Wrap Text
Reviewed provisional results for the year ended 31 December 2016
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
Reviewed provisional results for the year ended 31 December 2016
Key results
- R5.1 billion
Revenue
(2015: R5.5 billion)
- R63.7 million
Operating profit
(2015: R226.2 million)
- (21.79 cents)
Headline loss per share
(2015: headline profit per share of 120.28 cents)
- (R53.6 million)
Net loss
(2015: Net profit of R171.2 million)
- R12.3 billion
Order book
(2015: R10.7 billion)
- 0 fatalities
Safety
(2015: 4 fatalities)
Basis of preparation
The condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited
Listings Requirements for provisional reports and the requirements of the Companies Act of South Africa. The Listings
Requirements require provisional reports to be prepared in accordance with the framework concepts and the measurement
and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA financial reporting
guides as issued by the accounting practices committee and financial pronouncements as issued by the Financial Reporting
Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in preparing the condensed consolidated financial statements are in terms of IFRS and consistent
with those applied in the previous consolidated annual financial statements.
The condensed consolidated financial statements were prepared under the supervision of the chief financial officer,
Talib Sadik, CA(SA).
The board of directors takes full responsibility for the preparation of the provisional report. The financial
information presented has been correctly extracted from the underlying financial statements.
Review report
These condensed consolidated financial statements for the year ended 31 December 2016 have been reviewed by the company's
auditors, PricewaterhouseCoopers Inc., which expressed an unmodified review conclusion. A copy of the auditor's review
report is available for inspection at the company's registered office together with the financial statements identified
in the auditor's report.
Forward-looking statement
Statements made throughout this announcement on the future financial performance of the company have not been reviewed
or audited by the company'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 any forward-looking statements. 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 required by the JSE
Listings Requirements.
Condensed consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2016
2016 2015*
R000 R000
CONTINUING OPERATIONS
Contract revenue 5 126 085 5 519 979
Contract execution costs (4 727 734) (5 000 034)
Purchased materials, subcontractors and other input costs (3 118 560) (3 551 793)
Staff costs (1 322 196) (1 153 784)
Depreciation (243 543) (266 017)
Other contract execution costs (43 435) (28 440)
Other income 3 66
Other administrative and operating overheads (334 617) (293 814)
Staff costs (257 028) (268 366)
Capital items (5 481) 11 731
Administrative costs and overheads (72 108) (37 179)
Operating profit 63 737 226 197
Financing income 8 868 21 077
Net foreign exchange movements 31 882 (9 728)
Financing expense (50 117) (46 740)
Non-trading and capital items (40 788) -
Share of profits/(losses) of associates and joint ventures (8 981) 40 536
Profit before taxation 4 601 231 342
Taxation (25 419) (39 704)
(Loss)/profit for the year from continuing operations (20 818) 191 638
DISCONTINUED OPERATIONS
Result for the year from discontinued operations - (45 066)
Result on disposal of discontinued operations (32 828) 24 641
Net (loss)/profit for the year (53 646) 171 213
*Restated.
OTHER COMPREHENSIVE INCOME FOR THE YEAR - NET OF TAX
Items that may be subsequently reclassified to profit or loss (35 813) 16 787
Movement in foreign currency translation reserve (35 813) 16 811
Movement in fair value adjustment reserve - (24)
Foreign exchange difference - (24)
Total comprehensive loss/income for the year (89 459) 188 000
(Loss)/profit attributable to:
Owner of the company (64 128) 180 761
Non-controlling interests 10 482 (9 548)
Net (loss)/profit for the year (53 646) 171 213
Total comprehensive income attributable to:
Owner of the company (93 268) 198 738
Non-controlling interests 3 809 (10 738)
Total comprehensive loss/income for the year (89 459) 188 000
Cents Cents
CONTINUED OPERATIONS
Basic earnings per share (23.77) 152.78
Diluted earnings per share (23.77) 152.78
DISCONTINUED OPERATIONS
Basic earnings per share (24.93) (15.51)
Diluted earnings per share (24.93) (15.51)
*Restated.
Condensed consolidated statement of financial position
as at 31 December 2016
2016 2015*
R000 R000
ASSETS
Non-current assets 1 390 758 1 500 501
Property, plant and equipment 799 092 915 856
Investment property 6 112 6 590
Investments 177 524 187 689
Intangible assets 90 782 91 640
Deferred taxation 317 248 298 726
Current assets 1 883 907 2 017 657
Contract work in progress 342 354 433 237
Trade and other receivables 699 900 766 701
Inventories 35 229 25 939
Development land 259 607 262 679
Derivative financial instrument 623 2 885
Taxation 28 681 19 371
Cash and cash equivalents 517 513 506 845
Non-current assets held for sale - 104 203
Total assets 3 274 665 3 622 361
LIABILITIES AND EQUITY
Non-current liabilities 348 166 221 087
Borrowings 300 378 182 134
Deferred taxation 47 788 38 953
Current liabilities 1 792 406 2 155 388
Contract income received in advance 330 321 715 432
Trade and other payables 934 327 734 163
Borrowings 137 760 157 798
Provisions 299 167 497 523
Taxation 31 794 15 034
Bank overdraft 59 037 35 438
Non-current liabilities held for sale - 22 334
Total liabilities 2 140 572 2 398 809
Equity 1 141 978 1 245 728
Stated capital 1 048 025 1 048 025
Other reserves 2 361 41 983
Retained earnings 91 592 155 720
Non-controlling interest (7 885) (22 176)
Total liabilities and equity 3 274 665 3 622 361
Condensed consolidated statement of changes in equity
for the year ended 31 December 2016
Stated capital Other reserves
Share Treasury Retained Total
capital shares FCTR1 FVR2 earnings AEHC3 NCI4 equity
R000 R000 R000 R000 R000 R000 R000 R000
Balance as at
1 January 2015 1 048 037 (12) 27 853 (3 847) 61 513 1 133 544 (97 992) 1 035 552
Total comprehensive income - - 18 001 (24) 180 761 198 738 (10 738) 188 000
Profit for the year - - - - 180 761 180 761 (9 548) 171 213
Other comprehensive income - - 18 001 (24) - 17 977 (1 190) 16 787
Transactions with minorities - - - - (86 554) (86 554) 86 554 -
Balance as at
31 December 2015/
1 January 2016 1 048 037 (12) 45 854 (3 871) 155 720 1 245 728 (22 176) 1 223 552
Total comprehensive income - - (39 622) - (64 128) (103 750) 14 291 (89 459)
Loss for the year - - - - (64 128) (64 128) 10 482 (53 646)
Other comprehensive loss - - (39 622) - - (39 622) 3 809 (35 813)
Balance as at
31 December 2016 1 048 037 (12) 6 232 (3 871) 91 592 1 141 978 (7 885) 1 134 093
1 Foreign currency translation reserve.
2 Fair value adjustment reserve.
3 Attributable to equity holders of the company.
4 Non-controlling interest.
Movements are reflected net of taxation.
Condensed consolidated statement of changes in cash flows
for the year ended 31 December 2016
2016 2015*
R000 R000
Cash flows from operating activities
Cash received from customers 5 114 492 5 529 929
Cash paid to suppliers and employees (5 025 217) (4 906 536)
Interest paid (48 436) (57 074)
Interest received 8 863 21 205
Taxation paid (27 655) 1 265
Dividends paid - (32)
Cash flow from operating activities before changes
in operating assets and liabilities 22 047 588 757
Changes in: (31 643) (739 448)
- Contracts work in progress 135 512 50 617
- Trade and other receivables 58 784 21 866
- Inventories (10 189) 1 517
- Development land 191 5 343
- Trade and other payables 204 248 (438 570)
- Contract income received in advance (420 189) (380 221)
Net cash from operating activities (9 596) (150 691)
Cash flows from investing activities
Acquisitions of property, plant and equipment (128 975) (68 794)
Proceeds from disposal of property, plant and equipment 41 260 77 459
Disposal of subsidiaries 64 785 82 517
Advances made to joint ventures and jointly controlled entities (19 254) (22 407)
Advances recovered from joint ventures and jointly controlled entities (3 390) 3 040
Advances made to associates 7 455 (3 401)
Advances recovered from associates - 7 440
Dividends received from associates and joint ventures 14 926 28 912
Net cash from investing activities (23 193) 104 766
Cash flow from financing activities
Proceeds from borrowings raised 239 838 205 318
Repayments of borrowings (194 524) (530 774)
Net cash from financing activities 45 314 (325 456)
Effect of exchange rate changes on cash and cash equivalents (28 725) 10 393
Movement in cash and cash equivalents (16 200) (360 988)
Cash and cash equivalents at the beginning of the reporting period 474 676 835 664
Cash and cash equivalents at the end of the reporting period 458 476 474 676
Cash included in the assets of the disposal group - 3 269
*Restated.
IAS 1 (amended) adoption
The group and company adopted the amendment which clarified that materiality applies to the whole set of financial
statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures.
As a consequence of adopting the amendment, the group and company undertook a project to assess the effectiveness
of disclosures in the annual financial statements and, where necessary, removed immaterial and unnecessary information.
The following key enhancements resulted in a more streamlined and concise set of annual financial statements:
- The application of materiality to items resulting in the aggregation or deletion of immaterial items
- The removal of duplicated information and disclosures
- An updated sequence of information presented in the financial statements
- An updated format of notes and disclosures so as to make these clearer, more concise and easier to understand to the
user
- Aggregating/disaggregating the following items in order to provide enhanced clarity and to better represent the
underlying business activities:
- Investments and loans to investments accounted for using the equity method and investments at fair value were
combined into a single line named investments
- Contract debtors and other receivables were split into contract work in progress and trade and other receivables
- Trade and other payables were split into contract income received in advance and trade and other payables
- The previously individually presented income statement and statement of comprehensive income were merged into a single
statement
- Various lines in the income statement were disaggregated to display their constituent parts. This was done to better
reflect the underlying cost drivers of the business
- The method used to prepare the cash flow statement was changed from the indirect method to the direct method.
These enhancements have no impact on the underlying disclosed amounts or earnings. To enable the comparability of
information the 2015 and 2014 comparatives were similarly enhanced, and where applicable are shown as restated. Also
refer to the note titled "comparative information for December 2014".
Additional information to the condensed consolidated financial statements
NON-TRADING AND CAPITAL ITEMS
Total
2016 2015
R000 R000
Impairment of fixed assets due to inactivity (2 900) -
Impairment of goodwill - (7 438)
Impairment of associate - (165)
Write down of development land due to devaluation (2 881) -
Profit on sale of fixed assets 778 9 926
Profit on sale of subsidiary - 20 046
Fair value adjustment on investment property (478) -
Total capital items (5 481) 22 369
Voluntary rebuild programme cost (40 788) -
Total non-trading and capital items (46 269) 22 369
The above items represent the result of activities which are non-core (transaction costs, restructuring costs, settlements
of litigation and penalties, and other impairments, acquisition and disposal related gains and losses on assets) to the key
operating objectives of the Basil Read group and are thus separately disclosed to enhance clarity of reporting.
During the current reporting period, a present value charge of R41 million (R120 million payable over 12 years) was incurred
for the expense pertaining to the settlement agreement concluded on 11 October 2016 with the South African government in
terms of the Voluntary Rebuild Programme.
DISPOSAL OF SUBSIDIARY
On 1 February 2016, the group disposed of 100% of the share capital of SprayPave (Pty) Ltd. The company is a manufacturer,
supplier and applicator of bituminous road binders and emulsions. The group realised proceeds on the sale of SprayPave of
R65.6 million before inclusion of cash disposed. The net cash inflow on the disposal was R64.8 million. This sale resulted
in a loss on disposal of R32.8 million.
BASIC AND HEADLINE/(LOSS) EARNINGS PER SHARE
Summary of (loss)/earnings per share and headline (loss)/earnings per share
(Loss)/earnings Weighted average
attributable number of shares Cents per share
2016 2015 2016 2015 2016 2015
R000 R000 R000 R000
Total operations
LPS/EPS - Basic (64 128) 180 765 131 686 131 686 (48.70) 137.27
LPS/EPS - Diluted (64 128) 180 765 131 686 131 686 (48.70) 137.27
HLPS/HEPS - Basic (28 700) 158 396 131 686 131 686 (21.79) 120.28
HLPS/HEPS - Diluted (28 700) 158 396 131 686 131 686 (21.79) 120.28
Continued operations
LPS/EPS - Basic (31 300) 201 186 131 686 131 686 (23.77) 152.78
LPS/EPS - Diluted (31 300) 201 186 131 686 131 686 (23.77) 152.78
HLPS/HEPS - Basic (28 700) 189 455 131 686 131 686 (21.79) 143.87
HLPS/HEPS - Diluted (28 700) 189 455 131 686 131 686 (21.79) 143.87
Discontinued operations
LPS/EPS - Basic (32 828) (20 421) 131 686 131 686 (24.93) (15.51)
LPS/EPS - Diluted (32 828) (20 421) 131 686 131 686 (24.93) (15.51)
HLPS/HEPS - Basic - (31 059) 131 686 131 686 - (23.59)
HLPS/HEPS - Diluted - (31 059) 131 686 131 686 - (23.59)
Reconciliation between basic (loss)/earnings, diluted (loss)/earnings and headline (loss)/earnings
Continuing Discontinued
Total operations operations
2016 2015 2016 2015 2016 2015
R000 R000 R000 R000 R000 R000
Basic and diluted (loss)/earnings (64 128) 180 765 (31 300) 201 186 (32 828) (20 421)
Loss/(profit) on sale of subsidiary 32 828 (20 046) - - 32 828 (20 046)
(Profit)/loss on sale of property, plant and equipment (778) (9 926) (778) (11 896) - 1 970
Impairment of associate - 165 - 165 - -
Impairment of goodwill - 7 438 - - - 7 438
Impairment of property, plant and equipment 2 900 - 2 900 - - -
Fair value adjustment on investment property 478 - 478 - - -
Headline (loss)/earnings (28 700) 158 396 (28 700) 189 455 - (31 059)
OPERATING SEGMENTS
The group comprises five operational segments namely construction, developments, mining, roads and St Helena,
based on the management of the segments by the chief operating decision maker. The construction segment has
been further broken down into buildings and civils.
Changes to segments
During the reporting period, management elected to make changes to the composition and structure of the
operating segments to better reflect the underlying business. This resulted in the creation of two new segments
namely the roads and developments segments. The comparative figures for the previous reporting period have been
restated accordingly.
2016
Construction Developments Mining Roads St Helena Total
R000 R000 R000 R000 R000 R000
Performance measures
Total segment revenue 1 645 506 81 263 1 701 724 1 166 765 983 365 5 578 623
Intersegment revenue (5 923) - (133 726) (51 474) (261 415) (452 538)
External revenue 1 639 583 81 263 1 567 998 1 115 291 721 950 5 126 085
Operating profit (107 704) 15 873 111 652 (41 938) 85 854 63 737
Measures of financial position
Total segment assets 950 754 17 293 1 032 671 233 427 1 040 520 3 274 665
Total segment liabilities (719 879) (41 470) (424 184) (245 375) (709 664) (2 140 572)
2015*
Construction Developments Mining Roads St Helena Total
R000 R000 R000 R000 R000 R000
Performance measures
Total segment revenue 1 807 903 160 599 1 402 190 1 508 577 961 016 5 840 285
Intersegment revenue (4 000) - (166 652) (149 654) - (320 306)
External revenue 1 803 903 160 599 1 235 538 1 358 923 961 016 5 519 979
Operating profit (17 654) 15 441 83 558 49 198 95 654 226 197
Measures of financial position
Total segment assets 1 397 263 23 219 987 279 175 595 1 039 005 3 622 361
Total segment liabilities (976 909) (77 836) (490 209) (208 348) (645 507) (2 398 809)
*Restated.
Order book
2016 2015
R000 R000
Construction 2 607 458 1 947 859
Developments 1 015 154 200 000
Mining 5 456 323 4 659 957
Roads 2 412 156 2 617 204
St Helena 851 997 1 316 173
Total order book 12 343 088 10 741 193
Contingent liabilities
Sladden International Proprietary Limited, a subsidiary of Basil Read Holdings Limited is defending a legal claim from
a sub-contractor, Landwards Proprietary Limited. Management has been advised by legal counsel that if the defence of
the claim were to be unsuccessful the potential liability is approximately R61 million.
FAIR VALUE CLASSIFICATION AND FINANCIAL INSTRUMENTS
Assets
Total
fair value Fair
R000 value level
2016
Investments 51 289
Listed investments 477 Level 1
Unlisted investment 50 812 Level 3
Investment property 6 112 Level 3
Derivative financial instrument 623 Level 2
2015
Investments 51 289
Listed investments 477 Level 1
Unlisted investment 50 812 Level 3
Investment property 6 590 Level 3
Derivative financial instrument 2 885 Level 2
The carrying values of all other financial assets and financial liabilities not carried at fair value approximate
their fair value.
Movement in level 3 instruments
Unlisted Investment
instruments property
R000 R000
Opening balance 50 812 6 590
Foreign exchange differences - (478)
Closing balance 50 812 6 112
Valuation technique and significant unobservable inputs
(a) Derivative financial instruments
Interrelationship between
Significant observable key unobservable inputs
Description Valuation technique inputs and fair value measurement
Consists of a forward Discounted cash flow Spot prices, interest rates Estimated fair value would
exchange contract method and/or volatility increase/(decrease) if:
Exchange rates increased/
(decreased)
(b) Investment property
Interrelationship between
Significant observable key unobservable inputs
Description Valuation technique inputs and fair value measurement
Consists of property held Discounted cash flow Property vacancy rates Estimated fair value would
in Francistown, Botswana method Realised yields on increase/(decrease) if:
currently rented out to a comparative sales Vacancy rate was higher/
third party for office use (lower); and
Realised yields on
comparative sales were
higher/(lower)
(c) Unlisted investments
Interrelationship between
Significant observable key unobservable inputs
Description Valuation technique inputs and fair value measurement
Consists of investment in Discounted cash flow Forward exchange rates Estimated fair value would
Lehating Mining (Pty) Ltd model Manganese prices increase/(decrease) if:
Forward exchange rates were
higher/(lower); and
Manganese prices were
higher/(lower)
Sensitivity
The fair value of the investment in Lehating Mining is based on a discounted cash flow model over the life of the
mine. The key inputs to this model are the discount rate, long-term forecasted exchange rate between the US dollar
and the South African rand, and the manganese price. Movements in these inputs would affect the fair value of the
investment, however this sensitivity has not been assessed to be significant.
COMPARATIVE INFORMATION FOR DECEMBER 2014
The enhancements referred to in the IAS 1 Adoption note, had no impact on the underlying disclosed amounts or
earnings. To enable the comparability of information both 2015 and 2014 comparatives were similarly enhanced,
the 2014 enhanced comparative information is provided below.
Consolidated statement of financial position
2014*
R000
ASSETS
Non-current assets 1 669 708
Property, plant and equipment 1 080 248
Investment property 5 826
Investments 183 089
Intangible assets 99 938
Deferred taxation 300 607
Current assets 2 552 957
Contract work in progress 378 466
Trade and other receivables 905 494
Inventories 33 067
Development land 268 022
Taxation 57 093
Cash and cash equivalents 910 815
Non-current assets held for sale 53 112
Total assets 4 275 777
LIABILITIES AND EQUITY
Non-current liabilities 259 965
Borrowings 215 898
Deferred taxation 44 067
Current liabilities 2 970 241
Contract income received in advance 1 102 385
Trade and other payables 1 180 026
Borrowings 273 594
Derivative financial instruments 223
Provisions 318 766
Taxation 5 011
Bank overdraft 90 236
Non-current liabilities held for sale 10 019
Total liabilities 3 240 225
Equity 1 133 544
Stated capital 1 048 025
Other reserves 24 006
Retained earnings 61 513
Non-controlling interest (97 992)
Total liabilities and equity 4 275 777
*Restated.
Commentary
OVERVIEW
Basil Read Holdings Limited (Basil Read) has been restructured from a group of companies with subsidiaries, to a
company with divisions. Steady progress has been made in consolidating the business into operating divisions, reducing
the overheads and aligning the overheads with the underlying business, eliminating non-core and loss-making units and
implementing a standard financial, commercial and human resource system. While good progress has been made, Basil Read is
facing challenging trading conditions, due to limited public sector infrastructure spend, low business and consumer
confidence, and increased competition.
Basil Read is proud to announce zero work-related fatalities during the reporting period. Our turnover has remained
steady at just over the R5 billion mark, with the slight reduction coming from eliminating loss-making businesses and
projects. The operating profit at R63.7 million is down on the previous year but includes the final losses on the last
distressed contract in the company, where the losses are at least partially subject to the claims process.
2016 actual 2015 actual
Turnover R5.1 billion R5.5 billion
Operating profit R63.7 million R226.2 million
(HLPS)/HEPS (21.79) cents 120.28 cents
Net (loss)/profit for the year (R53.6 million) R171.2 million
Order book R12.3 billion R10.7 billion
Safety Zero fatalities Four fatalities
The operating profit of R63.7 million includes R61 million losses incurred on the Olifants River water resource development
project as well as a R32 million loss from the pipelines business. A decision was made towards the end of 2016 to close the
pipelines business.
The before tax profit from continuing operations of R4.6 million after deducting a present value charge of the settlement
agreed with the government of the Republic of South Africa (refer to SENS announcement on 11 October 2016) of R41 million.
The after-tax loss of R53.6 million, after the deduction of a tax expense of R25.4 million which was incurred arising mainly
from profits generated in subsidiary companies domiciled outside of South Africa as well as a loss of R33 million on the
sale of SprayPave (Pty) Ltd.
Safety, health and environment (SHE)
At Basil Read, safety remains a core value and we strive to achieve zero harm. Our aim is 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 embedding necessary systems, policies and corporate standards, we promote individual responsibility
for safety throughout the organisation. The company values, with safety as the top priority, indicate our commitment to the
safety and health of our workforce, with the aim of protecting every employee at all costs.
We aspire to zero harm, which means that every employee, contractor or visitor to our sites returns home unharmed. We are
pleased to announce that our safety performance has improved notably from the prior period. No work-related fatalities
were reported during the review period, however three employees passed away in two road accidents. We again extend our
condolences to their friends, families and colleagues. These incidents were mainly due to the carelessness of road users
on our sites. As a company, we are concerned about the levels of road traffic incidents in South Africa. Given that we
have a number of road construction projects, the general public as well as our employees and contractors are subject to
the hazards these present. We therefore proactively monitor these incidents and we again appeal to the public to adhere
to all safety signage, speed limits and any other instructions given when driving in demarcated operational areas.
All incidents, regardless of the severity of the injury sustained, are exhaustively investigated and lessons learned
communicated to all sites across the company to prevent similar incidents.
Divisional operating profit
2016 2015
Construction (R107.7 million) (R17.6 million)
Developments R15.9 million R15.4 million
Mining R111.6 million R83.5 million
Roads (R41.9 million) R49.2 million
St Helena airport project R85.8 million R95.6 million
Total R63.7 million R226.2 million
Our developments, mining and St Helena airport project produced healthy profits. Good operating performances combined
with profitable newly secured work ensured continued solid performances from these three divisions.
The construction division was negatively impacted by a R61 million loss on the Olifants River water resource
development project for client Trans Caledonian Water Agency (TCTA) during the year.
Losses in the roads division are attributable to the slower than expected startup of new projects, additional costs
from historically distressed contracts and the suspension of works on the Zambia project.
Cash management was emphasised throughout the year. Basil Read Limited secured a R200 million facility comprising
a R140 million working capital facility and a R60 million revolving credit facility from the Industrial Development
Corporation (IDC). By year end, the company had fully utilised the R140 million working capital facility, with the revolving
credit facility expected to be drawn during the first half of 2017. R29 million in outstanding bonds were settled in
December 2016. The group's consolidated cash balance at 31 December 2016 was R458 million (2015: R471 million).
Basil Read concluded the disposal of SprayPave (Pty) Ltd on 1 February 2016 for a purchase consideration of R65.6 million.
The company closed its pipelines division effective 31 December 2016 which generated revenue of R66 million and an operating
loss of R32 million in the 2016 financial year.
In the reporting period, financial systems, Buildsmart and Hyperion, as well as an HR and payroll solution were implemented
to enable better information management and reporting from operational level to the corporate level. This has facilitated
better decision-making and Basil Read now has a single accounting and procurement system operating throughout the organisation.
The benefits include increased efficiency and reduced overheads by enabling more effective shared services across the
organisation. The availability of more timely and accurate information has also supported better cost management and decision making
across all areas of operation.
The implementation and bedding down of the Sage People system, focused on HR and payroll management, gives a global
view of information on the entire workforce and skills available, while providing employees with a single point for all
their pay, leave and performance management records in a user-friendly system.
To increase the focus on our developments business, this was segmented into a separate division under the leadership
of the executive for business development at the start of 2016. Similarly, given its growth prospects, the roads business
was separated into a standalone division.
OPERATIONAL REVIEW OF DIVISIONS
Construction
The construction division, comprising the buildings, civils and now discontinued pipeline business units, progressed
satisfactorily in 2016. It overcame a number of challenges and successfully delivered on several contracts. The completion
of these major works, for private and public sector clients, underscores the division's capabilities and adds to an already
solid base of experience which the division can leverage for sustainable growth.
Construction
Reviewed Audited
12 months 12 months
31 December 31 December
2016 2015
Revenue (R000) 1 639 583 1 803 903
Operating (loss)/profit (R000) (107 704) (17 654)
Operating margin (%) (6.57) (0.98)
Order book (R000) 2 607 458 1 947 859
The construction division's performance was overshadowed by difficulties in completing the Olifants River water resource
development project for client TCTA. Completing this pipeline was a focus for 2016, and the team made exceptional progress
by completing the installation of the full line including the technically complex Steelpoort River crossing, as well as
pressure testing half of the line. Very good progress has been made and the bulk of the project and cost will be finished
in the first quarter of 2017, with pressure testing and handover due in the first half of 2017.
To date, Basil Read has incurred costs of R2 071 million and accounted for an overall loss of R499 million. In the
review period, the company recognised revenue of R250 million which includes R139 million in uncertified revenue and a
loss of R61 million. Included in the current year costs, a provision of R52 million has been accounted for to complete the
project. Basil Read has submitted claims totalling R586 million to the client, TCTA, of which R279 million has been settled
in favour of Basil Read and R307 million, remains outstanding. An additional R98 million in claims to be submitted during the
first half of 2017.
Regular meetings are held with the TCTA and its consulting engineer on the resolution of the claims. Based on our success
rate in resolving claims, management is confident that the outstanding claims will be resolved during the 2017 year.
As the project is being finalised, this accounts for the total end of project losses and any resolution of the claims
will contribute to improving the financial position of Basil Read. This will also conclude the final highly distressed
contract in Basil Read.
Civil works at the Kusile and Medupi power stations continued. At year end, the order book for these two sites
amounted to R1.8 billion. Basil Read also resolved several other claims in the review period, including Venetia mine,
providing welcome cash into the business.
Our buildings unit has developed a reputation for building and delivering schools on time and to the highest quality;
positioning itself as the contractor of choice in this market. The team's commitment to completing these schools was
driven by the experience of working within local communities and seeing, first-hand, the positive impact these schools
would have on the children. Several schools were completed in the Western Cape, and those in Gauteng are on track for
scheduled completion. The buildings unit also completed a major extension to the Protea Hotel in Umhlanga and Nissan's
incubation centre in Gauteng. Works at Kusile and Medupi power stations continued, and buildings at Medupi were handed
over.
The pipeline business unit operated within the competitive space of infrastructure pipelines and bulk water supply schemes.
There are many opportunities for work, however the relatively low barriers to entry into this market have resulted in fairly
low margins being obtained on this type of work. The pipeline business has now been shutdown.
Certain skills within the pipelines business have been integrated into the civils business to take advantage of the
pipelines expertise gained on the Olifants River water resource development project.
Developments
Reviewed Audited
12 months 12 months
31 December 31 December
2016 2015
Revenue (R000) 81 263 160 599
Operating profit (R000) 15 873 15 441
Operating margin (%) 19.53 9.61
Order book (R000) 1 015 154 200 000
Our developments business focuses on large-scale, mixed-income, integrated housing developments. Relocating this
division under the executive officer for business development highlights its strategic importance to the company.
Key current projects include Savanna City (over 18 000 planned housing opportunities) and Malibongwe Ridge, as an
extension to Cosmo City (about 5 500 opportunities).
Unit sales at Savanna City are exceeding expectations, underscoring the demand for affordable housing. To date, 910 units
have been sold, with some 1 020 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 400ha
project sets a benchmark in economic development and housing.
Progress at Malibongwe Ridge has slowed because of budgetary constraints among key government partners. Servicing for
the first phase - 486 fully subsidised residential stands - is complete and 200 homes built, with 144 occupied.
Community expectations will need to be managed due to the slowdown in allocating completed homes.
Between June and December 2016, four stands at the Klipriver Business Park with a value of R18 million were sold.
Mining
Reviewed Audited
12 months 12 months
31 December 31 December
2016 2015
Revenue (R000) 1 567 998 1 235 538
Operating profit (R000) 111 652 83 558
Operating margin (%) 7.12 6.76
Order book (R000) 5 456 323 4 657 957
The division recorded revenue of R1.57 billion, an increase of 27% from 2015 on the back of new contracts awarded in
a competitive market. This enabled the division to increase its profit contribution to R112 million, a 33% increase
compared to 2015, by keeping the operating margin constant. The division was able to maintain margins despite clients
requesting discounted services by implementing its asset optimisation strategy to improve productivity in all our
projects.
Rising commodity prices in 2016 resulted in new opportunities coming to market, but uncertainty on the sustainability
of prices meant the market remained challenging, with profit margins under pressure for the mining services business.
However, implementing the asset optimisation strategy positioned the division well to profitably capitalise on
opportunities coming to the market. In 2016, the division secured the following major opportunities:
- Jwaneng mine, Botswana - Cut 8 North East corner push back
- Lerala Diamond mine, Botswana, 48 months
- 12-month contract at Otjikoto mine owned by B2 Gold Corp
- 36-month contract at Skorpion zinc mine
- The Majwe JV contract in Debswana was extended by 12 months.
Global investments in commodity markets seem to have stabilised in 2016, with some signs of improvement in certain
commodities. Although our clients remain cautious, we are confident that Basil Read is well positioned to capitalise
on new opportunities by fostering long-term partnerships with clients and delivering safe and cost-efficient projects.
Roads
Reviewed Audited
12 months 12 months
31 December 31 December
2016 2015
Revenue (R000) 1 115 291 1 358 923
Operating (loss)/profit (R000) (41 938) 49 198
Operating margin (%) (3.76) 3.62
Order book (R000) 2 412 156 2 617 204
Basil Read has arguably built more roads in the country than any other contractor. Our aim is to develop our roads
division into a transportation division servicing all related infrastructure requirements. This reflects 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. Equally, the divisional structure supports growth initiatives in all
forms of transport while maintaining our strong presence in the road construction sector.
The 2016 result was impacted by the slower than expected start-up of new projects, additional costs from historically
distressed contracts and the suspension of works on our project in Zambia. Significant design clashes and lack of
adequate design information from the client have unexpectedly affected two roads projects, and are being addressed with the
respective clients and their professional teams to find implementable solutions. These factors, combined with the industry
trend of drawn-out claims resolution and an aggressive market with low margins, culminated in the lower than expected
performance of the division.
In addition, community disruptions continued to affect performance as local residents look for employment opportunities,
particularly pronounced in rural areas and specific urban environments where the shortage of work is acute. These
disruptions have had a direct financial cost of over R10 million, excluding the intangible cost from the loss of momentum
in production due to the stop/start nature of these disruptions. We are partnering with our clients and their professional
teams to proactively engage with communities to address their concerns. We are also actively engaging with newly elected
officials and councillors to explore ways to work together to the benefit of the communities in which we operate.
Tender activity for 2016 was subdued, although levels increased in the second half. Limited tender activity is exacerbated
by aggressive competition for work from traditional clients in the South Africa roads construction industry. As a result,
the division is looking beyond the country's borders for long-term airport, roads and port opportunities.
In the review period, the division closed out a further five historical projects, bringing the total to 12 projects
finalised over the past 24 months. This now allows for greater management input on our current projects with strategic
clients, as well as sourcing new projects and clients identified in our long-term strategy.
We will continue to aggressively pursue transport project work while ensuring we price at sensible margins to secure
work to meet our growth targets for 2018. The focus remains on strengthening the division's position in the South African
market and pursuing targeted projects beyond our borders.
St Helena airport project
Reviewed Audited
12 months 12 months
31 December 31 December
2016 2015
Revenue (R000) 721 950 961 016
Operating profit (R000) 85 854 95 654
Operating margin (%) 11.89 9.95
Order book (R000) 851 997 1 316 173
The St Helena airport project continues to prove Basil Read's ability to successfully execute a design-build-operate-maintain
project of such magnitude and nature, being on a remote island in the South Atlantic Ocean. Although this flagship project is
coming to an end, Basil Read still has work worth R852 million on its order book - R400 million to complete the new bulk fuel
facility and R452 million to service the airport for the next nine years.
After more than four years of construction, the major highlight of 2016 was the first jet-propelled aircraft,
a Bombardier Challenger 300, landing on the island on 10 April 2016, carrying five UK regulators for the first
aerodrome audit. The audit was highly successful and the aerodrome certificate was issued by Air Safety Support
International (ASSI), on 10 May 2016. This means the airport was certified for international operational use
including medevacs, charters and commercial flights. A further six-monthly aerodrome audit was carried out by
ASSI in October 2016, which extended the operating licence for another six months.
Issues with wind shear and turbulence, especially evident on the approach to runway 20 (the primary runway), have
delayed the start of scheduled flights, although this poses no risk to Basil Read. A new tender has been issued for
commercial operations, which is anticipated to begin in mid-2017.
Despite the delay in commercial flights, charter flights are able to land and Basil Read operates the airport daily as
a fully functional international facility, making a real difference to the lives of residents. As an example, this has
allowed a number of medical air evacuations that 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 with ongoing design work,
procurement, installation and preparation for commissioning.
Prospects
Our focus remains on the southern African market including South Africa, given the need for infrastructure to stimulate
the economy, while positioning ourselves to partner with existing clients as they expand their operations in southern
Africa.
The Basil Read order book has increased to R12.3 billion (2015: R10.7 billion), at a gross profit level of R1.4 billion
and a gross margin of 11%. It is a good balance between the construction, roads, developments and St Helena airport
project (R6.9 billion) and mining divisions (R5.4 billion) and reflects Basil Read's ability to trade despite challenging
market conditions. The potential profit of the book is reasonable and should allow the company to significantly improve
its profitability in a challenging environment.
With the Olifants River water resource development project nearing its final handover, Basil Read's operations will be
significantly more efficient as this is the final highly distressed contract in Basil Read. The cash drain caused by
this project will finally be over and will result in much needed relief going forward.
We continue to implement our three-tiered strategy:
- Grow the company to minimise the impact of cyclical volatility
a. Reinventing business development
b. Growth in Basil Read's order book from R10.7 billion to R12.3 billion as at the end of December 2016
c. As per recent SENS announcements, Basil Read is currently in discussions with a partner around the potential
private placement of shares that would result in Basil Read Holdings being a black-owned company to ensure
compliance with the requirements of the settlement agreement referred to above, and to improve its competitiveness
in the local market.
- Extract maximum value from our assets
a. Rightsizing overheads. Given that managing overheads is key to ensuring a sustainable business, the corporate
office salaried staff complement is being reduced to bring the overhead cost in line with turnover. To support
this, Basil Read is critically examining structures to centralise support functions such as supply chain, SHE
(safety, health, environment), quality, finance and HR to remove duplication, share resources and create a
cost-effective, scalable overhead model. With the process 80% complete, the annual overhead saving from this
process will approximately be R41 million per year at a once-off cost of R14 million
b. Improved project execution - Having eliminated non-core and distressed contracts, Basil Read can now continually
improve on operating performance, by focusing on strengthening on-site project teams, improving project delivery
and productivity, driving efficiencies and seeking higher-margin projects in the private sector and outside South
Africa
c. Driving supply chain efficiencies
d. Improved cash flow management.
- Develop a strong corporate culture
a. A new set of corporate values has been agreed and implemented in the business. These values are aligned with our
strategy and allow us to harness the collective and disciplined efforts of a representative Basil Read team in
building a significantly better and more valuable business
b. Industry transformation remains a key government and sector objective, with the aim of fostering a collaborative
relationship with government bodies, and we are prioritising this as a strategic initiative. Evidence of this is the
recent settlement agreement between government and the construction sector
c. As outlined on SENS, on 11 October 2016, Basil Read entered into an agreement with the government of the Republic
of South Africa, together with six other construction companies, to implement a programme of initiatives to
significantly accelerate transformation of the South African construction sector, as well as to address the
construction companies' exposure to potential claims for damages from certain identified public entities'
projects arising primarily from the fast-track settlement process launched by the South African competition
authorities in February 2011.
CORPORATE GOVERNANCE
The directors and senior management of the company 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 with the Listings Requirements of the JSE Limited. The company regularly reviews its corporate
governance policies and practices, striving for continued improvement.
The following changes to the board took effect in the review period:
- Amanda Wightman resigned as CFO and executive director on 30 September 2016
- Talib Sadik was appointed as CFO and executive director on 1 October 2016.
Dividends
Due to the difficult trading environment and need to retain working capital, the board of directors has resolved not
to declare a dividend.
On behalf of the board
PC Baloyi NF Nicolau
Chairman Chief executive officer
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),
MT Sadik (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: 10/03/2017 07:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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