
purchase consideration for 30% of the company was R4,0 million and the
transaction resulted in the recognition of a loss on transaction with minorities
of R0,9 million.
The acquisition of the Valente Brothers group, comprising Valente Brothers (Pty)
Limited, Phambili Pipelines (Pty) Limited and Tubo Jacked Pipelines (Pty)
Limited, was successfully completed during the 2010 financial year and their
results have been consolidated from 1 July 2010. The total purchase
consideration of R25,6 million was settled through a cash payment of R19,2
million and the recognition of a deferred payment liability of R6,5 million. The
acquisition gave rise to the recognition of a contract based intangible asset of
R1,9 million and goodwill of R15,5 million. An amount of R1,7 million relating
to the amortisation of the intangible asset was recognised in the income
statement in the year under review.
On 3 September 2010, the group increased its stake in Matomo Engineering Namibia
(Pty) Limited to 100% (2009: 61%). The purchase consideration for 39% of the
company was R37 898 and the transaction resulted in the recognition of a gain on
transaction with minorities of R0,2 million.
While no significant corporate activity is planned for the 2011 financial year,
the group will continue to explore investment opportunities, both locally and
abroad.
Operational review
Safety, health, environmental, risk management and quality
Strategy, risk, performance and sustainability are inseparable in the modern
business environment. A renewed focus on good corporate citizenship and
governance, increased scrutiny by providers of project capital, the expansion of
directors` fiduciary duties and the need to embed risk in business decisions and
processes have made implementing an integrated enterprise risk management
process a business priority.
For Basil Read, safety is both a core element and a strategic imperative. The
group`s robust safety/health/environment/quality system is both a guide and
measurement tool to achieving set standards in each of these areas.
The group has incorporated risk management into the safety, health and
environment division, aligning its governance processes with the recommendations
of King III and reinforcing its commitment to an integrated approach focused on
zero harm.
In the past two years, a strong drive by project managers, divisional managers
and executive directors to reduce the number of incidents and accidents, coupled
with continuous training, has paid off in a disabling-injury frequency rate
(DIFR) of 0,58 in 2009 dropping over 30% to 0,4 in 2010. While this does not
meet the target set at 0,3 for the review period, the group believes this is
encouraging progress.
We continue to record fatalities on our sites and we extend our condolences to
the family, friends and colleagues of those who died. As the number of
operational sites increases, so too does the risk of fatalities. For this reason
we are continuing with various awareness programmes to keep our employees alert
and focused on the tasks at hand, as 90% of fatalities occur due to a lack of
concentration or a disregard for safety rules.
In contrast, one of the triumphs in the safety division was the recording of 3
000 000 lost-time-injury (LTI) free hours on the group`s projects in the Durban
harbour.
Construction
The review period was another challenging, but exceptionally rewarding, period
for Basil Read`s largest division. The focus has been on both organic and
acquisitive growth to diversify the sector market exposure and range of
services, while pursuing selected opportunities in other geographical regions.
With secured contracts in Botswana, Namibia, Sierra Leone and Zimbabwe and an
office established in Uganda, the group is actively tendering for projects in
East Africa, where there are a number of public and private work opportunities.
In terms of construction work prospects, there has been a natural progression
from South Africa to other parts of Africa, where the need for quality
construction groups is high. At present Basil Read is exploring niche markets
with long-term prospects in infrastructural spend in Africa.
The division continued to perform well in the review period and reported revenue
of R3,9 billion (2009: R3,9 billion) with operating profit of R293 million
(2009: R288,6 million). The order book remains acceptable at a level of R4,9
billion (2009: R5,1 billion).
By the end of 2010, the roads division had successfully completed a number of
contracts. These include the roads and civil engineering infrastructure for the
Cosmo City project, as well as four major contracts in the Eastern Cape in
collaboration with our joint venture partner, Newport Construction. A particular
highlight was the Coega River bridges project, which was completed on time and
to excellent quality standards.
The group`s sites on the N17 were expanded during the year by the contract to
construct the civil and structural components of the Leandra, Trichardt and
Ermelo toll plazas complex - a 24-month contract in Mpumalanga province valued
at around R175 million. Basil Read Roads is already building the section between
Leandra and Leven station as part of the eastern expansion of the N17 route.
The division has been awarded the contracts to rehabilitate and repair a 73km
stretch of road between Kroonstad and Vredefort and an 18,2km section between
Bultfontein and Wesselsbron in the Free State province. The combined value of
these contracts is R472 million.
Basil Read has been awarded a US$45-million contract in Sierra Leone to
construct a 35km section of railway line to a new iron ore mine at Tonkolili
being developed by an Australian mining house. The completed railway line will
transport ore from the mine to a transfer point halfway to the coast. When
completed, the new mine will be one of the biggest suppliers of iron ore in the
world, with reserves of over 10 billion tons. The project is approximately 150km
north-east of capital city Freetown with a scheduled completion date of July
2011. Construction began in April 2010 and further work is anticipated in the
region.
In January 2010, the civils division began work on the 24-month, R95 million
contract for the Ohlanga outfall sewer, pump station and rising main between
Umhlanga Rocks and Umdloti, KwaZulu-Natal. The work consists of constructing a
new pump station at Ohlanga and a pipeline from the existing pump station to
Phoenix treatment water works.
The division was awarded the R172 million civil works contract to extend the
Sunderland Ridge waste water treatment works. The contract will take 16 months
to complete.
Eskom recently awarded the civils division the contract for the construction of
ash dumps, dams and other miscellaneous infrastructure at its Medupi power
station. This R516 million contract is expected to take 19 months to complete
with the start date still to be confirmed.
The civils division was recently awarded its first cross-border contract for
client, Zimplats. The contract involves the main civil engineering works on the
Ngezi mining and concentrator project. Construction is expected to take 12
months.
Key contracts in the buildings division include the restoration and
revitalisation of numerous government healthcare facilities and hospital
projects around the country:
- Additional on-site projects that formed part of the R315 million upgrade of
Paarl Hospital will be completed in May 2011.
- The 300-bed facility at Germiston Hospital for the Department of Public Works
will be completed at the end of April 2011.
- The ongoing R1,5 billion Natalspruit Hospital project, involving a 760-bed
facility for the Department of Public Works, is progressing well with completion
scheduled for March 2012.
- The division secured a further contract from the Department of Public Works
involving repair work to the Nurses College Residences for the Thaba Tshwane
Department of Defence: SAMHA College. This R164 million, 24-month contract
started in March 2010.
- The division, in joint venture, was awarded the contract for the construction
of Trompsburg Regional Hospital, which will service the needs of the communities
south of Bloemfontein. The contract is valued at R256 million and will take 30
months to complete.
The buildings division was recently awarded the contract for the construction of
various buildings at Medupi power station. This R235,6 million project includes
construction of a double-storey main office complex, medical station, ambulance
garage, fire station and canteen over a period of 15 months.
Construction of phase one of the Basil Read Campus, the group`s new head office
complex in Boksburg, was completed in February 2011. This state-of-the-art
building contains many green features including water tanks for the catchment
and recycling of water and motion-sensor lighting to save on energy costs.
Construction of phase two has commenced and is expected to be completed in the
second quarter of 2012.
Mining
The mining division performed well in the year to December 2010, contributing
revenue of R801,7 million (2009: R679,2 million) and operating profit of R111,3
million (2009: R113,9 million). The division`s order book remains promising at a
level of R1,3 billion (2009: R1,4 billion).
In 2010, mining production rose for the first time since 2005 to record an
almost 4% gain, seasonally adjusted (Statistics SA) as investors sought metals
as a hedge against rising inflation and the depreciation of currencies such as
the US dollar and euro. While all mineral groups contributed to the increase,
notable performances came from platinum and coal.
More importantly for the group, the government has recognised the urgent need to
invest in South Africa`s critical infrastructure to stimulate sustained economic
growth and generate jobs. The cost of modernising and upgrading the country`s
ageing infrastructure has been estimated by government at R1 trillion over the
next four years. This is particularly relevant for the mining industry, which
accounts for a sizeable portion of the country`s gross domestic product. The
industry has long been hampered by road and rail constraints, security of power
supplies and, most recently, water management issues. Investments on the scale
now being discussed by government will go a long way towards addressing these
challenges and ensuring the domestic industry is able to capitalise on the next
commodities boom - which appears to be gathering momentum already.
During the year, work continued at the Rossing uranium mine in Namibia for owner
Rio Tinto, one of the world`s largest mining houses. This is part of a further
contract extension, with significant progress made during the review period.
In January 2010, the division started work on the Jwaneng contract awarded by
the Debswana Diamond Company, an equal joint venture between De Beers and the
government of Botswana. Jwaneng mine is in south-central Botswana, about 120km
west of Gaborone. The 24-month contract covers phase 1 of the Cut 8 project.
This includes drilling, blasting and removing 20 million tons of waste to expand
the current open-pit mine and facilitate access to the Jwaneng kimberlite ore at
greater depth.
Work continues at Venetia diamond mine, near Musina in Limpopo. The contract is
for the mine`s percussion drilling project.
Developments
Basil Read Developments has entrenched its reputation for developing sustainable
communities, reflected in its Gauteng flagship project, Cosmo City - the first
mixed-use, fully integrated sustainable human settlement in South Africa. In
2010, and based on the success of this development, the company was invited by
the Ministry of Housing in Brazil to present its approach to integrated
residential communities.
While still the smallest of Basil Read`s divisions, it has the largest
socio-economic impact with a total economic impact of R99,2 billion during
construction and R71,2 billion post-construction. For the group, this division
is strategically significant, given its focus on sustainable development and
the secondary work it creates for the group. Some R3 billion in work, not yet
included in the group`s order book, will be created for other Basil Read
divisions over the life of current projects.
The developments division generated revenue of R24,2 million (2009: R68,3
million) and operating profit of R4,7 million (2009: R6,2 million).
As noted at the half-year stage, divisional performance was affected by delays
in breaking ground on several projects. Given that government has reaffirmed its
commitment to eradicating informal settlements, with a concomitant effect on job
creation and poverty reduction, this division remains of strategic importance to
the group.
The development of Savanna City, south of Johannesburg, has yet to break ground.
Although the record of decision has been received and environmental impact
assessment approved, there have been delays in finalising bulk service
agreements with the local municipality. Savanna City is being developed in
partnership with the Old Mutual group, which is providing funding. This planned
R9-billion project will be larger than Cosmo City.
In Cape Town, Basil Read is developing another integrated mixed-use residential
area in partnership with Garden Cities, the largest private land-owner in Cape
Town and a non-profit group with a 90-year track record in providing affordable
housing. Garden City New Town, a 767-hectare property, has been identified
for low-cost, middle-income and bonded housing. Similar to Cosmo City, the
R9,7-billion project will include schools, community centres, clinics, churches,
parks, commercial and light industrial areas. Although regulatory approvals
have been slow to materialise, good relationships have been built with
stakeholders, including municipalities, government bodies and communities.
At Phakisa Estate, near Welkom in the Free State, the environmental impact
assessment for phase one has been approved. Ground-breaking now depends only on
approval of the township application, expected in the first half of 2011.
Klipriver Business Park, a pivotal spine between Johannesburg, Meyerton and
Ekurhuleni, is progressing well. Although sales of this industrial development
remain subdued, the group has received several serious enquiries in recent
months. Ongoing negotiations are expected to gain momentum in the near future.
Engineering
Following the 2009 merger, the multi-disciplinary TWP engineering group has
integrated well into the Basil Read structure to create an enlarged group
uniquely equipped to offer a full service to the world`s leading building
environment and mining sectors, particularly in the engineering, procurement and
construction (EPC) arena.
With a team of some 800 engineering professionals and architects, TWP provides a
broad spectrum of services including resource identification, bankable
feasibility studies, mine and production planning, process engineering, project
execution, delivery and handover.
The scale of these complementary activities is supporting Basil Read`s stated
intention of tendering for larger contracts, pursuing international acquisitions
and competing globally.
The engineering division reported revenue of R663,4 million and an operating
loss of R0,2 million. The divisional order book of R1,5 billion is defined as an
18-month order book, although a number of contracts included in this amount will
continue well beyond this period. The contract value for the portion of work
extending beyond this 18-month period has not been included in the divisional
order book.
In 2010, the division secured the single-biggest shaft-sinking EPCM (engineering
(design), procurement and construction management) contract for the Impala 17
shaft project. This world-class platinum project is scheduled to be commissioned
in 2015 and it will take a further four years to develop the mine to full
production. The project involves sinking three shafts concurrently, with the
main shaft being deepest at nearly 2 000 m. In addition, the contract includes
the option to increase the scope of work to include the capital development
phase, which will bring the shaft to full production in 2018. This will be the
engineering division`s flagship project for many years.
After four years of intensive work and effort, the first phase of Konkola Copper
Mine`s Konkola Deeps Mining Project (KDMP) in Zambia was completed during the
year. TWP Projects was responsible for designing what is now one of the largest
steel headgears in the world, as well as extensive underground infrastructure.
The 81,5 meter tall headgear (Konkola No 4 shaft) - itself a massive
architectural feat - is part of an expansion project to treble the mine`s copper
ore production to 7,5 million tons per annum (mtpa). The division has also
designed the shaft steelwork for deepening Konkola No 1 shaft from 1 000m to 1
480m. Other technical accomplishments include the underground pumping and
settling system, shaft piping, general electrical reticulation and associated
control and instrumentation.
The twin-shaft system project at Styldrift started shaft-sinking operations in
October 2010. Progress to date has been good with a high-quality installation,
and an excellent safety record of no lost-time injuries since the project began
in March 2009.This project is on schedule and on budget.
TWP Australia was awarded the EPCM contract to develop plant and associated
infrastructure at the Siana gold project in the Surigao Gold District of the
Philippines. This is a major milestone in the development of the project, which
has an indicated mineral resource of some 80 000 ounces of gold and the
potential to extend this resource. TWP has started preliminary engineering work
and reviews, including optimisation of the project schedule.
Prospects
Fundamentals in the construction sector have deteriorated significantly since
2009 and are expected to remain challenging in 2011, despite gradual economic
recovery. As a sector, operating performances are likely to be affected by high
cost increases and greater competition. A sustained recovery in the sector was
always expected to lag a recovery in the larger South African economy, given the
relatively long lead times associated with planning and executing large
projects.
Against this background, Basil Read remains committed to continued expansion,
both organic and acquisitive, local and international despite difficult trading
conditions. While no major acquisitions are planned for the year ahead, the
group will continue to monitor opportunities to expand service offering and
geographic footprint.
Local operations are expected to come under pressure due to the delay in roll
out of government projects. This uncertainty in timing is expected to continue
for most of the year ahead, despite the South African government`s commitment to
infrastructure spend. Significant projects are still planned in the power
generation and water supply sectors.
Construction opportunities exist within the rest of Africa particularly due to
the influx of funding from international sources. We will continue to pursue
contracts on the African continent within our defined set of risk parameters,
which include the certainty of committed funding for the contract in question
and upfront payments.
The group has seen a positive change in sentiment in the mining sector in the
second half of 2010, which bodes well for the mining and engineering divisions.
The TWP group has secured a significant amount of work on new engineering
projects, the majority of which is beyond South Africa`s borders. Staff
utilisation and recovery ratios are expected to improve in the year ahead.
The group remains cautious about the year ahead and will remain prudent in
managing the uncertainty and volatility, backed by a healthy balance sheet and
effective management structure.
Corporate governance
The directors and senior management of the group endorse the Code of Corporate
Practices and Conduct as set out in the King II report on Corporate Governance.
Having regard for the size of the group, the board is of the opinion that the
group substantially complies with the Code as well as with the Listings
Requirements of the JSE Limited. The group performs regular reviews of its
corporate governance policies and practices and strives for continuous
improvement in this regard.
The group is currently formalising a detailed plan to ensure compliance with
King III and the new Companies Act. An implementation team, led by the financial
director and monitored by the audit/risk committee, will manage the process to
ensure a seamless transition in complying with the new legislation.
Following the acquisition of the TWP group in 2009, Nigel Townshend, chairman of
TWP, was appointed as an executive director. His appointment was effective from
1 January 2010 and the board welcomes his experience and expertise.
At the group`s annual general meeting, held on 6 May 2010, Mr Lungisa Dyosi
resigned as non-executive director.
It was with a great sense of sadness that we learned of the untimely passing
away of Ms Ntombekaya September in January 2011. Her wise counsel, astute
leadership and positive contribution to the affairs of the group will be sorely
missed. The group again extends its deepest sympathy and sincere condolences to
her friends and family.
Cash dividend declaration
Despite the ongoing economic uncertainty and with regard to the group`s growth
targets, notice is hereby given that the directors have declared a final
dividend of 30 cents per share (2009: 42 cents) in respect of the year ended 31
December 2010. In order to comply with the requirements of Strate the relevant
details are as follows:
Event Date
Last date to trade cum-dividend Friday, 27 May 2011
Ordinary shares commence trading ex-dividend Monday, 30 May 2011
Record date (date shareholders recorded in books) Friday, 3 June 2011
Payment date Monday, 6 June 2011
No share certificates may be dematerialised or rematerialised between Monday, 30
May 2011 and Friday, 3 June 2011, both dates inclusive.
Post-balance sheet review
Shareholders are referred to the SENS announcement released on 4 March 2011, in
which the group advised of the disposal of a property owning subsidiary for a
sale consideration of R91,2 million. Shareholders were further advised that the
group had simultaneously disposed of movable furniture, equipment and appliances
for a sale consideration of R9 million (exclusive of VAT). These assets have
been accounted for as held-for-sale in the year under review. The profit on this
disposal will be accounted for in the 2011 financial year.
On behalf of the board
S L L Peteni (Chairman) M L Heyns (Chief Executive Officer)
24 March 2011
Directors: S L L Peteni*+ (Chairman), M L Heyns (Chief Executive Officer), M D G
Gouveia (Deputy Chief Executive Officer and Financial Director), N J Townshend,
C P Davies*+, S S Ntsaluba*, A T Tlelai*,
G R Sibiya*+ (* Non-executive, + Independent, British)
Group Secretary: E Kruger
Registered office: The Basil Read Campus, 7 Romeo Street, Hughes extension,
Boksburg, 1459
Auditors: PricewaterhouseCoopers Inc
Transfer secretaries: Link Market Services South Africa (Pty) Limited
Sponsor: Sasfin Capital (a division of Sasfin Bank Limited)
Date: 24/03/2011 15:53:00 Supplied by www.sharenet.co.za
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