Basil Read has posted steady turnover at just over the R5-billion mark for the year ended December 31.
This was, however, lower than the R5.5-billion turnover in 2015, mainly as a result of eliminating loss-making businesses and projects.
Operating profit fell from R226.2-million in 2015 to R63.7-million. This included the final losses on the last distressed contract in the company, where the losses are still at least partially subject to a claims process.
Further, the JSE-listed construction company explained that the operating profit was negatively impacted on by the R61-million in losses incurred on the Olifants River Water Resource Development (ORWRD) project, as well as a R32-million loss from the pipelines business.
Basil Read posted a loss of R53.6-million, after the deduction of a tax expense of R25.4-million, which was incurred mainly from profits generated in subsidiary companies domiciled outside of South Africa, as well as a loss of R33-million on the sale of its SprayPave business.
At a presentation of the company’s results, in Johannesburg, on Friday, CEO Neville Nicolau said that, while this was not “great results, it isn’t bad either.”
“[This year] was like a person with a massive wound, which initially was covered with band aids and went very bad. [However,] it has been stitched up and it has healed. We have now removed the stitches from this wound and the scar is forming. In an otherwise healthy body, the future is positive,” he noted.
The company also continued to place emphasis on its cash management, securing a R200-million facility, comprising a R140-million working capital facility and a R60-million revolving credit facility from the Industrial Development Corporation.
By year-end, the company had fully used the R140-million working capital facility, with the revolving credit facility expected to be drawn during the first half of this year.
The construction division progressed satisfactorily in 2016, the company noted, and while it posted an operating loss of R107-million, it still held an order book of R2.6-billion, with civil works at the Kusile and Medupi power stations accounting for the bulk of the order book.
Basil Read’s mining division recorded revenue of R1.5-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 with 2015, by keeping the operating margin constant.
The division was also able to maintain margins despite clients requesting discounted services by implementing its asset optimisation strategy to improve productivity at all its projects.
“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 company said.
Overall, the Basil Read order book has increased to R12.3-billion from the prior year’s 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 and the mining division and reflects our 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 ORWRD 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,” the company stated.
Nicolau added that the company would remain focused on South Africa, but said it was mindful of opportunities across the continent, as “the need for infrastructure is clear”.
He further pointed out that there was a real risk of construction activity not picking up in South Africa, which could impact the company’s order book in the next year. “Our ability to improve will rely on taking market share, provided that it falls in line with improved gross margins.
“We want to be in a position where we are entirely flexible and we have been fortunate this year to have an increase in our order book, but we recognise that it could decrease. We could survive on a R4-billion or R3.5-billion turnover, but we will need to reduce and eliminate the overheads associated with the larger turnover,” said Nicolau.
The company was already engaging in rightsizing of its overheads, with Basil Read reducing its overhead staff complement by 48 people. “This exercise is already 80% complete and will yield a saving of R42-million for the year, along with a one-off cost of R40-milion.”