Basil Read aims to end bleeding
‘Shock and horror’ results unveiled
BASIL Read’s share price was unchanged at the close of trade on Friday despite the release of dismal annual results.
Most of the damage was done last week, when a shock profit warning knocked a third off the company’s value.
But details released on Friday show a bloodbath: a post-tax loss of R820.9-million for 2014 (from a R281.5-million profit in 2013) on R6.5-billion turnover, a R3.62 headline loss a share (86.99c headline earnings in 2013), a minus 51.9% return on equity (16.8%) and an order book that has shrunk from R12.5-billion to R10.5-billion. This was a result of operational obesity and market anaemia.
CEO Neville Nicolau, who described last week’s profit warning as “shock and horror stuff”, said 2014 was a disaster, but the executive team had taken decisive action.
“There were two basic problems. The first was a bloated overhead, but importantly an ineffective one. The second was poor operating performance.
“The problem with overheads was that we had a group of companies with subsidiaries, each operating as a company with a board and management and its own information systems.”
He said the subsidiaries were quite small and when they got into trouble they needed money from the parent. “Because there were no synergies there was no clear line of who is responsible for delivering on projects that are our core business, hence the operational problem.”
Nicolau said the subsidiaries often overquoted each other on specialist work, forcing them to look outside the company for contractors. This lack of cooperation was dealt with by changing the company model to a divisional one, reducing the executive team and fixing or selling nonperforming units.
Basil Read’s overhead was cut from about R580-million to R280million and the head count by more than 300 people.
In its results, the company showed a R304.4-million impairment of goodwill and R80.6-million write-down on development land at the Rolling Hills Leisure Estate in Mpumalanga. No annual dividend was declared.
Other drastic action Nicolau has taken includes discontinuing the engineering division once its running projects are completed.
Basil Read’s construction division was hit by unprofitable contracts in 2014, and continues to fund losses while it puts through claims. Nicolau said the claims were in projects nearly at completion, which would boost the coffers before its cash reserves were depleted.
“The cash we have in the company is really to get the St Helena project completed, which is part of our mining division.” The airport at St Helena should be completed next year.
He said the issues with work for Eskom at the Medupi plant had been resolved, and another major claim was “well under way”.
“Our major projects are not at risk. We should be able to get by with what we have for the year.”
Depressed commodity prices and labour unrest in the mining sector also weighed on the firm.
The share price was down 71% in the past 12 months, but Nicolau joked he would buy shares tomorrow when the closed period ended. “The company must be undervalued. We have a strategic plan to take it forward.”