Wrap Text
Reviewed condensed consolidated interim results for the six months ended 31 August 2012
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 CONDENSED
CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2012
HIGHLIGHTS
REVENUE UP 33,3%
HEPS UP 300%
ORDER BOOK R2,4 BILLION
SHORT-TERM PROSPECTS R4,8 BILLION
COMMENTARY
Esorfranki's reviewed condensed consolidated interim results for the six months ended 31 August 2012 ("the period")
reflect the group's continuing turnaround and the resumption of sustainable profitability. Effective rationalisation and
optimisation processes in all divisions are further strengthening profitability. The group's continued growth is affirmed
by our order book, standing at R2,43 billion at the end of the period.
Strategy to improve the group's BEE rating progressed well during the period, particularly in terms of ownership, with
the announcement that Esorfranki is in negotiations with a BEE investment consortium to acquire a stake
in the group.
In addition, the High Yield Bond Programme was successfully concluded in August 2012 raising funds of
R202,5 million. These will be used primarily to settle existing credit lines and free facilities to support future
growth. The group has secured adequate facilities to support the working capital requirements commensurate
with increased activity levels and expansion in the property development market.
During the period, the group assumed control of the Esor Broad Based Share Ownership Scheme, following a change
in trustees in March 2012. Accordingly the 13,3 million treasury shares have been consolidated into the group.
Financial results
Revenue increased 33% to R1,14 billion from R857,5 million in the comparative period. Earnings before interest,
depreciation, impairments, amortisation and taxation ("EBITDA") was up 437% to R136,4 million from R25,4 million.
HEPS increased 300% to 7,8 cents per share from a headline loss per share of 3,9 cents in the comparative
period. Net asset value per share ("NAV") increased 16,4% to 267,9 cents from 230,1 cents. The order book was
up 35% to R2,43 billion from R1,8 billion at 31 August 2012. An impairment of R8,5 million was recognised on the
property in Midrand as a result of the group's changed strategy regarding divisionalisation with respect to office
and yard requirements.
Review of operations
Although the construction sector in South Africa remains tough, Esorfranki has managed to sustain the turnaround
started in the latter half of FY2012, putting the group firmly on track for growth with good prospects going forward.
Esorfranki Civils' revenue increased 69% to R598 million from R354 million. Profit before tax increased by 210% to
R28,7 million compared to a loss of R25,9 million in the comparative period. The division maintained the profitability
achieved in the second half of FY2012. The order book grew by 101% to R1,80 billion from R984 million. Operating
margins increased considerably over the previous period.
The R21 road contract, which recorded a loss at the end of the previous year, achieved a pleasing turnaround
to a near break-even position. Work on the R271 million Bestwood housing and infrastructure contract near
Kathu in the Northern Cape is progressing well and attaining reasonable margins. An additional housing and
property development contract the R340 million Orchards development in Rosslyn near Pretoria also
commenced. This project required the acquisition of a new subsidiary in July 2012. The acquisition resulted
in the inclusion of inventory totalling R33,1 million, which comprised land for development and development
costs already incurred at acquisition date.
Although work in the mining sector is available, a slight slowdown is fuelling a more competitive market with eroding
margins. The company secured additional contracts at Kusile Power Station including two earthworks contracts
encompassing the formation of terraces and the crushing of stockpiled materials. The N4 contract at Mooinooi for
Bakwena Concessions is progressing well.
Esorfranki Pipelines' revenue was up 32% to R149 million from R113 million which, coupled with an order book of
R314 million at period-end, more than compensates for the cancelled Western Aqueduct contract. The KZN region
provided a number of new contracts including Umlaas Road for Umgeni Water and The Bluff Military Base and the
Richmond Road Off-take in Woodmead. In the Free State, a new contract was awarded for the Ezenzeleni Water
Treatments Works in Warden.
The BG 3 dispute remains unresolved and is in the process of arbitration. Resolution is expected early in 2013.
Esorfranki Geotechnical's revenue grew marginally by 1,2% to R410 million from R405 million, reflecting continued
difficult trading conditions. Profit before tax increased by 159% to R39,3 million from R15,2 million. This included
a profit of R24,4 million on the sale of property in Pinetown for R30,5 million following the consolidation of the two
offices in Durban. Off-shore revenue increased 26% to R179,4 million from R142,9 million, translating into an increase
in offshore profit before tax of 19,7% to R22,5 million from R18,8 million. In South Africa, stiff competition and limited
demand are constraining margins which are currently lower than historical averages.
The division continues to focus on expansion in high-growth Ghana and has demonstrated pleasing progress with
a fifth contract awarded. The Ada Groynes contract is moving quickly following the completion of all temporary and
establishment works.
Safety
Esorfranki Civils recently won an award for its safety record at the Kusile Power Station for achieving 1 million injury
free hours. The group's Lost Time Injury Frequency Ratio (LTIFR) of 0,74 at period-end is significantly better than the
industry norm of 1,33.
CAPEX
During the period, the group invested R126 million in property, plant and equipment compared to R152 million in the
comparative period. The majority of CAPEX requirements are applied in Esorfranki Civils. The CAPEX spend for the
period was supported by the successful listing of the High Yield Bond Programme.
Black Economic Empowerment
Esorfranki is currently a Level 4' contributor in terms of the Department of Trade and 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. To this end, specific training is being implemented to ensure that all
B-BBEE spend is correctly allocated with respect to skills development, procurement, enterprise development
and socio-economic development.
In terms of ownership, should the BEE transaction currently in negotiation advance, Esorfranki would considerably
exceed industry Charter requirements. Details will be announced in due course.
Incorporating retail shareholders on the open market, current direct black ownership totals 18,3% (2011: 29,64%).
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 3 799 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 (Proprietary) 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
Post period-end CFO Wayne van Houten resigned effective 1 October 2012. The board thanks him for his contribution
to the group. Wessel van Zyl, CA(SA) was appointed as CFO effective 8 October 2012.
Events after the reporting date
There were no significant events after the reporting date.
Prospects
Esorfranki has started to benefit from the tentative recovery in the South African economy. The promised government
infrastructure spend did not progress as anticipated during the period and a full economic recovery is expected only
in the medium term.
Esorfranki Civils is expected to further capitalise on opportunities in housing, with affordable housing projects
planned in the Vaal Triangle and Thabazimbi and a low-cost house development in Johannesburg. Despite the
slowdown in the mining sector, opportunities remain in the coal mining sector from which Esorfranki anticipates
benefiting.
Esorfranki Pipelines started the second half of the year securing a significant R250 million contract in Stanger. In
addition the Rand Water Augmentation continues and there are good prospects in KZN and Gauteng.
The sector remains challenged by the slow delivery of pipes from suppliers. This is expected to be alleviated
in the second half of the current year to boost production. Further promising prospects exist with potential
reticulation in the SADC region.
Esorfranki Geotechnical's prospects in Sub-Saharan Africa are varied, but promising. The Mauritian market is
currently flat and is likely to remain so for the next reporting period, but in the medium term PPP projects around
Port Louis offer attractive opportunities. Mozambique is looking positive with a number of large projects to be
awarded in the coal mining sector. Although the Angolan market has become more competitive with the entry
of international construction companies, the division is confident of further contract awards. Despite some
challenges, the group expects to achieve targets in all regions this year.
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 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 29 February 2012,
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 Dave Thompson
Chief Executive Officer Chairman
25 October 2012
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
Reviewed Reviewed Audited
31 August 31 August 29 February
2012 2011 Change 2012
R'000 R'000 % R'000
Revenue 1 142 776 857 524 33,3 1 771 692
Cost of sales (992 177) (777 629) 27,6 (1 549 955)
Gross profit 150 599 79 895 88,5 221 737
Other income 25 072 1 058 2 269,8 1 705
Operating expenses (39 266) (55 546) 29,3 (90 786)
Profit before interest, tax,
amortisation, impairments
and depreciation 136 405 25 407 436,9 132 656
Depreciation, impairments
and amortisation (57 730) (39 822) (45,0) (79 510)
Results from operating activities 78 675 (14 415) 645,8 53 146
Finance costs (16 868) (12 073) (39,7) (73 233)
Finance income 1 654 2 614 (36,7) 49 726
Profit/(loss) before tax 63 461 (23 874) 365,8 29 639
Taxation (16 125) 5 197 410,3 (11 423)
Profit/(loss) after tax 47 336 (18 677) 353,4 18 216
Other comprehensive income:
Foreign currency translation differences
for foreign operations 18 268 6 864 166,1 13 655
Actuarial gain on post-retirement
benefit (73)
Income tax on other comprehensive
income (2 119) (546) (288,1) (1 862)
Other comprehensive income
for the period, net of tax 16 149 6 318 (155,6) 11 720
Total comprehensive income
attributable to:
Owners of the company 63 485 (12 359) 613,7 29 936
Basic earnings/(loss) per share (cents) 12,6 (4,8) 362,5 4,7
Diluted earnings/(loss) per share (cents) 12,6 (4,8) 362,5 4,7
Reconciliation of headline
earnings/(loss)
Profit/(loss) attributable to
ordinary shareholders 47 336 (18 677) 353,4 18 216
Adjusted for:
Profit/(loss) on disposal of property,
plant and equipment (23 437) 3 630 (745,6) 5 830
Profit on acquisition of subsidiary (801)
Impairment of property, plant
and equipment 6 113
Headline earnings/(loss) attributable
to ordinary shareholders 29 211 (15 047) (294,1) 24 046
Number of ordinary shares in
issue ('000) 395 185 395 185 395 185
Diluted weighted average 374 787 387 980 386 731
Weighted average 374 787 387 812 386 731
Headline earnings/(loss)
per share (cents) 7,8 (3,9) 300,0 6,2
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed Audited
31 August 31 August 29 February
2012 2011 2012
R'000 R'000 R'000
ASSETS
Non-current assets 1 230 999 1 085 923 1 151 181
Property, plant and equipment 807 095 678 242 737 312
Intangible assets 87 281 89 170 88 226
Goodwill 320 507 305 715 305 715
Financial asset 449 7 829 1 291
Deferred tax asset 15 667 4 967 18 637
Current assets 960 341 626 951 665 288
Inventories 56 144 14 933 20 622
Non-current assets held for sale 2 139 3 293
Other investments 29 092 1 593
Taxation 14 697 4 218 15 617
Trade and other receivables 640 139 556 663 529 103
Cash and cash equivalents 218 130 49 544 96 653
Total assets 2 191 340 1 712 874 1 816 469
EQUITY AND LIABILITIES
Share capital and reserves 1 003 921 893 375 937 432
Share capital and premium 570 162 589 700 592 045
Equity compensation reserve 17 655 16 225 16 188
Foreign currency translation reserve (3 127) (26 324) (21 395)
Retained earnings 419 231 313 774 350 594
Non-current liabilities 535 757 298 564 316 658
Secured borrowings* 384 493 195 040 179 911
Post-retirement benefits 1 806 1 657 1 806
Deferred tax liabilities 149 458 101 867 134 941
Current liabilities 651 662 520 935 562 379
Current portion of secured borrowings* 102 353 77 907 105 923
Taxation 12 119 18 529 15 872
Provisions 34 401 23 882 16 350
Bank overdraft* 48 410 3 047
Trade and other payables 502 789 352 207 421 187
Total equity and liabilities 2 191 340 1 712 874 1 816 469
Net asset value per share (cents) 267,9 230,1 241,5
Tangible net asset value per share (cents)** 189,5 156,9 168,5
* Interest-bearing debt
** (Net asset value less intangible assets net of deferred tax)/weighted average shares.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Year ended
Reviewed Reviewed Audited
31 August 31 August 29 February
2012 2011 2012
R'000 R'000 R'000
Cash flows from operating activities
Profit/(loss) before taxation 63 461 (23 874) 29 639
Adjustments for:
Depreciation of property, plant and equipment 48 294 38 875 77 619
Impairment of land and buildings 8 491
Amortisation of intangible assets 945 947 1 891
Amortisation of financial asset 1 670 979 2 463
Profit on disposal of property, plant and equipment (28 124) (62) (585)
Loss on disposal of property, plant and equipment 5 104 8 682
Foreign currency translation reserve adjustment 7 095 2 879 2 217
Equity settled share-based payment transactions 1 467 1 781 1 744
Fair value adjustment of derivative instruments 1 699
Gain on bargain purchase of subsidiary (1 113)
Interest expense 143
Income tax (paid)/refund (6 585) 5 314 (7 891)
97 300 31 943 115 922
Change in inventories (27 581) 2 050 (3 639)
Change in trade and other receivables (112 983) (151 703) (111 462)
Change in trade and other payables 81 369 41 267 110 247
Change in provisions 6 923 20 669 13 137
Net cash generated/(used) from operations 45 028 (55 774) 124 205
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 44 992 130 8 872
Acquisition of business, net of cash (10 840)
Acquisition of property, plant and equipment (125 994) (152 342) (257 722)
Acquisition of other investments (29 092) (1 173) (7 207)
Net cash used in investing activities (120 934) (153 385) (256 057)
Cash flows from financing activities
Proceeds from the issue of share capital,
net of expenses (582) 200 251 202 596
Increase/(decrease) in secured borrowings 201 012 (53 096) (40 209)
Post-retirement benefits paid (67)
Net cash generated in financing activities 200 430 147 155 162 320
Net increase/(decrease) in cash and
cash equivalents 124 524 (62 004) 30 468
Cash and cash equivalents at beginning of period 93 606 63 138 63 138
Cash and cash equivalents at end of period 218 130 1 134 93 606
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity
Share Share compensation Translation Retained Total
R'000 capital premium reserve reserve earnings equity
Balance at 1 March 2011 294 389 155 14 444 (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 93 199 907 200 000
Share-based payment transactions 1 781 1 781
Share options exercised 8 243 251
Total contributions by and distributions to owners 101 200 150 1 781 202 032
Balance at 31 August 2011 395 589 305 16 225 (26 324) 313 774 893 375
Balance at 1 March 2012 388 591 657 16 188 (21 395) 350 594 937 432
Profit for the period 47 336 47 336
Other comprehensive income
Foreign currency translation differences for foreign operations 18 268 18 268
Total other comprehensive income 18 268 18 268
Total comprehensive income for the period 18 268 47 336 65 604
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share issues (582) (582)
Share-based payment transactions 1 467 1 467
Acquisition of trust treasury shares (13) (21 287) 21 300
Total contributions by and distributions to owners (13) (21 869) 1 467 21 300 885
Balance at 31 August 2012 375 569 788 17 655 (3 127) 419 230 1 003 921
Information about reportable segments for the six months ended 31 August/12 months ended 29 February 2012
Esorfranki Geotechnical Esorfranki Civils Esorfranki Pipelines Corporate and Eliminations Consolidated
August August February August August February August August February August August February August August February
R'000 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012
External revenues 410 327 405 611 734 092 598 765 354 366 824 051 149 163 113 320 227 821 (15 479) (15 773) (14 272) 1 142 776 857 524 1 771 692
Reportable segment profit/(loss)
before income tax 39 246 15 211 42 620 28 670 (25 958) (2 564) 10 418 637 (4 767) (14 873) (13 764) (28 526) 63 461 (23 874) 6 763
Reportable segment assets 726 991 674 136 722 746 795 274 718 654 583 537 125 166 115 445 84 007 543 909 204 635 426 179 2 191 340 1 712 874 1 816 469
Geographical information
South Africa Other Regions Consolidated
August August February August August February August August February
R'000 2012 2011 2012 2012 2011 2012 2012 2011 2012
Total revenue 963 374 714 633 1 497 994 179 402 142 891 273 698 1 142 776 857 524 1 771 692
Profit/(loss) before interest
and tax 48 241 (33 219) 439 30 434 18 804 46 711 78 675 (14 415) 47 150
Total assets 1 895 389 1 300 919 1 568 821 295 951 411 955 247 648 2 191 340 1 712 874 1 816 469
DIRECTORS: DM Thompson* (Chairman); B Krone (CEO); W van Zyl (CFO); EG Dube*; MB Mathabathe*; Dr FA Sonn*; AC Brookstein
*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 (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
COMPANY SECRETARY: iThemba Governance and Statutory Solutions (Proprietary) Limited, Monument Office Park, Suite 5 102, 79 Steenbok Avenue, Monument Park, 0181 (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: 25/10/2012 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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