basil read results presentation march 2013 v1 ex cmm · intangible assets 412,689 799,995 other...

www.basilread.co.za

Financial Results

March 2013

Financial Results March 2013

Agenda

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The year under review

Financial overview

Operational overview

Prospects

Conclusion

Strategy


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Highlights

• Revenue from continuing operations increased by 3% to R5.5 billion

• Operating loss from continuing operations decreased by 183% to R170.9 million

• Group’s order book at robust level of R10.2 billion

• TWP disposal finalised and R877 million received

• SIOC-CDT Investment Holdings new BBBEE partner

• Solid operating performances from mining, engineering and smaller subsidiaries

• Special dividend declared of 175 cents per share


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• Challenging trading conditions, particularly for construction division

• Roads and civils affected by labour unrest, planned production targets not

being met, unseasonal rain

• Two substantial loss-making contracts, combined loss of R210 million

� Nata to Pandamatenga road in Botswana

� N12 Tom Jones

• Poor construction results overshadow good performances by engineering

and mining

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• Non-recurring items in financial year 2012

� Non-cash IFRS2 charge relating to BBBEE deal with SIOC – R60.5 million

� Non-cash write down of Rolling Hills Estate – R26.6 million

� Provision for penalty from Competition Commission – R65 million

� Loss of arbitration process on buildings contract – R27 million

� Free State roads contract settlement – R25 million (cash of R80 million still

outstanding)

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• Revenue of R6.8 billion (2011: R6.2 billion)

� Continuing operations – R5.5 billion

� Discontinued operations – R1.3 billion

• Operating loss from continuing operations of R171 million (2011: profit of

R205 million)

• Operating loss after adjusting for non-recurring items – breakeven

• Headline loss per share of 130.84 cents (2011: Headline earnings of 139.65

cents per share

• Order book of continuing operations – R10.2 billion (2011: R10.6 billion)

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Financial overview

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Statement of financial performance - extract

R ‘000 2012 2011 % change

Revenue 6,834,146 6,230,456 10%

Continuing operations 5,493,465 5,320,945 3%

Discontinued operations 1,340,681 909,511 47%

Operating (loss) / profit (170,863) 205,181 (183%)

Operating (loss) / profit – before non-

recurring items(2,842) 215,181 (101%)

Non-recurring items (168,021) (10,000) >1000%

Operating margin (3.11%) 3.86% (181%)

Net (loss) / profit (169,101) 134,707 (226%)

Net margin (3.08%) 2.53% (222%)

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Statement of financial performance - extract

R ‘000 2012 2011 % change

(Loss) / earnings (R’000) (170,384) 140,979 (221%)

(Loss) / earnings per share (cents) (136.54) 113.88 (220%)

Headline (loss) / earnings (R’000) (163,277) 172,886 (194%)

Headline (loss) / earnings per share

(cents)(130.84) 139.65 (194%)

Special dividend of 175 cents per share declared on 15 March 2013

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Statement of financial position

R ‘000 2012 2011

Property, plant and equipment 1,272,127 1,166,213

Intangible assets 412,689 799,995

Other non-current assets 331,203 186,261

Development land 402,375 398,686

Contract and trade debtors 883,617 1,308,188

Other current assets 234,198 257,590

Cash and cash equivalents 1,078,687 716,037

Non-current assets held for sale 773,540 66,767

5,388,436 4,899,737

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R ‘000 2012 2011

Capital and reserves 1,824,322 1,837,721

Total borrowings 890,417 1,046,954

Non-current 327,437 538,883

Current 562,980 508,071

Other non-current liabilities 48,829 53,964

Trade and other payables 2,201,772 1,593,253

Other current liabilities 227,433 367,738

Liabilities directly associated with non-current assets held for sale

195,663 107

5,388,436 4,899,737

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2012 2011

Net asset value per share (cents) 1,365.72 1,465.95

Tangible net asset value per share (cents) 1,052.33 819.74

Current ratio (times) 0.87 1.09

Debt equity ratio (long term debt) 18.0% 29.3%

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Statement of cash flows – extract

R ‘000 2012 2011

Operating (loss) / profit (120,545) 280,946

Non-cash items 360,675 232,135

Operating cash flow 240,130 513,081

Movements in working capital 793,368 (346,657)

Cash generated by operations 1,033,498 166,424

Net finance costs (77,133) (36,007)

Dividends and taxation paid (113,259) (166,282)

Cash from operating activities 843,106 (35,865)

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Statement of cash flows – extract

R ‘000 2012 2011

Net property, plant and equipment (447,444) (172,404)

Disposal of subsidiaries 66,324 101,106

Other cash flows from investing activities (22,295) (27,993)

Cash from investing activities (403,415) (99,291)

Cash from financing activities (50,781) (174,909)

Effect of exchange rates on cash 3,059 (14,838)

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Disposal of TWP

• Sale of TWP finalised; R877 million received during March 2013

• Funds to be applied as follows:

� Settle paper issued under domestic medium term note programme as it matures –

R375 million

� Payment of special dividend to shareholders – R230 million

� Balance retained to support organic growth

• Settlement of debt critical as funding costs become unsustainable

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Unaudited pro forma balance sheet post disposal of TWP

R ‘000 BeforeReceipt of proceeds1

Use of proceeds2 After

Non-current assets 2,016,019 - - 2,016,019

Other current assets 1,520,190 - - 1,520,190

Cash and cash equivalents 1,078,687 837,710 (605,000) 1,311,397

Non-current assets held for sale 773,540 (773,540) - -

Total assets 5,388,436 64,170 (605,000) 4,847,606

Capital and reserves 1,824,322 259,833 (230,000) 1,854,155

Non-current liabilities 376,266 - - 376,266

Current liabilities 2,992,185 - (375,000) 2,617,185

Liabilities directly associated with non-current

assets held for sale195,663 (195,663) - -

Total equity and liabilities 5,388,436 64,170 (605,000) 4,847,606

1Proceeds shown net of capital gains tax

2Proceeds used for special dividend and settlement of domestic medium term note programme

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Operational overview


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Segment report - Construction

R ‘000 2012 2011

Revenue

Construction 3,981,860 4,149,208

Buildings 752,429 752,036

Civil engineering 1,295,041 1,024,653

Roads 1,934,390 2,372,519

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R ‘000 2012 2011

Operating (loss) / profit

Construction – before non-recurring items (143,577) 91,294

Buildings 49,109 9,149

Civil engineering 9,029 21,097

Roads (201,715) 61,048

Non-recurring items (133,648) (10,000)

IFRS2 charge (16,648) -

Provision for Competition Commission (65,000) (10,000)

Loss on buildings contract (27,000) -

Loss on Free State roads contracts (25,000) -


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% 2012 2011

Operating margin

Construction – before non-recurring items (3.61%) 2.20%

Buildings 6.53% 1.22%

Civil engineering 0.70% 2.06%

Roads (10.43%) 2.57%

Construction – after non-recurring items (6.96%) 1.96%

Buildings 2.94% 1.22%

Civil engineering (1.95%) 1.67%

Roads (14.17%) 2.32%

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Segment report - Mining

R ‘000 2012 2011

Revenue 1,020,448 930,713

Operating profit 82,390 107,680

Operating margin 8.07% 11.57%

Profit from associates after tax (Majwe Mining

JV)49,025 6,619

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Segment report - Developments

R ‘000 2012 2011

Revenue 25,028 38,276

Operating profit – before adjustments and non-

recurring items4,856 9,065

Adjustment – running costs Rolling Hills Estate (8,285) -

Non-recurring items – write down of development

land(26,607) -


Operating margin – before adjustments and

non-recurring items19.40% 23.68%

Operating margin – after non-recurring items (120.01%) 23.68%

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Segment report – Engineering

R ‘000 2012 2011

Revenue 1,806,810 1,112,259

Continuing operations 466,129 202,748

Discontinued operations 1,340,681 909,511

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R ‘000 2012 2011

Operating profit – before non-recurring items 148,217 82,907


Discontinued operations 86,443 75,765

Non-recurring items – IFRS2 charge (43,891) -

Continuing operations (7,766) -

Discontinued operations (36,125) -

Operating profit after non-recurring items 104,326 82,907


Discontinued operations 50,318 75,765

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% 2012 2011

Operating margin – before non-recurring items 8.20% 7.45%

Continuing operations 13.25% 3.52%

Discontinued operations 6.45% 8.33%

Operating margin after non-recurring items 5.77% 7.45%

Continuing operations 11.59% 3.52%

Discontinued operations 3.75% 8.33%

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Order book at reporting date

R millions 2012 2011 % change

Construction 7,645 9,100 (16%)

Roads 1,770 2,250 (21%)

Civil engineering 1,030 1,350 (24%)

Buildings 1,380 950 45%

Special projects (SHAP & TCTA) 3,465 4,550 (24%)

Mining 1,500 2,100 (29%)

Developments (Conservative as new projects not

realised into order book)50 200 (75%)

Engineering* 1,050 670 57%

Total 10,245 12,070 (15%)

*Adjusted for disposal of TWP


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Construction

• Performance characterised by loss-making contracts

• Possibility to recover partial losses in 2013 financial year

• Loss-making contracts nearing completion

• Local sector - slow roll-out of projects, fierce competition, tight margins

• Cross-border – steady workload, improved margins

• St Helena airport contract performing to expectations. Logistical and

procurement risks successfully mitigated to date

• Order book maintained

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Mining

• Solid performance at reasonable margins

• Local sector – unstable, widespread illegal strikes – limited impact on

2012 results

• Cross border – established presence, well placed to capitalise on

opportunities across the continent

• Majwe Mining JV performing well; slow start but production has ramped

up to tendered levels

• Letter of intent received from Weatherly International plc for five-year

contract mining services for the Tschudi Copper Project in Namibia

• Contract extension received from De Beers for Venetia Mine

• Started work with Discovery Metals in Botswana

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Developments

• Core operations profitable, but negatively impacted by write down of Rolling

Hills Estate, running costs and slow sales

• Broke ground at Malibongwe Ridge, adjacent to Cosmo City

• Regulatory approvals received for Savanna City, services agreement

to be finalised

• Slow sales at Klipriver Business Park in 2012; two sales already recorded

in 2013 totalling R20 million (Total sales to date - R 50 million)

• Expansion into Africa gaining momentum

� Agreement to develop mixed-use development in Zambia

� Contracted to provide a development management service on mixed-use

residential project in Rwanda

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Engineering

• Significant revenue growth; solid results at tighter margins

• R900-million disposal of TWP concluded in March 2013

• Basil Read retains Basil Read Matomo, LYT Architecture and

TWP Investments

• Combined order book in excess of R1 billion

• Financial close reached on Metrowind Van Stadens wind farm project;

construction phase commenced in November 2012

• Renewable energy identified as high growth area

• Continuing turnkey projects for process plants in mining sector

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SHERQ Overview

• DIFR (disabling injury frequency rate) for Construction - 0.21 (2011: 0.40)

• Group DIFR - 0.31

• No Lost Time Injuries reported for BR Civils or BR Plant department in 2012

• Total man hours worked without a LTI = 4 856 378

• 1 fatality recorded in 2012, sub-contractor employee tragically lost his life

while working on a roads project

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Strategy

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Strategy

• Critical review of strategy undertaken during 2012

• Comprehensive analysis performed on

� Business drivers

� Internal and external factors affecting performance

� Lessons learned in recent years

• Independent risk audit conducted by Marsh

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Strategy

• Actions taken to date:

� Significantly reduce overheads

� Moratorium on replacement capex for first six months of 2013

� Debt has been reduced; group returned to a net cash position, from a net debt

position previously

� Restructured and strengthened the capacity and capability of our technical and

estimating department

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Strategy

• Based on critical challenges, business plan will focus on four

strategic themes:

� Consolidate and rationalise

� Work ethic and pride

� Image and reputation

� Leadership through operational excellence

• Progress will be measured against financial, operational, business

development, human resources, strategic and organisational

culture measures

• Action plans developed; progress will be closely monitored at executive

and board level

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Prospects

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Prospects

• Following difficult year, management concentrating on day-to-day elements

� Project execution

• Successfully targeting design and construct projects for a more controlled contracting environment

� Cash reserves

• Current Cash on hand – R1.8 billion

� Working capital management

• Focus on core business

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Prospects - Engineering

• Basil Read Matomo, LYT Architecture and TWP Investments retained

• Basil Read Matomo

� EPC contractor which is becoming preferred model for clients

� Alternative and renewable energy sectors offer significant growth opportunities

� Further growth in mining sector

• LYT Architecture

� Rebranded during 2012; previously TPS.P Architects

� One of most diversified design and architectural practices in South Africa with a

full order book – running at capacity

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Prospects - Construction

• Majority of government spend allocated to provinces and municipalities,

which could prove challenging to roll out

• Eskom, Transnet, PRASA, Rand Water, TCTA and other parastatals to fund a

further R400 billion specifically relating to

� Power generation plants and new transmission lines

� Investment in rail

� Ports and pipelines

� Large new water transfer schemes

� Various airport upgrades

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• Slow roll out of contracts hampering construction sector

• Many large construction groups securing order books cross border

• Tender activity in building division picking up

• Increased activity experienced in the design-and-construct civils tenders with

regards to pre-qualification

• Roads tender market providing steady work

• SANRAL’s budget for 2013 approved in excess of R10 billion

• Rand Water, TCTA constantly putting out sizeable tenders

• Schools programme gaining momentum

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• Bitumen shortages contributed to losses incurred in construction division

• Wholly-owned subsidiary, SprayPave, establishing bitumen reactor plant in

Western Cape

• Will enable group to produce various grades of bitumen

• Ability to enter production process at earlier stage

• In negotiations to secure supply of crude oil short residue

• Plant expected to be operational in second half 2013

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Prospects - Mining

• Mining industry in South Africa remains a concern

• Steady workload in Botswana and Namibia

• Opportunities exist across African continent

• Three current contracts renewed

• Letter of intent received from Weatherly International plc for contract mining

services for the Tschudi Copper Project in Namibia

• Need for significant capital expenditure prohibitive to rapid expansion

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Prospects - Developments

• Human settlements key focus area for South African government

• Bid submitted for Lufhereng integrated housing; decision expected in

second quarter 2013

• Government spend on social housing increasing rapidly in affordable

rental sector

• Group has registered several projects for funding from Social Housing

Regulatory Authority

• Malibongwe Ridge and Savanna City to ramp up in 2013

• Developments division to investigate developing full housing packages

on a limited scale

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Prospects - Developments

• Opportunities for mixed integrated housing developments exist

across African continent

• Strategic partnerships established with financiers, housing development

agencies and other developers

• Housing development opportunities being explored in Zambia, Rwanda,

Kenya, Ghana and Tanzania

• Cautious expansion strategy being pursued

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Conclusion

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Conclusion

• 2012 difficult year for Basil Read with results impacted by once-off charges

• Strategy refined and refocused on core business – “back to basics”

• Cash from TWP disposal to repay debt and recapitalise business

• Solid order book across all divisions

• Loss making contracts nearing completion; fully provided for

• Poised for recovery in construction sector, expected from second half 2013

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basil read results presentation march 2013 v1 ex cmm · intangible assets 412,689 799,995 other...

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