Wrap Text
Reviewed Condensed Consolidated Interim Results for the Six Months Ended 31 August 2014
ESOR LIMITED
(Registration number 1994/000732/06)
Incorporated in the Republic of South Africa
(JSE code: ESR ISIN: ZAE000133369)
("Esor" or "the company" or "the group")
REVIEWED CONDENSED
CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2014
HIGHLIGHTS
Operations generated
R38,7 million
in cash
Certificates
of completion
received for the three legacy
loss-making contracts
LTIFR 0,39
Order book
R2,4 billion
Commentary
Introduction
The reviewed condensed consolidated interim results for the six months ended 31 August 2014
("the period") reflect an improved performance from the preceding six month period, with losses curtailed
across the group. All three of the legacy loss-making contracts have been concluded and completion
certificates have been received.
Further, the claim in respect of Package 26 underground terraces for the Kusile project was finalised during
the period. This resulted in a release of R60 million held in guarantee and a net cash inflow for the group.
The way forward, with new contractual conditions, has been agreed.
The group's general support services, which include SHEQ, Plant, HR, IT, Commercial and Finance, have
been streamlined and in all but Finance new organisational structures have been implemented, with
Finance expected to be implemented during Q4 2015. The reorganisation has resulted in a review of the
current systems and an integration process is underway and set for completion by March 2015.
Financial results
Revenue declined 22,2% to R789,8 million (2013: R1,014 billion) in line with the consolidation initiatives
underway at the group.
The loss after tax increased by 61,6% to R24,0 million (2013: loss of R14,8 million). Net asset value per share
("NAV") was 198,4 cents (2013: 291,7 cents).
Operations generated R38,7 million in cash for the period (2013: consumed R21,2 million). The cash
balance at 31 August 2014 more than doubled from R20,8 million at 28 February 2014 to R50,7 million
at period-end. Nonetheless cash remains tight given the group's working capital requirements.
Safety
During the period Esor achieved an improved lost-time injury frequency rate (LTIFR) of 0,39, compared
to 0,59 at year-end. This is significantly ahead of the industry norm and the lowest since the group
commenced recording statistics. Esor places an emphasis on making safety a way of life and not merely
the application of a policy.
All ISO accreditations (9 001 and 14 001) and BS OHSAS (18 001) were renewed during the period.
Review of operations
Esor is in the final roll-out phase of streamlining cost reporting processes on an ever-increasing
requirement to continuously improve information flow to ensure consistent reporting and improved
decision-making. A commercial director was appointed in May 2014 and two additional regional
commercial managers were appointed in September 2014.
The loss-making N4 contract (now complete post period-end) and a reversal of R20 million on the now
settled claim at Kusile resulted in Esor Civils increasing its loss before tax by 26,3% to R39,9 million (2013: loss
of R31,6 million). All the legacy loss-making contracts have been concluded. Revenue was down 32,0%, in
line with the considered consolidation initiatives underway.
Contract cancellations, for instance the schools project in Gauteng, and delays such as on the
Diepsloot project due to environmental issues placed further pressure on the division's performance.
A significant portion of the Esor Civils order book remains reliant on Kusile. All legacy contract issues
with Eskom have been resolved and an agreed way forward is in place. During the period two of the
four Kusile projects were successfully completed, namely the joint venture projects for bulk earthworks
and crushing. The remaining projects are for the terrace underground facilities and general service piping.
The terrace underground facilities contract remains subject to moderate delays and disruptions and a
continued claims process is being dealt with on a monthly basis to ensure issues are addressed timeously.
Looking ahead Esor Civils has a secured two-year order book of R1 billion with potential further housing
contracts in KwaZulu-Natal.
Esor Pipelines' revenue was flat at R318 million (2013: R325 million), mainly as a result of a protracted start-
up for the Northern and Western Aqueduct projects as well as delayed contract awards. Notwithstanding
the delays on the Western Aqueduct, the value of secured work on this project has increased compared
to the initial award in 2011 which was subject to a court dispute.
Profitability was substantially down on the comparative period due to the inclusion of revenues on
successful claims in 2013. However, profitability improved by 9,4% on the prior six months (H2 2014)
to R11,04 million. This was on the back of major works secured in KwaZulu-Natal.
Outside South Africa the division established an indigenised company in Zimbabwe where the demand
for work is strong. However, funding constraints remain challenging. As a result Esor has partnered with
Vunani Capital to source lines of finance. In Zambia the group is targeting specific projects although these
continue to be plagued with delays in coming to market.
At period-end the order book stood at R604 million. The majority of the work is weighted towards KwaZulu-
Natal where the primary activity is currently located.
Esor Developments had a subdued first half particularly as a result of delays at Diepsloot (see Esor Civils).
The Gauteng Department of Human Settlements remains committed to the roll-out of the integrated
housing development and we believe the R1,5 billion project should get underway early in the 2015
calendar year.
Revenue of R32,1 million was up 296%, albeit coming off a low base. The loss before tax improved by
84% to R0,7 million.
At Orchards an average of 30 stands per month are being sold, which is in line with market predictions.
A further 291 stands were serviced during the period and sales have commenced. The first registrations
are expected before the end of the 2014 calendar year.
At Uitvlugt the assessment of the existing infrastructure has been concluded and final valuation is being
awaited. This will enable the group to obtain project finance and construction will commence in the first
half of FY2016.
At period-end the two-year order book stood at R700 million.
Capex
Capital expenditure of R12 million (2013: R26,8 million) was incurred during the period, primarily within
Esor Pipelines to expand and modernise the fleet. The group does not foresee any major capex spend in
the next six months. The rationalisation of the Esor Civils plant is continuing as we align our plant fleet with
the mix of work currently on hand. The disposals totalled R20,9 million for the period.
Transformation
Esor maintained its Level 3 B-BBEE accreditation in terms the Department of Trade and Industry's
B-BBEE Codes of Good Practice, and is targeting Level 2 by 2016 (based on the 2009 Construction
Sector Charter).
During the period the Esor Broad-Based Share Ownership Scheme ("EBBSOS") acquired an additional
7,7 million shares in the company to take the shareholding to 5,32% from 3,37% at year-end.
The group continues to invest heavily in enterprise development with eight SMMEs currently receiving
Esor's support.
Prospects
Looking ahead the group has a consolidated two-year order book of R2,4 billion.
The group is positioned for profitable future growth with the conclusion of the legacy loss-making
contracts, settlement of the Kusile claim, projects expected to come on stream (previously delayed) and
the consolidation and reorganisation nearing completion.
We do not foresee any major change in the market over the next six months and expect flat trading
conditions in a still highly competitive local market. Esor has strategically positioned itself in the
Developments' division and is partnering with companies that add value to our pipeline.
Directorate
In line with the current phase of consolidation, a long-planned restructuring of the board was
effected during the period. Bernie Krone, Dave Thompson and Franklin Sonn had originally deferred
their planned retirements to ensure the seamless conclusion of the sale of Esorfranki Geotechnical.
Bernie Krone remains on board as the Group Chairman (non-executive). The new board under his
guidance and that of CEO Wessel van Zyl continues to ensure compliance with governance and
transformation requirements, with a valuable mix of business, financial and engineering expertise.
Bernie Krone's change of designation was effective 1 September 2014. CFO Wessel van Zyl was
appointed as CEO following Bernie's retirement. Bruce Atkinson was appointed as CFO effective
6 October 2014.
Oswald Franks was appointed as Lead Independent Director effective 21 August 2014.
Effective 21 August 2014 Heather Sonn and Eugene Erasmus were appointed as independent non-
executive directors, while Keneilwe Moloko was appointed as independent non-executive director
effective 6 October 2014.
Dave Thompson and Franklin Sonn retired as independent non-executive Chairman and independent
non-executive director, respectively, effective 21 August 2014.
Dividend declaration
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.
Events after the reporting date
Esor has entered into a strategic partnership with Calgro M3 Limited ("Calgro M3"), which has invested
in 50% of the SPV that owns the development rights for the Diepsloot development. Calgro M3 will be
responsible for the marketing and project management, while Esor will conduct all planning and selected
construction work.
Statement of compliance
The reviewed condensed consolidated interim financial statements for the period have been prepared in
accordance with the International Financial Reporting Standards (IFRS), SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee, the JSE Listings Requirements and the requirements of
the Companies Act of South Africa. The accounting policies applied in the preparation of these interim
financial statements are in terms of IFRS and are consistent with those applied in the previous annual
financial statements.
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 management and all our employees for their ongoing tenacity and hard work. We also thank
our business partners, suppliers, advisors and our valued clients and shareholders for their continued
support of the group.
On behalf of the board
Bernie Krone Wessel van Zyl
Chairman CEO
27 November 2014
Condensed consolidated
statement of financial position
Reviewed Reviewed Audited
31 August 31 August 28 February
2014 2013 2014
R'000 R'000 R'000
ASSETS
Non-current assets 587 727 804 482 613 660
Property, plant and equipment 289 719 383 564 320 135
Intangible assets – 85 391 –
Goodwill 185 062 296 169 185 062
Loans and long-term receivables 36 630 29 739 32 083
Financial assets at fair value through profit or loss 64 923 – 64 923
Deferred tax asset 11 393 9 619 11 457
Current assets 903 953 1 767 095 935 151
Inventories 228 536 125 654 221 345
Other investments – 1 270 –
Taxation – – 13 455
Trade and other receivables 624 736 861 531 659 928
Cash and cash equivalents 50 681 24 496 40 423
Assets held for sale – 754 144 –
Total assets 1 491 680 2 571 577 1 548 811
EQUITY AND LIABILITIES
Share capital and reserves 742 475 1 093 137 777 219
Share capital and premium 583 730 571 300 586 145
Equity compensation reserve – 18 756 19 213
Foreign currency translation reserve 12 970 41 365 23 665
Retained earnings 145 775 461 716 148 196
Non-current liabilities 159 514 253 591 207 802
Secured borrowings* 123 372 145 147 163 043
Preference shares* 22 279 22 217 23 424
Deferred tax liabilities 13 863 86 227 21 335
Current liabilities 589 691 1 224 849 563 790
Current portion of secured borrowings* 105 216 262 315 74 350
Taxation 7 337 2 373 19 131
Provisions 15 817 24 352 13 713
Bank overdraft* – 69 168 19 583
Trade and other payables 461 321 552 870 437 013
Liabilities held for sale – 313 771 –
Total equity and liabilities 1 491 680 2 571 577 1 548 811
Net asset value per share (cents) 198,4 291,7 203,5
Tangible net asset value per share (cents)** 162,8 218,4 168,6
* Interest-bearing debt
** (Net asset value less intangible assets net of deferred tax)/issued shares at period end
Condensed consolidated statement of profit
or loss and other comprehensive income
Six months Six months Year
ended ended ended
Reviewed Reviewed Audited
31 August 31 August 28 February
2014 2013 Change 2014
R'000 R'000 % R'000
Continuing operations
Revenue 789 831 1 014 591 (22,2) 1 592 835
Cost of sales (756 908) (951 697) (20,5) (1 611 624)
Gross profit 32 923 62 894 (47,7) (18 789)
Other income 5 612 5 668 (1,0) 10 564
Operating expenses (45 553) (40 554) 12,3 (127 117)
(Loss)/profit before interest, tax,
amortisation, impairments and
depreciation (7 018) 28 008 (125,1) (135 342)
Depreciation, impairments and
amortisation (23 920) (36 862) (35,1) (146 419)
Results from operating activities (30 938) (8 854) (249,4) (281 761)
Finance costs (7 544) (12 896) (41,5) (42 420)
Finance income 5 944 289 1 956,7 4 980
Loss before tax (32 538) (21 461) (51,6 ) (319 201)
Taxation 8 546 6 618 (29,1) 102 862
Loss from continuing operations (23 992) (14 843) (61,6) (216 339)
Discontinued operations
Profit from discontinued operations,
net of tax – 17 053 50 178
(Loss)/profit for the period (23 992) 2 210 (1 185,6) (166 161)
Other comprehensive income
Foreign currency translatio
differences for foreign operations (9 808) 37 515 (126,14) 25 568
Income tax on other comprehensive
income 1 471 (5 627) 126,14 (5 753)
Other comprehensive income for the
period, net of tax (8 337) 31 888 126,14 19 815
Total comprehensive income
attributable to:
Owners of the company (32 329) 34 098 (194,8) (146 346)
Basic (loss)/earnings per share (cents) (6,28) 0,60 (946,67) (43,5)
Diluted (loss)/earnings
per share (cents) (6,28) 0,60 (946,67) (43,5)
Reconciliation of headline earnings
(Loss)/profit attributable to ordinary
shareholders (23 992) 2 210 (1 185,6) (166 161)
Adjusted for:
Profit on disposal of property, plant
and equipment (1 147) (2 175) (47) 294
Loss on disposal of discontinued
operations – – – 38 190
Impairment of intangible assets – – – 84 638
Headline (loss)/profit attributable to
ordinary shareholders (25 139) 35 (71 925,7) (43 039)
Number of ordinary shares
in issue ('000) 395 185 395 185 395 185
Diluted weighted average 381 747 375 606 381 970
Weighted average 381 747 375 606 381 970
Headline (loss)/earnings
per share (cents) (6,59) 0,01 (11,3)
Condensed consolidated
statement of changes in equity
Equity
compen-
Share Share sation Translation Retained Total
R'000 capital premium reserve reserve earnings equity
Balance at 1 March 2013 376 570 924 18 606 3 850 459 506 1 053 262
Profit for the period 2 210 2 210
Other comprehensive income
Foreign currency translation
differences for foreign operations 37 515 37 515
Total other comprehensive income – – – 37 515 – 37 515
Total comprehensive income for
the period – – – 37 515 2 210 39 725
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Share-based payment transactions 150 150
Total contributions by and
distributions to owners – – 150 – – 150
Balance at 31 August 2013 376 570 924 18 756 41 365 461 716 1 093 137
Balance at 1 March 2014 382 585 763 19 213 23 665 148 196 777 219
Loss for the period (23 992) (23 992)
Other comprehensive income
Foreign currency translation
differences for foreign operations (8 337) (8 337)
Total other comprehensive income – – – (8 337) – (8 337)
Total comprehensive income for
the period – – – (8 337) (23 992) (32 329)
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners
Treasury shares acquired (8) (2 407) (2 415)
Transfer to retained earnings (19 213) (2 358) 21 571 –
Total contributions by and
distributions to owners (8) (2 407) (19 213) (2 358) 21 571 (2 415)
Balance at 31 August 2014 374 583 356 – 12 970 145 775 742 475
Condensed consolidated
statement of cash flows
Six months Six months Year
ended ended ended
Reviewed Reviewed Audited
31 August 31 August 28 February
2014 2013 2014
R'000 R'000 R'000
Cash flows from operating activities
(Loss)/profit before taxation (32 538) 4 589 (254 808)
Adjustments for:
Depreciation of property, plant and equipment 23 920 51 977 85 215
Impairment of intangible assets – – 84 638
Amortisation of intangible assets – 945 1 890
Amortisation of financial asset – – 3
Profit on disposal of property, plant and equipment (1 593) (4 285) (4 100)
Loss on disposal of property, plant and equipment – – 7 914
Foreign currency adjustment (8 337) 31 250 28 779
Equity settled share-based payment transactions – 150 607
Loss on disposal of discontinued operations – – 31 973
Dividend paid – – (145 149)
Income tax refund/(paid) 2 799 22 523 (455)
15 749 107 149 (163 493)
Change in inventories (7 191) (76 934) (131 788)
Change in trade and other receivables 35 192 (306 285) (105 256)
Change in trade and other payables 24 308 265 331 140 869
Change in provisions 2 104 (10 481) (19 401)
Net cash generated/(used) in operations 38 664 (21 220) (279 069)
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment 20 089 41 526 79 312
Acquisition of business, net of cash – – (40 558)
Acquisition of property, plant and equipment (12 000) (26 798) (52 564)
Disposal of discontinued operation – – 437 387
Acquisition of other investments (4 547) (3 283) (761)
Net cash generated in investing activities 3 542 11 445 422 816
Cash flows from financing activities
Proceeds from the issue of share capital,
net of expenses – – 14 845
(Decrease)/increase in secured borrowings (9 950) 683 (171 340)
Treasury shares acquired (2 415) – –
Net cash (used)/generated in financing activities (12 365) 683 (156 495)
Net incresase/(decrease) in cash and cash
equivalents 29 841 (9 092) (12 748)
Cash and cash equivalents at beginning of period 20 840 33 588 33 588
Cash and cash equivalents at end of period 50 681 24 496 20 840
Discontinued operations
Effective 21 November 2013, the group disposed of 100% of its Geotechnical business unit to Keller. This
comprised operations in South African branches as well as the subsidiaries in Botswana, Ghana, Mauritius,
Lesotho, Seychelles, Mozambique, Namibia and Swaziland.
The profit or loss of the discontinued operations for the period was as follows:
Six months Six months Year
ended ended ended
Reviewed Reviewed Audited
31 August 31 August 28 February
2014 2013 2014
R'000 R'000 R'000
Results from discontinued operations
Revenue – 464 226 724 052
Expenses – (438 176) (659 659)
Results before taxation – 26 050 64 393
Income tax – (8 997) (14 215)
Profit for the period – 17 053 50 178
Basic earnings per share from
discontinued operations – 4,6 13,1
Diluted earnings per share from
discontinued operations – 4,6 13,1
Headline earnings per share from
discontinued operations – 4,4 13,1
The profit from discontinued operations is attributable entirely to the owners of the company.
Financial asset at fair value through profit or loss
The contingent consideration receivable,
a Level 3 financial asset, arose from the
disposal of the discontinued operation, which
includes a clause that entitles the seller to an
amount of R150 million if the discontinued
operation's cumulative EBITDA over the next
three years exceeds a threshold. The fair value
is determined considering the estimated
receivable, discounted to present value.
The fair value is based on key unobservable
inputs of EBITDA growth of the business of
8% and a discount factor of 9%. The fair
value was determined by the group finance
department. Scenarios on EBITDA growth were
developed by the management considering
the economy generally and their knowledge of
the geotechnical business. The estimated fair
value increases the higher the annual EBITDA
growth rate, the higher the EBITDA margin and
the lower the discount rate. Management
considers that changing the abovementioned
unobservable inputs to reflect other reasonably
possible alternative assumptions would not
result in a significant change in the estimated
fair value 64 923 – 64 923
Information about
reportable segments
for the six months ended 31 August/12 months ended 28 February
Esor Civils Esor Pipelines
August August February August August February
2014 2013 2014 2014 2013 2014
R'000 R'000 R'000 R'000 R'000 R'000
Continuing operations
Segment revenues 463 426 681 864 961 599 318 426 324 590 579 285
Reportable segment
(loss)/pro?t before
income tax (39 868) (31 575) (199 060) 11 034 31 121 41 210
Reportable segment
assets 674 837 987 196 788 590 263 611 218 467 254 857
Esor Developments Corporate and Eliminations
August August February August August February
2014 2013 2014 2014 2013 2014
R'000 R'000 R'000 R'000 R'000 R'000
Continuing operations
Segment revenues 32 075 8 137 63 356 (24 096) – (11 405)
Reportable segment
(loss)/pro?t before
income tax (688) (4 301) 1 062 (3 016) (16 706) (162 413)
Reportable segment
assets 244 321 105 669 264 454 308 911 506 101 240 910
Consolidated
August August February
2014 2013 2014
R'000 R'000 R'000
Continuing operations
Segment revenues 789 831 1 014 591 1 592 835
Reportable segment
loss before
income tax (32 538) (21 461) (319 201)
Reportable segment
assets 1 491 680 1 817 433 1 548 811
Esorfranki Geotechnical
August August February
2014 2013 2014
R'000 R'000 R'000
Discontinued operations
External revenues – 464 226 724 052
Reportable segment
pro?t before
income tax – 26 050 64 393
Reportable segment
assets – 754 144 –
South Africa Other Regions
Geographical August August February August August February
information 2014 2013 2014 2014 2013 2014
R'000 R'000 R'000 R'000 R'000 R'000
Continuing operations
Total revenue 789 831 994 111 1 553 706 – 20 480 39 129
Reportable segment
(loss)/profit before
income tax (32 538) (25 166) (319 284) – 3 705 83
Total assets 1 491 680 1 811 497 1 547 690 – 5 936 1 121
Consolidated
Geographical August August February
information 2014 2013 2014
R'000 R'000 R'000
Continuing operations
Total revenue 789 831 1 014 591 1 592 835
Reportable segment
loss before
income tax (32 538) (21 461) (319 201)
Total assets 1 491 680 1 817 433 1 548 811
South Africa Other Regions
Geographical August August February August August February
information 2014 2013 2014 2014 2013 2014
R'000 R'000 R'000 R'000 R'000 R'000
Discontinued operations
Total revenue – 331 655 422 639 – 132 571 301 413
Reportable segment
profit/(loss) before
income tax – 1 151 (15 526) – 24 899 79 919
Total assets – 425 027 – – 329 117 –
Consolidated
Geographical August August February
information 2014 2013 2014
R'000 R'000 R'000
Discontinued operations
Total revenue – 464 226 724 052
Reportable segment
profit before
income tax – 26 050 64 393
Total assets – 754 144 –
DIRECTORS:
B Krone (Chairman)+
WC van Zyl (CEO)
BW Atkinson (CFO)
EG Dube*
E Erasmus*
Dr OW Franks* (Lead Independent)
KR Moloko*
HJ Sonn*
*Independent non-executive +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, Vunani Office Park
151 Katherine Street, Sandton, 2196
(PO Box 652 419, 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, Monumentpark, 0181
PO Box 25160, Monumentpark, 0181
INVESTOR RELATIONS:
Envisage Investor and Corporate Relations
4th Floor, South Wing
Hyde Park Corner
Jan Smuts Avenue
Hyde Park, 2196
formerly Esorfranki Limited
30 Activia Road, Activia Park
Germiston South Africa
Tel: +27 11 776 8700
Fax: +27 11 822 1158
www.esor.co.za
Date: 27/11/2014 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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