| Thu 22 Mar 2012, 7:05 | | BSR - Basil Read Holdings Limited - Audited results for the year ended 31 |
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BSR
BSR
BSR - Basil Read Holdings Limited - Audited results for the year ended 31
December 2011
BASIL READ HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)_
Registration number 1984/007758/06
Share code: BSR ISIN: ZAE000029781
("Basil Read" or the "group")
Audited results for the year ended 31 December 2011
- Revenue up 16% to R6,2 billion (2010: R5,4 billion)
- Operating profit down 24% to R281 million (2010: R369 million)
- Headline earnings per share down 33% to 139,65 cents
(2010: 209,25 cents)
- Order book at reporting date up 65% to R14 billion
(2010: R8,5 billion)
Abridged consolidated income statement
Audited Audited
12 months 12 months
31 December 31 December
R`000 2011 2010
Revenue 6 230 456 5 389 769
Operating profit for the year 280 946 369 495
Impairment of goodwill (32 403) -
Net finance (costs)/income (36 007) 619
Share of (losses)/profits from jointly
controlled entities (2 957) 1 662
Share of profits/(losses) from 6 708 (188)
associates
Profit for the year before taxation 216 287 371 588
Taxation (81 580) (119 370)
Profit for the year after taxation 134 707 252 218
Profit for the year attributable to the
following:
Equity shareholders of the company 140 979 260 753
Non-controlling interests (6 272) (8 535)
Net profit for the year 134 707 252 218
Earnings per share (cents) 113,88 210,63
Diluted earnings per share (cents) 113,88 210,63
Abridged consolidated statement of comprehensive income
Audited Audited
12 months 12 months
31 December 31 December
R`000 2011 2010
Net profit for the year 134 707 252 218
Other comprehensive income for the year 6 129 (2 697)
Movement in foreign currency 5 014 (8 622)
translation reserve
Movement in fair value adjustment 1 297 6 222
reserve
Deferred tax effect on other (182) (297)
comprehensive income
Total comprehensive income for the year 140 836 249 521
Total comprehensive income for the year
attributable to the following:
Equity shareholders of the company 144 886 259 463
Retained income 140 979 260 753
Other reserves 3 907 (1 290)
Non-controlling interests (4 050) (9 942)
Total comprehensive income for the year 140 836 249 521
Abridged consolidated statement of financial position
Audited Audited
31 December 31 December
R`000 2011 2010
ASSETS
Non-current assets 2 152 469 1 854 008
Property, plant and equipment 1 166 213 873 390
Intangible assets 799 995 843 183
Investments in jointly controlled 58 051 20 423
entities
Investments in associates 17 042 1 413
Available-for-sale financial assets 42 183 36 264
Deferred income tax asset 68 985 79 335
Current assets 2 680 501 2 430 905
Inventories 42 857 47 700
Development land 398 686 351 938
Trade and other receivables 1 125 785 842 692
Work in progress 322 128 150 775
Investments in jointly controlled 16 580 -
entities
Current income tax asset 58 428 26 250
Cash and cash equivalents 716 037 1 011 550
Non-current assets held-for-sale 66 767 92 558
4 899 737 4 377 471
EQUITY AND LIABILITIES
Capital and reserves 1 837 721 1 715 289
Stated capital 948 668 948 667
Retained income 860 499 758 472
Other reserves 5 653 1 746
Non-controlling interests 22 901 6 404
Non-current liabilities 592 847 439 156
Interest bearing borrowings 519 234 337 658
Other borrowings 19 649 26 188
Deferred income tax liability 53 964 75 310
Current liabilities 2 469 062 2 219 938
Trade and other payables 1 079 938 970 223
Amounts due to customers 513 315 583 399
Current portion of borrowings 508 071 438 836
Loans from associates 37 876 -
Provisions for other liabilities and 220 903 152 235
charges
Current income tax liability 46 651 42 351
Bank overdraft 62 308 32 894
Liabilities directly associated with 107 3 088
non-current assets classified as held-
for-sale
4 899 737 4 377 471
Abridged statement of changes in equity
Audited Audited
12 months 12 months
31 December 31 December
R`000 2011 2010
Issued capital
Ordinary share capital
Balance at the beginning of the year 948 667 948 667
Issued to share incentive scheme (net 1 -
of treasury shares)
Balance at the end of the year 948 668 948 667
Retained income
Balance at the beginning of the year 758 472 549 213
Total comprehensive income for the year 140 979 260 753
Share based payment - equity settled 545 1 193
Transactions with non-controlling (2 353) (697)
interests
Dividend declared (37 144) (51 990)
Balance at the end of the year 860 499 758 472
Other reserves
Balance at the beginning of the year 1 746 3 036
Total comprehensive income for the year 3 907 (1 290)
Balance at the end of the year 5 653 1 746
Non-controlling interests 22 901 6 404
Abridged consolidated statement of cash flows
Audited Audited
12 months 12 months
31 December 31 December
R`000 2011 2010
Operating cash flow 513 081 616 878
Movements in working capital (346 657) (196 806)
Net cash generated by operations 166 424 420 072
Net finance (costs)/income (36 007) 619
Dividends paid (37 019) (51 558)
Taxation paid (129 263) (165 672)
Cash flow from operating activities (35 865) 203 461
Cash flow from investing activities (99 291) (123 095)
Cash flow from financing activities (174 909) (320 076)
Effects of exchange rates on cash and (14 838) (3 439)
cash equivalents
Movement in cash and cash equivalents (324 903) (243 149)
Cash and cash equivalents at the 978 656 1 221 805
beginning of the year
Cash and cash equivalents at the end of 653 753 978 656
the year
Included in cash and cash equivalents 653 729 978 656
as per the statement of financial
position
Included in the assets of the disposal 24 -
group
653 753 978 656
Additional information to the financial statements
Audited Audited
12 months 12 months
31 December 31 December
2011 2010
Dividend paid per share (cents) 30,00 42,00
Dividend declared per share (cents)* - 30,00
*Based on the year to which the
dividend relates
Number of shares in issue (`000) 123 798 123 798
Headline earnings per share (cents) 139,65 209,25
Diluted headline earnings per share 139,65 209,25
(cents)
Reconciliation of basic earnings to R`000 R`000
headline earnings
Basic earnings 140 979 260 753
Adjusted by - Profit on sale of (21 049) -
subsidiary
- Profit on sale of property, plant and (4 249) (2 234)
equipment
- Impairment of fixed assets 24 802 531
- Impairment of goodwill 32 403 -
Headline earnings 172 886 259 050
Reconciliation between weighted average `000 `000
number of shares and diluted average
number of shares
Weighted average number of shares 123 798 123 798
Adjusted by - Share Incentive Scheme - -
Diluted average number of shares 123 798 123 798
Net asset value per share (cents) 1 465,95 1 380,38
Tangible net asset value per share 819,74 699,29
(cents)
Capital expenditure for the period 647 910 422 798
(R`000)
Depreciation (R`000) 242 237 220 794
Impairment of fixed assets (R`000) 24 802 531
Amortisation of intangible asset 10 785 39 303
(R`000)
Impairment of goodwill (R`000) 32 403 -
Commentary
The consolidated abridged annual financial statements have been prepared in
terms of International Financial Reporting Standards, IAS 34 on Interim
Financial Reporting, the South African Companies Act and the JSE Listings
Requirements. The accounting policies used in the preparation of these annual
financial statements are consistent with those applied in the annual financial
statements for the year ended 31 December 2010.
Audit report
These abridged financial results have been audited by the group`s auditors,
PricewaterhouseCoopers Inc, whose unqualified audit report is available for
inspection at Basil Read`s registered office.
Overall review
The global economic environment is again faced with volatile conditions and a
degree of uncertainty, making it clear that the economic recovery will be
protracted. Against this background, and exacerbated by the marked slowdown in
infrastructural projects, local construction groups of every size have faced
unprecedented headwinds.
A strong order book and equally strong relationships with clients, suppliers and
subcontractors, however, will enable the Basil Read group to manage these
conditions effectively. This will be accompanied by stringent working capital
management and fiscal discipline.
The year was characterised by fierce competition in the construction sector in
the face of fewer projects and of lower value, widespread postponement of
allocated contracts and a surplus of resources following the completion of
numerous projects ahead of the 2010 FIFA World Cup. More positively, the group
is starting to see significantly more activity in power generation, mining and
infrastructure and roads tenders are definitely increasing as provinces are
tasked with urgently improving the condition of South Africa`s road network.
Overall, Basil Read fared relatively well, given the group`s initiatives in
recent years to develop and strengthen its speciality services and explore other
markets. Importantly, the group ended the year with its strongest order book in
nearly six decades, at a level of R12,5 billion (2010: R7,8 billion), and
secured several major contracts during the year. By the reporting date, the
order book had risen to R14 billion (2010: R8,5 billion).
The board is pleased to report a satisfactory set of results despite extremely
difficult trading conditions, with revenue of R6,2 billion (2010: R5,4 billion),
an increase of 15,6%. Operating profit decreased by 24% to R280,9 million (2010:
R369,5 million), which translated into an operating margin of 4,5% (2010: 6,9%).
Headline earnings were R172,9 million (2010: R259,1 million), a decrease of
33,3%. Adjustments to headline earnings include the impairment of goodwill
relating to the acquisition of Sladden International (Botswana) (Pty) Limited,
following a disappointing performance in the year under review and
unsatisfactory forecasts. Earnings for the year decreased by 45,9% to R141,0
million (2010: R260,8 million).
Cash on hand as at 31 December 2011 decreased to R653,8 million (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 as a
result of delayed payments from clients. Despite a net repayment of debt to the
value of R174,9 million (2010: R320 million), the group`s debt levels increased
by 30,4% to R1,0 billion (2010: R802,7 million), largely due to an increase in
instalment sale agreements to fund expansionary capital expenditure on property,
plant and equipment.
Of the total capital expenditure of R647,9 million (2010: R422,8 million), R436
million (2010: R199,4 million) was financed with the remaining R211,9 million
(2010: R223,4 million) being funded out of cash resources, further impacting the
group`s cash balances. Replacement capital expenditure for the 2012 year is
budgeted at R200 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 group raised a further note of R100 million
which, together with an existing note for R125 million, matures in June 2012 and
has been classified as part of the short-term portion of interest-bearing
borrowings. The group`s debt equity ratio is currently at 29,7% (2010: 21,3%).
The group experienced moderate balance sheet growth, with total assets at a
level of R4,9 billion (2010: R4,4 billion).
At the reporting date, the group had issued guarantees in the amount of R2,0
billion (2010: R2,0 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 and TWP Projects (Pty) Limited, the group`s main South
African operating companies, attained a level 3 BBBEE contributor rating,
meaning that companies are entitled to recognise 110% of the amounts spent with
these companies in calculating their procurement spend. Both companies were
further rated as value added suppliers, which affords a further
25% benefit.
Corporate activity
Basil Read`s integrated growth strategy involves the group increasing and
diversifying its products and services with a streamlined approach that extends
to some of TWP`s newer initiatives.
For this reason the group made several investments and divestitures in 2011.
On 1 January 2011, the group disposed of 100% of Basil Read Contracting (Pty)
Limited for a sale consideration of R94 million. The company was a property
owning company and the group realised a profit on disposal of R4,5 million.
The group acquired a 35% share in Metrowind (Pty) Limited, a provider of
alternative energy sources, for an amount of R10 million. Metrowind has been
announced as a preferred bidder for the supply of alternate energy by the
Department of Energy and is in the process in developing a wind farm in the
Nelson Mandela Bay Metropolitan area, which should realise a R450 million EPC
contract for the group.
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
non-controlling interests of R0,4 million.
On 30 September 2011, the group bought the remaining 12,5% of TWP Australia
(Pty) Limited for no consideration, realising a loss on transactions with non-
controlling interests of R3,2 million. Subsequent to this acquisition, the group
disposed of 50% of the company to WSP (Pty) Limited for a sale consideration of
R5,7 million. Due to the recovery of previously recognised losses, the group
recorded a profit of R33,1 million and the renamed entity, TWSP (Pty) Limited,
was reclassified as a jointly controlled entity. The group`s new partner, WSP
(Pty) Limited is one of the world`s largest design, engineering, environment and
energy consultancies with 9 000 staff in 200 offices across 35 countries.
On 31 December 2011, TWP disposed of its 74% share in TRG Trading (Pty) Limited
for no consideration, realising a loss on disposal of R13,1 million.
Operational review
Safety, health, environmental, risk management and quality
Basil Read`s robust safety/health/environment/quality system is both a guide and
measurement tool to achieving set standards in each of these areas. The group
continues to integrate systems across the group after a period of rapid organic
and acquisitive growth. In the prior year, risk management was incorporated into
the safety, health and environment division, aligning our governance processes
with the recommendations of King III and reinforcing our commitment to an
integrated approach focused on zero harm.
In the past three years, the disabling-injury frequency rate (DIFR) has dropped
from 0,58 in 2009 to 0,4 in 2011. While this falls short of the target set at
0,3 for the review period, it is consistent with results for 2010.
Understanding that over 90% of all accidents are caused by human behaviour,
decreasing at-risk behaviour remains key in the group. Equally, we believe
behaviour-based safety is not a programme, it is a process. Because we are
serious about continually reducing work-related injuries, our focus is on making
safety a way of life.
Construction Dec 2011 Dec 2010
Revenue (R`000) 4 149 208 3 900 481
Operating profit (R`000) 81 294 265 753
Operating margin (%) 1,96 6,81
Order book (R`000) 7 700 000 4 900 000
The review period was challenging for the group`s largest division as a result
of current market conditions amid fierce competition. With fewer tenders on
offer, and significant pressure on margins, the challenge is to secure new work
and keep resources occupied.
Given depressed local conditions, 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, Democratic Republic of Congo and offices
established in Mozambique and Zambia, the group is actively tendering for
projects in Africa, where there are a number of public and private work
opportunities.
Results in the division were overshadowed by a number of loss making contracts
in the roads division. End of site losses in the amount of R115 million have
been raised in the year under review. These provisions relate primarily to three
loss making contracts comprising a railway construction project in the Northern
Cape, a roads contract in the Free State and a roads contract in Botswana. The
group currently has claims against certain of these losses but due to the
uncertain nature of the outcome of these claims, no provision has been made for
any potential recovery.
The division secured a number of contracts during the period under review,
including the R3,1 billion multi-disciplinary contract to construct and operate
an airport on the island of St Helena and the recently awarded phases 2C and 2H
in terms of the Olifants River Water Resources Development Project for the Trans
Caledon Tunnel Authority, valued at R1,2 billion.
Mining Dec 2011 Dec 2010
Revenue (R`000) 930 713 801 718
Operating profit (R`000) 107 680 111 346
Operating margin (%) 11,57 13,89
Order book (R`000) 2 000 000 1 300 000
Basil Read`s mining division remains a stable performer in the group, with
ongoing contracts locally and in Botswana. This division plays an important role
in the group by balancing fluctuations in the construction sector.
Rising commodity prices have boosted mining production significantly in the past
year, resulting in a plethora of goods contracts for capable service providers.
Despite recent conditions in the South African mining industry, the division
maintained its base of expertise by carefully managing both its people and their
deployment. This pool of specialist skills is a decided advantage in an industry
characterised by an ongoing shortage of core skills and intense competition.
Solid long-term contractual agreements and good client relationships are added
advantages.
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 Debswana in Botswana. Botswana remains a buoyant prospect for the
mining division with various growth opportunities on the horizon.
In a joint venture, the division secured a three year contract at Assmang`s
Beeshoek mine. Mobilisation started in November 2011.
Blasting & Excavating again recorded an acceptable performance for the year,
given sharply higher competition and price sensitivity. This company, with its
established track record, is well placed to participate in South Africa`s
planned infrastructure upgrade.
Developments Dec 2011 Dec 2010
Revenue (R`000) 38 276 24 191
Operating profit (R`000) 9 065 4 653
Operating margin (%) 23,68 19,23
Order book (R`000) 200 000 100 000
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.
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.
Despite the improved results, the year under review proved to be a frustrating
one for the division. The affordable housing development sector continues to be
constrained by slow progress among provinces and municipalities in allocating
and spending resources on key high-impact projects in which the division has
invested or has tendered for. In addition, the banking sector has tightened
lending criteria to home owners.
Savanna City, south of Johannesburg, is a 1 462-hectare project - the largest
private urban lifestyle development of its kind in South Africa - which is being
developed in partnership with the Old Mutual group as funder, and will
ultimately be larger than Cosmo City.
Klipriver Business Park, a pivotal spine between Johannesburg, Meyerton and
Ekurhuleni, was affected by delays in proclamation, which meant sales could only
begin in the latter part of 2011. Sales are now taking place and the number of
enquiries is encouraging.
The division broke ground at Malibongwe Ridge, following receipt of all
regulatory approvals from the City Of Johannesburg. This development is adjacent
to Cosmo City.
In Cape Town, our involvement in the Garden Cities development was terminated at
the request of the land owners who opted to pursue the project alone.
Engineering Dec 2011 Dec 2010
Revenue (R`000) 1 112 259 663 379
Operating profit (R`000) 82 907 (12 257)
Operating margin (%) 7,45 (1,85)
Order book (R`000) 2 600 000 1 500 000
After a relatively slow start in the first two months of 2011, the workload
ramped up significantly in most TWP companies and performance for the year
surpassed expectations. The division employed more than 300 professionals in the
year under review taking the total staff complement to 1 200. The increased
workforce reflects a deliberate strategy to maintain capacity during the
downturn, sacrificing short-term profitability for long-term gains as a large
portion of current work is in feasibility stage. Much of this will translate
into project execution, which will require further growth to cater for the work
at hand.
TWP continues to expand locally and internationally in the mining and
infrastructure sectors, with its Peru office recording a profit in its first
full year of trading. TWP, together with Basil Read, has extended its services
to include a full turnkey solution including design, project management and
construction across virtually the entire spectrum of engineering for the built
environment.
Within South Africa`s borders, TWP is currently managing a significant number of
shaft projects, including its flagship - Impala 17 shaft - the biggest shaft-
sinking project under way in the world.
International operations are steadily gaining momentum. The branch in Australia,
now 50% owned in joint venture with WSP (Pty) Limited, returned to profitability
during the year, while the Peru office secured a number of new projects -
including a gold plant in Colombia - and increased its staff complement to over
120 people.
Prospects
The economic uncertainty that has characterised the trading environment for the
past couple of years prevails. The group continues to monitor developments in
the global economy and the potential impact on local conditions.
The President`s recent State of the Nation address once again affirms
government`s commitment to infrastructural spend and certainly this bodes well
for the sector as a whole. The group remains cautiously optimistic given the
significant delays in the roll out of projects in recent years.
Fundamentals in the construction sector remain challenging with a real recovery
only expected from 2013 onwards. Against this background, Basil Read remains
committed to continued expansion, underpinned by a strong order book. The group
has secured a number of key projects which will sustain performance until a real
recovery in the sector becomes reality.
As a sector, operating performances in construction are likely to continue to be
affected by high cost increases and greater competition. To counter the
difficult conditions, the group is concentrating on retaining skills, maximising
efficiencies and maintaining capacity for the eventual turnaround.
Construction opportunities exist within the rest of Africa particularly due to
the inflow of funding from international sources. The group will continue to
pursue contracts on the African continent within its defined set of risk
parameters, which include the certainty of committed funding for the contract in
question and upfront payments.
The mining industry should remain buoyant through 2012. Demand is outstripping
supply in most commodities and, compounding this, many projects have to be
executed to replace mining output, let alone increase it. The chosen geographies
of South America, Africa and Australasia should all record significant growth
over the year. Infrastructure development, on the back of mining activity, is
expected to be significant, particularly in developing countries.
Key to the ongoing success of the group will be the effective management of
working capital and a commitment to the reduction of debt. Delayed payment from
mostly government clients has put pressure on cash flow, but the group is
working closely with these clients to resolve issues.
While Basil Read has not been immune to lower industry margins and loss-making
contracts, we believe the group has other factors working in its favour. These
include an order book of R14 billion at the reporting date, a resurgent mining
sector on the back of high commodity prices and judicious acquisitions in high-
growth sectors such as renewable energy. The group is also investing in future
projects in the alternative energy sector and has submitted a Renewable Energy
Feed-in Tariff (Refit) phase two bid for a solar powered development in Beaufort
West, in conjunction with the BW Energy Corporation, which if successful could
translate into a further R1,5 billion construction contract.
We are confident that the building blocks are in place for continued growth as
the local construction industry recovers and international expansion initiatives
gain traction.
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.
On 12 March 2012, the group announced the resignation of the company secretary,
Mrs Enna Kruger, with effect from 5 April 2012. An announcement regarding the
appointment of the new company secretary will be made in due course.
Competition Commission
The group continues to engage with the Competition Commission and the outcome is
unknown. The group has, however, raised a provision for a possible penalty.
Dividend
Due to the difficult trading environment and a need to retain working capital,
the board of directors have resolved not to declare a dividend.
Post-balance sheet review
On 13 February 2012, the group concluded an agreement for the sale of 100% of
Basil Read Properties No. 3 (Pty) Limited, a property owing subsidiary, for a
sale consideration of R66,3 million. The agreement was concluded with
Thunderstruck Investments (Pty) Limited, a related party in relation to the
group. In terms of the agreement, Basil Read further agreed to acquire 50% of
Thunderstruck Investments (Pty) Limited for a purchase consideration of R44,4
million. Thunderstruck Investments (Pty) Limited is the owner of the Basil Read
head office campus.
On behalf of the board
S L L Peteni (Chairman)
M L Heyns (Chief Executive Officer)
Johannesburg
22 March 2012
JSE Sponsor
Macquarie First South Capital (Pty) Limited
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: 22/03/2012 07:05:02 Produced by the JSE SENS Department.
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