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Unaudited condensed group interim results for the period ended 31 August 2012
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")
UNAUDITED CONDENSED GROUP INTERIM RESULTS
FOR THE PERIOD ENDED 31 AUGUST 2012
JOURNEY TO BEST IN CLASS
Erbacon, a 52% black owned business, provides heavy civil engineering construction and commercial and industrial building services.
The implementation of the Group's medium-term strategy of "Best-in-Class" (comprising quality Order Book
Development, Project Execution and Business Sustainability) continues to progress well. Management remains
focused on the imperatives of liquidity, the risk assessment process, a culture of safe behaviour, growth, Black
Economic Empowerment, people capacity and sound governance.
During the period under review the Group has delivered on its commitments to clients, returned to trading
profitability, recapitalised its balance sheet, significantly improved its liquidity position and continued to deepen its
construction capabilities through the appointment of experienced management.
OVERVIEW OF THE SIX-MONTH PERIOD TO 31 AUGUST 2012
The Group increased revenues by 37% to R758 million (2011: R553 million) as a result of strong growth in both
civil and building construction activities.
The Group returned to trading profitability, while bank finance charges were well controlled as the Group's liquidity
position improved further.
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.
The table below reflects the Group's profits, excluding certain non-cash charges (employee share charges,
non-recurring finance charges and tax):
Six months to Six months to 12 months to
31 August 31 August 29 February
2012 2011 2012
Rm Rm Rm
Revenue 758 553 1 137
Operating profit/(loss) before non-trading items
and depreciation 26 (18) (80)
Depreciation and amortisation (10) (11) (32)
Net bank finance charges (1) (1) (3)
Profit/(loss) excluding certain non-cash charges 15 (30) (115)
A once-off depreciation charge of R10 million was recognised in the six months to 29 February 2012 to cater for
the estimated residual values on various sundry construction assets.
The Group retains a material cash-tax shield as a result of historical losses incurred. Deferred tax assets have not
been raised in operating companies which are not trading profitably. The tax charge for the period under review
resulted from the net of a release of deferred tax assets against profits and the reversal, on recapitalisation of the
Group, of the preference share-related deferred tax liability.
The recapitalisation of the Group's balance sheet was fully implemented during the period 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;
- Aresultant increase in the number of issued ordinary shares to 732 million (2011: 195 million);
- Total ordinary equity of the Group improved to R272 million as at 31 August 2012 (2011: R151 million); and
- Medu Capital, a Black owned private equity investor, now owns 52% of the ordinary equity of the Group.
Management now owns over 20% of the ordinary equity.
The Group's cash balances of R97 million (2011: R27 million) consisted of R91 million held in its own bank
accounts and a R6 million share in joint venture bank accounts as at 31 August 2012, while the Group had no
debt (2011: overdraft of R21 million) other than R12 million (2011: R16 million) of asset-based financing. Unutilised
overdraft banking facilities of R40 million remain available to the Group. In addition, the facility limits for contract
guarantees were increased by the Group's insurance providers during the period under review.
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. This disposal has enabled the Group to strategically focus on its
core business of construction.
The Corporate Office, which provides services to the operations, maintained its cost structure in-line with the prior year
but has refocused its capabilities on risk reviews and growth opportunities.
Civil Construction (CIVCON)
Revenue increased by 15% as the division continued to grow its capacity in heavy civil engineering construction.
The division produced sound profitability from most contracts entered into over the past 18 months. Several
commercial claims were satisfactorily resolved during the period under review, however these upsides were
negated by completion costs on historical contracts that had been poorly selected and tendered on in the difficult
trading conditions post the 2010 FIFA World Cup. Activity in the mining and resources industry remains consistent
while tender activity from government institutions continues to improve, and margins firm.
Commercial and Industrial Building (ARMSTRONG)
Revenue increased by 116% as the division increased both the scope and geography of its activities. The division
worked throughout KwaZulu-Natal as well as the Eastern Cape and Gauteng. Estimated losses to completion
have been taken on a substantial rural contract where logistical difficulties have been encountered. In addition,
certain contract claims not yet agreed, in Armstrong's favour, have arisen as a result of information delays and
contract variations. Tender activity from both private and government clients have improved, but margins remain
low.
DIVIDEND
For the foreseeable future the Board intends to allocate cash resources to the growth of the Group, consequently
no dividend has been declared for the interim period ended 31 August 2012.
PROSPECTS
The imperative for the government to renew and deliver infrastructure should result in a further improvement of trading
conditions. However, the Board notes the short-term risks of work-stoppages and delayed contract awards resulting
from widespread labour unrest affecting many of the Group's clients.
The secured order book of work still to be completed totals R1 300 million of which 40% is to be completed during the
current financial year.
Management has forecasted that the Group will continue to achieve increases in revenue and operating profit in the
next six months compared to the prior financial year. The results for the second six-month period of the current financial
year will, following management's further participation in share-based equity instruments in August 2012, reflect a
material increase in the reported (non-cash) share-based payment expense. The once-off, non-cash finance charges
related to the recently completed Group recapitalisation, which have been fully accounted for in the interim results,
will result in a total loss and comprehensive loss to owners of the parent for the year to 28 February 2013.
Due to forecasted lower revenues during the short trading months of the annual December/January construction
shut-down, the financial position of the Group is not forecasted to be as liquid at year-end as it was at this interim
stage.
DIRECTORATE
Johan Holtzhausen and his alternate, Nico de Waal, resigned as non-executive director and alternate non-executive director
respectively of the Company, with effect from 1 September 2012.
In compliance with paragraph 3.59(b) of the JSE Listings Requirements,the board of directors hereby notifies its' shareholders
that Ms Samara Totaram resigned as non-executive director and Chairperson of the Audit Committee on 03 October 2012 and that
Mr Neill Davies has been reappointed as an independent non-executive director, and is also appointed a member of the Audit
Committee on 03 October 2012.
The Nominations Committee is currently presiding over the election of additional independent non-executive
directors to the Board. Further details will be provided in due course.
For and on behalf of the Board
A Dawson SJ Flanagan AR Langham
Chairman Chief Executive Officer Group Financial Director
Midrand
3 October 2012
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the period ended 31 August 2012 Unaudited Unaudited Audited
Interim Interim Year-end
31 August 31 August 29 February
Figures in Rand thousands 2012 2011 2012
Revenue from continuing operations 758 183 553 191 1 137 069
Operating profit/(loss) before non-trading items
and depreciation from continuing operations 26 007 (18 378) (79 652)
Share-based payment expense (791) (389) (790)
Depreciation and amortisation (10 090) (10 739) (31 568)
Operating profit/(loss) from continuing operations 15 126 (29 506) (112 010)
Finance income 224 746 1 159
Finance costs (45 221) (7 799) (18 764)
Banks (1 045) (1 371) (2 493)
Preference share interest (5 988) (5 251) (10 502)
Loss on early conversion of preference shares (31 859)
Shareholder loans (6 329) (1 177) (5 769)
Loss before taxation from continuing operations (29 871) (36 559) (129 615)
Taxation (5 904) 10 297 19 551
Total loss and comprehensive loss for the
period from continuing operations (35 775) (26 262) (110 064)
Total loss and comprehensive loss for the
period from discontinued operations (67 493) (78 986)
Total loss and comprehensive loss for the period (35 775) (93 755) (189 050)
Total loss and comprehensive loss
for the period attributable to:
Owners of the parent (35 775) (83 714) (179 009)
Non-controlling interests (10 041) (10 041)
(35 775) (93 755) (189 050)
Headline loss reconciliation
Loss attributable to owners of the parent (35 775) (83 714) (179 009)
Losses on assets included in discontinued operations 42 179
Loss/(profit) on disposal of plant and equipment 54 (483) (440)
Impairment on re-measurement of assets held for sale 32 353
Headline loss (35 721) (51 844) (137 270)
Basic loss and diluted loss per share (cents)^ (17) (43) (92)
From continuing operations (17) (13) (56)
From discontinued operations (30) (36)
Headline loss and diluted headline loss
per share (cents)^
Basic headline loss and diluted headline loss
per ordinary share (17) (27) (71)
From continuing operations (17) (13) (51)
From discontinued operations (14) (20)
Total number of shares in issue
less treasury shares ('000) 730 818 193 848 193 848
Weighted average number
of shares in issue ('000) 208 440 193 848 193 848
Diluted weighted average number
of shares in issue ('000) 208 440 261 258 261 258
^ Due to the company being in a loss position while the convertible preference shares were still in issue, the anti-
dilutive effect should not have been calculated in terms of IFRS. The August 2011 comparative figures have been
restated accordingly.
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
as at 31 August 2012 Unaudited Unaudited Audited
31 August 31 August 29 February
Figures in Rand thousands 2012 2011 2012
ASSETS
Non-current assets
Property, plant and equipment 70 397 98 013 76 575
Intangible assets 129 368 128 635 129 425
Deferred income tax assets 10 462 19 357 26 899
210 227 246 005 232 899
Current assets
Inventories* 3 020 5 026 3 118
Trade and other receivables*# 333 386 286 793 293 882
Cash and cash equivalents 97 329 26 674 17 610
Income tax receivables 1 742 10 106 3 817
435 477 328 599 318 427
Assets of disposal group classified as held-for-sale 37 183
TOTAL ASSETS 645 704 611 787 551 326
EQUITY AND LIABILITIES
Equity attributable to owners of the parent 271 791 183 439 95 131
Ordinary equity related 271 791 151 423 66 896
Preference share related** 32 016 28 235
Non-controlling interests (2 283)
TOTAL EQUITY 271 791 181 156 95 131
Liabilities
Non-current liabilities
Preference share related** 68 782 74 033
Asset finance 8 282 6 387 4 868
Deferred income tax liabilities 449 13 111 11 365
Preference share related** 12 450 10 980
Related to other timing differences 449 661 385
8 731 88 280 90 266
Current liabilities
Borrowings 4 032 92 096 103 098
Shareholder loans 53 225 68 769
Bank overdraft 21 121 27 022
Minority shareholder loan 8 010
Asset finance 4 032 9 740 7 307
Trade and other payables* 361 150 238 065 262 831
365 182 330 161 365 929
Liabilities of disposal group classified as held-for-sale 12 190
TOTAL LIABILITIES 373 913 430 631 456 195
TOTAL EQUITY AND LIABILITIES 645 704 611 787 551 326
Total number of shares in issue (net of treasury
shares and including contingently
issuable shares) ('000) 730 818 193 848 193 848
Net asset value per ordinary equity share (cents) 37 78 35
** Preference share subscription/redemption value 113 248 113 248
* Materials on site and construction work in progress has been reclassified in the August 2011 comparative period
from inventory to amounts due from contract customers and/or amounts due to contract customers to provide
more meaningful disclosure.
# Trade and other receivables have been ceded to the Group's bankers as security for general banking facilities.
CONDENSED GROUP STATEMENT OF CASH FLOW
for the period ended 31 August 2012 Unaudited Unaudited Audited
31 August 31 August 29 February
Figures in Rand thousands 2012 2011 2012
Cash receipts from customers 721 553 512 921 1 102 020
Cash paid to customers, suppliers and employees (636 789) (562 532) (1 184 429)
Cash generated from/(used by) operations 84 764 (49 611) (82 409)
Finance income 224 835 1 159
Finance cost (1 045) (3 261) (3 739)
Tax received/(paid) 2 075 (1 877) 4 384
Net cash inflow/(outflow) from
operating activities 86 018 (53 914) (80 605)
Acquisition of property, plant and equipment (4 688) (3 098) (4 836)
Proceeds on disposal of property,
plant and equipment 1 059 2 865 3 671
Proceeds from sale of subsidiary sold less cash 9 338
Acquisition of plant for hire (191) (191)
Proceeds on disposal of plant for hire 1 151 1 151
Net cash (outflow)/inflow from
investing activities (3 629) 727 9 133
Proceeds from shareholder loans 25 500 52 000 63 000
Proceeds from rights issue 923
Capitalised costs of debt restructure plan (2 209)
Proceeds from/(repayment of) asset finance 138 (6 962) (14 642)
Net cash inflow from financing activities 24 352 45 038 48 358
Net increase/(decrease) in cash
and cash equivalents 106 741 (8 149) (23 114)
Cash and cash equivalents
at the beginning of the period (9 412) 13 702 13 702
Cash and cash equivalents and bank overdrafts
at the end of the period 97 329 5 553 (9 412)
Basis of preparation
The consolidated interim financial information has been prepared in terms of International Financial Reporting
Standards (IFRS), IAS 3: Interim Financial Reporting, the AC 500 series, the South African Companies Act, 2008,
as amended, and in compliance with the Listings Requirements of the JSE Limited. The accounting policies
used in the preparation of the interim financial information are consistent with those used in the Annual Financial
Statements for the year ended 29 February 2012.
The preparation of these interim financial results was done under the supervision of the Group Financial Director,
Andrew Ralph Langham, CA(SA).
Any references to the future financial performance of the Group has not been reviewed or reported on by the company's auditors.
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/(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.
Commercial and Total continuing Discontinued
Civils Construction Industrial Building Services operations operations Total Group
August August August August August August August August August August August August
Figures in Rand thousands 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
Segment revenue and result
Revenue
Total external revenue 497 872 433 069 260 311 120 122 758 183 553 191 17 586 758 183 570 777
Result
Operating profit/(loss) before
non-trading items 42 427 (18 815) (17 052) (2 222) (9 458) (8 080) 15 917 (29 117) (71 297) 15 917 (100 414)
Share-based payment expenses (791) (389) (791) (389) (791) (389)
Operating profit/(loss) 42 427 (18 815) (17 052) (2 222) (10 249) (8 469) 15 126 (29 506) (71 297) 15 126 (100 803)
Segment assets and liabilities
Assets 298 130 329 294 192 243 63 812 25 963 52 044 516 336 445 150 37 183 516 336 482 333
Liabilities (177 074) (202 443) (191 991) (43 405) (4 848) (132 098) (373 913) (377 946) (52 685) (373 913) (430 631)
Intangibles 187 212 546 607 128 635 128 635 129 368 129 454 129 368 129 454
Net asset/(liability) 121 243 127 063 798 21 014 149 750 48 581 271 791 196 658 (15 502) 271 791 181 156
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
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 1 March 2011 427 923 2 884 (177 246) 2 075 20 750 276 386 (1 864) 274 522
Total loss and comprehensive expense for the period (83 714) (83 714) (10 041) (93 755)
Issue of shares acquisition of subsidiary 2 075 (2 075)
Non-controlling interests gain on loan forgiveness
by owners of the parent (9 822) (9 822) 9 822
Non-controlling interests share of losses recognised 200 200 (200)
Release of share-based payment reserve (2 504) (2 504) (2 504)
Value of employee services 389 389 389
Balance at 31 August 2011 429 998 769 (177 246) (72 586) 180 935 (2 283) 178 652
Total loss and comprehensive expense for the year (95 295) (95 295) (95 295)
Value of employee services 401 401 401
Release of share-based payment reserve 2 504 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 6 586 6 586 (6 586)
Sale of businesses 8 869 8 869
Balance at 29 February 2012 429 998 1 170 (336 037) 95 131 95 131
Total loss and comprehensive expense for the period (35 775) (35 775) (35 775)
Rights issue and recapitalisation of shareholder funding 101 590 101 590 101 590
Preference share conversion 112 263 112 263 112 263
Reversal of income statement effect on preference
share liability interest 7 648 (7 648)
Share issue expenses (2 209) (2 209) (2 209)
Value of employee services 791 791 791
Balance at 31 August 2012 649 290 1 961 (379 460) 271 791 271 791
Directors: A Dawson (Chairman)#, SJ Flanagan (CEO)
AR Langham (GFD), AH Henning, CHA Ramsay
CJB Vermaak, ZR Angamia*
NP Mkwanazi*, S Totaram*, NO Davies#
*Non-executive #Independent non-executive
Company Secretary: RK Braithwaite
Registered office: Block 3 Unit 6
The Willows Office Park
276 George Road, Erand Gardens, Midrand, 1685
Telephone: +27 11 206 9660
Website: http://www.erbacon.co.za
Auditor: PricewaterhouseCoopers Inc
Designated and corporate advisor: PSG Capital (Pty) Limited
Date: 03/10/2012 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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