Wrap Text
ESR - Esorfranki Limited - Audited summarised consolidated annual financial
statements for the year ended 28 February 2011
ESORFRANKI LIMITED
(Registration number: 1994/000732/06)
Incorporated in the Republic of South Africa
(JSE Code: ESR ISIN: ZAE000133369)
("Esorfranki" or "the company" or "the group")
AUDITED SUMMARISED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28 FEBRUARY 2011
KEY FINANCIAL FEATURES
HEADLINE LOSS 118,6% down to R37,9 million
REVENUE 26,5% down to R1,366 billion
EBITDA 87,4% down to R49,1 million
ORDER BOOK R1,456 billion (2010: R1 573 billion)
MARKET CAPITALISATION AT YEAR-END R543 million (2010: R864 million)
CLOSING SHARE PRICE AT YEAR-END 180 cents per share (2010: 286 cents per share)
COMMENTARY
The audited summarised consolidated results of Esorfranki for the year ended 28
February 2011 ("the year") reflect a struggling construction sector which
continued to depress group revenue and pressure margins. Esorfranki`s weak
performance was further impacted by substantial losses incurred on problem
contracts and unusually inclement weather which hampered project progression.
Post year-end the group structure was streamlined for greater cost-efficiency
and resilience in the prevailing economic conditions. This saw the
divisionalisation of operations and their amalgamation into a single operating
company effective from 1 March 2011. All group businesses are now housed under
the re-branded company Esorfranki Construction (Pty) Limited, consolidating and
strengthening the Esorfranki brand in the market. Esorfranki Geotechnical,
Esorfranki Civils and Esorfranki Pipelines are therefore divisions of Esorfranki
Construction ("the restructuring"). Most operations are now located centrally at
Esorfranki`s Germiston Head Office, which was extended during the year.
Esorfranki`s work in hand and future pipeline remain healthy, with a secured
order book in excess of R1,9 billion at the date of this announcement, and
awarded work imminently pending of approximately R1,2 billion.
Financial results
Consolidated revenue has reduced to R1,366 billion from R1,858 billion in the
previous year. Earnings before interest, depreciation, impairments, amortisation
and taxation ("EBITDA") has fallen by 87,4% to R49,1 million from R389,1
million. Headline earnings per share ("HEPS") also declined by 118,1% to a loss
of 12,9 cents per share. Net asset value (NAV) per share was down 13,3% to
238,86 cents from 275,63 cents based on the number of shares in issue at
year-end, net of treasury shares.
The group incurred once-off restructuring costs of approximately R7 million and
contract losses for the year of approximately R90 million.
Review of operations
Generally the limping construction market was characterised by increasing
contract award delays, postponements and cancellations and curtailed tendering
activity - all exacerbated by the post 2010 Soccer World Cup hiatus - protracted
payment delays and at Government level, administrative bottlenecks. In Africa,
liquidity constraints also continued to hamper the release to market of new
contracts and progress on existing contracts underway.
As a result of tightened competition and margin squeeze, all of the group`s
divisions under-recovered on overheads. All expected losses have been recognised
as determined by reference to the latest estimates of contract revenue, costs
and contract outcome.
Esorfranki Geotechnical: Revenue was stabilised during the year at R706,7
million, albeit 25% lower than the R944,9 million for the previous year.
Operating profit dropped significantly from R164,1 million to R18,7 million.
Since year-end new contracts have been awarded including a R40 million piling
contract for the Kalagadi Manganese Project and a R17 million Odex-piling
contract on the K71/R55 road project, which are already underway. Piling work
worth R30 million remains at Kusile. The redeployment of available capacity into
sub-Saharan Africa to service fast-growing regions will be a priority in this
division.
Esorfranki Civils: The division curtailed the reduction in revenue to 27%, from
R715 million in the previous year to R518,8 million. However, more than 50%
under-utilisation of available capacity pressured costs, and contributed to an
operating loss of R3,1 million (2010: operating profit R144,5 million).
Competition in the civils industry is expected to remain extremely tough.
Notwithstanding this, the division`s recent contract awards include R200 million
work on the K71/R55 road, an R80 million contract for Road Agency Limpopo (RAL),
R310 million at Kusile and R330 million on the Bakwena N4 Toll Road. In addition
R200 million worth of ongoing and pending work in mining is in hand and a
cross-border project in Mozambique is expected to commence in August 2011.
Esorfranki Pipelines: Revenue declined to R169 million from R229,3 million with
an operating loss of R3,5 million compared to an operating profit of R31,1
million for the previous year. The division has a R264 million order book in
hand as at 28 February 2011, including a R60 million project on Phase III of
Mooihoek. In addition the BG3 contract started full production in April 2011.
Phase II of the Western Aqueduct for Ethekwini Water and Sanitation Services was
tendered for in February 2010, with the tender validity period extended no less
than five times. In December 2010 the group received a letter of intent, which
is now subject to an appeals process. A decision is expected shortly.
CAPEX
In line with its focus on strict financial discipline, Esorfranki`s CAPEX for
the year of R50,4 million was significantly lower than the R96 million expended
in the previous year. Esorfranki Civils accounted for the majority with CAPEX of
R18 million. The R12 million investment in Esorfranki Geotechnical followed a
major re-tooling in the previous years, with CAPEX forecasts in this division
remaining low and relating to maintenance only. An amount of R6 million was
spent at Esorfranki Pipelines. A further R14,2 million was spent on properties.
The board has authorised an anticipated CAPEX requirement of R278,3 million to
gear up for recently awarded and pending contracts.
Black Economic Empowerment
Esorfranki improved its rating to a `Level 4` contributor (from `Level 5`) in
terms of the Department of Trade & Industry`s B-BBEE Codes of Good Practice.
This is a critical differentiator in an environment dependent on Government
infrastructure spend and defined by intense price competition.
Notwithstanding the strengthening of its B-BBEE platform, Esorfranki remains
focused on continually reviewing and enhancing all areas of scorecarding.
Incorporating retail shareholders on the open market, direct black ownership
scored at 29,64% (2010: 29,07%), of which 4,55% (2010: 5,87%) comprised Black
female equity participation. Included in this is the 4,4% stake in the company
held by Black staff through the Esor Broad Based Share Ownership Scheme.
More than 83% of the group`s 3 184 strong workforce is Black and emphasis is
placed on skills training and development to accelerate promotion into middle
and senior management.
Competition Commission update
As previously announced Esorfranki was named in July 2009 by the Competition
Commission in an investigation into alleged anti-competitive behaviour in the
piling and drilling industry. The allegations related to transgressions by
Franki Africa prior to that company`s acquisition by the group and by the then-
named Esor (Pty) Limited prior to listing.
Esorfranki has co-operated fully with the Competition Commission and is
committed to resolving the matter as soon as possible together with the
Commission. All developments will be communicated to shareholders in due
course.
Post year-end events
Rights offer
The rights offer announced in November 2010 was concluded post year-end in
March 2011, successfully raising R200 million for the group.
The fully underwritten rights offer comprised 93 million shares at a
subscription price of R2,15 each and was aimed at settling acquisition debt
and strengthening the statement of financial position.
This initiative facilitated the waiver of loan agreement covenants and the
favourable re-negotiation of facility requirements.
Prospects
With 3,5% GDP growth in South Africa anticipated in 2011, increasing to 4% in
2012, a gradual recovery in the economy is evident. Nonetheless market
conditions are expected to remain challenging in the short-term with a real
improvement only noticeable in 2012 and more strongly in 2013. Positively,
Esorfranki has concluded loss-making contracts and secured a number of
substantial new projects, which affirm the first signs of improving trading
conditions.
Although sub-Saharan Africa offered little respite for the group during the
year, high GDP growth targets in buoyant regions including Mozambique and Angola
bode well for future growth. Other regions such as Mauritius and Tanzania also
offer robust prospects and the group has secured a R35 million contract in
Mozambique and aR27 million contract in Tanzania. Esorfranki is further
targeting R200 million worth of work in Angola.
A key growth driver in sub-Saharan Africa is expected to be the increasing
demand for beneficiated resources. In addition the desperate need for
infrastructure development in power, water, transport and resources should
result in inevitable investment, especially given the South African
Government`s recently-reiterated commitment in this regard. Esorfranki is
well-positioned to take advantage of new projects coming to market.
Dividend declaration
The board has resolved not to declare a dividend in respect of this financial
year (2010: 15 cents per share). It remains the policy of the company to review
the dividend annually in light of solvency, liquidity, cash flow, gearing and
capital requirements.
Statement of compliance
The audited summarised consolidated results for the year have been prepared
in accordance with the recognition and the measurement requirements of
International Financial Reporting Standards, the presentation and disclosure
requirements of IAS 34: Interim Financial Reporting, the AC 500 standards and
the JSE Listings Requirements and in the manner required by the South African
Companies Act, 71 of 2008. The accounting policies applied in preparation of
the audited summarised consolidated annual financial statements are consistent
with those applied in the group`s audited consolidated annual financial
statements for the year ended 28 February 2010, which comply with International
Financial Reporting Standards.
Audit opinion
The auditors, KPMG Inc., have issued an unmodified audit opinion on the group`s
financial statements for the year ended 28 February 2011. The audit was
conducted in accordance with International Standards on Auditing. A copy of
their audit report is available for inspection at the company`s registered
office. These audited summarised annual financial statements have been derived
from the group audited annual financial statements and are consistent in all
material respects.
Annual general meeting
The annual general meeting of the company will be held at the company`s offices,
30 Activia Road, Activia Park, Germiston on 24 June 2011 at 10h00.
On behalf of the board.
Bernard Krone Wayne van Houten
Chief Executive Officer Chief Financial Officer
26 May 2011
Summarised consolidated statement of comprehensive income
2011 2010
R`000 R`000
Revenue 1 366 433 1 857 817
Cost of sales (1 204 988) (1 361 041)
Gross profit 161 445 496 776
Other income 3 654 3 937
Operating expenses (116 033) (111 661)
Profit before interest, tax, amortisation, 49 066 389 052
impairments and depreciation
Depreciation, impairments and amortisation (65 489) (83 478)
Results from operating activities (16 423) 305 574
Finance costs (54 371) (93 106)
Finance income 23 703 63 281
(Loss)/profit before income tax (47 091) 275 749
Income tax expense 6 330 (78 108)
(Loss)/profit after tax (40 761) 197 641
Other comprehensive income
Foreign currency translation differences for (21 333) (32 630)
foreign operations
Actuarial loss on post-retirement benefit (261) (28)
Income tax on translation differences 2 441 3 683
Other comprehensive loss for the period, net (19 153) (28 975)
of tax
Total comprehensive (loss)/income
attributable to:
Owners of the company (59 914) 168 666
Basic (loss)/earnings per share (cents) (13,9) 69,4
Diluted (loss)/earnings per share (cents) (13,8) 68,6
Headline (loss)/earnings per share (cents) (12,9) 71,3
Diluted headline (loss)/earnings per share (12,8) 70,5
(cents)
Reconciliation of headline (loss)/earnings
(Loss)/profit attributable to ordinary (40 761) 197 641
shareholders
Adjusted for:
Loss on disposal of property, plant and 4 609 5 396
equipment
Gain on disposal of subsidiary (3 654) -
Impairment of assets 2 032 -
Headline (loss)/earnings attributable to (37 774) 203 037
ordinary shareholders
Number of ordinary shares (`000)
in issue 302 162 302 162
diluted weighted average 294 555 288 038
weighted average 293 763 284 743
Summarised consolidated statement of financial position
2011 2010
R`000 R`000
ASSETS
Non-current assets 966 187 999 551
Property, plant and equipment 565 775 596 429
Intangible assets 90 117 93 737
Goodwill 305 715 305 715
Deferred tax assets 4 580 3 670
Current assets 498 164 648 273
Inventories 16 983 14 827
Other investments 420 6 762
Taxation 3 855 9 952
Trade and other receivables 413 768 499 869
Cash and cash equivalents 63 138 116 863
Total assets 1 464 351 1 647 824
EQUITY AND LIABILITIES
Share capital and reserves 703 156 808 028
Share capital and premium 389 449 396 956
Equity compensation reserve 14 444 8 253
Foreign currency translation reserve (33 188) (14 296)
Retained earnings 332 451 417 115
Non-current liabilities 195 562 405 711
Secured borrowings* 84 516 275 031
Post-retirement benefits 1 657 1 665
Deferred tax liabilities 109 389 129 015
Current liabilities 565 633 434 085
Current portion of secured borrowings* 241 527 121 677
Taxation 9 953 6 644
Provisions 3 213 21 087
Trade and other payables 310 940 284 677
Total equity and liabilities 1 464 351 1 647 824
Net asset value per share (cents) 238,9 275,6
Tangible net asset value per share (cents)** 142,1 177,5
*Interest-bearing debt
** (Net asset value less intangible assets, net of tax)/(shares in issue less
treasury shares)
Summarised consolidated statement of cash flows
2011 2010
R`000 R`000
Cash flows from operating activities 58 074 159 635
Cash receipts from customers 1 464 009 1 930 748
Cash paid to suppliers and employees (1 330 934) (1 572 090)
Cash generated from operations 133 074 358 658
Dividends paid (43 642) (42 429)
Finance income 23 703 63 281
Finance cost (54 224) (92 977)
Taxation paid (837) (126 898)
Cash flows from investing activities (41 979) (199 270)
Proceeds from sale of property, plant and 3 032 3 085
equipment
Disposal/acquisition of business, net of cash (980) (113 828)
acquired
Acquisition of property, plant and equipment (50 373) (96 034)
Disposal of investments 6 342 7 507
Cash flows from financing activities (69 820) (116 327)
Proceeds from the issue of share capital 1 261 5 311
Decrease in secured borrowings (70 665) (121 559)
Post-retirement benefits paid (416) (79)
Net (decrease)/increase in cash and cash (53 725) (155 962)
equivalents
Cash and cash equivalents at beginning of 116 863 272 825
period
Cash and cash equivalents at end of period 63 138 116 863
Summarised consolidated statement of changes in equity
Equity
Share Share compensation
capital premium reserve
R`000 R`000 R`000
Balance at 1 March 2009 278 338 800 3 917
Profit for the year - - -
Other comprehensive income
Foreign currency translation - - -
differences from foreign
operations
Post-retirement benefit - - -
adjustment
Total other comprehensive loss - - -
Total comprehensive - - -
(loss)/income for the year
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares related 13 57 869 -
to business combinations
Share issue expenses - (5) -
Dividends to equity holders - - -
Share-based payment transactions - - 4 336
Treasury shares 1 - -
Total contributions by and 14 57 864 4 336
distributions to owners
Balance at 1 March 2010 292 396 664 8 253
Loss for the year - - -
Other comprehensive income
Foreign currency translation - - -
differences from foreign
operations
Post-retirement benefit - - -
adjustment
Total other comprehensive loss - - -
Total comprehensive loss for the - - -
year
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share issue expenses - (8 768) -
Dividends to equity holders - - -
Share-based payment transactions - - 6 191
Treasury shares 2 1 259 -
Total contributions by and 2 (7 509) 6 191
distributions to owners
Balance at 28 February 2011 294 389 155 14 444
Translation Retained Total
reserve earnings equity
R`000 R`000 R`000
Balance at 1 March 2009 14 651 261 931 619 577
Profit for the year - 197 641 197 641
Other comprehensive income
Foreign currency translation (28 947) - (28 947)
differences from foreign
operations
Post-retirement benefit - (28) (28)
adjustment
Total other comprehensive loss (28 947) (28) (28 975)
Total comprehensive (28 947) 197 613 168 666
(loss)/income for the year
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares related - - 57 882
to business combinations
Share issue expenses - - (5)
Dividends to equity holders - (42 429) (42 429)
Share-based payment transactions - - 4 336
Treasury shares - - 1
Total contributions by and - (42 429) 19 785
distributions to owners
Balance at 1 March 2010 (14 296) 417 115 808 028
Loss for the year - (40 761) (40 761)
Other comprehensive income
Foreign currency translation (18 892) - (18 892)
differences from foreign
operations
Post-retirement benefit - (261) (261)
adjustment
Total other comprehensive loss (18 892) (261) (19 153)
Total comprehensive loss for the (18 892) (41 022) (59 914)
year
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share issue expenses - - (8 768)
Dividends to equity holders - (43 642) (43 642)
Share-based payment transactions - - 6 191
Treasury shares - - 1 261
Total contributions by and - (43 642) (44 958)
distributions to owners
Balance at 28 February 2011 (33 188) 332 451 703 156
2011 2010
Dividends per ordinary share - 15,0
(cents)
Segmental report
EsorfrankiGeotechnical Esorfranki Civils
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Segment revenue 706 672 944 862 518 787 715 033
Segment result
(Loss)/profit before 18 747 164 147 (3 113) 144 520
interest and taxation
Finance cost (53 608) (95 345) (9 286) (8 530)
Finance income 24 858 63 956 4 168 4 805
Taxation 7 773 (36 724) (3 014) (40 278)
Segment (loss)/profit (2 230) 96 034 (11 245) 100 517
Segment assets 662 228 754 541 454 761 442 162
Segment liabilities 643 020 717 460 219 261 197 009
Capital and non-cash items
Additions to property, 11 794 52 844 17 964 49 711
plant and equipment
Depreciation 23 183 32 226 21 039 19 430
Impairment loss 1 624 - - -
Number of employees 1 287 1 562 1 453 1 228
EsorfrankiPipelines Corporate &
Eliminations
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Segment revenue 169 005 229 231 (28 031) (31 309)
Segment result
(Loss)/profit before (3 548) 31 068 (28 509) (34 161)
interest and taxation
Finance cost (79) - 8 602 10 769
Finance income 3 361 5 404 (8 684) (10 884)
Taxation (794) (11 885) 2 365 10 779
Segment (loss)/profit (1 060) 24 587 (26 226) (23 497)
Segment assets 87 092 167 121 260 270 284 000
Segment liabilities 54 024 127 733 (155 109) (202 406)
Capital and non-cash items
Additions to property, 6 104 3 096 14 512 (9 617)
plant and equipment
Depreciation 1 640 3 120 14 807 9 417
Impairment loss - - 1 200 -
Number of employees 434 427 10 8
Consolidated
2011 2010
R`000 R`000
Segment revenue 1 366 433 1 857 817
Segment result
(Loss)/profit before (16 423) 305 574
interest and taxation
Finance cost (54 371) (93 106)
Finance income 23 703 63 281
Taxation 6 330 (78 108)
Segment (loss)/profit (40 761) 197 641
Segment assets 1 464 351 1 647 824
Segment liabilities 761 196 839 796
Capital and non-cash items
Additions to property, 50 374 96 034
plant and equipment
Depreciation 60 669 64 193
Impairment loss 2 824 -
Number of employees 3 184 3 225
Geographical information
South Africa Other regions
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Total revenue 1 162 814 1 600 070 203 619 257 747
Property, plant and 463 705 494 531 102 070 101 898
equipment
Consolidated
2011 2010
R`000 R`000
Total revenue 1 366 433 1 857 817
Property, plant and 565 775 596 429
equipment
DIRECTORS:
DM Thompson* (Chairman)
B Krone (CEO)
W van Houten (CFO)
EG Dube*
MB Mathabathe*
Dr FA Sonn*
*Independent non-executive
REGISTERED OFFICE:
30 Activia Road, Activia Park, Germiston, 1401
(PO Box 6478, Dunswart, 1508)
Telephone: +27 11 822 3906
Fax: +27 11 822 3112
SPONSOR:
Vunani Corporate Finance
Vunani House
Athol Ridge Office Park
151 Katherine Street, Sandton, 2196
(PO Box 652419, Benmore, 2010)
TRANSFER SECRETARIES:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
COMPANY SECRETARY:
iThemba Governance and Statutory Solutions (Pty) Limited
Monument Office Park
Suite 5 - 102, 79 Steenbok Avenue, Monument Park
(PO Box 25160, Monument Park, 0105)
AUDITORS:
KPMG Inc.
KPMG Crescent
85 Empire Road, Parktown, 2193
(Private Bag 9, Parkview, 2122)
www.esorfranki.co.za
Date: 26/05/2011 07:05:01 Supplied by www.sharenet.co.za
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