01 RECORD RESULTS Revenue (R million) Earnings and headline earnings (per share cents) STRONG BALANCE SHEET Net asset value and tangible net asset value (per share cents) Cash on hand and cash generated by operating activities (R million) FINANCIAL HIGHLIGHTS
02 Basil Read Annual Report 2006 FIVE YEAR REVIEW FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 2004 2003 2002 INCOME STATEMENT Revenue 1 162 198 617 332 469 148 540 674 612 128 Contracting 1 016 193 563 478 469 148 532 182 604 401 Other 146 005 53 854 8 492 7 727 Contracting and other costs (1 016 810) (530 955) (481 181) (434 859) (484 293) Gross profi t/(loss) 145 388 86 377 (12 033) 105 815 127 835 Admin and other operating overheads (93 488) (50 451) (80 723) (95 375) (96 544) Other income 18 1 007 1 043 Other gains/(losses) net 1 832 500 Profi t on sale of subsidiaries 54 780 Profi t on sale of unlisted investment 28 412 Profi t on sale of associates 877 1 793 Operating profi t/(loss) 53 750 37 303 (36 183) 39 859 32 334 Net fi nance income/(costs) 3 479 (13 195) (4 680) 14 109 (11 191) Profit/(loss) before share of associates 57 229 24 108 (40 863) 53 968 21 143 Share of profi t/(loss) from associates 158 287 (3 261) (1 116) Profit/(loss) before taxation 57 229 24 266 (40 576) 50 707 20 027 Taxation (2 269) 709 (1 039) (10 597) (8 392) Net profit/(loss) for the year 54 960 24 975 (41 615) 40 110 11 635 Net profit/(loss) for the year attributable to: Equity shareholders of the company 54 103 24 975 (42 338) 40 329 11 634 Minority interests 857 723 (219) 1 Net profit/(loss) for the year 54 960 24 975 (41 615) 40 110 11 635 STATISTICS Earnings/(loss) per share (cents) 93,53 45,31 (76,84) 73,19 21,11 Headline earnings/(loss) per share (cents) 89,62 42,71 (179,41) 18,08 8,74 Dividend per share (cents) 80,00 6 000 5 000 4 000 3 000 2 000 1 000 0 January June December Volume of share traded Share price Share price and volume (cents) 1 400 1 200 1 000 800 600 400 200
03 2006 2005 2004 2003 2002 BALANCE SHEET Assets Non-current assets 215 007 106 933 116 654 160 851 210 828 Property, plant and equipment 176 438 82 293 91 271 126 072 125 395 Other non-current assets 38 569 24 640 25 383 34 779 85 433 Current assets 415 941 159 896 85 146 188 720 275 620 Contract debtors and retentions 120 069 64 762 38 005 88 840 173 709 Cash and cash equivalents 270 518 91 249 43 889 84 197 67 758 Other current assets 25 354 3 885 3 252 15 683 34 153 630 948 266 829 201 800 349 571 486 448 Equity and liabilities Capital and reserves 193 231 33 385 6 533 90 713 58 490 Minority interests 6 232 (723) (504) Non-current liabilities 55 775 24 045 33 521 12 098 72 913 Interest-bearing borrowings 49 982 22 808 33 189 12 098 72 913 Other non-current liabilities 5 793 1 237 332 Current liabilities 375 710 209 399 161 746 247 483 355 549 Trade and other payables 281 844 156 202 90 204 142 578 275 933 Interest-bearing borrowings 32 996 23 539 17 892 93 612 56 288 Bank overdraft 4 081 37 897 4 315 Other current liabilities 56 789 29 658 15 753 11 293 19 013 630 948 266 829 201 800 349 571 486 448 STATISTICS Number of shares in issue ( 000) 70 720 55 304 55 100 55 100 55 100 Net asset value per share (cents) 282,05 60,37 11,86 164,63 106,15 Current ratio (times) 1,11 0,76 0,53 0,76 0,78 Return on shareholders interests (%) 28,00 74,81 (648,06) 44,46 19,89 Return on total average tangible assets (%) 12,11 15,92 (13,12) 9,29 7,02 Average price per share (cents) 825 174 138 141 151 Debt equity ratio (times)* 0,42 1,39 7,82 1,17 2,23 * Debt equity ratio is calculated using interest-bearing borrowings. Current ratio and debt equity ratio (times)
04 Basil Read Annual Report 2006 ROADS AND CIVIL ENGINEERING The development and implementation of technical and financial engineering skills has reinforced Basil Read s Roads and Civil Engineering position as a front-runner. CONTRIBUTION TO REVENUE ROADS AND CIVIL ENGINEERING OPENCAST MINING Opencast Mining has operated mediumand long-term contracts across Africa using the latest operating equipment and employing innovative mining techniques to satisfy the needs of their clients. CONTRIBUTION TO REVENUE 53% 24% OPENCAST MINING MANAGEMENT MANAGEMENT GROUP AT A GLANCE Chris Erasmus, Managing Director Deon de Jager, Willem Meyer, Logan Moodley, André van Tonder, Morné van Schalkwyk, Antonie Fourie, Paul Walker, Jimmy Strydom, Hugo Carlier EMPLOYEES 1 125 KEY PROJECTS Berth 306, Richards Bay Main Road 435, Port Elizabeth Hans Strydom Drive, Randburg Pier 1 Container Terminal, Durban Eugene du Toit, Managing Director Derek Leatherbarrow, Rolf Koller, McDonald Tisane, Danny Stopforth EMPLOYEES 275 KEY PROJECTS Rössing Uranium, Namibia Mupane Mine, Botswana
05 BUILDINGS Using a total quality approach to projects, the Building division adds value through offering turnkey solutions, innovative methods of construction, effective cost control, design alternatives and financing options. BUILDINGS DEVELOPMENTS Basil Read has developed strong expertise in the construction, development and project management of large housing schemes for low- and middleincome earners. DEVELOPMENTS CONTRIBUTION TO REVENUE 16% CONTRIBUTION TO REVENUE 7% MANAGEMENT MANAGEMENT Reinoud Oranje, Managing Director George de Sousa, Gerry Hanna, Louise Cornelessen Des Hughes, Managing Director Russell Zama, Brian Mulherron EMPLOYEES EMPLOYEES 617 7 KEY PROJECTS Hydro Park on Grayston Chris Hani Baragwanath Hospital Schools at Cosmo City Paarl Hospital KEY PROJECT Cosmo City
06 Basil Read Annual Report 2006 BOARD 1 Bulelani Thandabantu Ngcuka Non-executive director, Chairman 3 Lungisa Brian Dyosi Non-executive director 2 Marius Lodewucus Heyns Chief Executive Offi cer, Managing Director 4 Sango Siviwe Ntsaluba Non-executive director BOARD AND MANAGEMENT 7 Thabiso Alexander Tlelai Non-executive director Sindile Lester Leslie Peteni Independent non-executive director 5 6 Charles Peter Davies Independent non-executive director
07 MANAGEMENT Manuel Donnell Grota Gouveia Group Finance Director I A Jacobus Frederick van Biljon Chief Operating Offi cer D Willem Sterrenberg Meyer Director: Civils Christopher John Erasmus Managing Director: Roads and Civil Engineering B C Deon de Jager Director: Roads J Bernard Melvin Johnson Human Resources Director E Eugene du Toit Managing Director: Opencast Mining and Special Projects K James Stephen Johnston Technical Director Terence Desmond Hughes Managing Director: Developments G Reinoud Cornelius Oranje Managing Director: Buildings F H Norman Milne Commercial Director
08 Basil Read Annual Report 2006 BOARD 1 2 3 4 BOARD CV s 7 5 6 1. Bulelani Thandabantu Ngcuka (52) Non-executive director, Chairman BProc (Fort Hare), LLB (Unisa), MA (Webster University, Switzerland) Bulelani was admitted as an attorney in June 1980. He held various positions in different law fi rms until 1989. Thereafter he was involved in various committees until 1994 when he was elected to the Senate as Chief Whip of the ANC. In 1997 he was elected as Deputy Chairman of the National Council of Provinces. Bulelani was the former National Director of Public Prosecutions, a position he was appointed to in 1998. Formerly the executive chairman of Amabubesi Investments (Pty) Limited, he co-founded Vuwa Investments (Pty) Limited in 2006 and was appointed Executive Chairman. He was appointed to the Basil Read board on 1 February 2006. 2. Marius Lodewucus Heyns (47) Chief Executive Offi cer, Managing Director BSC Civ Eng, PR Eng, MSAICE Marius has twenty-eight years experience in the construction industry across the full spectrum of activities. He has held various executive management positions for leading public and private companies in the sector and was reappointed at Basil Read in 2004 in his current position. 3. Lungisa Brian Dyosi (36) Non-executive director BA Law (University of Cape Town), SEP (Wits & Harvard Business Schools) Advocate of the High Court of South Africa Lungisa was admitted as an attorney in 1997. He worked for the Bureau of Justice Assistance as a Senior Project Planner from 1997 to 1998. He then worked for the National Prosecuting Authority as a strategic and legal adviser to the National Director of Public Prosecutions for six years. In 2004 he joined Amabubesi Investments (Pty) Limited as a director. In 2006, he co-founded Vuwa Investments (Pty) Limited and was appointed as a director. He was appointed to the board on 1 February 2006. 4. Sango Siviwe Ntsaluba (46) Non-executive director BCom, BCompt Hon (Unisa), CA(SA), HDip Tax Law (UJ) Sango has wide experience in various areas of business acquired over a period of more than 20 years. He is a founding member of SizweNtsaluba VSP, a successful fi rm of accountants and auditors, and Neotel, the second fi xed line operator in South Africa. He serves on various public sector boards, including the National Energy Regulator of South Africa (NERSA) and National Housing Finance Corporation (NHFC). He is a founding member of Amabubesi Investments (Pty) Limited and has held the post of Chief Executive Offi cer since incorporation. He was appointed Executive Chairman of Amabubesi Investments (Pty) Limited in 2006 and was appointed to the board of Basil Read in July 2006. 5. Thabiso Alexander Tlelai (43) Non-executive director BCom (Memorial University of Newfoundland, Canada) Thabiso is a founding member of Amabubesi Investments (Pty) Limited and has been a director of the company since incorporation. He is the Chief Executive Offi cer of The Don Group, having assumed the role in early 2000 following his acquisition of a signifi cant shareholding. He has been involved in the hotel industry for more than 15 years. Besides his interest in the Don Group, he is a founder member and chairman of the Tourism Business Council of South Africa (TBCSA). He was appointed to Basil Read s board in July 2006. 6. Charles Peter Davies (60) Independent non-executive director Charles began his career in the insurance industry, culminating in his appointment as Chief Executive Offi cer of Norwich Holdings, a post he held from their incorporation in 1995 until his retirement in 1999. He currently serves on various boards in a non-executive capacity. He was appointed to the board of Basil Read in July 2006. 7. Sindile Lester Leslie Peteni (62) Independent non-executive director BSc (Building Science) (University of Cape Town) Lester has numerous years of experience in various roles at construction and property development companies. He is a founding member and director of Thebe Investment Corporation, an ANC-owned investment company, primarily focusing on business development. He is an active member of the ANC assisting with executive management and fundraising. He was appointed to the board in July 2006.
09 MANAGEMENT A. Jacobus Frederick van Biljon (50) Chief Operating Offi cer BComm (Hons) Kobus has twenty-seven years experience in the building and construction industry. Following a successful tenure as managing director of the Building division, he was appointed Chief Operating Officer in 2006. His responsibilities include the running of the operational divisions as well as the active marketing and maintaining of Basil Read s image in the marketplace. I B. Christopher John Erasmus (45) Managing Director: Roads and Civil Engineering NHD Civil Eng, PR Techni Eng, PrCM Chris has twenty-three years experience in the construction industry and has been with Basil Read for this period. He has acted as Contracts and Design Manager on roads and civils contracts, mainly in South Africa, with some exposure to cross-border infrastructural development. Chris was appointed managing director of the Roads and Civil Engineering division during 2004. A B C D J E K C. Deon de Jager (37) Director: Roads NHD Civil Eng, PrCM Deon has worked in the construction industry for the past seventeen years and has been with Basil Read for this period. He started with Basil Read in 1990 as a bursary student and has since held numerous managerial positions. He was appointed managing director of the Roads division in 2006. F G H D. Willem Sterrenberg Meyer (46) Director: Civils BSc Eng Hons Willem has twenty years experience in the industry, where he has been responsible for a variety of contracts at some of the largest construction companies in South Africa. He joined Basil Read in 2006 where he took responsibility for the civils division in his current post as Director: Civil Engineering. E. Eugene du Toit (52) Managing Director: Opencast Mining and Special Projects BSc Eng Hons, Diploma in Arbitration Eugene has thirty years experience in the industry, where he has held various senior executive positions with some of the largest construction companies in South Africa. He joined Basil Read in 2006 as managing director of Special Projects with Opencast Mining being added to his portfolio a few months later. F. Reinoud Cornelius Oranje (45) Managing Director: Buildings NHD QS:MAQS Reinhoud joined the group in 1989 where he was involved with the Building division until 2001 after which he became group management accountant until 2003. He subsequently spent two years in the legal department as group contractual and QS manager after which he returned to the Building division. He was appointed managing director of the division in 2006. G. Terence Desmond Hughes (58) Managing Director: Developments PEng (UK), PrCM, MSE, ACIOB Des has thirty-six years experience in the construction industry ranging from consulting practices and contracting to project developments. His main focus is on projects that meet the requirements of the government s Breaking New Ground policy, such as the highly successful Cosmo City development. Des joined Basil Read in 1996 and was appointed managing director of the division in 2006. H. Norman Milne (52) Commercial Director NHD:QS A Arb Norman has over 30 years experience in the local and cross-border construction industry with the main focus on the commercial and contractual management of heavy civil engineering and building projects. Norman joined Basil Read in 2006 and is responsible for the commercial, contractual and risk management functions of the group. I. Manuel Donnell Grota Gouveia (31) Group Finance Director BCompt (Hons), CA(SA) Donny has worked in the fi nance fi eld for 13 years, seven of which were in the auditing profession. He joined Basil Read in 2001 and is responsible for group fi nancial reporting, taxation planning and group treasury and fi nance. Donny was appointed to his current post in 2004. J. Bernard Melvin Johnson (39) Director: Employee benefi ts and HR Diploma: HR Management & IR/Labour Law Bernard joined the group in 1988 as payroll administrator and assumed the role of remuneration manager during 2004. He is currently responsible for managing employee relations and good governance in terms of all employee remuneration. He is also actively involved in managing the group s employee benefi ts. He was appointed as a director in 2006. K. James Stephen Johnston (54) Technical Director BSc Civ Eng, CEng, PrEng, MICE, MSAICE Jimmy has over thirty years experience in the management and construction of roads, civils, infrastructure and building works throughout Southern Africa. His responsibilities include management of the technical, estimating and purchasing departments of Basil Read. He joined Basil Read in 1975 and was appointed as a director in 2006. MANAGEMENT CV s
10 Basil Read Annual Report 2006 Chief Executive Offi cer Marius Heyns EXECUTIVE COMMITTEE COMPRISING OPERATIONS Chief Operating Offi cer Kobus van Biljon ROADS AND CIVIL ENGINEERING OPENCAST MINING BUILDINGS DEVELOPMENTS Managing Director Chris Erasmus Managing Director Eugene du Toit Managing Director Reinoud Oranje Managing Director Des Hughes Director: Roads Deon de Jager Director: Civils Willem Meyer Earthworks Opencast contract mining Retail and offi ce complexes Property development ORGANOGRAM DIVISIONS Bridges Pipelines Harbour and marine works Industrial plants Stadiums Roads and highways Airports Spray Pave (Pty) Limited supply and spraying of bitumen and related products Stone and Allied Industries Limited supply and spraying of bitumen and related products Mine spoils rehabilitation Bulk earthmoving Thin, thick and multiple seam mining Hard rock selective mining Materials handling Apartment blocks Educational facilities Hospitals Prisons Residential housing Housing schemes for low and middle-income earners Public private partnerships
11 SUPPORT GROUP RISK FINANCE HUMAN RESOURCES TECHNICAL Group Risk Director Norman Milne Group Finance Director Donny Gouveia Director: Employee Benefi ts and HR Bernard Johnson Technical Director Jimmy Johnston Group policies and procedures Group policies and procedures Group policies and procedures Group policies and procedures Group commercial and risk Shared services fi nance Shared services payroll Buying and logistics Legal Group insurance Group QSE Group fi nance and treasury Group tax Statutory reporting Investor relations and reporting Bursary student management Employee relations Employee benefi ts Group training and development Group tendering Design and build HIV/AIDS management
12 Basil Read Annual Report 2006
13 ROADS AND CIVIL ENGINEERING Name of project: Berth 306, Richards Bay Client: National Ports Authority Contract value: R250 million Duration: 28 months Major quantities: Land based excavation 250 000 m 3 Concrete 20 000 m 3 Reinforcing 3 100 tons Dredging 3,6 million m 3 Reclamation 500 000 m 3
14 Basil Read Annual Report 2006 OPENCAST MINING Name of project: Rössing Uranium Mine, Namibia Client: Rio Tinto Contract value: R90 million Duration: 21 months Major quantities: Rock mined to date 6,5 million tons Rock still to be mined 7,5 million tons Opencast Mining has previously worked for Rio Tinto at their Phalaborwa Mine. The contract was extremely successful.
15 O C S
16 Basil Read Annual Report 2006
17 BUILDINGS Name of project: Hydro Park on Grayston Details of project: 17 storey building, including four basements, comprising 234 apartments Client: Hydro Holdings Contract value: R121 million Duration: 24 months Major quantities: Bulk excavations 43 000 m 3 Concrete 16 500 m 3 Reinforcing steel 1 600 tons Formwork 52 600 m 2 Bricks 3 million Plaster 83 400 m 2
18 Basil Read Annual Report 2006 DEVELOPMENTS Name of project: Cosmo City Client: City of Johannesburg, Gauteng Department of Housing Contract value: R440 million Duration: 10 years Sites to be developed: 11 490 sites in total, including public open space, municipal and conservation sites. 5 000 RDP homes 3 000 finance credit linked 3 360 bonded homes
19 S
20 Basil Read Annual Report 2006 Basil Read has built on the success of 2005 to produce record results in 2006 CHAIRMAN S REVIEW Bulelani Thandabantu Ngcuka Chairman It gives me great pleasure to present this year s annual report, as Basil Read has built on the successes of 2005 to produce record results in 2006. In our twentieth year since listing, we have completed our turnaround in a convincing manner and are well positioned to face the challenges that lie ahead. The construction industry is currently experiencing an unprecedented boom, one which, in my opinion, looks set to continue well beyond 2010. The group s business is concentrated in the South African market, although work for selected private clients in sub-saharan Africa will continue for the foreseeable future. This focus continues to work well for Basil Read, given buoyant infrastructure spending in the local market. Although a high level of organic growth was experienced during the year, we are monitoring opportunities for expansion through acquisition. Following on from the strategic investments made in 2006, we have reached agreement with Blasting & Excavating Group to acquire their entire issued share capital, subject to the fulfi lment of certain conditions precedent, for a purchase consideration of R100 million. Blasting & Excavating s core business is the provision of specialised drill and blast services for clients including mines, construction contractors and commercial quarries. As they currently do all the drilling and blasting for the Opencast Mining division, synergies exist and we expect this acquisition to signifi cantly enhance earnings. Market support for our performance and potential has seen our share price rise from R3,89 at the beginning of the year to R12,60 at the end of the year, convincingly outperforming both the JSE All Share index and our peers in the construction and materials sector for the second consecutive year. Despite Metallon Ventures (Pty) Limited s departure as a black economic empowerment partner, we continue to be the leading black-empowered construction group in South Africa. Collectively, Amabubesi Investments (Pty) Limited, Vuwa Investment (Pty) Limited and Mquanda Trust hold 39% of Basil Read. In addition to the long-standing relationship with our international partner, Bouygues Travaux Publics SA, our group is well positioned to compete in the domestic construction and materials sector, for the benefi t of all stakeholders.
21 The change in shareholding has led to a change in the composition of the board of directors. Nonexecutive directors Mr A J Reve and Mrs N H Maliza resigned from the board and were replaced by Messrs S Ntsaluba and T Tlelai. Messrs C Davies and L Peteni were appointed as independent non-executive directors on 5 July 2006. The directors and senior managers of the group endorse the Code of Corporate Practices and Conduct as set out in the King II report on Corporate Governance. Having regard for the size of the group, the board is of the opinion that the group substantially complies with the Code as well as with the Listings Requirements of the JSE Limited. The group performs regular reviews of its corporate governance policies and practices and strives for continuous improvement in this regard. ever produced. As we move forward into a robust era at Basil Read, I know that the group is in capable hands. The ongoing efforts of all concerned have been acknowledged and recognised. Bulelani Ngcuka Chairman During my tenure as chairman of Basil Read, it has become clear that the group s strength is its people. It is also apparent that the skills shortage in the construction industry is fast approaching a critical level. To this end, 2 058 600 shares were issued to the Basil Read Share Incentive Trust in January 2007, to be distributed amongst staff as part of a staff retention incentive and as acknowledgement for their loyalty and dedication, despite the hardships of recent years. In closing, I would like to thank Marius and his team, encompassing all staff of Basil Read, for the exceptional efforts that gave rise to the best results the group has
22 Basil Read Annual Report 2006 Basil Read has emerged from a challenging period in recent years as a well capitalised, appropriately structured and managed group CHIEF EXECUTIVE OFFICER S REVIEW Marius Lodewucus Heyns Chief Executive Offi cer, Managing Director Building on the strong results recorded at the interim stage, Basil Read has produced record results for the 12 months to 31 December 2006, refl ecting both the foundation laid in 2005 and a favourable economic environment. The board is proud to report an after-tax profi t of R55 million (December 2005: R25 million), a commendable increase of 120%. Turnover increased by 88% to R1,2 billion (December 2005: R617 million), by far the highest in the group s 54-year history. Cash on hand rose to R266 million (December 2005: R91 million). New contracts secured during the year totalled R2 billion (December 2005: R1 billion) and the order book at the end of the period is strong at R2,3 billion (December 2005: R1,3 billion), underpinning our forecasts of sustainable growth. At the time of writing, the group was negotiating additional work worth R1,5 billion that was not included in the order book. Importantly, Basil Read maintained its category 9 grading from the Construction Industry Development Board during the year. This prime grading is only accorded to companies capable of managing contracts exceeding R100 million and places our group fi rmly among the industry forerunners in tendering for largescale projects. Against increased current and projected activity levels, Basil Read invested in new plant worth R99 million (December 2005: R33 million). Ongoing plant acquisition is guided by prudent assessments of expected activity levels and a comprehensive maintenance programme to ensure the optimal use of existing plant. The group has budgeted for capital expenditure of R150 million in 2007. During the year, the group s issued guarantees amounted to R320 million (December 2005: R175 million). These guarantees have arisen in the ordinary course of business and it is not expected that any loss will arise out of their issue. The group increased all banking facilities to accommodate expected growth and at year end had a guarantee facility of R1 billion in place. In the second half of the year, Basil Read initiated a clawback offer to existing shareholders, effectively a fully underwritten rights issue. This increased the group s capital base by R105,5 million at a time when the number, scale and average duration of contracts in all divisions had increased materially following a period of low activity levels in the construction and contract-mining sectors. Being well capitalised enables Basil Read to effectively manage the inherent fi nancial challenges of the construction industry, pay regular dividends and raise competitive performance bonds when required.
23 Dividends Given Basil Read s excellent results for the year and balance sheet strength that collectively signal the completion of its turnaround and resumption of steady growth, the directors declared a dividend of 30 cents per share for the year to 31 December 2006. Strategic investments Despite the high level of organic growth being experienced, the group monitors opportunities for expansion through acquisition. In light of this, Basil Read increased its shareholding in two associate companies, BR-Tsima Construction (Pty) Limited and Newport Construction (Pty) Limited, to 51%. These subsidiaries have been consolidated into the annual results, giving rise to a contract-based intangible asset that will be amortised over the period of the longest existing contract at date of acquisition. To complement its steady organic growth and scope of operations, the group made two strategic investments during the review period. Effective 1 July 2006, Basil Read is now a majority shareholder in Spray Pave (Pty) Limited, a bitumen supplier and sprayer, and Stone and Allied Industries Limited, a stone-crushing company. These acquisitions were internally funded and their results consolidated into the group s results for the review period. OPERATIONAL REVIEW Buildings Continuing the growth trend of late 2005 and favourable market conditions, the Building division secured several new contracts during the year, including the construction of Paarl Hospital, valued at R200 million. The division has been active in Cape Town since early 2006 following the award of the Paarl Hospital contract. Substantial growth is projected in this region during 2007. The division started and completed, in eight months, the construction of three schools in Cosmo City, the fl agship project in partnership with government. This design-and-construct project included furnishing the buildings, enabling the Gauteng Education Department to open the schools in the new year. Good progress on the Grayston Apartments and renovations to Chris Hani/Baragwanath Hospital was made during the year. The division also completed the extension to our own head offi ces which were opened in January 2007. Current projects are evenly spread between private and public sectors, and prospects for sustainable growth are promising. The slowdown in the residential housing market has not affected this division as it has limited exposure to this segment. From a base of R350 million in 2005, work secured for 2007 has risen to R650 million, excluding a number of large projects that are expected to be awarded in the second quarter of the new fi nancial year. The division will also be involved in the construction of sports stadiums in Nelspruit and Mogale City. The division has been restructured to manage an increased current and expected workload, and its ability to attract top-calibre senior professionals despite wellpublicised shortages of skills in the construction sector underscores the group s reputation for delivery.
24 Basil Read Annual Report 2006 CHIEF EXECUTIVE OFFICER S REVIEW (continued) Developments Phase two of Cosmo City, the fl agship project in partnership with government, is progressing well. Given the success of this project, the division is investigating similar property developments with limited property risk, with particular emphasis on Public Private Partnership (PPP) initiatives. Roads and Civil Engineering The Roads and Civil Engineering division produced outstanding results for the year and performed on numerous contracts, ranging from infrastructure development with the Coega Development Zone in Port Elizabeth, upgrading Pier 1 in Durban Harbour in KwaZulu-Natal, road-building in most provinces in South Africa to marine works at Richards Bay harbour. The divisional focus remains on infrastructure development projects for both public and private clients in South Africa. In January 2007 the division, in partnership with Bouygues, was awarded the contract to build the 2010 Soccer World Cup stadium in Nelspruit. This is a 24-month contract valued at R810 million. In addition, it has an ongoing contract for elements of the Gautrain project in partnership with Intrafor and secured the contract for the Khangela Bridge joint venture in KwaZulu-Natal. The Civil Engineering division was strengthened during the year with the appointment of a divisional managing director responsible for building capacity in this unit. The Roads division recorded steady growth and improved results during the review period, successfully completing projects in Limpopo, Gauteng and Eastern Cape. The Cosmo City project is ongoing, and contracts secured during the period included the R200 million Sasolburg rehabilitation project and two road projects valued at R500 million. The empowerment companies, BR-Tsima Construction (Pty) Ltd and Newport Construction (Pty) Ltd posted good results for the year with Newport securing two new contracts from the Coega Development Corporation starting in March 2007. Stone and Allied Industries Ltd and Spray Pave (Pty) Ltd returned to profi tability under the leadership of this division and have recorded signifi cant growth since becoming members of the Basil Read group. The momentum of infrastructural development is well under way, and with industry grading implemented in tender processes the increased scale of projects presents excellent opportunities for larger contractors. With an order book exceeding R1 billion for 2007 (2006: R500 million), the divisional outlook is extremely positive. Both the Civil Engineering and Roads units are building capacity through recruitment and purchasing major plant and equipment. Opencast mining The Opencast Mining division recorded acceptable results after a challenging year, securing an order book of R452 million (2006: R27 million) with potential extensions on existing contracts. The contract with Rössing Uranium in Namibia, secured in the fi rst half, is a pioneering contract on the existing mine and is progressing well. At year end, the division and its joint-venture local partners were awarded contracts for two Debswana opencast diamond mines, in Botswana. The division remains well positioned to capitalise on a strong resources market.
25 The most signifi cant challenge during the year was the termination of a major contract with Lonmin Platinum, outside Brits. The division is currently negotiating monies outstanding relating to escalation and additional claims relating to a change in scope of works with Lonmin. Discussions are ongoing. The division recognised an additional loss of R4,1 million during the current year (2005: R14 million loss recognised) on the Lonmin contract. The Mupane Gold Mine in Botswana was acquired by a competitor mining group during the year. Following major production challenges, we have reduced our risk exposure on this contract by changing it to an alliance contract which is expected to run into 2008. The group identifi ed the increased risk of owning specialised mining trucks and excavators and is currently exploring options to mitigate this risk. The performance of contracts in hand is expected to support improved results for the division, which has an order book of R296 million for 2007 and will remain focused on southern Africa for expansion and growth. Plant and corporate expenses Basil Read s plant unit is a fully functional, integrated service department to the operating divisions, tasked with maintaining and acquiring plant and equipment to accommodate the group s growing business. This is a disciplined process based fi rstly on a comprehensive maintenance programme to optimise the life of existing assets and, secondly, on an acquisition strategy that balances fi nancial and technical considerations. During the year, Basil Read spent R96 million on plant and equipment, 55% of which was mining equipment. Three-year plant replacement plans are being finalised and additional staff placements were made to improve service levels to group sites. The roll-out of group plant management systems into subsidiaries is also under way. In the past two years, Basil Read has signifi cantly reduced its overhead structure. This process was largely completed with the opening of the new head offi ce complex in Boksburg but the focus on cost management will be ongoing. APPRECIATION At every level, our group is characterised by people who bring their passion and professionalism to every board meeting and site conference, and into our workplace every day. Your contributions are invaluable in achieving our goals. With your continued support, we will achieve them even sooner. PROSPECTS Basil Read has emerged from a challenging period in recent years as a well capitalised, appropriately structured and managed group, ideally positioned to capitalise on buoyant conditions in the construction sector, and the accelerated programme of infrastructural development under way. Results for the year underscore the solid base now in place to sustain steady organic and acquisitive growth ahead. Marius Heyns Chief Executive Offi cer
26 Basil Read Annual Report 2006 Basil Read is committed to being a responsible corporate citizen in the communities and environment in which it operates Enna Kruger Company Secretary CORPORATE GOVERNANCE Basil Read endorses the values of good corporate governance and standards recommended in the Code of Corporate Practices and Conduct in King II, as well as the Listings Requirements of the JSE Limited. Corporate governance remains a permanent item on the board s agenda, and the board believes the group substantially complies with the Listings Requirements in a manner commensurate with the size of the group. Further details of the group s corporate governance practices are set out elsewhere in this report, most notably in the sustainable development section on page 31, and the statutory disclosures on pages 40 and 92. The framework within which the group implements its corporate governance policies is detailed below. Board of directors The board retains effective control over the group and monitors the implementation of strategies and policies by the executive management team through various committees and processes. The information provided to the board is suffi cient to enable the directors to consider decisions on material matters. Following the disposal of Metallon Ventures (Pty) Limited s interest in the group, non-executive directors Mr A J Reve and Mrs N H Maliza resigned from the board and were replaced by Messrs S Ntsaluba and T Tlelai. Messrs C Davies and L Peteni were appointed as independent non-executive directors on 5 July 2006. Basil Read retains a unitary board structure. At the reporting date the board comprised one executive director, four non-executive directors and two independent non-executive directors. None of the directors has a service contract with the group. Three directors retire each year by rotation with reappointment subject to the approval of shareholders at the annual general meeting. No restraint of trade payments are made to directors. Chairman and chief executive offi cer The roles of chairman and chief executive offi cer are separate. Strategy The group operates according to a business plan, compiled by the executive management team and approved by the board of directors. A documented and tested business continuity plan, which details the procedure to be followed to prevent the loss of essential business data in the case of an IT system malfunction or collapse, is included in the quality/safety/environmental procedural system. In addition, adequate business interruption insurance to cover the cost of the restoration and recovery of lost data as well as other related items is also in place. Committees While the board ultimately remains responsible for the performance and affairs of the group, audit/risk and remuneration committees assist the board in discharging its duties and responsibilities. The board and external auditors have unrestricted access to all records, assets and employees, as well as to each committee and its chairman. Dates of meetings and attendance by the members of these committees appear on page 27.
27 Schedule of meetings held during 2006 Basil Read Board of Directors DATE MEETING HELD DIRECTOR S NAME ATTENDED APOLOGIES 02 February 2006 BT Ngcuka ML Heyns LB Dyosi NH Maliza AJ Reve 13 April 2006 BT Ngcuka AGM ML Heyns LB Dyosi NH Maliza AJ Reve 05 July 2006 BT Ngcuka ML Heyns S Ntsaluba T Tlelai C Davies SLL Peteni LB Dyosi 16 August 2006 BT Ngcuka ML Heyns S Ntsaluba T Tlelai C Davies SLL Peteni LB Dyosi 05 October 2006 BT Ngcuka ML Heyns S Ntsaluba T Tlelai C Davies SLL Peteni LB Dyosi 15 March 2007 BT Ngcuka ML Heyns S Ntsaluba T Tlelai C Davies SLL Peteni LB Dyosi Schedule of meetings held during 2006 Basil Read Audit/Risk Committee DATE MEETING HELD MEMBER S NAME ATTENDED APOLOGIES 02 February 2006 A Reve M Booi P Wolmarans M Heyns 13 August 2006 S Ntsaluba SLL Peteni ML Heyns 20 November 2006 ML Heyns (by proxy) S Ntsaluba SLL Peteni 14 March 2007 ML Heyns S Ntsaluba SLL Peteni Schedule of meetings held during 2006 Basil Read Remuneration Committee DATE MEETING HELD MEMBER S NAME ATTENDED APOLOGIES 19 January 2006 OJP Giot L Pienaar BM Johnson E Kirsten 24 January 2006 OJP Giot L Pienaar BM Johnson E Kirsten 07 February 2006 OJP Giot L Pienaar BM Johnson 04 October 2006 CP Davies AT Tlelai OJP Giot BM Johnson 22 November 2006 CP Davies AT Tlelai OJP Giot BM Johnson 07 February 2007 CP Davies AT Tlelai OJP Giot BM Johnson
28 Basil Read Annual Report 2006 CORPORATE GOVERNANCE (continued) Audit/risk committee The audit/risk committee comprises two non-executive directors, one of whom is independent, and one executive director. The committee meets periodically throughout the year to review the fi nancial statements, the scope of external audit functions, risk management and the effectiveness of management information, internal controls and corporate governance procedures and reports to the board on its fi ndings. It is also responsible for reviewing the group s accounting policies and statutory compliance and recommending changes, where appropriate. The board is satisfi ed that the audit risk committee has fulfi lled its responsibilities under its terms of reference. Remuneration committee The remuneration committee, which comprises two non-executive directors, one of whom is independent, and two members of management, meets periodically throughout the year. Its objectives are to assist the board in determining conditions of employment and to review and approve remuneration policies and practices for executive directors and senior management of the group. The committee is also responsible for establishing the policy for, and operation of, the group s share incentive scheme. This committee is satisfi ed that executive directors are remunerated in line with their responsibilities and performance, and in line with the market. Remuneration philosophy Basil Read s philosophy is to encourage sustainable long-term performance. The purpose of remuneration is to attract, retain, motivate and reward staff to achieve the group s objectives. Remuneration is reviewed at appropriate intervals to motivate staff to perform to a required standard and to retain their services by offering and maintaining at least market-related remuneration in line with their performance and outputs for particular jobs. Remuneration increases are granted for all staff annually in March, considering individual performance and output and appropriate market increases. Performance bonuses depend on the achievement of fi nancial and operational targets. Basil Read s performance bonuses Basil Read has an organisational bonus plan that offers short-term incentives to executives and management, based on group performance levels. A bonus pool will be created only if certain criteria/fi nancial standards are met, and its size is a function of productivity and improved performance in real terms. The executive directors and management are allocated bonuses from the organisational pool based on: divisional performance; and individual performance. The chief executive offi cer s performance is reviewed by the chairman and the board, together with the remuneration committee. The performances of other directors are reviewed by the chief executive offi cer and the chairman. Details on the remuneration of directors appear on page 42. Code of ethics The group s code of ethics requires employees to abide by the highest ethical principles and standards in all transactions and all interactions with stakeholders. Basil Read realises that its strength lies in its people, its capital and its reputation. Through the group s stringent procedural system, employees performance in relation to the company s ethics is monitored. Any reported breaches of this code are managed through the group s internal disciplinary procedure. The integrity of new employees is evaluated through careful screening and checking references from past employers. New employees receive an induction manual which highlights, inter alia, what is expected from them regarding corporate ethics and values. A summary of their experience is featured in a welcome notice published on notice boards at all sites and head office.
29 Financial statements The directors are responsible for preparing fi nancial statements which fairly present the state of affairs of the group at the end of each fi nancial period. For detailed commentary on the directors responsibilities, refer to page 38. The board ensures the consistent use of appropriate accounting policies, supported by reasonable and prudent judgements and estimates. Basil Read implemented International Financial Reporting Standards (IFRS) in terms of the Listings Requirements of the JSE Limited in 2005. The board recognises that it is responsible for compliance with IFRS and has prepared the fi nancial statements set out in the annual report accordingly. Auditing The primary responsibility of the group s external auditors is to express an opinion on whether fi nancial statements are fairly presented. The external auditors were also formally engaged by the board to perform other services on behalf of the group. Fees paid for these services are disclosed in note 3 to the fi nancial statements and include: Advice on various tax issues including transfer pricing, VAT and capital gains taxation. Factual fi ndings reports for tender documentation. The external independent auditors have also reviewed the non-fi nancial aspects of this annual report to ensure consistency with their knowledge of the business, particularly those aspects embodied in the King Report on Corporate Governance for South Africa 2002. They do not, however, express an opinion on these aspects. Unless otherwise stated, the non-fi nancial aspects of this annual report have not been subject to external validation. Company secretary and professional advice The company secretary is appointed by the board and duties include providing guidance to the directors of the group on their duties and ensuring awareness of all relevant legislation and statutory requirements. The company secretary s statement of compliance is set out on page 38 of the fi nancial statements. The company secretary is suitably qualifi ed and experienced and is responsible for, among others, the duties stipulated in section 268G of the Companies Act and for the certifi cate to be signed in terms of subsection (d). All directors have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are followed. All directors are entitled to seek independent professional advice about the affairs of the group at the group s expense. Internal control and risk management Financial risk management The board has established controls and procedures to provide a high standard, but not absolute assurance, on the accuracy and integrity of the group s fi nancial information. These controls are designed to safeguard, verify and maintain accountability of the group s assets and to detect and minimise fraud, liability and loss or unauthorised use. All joint ventures, associates and partnerships are subject to the same risk profi le procedure as any other project undertaken by the group. Operational risk management Basil Read takes its quality, safety and environmental policies extremely seriously, refl ected in the systems and procedures that govern its daily conduct. All controls and procedures are formalised in line with a comprehensive quality and safety management system, and certifi ed under the following accreditations: ISO 9001:2000 and OHSAS 18001:1999. The group s safety record on sites is testimony to the success of this aspect of its risk management. The group also believes that clear and distinct designation of responsibility and authority is essential.
30 Basil Read Annual Report 2006 CORPORATE GOVERNANCE (continued) The risk management process incorporates: clearly defi ned responsibilities incorporated into the system of corporate governance; clear communication of the group s philosophy, strategy, objectives and values to all employees; clear written policies and procedures; and the empowerment and incentivisation of staff according to the group s long-term objectives. No signifi cant internal control issues were identifi ed during the year. Going concern The board of directors confi rms that the group has adequate resources to continue to operate for the foreseeable future and will remain a going concern in the year ahead. Share dealings Basil Read operates two closed periods from 31 December and 30 June each year until the publication of its year-end and interim results, respectively. To ensure that dealings are not carried out at a time when other price sensitive information may be known, directors and named offi cers must at all times obtain permission from the chairman before dealing in the shares of the company at any time. Dealings in company shares by directors and named offi cers are, as required, disclosed to the JSE and published on SENS. Share incentive scheme A share incentive scheme for employees and directors was launched in 2002. After the balance sheet date, the company issued a further 2 058 600 shares to the Basil Read Share Incentive Trust. Stakeholders The directors recognise the importance of strong relationships with all the group s stakeholders, whose needs are balanced against the group s accountability to its shareholders. The group subscribes to a policy of open and timeous communication in accordance with the JSE Listings Requirements. Corporate responsibility Basil Read is committed to being a responsible corporate citizen in the communities and environment in which it operates. It has a commitment to maintain positive relationships with all stakeholders, the wellbeing of the environment and uphold universal human rights. Basil Read realises that its continued success is not just a factor of economic performance, but also relates to its investment in corporate, social and environmental sustainability initiatives. Further details are included in our inaugural sustainable development report on page 31, which we intend to expand incrementally to comply with international reporting standards in this fi eld.
31 The Basil Read group acknowledges and accepts its corporate social responsibility, extending its contribution from building the roads, bridges and dams that underpin the economic fabric of our society to enhancing the quality of life of people we employ and those touched by our operations. Building on the family values that have guided our group since inception 54 years ago, we are adopting the triple bottom-line approach to reporting to our stakeholders by integrating our economic, social and environmental performance in our annual report. In doing so, we are guided by the recommendations of King II, the Global Reporting Initiative and the Global Compact. In many areas of the triple bottom-line approach, we have already made significant progress, particularly in creating an equitable working environment for our people and in developing their full potential. In others, such as standardising our data-collection processes across the group for meaningful analyses of our environmental management, we still have some way to go. Beyond complying with relevant legislation, as a group we are committed to playing a role in South Africa s transformation. This commitment will guide our corporate social investment initiatives as we embed sustainable development into every facet of our business. Our people The Basil Read group s human resources charter includes: being strategic proponents of change; recruiting the best talents and instilling a sense of loyalty; sharing network opportunities; and appreciating that people are our greatest asset. We fi rmly believe that the needs of our shareholders and management are best met when we also cater for the needs of our employees. The basis of the relationship between management and employees is embodied in our code of employment: Basil Read is a multiracial and non-discriminatory organisation; Basil Read creates and maintains equal opportunity for all its employees based on merit and skill; and Basil Read believes in the development of its people and will do whatever necessary to eradicate past inequalities in education and training and to maintain a balanced and highly skilled workforce. Career growth and advancement is based on merit and structures are in place to ensure equal and accelerated opportunities for all. Training and development Basil Read remains committed to the continuous development of all its employees. Diverse training of high quality is ensured by only contracting with accredited training providers. Our training programmes cover a broad range: management development learnerships foreman development adult basic education Employees are also encouraged to embark on further education and training with fi nancial support from the group through: further education and training college sponsorship group bursary scheme group study loan scheme Other means of developing the group s employees include mentorship programmes, on-site technical training and opportunities to gain experience through international exposure. Comprehensive training programmes for all mechanics and plant operators are closely monitored and proactively implemented to guarantee that Basil Read s plant team remains among the best in the fi eld. Recognising our responsibility to assist in developing the skills of employees from previously disadvantaged backgrounds, over 90% of the annual budget is spent on training and development for these individuals. Basil Read continues its Student Bursary Programme. During 2006, seven benefi ciaries were on the group s scheme, inclusive of historically disadvantaged individuals. The group also offers Technikon students the opportunity to do their practical year within the structure of the group and it is envisaged that Basil Read will partner with the Construction Education Training Authority (CETA) in offering these students a CETA bursary to assist them with their studies. A strong emphasis is being placed on assisting historically disadvantaged students with their careers and these students will continue their careers in Basil Read, upon the completion of their studies. SUSTAINABLE DEVELOPMENT