Construction group Basil Read was in such a bad state at the end of December last year that its auditors said there was material uncertainty about its going concern status.
Its current liabilities of R2.1 billion exceeded its current assets of R1.4 billion and its cash decreased to only R126.4 million.
The group then obtained R150 million in bridging finance and announced a debt standstill for 18 months.
It has since raised R300 million capital, repaid the bridging finance and reduced its net debt of R815 million to about R600 million.
Will this be enough? At the presentation of a disappointing set of results for the year to December, Basil Read CEO K2 Mapasa was confident that the group would recover, although some of the measures might take time to reflect in the numbers.
On the same day the group announced that it would proceed with the small share buy-back scheme announced in September last year. This is significant, because the scheme could only proceed provided basic financial metrics were met and the group and its subsidiaries passed the solvency and liquidity test. The board resolved it did, which shows a significant improvement since December.
Basil Read’s share price remained unchanged on Wednesday at 22c per share. A year ago the share price stood at R2.30.
The group reported R4.6 billion turnover for the year ended December 31, down from R5.1 billion in the previous year. The previous year’s operating profit of R63.7 million turned into an operating loss of R752 million and cash at hand at the end of the period dropped from R458 million to R126 million.
Headline loss per share widened from 21.79c in the previous year to 717.35c.
Mapasa said the R1 billion net loss includes provisions for onerous contracts, impairments of goodwill and the reversal of deferred tax assets as well as the write-down of debtors and development land.
Three of the group’s operating divisions recorded multimillion rand losses, with the biggest operating loss being R589 million in the roads division. Construction recorded a R224 million loss and the St Helena airport project a R24 million loss.
Developments recorded an operating profit of R19 million (2016: R16 million) and mining R76 million (2016: R111 million).
Mapasa said onerous legacy contracts in construction and roads contributed R622 million to the total operating loss of R743 million. Basil Read is still pursuing claims in its favour in relation to many of the projects, but any possible upside has not been included in the results.
The total cost to completion of the problematic Olifants River pipeline project of R116 million has been included and he does not expect any further costs, Mapasa said. The construction of the project has been completed and commissioning is in progress.
In the roads division a project at Coega contributed R157 million to the operating loss. Other roads contracts were impacted by design changes, delayed service relocation and bad weather.
Basil Read’s total order book at the end of December stood at R12.5 billion, which is slightly higher than a year before. It includes a R3 billion mining project that will stretch over eight years and the operational phase of the St Helen airport project that will stretch over eight-and-a-half years.
Mapasa said the group’s focus is on growing the order book at healthy margins in mining, developments and selected civil construction contracts.
It will continue with the sale of non-core assets to unlock cash, the resolution of legacy claims and completion of onerous contracts.
Overheads will have to be reduced, but he could not quantify possible retrenchments. The group will first offer voluntary severance opportunities before reverting to retrenching staff, he said.