Construction group Basil Read Holdings on Thursday reported a 16% rise in revenue to R5.4 billion for the year ended December 2010.

Diluted headline earnings per share (HEPS) dropped to 209.25c from 332.43 cents a year ago. Operating profit was down 5% to R408.7 million from R429.2 million in the previous corresponding period.

The group declared a final dividend of 30 cents per share, which, together with the interim dividend, amounted to 72 cents.

Basil described the period under review as one of two halves, with the first half characterised by higher activity levels amid final preparations for the 2010 FIFA World Cup and supporting confidence that an economic recovery was unfolding.

In the second half, confidence waned in line with sharply decreased activity levels in many sectors as it became evident that the economic recovery would be protracted, exacerbated by the strength of the rand against those of major trading partners, the company said.

"A strong order book and equally strong relationships with clients, suppliers and subcontractors again enabled the group to manage these conditions effectively," the company said. Its order book stands at R8.5 billion.

Margins came under pressure in the year under review, with the gross operating margin decreasing slightly from 15.3% in 2009 to 15.1% for 2010.

Overhead costs increased by 23%, largely driven by the under recovery of staff costs in the TWP group, and much of the year ahead will be focused on efforts to contain these costs. Basil acquired the TWP group for a provisional purchase consideration of R661.4 million in 2009.

The TWP group's core business is the provision of engineering, procurement and construction management for clients.

"The poor performance of the TWP group, which was in line with expectations, can be attributed to the slow recovery in the commodities market, resulting in an under-recovery of staff utilisation and recovery ratios as mining houses remain cautious regarding the commissioning of new projects.

"Our rationale for this acquisition remains unchanged and with sentiment in the mining industry becoming more positive, we expect TWP's performance to improve in future years. We are already seeing an improvement in staff utilisation and recovery ratios for the 2011 financial year," the company said.

Further affecting the results for the year was the amortisation of intangible assets, which was at a level of R39.3 million, almost double the amortisation charge of R20.5 million reported in 2009.

Intangible assets are raised at the time of acquisition and comprise standard accounting entries relating to the future benefits that are expected to accrue to the group from contracts that exist at the time of acquisition. The expected amortisation of intangibles charge for 2011 is R10.8 million.

Cash on hand at the reporting date was one billion rand, compared with R1.2 billion in 2009.

The decrease in operating cash flows was largely as a result of an increase in working capital requirements as debtors' terms extended due to the prevailing economic environment and additional funds that were invested in property developments, classified as development land held for sale.

Looking ahead, the group said fundamentals in the construction sector had deteriorated significantly since 2009 and were expected to remain challenging in 2011, despite a gradual economic recovery.

"As a sector, operating performances are likely to be affected by high cost increases and greater competition.

A sustained recovery in the sector was always expected to lag a recovery in the larger South African economy, given the relatively long lead times associated with planning and executing large projects," the company said.

Source: I-Net Bridge

Publisher: I-Net Bridge
Source: I-Net Bridge