Wrap Text
ESR - Esorfranki - Reviewed Interim Results for the six months ended 31 August
2011
ESORFRANKI LIMITED
(Registration number: 1994/000732/06)
Incorporated in the Republic of South Africa
(Share Code: ESR & ISIN: ZAE000133369)
("Esorfranki" or "the company" or "the group")
REVIEWED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2011
SALIENT FEATURES
REVENUE UP 14,2%
ORDER BOOK UP R1,5 billion from R1 billion
HEPS DOWN 195%
SHORT TERM PROSPECTS UP R2,3 billion
COMMENTARY
The directors present the reviewed condensed consolidated interim results for
the six months ended 31 August 2011 ("the period"), reflecting the adverse
impact on the group of a still depressed construction sector. Key performance
indicators accordingly declined year-on-year.
Positively a number of the problem contracts plaguing the group were concluded
during the first quarter of the period, with the overall contract base now
showing improved profitability.
The group structure has been successfully streamlined with the divisionalisation
of operations and their amalgamation into a single operating company effective 1
March 2011. All group businesses are now housed under the re-branded company
Esorfranki Construction (Pty) Limited and cost and efficiency savings are
starting to be realised.
Esorfranki`s order book remains solid (even excluding certain contract awards
currently being contested), having been significantly bolstered during the
period. The secured outstanding order book stands in excess of R1,5 billion at
the date of this announcement.
Imminently pending awards total approximately R2,3 billion.
Financial results
Revenue grew 14,2% to R857,5 million from R750,8 million in the comparative
period. Earnings before interest, depreciation, impairments, amortisation and
taxation ("EBITDA") declined 66,2% from R75,2 million to R25,4 million.
Headline earnings per share ("HEPS") reduced 195,1% to a headline loss per
share of 3,9 cents per share. Net asset value per share ("NAV") fell 11,0%
to 230,1 cents from 258,4 cents.
Review of operations
During the period the construction market waned further and already fierce
competition intensified. Work tendered for in previous periods at reduced
margins, as a consequence of the harsh trading conditions, is now being
executed. Strict cost controls and effective risk management practices are in
place throughout the group to contain the effect on profits.
The expansion of the group`s market share in sub-Saharan Africa continued
strongly with a number of new contracts secured.
Investment in working capital has increased significantly as a consequence of
new contract awards and the outflow on loss-making contracts. Management has
assessed all contract cost estimates and has made adequate provisions for any
future excess contract costs.
Impacted by tough market conditions most of the group`s divisions posted weaker
results compared to the comparative period.
Esorfranki Geotechnical:
Revenue of R405,6 million was down 4,2% (Aug 2010: R423,2 million) and accounted
for 47% of group revenue. Profit before tax ("PBT") grew from R12,0 million to
R15,2 million.
Recent project awards include work at Kalagadi Phase II for R40,7 million, 114
West Street and other work in Sandton totalling R85 million. R20 million worth
of piling work remains at Kusile. In the Western Cape projects include a R15
million contract at the V&A Clocktower, R37 million for Langeni Road
Rehabilitation and R8,3 million for the Portside basement.
The announcement of the preferred bidder for the N1/N2 tollway presents
opportunity for further geotechnical work. In KwaZulu-Natal recent awards
include R5,7 million for stone columns at Bridge City, R9,5 million for
diaphragm walls at Island View and R4,7 million geotechnical work at St
Elizabeth`s Hospital. Outside South Africa, the Angolan market remains
depressed. The Kinaxixi project is nearing completion, with the possibility of
additional geotechnical work on this project. Other projects underway include
R73 million worth of secured work in Mozambique, which has been driven by the
coal mining infrastructure programmes. R37 million has been secured in Tanzania
for the current year and R50 million in Mauritius with contract awards still
pending in these regions (save for Mauritius). Further awards of R11 million in
Ghana and a recent award in Uganda for lateral support in Kampala will enhance
Esorfranki`s geographical diversity.
Esorfranki Civils:
The division achieved revenue of R354,4 million (Aug 2010: R225,3 million)
accounting for 40% of group revenue. It posted a loss before tax of R25,9
million (2010: PBT R20,8 million).
Recent projects secured include for Roads Agency Limpopo worth R60 million, a
R200 million K71/R55 road project, the R330 million Bakwena N4 contract and R311
million of civil works for Kusile. Esorfranki also secured a R30 million five-
storey commercial development in Rosebank.
Esorfranki Pipelines:
With revenue of R113,3 million (Aug 2010: R102,3 million) the division
contributed 13% of group revenue. PBT amounted to R0,6 million (2010: R2,3
million). Ongoing contracts include the R208 million BG3 contract and the R46
million Mooihoek Phase III. As previously announced the Western Aqueduct award
to the Esorfranki/Cycad Joint Venture was challenged in the Pietermaritzburg
High Court with judgement made to set aside the contract award. The
consideration of an appeal is currently being addressed by the client, eThekwini
Municipality.
CAPEX
During the period the group invested R152,3 million in property, plant and
equipment (Aug 2010: R37,3 million). The increase in CAPEX is attributable to
the need to gear up for contracts awarded during the period. The majority of
CAPEX requirements are applied in Esorfranki Civils.
Black Economic Empowerment
Esorfranki is currently a `Level 4` contributor in terms of the Department of
Trade & Industry`s B-BBEE Codes of Good Practice, a critical differentiator in
an environment dependent on Government infrastructure spend. The group remains
focused on continually reviewing and enhancing all areas of scorecarding and
will look to improve the rating in the medium term.
Incorporating retail shareholders on the open market, direct black ownership
scored at 29,64% (2010: 29,07%). Included in this is the 3,3% stake in the
company held by Black staff through the Esor Broad Based Share Ownership Scheme.
More than 80% of the group`s 3 124 (Aug 2010: 3 059) 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. The investigation is ongoing and no updates have
occurred since the announcement at the previous year-end.
Directorate
Andy Brookstein, former Managing Director of Esorfranki Civils, was appointed as
an executive director of the group with effect from 26 August 2011.
Events after the reporting date
There were no significant events after the reporting date.
Prospects
Looking ahead the economy and construction sector are showing the first, slow
signs of recovery, although a full recovery is expected only in the medium-term
and then not to the levels of the 2008/9 boom. Esorfranki intends expanding its
geographical footprint and product range through both organic and acquisitive
growth to capitalise on opportunities.
With higher margins Sub-Saharan Africa continues to offer scope for growth for
all business units. Current prospects include projects in Ghana, Kenya, Uganda,
Togo as well as Mozambique.
Esorfranki Civils is expected to capitalise on opportunities in housing,
particularly low-cost housing. Anticipated projects in the water, energy and
transport sectors are shoring up prospects for the group. Esorfranki Pipelines
has a positive outlook based on work for the Rand Water Augmentation Schemes,
TCTA and the petroleum industry.
Dividend policy
In line with group policy no interim dividend has been declared. It remains the
policy of the group to review the dividend policy annually in light of cash
flow, gearing, capital requirements and bank covenants.
Statement of compliance
The reviewed condensed consolidated interim financial statements for the period
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 and method of
measurement and recognition applied in preparation of the condensed consolidated
interim financial statements are consistent with those applied in the group`s
annual financial statements for the year ended 28 February 2011, which comply
with International Financial Reporting Standards ("IFRS").
Auditor`s independent review
These condensed consolidated financial results for the period have been reviewed
by the company`s auditors, KPMG Inc., in terms of International Standards on
Review Engagements 2410. The scope of the review was to enable the auditors to
report that nothing had come to their attention that caused them to believe that
the accompanying condensed consolidated interim financial statements are not
presented, in all material respects, in accordance with IAS 34 - Interim
Financial Reporting and the South African Companies Act. Their unmodified review
report on the condensed consolidated interim financial statements is available
for inspection at the registered office of the company.
Appreciation
We thank our management teams and employees for their persistence and loyalty in
a trying period and challenging environment. Our appreciation also extends to
our customers, suppliers, advisors and stakeholders for their continued support.
On behalf of the board.
Bernard Krone Wayne van Houten
Chief Executive Officer Chief Financial Officer
24 October 2011
Condensed consolidated statement of comprehensive income
6 months ended
Reviewed Reviewed
31 August 31 August
2011 2010
R`000 R`000
Revenue 857 524 750 798
Cost of sales (777 629) (603 294)
Gross profit 79 895 147 504
Other income 1 058 2 969
Operating expenses (55 546) (75 302)
Profit before interest, tax, amortisation,
impairments and depreciation 25 407 75 171
Depreciation, impairments and amortisation (39 822) (37 158)
Results from operating activities (14 415) 38 013
Finance costs (12 073) (17 184)
Finance income 2 614 3 079
(Loss)/profit before tax (23 874) 23 908
Taxation 5 197 (11 597)
(Loss)/profit after tax (18 677) 12 311
Other comprehensive income:
Foreign currency translation differences
for foreign operations 6 864 (22 553)
Actuarial gain on post retirement benefit - -
Income tax on other comprehensive income (546) 2 219
Other comprehensive income/
(loss) for the period, net of tax 6 318 (20 334)
Total comprehensive loss for the period (12 359) (8 023)
(Loss)/profit attributable to:
Owners of the company (18 677) 12 311
Total comprehensive income/(loss) attributable to:
Owners of the company (12 359) (8 023)
Basic (loss)/ earnings per share (cents) (4,8) 4,2
Diluted (loss)/ earnings per share (cents) (4,8) 4,2
Reconciliation of headline (loss) / earnings
(Loss)/profit attributable to ordinary shareholders (18 677) 12 311
Adjusted for:
Loss on disposal of property, plant and equipment 3 630 918
Derecognition of minority interests in subsidiary - (3 605)
Impairment of property, plant and equipment - 1 200
Impairment of intangible assets - 1 182
Headline (loss)/earnings attributable to
ordinary shareholders (15 047) 12 006
Number of ordinary shares in issue (`000) 395 185 302 162
diluted weighted average 387 980 295 628
weighted average 387 812 293 403
Headline (loss)/earnings per share (cents) (3,9) 4,1
Year ended
Audited
28 February
Change 2011
% R`000
Revenue 14,2 1 366 433
Cost of sales 28,9 (1 204 988)
Gross profit (45,8) 161 445
Other income (64,3) 3 654
Operating expenses (26,2) (116 033)
Profit before interest, tax, amortisation,
impairments and depreciation (66,2) 49 066
Depreciation, impairments and amortisation 7,2 (65 489)
Results from operating activities (137,9) (16 423)
Finance costs (29,7) (54 371)
Finance income (15,1) 23 703
(Loss)/profit before tax (199,9) (47 091)
Taxation (144,8) 6 330
(Loss)/profit after tax (251,7) (40 761)
Other comprehensive income:
Foreign currency translation differences
for foreign operations 130,4 (21 334)
Actuarial gain on post retirement benefit - (261)
Income tax on other comprehensive income (124,7) 2 441
Other comprehensive income /
(loss) for the period, net of tax 131,1 (19 154)
Total comprehensive loss for the period (54,0) (59 915)
(Loss)/profit attributable to:
Owners of the company (251,7) (40 761)
Total comprehensive income/(loss) attributable to:
Owners of the company 131,1 (19 154)
Basic (loss)/ earnings per share (cents) (214,3) (13,9)
Diluted (loss)/ earnings per share (cents) (214,3) (13,8)
Reconciliation of headline (loss) / earnings
(Loss)/profit attributable to ordinary shareholders (251,7) (40 761)
Adjusted for:
Loss on disposal of property, plant and equipment 4 609
Derecognition of minority interests in subsidiary (3 654)
Impairment of property, plant and equipment -
Impairment of intangible assets 2 032
Headline (loss)/earnings attributable to
ordinary shareholders (225,3) (37 774)
Number of ordinary shares in issue (`000) 302 162
diluted weighted average 294 554
weighted average 293 763
Headline (loss)/ earnings per share (cents) (195,1) (12,9)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed Audited
31 August 31 August 28 February
2011 2010 2011
R`000 R`000 R`000
ASSETS
Non-current assets 1 085 923 986 302 966 187
Property, plant and equipment 678 242 586 833 565 775
Intangible assets 89 170 91 057 90 117
Goodwill 305 715 305 715 305 715
Financial asset 7 829 - -
Deferred tax asset 4 967 2 697 4 580
Current assets 626 951 622 468 498 164
Inventories 14 933 10 989 16 983
Other investments 1 593 8 846 420
Financial asset 5 872 - -
Taxation 4 218 - 3 855
Trade and other receivables 550 791 514 623 413 768
Cash and cash equivalents 49 544 88 010 63 138
Total assets 1 712 874 1 608 770 1 464 351
EQUITY AND LIABILITIES
Share capital and reserves 893 375 758 829 703 156
Share capital and premium 589 700 396 958 389 449
Equity compensation reserve 16 225 10 687 14 444
Foreign currency translation reserve (26 324) (34 630) (33 188)
Retained earnings 313 774 385 814 332 451
Non-current liabilities 298 564 376 813 195 562
Secured borrowings* 195 040 255 638 84 516
Post-retirement benefits 1 657 1 665 1 657
Deferred tax liabilities 101 867 119 510 109 389
Current liabilities 520 935 473 128 565 633
Current portion of secured borrowings* 77 907 136 437 241 527
Taxation 18 529 17 027 9 953
Provisions 23 882 14 510 3 213
Bank overdraft* 48 410 - -
Trade and other payables 352 207 305 154 310 940
Total equity and liabilities 1 712 874 1 608 770 1 464 351
Net asset value per share (cents) 230,1 258,4 238,9
Tangible net asset value per share
(cents)** 156,9 161,1 142,1
*Interest-bearing debt
** (Net asset value less intangible assets net of deferred tax) / weighted
average shares
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
6 months ended Year ended
Reviewed Reviewed Audited
31 August 31 August 28 February
2011 2010 2011
R`000 R`000 R`000
Cash flows from operating activities
(Loss)/profit before taxation (23 874) 23 908 (47 091)
Adjustments for:
Depreciation of property, plant
and equipment 38 875 33 278 60 669
Impairment of intangible assets - 1 624 1 624
Impairment of building - 1 200 1 200
Amortisation of intangible assets 947 1 056 1 996
Amortisation of financial asset 979 - -
Profit on disposal of property,
plant and equipment (62) - (121)
Loss on disposal of property,
plant and equipment 5 104 1 275 6 523
Foreign currency translation
reserve adjustment 2 879 (14 806) (14 606)
Equity settled share-based payment
transactions 1 781 2 434 6 191
Disposal of subsidiary - - (3 654)
Interest expense - - 147
Income tax refund/(paid) 5 314 5 702 (837)
31 943 55 671 12 041
Change in inventories 2 050 3 838 (2 156)
Change in trade and other receivables (137 023) (14 754) 86 086
Change in trade and other payables 41 267 20 477 23 620
Acquisition of financial asset (14 680) - -
Change in provisions 20 669 (6 577) (17 874)
Net cash (used)/ generated
from operations (55 774) 58 655 101 717
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 130 125 3 032
Acquisition of business - - (980)
Acquisition of property, plant
and equipment (152 342) (37 306) (50 373)
(Acquisition)/disposal of other
investments (1 173) (2 084) 6 342
Net cash used in investing activities (153 385) (39 265) (41 979)
Cash flows from financing activities
Proceeds from the issue of share
capital 200 251 2 1 261
Decrease in secured borrowings (53 096) (4 633) (70 665)
Post-retirement benefits paid - - (417)
Dividends paid - (43 612) (43 642)
Net cash generated/(used) in
financing activities 147 155 (48 243) (113 463)
Net decrease in cash and cash
equivalents (62 004) (28 853) (53 725)
Cash and cash equivalents at
beginning of period 63 138 116 863 116 863
Cash and cash equivalents at end
of period 1 134 88 010 63 138
Condensed consolidated statement of changes in equity
R`000 Equity
Share capital Share premium compensation
reserve
Balance at 1 March 2010 292 396 664 8 253
Profit for the period
Other comprehensive income
Foreign currency translation
differences for foreign operations
Total other comprehensive loss - - -
Total comprehensive
income/(loss) for the period - - -
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Dividends to equity holders
Share-based payment transactions 2 434
Share options exercised 2
Total contributions by and
distributions to owners 2 - 2 434
Balance at 31 August 2010 294 396 664 10 687
Balance at 1 March 2011 294 389 155 14 444
Loss for the period
Other comprehensive income
Foreign currency translation
differences for foreign operations
Total other comprehensive income - - -
Total comprehensive
income/(loss) for the period - - -
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share issues 93 199 907
Share-based payment transactions 1 781
Share options exercised 8 243
Total contributions by and
distributions to owners 101 200 150 1 781
Balance at 31 August 2011 395 589 305 16 225
R`000 Translation Retained Total
reserve earnings equity
Balance at 1 March 2010 (14 296) 417 115 808 028
Profit for the period 12 311 12 311
Other comprehensive income
Foreign currency translation differences
for foreign operations (20 334) (20 334)
Total other comprehensive loss (20 334) - (20 334)
Total comprehensive income/(loss) for
the period (20 334) 12 311 (8 023)
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Dividends to equity holders (43 612) (43 612)
Share-based payment transactions 2 434
Share options exercised 2
Total contributions by and distributions
to owners - (43 612) (41 176)
Balance at 31 August 2010 (34 630) 385 814 758 829
Balance at 1 March 2011 (33 188) 332 451 703 156
Loss for the period (18 677) (18 677)
Other comprehensive income
Foreign currency translation differences
for foreign operations 6 864 6 864
Total other comprehensive income 6 864 - 6 864
Total comprehensive income/(loss) for
the period 6 864 (18 677) 11 813
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Share issues 200 000
Share-based payment transactions 1 781
Share options exercised 251
Total contributions by and distributions
to owners - - 202 032
Balance at 31 August 2011 (26 324) 313 774 893 375
Information about reportable segments for the six months ended 31 August /
twelve months ended 28 February
R`000
Esorfranki Geotechnical
August August February
2011 2010 2011
External revenues 405 611 423 180 706 672
Reportable segment profit/(loss) before
income tax 15 211 12 016 5 543
Reportable segment assets 674 136 713 901 662 228
R`000
Esorfranki Civils
August August February
2011 2010 2011
External revenues 354 366 225 321 518 787
Reportable segment profit/(loss) before
income tax (25 958) 20 849 (8 231)
Reportable segment assets 718 654 459 909 454 761
R`000
Esorfranki Pipelines
August August February
2011 2010 2011
External revenues 113 320 102 297 169 005
Reportable segment profit/(loss) before
income tax 637 2 254 (266)
Reportable segment assets 115 445 103 546 87 092
R`000
Corporate & Eliminations
August August February
2011 2010 2011
External revenues (15 773) - (28 031)
Reportable segment profit/(loss) before
income tax (13 764) (11 211) 50 045
Reportable segment assets 204 635 331 414 260 270
R`000
Consolidated
August August February
2011 2010 2011
External revenues 857 524 750 798 1 366 433
Reportable segment profit/(loss)
before income tax (23 874) 23 908 47 091
Reportable segment assets 1 712 874 1 608 770 1 464 351
Geographical Information
South Africa
August August February
R`000 2011 2010 2011
Total revenue 714 633 589 879 1 162 814
(Loss)/profit before interest and tax (33 219) 4 215 (44 589)
(Loss)/profit after tax (33 096) (9 867) (65 873)
Total assets 1 300 919 1 307 756 1 265 010
Other Regions
August August February
R`000 2011 2010 2011
Total revenue 14 891 132 600 203 619
(Loss)/profit before interest and tax 18 804 23 022 28 166
(Loss)/profit after tax 14 419 19 352 25 112
Total assets 411 955 301 014 199 341
Consolidated
August August February
R`000 2011 2010 2011
Total revenue 857 524 750 798 1 366 433
(Loss)/profit before interest and tax (14 415) 38 013 (16 423)
(Loss)/profit after tax (18 677) 12 311 (40 761)
Total assets 1 712 874 1 608 770 1 464 351
DIRECTORS: DM Thompson* (Chairman), B Krone (CEO), W van Houten (CFO),
AC Brookstein, 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 11 776 8700
Fax: +27 11 822 1158
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: 25/10/2011 07:05:01 Supplied by www.sharenet.co.za
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