Difficult and highly competitive conditions in the local construction market have pushed listed construction and engineering group Basil Read to scout for work outside South Africa’s borders after operating profit and earnings declined, chief executive Marius Heyns said.

“The difficult conditions in the local industry have led to a natural progression to obtain cross border work and the [construction] division is now active in several African countries where opportunities are more prevalent,” he said.

However, Heyns confirmed the R3.2 billion contract to build an airport on St Helena island would probably distort the revenue split figures from next year.

Heyns said this was a four-year design and construct contract funded by the UK government on behalf of St Helena. He said the construction portion of the airport tender was worth R3.2 billion.

Heyns said the South African construction environment was extremely tough at present with everybody struggling with funding and budgets, and contractors had “to fight to get paid for every bit of work”.

He said the group continued to be hampered by delayed payments from government debtors and was actively engaging with the relevant government departments to resolve long outstanding issues.

Basil Read had also not been immune to the downturn in the local sector and the construction division continued to be afflicted by a number of loss-making contracts, he said.

Heyns said the group had contractual claims of more than R300 million in various stages of evaluation.

Half of these claims related to government contracts and the balance to private clients.

Heyns said the group had been awarded more than R140 million through adjudication in claims against a parastatal, but the client had not accepted the award and wanted to take the matter to arbitration.

He said the group had received a settlement letter from the Free State provincial government regarding claims for two road contracts in the province and had received “a very small part payment”, with the balance due by December.

He said the Free State provincial government initially owed the group R175m on these contracts but Basil Read had given it a R20m discount and in terms of the settlement was owed R155m.

“I think they are waiting for the Treasury to bail them out, but are also looking for funding in the rest of the Free State government budget,” he said.

The Free State government was involved in a number of disputes with various contractors related to road contracts in the province. The payment delays were partly responsible for the collapse and liquidation of listed Sanyati Holdings.

Basil Read reported an 80% slump in diluted headline earnings a share to 14.75c in the six months to June from 75.21c in the previous corresponding period. Operating profit fell 72% to R40 million as operating margins deteriorated to 1.2% from 4.9%. No dividend was declared.

But revenue rose by 13% to R3.3 billion.

The group order book, bolstered by the St Helena airport contract, increased 2% to R12.7 billion from R12.5 billion.

Heyns said Basil Read remained committed to growth that was underpinned by a strong order book and effective management teams.

The shares lost 1.57% to R11.30 yesterday.

Source: Business Report