| Thu 25 Aug 2011, 13:50 | | BSR - Basil Read Holdings Limited - Unaudited results for the period ended 30 |
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BSR
BSR
BSR - Basil Read Holdings Limited - Unaudited results for the period ended 30
June 2011
BASIL READ HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1984/007758/06)
("Basil Read" or "the group")
ISIN: ZAE000029781 Share code: BSR
Unaudited results for the period ended 30 June 2011
Revenue up by 12%
Operating profit decreased by 26%
Order book of R10,2 billion
Summarised consolidated income statement
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
R`000 2011 2010 2010
Revenue 2 944 986 2 621 176 5 389 769
Operating profit for the 150 047 202 207 408 798
period
Amortisation of intangible (5 393) (23 498) (39 303)
assets
Net finance (costs)/income (11 915) 547 619
Share of (losses)/profits (846) - 1 662
from jointly controlled
entities
Share of (losses)/profits (156) 502 (188)
from associates
Profit for the period before 131 737 179 758 371 588
taxation
Taxation (38 889) (52 239) (119 370)
Profit for the period after 92 848 127 519 252 218
taxation
Profit for the period
attributable to the
following:
Equity shareholders of the 98 263 128 629 260 753
company
Non-controlling interests (5 415) (1 110) (8 535)
Net profit for the period 92 848 127 519 252 218
Earnings per share (cents) 79,37 103,90 210,63
Diluted earnings per share 79,37 103,90 210,63
(cents)
Dividend paid per share 30,00 42,00 42,00
(cents)
Dividend declared per share - - 30,00
(cents)*
*Based on the year to which the dividend relates
Summarised consolidated statement of comprehensive income
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
R`000 2011 2010 2010
Net profit for the period 92 848 127 519 252 218
Other comprehensive income for (5 172) (3 089) (2 697)
the period
Movement in foreign currency (1 524) (2 423) (8 622)
translation reserve
Movement in fair value (3 648) (666) 6 222
adjustment reserve
Deferred tax effect on other - - (297)
comprehensive income
Total comprehensive income for 87 676 124 430 249 521
the period
Total comprehensive income for
the period attributable to the
following:
Equity shareholders of the 93 386 125 238 259 463
company
Retained income 98 263 128 629 260 753
Other reserves (4 877) (3 391) (1 290)
Non-controlling interests (5 710) (808) (9 942)
Total comprehensive income for 87 676 124 430 249 521
the period
Summarised consolidated statement of financial position
Unaudited Unaudited Audited
30 June 30 June 31 December
R`000 2011 2010 2010
ASSETS
Non-current assets 2 026 892 1 844 319 1 854 008
Property, plant and 1 041 502 976 449 873 390
equipment
Intangible assets 837 790 754 283 843 183
Investments in jointly 30 210 22 345 20 423
controlled entities
Investments in associates 14 163 1 851 1 413
Available-for-sale 34 930 27 661 36 264
financial assets
Deferred income tax asset 68 297 61 730 79 335
Current assets 2 605 550 2 668 724 2 430 905
Inventories 59 065 49 711 47 700
Development land 360 952 324 871 351 938
Trade and other 1 193 839 1 140 269 842 692
receivables
Work in progress 318 188 269 603 150 775
Investments in jointly - 359 -
controlled entities
Current income tax asset 43 105 15 264 26 250
Cash and cash equivalents 630 401 868 647 1 011 550
Non-current assets held- - - 92 558
for-sale
4 632 442 4 513 043 4 377 471
EQUITY AND LIABILITIES
Capital and reserves 1 767 821 1 590 861 1 715 289
Stated capital 948 667 948 667 948 667
Retained income 820 978 626 787 758 472
Other reserves (3 131) (355) 1 746
Non-controlling interests 1 307 15 762 6 404
Non-current liabilities 504 191 440 060 439 156
Interest bearing 409 430 260 854 337 658
borrowings
Other borrowings 27 455 96 245 26 188
Deferred income tax 67 306 82 961 75 310
liability
Current liabilities 2 360 430 2 482 122 2 219 938
Trade and other payables 1 142 337 1 171 451 970 223
Amounts due to customers 530 618 423 803 583 399
Current portion of 406 406 650 112 438 836
borrowings
Provisions for other 174 872 152 034 152 235
liabilities and charges
Current income tax 35 902 39 431 42 351
liability
Bank overdraft 70 295 45 291 32 894
Liabilities directly - - 3 088
associated with non-
current assets classified
as held-for-sale
4 632 442 4 513 043 4 377 471
Statement of changes in equity
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
R`000 2011 2010 2010
Issued capital
Ordinary share capital
Balance at the beginning and 948 667 948 667 948 667
end of the period
Retained income
Balance at the beginning of 758 472 549 213 549 213
the period
Total comprehensive income for 98 263 128 629 260 753
the period
Share-based payment - equity - 1 829 1 193
settled
Transactions with minorities 1 387 (883) (697)
Dividend declared (37 144) (52 001) (51 990)
Balance at the end of the 820 978 626 787 758 472
period
Other reserves
Balance at the beginning of 1 746 3 036 3 036
the period
Total comprehensive income for (4 877) (3 391) (1 290)
the period
Balance at the end of the (3 131) (355) 1 746
period
Non-controlling interests 1 307 15 762 6 404
Summarised consolidated statement of cash flows
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
R`000 2011 2010 2010
Operating cash flow 262 782 308 365 616 878
Movements in working (397 536) (401 076) (200 245)
capital
Net cash (used)/generated (134 754) (92 711) 416 633
by operations
Net finance (costs)/income (11 915) 547 619
Dividends paid (37 187) (51 572) (51 558)
Taxation paid (58 534) (91 577) (165 672)
Cash flow from operating (242 390) (235 313) 200 022
activities
Cash flow from investing (4 707) (19 430) (123 095)
activities
Cash flow from financing (171 453) (143 706) (320 076)
activities
Movement in cash and cash (418 550) (398 449) (243 149)
equivalents
Cash and cash equivalents
at the beginning of
the period 978 656 1 221 805 1 221 805
Cash and cash equivalents 560 106 823 356 978 656
at the end of the period
Additional information to the interim financial statements
Unaudited Unaudited Audited
6 months 6 months 12 months
30 June 30 June 31 December
2011 2010 2010
Number of shares in issue 123 798 123 798 123 798
(`000)
Headline earnings per share 75,21 104,34 209,25
(cents)
Diluted headline earnings 75,21 104,34 209,25
per share (cents)
Reconciliation of basic R`000 R`000 R`000
earnings to headline
earnings
Basic earnings 98 263 128 629 260 753
Adjusted by
- Profit on sale of (3 527) - -
subsidiary
- (Profit)/loss on sale of
property, plant and
equipment
(1 630) 536 (2 234)
- Impairment of fixed assets - - 531
Headline earnings 93 106 129 165 259 050
Reconciliation between
weighted average
number of shares and diluted
average number
of shares
`000 `000 `000
Weighted average number of 123 798 123 798 123 798
shares
Adjusted by - Share - - -
Incentive Scheme
Diluted average number of 123 798 123 798 123 798
shares
Net asset value per share 1 426,93 1 285,05 1 380,39
(cents)
Tangible net asset value per 750,19 675,76 699,29
share (cents)
Capital expenditure for the 312 048 256 626 422 798
period (R`000)
Depreciation (R`000) 118 731 105 291 220 794
Impairment (R`000) - - 531
Amortisation of intangible 5 393 23 498 39 303
asset (R`000)
COMMENTARY
The consolidated abridged interim financial statements have been prepared in
terms of section 8.57 of the JSE Listings Requirements, incorporating IAS34 on
Interim Financial Reporting and AC500 Standards as issued by the Accounting
Practices Board or its successor, and the Companies Act of South Africa. The
principal accounting policies used in the preparation of the unaudited results
for the six months ended 30 June 2011 are consistent with those applied in the
annual financial statements for the year ended 31 December 2010 and for the
unaudited results for the six months ended 30 June 2010 in terms of IFRS.
OVERALL REVIEW
The current economic climate presents new challenges for the engineering
industry. Although work opportunities continue to exist, greater competition
in the sector has resulted in pressure on margins. As a group, Basil Read has
responded through innovation and diversification of service offering, while
retaining focus on cost containment and improving efficiencies.
Despite a contraction in margins in the construction division, the group`s
performance was supported by solid results in the mining division and an
encouraging recovery in the engineering business, TWP.
The global economic environment is once again faced with volatile conditions
and a degree of uncertainty and it is evident that the economic recovery will
be protracted. A strong order book and equally strong relationships with
clients, suppliers and subcontractors will enable the group to manage these
conditions effectively.
The board is pleased to report a satisfactory set of results despite extremely
difficult trading conditions, with revenue of R2,9 billion (June 2010: R2,6
billion), a modest increase of 12%. Operating profit decreased by 26% to
R150,0 million (June 2010: R202,2 million), which translated into an operating
margin of 5,1% (June 2010: 7,7%). Net profit decreased by 27% to R92,8 million
(June 2010: R127,5 million).
Cash on hand as at 30 June 2011 decreased to R560,1 million (December 2010:
R978,7 million) as the group continued to be hampered by increased working
capital levels, mostly due to a significant increase in trade and other
receivables. The majority of the group`s trade and other receivables comprise
government debtors which represent a greatly reduced credit risk. However,
delays in receiving payment have negatively impacted the cash flow of the
group. Included in trade and other receivables is an amount in excess of R250
million that represents government debtors that have exceeded the contractual
payment terms.
Debt levels remained steady at R843,3 million (December 2010: R802,7 million).
Repayments of banking loans and deferred payments were offset by an increase
in instalment sale agreements used to fund expansionary capital expenditure of
R295,4 million (June 2010: R256,6 million). Under the domestic medium-term
note programme, the group successfully refinanced its maturing note of R125
million through the further issue of a R150 million note, maturing in July
2013. The second note in issue of R125 million matures in June 2012 and is
classified as part of the short-term portion of interest-bearing borrowings.
The group`s debt equity ratio is currently at 24,7%.
The group experienced moderate balance sheet growth, with total assets at a
level of R4,6 billion (December 2010: R4,4 billion), and considers the balance
sheet to be appropriately structured to enable further growth.
The group secured new contracts in the period under review in the amount of
R5,3 billion (June 2010: R2,6 billion) and the order book is a healthy R10,2
billion (June 2010: R8,1 billion).
Tenders to the value of R35 billion were submitted in the six months to June
2011 for the construction and mining divisions. The group`s historic strike
rate stands at between 11% and 18%.
At the reporting date, the group had guarantees in issue in the amount of R2,0
billion (June 2010: R1,5 billion). These guarantees have arisen in the
ordinary course of business and it is not expected that any loss will arise
out of the issue of these guarantees.
Basil Read (Pty) Limited, the group`s main construction operating company,
attained a level 3 BBBEE contributor rating, meaning that companies are
entitled to recognise 110% of the amounts spent with the company in
calculating their procurement spend. In addition,
Basil Read (Pty) Limited was further rated as a value added supplier, which
affords a further 25% benefit.
CORPORATE ACTIVITY
Basil Read is increasing and diversifying its products and services as part of
its integrated growth strategy, driven by dedicated business development
professionals. For this reason, the group made two strategic investments in
the first half of 2011.
The group acquired a 50% stake in Siyaya Energy (Pty) Limited, a company that
operates in the petroleum supply chain, for a purchase consideration of R10
million. The new venture has secured a R1 billion supply contract.
The group further acquired a 35% stake in Metrowind (Pty) Limited, a provider
of alternative energy sources, for an amount of R10 million. Metrowind is in
the process of developing a wind farm in the Nelson Mandela Bay Metropolitan
area.
On 1 February 2011, the group disposed of 100% of Basil Read Contracting (Pty)
Limited, a property holding company, for a cash consideration of R93,6
million. The transaction resulted in a profit on disposal of subsidiaries of
R4,1 million.
On 1 June 2011, the group disposed of 30% of its stake in Newport Construction
(Pty) Limited to a local BEE partner. The sale consideration was R2,0 million
and the transaction resulted in the recognition of a gain on transactions with
minorities of R1,4 million.
OPERATIONAL REVIEW
Sustainability, risk management and quality
Strategy, risk, performance and sustainability are inseparable in the modern
business environment. A renewed focus on good corporate citizenship and
governance, increased scrutiny by providers of project capital, the expansion
of directors` fiduciary duties and the need to embed risk in business
decisions and processes have made implementing an integrated enterprise risk
management process a business priority.
Basil Read has adopted an integrated approach to the management of safety,
health, environment and quality ("SHEQ") in order to ensure that SHEQ
objectives are met and maintained. In addition, Basil Read has implemented a
behaviour based safety programme that has been rolled out to all construction
sites, which is helping to keep the disabling injury frequency rate at a low
0,43. Consequently, fewer incidents have been recorded during the period under
review and Basil Read`s SHEQ client assessment feedback reported group audit
results above 90%.
Basil Read is committed to reducing its environmental impact and improving
green initiatives to increase resource efficiency, creativity and employee
motivation. Green initiatives endeavour to save energy and waste, preserve
precious capital, and give precise focus to the group`s innovation efforts and
strategic priorities. The group aims to continue its commitment to reconfigure
its business and infrastructure to deliver better returns on natural, human
and economic capital investments, while at the same time reducing greenhouse
gas emissions, extracting and using fewer natural resources and creating less
waste.
CONSTRUCTION
June 2011 June 2010 Dec 2010
Revenue (R`000) 2 023 468 1 932 865 3 900 481
Operating profit (R`000) 48 241 159 318 293 024
Operating margin (%) 2,38% 8,24% 7,51%
Order book (R`000) 6 300 000 5 300 000 4 900 000
The period under review was challenging for the group`s largest division as a
result of current market conditions, with competition remaining fierce. The
first half of 2011 has seen fewer tenders being advertised at lower values.
The construction market is flooded with resources, both plant and people,
which were built up for the increased infrastructure associated with the 2010
FIFA World Cup. With fewer tenders on offer, and significant pressure on
margins, the challenge is to secure new work and keep resources occupied.
While local conditions remain depressed, there has been a natural progression
from South Africa to other parts of Africa, where the need for quality
construction groups is high. At present Basil Read is exploring niche markets
with long-term prospects in infrastructural spend in Africa. With secured
contracts in Botswana, Namibia, Zimbabwe and an office established in Zambia,
the group is actively tendering for projects in East Africa, where there are a
number of public and private work opportunities.
Despite the solid growth in the division, margins have been negatively
impacted and the group has a number of loss making contracts, particularly in
the roads sector, which has historically been one of the group`s key
performers. While these expected losses have been fully accounted for in the
results to June 2011, some or all of the losses may be recovered if disputes
with the relevant customers are successfully negotiated.
Performance in the division has been supported by the ongoing Gauteng Freeway
Improvement Project contracts, particularly the D1 and D2 packages in
Pretoria, which are nearing completion and the N12 (Jet Park to Tom Jones)
package which continues into 2012.
The division has fulfilled all of its obligations related to the prestigious
Gautrain project with the successful completion of both the Park and Hatfield
stations, as well as the completion of selected works at the OR Tambo
International Airport, Rhodesfield and Marlboro stations.
MINING
June 2011 June 2010 Dec 2010
Revenue (R`000) 408 001 362 730 801 718
Operating profit (R`000) 48 316 46 158 111 346
Operating margin (%) 11,84% 12,73% 13,89%
Order book (R`000) 2 300 000 1 200 000 1 300 000
The mining division continues to be a stable performer for the group, with
ongoing contracts both locally, and in Namibia and Botswana. Higher commodity
prices are boosting mining production and market sentiment is currently
favourable.
Basil Read Mining has joined forces with Australian-based Leighton
International and local Botswana company, Bothakga Burrow to form the Majwe
Mining Joint Venture. Majwe was awarded a five year multi-billion rand mining
service contract with the Debswana Diamond Company in Botswana. Awarded in May
2011, production is scheduled to commence in September 2011. Mobilisation is
progressing well and is on schedule. Botswana remains a buoyant prospect for
the mining division with various growth opportunities on the horizon.
Work has also been secured at Highveld Steel`s Uitvlugt project in Mpumalanga
and on De Beers` Venetia Mine in Limpopo.
Although Blasting & Excavating ("B&E") has performed well on its mining
projects, the local civil and quarrying market remains under pressure. B&E has
secured a new 12-month contract in Swaziland relieving some of the pressure in
this area of the business.
Further enhancing B&E`s mining operations was the award of a contract
extension for the drilling and blasting operations at Jwaneng Mine in
Botswana.
DEVELOPMENTS
June 2011 June 2010 Dec 2010
Revenue (R`000) 33 291 14 688 24 191
Operating profit (R`000) 7 395 2 074 4 653
Operating margin (%) 22,21% 14,12% 19,23%
Order book (R`000) 100 000 100 000 100 000
Basil Read Developments has entrenched its reputation for developing
sustainable communities, reflected in its Gauteng flagship project, Cosmo City
- the first mixed-use, fully integrated sustainable human settlement in South
Africa.
While still the smallest of Basil Read`s divisions, it has the largest socio-
economic impact with a total economic impact of R100 billion during
construction and R71,2 billion post-construction. For the group, this division
is strategically significant, given its focus on sustainable development and
the secondary work it creates for the group. Some R3 billion in work, not yet
included in the group`s order book, will be created for other Basil Read
divisions over the life of current projects.
Given that government has reaffirmed its commitment to eradicating informal
settlements, with a concomitant effect on job creation and poverty reduction,
this division remains of strategic importance to the group.
Divisional performance improved in the six months to June 2011 bolstered by
the first recorded sales of stands at Klipriver Business Park, a pivotal spine
between Johannesburg, Meyerton and Ekurhuleni.
ENGINEERING
June 2011 June 2010 Dec 2010
Revenue (R`000) 480 226 310 893 663 379
Operating profit (R`000) 46 095 (5 343) (225)
Operating margin (%) 9,60% (1,72%) (0,03%)
Order book (R`000) 1 500 000 1 500 000 1 500 000
After a relatively slow start, the first half of 2011 has been buoyant for
TWP.
TWP Projects has secured significant work in the mining, process and
infrastructure divisions. Key execution contracts have continued well,
providing a stable workload, while a variety of new jobs, many at feasibility
stage, have kicked in. In the process division, work is ramping up as projects
go into execution.
The mining division has a number of large projects in the construction phase.
The division is also busy with a number of blue chip feasibility studies,
including the Venetia underground study for De Beers as well as key work for
Assmang, Mimosa, Anglo Gold and Lonmin. The coal portfolio is growing well on
the back of work for Total Coal, Anglo Thermal Coal, Continental Coal as well
as various new coal companies in Mozambique`s Moatize region.
The infrastructure division is expanding rapidly, specifically to service much
of Kumba`s Sishen mine infrastructure expansion.
Basil Read Matomo, the group`s turnkey business, is exceeding growth
expectations with the Phoenix Project for Pan African Resources as well as the
Mongwalu study of Anglogold Ashanti in the DRC.
TWP`s two international offices in Australia and Peru are both expanding and
operating profitably.
PROSPECTS
The current global economic situation, particularly related to the debt crises
in America and Europe, is creating significant uncertainty and volatility in
global markets. With a real risk of a double dip recession in these economies,
the potential effect on South Africa`s economy will need to be monitored.
Slower economic growth in the global environment may have an adverse effect on
the export market which in turn could drive the local economy lower.
Metals prices, however, are benefitting as investors use metals as a hedge
against rising inflation, which bodes well for the mining sector.
Fundamentals in the construction sector have deteriorated significantly since
2009 and are expected to remain challenging for the foreseeable future.
Although the South African government remains committed to infrastructure
spend as a means of driving growth, significant delays in the roll out of
projects are negatively impacting construction operations.
As a sector, operating performances in construction are likely to be affected
by high cost increases and greater competition. A sustained recovery in the
sector was always expected to lag a recovery in the larger South African
economy, given the relatively long lead times associated with planning and
executing large projects. With the recovery of the South African economy under
threat due to recent international developments, the recovery in the
construction sector may take longer than original forecasts.
Against this background, Basil Read remains committed to continued expansion,
both organic and acquisitive, local and international despite difficult
trading conditions. The group will continue to monitor opportunities to expand
service offering and geographic footprint.
Construction opportunities exist within the rest of Africa particularly due to
the influx of funding from international sources. Basil Read will continue to
pursue contracts on the African continent within our defined set of risk
parameters, which include the certainty of committed funding for the contract
in question and upfront payments.
Among other planned or pending projects, the group is currently negotiating
with the British government for the construction of an international airport
on St Helena Island, 2 000 km off the coast of Namibia.
In joint venture, the group has also recently been appointed as one of two
consortia to submit a best and final offer for the proposed N1/N2 toll road.
The group is also currently in negotiations with various developers for the
construction of a 20 000 mSquared - 30 000 mSquared building which will serve
as TWP`s head office.
The group`s order book remains strong at R10,2 billion, particularly in the
engineering division which bodes well for growth potential for the next few
years and supports TWP`s strategic plan to continue on its path of diversified
international expansion. Continued strong growth will rely to a large extent
on firm commodity prices although TWP`s market and geographic diversification
will assist in reducing potential volatility.
The group remains cautious about the year ahead and will remain prudent in
managing the uncertainty and volatility, backed by an effective management
structure and loyal workforce.
CORPORATE GOVERNANCE
The directors and senior management of the group endorse the Code of
Governance Principles and Report on Governance, together referred to as King
III. Having regard for the size of the group, the board is of the opinion that
the group substantially complies with the Code as well as with the Listings
Requirements of the JSE Limited. The group performs regular reviews of its
corporate governance policies and practices and strives for continuous
improvement in this regard.
The group has engaged with its advisors and is actively addressing the
principles and practices of King III and ensuring compliance with the new
Companies Act.
On 1 June 2011, Macquarie First South Capital (Pty) Limited was appointed as
the company`s sponsor on the JSE Limited.
COMPETITION COMMISSION
The group`s application to engage with the Competition Commission regarding a
settlement is in the process of being assessed by the Competition Commission,
and the outcome may result in the imposition of an administrative penalty to
Basil Read. Current timing indications are that the outcome of this process
will only be known in 2012 and due to the inherent uncertainty, no provision
has been made in this regard in the period for the six months ended 30 June
2011.
DIVIDENDS
The board has reviewed the current period`s results and in keeping with prior
years has decided not to declare an interim dividend.
POST-BALANCE SHEET REVIEW
No material events have occurred between the balance sheet date and the date
of these results that would have a material effect on the financial statements
of the group.
On behalf of the board
S L L Peteni (Chairman)
M L Heyns (Chief Executive Officer)
25 August 2011
Group Secretary: E Kruger
Registered office: The Basil Read Campus, 7 Romeo Street, Hughes Extension,
Boksburg, 1459
Auditors: PricewaterhouseCoopers Inc
Transfer secretaries: Link Market Services South Africa (Pty) Limited
Sponsor: Macquarie First South Capital (Pty) Limited
Directors: S L L Peteni*+ (Chairman), M L Heyns (Chief Executive Officer), M D
G Gouveia (Deputy Chief Executive Officer and Financial Director), N J
Townshend, C P Davies*+, S S Ntsaluba*,
A T Tlelai*, G R Sibiya*+
(* Non-executive, + Independent, British)
www.basilread.co.za
communications@basilread.co.za
Date: 25/08/2011 13:50:01 Produced by the JSE SENS Department.
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