Basil Read feels the pinch in subdued construction environment

22nd August 2016 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

With the local construction sector remaining subdued in the six months to June 30, JSE-listed construction company Basil Read has seen a drop in profit after tax to R34.4-million, down from R41.6-million in the comparative period of 2015.

However, despite the difficult trading environment, evidenced by a marked decrease in tender activity, the company reported an upwards trend in its headline earnings a share to 48.92c, up from the 37.13c reported for the prior comparable period.

“Despite weak market conditions, our order book was above target at R10.4-billion, slightly lower than the December 2015 level of R10.7-billion,” the company said in a statement on Monday, adding that, maintaining the order book could be a risk given the decline in tender activity.

“We will look to ensure that our overhead cost base is directly related to operating work. The early scaling and adjustment of the overhead to the work we do is critical to avoiding a reduction in the operating margin,” it added.

Further, Basil Read highlighted that liquidity remained tight, particularly in the construction division, with cash balances reduced to R219.3-million as at June 30, from R474.7-million in December.

Cash outflows were largely owing to working capital changes as advance payments received for the St Helena Airport project are unwinding as the contract nears completion.

Funding historical losses in the construction division further depleted cash resources.

With R200-million in debt funding secured from the Industrial Development Corporation (IDC), Basil Read’s cash position is set to improve, relieving liquidity pressures experienced in the first half.

“In the short term, consensus expectations are that the industry will continue to face challenges, with margins under pressure and real liquidity pressures. In the long term, however, infrastructure needs in South Africa and the African continent should support sectoral growth,” the company highlighted.

It further pointed out that, amid growing urbanisation, it would, over the next ten years, aim to break ground on additional large-scale, mixed-use, integrated housing developments.

“We are also identifying opportunities to develop smaller pockets of land using innovative funding models. Partnerships with selected industries, including mining, will enable the company to leverage housing development programmes into mixed-use, integrated facilities,” it said.