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Reviewed Preliminary Group Results and withdrawal of cautionary
ERBACON INVESTMENT HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2007/014490/06)
JSE code: ERB ISIN: ZAE000111571
("Erbacon" or "the Company" or "the Group")
REVIEWED PRELIMINARY GROUP RESULTS
FOR THE YEAR ENDED 28 FEBRUARY 2013 AND WITHDRAWAL OF CAUTIONARY
PROFILE
Erbacon, a 52% black-owned business, provides heavy civil engineering construction and building services. Core activities
include construction and repair of complex reinforced concrete structures, roads and bulk earthworks, and the installation
of bulk township services.
OVERVIEW OF THE YEAR TO 28 FEBRUARY 2013
During the year under review the Group enjoyed a successful first six months, however, in the second six months delayed
contract awards reduced profitability in the Civils Construction business (Civcon) as people-holding costs were incurred
while contract difficulties in the Commercial and Industrial Buildings business (Armstrong) ultimately resulted in its closure
in early February 2013.
The Group's total loss and comprehensive loss to owners of the parent, in terms of IFRS requirements, has been materially
negatively impacted by non-recurring and non-cash finance charges relating to the recapitalisation of the Group in calendar
year 2012. In addition, goodwill and deferred tax asset balances have been fully impaired or written off.
The table below reflects the Group's results, excluding certain non-cash charges (employee share charges, non-recurring
finance charges and tax) from continuing operations:
12 months to 12 months to
28 February 29 February
2013 2012
Rm Rm
Revenue 758 869
Operating profit/(loss) before non-trading items and depreciation 4,3 (76)
Net bank finance income/(charges) (1) (2)
Profit/(loss) excluding certain non-cash charges 3,3 (78)
The Group retains a material cash-tax shield as a result of historical losses incurred. Deferred tax assets have been
reversed until the Group returns to sustainable profitability. The tax charge for the period under review resulted from the
reversal, on recapitalisation of the Group, of the preference share-related deferred tax liability.
A recapitalisation of the Group's balance sheet was implemented during the year under review. The key features resulting
from the recapitalisation are:
- The conversion to ordinary equity of the R113 million convertible, redeemable, participating preference shares;
- The raising of a further R26 million from shareholders and the subsequent conversion of R101 million of interest-bearing
debt to equity;
- A resultant increase in the number of issued ordinary shares to 732 million (2012: 195 million); and
- Direct Black ownership now stands at 52% of the ordinary equity of the Group.
The Group held cash balances of R20 million (2012: R17 million). Interest-bearing liabilities consisted of a R27 million
overdraft (2012: R27 million), R5 million (2012: R12 million) of asset-based financing and a loan of R16 million from
contract guarantee providers resulting from the closure of Armstrong.
OPERATIONAL REVIEW
During the previous financial year ended 29 February 2012, the Group incurred a material loss from the impairment and
subsequent disposal of its external plant hire business.
The Corporate Office, which provides services to the operations, incurred substantial costs in recapitalising the business
and managing the closure of the Commercial and Industrial Building business. Further costs were thereafter incurred in
materially downsizing the cost structure of the Corporate Office.
Civil Construction (CIVCON)
The division produced sound profitability from most contracts entered into over the past eighteen months. Several
commercial claims were satisfactorily resolved during the period under review, however these upsides were negated
by costs on holding resources while awaiting the award of new contracts as well as on completion costs on contracts
entered into some years ago. Poor trading conditions encountered by mining and resources clients has led to substantially
reduced activity in that sector, while activity from government institutions continues to improve. The businesses performance
over the past few years has resulted in the decision to impair its goodwill.
Commercial and Industrial Building (ARMSTRONG)
Material forecast contract losses resulted in the decision to close Armstrong in early February 2013. By the end of
February 2013, losses of R25 million had been incurred while a provision for further losses of R39 million has been made.
The Group's contract guarantee providers have agreed to fund certain payments which total the majority of the amount
provided. In addition, the R52 million of goodwill associated with Armstrong has been fully impaired. No further costs are
anticipated to be incurred although there remains approximately R8 million of contingent liabilities in respect of outstanding
contract guarantees that need to be returned by clients on completed contracts.
DIVIDEND
For the foreseeable future the Board intends to allocate available cash resources to the growth of the Group, consequently
no dividend has been declared for the year ended 28 February 2013.
PROSPECTS
The imperative for the government to renew and deliver infrastructure should result in an improvement of trading conditions,
however, it is noted that conditions in the mining sector remain subdued.
POST-BALANCE SHEET EVENTS AND GOING CONCERN
The annual financial statements have been prepared on the basis of accounting policies applicable to a going concern.
The Group's bankers and contract guarantee providers continue to provide support. As notified to shareholders on
28 March 2013, the Group received R26,8 million of interest-bearing loan assistance from the Group's majority shareholder
post year-end. Shareholders were also advised that the Company has agreed to propose a rights offer to raise no less than
R55 million at an issue price of 2 cents per share. The Group has embarked upon a restructuring of the Civcon business
to reduce its medium-term overhead costs. The directors note that the Group is dependent upon the timeous receipt of
amounts due for work done and the continued support of its shareholders, bankers, guarantee providers and suppliers in
order to remain a going concern.
WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcements dated 28 March 2013 and are advised that the rights offer is
currently on hold, but may be pursued later in the calendar year.
DIRECTORATE
Mr Rob Braithwaite resigned as an executive director on 2 April 2012. Mr Johan Holtzhausen and his alternate,
Mr Nico de Waal, resigned as non-executive director and alternate non-executive director, respectively, of the Company,
on 1 September 2012. Ms Samara Totaram resigned as a non-executive director on 3 October 2012. Mr Charles Ramsay
resigned as an executive director on 8 February 2013. Mr Lex Henning retired as an executive director on 20 February 2013.
Mr Sean Flanagan resigned as an executive director on 20 March 2013. Mr A Dawson retired as Chairman and independent
non-executive director as well as Chairperson of the Remuneration Committee and member of the Audit Committee on
25 April 2013. The Board thanks each of them for their service to the Group.
Mr Andrew Langham was appointed as an executive director on 3 April 2012. Mr Neill Davies was appointed on an interim
basis as an independent non-executive director on 16 May 2012 until the AGM on 31 July 2012 and re-appointed on
3 October 2012. Mr Ralph Patmore was appointed as an independent non-executive director on 11 December 2012.
Mr Martin Lombard was been appointed as Chairman and independent non-executive director on 26 April 2013.
AUDITORS REVIEW REPORT
The financial results have been reviewed by the Group's external auditors, PricewaterhouseCoopers Inc. The auditors
have only qualified their review opinion in respect of the results of Armstrong which are included in the Group's results as
a "discontinued operation", but have not been reviewed by the auditors as a result of the winding-up of that business.
In addition, the auditors' review report includes an emphasis of matter paragraph relating to the Group's reliance upon
the timeous receipt of amounts due for work done and the continued support of its shareholders, bankers, guarantee
providers and suppliers in order to remain a going concern. A copy of their report is available for inspection at the
Company's registered office.
For and on behalf of the Board
A Dawson M Lombard AR Langham
Chairman (retiring) Chairman (in-coming) Director
Midrand
24 May 2013
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 28 February 2013 Reviewed Audited
Year-end Year-end
28 February 29 February
Figures in Rand thousands 2013 2012*
Revenue from continuing operations 757 926 868 988
Operating profit/(loss) before non-trading items and
depreciation from continuing operations 4 333 (75 543)
Share-based payment expense (3 826) (790)
Goodwill impairment (75 812)
Depreciation and amortisation (17 090) (29 763)
Operating loss from continuing operations (92 395) (106 096)
Finance income 446 1 033
Finance costs (45 490) (18 764)
Banks (1 314) (2 493)
Preference share interest (5 988) (10 502)
Loss on early conversion of preference shares (31 859)
Shareholder loans (6 329) (5 769)
Loss before taxation from continuing operations (137 439) (123 827)
Taxation (13 872) 16 985
Total loss and comprehensive loss for the year
from continuing operations (151 311) (106 842)
Total loss and comprehensive loss for the year
from discontinued operations (121 427) (82 208)
Total loss and comprehensive loss for the year (272 738) (189 050)
Total loss and comprehensive loss
for the year attributable to:
Owners of the parent (272 738) (179 009)
Non-controlling interests (10 041)
(272 738) (189 050)
* Reclassified as a result of discontinued operations.
Headline loss reconciliation
Loss attributable to owners of the parent (272 738) (179 009)
Losses on assets included in discontinued operations 42 179
Profit on disposal of plant and equipment (1 240) (440)
Impairment of goodwill on continuing operations 75 812
Net loss on deconsolidation of discontinued operation 62 391
Headline loss (135 775) (137 270)
Basic loss and diluted loss per share (cents) (58) (92)
From continuing operations (32) (54)
From discontinued operations (26) (38)
Headline loss and diluted headline loss
per share (cents)
Basic headline loss and diluted headline loss
per ordinary share (29) (71)
From continuing operations (16) (51)
From discontinued operations (13) (20)
Total number of shares in issue less treasury shares ('000) 730 818 193 848
Weighted average number of shares in issue ('000) 467 482 193 848
Diluted weighted average number of shares
in issue ('000) 467 482 261 258
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 28 February 2013 Reviewed Audited
28 February 29 February
Figures in Rand thousands 2013 2012
ASSETS
Non-current assets
Property, plant and equipment** 48 940 76 575
Intangible assets 169 129 425
Deferred income tax assets 26 899
49 109 232 899
Current assets
Inventories 796 3 118
Trade and other receivables*** 206 002 293 882
Cash and cash equivalents 20 072 17 610
Income tax receivables 3 817
226 870 318 427
TOTAL ASSETS 275 979 551 326
EQUITY AND LIABILITIES
Equity attributable to owners of the parent 37 863 95 131
Ordinary equity related 37 863 66 896
Preference share related* 28 235
TOTAL EQUITY 37 863 95 131
Liabilities
Non-current liabilities
Preference share related* 74 033
Asset finance 187 4 868
Deferred income tax liabilities 109 11 365
Preference share related* 10 980
Related to other timing differences 109 385
296 90 266
Current liabilities
Borrowings 47 799 103 098
Shareholder loans 68 769
Bank overdraft 27 351 27 022
Short-term loan 15 708
Asset finance 4 740 7 307
Trade and other payables 190 021 262 831
237 820 365 929
TOTAL LIABILITIES 238 116 456 195
TOTAL EQUITY AND LIABILITIES 275 979 551 326
Total number of shares in issue (net of treasury shares
and including contingently issuable shares) ('000) 730 818 193 848
Net asset value per ordinary equity share (cents) 5 35
* Preference share subscription/redemption value 113 248
** Property, plant and equipment has been ceded to the Group's contract guarantee provider.
*** Trade and other receivables have been ceded to the Group's bankers as security for general banking facilities.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 28 February 2013 Reviewed Audited
28 February 29 February
Figures in Rand thousands 2013 2012
Cash receipts from customers 1 343 376 1 102 020
Cash paid to customers, suppliers and employees (1 380 215) (1 184 429)
Cash used by operations (36 839) (82 409)
Finance income 446 1 159
Finance cost (1 431) (3 739)
Tax received 3 817 4 384
Net cash outflow from operating activities (34 007) (80 605)
Acquisition of property, plant and equipment (6 792) (4 836)
Proceeds on disposal of property, plant and equipment 6 611 3 671
Proceeds from sale of subsidiary less cash sold 9 338
Acquisition of plant for hire (191)
Proceeds on disposal of plant for hire 1 151
Net cash (outflow)/inflow from investing activities (181) 9 133
Proceeds from shareholder loans 25 500 63 000
Proceeds from rights issue 992
Capitalised costs of debt restructure plan (2 209)
Proceeds from short-term loan 15 708
Proceeds from/(repayments of) asset finance (3 670) (14 642)
Net cash inflow from financing activities 36 321 48 358
Net increase/(decrease) in cash and cash equivalents 2 133 (23 114)
Cash and cash equivalents at the beginning of the year (9 412) 13 702
Cash and cash equivalents and bank overdrafts
at the end of the year (7 279) (9 412)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation
The condensed consolidated financial information for the period ended 28 February 2013 has been prepared in
accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), the
presentation and disclosure requirements of IAS 34: Interim Financial Reporting, SAICA financial reporting guides
as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council, the JSE Listings Requirements and as per the requirements of the South African Companies Act,
2008, as amended, on a basis consistent with the prior year.
The preparation of these financial results was done under the supervision of the Group Financial Director,
Andrew Langham CA(SA).
Any references to the future financial performance have not been reviewed or reported on by the Company's auditors.
2 Discontinued operations
Discontinued operations in the current year relate to the closure of Armstrong Building Contractors (Pty) Limited. The
Company was wound-up by way of a special resolution registered on 14 February 2013. The prior year figures have
been restated to include Armstrong Building Contractors (Pty) Limited.
Discontinued operations in the prior year relate to the disposal of Erbacon Small Plant (Pty) Limited. The sale of the
business was effected in February 2012.
Group Group
Figures in Rand thousands 2013 2013
Loss of discontinued operation for the period
Revenue 497 570 287 157
Expenses (554 451) (312 267)
Loss before tax of discontinued operations (56 881) (25 110)
Tax (2 155) 7 375
Loss after tax of discontinued operations (59 036) (17 735)
Pre-tax loss recognised on the liquidation of Armstrong Building
Contractors Proprietary Limited (62 391)
Pre-tax loss recognised on the remeasurement of assets
of the disposal groups (64 473)
Tax
After tax loss recognised on the remeasurement of assets
of the disposal group (62 391) (64 473)
Total loss from discontinued operations (121 427) (82 208)
GROUP SEGMENTAL REPORT
The segment information set out below is based on the requirements of IFRS 8: Segment Reporting. The executive committee has determined the operating segments based on the reports that are used to make strategic decisions. The executive
committee assesses the performance of the operating segments based on a measure of operating profit or loss. This measurement is consistent with the recognition and measurement principles applied within the statement of comprehensive income.
Sales amongst segments are carried out at arm's length. The revenue from external customers reported to the executive committee is measured in a manner consistent with that in the statement of comprehensive income.
Civil Construction Corporate Office Total continuing operations Discontinued operations Total Group
Restated
February February February February February February February February February February
Figures in Rand thousands 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Segment revenue and result
Revenue
Total external revenue 757 926 868 988 757 926 868 988 497 570 287 157 1 255 496 1 156 145
Result
Operating profit/(loss) before non-trading items
and depreciation 24 338 (54 402) (20 005) (21 141) 4 333 (75 543) (64 458) (79 353) (60 125) (154 896)
Share-based payment expense (3 826) (790) (3 826) (790) (3 826) (790)
Goodwill impairment (75 812) (75 812) (52 822) (128 634)
Depreciation and amortisation (17 074) (29 741) (16) (22) (17 090) (29 763) (1 992) (9 109) (19 082) (38 872)
Operating loss (68 548) (84 143) (23 847) (21 953) (92 395) (106 096) (119 272) (88 462) (211 667) (194 558)
Segment assets and liabilities
Assets 243 396 434 861 32 583 508 275 979 435 369 115 957 275 979 551 326
Liabilities (140 718) (225 911) (97 398) (184 073) (238 116) (409 984) (46 211) (238 116) (456 195)
Intangibles
Net asset/(liability) 102 678 208 950 (64 815) (183 565) 37 863 25 385 69 746 37 863 95 131
Other information
Property, plant and equipment additions 2 834 2 439 2 834 2 439 3 958 2 043 6 792 4 482
Property, plant and equipment disposals (4 578) (1 376) (4 578) (1 376) (310) (1 579) (4 888) (2 955)
Plant for hire intra-group transfers 14 012 14 012 (14 012)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 28 February 2013 Total share Share-based Common Shares Non-
capital and payments control to be Retained controlling Total
Figures in Rand thousands premium reserve deficit issued earnings Total interests equity
Balance at 28 February 2011 427 923 2 884 (177 246) 2 075 20 750 276 386 (1 864) 274 522
Total loss and comprehensive expense for the year (179 009) (179 009) (10 040) (189 049)
Issue of shares acquisition of subsidiary 2 075 (2 075)
Value of employee services 790 790 790
Release of share-based payment reserve (2 504) 2 504
Transfer of common control deficit 177 246 (177 246)
Non-controlling interests gain on loan forgiveness by owners of the parent (3 236) (3 236) 3 236
Non-controlling interests share of losses recognised 200 200 (200)
Sale of businesses 8 868 8 868
Balance at 29 February 2012 429 998 1 170 (336 037) 95 131 95 131
Total loss and comprehensive expense for the year (272 738) (272 738) (272 738)
Rights issue and recapitalisation of shareholder funding 100 598 100 598 100 598
Rights issue for cash 992 992 992
Preference share conversion 112 263 112 263 112 263
Transfer of net earnings effect of historic preference share liability interest 7 648 (7 648)
Share issue expenses (2 209) (2 209) (2 209)
Value of employee services 3 826 3 826 3 826
Balance at 28 February 2013 649 290 4 996 (616 423) 37 863 37 863
Directors:
A Dawson (retiring Chairman)#, M Lombard (incoming Chairman)#
AR Langham, CJB Vermaak, ZR Angamia*
NO Davies#, NP Mkwanazi*, R Patmore#
*Non-executive #Independent non-executive
Company Secretary:
AR Langham (interim)
Registered office:
Block 3 Unit 6, The Willows Office Park
276 George Road, Erand Gardens, Midrand, 1685
Telephone:+27 11 206 9660
Auditor:
PricewaterhouseCoopers Inc.
Designated and Corporate Advisor:
PSG Capital (Pty) Limited
Website: http://www.erbacon.co.za
Date: 24/05/2013 09:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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