Basil Read has posted its biggest annual loss as confidence in SA’s construction sector ebbed to a record low in the first quarter of calendar 2018.
A net loss of R1bn for the year to December 2017 from a net loss of R89.5m in 2016 resulted in auditors PwC flagging material uncertainty about the firm’s ability to continue as a going concern. The operating loss was R743m from a profit of R63.7m in 2016.
But the group’s order book crept up to R12.6bn from R12.3bn in 2016. However, Jason Muscat, senior economic analyst at FNB Economics, said earlier this week it was likely the construction sector would remain pressured in 2018.
Basil Read CEO Khathutshelo Mapasa said on Wednesday the firm was fighting back and trimming its road-building operations in a highly competitive market to focus more on mining projects, mixed housing developments and selected civil construction work. “We are not preparing results as if we are going into business rescue or liquidation,” Mapasa said.
He said mining and housing development had consistently delivered profits at a time diminished spending by the South African National Roads Agency and a fiercely competitive tendering environment had reduced prospects in roads.
About R620m of R1bn in headline losses came from onerous contracts, impairment of goodwill and a reversal of deferred tax assets amid a write down of debtors and development land. At year-end, the group’s current liabilities of R2.1bn exceeded current assets of R1.4bn and group cash had fallen to R126.4m. This had negatively affected the execution of projects, resulting in penalties.
But Mapasa said initiatives had been implemented to allay these pressures, including a debt standstill agreement with funders and guarantors, the sale of non-core assets, a renegotiation of funding terms, and the raising of new capital. Meanwhile, Basil Read had repaid bridge funding of R150m from the Industrial Development Corporation and had secured new mining projects that were expected to yield good margins.
Bernard Swanepoel, former CEO of Harmony Gold, was appointed as nonexecutive director in February 2018.
Civil engineering and building projects were executed primarily for public sector clients. Mapasa said the government had reached its limit on infrastructure spending. To reduce exposure to lower-margin projects, Basil Read had concluded a R300m rights offer in February 2018. It said this showed strong shareholder support for the firm’s revised turnaround plans.