The share price of construction group Basil Read dropped by more than 2% to R2.35 by midday on Friday after the announcement of a R820 million pre-tax loss for the year ended December 31 2014 (2013: R281.5 million profit).
This was recorded off an improved turnover of R6.5 billion (2013: R6.2 billion). The previous year’s headline earnings per share (HEPS) of 86.99c turned into headline loss per share of 362.08c, leaving shareholders with a negative return on equity of 51.9%.
Chief Executive Neville Nicolau says a R304 million impairment in the reporting period contributed largely to the loss. The company also suffered some loss-making contracts, but it doesn’t expect any further losses on those contracts. Some claims have been submitted that have not been included in the numbers.
Nicolau who was appointed CEO on September 1 2014 acknowledged that the company had a terrible year, but said this was acknowledged and communicated during the year.
He said significant steps were taken to turn the situation around. This process was completed by the end of December and a foundation has been laid for a return to profitability in the current financial year.
The group forecasts R160 million profit for the current financial year.
Friday’s drop in the share price follows the trend. In the last seven days the share price lost 26.15% of its value, in the last 30 days 42.86% and over the last year a whopping 71.43%.
Basil Read’s order book shrunk from R12.5 billion a year before to R10.5 billion.
Nicolau says significant claims have been mounting on Basil Read’s contracts for Eskom at its new power stations Medupi and Kusile. In the last month or so there has however been constructive discussions with Eskom and he believes the claims are now being resolved.
The construction of the airport on the island of St Helena is progressing well with the first commercial flights expected to start in February next year. The company has also been contracted to refurbish a hotel on the island and hopes to get further contracts for, among other things, the construction of a hospital.
The order book stands at R10.5 billion, with the biggest chunk from mining and roads.
Nicolau told Moneyweb that company overheads have been reduced from R586 million to R280 million as a result of restructuring from a group with wholly owned subsidiaries structure to a company with different divisions. That is a reduction from almost 10% of turnover to roughly 5% of turnover, he said. Head office staff have been reduced from 583 to 250.
He said every subsidiary company had its own IT and HR management systems, which have now been integrated.
Basil Read will now operate with a smaller executive committee, a strengthened operations committee and four divisions, being Finance and Corporate Services, Mining, Construction, and Business Development.
The cost of the changes amounted to R38 million.
Nicolau said he is positive that the company is now set for a positive performance in the new year and has the ambition to become the leading construction company in South Africa.
He says that will be achieved by securing and increase turnover, mostly organically; “sweating the assets” which includes all aspects of efficiency, productivity and good execution; and lastly by modernising the company structure to establish a value-based culture. He says Basil Read still has a very autocratic culture and there needs to be gender and race transformation to ensure the best selection of skills.
No dividend has been declared.