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Problem road contracts drag down construction group

19th April 2013

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Basil Read says two road contracts were largely to blame for the con-struction group’s R170-million loss for the financial year ended December 31, compared with a R135-million profit in the previous year.

Revenue was up 10% to R6.8-billion, while operating margin ended the year at –3.11%.

CEO Marius Heyns says the one problem contract was the Nata–Pandamatenga road, in Botswana, where the company had disagreements with the government’s representative on several issues. These disagreements are currently under arbitration.

The N12 Tom Jones project, in Gauteng, was also to blame as the contract was behind schedule owing to a series of problems, such as steel and bitumen shortages, as well as strike action in the transport sector.

This contract “[was] really a nightmare over the past 12 months”, says Heyns.

Combined, the two road contracts recorded a loss of R210-million. However, notes Heyns, both “will be out of the system by May, June”.

In order to remedy the shortage of the correct grade of bitumen for freeway construction, Heyns says Basil Read will establish a plant in the Western Cape to produce the required product.

Bitumen will be supplied from a Cape refinery, with the plant, sourced from a New Zealand firm, producing multigrade bitumen.

The R20-million plant, to be operational in the second half of 2013, will also be able to supply the rest of the local construction sector.

Other remedies to Basil Read’s loss-making year include the development of a more “accurate feedback system”, as reporting a problem in the group often came back “too late for us to act”, notes Heyns. A new risk division has been established, while project managers are being freed up to deal with their projects, and not to become involved in “fighting with clients about money”.

Overheads have been reduced by almost R60-million.

No retrenchments are on the cards, says Heyns.

“We had losses, but it’s the same people that made us profits. We place a high value on our people.”

Looking ahead, Heyns says the group’s order book is still healthy, at R10.2-billion as at December 31, a 15% drop from the end of 2011.

The R877-million raised from the sale of TWP Holdings will be used to settle debt, while a portion will also be used as working capital. A special dividend amounting to R230-million, or 175c a share will be paid to shareholders.

‘Branded as Criminals’
Heyns says Basil Read has made a provision for a R65-million penalty under the Competition Commission’s probe into anticompetitive behaviour in the construction industry.

He notes that the company was once confident that it would not face heavy penalties following this investigation, as it was aware of “only six” instances of possible anticompetitive behaviour.

However, says Heyns, as time progresses, it now appears as if the industry is going to face heavy penalties.

He says it also seems as if the construction industry is being “singled out” and “branded as criminals”.

“I take exception to that.”

He says it will be “anyone’s guess” as to what measure of fines the construction industry will face at the end of the probe. “It could be more and it could be less” than the R65-million provision made by Basil Read.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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