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BASIL READ HOLDINGS LIMITED - Unaudited results for the six months ended 30 June 2016 and renewal of cautionary announcement

Release Date: 22/08/2016 15:45
Code(s): BSR     PDF:  
Wrap Text
Unaudited results for the six months ended 30 June 2016 and renewal of cautionary announcement

BASIL READ HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1984/007758/06)
(“Basil Read” or “the company”) 
ISIN: ZAE000029781
Share code: BSR 

Unaudited results for the six months ended 30 June 2016
and renewal of cautionary announcement 


Highlights

- Revenue from continuing operations R2.5 billion 
  (June 2015: R2.9 billion)

- Profit after tax R34.4 million 
  (June 2015: R41.6 million)

- Headline earnings per share 48.92 cents 
  (June 2015: 37.13 cents)
  
- Return on equity 6.2% 
  (June 2015: 7.8%)

- Order book R10.4 billion 
  (December 2015: R10.7 billion)
 
- Safety Zero fatalities 
  (June 2015: Zero fatalities)

 
Condensed consolidated income statement
                                                               Unaudited     Unaudited        Audited 
                                                              Six months    Six months      12 months 
                                                                 30 June       30 June    31 December 
                                                                    2016          2015           2015 
                                                                   R’000         R’000          R’000 
Continuing operations                                                                                 
Revenue                                                        2 501 918     2 853 797      5 519 979 
Operating profit for the period                                   73 452        93 688        226 197 
Finance income                                                     3 747        24 629         21 077 
Finance costs                                                    (41 223)      (21 229)       (56 468)
Share of profits of investments accounted for 
using the equity method                                           13 664         2 539         40 536 
Profit for the period before taxation                             49 640        99 627        231 342 
Taxation                                                          18 122       (33 008)       (39 704)
Profit for the period after taxation                              67 762        66 619        191 638 
Discontinued operations                                                                               
Net loss for the period from discontinued operations             (33 352)      (25 063)       (20 425)
Net profit for the period                                         34 410        41 556        171 213 
Profit for the period attributable to the following:                                                  
Equity shareholders of the company                                39 171        43 561        180 761 
Non-controlling interests                                         (4 761)       (2 005)        (9 548)
Net profit for the period                                         34 410        41 556        171 213 
Earnings per share (cents)                                         29.75         33.08         137.27 
Diluted earnings per share (cents)                                 29.75         33.08         137.27 
Earnings per share from continuing operations (cents)              55.08         52.11         152.78 
Diluted earnings per share from continuing operations (cents)      55.08         52.11         152.78 
Loss per share from discontinued operations (cents)               (25.33)       (19.03)        (15.51)
Diluted loss per share from discontinued operations (cents)       (25.33)       (19.03)        (15.51)


Condensed consolidated statement of comprehensive income
                                                               Unaudited     Unaudited        Audited 
                                                              Six months    Six months      12 months 
                                                                 30 June       30 June    31 December 
                                                                    2016          2015           2015 
                                                                   R’000         R’000          R’000 
Net profit for the period                                         34 410        41 556        171 213 
Other comprehensive income for the period                        (18 372)        8 372         16 787 
Movement in foreign currency translation reserve                 (18 372)        8 372         16 811 
Movement in fair value adjustment reserve                              -             -            (24)
Total comprehensive income for the period                         16 038        49 928        188 000 
Total comprehensive income for the period                    
attributable to the following:                                           
Equity shareholders of the company                                15 614        52 928        198 738 
Retained income                                                   39 171        43 561        180 761 
Other reserves                                                   (23 557)        9 367         17 977 
Non-controlling interests                                            424        (3 000)       (10 738)
Total comprehensive income for the period                         16 038        49 928        188 000 


Condensed consolidated statement of financial position
                                                               Unaudited     Unaudited        Audited  
                                                                 30 June       30 June    31 December  
                                                                    2016          2015           2015  
                                                                   R’000         R’000          R’000  
ASSETS                                                                                                 
Non-current assets                                             1 578 292     1 536 408      1 500 501  
Property, plant and equipment                                    944 356       975 903        915 856  
Investment property                                                6 494         5 921          6 590  
Intangible assets                                                 91 210        92 070         91 640  
Investments accounted for using the equity method                144 774        97 356        136 400  
Available-for-sale financial assets                               51 289        51 289         51 289  
Deferred income tax asset                                        340 169       313 869        298 726  
Current assets                                                 2 029 978     2 365 374      2 017 657  
Inventories                                                       38 121        88 482         25 939  
Development land                                                 262 679       266 900        262 679  
Trade and other receivables                                      861 869     1 035 174        769 586  
Work in progress                                                 558 324       427 774        433 237  
Current income tax asset                                          31 477        69 103         19 371  
Cash and cash equivalents                                        277 508       477 941        506 845  
Non-current assets held-for-sale                                       -       141 875        104 203  
                                                               3 608 270     4 043 657      3 622 361  
EQUITY AND LIABILITIES                                                                                 
Capital and reserves                                           1 239 590     1 086 656      1 223 552  
Stated capital                                                 1 048 025     1 048 025      1 048 025  
Retained income                                                  194 891        18 520        155 720  
Other reserves                                                    18 426        33 373         41 983  
Non-controlling interests                                        (21 752)      (13 262)       (22 176) 
Non-current liabilities                                          227 528       242 996        221 087  
Interest-bearing borrowings                                      171 743       192 702        182 134  
Deferred income tax liability                                     55 785        50 294         38 953  
Current liabilities                                            2 141 152     2 695 118      2 155 388  
Trade and other payables                                       1 082 850     1 031 040        734 163  
Amounts due to customers                                         520 737       948 360        715 432  
Current portion of borrowings                                    158 733       292 186        157 798  
Provisions for other liabilities and charges                     296 419       311 841        497 523  
Current income tax liability                                      24 156        64 350         15 034  
Bank overdraft                                                    58 257        47 341         35 438  
Liabilities directly associated with non-current assets     
classified as held-for-sale                                            -        18 887         22 334  
                                                               3 608 270     4 043 657      3 622 361  


Condensed consolidated statement of changes in equity
                                                               Unaudited     Unaudited        Audited  
                                                              Six months    Six months      12 months  
                                                                 30 June       30 June    31 December  
                                                                    2016          2015           2015  
                                                                   R’000         R’000          R’000  
Issued capital                                                                                         
Ordinary share capital                                                                                 
Balance at the beginning and end of the period                 1 048 025     1 048 025      1 048 025  
Retained income                                                                                        
Balance at the beginning of the period                           155 720        61 513         61 513  
Total comprehensive income for the period                         39 171        43 561        180 761  
Transactions with non-controlling interests                            -       (86 554)       (86 554) 
Balance at the end of the period                                 194 891        18 520        155 720  
Other reserves                                                                                         
Balance at the beginning of the period                            41 983        24 006         24 006  
Total comprehensive income for the period                        (23 557)        9 367         17 977  
Balance at the end of the period                                  18 426        33 373         41 983  
Non-controlling interests                                                                              
Balance at the beginning of the period                           (22 176)      (97 992)       (97 992) 
Total comprehensive profit/(loss)loss for the period                 424        (3 000)       (10 738) 
Transactions with non-controlling interests                            -        86 554         86 554  
Contribution from non-controlling interest parties                     -         1 176              -  
Balance at the end of the period                                 (21 752)      (13 262)       (22 176) 


Condensed consolidated statement of cash flows
                                                               Unaudited     Unaudited        Audited     
                                                              Six months    Six months      12 months     
                                                                 30 June       30 June    31 December     
                                                                    2016          2015           2015     
                                                                   R’000         R’000          R’000    
Operating cash flow                                              195 468       217 708        439 275    
Movements in working capital                                    (297 054)     (554 803)      (555 330)    
Net cash generated by operations                                (101 586)     (337 095)      (116 055)    
Net finance (costs)/income                                       (37 671)        1 824        (35 869)    
Dividends paid                                                         -             -            (32)    
Taxation (paid)/received                                          (9 347)        7 911          1 265    
Cash flow from operating activities                             (148 604)     (327 360)      (150 691)    
Cash flow from investing activities                              (24 457)       39 567        104 766    
Cash flow from financing activities                              (67 899)     (116 326)      (325 456)    
Effects of exchange rates on cash and cash equivalents           (14 465)       (1 308)        10 393    
Movement in cash and cash equivalents                           (255 425)     (405 427)      (360 988)    
Cash and cash equivalents at the beginning of the period         474 676       835 664        835 664    
Cash and cash equivalents at the end of the period               219 251       430 237        474 676    
Included in cash and cash equivalents as per the                           
statement of financial position                                  219 251       430 600        471 407    
Included in the assets of the disposal group                           -          (363)         3 269    
                                                                 219 251       430 237        474 676    
                                                            

Additional information to the condensed consolidated interim financial statements
                                                                       Unaudited    Unaudited       Audited     
                                                                      Six months   Six months     12 months     
                                                                         30 June      30 June   31 December     
                                                                            2016         2015          2015    
Ordinary and special dividend paid per share (cents)                           -            -             -    
Ordinary and special dividend declared per share (cents)*                      -            -             -    
* Based on the period to which the dividend relates                                                            
Number of ordinary shares in issue (’000)                                131 686      131 686       131 686    
Headline earnings per share (cents)                                        48.92        37.13        120.28    
Diluted headline earnings per share (cents)                                48.92        37.13        120.28    
Headline earnings per share from continuing operations (cents)             53.39        47.16        143.87    
Diluted headline earnings per share from continuing operations (cents)     53.39        47.16        143.87    
Headline loss per share from discontinued operations (cents)               (4.47)      (10.03)       (23.59)    
Diluted headline loss per share from discontinued operations (cents)       (4.47)      (10.03)       (23.59)    
Reconciliation of basic earnings to headline earnings                      R’000        R’000         R’000    
Basic earnings                                                            39 171       43 561       180 761    
Adjusted by - Loss/(profit) on sale of subsidiary                         27 462        2 451       (20 046)    
            - Profit on sale of property, plant and equipment             (2 216)      (4 561)       (9 926)    
            - Impairment of goodwill                                           -        7 438         7 438    
            - Impairment of associate                                          -            -           165    
Headline earnings                                                         64 417       48 889       158 392    
Basic earnings from continuing operations                                 72 523       68 624       201 186    
Adjusted by - Profit on sale of property, plant and equipment             (2 216)      (6 532)      (11 896)    
            - Impairment of associate                                          -            -           165    
Headline earnings from continuing operations                              70 307       62 092       189 455    
Basic loss from discontinued operations                                  (33 352)     (25 063)      (20 425)    
Adjusted by - Loss/(profit) on sale of subsidiary                         27 462        2 451       (20 046)    
            - Loss on sale of property, plant and equipment                    -        1 971         1 970    
            - Impairment of goodwill                                           -        7 438         7 438    
Headline loss from discontinued operations                                (5 890)     (13 203)      (31 063) 

   
                                                               Unaudited     Unaudited        Audited     
                                                              Six months    Six months      12 months     
                                                                 30 June       30 June    31 December     
                                                                    2016          2015           2015     
                                                                    ’000          ’000           ’000    
Reconciliation between weighted average number of shares 
and diluted average number of shares                         
Weighted average number of shares                                131 686       131 686        131 686    
Adjusted by - Share Incentive Scheme                                   -             -              -    
Adjusted by - “A” ordinary shares                                      -             -              -    
Diluted average number of shares                                 131 686       131 686        131 686    
Net asset value per share (cents)                                 957.84        835.26         945.98    
Tangible net asset value per share (cents)                        888.58        765.34         876.39    
Capital expenditure for the period (R’000)                       163 725       149 803        247 503    
Depreciation (R’000)                                             121 632       150 975        269 523    
Impairment of goodwill (R’000)                                         -         7 438          7 438    
Impairment of associate (R’000)                                        -             -            165    
Amortisation of intangible asset (R’000)                             430           430            860    


Notes to the condensed consolidated interim financial statements    

   1. Discontinued operations 
      The following entities have been included as discontinued operations in the period under review:
      - Matomo (Pty) Ltd - closure is substantially complete
      - SprayPave (Pty) Ltd - disposed on 1 February 2016 
      The comparative information included in the income statement has been restated for the effects of the 
      discontinued operations for all periods presented.     
                                                                     Unaudited    Unaudited        Audited 
                                                                    Six months   Six months      12 months 
                                                                       30 June      30 June    31 December 
                                                                          2016         2015           2015 
                                                                         R’000        R’000          R’000 
      Reconciliation of net loss for the period from discontinued 
      operations                                        
      Net profit/(loss) for the period from discontinued operations        405      (14 612)       (37 628)
      (Loss)/profit on disposal of discontinued operations             (33 757)      (3 013)        24 641 
      Impairment of goodwill                                                 -       (7 438)        (7 438)
                                                                       (33 352)     (25 063)       (20 425)
      
   2. Fair value estimation  
      The table below analyses financial instruments carried at fair value, by valuation method. The 
      different levels have been defined as follows:   
      Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
      Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset 
               or liability, either directly (that is, as prices) or indirectly (that is, derived from 
               prices)   
      Level 3: Inputs for the asset or liability that are not based on observable market data (that is 
               unobservable inputs)
   
      The following table presents the group’s assets and liabilities that are measured at fair value at 
      30 June 2016: 
                                                                 Level 1   Level 2    Level 3    Total    
                                                                   R’000     R’000      R’000    R’000    
      Financial assets                                                                                    
      Available-for-sale financial assets - equity instruments       477         -          -      477    
      Financial assets at fair value through profit or loss - 
      unlisted investment                                              -         -     50 812   50 812    
      Derivative financial instruments                                 -         -          -        -    
      Investment property                                              -         -      6 494    6 494    
      Total financial assets                                         477         -     57 306   57 783    
      Financial liabilities                              
      Derivative financial instruments                                 -         -          -        -    
      The following table presents the group’s assets and liabilities that are measured at fair value 
      at 31 December 2015:                  
      Financial assets              
      Available-for-sale financial assets - equity instruments       477         -          -      477    
      Financial assets at fair value through profit or loss -     
      unlisted investment                                              -         -     50 812   50 812    
      Derivative financial instruments                                 -     2 885          -    2 885    
      Investment property                                              -         -      6 590    6 590    
      Total financial assets                                         477     2 885     57 402   60 764    
      Financial assets  
      Derivative financial instruments                                 -         -          -        - 
  
   3. Contingent liabilities 
      The contingent liability relating to a possible tax liability in Botswana remains unchanged as the 
      Botswana Unified Revenue Services (BURS) have not yet issued revised assessments. No provision for 
      additional taxes has been raised in relation to this VAT issue, however, possible penalties and 
      interest were provided for in the 2013 financial year. 
  
      In Botswana, a subcontractor to Sladden International (Botswana) (Pty) Ltd instituted a legal claim 
      against Sladden relating to the Nata-Pandamatenga road contract. Judgment was made in favour of the 
      subcontractor for an amount of BWP47 million. Basil Read lodged an appeal against the judgment in   
      June 2016, and the date of the hearing has yet to be set.  


Commentary 
These unaudited consolidated abridged interim financial statements have been prepared in terms of section 8.57 of the
JSE Listings Requirements, incorporating IAS 34 Interim Financial Reporting, SAICA Financial Reporting Guides issued by
the Accounting Practices Committee, Financial Reporting Pronouncements issued by the Financial Reporting Standards
Council, and the Companies Act of South Africa. The principal accounting policies used in preparing the unaudited results 
for the six months ended 30 June 2016 are consistent with those applied in the annual financial statements for the year
ended 31 December 2015 and unaudited results for the six months ended 30 June 2015 in terms of International Financial
Reporting Standards (IFRS).

The consolidated abridged interim financial statements were prepared under the supervision of the chief financial
officer, Amanda Wightman, CA(SA).

Forward-looking statement
Statements on future financial performance have not been reviewed or audited by Basil Read’s external auditors. The
company cannot guarantee that any forward-looking statement will materialise and, accordingly, readers are cautioned not
to place undue reliance on these. The company disclaims any intention and assumes no obligation to update or revise any
forward-looking statement even if new information becomes available as a result of future events or for any other reason,
other than as stipulated by the JSE Listings Requirements.

Overview 
The local construction sector remained subdued in the six months to June 2016, evidenced by a marked decrease in tender 
activity. With limited tenders coming to market, high levels of competition continued. Despite weak market conditions, 
Basil Read’s order book was above target at R10.4 billion, slightly lower than the December 2015 level of R10.7 billion.
Basil Read produced solid results for the six months to June 2016 and continued to make progress against its stated
objectives:
 
- Growing the business: we are concentrating on organic growth under a simplified operating structure that is
  appropriately organised into five core divisions. While we remain committed to the South African market, we are 
  cautiously exploring opportunities across sub-Saharan Africa. With two sizeable contracts - the St Helena airport 
  project and the Olifants River water resource development project - winding down in 2016, maintaining our order book 
  is key. Equally important is ensuring our overhead cost base is continually aligned to our operating divisions. 
- Making the assets sweat: the disposal of SprayPave (Pty) Ltd was completed in February 2016 at a loss of R33.8 million, 
  impacting reported profit for the period. With the closure of Matomo (Pty) Ltd substantially complete, this concludes
  the sale or closure of non-core assets started as part of the restructuring in late 2014. Continual improvement in our
  operating performance at site level is critical to our success and this is receiving the necessary attention. We are 
  well advanced in standardising the operating model across all sites and support functions. The claims resolution process
  remains tedious and we are committed to resolving contractual disputes as they arise. We are progressing well with
  resolving legacy claims, albeit slowly.
- Modernise the corporate culture: by working against an agreed set of corporate values aligned with our strategy, we
  are able to harness the collective and disciplined efforts of a representative Basil Read team in building a significantly
  better and more valuable business. The collaborative process used in identifying our corporate values proved an
  enlightening platform for engagement and the revised values were launched in early 2016.
  
Liquidity remains tight, particularly in the construction division. Cash balances reduced to R219.3 million from
R474.7 million at December 2015. Cash outflows were largely due to working capital changes as advance payments received on
the St Helena airport project are unwinding as the contract nears completion. Funding historical losses in the construction 
division further depleted cash resources. With debt funding secured from the Industrial Development Corporation (IDC) for 
an amount of R200 million, our cash position is set to improve, relieving liquidity pressures experienced in the first 
half. The positive resolution of legacy claims expected in the second half, will further improve 
the overall liquidity of the company.

Debt levels remained low at R330.5 million (December 2015: R339.3 million), with debt repayments offset by financing new 
items of plant, mainly for the mining division. A new note was issued under the domestic medium-term note programme - 
BSR18 was issued on 17 June 2016 for a six-month period at an amount of R29.2 million, replacing the maturing note BSR16.

At the reporting date, the company had issued guarantees of R1.6 billion (December 2015: R2.4 billion) in the ordinary 
course of business. We do not expect that any loss will arise from issuing these guarantees.

Corporate activity
On 1 February 2016, Basil Read concluded the disposal of SprayPave (Pty) Ltd for R65.6 million, recognising a loss on 
disposal of R33.8 million.

Operational review
Safety, health, environmental, risk management and quality
Understanding that our business depends as much on the skill of our people as it does on our equipment, we focus on
maintaining a safe and healthy workplace, supported by ongoing training.

Our board, executive committee and managers provide leadership to ensure that we focus on our ultimate goal of zero
harm by monitoring progress against annual targets at regular meetings.

At Basil Read, we aim to proactively reduce the frequency and severity of injuries by reviewing our strategic safety
objectives every year. In addition to complying with safety regulations and putting necessary systems, policies and
corporate standards in place, we also promote individual responsibility for safety throughout the organisation.

The company’s disabling injury frequency rate (DIFR) decreased in the period to 0.18 from 0.22 at December 2015, but
remains above our target of 0.17. Although the DIFR is a lagging performance indicator, it is a tangible demonstration 
of management’s commitment in the journey towards zero harm.

Pleasingly, we recorded no work-related fatalities in the review period but safety on our sites, particularly in the
roads division, remains a concern. It is a worrying trend that public road users are increasingly ignoring traffic
control signage and measures, risking their own lives as well as the lives of our employees. We are working closely 
with our clients to find ways to improve safety on our sites for all.

To this end, the roads division recently appointed a dedicated specialist to assist all sites with traffic
accommodation and the development of improved methods of safety for the benefit of all employees and the travelling 
public.

Divisional review
With all non-core assets either disposed of or closed, we can focus on our core business of heavy construction. Any
acceleration in government spending on infrastructure projects will support this focus and the company is actively
positioning itself to participate in these projects.

Following a review of our operating divisions towards the end of 2015, the following changes were made to the
operational structure:
- The buildings, civils and pipelines divisions were consolidated into one construction division
- The developments division was moved into a separate division under business development
- The roads division was moved into a separate division with executive committee representation

These changes took effect from 1 January 2016 and our segmental reporting now comprises five operational divisions:
construction, developments, mining, roads and the St Helena airport project.

In an industry where margins are low, competition high and finance expensive, improving the quality and efficiency of
delivering our projects is critical for success. We have made good progress in fully integrating earlier acquisitions as
part of our focus on efficiency. After integrating common systems, we are embedding standardised site operating systems
and automising operations management information to allow for proper and timely decision-making at the lowest levels
across the company. Combined with company-wide cost-saving initiatives, these actions are expected to improve margins
across all divisions in time.


Construction   
                                     Unaudited        Unaudited          Audited     
                                    Six months       Six months        12 months     
                                       30 June          30 June      31 December     
                                          2016             2015             2015    
Total segment revenue (R'000)          719 528          935 845        1 807 904    
Intersegment revenue (R'000)                 -           (4 573)          (4 000)    
Revenue (R’000)                        719 528          931 272        1 803 904    
Operating loss (R’000)                 (32 344)         (33 152)         (17 654)    
Operating margin (%)                     (4.50)           (3.56)           (0.98)   
Order book (R’000)                   1 593 407        2 426 076        1 947 859    


The construction division had a difficult six-month period as it continued to focus on completing loss-making contracts, 
particularly the Olifants River water resource development project. 

Delayed starts for a number of contracts and limited cash resources affected the overall performance of the division,
which again reported operating losses in the period. With a declining order book and decrease in tender activity, the
division is targeting areas where a significant amount of work is expected to be generated over the longer term, such as
water and sanitation projects, both locally and regionally.

Work continued at the Olifants River water resource development project, focused on the final technically challenging
river crossing. With the core work now complete, attention turns to remedial work and fulfilling our environmental
obligations. Lessons learned on this project will be instructive in future multiparty, complex projects.

The resolution of claims relating to this contract is ongoing. By agreement with our client, a more streamlined claims
resolution process has been agreed which provides for weekly meetings with the professional team to discuss outstanding
claims. A meeting of senior representatives from Basil Read, the professional team and the client is held immediately
afterwards to address any areas of contention. While the resolution process remains a protracted one, our client has
displayed commitment to the process and a willingness to resolving cash flow constraints on the project.


Developments   
                                     Unaudited         Unaudited            Audited     
                                    Six months        Six months          12 months     
                                       30 June           30 June        31 December     
                                          2016              2015               2015    
Total segment revenue (R’000)           31 131            54 679            160 599    
Intersegment revenue (R’000)                 -                 -                  -    
Revenue (R’000)                         31 131            54 679            160 599    
Operating profit (R’000)                 8 859            14 802             15 441    
Operating margin (%)                     28.46             27.07               9.61    
Order book (R’000)                     470 080           200 000            200 000    


Relocating the developments division under business development highlights the strategic importance of this division
for the company.

The Basil Read model for mixed-use integrated housing developments is a real opportunity to combine entry-level to
middle-class housing with factories, shopping centres, schools and churches in an integrated living model.

Importantly, the integrated development model generates work for the construction and roads divisions, which will
allow for greater control of our order book, in time.

Unit sales at Savanna City continue to exceed expectations, underscoring the demand for affordable housing, with some
700 families already living in the development. We are installing internal bulk services to support the continued roll
out of stands. Along with our partner, Old Mutual’s Housing Impact Fund of South Africa, we are working with the Gauteng
department of human settlements and Midvaal local municipality to ensure this 1 400 ha project sets a benchmark in
economic development and housing.

Progress at Malibongwe Ridge has slowed due to budgetary constraints from key government partners. Servicing for the
first phase - 486 fully subsidised residential stands - is complete and 41 homes have been handed over and occupied by
residents. Community expectations will need to be managed due to the slowdown in allocating completed homes.

While no sales were recorded at the Klipriver Business Park in the six months to June 2016, a number of sales are
being negotiated and expected to be finalised in the second half. 


Mining 
                                     Unaudited         Unaudited            Audited     
                                    Six months        Six months          12 months     
                                       30 June           30 June        31 December     
                                          2016              2015               2015    
Total segment revenue (R’000)          812 098           669 675          1 402 190    
Intersegment revenue (R’000)           (58 505)          (67 950)          (166 652)    
Revenue (R’000)                        753 593           601 725          1 235 538    
Operating profit (R’000)                49 695            55 858             83 558    
Operating margin (%)                      6.59              9.28               6.76    
Order book (R’000)                   4 655 357         3 685 392          4 659 957    


The mining division remains a solid performer for the company, despite a subdued commodity market. Low commodity prices
have reduced the number of opportunities coming to market, with some existing projects scaled back, delayed or stopped.
As a result, competition for work remains high and margins are under pressure.

Ongoing productivity improvements and effectively managing our mobile plant contributed to the profitability of the
division. We continued to focus on improving our maintenance practices, given that our mobile plant fleet is ageing.
Prudent cash management needs to be balanced with scheduling replacement capital expenditure.

Work started on two new contracts in Botswana during the reporting period, namely the Jwaneng Cut 8 north-east corner
push back and Lerala Diamond Mine. The contracts are for 12 and 56 months respectively.

In Namibia, the Tschudi project is performing well, exceeding the client’s expectations and underpinning the success
of the new mines despite depressed copper prices.

The Majwe Mining joint venture is in discussions with the client to extend the Cut 8 project beyond the current
contractual period into 2017 to complete waste removal, including the redesigned north-east corner.

The division continues to pursue growth opportunities in the contract mining market in sub-Saharan Africa by expanding
and extending services with existing customers.


Roads  
                                       Unaudited         Unaudited            Audited     
                                      Six months        Six months          12 months     
                                         30 June           30 June        31 December     
                                            2016              2015               2015    
Total segment revenue (R’000)            615 689           839 750          1 508 576    
Intersegment revenue (R’000)                   -           (28 866)          (149 654)    
Revenue (R’000)                          615 689           810 884          1 358 922    
Operating profit/(loss) (R’000)            7 747            (3 166)            49 198    
Operating margin (%)                        1.26             (0.39)              3.62   
Order book (R’000)                     2 377 801         2 364 282          2 617 204    


Basil Read has arguably built more roads in the country than any other contractor. Our aim is to grow this division
into a transportation division servicing all related infrastructure requirements, due to the synergies between mass
earthworks for an airport, port or railway and traditional roadworks. The expertise in this division extends the 
focus beyond roads to airports, rail and marine.

Community disruptions continue to affect performance as local residents look for employment opportunities. This is 
particularly pronounced in rural areas. To resolve this issue, we are partnering with our clients and their 
professional teams to proactively engage with communities to address their concerns.

Despite limited tender activity in the first six months, the roll out of tenders has improved in recent weeks, from
both national and provincial clients. National works include the SANRAL tender for the Msikaba and Mtentu bridges to be
constructed as part of the N2 Wild Coast toll-road project, for which Basil Read, in consortium with Daewoo, has
prequalified as one of six consortiums bidding for each bridge contract.

As constructing roads and earthworks is considered an area of excellence for Basil Read, we will continue to
aggressively pursue roads work while ensuring we price at sensible margins. The immediate focus is on strengthening the
division’s position in the South African market and pursuing targeted projects beyond our borders.

The division is actively targeting major projects within sub-Saharan Africa, leveraging off the skills gained on major
roadworks and expertise honed on the St Helena airport project. These major projects will allow the division to apply
its full range of diverse skills in design and construction of multidisciplinary transportation infrastructure.


St Helena airport project     
                                     Unaudited         Unaudited            Audited     
                                    Six months        Six months          12 months     
                                       30 June           30 June        31 December     
                                          2016              2015               2015    
Total segment revenue (R’000)          381 977           455 237            961 016    
Intersegment revenue (R’000)                 -                 -                  -    
Revenue (R’000)                        381 977           455 237            961 016    
Operating profit (R’000)                39 495            59 346             95 654    
Operating margin (%)                     10.34             13.04               9.95    
Order book (R’000)                   1 267 303         1 391 115          1 316 173    


Widely considered our current flagship project, the St Helena airport project proves we have the internal operational
capacity and capabilities to successfully execute a design-build-operate project of this magnitude, on time and within
budget.

After more than four years of construction, the aerodrome certificate was issued by Air Safety Support International
(ASSI) on 10 May 2016. Issues with wind shear and turbulence, especially evident on the approach to runway 20, have
delayed the start of scheduled flights.

Despite the delay in commercial flights, charter flights are able to land and the airport operates daily as a fully
functional facility, making a real difference to the lives of residents. As an example, this has allowed for a number of
medical air evacuations which were previously not possible. Basil Read has a 10-year contract to operate the airport.
The division continues to negotiate the contract to complete the bulk fuel installation. Design work for this contract
is ongoing.

Prospects
In the short term, consensus expectations are that the industry will continue to face challenges, with margins under
pressure and real liquidity pressures. In the long term, however, infrastructure needs in South Africa and the African
continent should support sectoral growth.
 
Equally, transformation of the industry is key to fostering a collaborative relationship with government bodies and we
are prioritising this as a strategic initiative.

Given the clear decline in tender activity, maintaining the order book is seen as a key risk and we will look to ensure 
that our overhead cost base is directly related to operating work. The early scaling and adjustment of the overhead to
the work we do is critical to avoiding a reduction in the operating margin.

In South Africa, the roads sector is moving into a rehabilitation-and-maintenance dominated phase with limited greenfield 
projects. The airports sector is also in a phase of maintenance and minor rehabilitation for the short to medium term. 
In the rest of southern Africa, significant upgrades and new transport infrastructure is required. Major rail upgrades are 
expected in the next 18 months, mostly related to mining and largely dependent on the state of commodity markets. Major port 
upgrades are imminent in the marine sector. While budgets are in place for expected public-sector infrastructure development, 
the pace of roll out has been sluggish at best in recent years.

By building relationships with key clients, the company is pursuing growth in the marine, energy, water and sanitation
sectors.

Given the pace of urbanisation, over the next 10 years, we are aiming to break ground on additional large-scale, mixed-use, 
integrated developments. We are also identifying opportunities to develop smaller pockets of land using innovative funding 
models. Partnerships with selected industries, eg mining, will enable the company to leverage housing development programmes 
into mixed-use, integrated facilities.

We expect current market conditions in the mining sector, characterised by depressed commodity prices, rising input
cost inflation and community unrest to continue in the medium term. This will lead to fewer greenfield opportunities,
pressure from our clients to reduce costs, cancellation of contracts and increased demand for spend in social/community
investments. The company has a proven record of performance under these conditions.

While conditions remain challenging, we are committed to our strategy: grow the company to smooth the impact of
cyclical volatility, extract maximum value from our assets and develop the appropriate corporate culture for a focused,
disciplined construction company.

Corporate governance
The directors and senior management endorse the Code of Governance Principles and Report on Governance, together
referred to as King III. Considering the size of the company, the board believes it substantially complies with 
King III as well as the Listings Requirements of the JSE Limited. The company regularly reviews its corporate 
governance policies and practices, striving for continued improvement.

There were no changes to the board of directors in the period under review.

Dividends
The board has reviewed the current results and, in keeping with prior years, has elected not to declare an interim
dividend.

Post-statement of financial position review
During August 2016, Basil Read secured a debt funding facility with the Industrial Development Corporation for 
R200 million.

Renewal of cautionary announcement 
Shareholders are referred to the cautionary announcement released on the Stock Exchange News Service (SENS) on 
7 July 2016 and are advised that discussions for the potential private placement of shares that would result in 
Basil Read becoming a black-owned company are still in progress, and which, if successfully concluded, may have 
a material effect on the price of the company's securities.

Shareholders are therefore advised to continue exercising caution when dealing in the company’s securities until 
a full announcement is made.

On behalf of the board
PC Baloyi             NF Nicolau
Chairman              Chief executive officer
22 August 2016


Company Secretary
A Ndoni

Registered office
The Basil Read Campus, 7 Romeo Street, Hughes Extension, Boksburg, 1459 

Auditors
PricewaterhouseCoopers Inc

Transfer secretaries
Link Market Services South Africa (Pty) Ltd

Sponsor
Grindrod Bank Limited

Directors
PC Baloyi*† (Chairman), NF Nicolau (Chief Executive Officer), 
AC Wightman (Chief Financial Officer), DLT Dondur*†, MSI Gani*†, TD Hughes*, Dr CE Manning*†, 
ACG Molusi*, SS Ntsaluba*, TA Tlelai*
(*Non-executive, †Independent)

www.basilread.co.za

Date: 22/08/2016 03:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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