Wrap Text
Unaudited results for the six months ended 30 June 2017 and cautionary announcement
BASIL READ HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1984/007758/06)
(Basil Read or the company or the group)
ISIN: ZAE000029781
Share code: BSR
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017 AND CAUTIONARY ANNOUNCEMENT
KEY RESULTS
Revenue from continuing operations R2.3 billion
(2016: R2.5 billion)
Operating (loss)/profit (R458.8 million)
(2016: R73.5 million)
Net (loss)/profit (R474.1 million)
(2016: R34.4 million)
Headline (loss)/profit per share from continuing operations (295.16 cents)
(2016: 53.39 cents)
Order book R10.7 billion
(2016: R10.4 billion)
Safety 0 fatalities
(2016: 0 fatalities)
ORDER BOOK
23% construction
9% developments
44% mining
18% roads
6% St Helena airport project
REVENUE
34% construction
3% developments
36% mining
20% roads
7% St Helena airport project
Basis of preparation
The condensed consolidated interim financial statements for the six months ended 30 June 2017 have been prepared in
accordance with the requirements of the JSE Limited Listings Requirements for interim financial reports and the
requirements of Companies Act of South Africa. The JSE Listings Requirements require interim reports to be prepared
in accordance with the framework concepts, the measurement and recognition criteria 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 as a minimum, contain the information required
by IAS 34 Interim Financial Reporting.
The condensed consolidated interim financial information should be read in conjunction with the annual financial
statements for the year ended 31 December 2016,which have been prepared in accordance with IFRS. The significant accounting
policies and methods of computation are consistent in all material respects with those applied in previous periods.
Review report
The condensed interim 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 six months interim report.
The condensed interim consolidated financial statements for the six months ended 30 June 2017 have not been reviewed
or reported on by the group’s auditors.
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 six months ended 30 June 2017
June June December
2017 2016 2016
R000 R000 R000
CONTINUING OPERATIONS
Contract revenue 2 276 745 2 501 918 5 126 085
Operating (loss)/profit (458 780) 73 452 63 737
Financing income 6 951 3 747 8 868
Net foreign exchange movements 5 333 (22 784) 31 882
Financing expense (25 308) (18 439) (50 117)
Capital items - - (40 788)
Share of profits/(losses) of associates and joint ventures 18 992 13 664 (8 981)
(Loss)/profit before taxation (452 812) 49 640 4 601
Taxation (21 246) 18 122 (25 419)
(Loss)/profit for the year from continuing operations (474 058) 67 762 (20 818)
DISCONTINUED OPERATIONS
Result on disposal of discontinued operations - (33 352) (32 828)
Net (loss)/profit for the year (474 058) 34 410 (53 646)
OTHER COMPREHENSIVE INCOME FOR THE YEAR - NET OF TAX
Items that may be subsequently reclassified to profit or loss (19 368) (18 372) (35 813)
Total comprehensive income for the year (493 426) 16 038 (89 459)
(Loss)/profit attributable to:
Owner of the company (475 254) 39 171 (64 128)
Non-controlling interests 1 196 (4 761) 10 482
Net (loss)/profit for the year (474 058) 34 410 (53 646)
Total comprehensive income attributable to:
Owner of the company (494 746) 15 614 (103 750)
Non-controlling interests 1 320 424 14 291
Total comprehensive income for the year (493 426) 16 038 (89 459)
Cents Cents Cents
CONTINUING OPERATIONS
Basic earnings per share (360.90) 55.08 (23.77)
Diluted earnings per share (360.90) 55.08 (23.77)
DISCONTINUED OPERATIONS
Basic earnings per share - (25.33) (24.93)
Diluted earnings per share - (25.33) (24.93)
Condensed consolidated statement of financial position
as at 30 June 2017
June June December
2017 2016 2016
R000 R000 R000
ASSETS
Non-current assets 1 657 548 1 578 292 1 390 758
Property, plant and equipment 1 098 544 944 356 799 092
Investment property 6 048 6 494 6 112
Investments 216 515 196 063 177 524
Intangible assets 1 433 91 210 90 782
Deferred taxation 335 008 340 169 317 248
Current assets 1 750 646 2 029 978 1 883 907
Contract work in progress 362 222 558 324 342 354
Trade and other receivables 834 755 861 869 699 900
Inventories 46 603 38 121 35 229
Development land 255 483 262 679 259 607
Derivative financial instrument - - 623
Taxation 28 721 31 477 28 681
Cash and cash equivalents 222 862 277 508 517 513
Total assets 3 408 194 3 608 270 3 274 665
LIABILITIES AND EQUITY
Non-current liabilities 395 940 227 528 348 166
Borrowings 332 633 171 743 300 378
Deferred taxation 63 307 55 785 47 788
Current liabilities 2 371 587 2 141 152 1 792 406
Contract income received in advance 407 728 520 737 330 321
Trade and other payables 978 233 1 082 850 934 327
Borrowings 381 998 158 733 137 760
Provisions 506 592 296 419 299 167
Taxation 48 411 24 156 31 794
Bank overdraft 48 625 58 257 59 037
Total liabilities 2 767 527 2 368 680 2 140 572
Equity 647 232 1 261 342 1 141 978
Stated capital 1 048 025 1 048 025 1 048 025
Other reserves (17 131) 18 426 2 361
Retained earnings (383 662) 194 891 91 592
Non-controlling interest (6 565) (21 752) (7 885)
Total liabilities and equity 3 408 194 3 608 270 3 274 665
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2017
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 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 income - - (39 622) - - (39 622) 3 809 (35 813)
Balance as at
31 December 2016/
1 January 2017 1 048 037 (12) 6 232 (3 871) 91 592 1 141 978 (7 885) 1 134 093
Total comprehensive income - - (19 492) - (475 254) (494 746) 1 320 (493 426)
Loss for the year - - - - (475 254) (475 254) 1 196 (474 058)
Other comprehensive income - - (19 492) - - (19 492) 124 (19 368)
Balance as at
30 June 2017 1 048 037 (12) (13 260) (3 871) (383 662) 647 232 (6 565) 640 667
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 six months ended 30 June 2017
June June December
2017 2016 2016
R000 R000 R000
Cash flows from operating activities
Cash received from customers 2 193 445 2 081 252 4 888 598
Cash paid to suppliers and employees (2 273 531) (2 204 815) (4 791 312)
Interest paid (23 766) (18 634) (48 239)
Interest received 6 951 3 747 8 863
Taxation paid (7 117) (10 154) (27 655)
Net cash flows from operating activities (104 018) (148 604) 30 255
Cash flows from investing activities
Acquisitions of property, plant and equipment (171 709) (106 911) (128 975)
Proceeds from disposal of property, plant and equipment 13 169 12 725 42 392
Disposal of subsidiaries - 64 785 64 785
Advances made from jointly controlled entities and associates (20 025) (10 424) (15 189)
Dividends received from associates and joint ventures - 15 369 14 926
Net cash flows from investing activities (178 565) (24 457) (22 061)
Cash flow from financing activities
Proceeds borrowings raised 90 387 29 200 200 855
Repayments of borrowings (90 210) (97 099) (196 524)
Net cash flow from financing activities 177 (67 899) 4 331
Effect of exchange rate changes on cash and cash equivalents (1 833) (14 465) (28 725)
Movement in cash and cash equivalents (284 239) (255 425) (16 200)
Cash and cash equivalents at the beginning of the reporting period 458 476 474 676 474 676
Cash and cash equivalents at the end of the reporting period 174 237 219 251 458 476
Additional information to the condensed consolidated financial statements
(LOSS)/EARNINGS PER SHARE AND HEADLINE (LOSS)/EARNINGS PER SHARE
Summary of (loss)/earnings per share and heading (loss)/earnings per share
Earnings Weighted average
attributable number of shares Cents per share
2017 2016 2017 2016 2017 2016
R000 R000 R000 R000
Total operations
LPS1/EPS2 - Basic (475 254) 39 171 131 686 131 686 (360.90) 29.75
LPS/EPS - Diluted (475 254) 39 171 131 686 131 686 (360.90) 29.75
HLPS3/HEPS4 - Basic (388 680) 64 417 131 686 131 686 (295.16) 48.92
HLPS/HEPS - Diluted (388 680) 64 417 131 686 131 686 (295.16) 48.92
Continuing operations
LPS/EPS - Basic (475 254) 72 523 131 686 131 686 (360.90) 55.08
LPS/EPS - Diluted (475 254) 72 523 131 686 131 686 (360.90) 55.08
HLPS/HEPS - Basic (388 680) 70 307 131 686 131 686 (295.16) 53.39
HLPS/HEPS - Diluted (388 680) 70 307 131 686 131 686 (295.16) 53.39
Discontinued operations
LPS/EPS - Basic - (33 352) 131 686 131 686 - (25.33)
LPS/EPS - Diluted - (33 352) 131 686 131 686 - (25.33)
HLPS/HEPS - Basic - (5 890) 131 686 131 686 - (4.47)
HLPS/HEPS - Diluted - (5 890) 131 686 131 686 - (4.47)
Reconciliation between basic earnings/(loss), diluted earnings/(loss) and headline earnings/(loss)
Continuing Discontinued
Total operations operations
2017 2016 2017 2016 2017 2016
R000 R000 R000 R000 R000 R000
Basic and diluted earnings/(loss) (475 254) 39 171 (475 254) 72 523 - (33 352)
(Profit)/loss on sale of subsidiary - 27 462 - - - 27 462
(Profit)/loss on sale of property,
plant and equipment (2 409) (2 216) (2 409) (2 216) - -
Impairment of goodwill 88 919 - 88 919 - - -
Fair value adjustment on
investment property 64 - 64 - - -
Headline (loss)/earnings (388 680) 64 417 (388 680) 70 307 - (5 890)
1 Loss per share.
2 Earnings per share.
3 Headline loss per share.
4 Headline earnings per share.
GOODWILL AND INTANGIBLE ASSETS
Contract-
based
intangible
Goodwill assets Total
R000 R000 R000
Balance as at 1 January 2016
Cost 350 970 80 177 431 147
Accumulated amortisation and impairment (262 053) (77 453) (339 506)
Net book value 88 917 2 724 91 641
Movements
Amortisation - (859) (859)
Impairment - - -
Balance as at 31 December 2016/1 January 2017
Cost 350 970 80 177 431 147
Accumulated amortisation and impairment (262 053) (78 312) (340 365)
Net book value 88 917 1 865 90 782
Movements
Amortisation - (432) (432)
Impairment (88 917) - -
Balance as at 30 June 2017
Cost 343 532 80 177 423 709
Accumulated amortisation and impairment (343 532) (78 744) (422 276)
Net book value - 1 433 1 433
The group goodwill is allocated to roads cash-generating unit (CGU).
Following the losses generated in the roads CGU management has recalculated the recoverable
amount of the roads CGU as at 30 June 2017. An impairment loss of R88.9 million was recognised for
the roads CGU, reducing the carrying amount of the goodwill for this CGU to zero as at 30 June 2017.
There are no other goodwill recoverable amounts for the group as at 30 June 2017.
The impairment assessment of the roads CGU was performed based on the value-in-use methodology
using a five-year discounted cash flow model. The pre-tax cash flows were discounted using a
pre-tax discount rate in line with valuations methodology and the requirements of accounting
standards.
The key assumptions used for value-in-use calculation:
2017
Base revenue (R000) 600 000
Nominal growth rate (%) 4 - 7
Gross profit/(loss) (%) 9 - 12
Nominal pre-tax discount rate (%) 21.6
SENSITIVITY ANALYSIS
Sensitivity analysis in respect of the most significant assumption applied in the impairment model
- 1% increase in gross nominal growth rate.
If all assumptions remain unchanged, a 1% increase in the nominal growth rate results in a
R5.6 million increase in the recoverable amount, this change will still result in an impairment.
- 1% decrease in the discount rate.
If all assumptions remain unchanged, a 1% decrease in the discount rate results in a R7.0 million
increase in the recoverable amount, this change will still results in an impairment.
The management has considered and assessed reasonable possible changes for other key assumptions and
has not identified any other instances that could result in goodwill not being impaired.
The contract-based intangible asset that arose on the acquisition of Sunset Bay Trading 282 (Pty) Ltd
has been determined to have a finite life, based on the expected duration of property development.
It is being amortised over a maximum period of 120 months, of which 20 months are remaining.
PROVISIONS
Contract Total
Employee provisions provisions
R000 R000 R000
2017
Opening balance 1 345 297 822 299 167
Additions 19 344 202 853 222 197
Utilisations (39) (14 362) (14 401)
Reversals (976) (10 523) (11 499)
Other movements 1 021 9 797 10 818
Foreign exchange differences 3 307 310
Closing balance 20 698 485 894 506 592
Included in contract provisions is R199.8 million related to onerous contracts.
Employee provision consists mainly of bonuses for wage earners.
OPERATING SEGMENTS
The group is comprised of 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 consists of buildings, civils and pipelines.
2017
Develop-
Construction ments Mining Roads St Helena Total
R000 R000 R000 R000 R000 R000
Performance measures
Total segment revenue 769 703 66 344 837 734 472 041 154 085 2 299 907
Intersegment revenue - - (1 106) (22 056) - (23 162)
External revenue 769 703 66 344 836 628 449 985 154 085 2 276 745
Operating profit/(loss) (181 111) 26 027 21 708 (284 271) (41 134) (458 781)
Measures of financial position
Total segment assets 946 984 338 718 1 354 166 221 707 546 619 3 408 194
Total segment liabilities 1 065 795 53 714 737 530 238 991 671 497 2 767 527
Order book 2 463 185 997 944 4 638 766 1 925 901 642 471 10 668 267
2016
Construction Develop- Mining Roads St Helena Total
R000 ments R000 R000 R000 R000
R000
Performance measures
Total segment revenue 719 528 31 131 812 098 615 689 381 977 2 560 423
Intersegment revenue - - (58 505) - - (58 505)
External revenue 719 528 31 131 753 593 615 689 381 977 2 501 918
Operating profit (32 344) 8 859 49 695 7 747 39 495 73 452
Measures of financial position
Total segment assets 1 568 802 409 786 1 025 617 79 838 524 228 3 608 271
Total segment liabilities 1 029 766 64 915 553 246 157 351 563 402 2 368 680
Order book 1 593 407 470 080 4 655 357 2 377 801 1 267 303 10 363 948
GOING CONCERN
In determining the appropriate basis of preparation of the financial statements, the directors are required to
consider whether the group can continue in operational existence for the foreseeable future. The board recognises
that cash flow is critically tight, and that raising new funding is now essential to stabilise the company in the
short term, and to meet future operating commitments over the medium to long term. Based on the forecasts and plans
that are being implemented by management, which are discussed in more detail in the commentary section, the directors
believe that the group will have sufficient cash resources for the foreseeable future.
Commentary
OVERVIEW
Basil Read Holdings Limited (the group) reported interim financial results for the six months ended 30 June 2017 which
were materially below expectations. The operating loss of R458.8 million compared to R73.5 million profit reported for the
six months ended 30 June 2016, is attributable to provisions on contracts within the roads division which included the
write down of goodwill (R88,9 million) as a result of decline in earnings. Claims on the Olifantsfontein pipeline contract
remain difficult and protracted, requiring further provisions for six months trading. We have considered it prudent to
increase provisions, notwithstanding significant improvement in expected recovery. It is also expected that mitigating
remedial actions being pursued by management will significantly reduce the expected cost by year end.
Excluding legacy contracts in the construction division and the difficulties on one major contract within the roads division,
the majority of the contracts within the group remain well managed. The mining division continues to fare well reflecting
profits for the six months, and it is anticipated that this position will carry to year end.
The developments division performed exceptionally well during the reporting period on the back of continued strong performance
in sales in the industrial developments.
During the period under review there were zero work-related fatalities.
PERFORMANCE REVIEW
Trading conditions remained poor for the sector. Turnover decreased by 8.0% to R2.3 billion from R2.5 billion (30 June 2016)
after discontinuing select loss making projects. The group reported a headline loss per share of 295.16 cents compared to a
headline earnings per share of 48.92 cents for the comparative period ended 30 June 2016. The loss per share reported in the
period was 360.9 cents compared to earnings per share of 55.08 cents for the comparative period.
For the period under review, Basil Read’s mining and developments divisions have seen strong demand for their respective service
offerings and value propositions. In contrast, Basil Read’s roads and construction divisions both continued to face challenging
trading conditions due to poor contract margins, limited public-sector infrastructure spend, low business and consumer confidence,
and increased competition. Continued competitive market conditions translated into tighter margins on work secured. The group has
reviewed its margins requirement with likely major reduction in volumes in the roads division.
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Turnover R2.3 billion R2.5 billion R5.1 billion
Operating (loss)/profit (R458.8 million) R73.5 million R63.7 million
Before tax (loss)/profit from continuing operations (R452.8 million) R49.6 million R4.6 million
(HLPS)/HEPS (295.16 cents) 48.92 cents (21.09 cents)
Order book R10.7 billion R10.4 billion R12.3 billion
Safety Zero fatalities Zero fatalities Zero fatalities
CASH FLOW
Cash and cash equivalents for the period ended 30 June 2017 amounted to R174.2 million (June 2016: R219.2 million).The company
utilised R104 million (June 2016: R148.6 million utilised) cash from operations. The net cash outflow from operating activities is
after payment of taxation liabilities of R7.1 million (June 2016: R10.2 million). The group invested R171.9 million in new plant and
equipment mainly for the mining division.
RESTRUCTURING UPDATE
Shareholders are referred to the SENS announcement released on 31 May 2017, which advised that the board of directors (the board)
resolved to undertake significant restructuring of the company in light of further unanticipated losses. Significant progress has been
made in this regard and most of the effects will likely be more evident in the ensuing financial period (Dec 2018). Any major effect
will be communicated to shareholders.
FUNDING REQUIREMENTS
The adverse impact of poor performance in the roads division along with protracted claims process necessitated a review of the group
funding approach. These, together with the need for investment in new contracts in the mining division severely depleted group liquidity.
These shortfalls have been addressed as follows:
Management has engaged select funders on the market and these have largely been positive. The IDC granted much needed funding support of
R90 million for the mining division (new contract). While we are resolute in the recovery of outstanding claims, the timing of receipt will
largely be beyond required contract period. The group has initiated a number of fundraising initiatives both in respect of short-term
requirements (bridging finance) and long-term requirements. We are pleased to advise stakeholders that both processes have progressed well
with an initial R61million of a bridging facility of R150 million having been approved. On a longer-term basis, we are in the process of
raising capital through a rights issue. While we have yet to secure binding commitments, engagements to date suggest that this will receive
support from shareholders. It is anticipated that total funds arising from this will be in the region of R200 million to R300 million.
Internally we have engaged in a number of initiatives to secure further liquidity. These will be in addition to increased intensity of claims
recovery and comprise disposal of non-core assets which are estimated to yield up to R150 million.
CAUTIONARY
Various confidential discussions and negotiations have been entered into regarding the rights offer, which may have a material effect on the
price of the company’s securities. Accordingly, shareholders are advised to exercise caution when dealing in the company’s securities until a
detailed announcement is made with regards to the rights offer.
Divisional performance
Operating (loss)/profit of R458.8 million (2016: R73.5 million)
Divisional operating profit
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Construction* (R222.2 million) R7.1 million (R21.9 million)
Developments R26.0 million R8.9 million R15.9 million
Roads (R284.3 million) R7.8 million (R41.9 million)
Mining R21.7 million R48.7 million R111.6 million
Total (R458.8 million) R73.5 million R63.7 million
* Includes St Helena.
PROSPECTS
The focus going forward will be primarily on repositioning the group for the current and future environment. This entails: continued investment
in the divisions and projects that have traditionally been profitable at high margins, as well as closing out the remaining distressed projects,
reducing overhead costs and improving liquidity.
The group will seek to minimise the impact of cyclical volatility through:
(a) Selective project acquisition and to focus the business development efforts in accordance with the company’s selected markets. At the end of
June 2017, the group’s order book was R10.7 billion, reflecting good balance between the construction (R3.1 billion), roads (R1.9 billion),
developments (R1.0 billion) and mining divisions (R4.7 billion) and ensuring the group’s ability to trade despite challenging market conditions.
The potential profit of the order book is good and should allow the company to improve profitability. While the sector remains challenging, with
very few projects available, the group pipeline remains very good in the short term and we are expecting increases in the order book.
CHANGES TO THE BOARD
The following changes to the board took effect in the first six months ended 30 June 2017:
- Neville Nicolau resigned as CEO and executive director with effect from 31 May 2017.
- Khathutshelo (K2) Mapasa was appointed as acting CEO with effect from 1 June 2017.
DIVIDENDS
Due to the difficult trading environment and need to retain working capital, the board of directors has resolved not to declare an interim dividend.
On behalf of the board
PC Baloyi K Mapasa
Chairman Chief executive officer (acting)
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), K Mapasa (acting chief executive officer),
MT Sadik (chief financial officer), DLT Dondur*†, MSI Gani*†, TD Hughes*, Dr CE Manning*†,
ACG Molusi*, SS Ntsaluba*, AT Tlelai*
(*Non-executive, †Independent)
www.basilread.co.za
communications@basilread.co.za
Date: 28/08/2017 07:30:00 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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