Now it’s bye-bye to Basil Read
The fall from grace has stretched over many years, punctuated by plummeting profits and share prices
Basil Read’s demise has been a long time coming.
It has coincided with the onset of the global financial crisis, when it traded at nearly R30/share, and with Jacob Zuma’s coming to power, trading at about R13/share.
More recently, the stock has plunged from 23c as of the end of May 2018 to 1c in mid-June, before being suspended at 4c on June 20. But the company’s ills go back to just before mid-2012, when the midtier JSE-listed construction group was trading at around R15/share.
Thereafter, net profit plummeted 78% in the six months to June that year to R16.5m, "as a result of SA’s floundering construction sector and multiple cases of nonpayment".
PODCAST: How the construction industry contributed to its own demise.
That was the year when government announced R4 trillion in infrastructure projects over the next 15 years. At the time, Basil Read said its construction division was "afflicted by a number of unprofitable contracts", leading to contractual claims of more than R300m.
It continued to be "hampered by delayed payments from government debtors" and was engaging with relevant departments in a bid to resolve long-outstanding issues.
It also said that while government continued to affirm its commitment to infrastructure spending, tenders had been slow to materialise, leading to low confidence levels in the industry.
In the six years since then nothing has really changed for SA’s listed construction companies. In this period, they have been fined heavily for collusion — nearly R100m for Basil Read alone — and have paid millions more in "voluntary" upfront payments towards transformation.
Basil Read’s fall from grace became terminal after the group reported a net loss of R1bn in the year to December 2017, from a loss of R53.6m in 2016. The share was trading at between 70c and 51c around the time.
At year-end the group’s current liabilities of R2.1bn exceeded current assets of R1.4bn, while cash had fallen to R126.4m.
By early 2018, things went quickly south, with the share hovering near 20c in mid- February.
Going back to 2012, Basil Read CEO Marius Heyns had said: "As contractors, we find it very difficult to make money. We’ve made a lot of provisions for losses on contracts."
At the time, the bulk of group debt was short-term, with gearing at 33.6% and overall debt just under R1bn.
In October 2012, Basil Read sold TWP Holdings for R900m in cash. TWP provided engineering, procurement and construction management solutions to the mining and infrastructure sectors, with offices in SA, Mozambique, Australia and Peru.
The R900m payout would fund organic growth and capital management initiatives and pay down debt.
Fast-forward to August 2017. Basil Read announced it would raise R300m through a rights offer to strengthen its balance sheet, by reducing debt and increasing funds for working capital.
It also arranged a debt standstill agreement a little later that year, giving it a debt holiday until the end of May 2019. The group said short-term liquidity had been strengthened by the deal, but by June 2018 all bets were off as it went into voluntary business rescue.
According to a "settlement agreement" reached with government to speed transformation in the industry, at least 40% of Basil Read’s building and civil engineering segment was earmarked to have been sold to empowerment interests.
Twenty months have elapsed since the agreement was announced in October 2016, and nothing has happened, though the company’s empowerment certificate shows it is overall 60% black-owned according to broad-based BEE (BBBEE) regulations.
However, back in June 2012, a BBBEE transaction with the Sishen Iron Ore Company community development trust was by September 2017 "significantly out of the money".
Despite the subsequent highly dilutive rights offer of R300m, finalised in February 2018, there has been no way back for Basil Read, and its shares have now been suspended.
Heyns retired in mid-2014. He was eventually succeeded by Neville Nicolau — former CEO at Anglo American Platinum and former COO and executive director of AngloGold Ashanti — as CEO and executive director of Basil Read from September 2014. Nicolau resigned at the end of May 2017. Khathutshelo (K2) Mapasa was appointed as acting CEO from June that year and was made CEO in late October.
Shortly afterwards former PPC CEO Darryll Castle was appointed as independent nonexecutive director, as was former Harmony Gold CEO Bernard Swanepoel.
Unfortunately, this brains trust of mining industry professionals has been unable to save Basil Read.
Like construction industry stalwart Group Five, the group has undergone serial management changes in recent years.
In the case of Group Five, there had also been ill-tempered and investor-prompted changes to the board. It is suspected that this has been prevalent throughout the industry.