Strategic objectives Global expansion Larger, technically challenging projects Public-private partnerships (PPPs)
		WE HAVE AN ORDER BOOK THAT WILL LEAD US THROUGH TO 2011

The year to 31 December 2009 entered the world’s economic history books before it was halfway through. Our strategy of maximising organic growth and incorporating acquisitive growth proved a wise one. Despite the challenges of 2009, which have come thick and fast, Basil Read delivered a sterling performance for the review period. Importantly, we have an order book that will lead us through to 2011.

We have worked diligently from our precarious position in the market in 2004 to become a leading construction company in South Africa with a truly solid status in five years. We have often stated that our aim was not to be the biggest construction group in the country but one of the best and this is definitely now a goal we are nearing. Accepting larger, more technically challenging projects is one part of our three-pronged strategy and we have amply demonstrated our ability this year with projects such as the D1 and D2 road rehabilitation and improvement projects that form part of the Gauteng Freeway Improvement Project and the successful completion of the 2010 FIFA World Cup Mbombela Stadium. These milestones in our group are showcased earlier in the report.

In realising the second prong of our strategy, our international prospects are on track and senior executives spent much time abroad establishing operations for the group. Our approach to moving beyond southern Africa is, at all times, prudent and focused on markets where we can replicate our business model. Our hard work in this area recently paid off as the roads division was awarded its first cross-border contract in a number of years. The contract, in Namibia, with a total contract value of R400 million, will be executed in joint venture with a local partner, Genesis Mining and Engineering.

We have made significant strides in our endeavours to fulfil the third element of our strategy – developing public-private partnerships. The group has put together a committed team of competent professionals whose sole responsibility is compiling bids for the many projects on offer. We see this type of project becoming more commonplace in the local economy as the government grapples with budgetary constraints. Although the group has tendered on a number of significant public-sector projects, we await government’s final decision on our tenders.

On the positive side, we successfully negotiated and finalised transactions with the Gerolemou/Mvela group and TWP (see section on strategic growth below). These are significant achievements considering the time and deliberation involved with such a process. We welcome both companies to the Basil Read fold and trust that this will enhance both the construction solutions we offer and our reputation as a leading construction company with specialised capabilities.

Highlights

• The chairman has noted Basil Read’s achievement in heading the annual Sunday Times Business Times Top 100 Companies survey for two consecutive years. We are one of only three companies to do so in the past 15 years, and one of nine in the last 33 years. Coming towards the end of an extremely difficult period, this recognition was a welcome reward for our people. More importantly, it is also an apt measure of our ability to sustain this performance for the next five years.
• I would also like to congratulate Basil Read’s roads division on the successful completion of our first Gauteng Freeway Improvement Project contract at Atterbury. This project was technically challenging and, despite difficult circumstances, the team delivered an outstanding performance, notable for its professional execution.
• 2010 brings the single greatest sporting event in South Africa’s recent history to our shores. As we welcome football fans from all over the world, it will be a proud moment for Basil Read, knowing that we played a significant role in the success of the FIFA 2010 World Cup.The successful completion of the Mbombela Stadium has undoubtedly been one of the greatest highlights for our group and I thank all those involved.
• All employees who were offered share options in Basil Read accepted the offer and are future shareholders of the group. This is an important vote of confidence in our future, and our ability to develop people to their fullest potential.

Performance review

Strategic growth

Basil Read’s goal was to become a R5 billion plus group by 2010. With that goal firmly in sight, we have set a new target of becoming a global construction group with R10 billion in turnover by 2013.

Reaching this target will be aided by our well established relationships with international partners. These partnerships have served us well by limiting our risk exposure on larger, technically challenging projects while expanding our knowledge and skills, particularly in international standards and construction trends. One of these trends is increasing acceptance of the ‘design-construct-finance’ model that gives the client a complete service offering, from design to implementation.

A common misperception about the Basil Read group is that our progress in the past five years has been predominantly through acquisition. The opposite is true; since 2004 60% of our growth has been organic as we worked to create a strong balance sheet and build critical mass. However, acquisitions have played a role in this growth and we have demonstrated our ability to identify and extract synergies. Starting with small transactions (some R10 million) five years ago, our intention with acquisitions has consistently been to strengthen the group, enter complementary strategic markets and broaden the pool of management expertise.

In July 2007, we successfully completed the acquisition of the Blasting & Excavating (B&E) group. One of the leading drilling and blasting service providers in South Africa, the company has been extremely complementary to our mining division. Frans van Wyk, previously the managing director of B&E, was appointed as executive director of the Basil Read mining division and has done an excellent job of growing the division, with an order book of R1,4 billion.

In September 2008, we welcomed Roadcrete Africa into the Basil Read fold. Roadcrete Africa has proved an extremely valuable addition to the group and an undisputed asset to our roads and civils divisions. Martin Lombard, previous managing director of Roadcrete Africa, took charge of the Basil Read roads division and has more recently been appointed as deputy chief executive officer.

During the year, we completed two acquisitions, detailed below, for some R530 million in cash plus the issue of 37 million Basil Read shares. Together, these add R2,1 billion to the group’s order book at 31 December 2009.

Gerolemou/Mvela group

Following approval from the competition authorities in August 2009, Basil Read shareholders approved the acquisition of the Gerolemou/Mvela group for R351,5 million. Some R225 million of the purchase price was funded through the group’s domestic medium term note programme, with the balance due on fulfilment of warranted performance levels in 2010 and 2011.

This acquisition will strengthen Basil Read’s buildings division and enable the enlarged group to aggressively pursue the many building opportunities currently on offer as public-private partnerships (PPP).The PPP model encompasses the design, construction and financing of major projects, which Basil Read has identified as a key growth area. The capacity and management skills acquired will allow us to undertake these larger, more technically challenging projects.

The Gerolemou/Mvela group, which has been in business for 28 years, operates from headquarters in Pretoria and encompasses all facets of the building industry. With a team of 90 permanent staff members, the Gerolemou/Mvela group has valuable experience in constructing hospitals and prisons. It is an established service provider to the South African government, and therefore well placed to participate in government’s stated intention to improve and roll out new infrastructure projects. At March 2009, the Gerolemou/Mvela group had an order book of R1,5 billion to December 2010. This is a cash-generative group with limited borrowings.

TWP Holdings Limited

Founded in 1982 and listed on the JSE’s main board in November 2007, TWP’s core business is engineering design, procurement and construction management, typically referred to as EPCM. TWP also accepts lump-sum turnkey projects. Although TWP is not a construction company in the true sense of the word, it employs these skills directly or on behalf of clients when necessary.

TWP provides a wide spectrum of services including resource identification, bankable feasibility studies, mine and production planning, process engineering, project execution, delivery and handover. TWP is involved in projects for most minerals including platinum, gold, diamonds, nickel, copper, chrome, cobalt and coal.

• Public-private partnerships (PPPs) where funding is often part of the offering
• Build, own, operate and transfer (BOOT)
• Engineer, procure, construct (EPC)
• Plant, process and mine operation.

The enlarged group will have skills across the entire construction and design spectrum, facilitating the growth of professionals across all disciplines and contributing significantly to the advancement of engineering and construction in general. TWP’s significant exposure to African and Australasian markets will be leveraged and costs reduced across the enlarged group by exploiting areas of synergy.

International

The primary intention of Basil Read’s unfolding global strategy remains lessening the risk of geographic concentration. The events of 2009 underlined the importance of such diversification. While the group has not yet made an international acquisition, the TWP transaction will enable us to build a parallel business to Basil Read’s core activities, providing an important balance between business cycles.

Backed by a solid understanding of the type of growth we believe will be in our group’s best interests, we have also made excellent progress in securing work beyond South Africa; contracts worth R1,0 billion have been awarded in Botswana and Namibia.

Given the subdued outlook for global growth, we continue to pursue this strategy with due prudence and to mitigate risk by working with established international partners.

People

Basil Read’s base of skills is unquestionably a key strength. Despite the widespread shortage of talent in the industry, our group’s successful recruitment strategy has enabled us to meet current operational requirements while creating capacity for the challenging targets ahead. We have also increased our focus on bursaries, particularly in disciplines such as quantity surveying, civil engineering, foreman training and initiatives to attract more black women to our industry.

As noted earlier, a key consideration in identifying possible acquisitions is the calibre of management in the target company. To date, this has been a singularly successful approach with the former managing directors of the Blasting & Excavating group, Roadcrete, and now the Gerolemou/Mvela group, heading key Basil Read divisions.

Strengthening management resources

While the Basil Read group is financially stable, during the year we made a number of operational changes to ensure the group continues to prosper. In strengthening the management team to steer the company through its next phase of growth and consolidation, we underscore our growth targets and reinforce our commitment to make Basil Read a truly global construction group.

The business was restructured along operational lines with strong leadership, clear responsibilities and accountability in each division. Each divisional managing director now assumes responsibility for all facets of the business – from tendering to completion, backed by a divisional executive director who assists with overall strategic management and guidance.

In addition, drawing on the considerable pool of expertise within the enlarged group, we expanded resources at senior management level to ensure the group achieves its strategic objectives.

Outlook

Basil Read continues to actively pursue growth, both organic and acquisitive, to build a company of critical mass for shareholders. Despite these uncertain economic times the trend of development, particularly in sub-Saharan Africa, is expected to resume in the near future, even if the growth trajectory is flatter.

Although government has committed to continued infrastructural spend, a definite delay in rolling out projects is evident. Budgetary constraints in certain municipal areas create opportunities for the group to partner with municipalities in developing innovative solutions to finance future projects, particularly for our developments division.

The public-private partnership model continues to evolve and remains a feasible method of undertaking larger contracts. Given our long-standing and robust partnerships with international construction conglomerates and turnkey contractors, such as Bouygues, Sodexo and Alstom, we are well placed to bid on projects of this nature. Various PPP projects are in the pipeline, including government office blocks, mixed classification correctional centres and toll roads. Basil Read has pre-qualified for a number of these and submitted bids, in joint venture, where applicable. The combined construction value for the group’s targeted PPPs is over R15 billion.

We expect significant water-supply projects to be offered for tender in the next few years. Some R30 billion worth of work is anticipated, specifically to supply water to power plants under construction. The government has also committed to upgrading water treatment and waste-water treatment plants to create much-needed capacity.

Internationally, the group is building a presence in the rest of Africa, in partnership with selected local contractors. Expansionary opportunities are also being explored elsewhere, particularly in the Middle East and Australia, where Basil Read has held discussions with local partners with established reputations in their respective construction industries. Opportunities for acquisition will continue to be cautiously explored.

On the back of a healthy balance sheet and effective management structure, Basil Read will adopt a prudent approach to managing the prevailing volatility to ensure the group continues to grow in a controlled and structured way.

Appreciation

While 2009 has been a challenging year, this was not the first time Basil Read has faced challenges. Whilst each year has presented its own obstacles the group has thrived and become even stronger. Each year still brings its own highlights, with some contracts just beginning while others near completion.

The unparalleled success that the group has experienced in recent years would not have been possible without the support and guidance of our senior executive team. Their commitment to Basil Read coupled with their passion and vision will continue to serve the group well as we look to the future.

To our staff, your continuous commitment and passion have contributed to these incredible achievements – milestones that are entrenching Basil Read among the leading construction companies in South Africa – and I thank every one of you for your role.

Lester Peteni, appointed as independent non-executive chairman in May 2009, has shown a level of diligence and involvement that bodes extremely well for his tenure at the helm of our board and at this important stage of our development. On behalf of my fellow executives, I also thank the other members of our board for their ongoing support and counsel.

We value our strong relationships with a range of suppliers and stakeholders in both the public and private sectors. We will continue to strengthen these bonds as we work towards common goals.

Marius Heyns

Chief executive officer