Basil Read shares in dramatic fall

Headline loss of between 357c and 374c a share expected for the year to December

BASIL Read shares plunged by as much as 31 percent on Friday after the listed construction group announced that project losses in the construction and engineering divisions had pushed the group to a loss for the year to December.

The company’s shares closed down 18.6 percent at R2.45 after falling as low as R2.07 earlier on Friday.

The group said it expected to report a headline loss a share of between 357c and 374c for the year to December. In the previous year, Basil Read reported headline earnings a share of 86.99c.

The loss a share was expected to be between 588c and 635c compared to earnings a share of 235.97c in the previous year.

Siphamandla Shozi, an analyst at Coronation, said the extent of the anticipated losses Basil Read expected to report did come as a surprise, but it was difficult to make a proper comment, because the group had only released a trading update, which did not provide any details of where the problems were in the group. Basil Read stressed the earnings a share in the previous year included the R183 million profit from the disposal of TWP.

The group said decisive action had been taken by the new management team to reduce overheads and address noncore assets within the company with a view to improving the company’s performance for its next financial year.

However, the group did not provide any specifics about the nature of the action taken.

Basil Read said its operating performance for the reporting period had been adversely impacted by losses relating to a number of contracts in the construction and engineering divisions. The group added that additional expected losses relating to these contracts had been raised in accordance with the provisions of international accounting standards in the process of finalising the company’s results for the year to December.

“The company has submitted a number of claims related to these contracts, which are currently being assessed or are in discussion. Although the company is confident of a positive outcome, the possibility of gains through the claims process and/or the possible impact of delay damages have not been recognised in terms of the prevailing accounting standards,” it said.

The company said once-off adjustments included in the overall projected were a nonrecurring non-cash impairment of goodwill of R304 million, of which R82m related to non-core assets, and a non-recurring write-down of development land of R80.6m related to the company’s investment in Rolling Hills Leisure Estate in Mpumalanga.

Basil Read said in August last year, when it released its financial results for the six months to June, that its construction division had been negatively affected by lossmaking contracts in the roads and civil engineering divisions.

A substantial loss had been recorded on a pipe-laying contract in the civil engineering division where significant challenges had been faced, including access to land, community interference, challenging environmental conditions and rain delays. It said the group had submitted claims relating to this contract.

The group added that the loss-making contracts in the roads division were being executed by the group’s subsidiary company Roadcrete Africa.

However, it said the expected losses to the completion of these contracts had been provided in full in the results for the six months to June.

Basil Read expects to publish its annual financial results for the year to December on Friday.