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ESR - Esor - Reviewed Interim Results For The Six Months Ended 31 August 2008

Release Date: 05/11/2008 07:28:02      Code(s): ESR
ESR - Esor - Reviewed Interim Results For The Six Months Ended 31 August 2008   
Esor Limited                                                                    
(Registration number 1994/000732/06 )                                           
Incorporated in the Republic of South Africa                                    
(Share Code: ESR & ISIN Code: ZAE000078408)                                     
("Esor" or "the company")                                                       
SALIENT FEATURES                                                                
-    Revenue up 22,2%                                                           
-    EBITDA up 12,3%                                                            
-    NAV per share up 26,5%                                                     
-    PPE up R187,1 million                                                      
-    Operating cash generated R83,5 million                                     
REVIEWED INTERIM RESULTS                                                        
for the six months ended 31 August 2008                                         
Consolidated income statement                                                   
6 months ended                  Year ended               
                       31 August   31 August           29 February              
                       (Reviewed)  (Reviewed)          (Audited)                
                       2008        2007        Change  2008                     
R`000       R`000       %       R`000                    
Revenue                 578 607     473 575     22,2    1 017 480               
Gross profit            158 580     144 521     9,7     271 934                 
Other income            616         433                 1 651                   
Operating expenses      (52 988)    (50 337)            (90 087)                
Profit before           106 208     94 617      12,3    183 498                 
interest, tax and                                                               
depreciation                                                                    
Depreciation            (20 597)    (10 612)            (30 391)                
Profit before interest  85 611      84 005              153 107                 
and taxation                                                                    
Interest paid           (11 636)    (9 268)             (28 171)                
Interest received       11 907      6 713               32 883                  
Profit before taxation  85 882      81 450      5,4     157 819                 
Taxation                (30 029)    (25 258)            (41 817)                
Profit for the period   55 853      56 192              116 002                 
Reconciliation of                                                               
headline earnings                                                               
Profit attributable to  55 853      56 192              116 002                 
ordinary shareholders                                                           
Adjusted for:                                                                   
Profit on disposal of   (101)       (93)                (760)                   
property, plant and                                                             
equipment                                                                       
Loss on disposal of     229         -                   46                      
property, plant and                                                             
equipment                                                                       
Headline earnings       55 981      56 099              115 288                 
attributable to                                                                 
ordinary shareholders                                                           
Number of ordinary                                                              
shares (`000)                                                                   
in issue             244 007     219 515             243 019                  
  diluted weighted     246 525     223 638             228 677                  
average                                                                         
  weighted average     243 513     218 993             224 560                  
Earnings per ordinary                                                           
share (cents)                                                                   
 basic                 22,9        25,7                51,7                     
 diluted earnings      22,7        25,1                50,7                     
headline              23,0        25,6                51,3                     
Dividends per ordinary  -           -                   20,0                    
share (cents)                                                                   
Condensed consolidated cash flow statement                                      
6 months ended          Year ended               
                               31 August   31 August   29 February              
                               (Reviewed)  (Reviewed)  (Audited)                
                               2008        2007        2008                     
R`000       R`000       R`000                    
Cash flows from operating       69 856      98 957      133 356                 
activities                                                                      
Cash generated from operations  83 507      106 808     150 227                 
Interest received               3 626       2 477       10 805                  
Interest paid                   (5 918)     (4 394)     (8 669)                 
Taxation paid                   (11 359)    (5 934)     (19 007)                
Cash flows from investing       (121 633)   (30 566)    (146 399)               
activities                                                                      
Acquisition of property, plant  (98 715)    (30 874)    (147 470)               
and equipment                                                                   
Proceeds on disposal of         179         308         1 071                   
property, plant and equipment                                                   
Brand name acquired             (2 117)     -           -                       
Goodwill acquired               (9 547)     -           -                       
Investment acquired             (5 053)     -           -                       
Acquisition of business         (6 380)     -           -                       
Cash flows from financing       4 630       7 697       76 254                  
activities                                                                      
Net movement in borrowings      52 969      20 797      54 619                  
Share issues net of issue       300         1 190       38 235                  
expenses                                                                        
Dividend paid                   (48 639)    (14 290)    (14 290)                
Post retirement benefit         -           -           (2 310)                 
Cash flows for the period       (47 147)    76 088      63 211                  
Cash and cash equivalents at    115 859     52 648      52 648                  
beginning of period                                                             
Cash and cash equivalents at    68 712      128 736     115 859                 
end of period                                                                   
Consolidated balance sheet                                                      
                                 31 August   31 August  29 February             
                                 (Reviewed)  (Reviewed) (Audited)               
2008        2007       2008                    
                                 R`000       R`000      R`000                   
Assets                                                                          
Property, plant and equipment     346 931     159 804    262 741                
Intangible assets                 96 646      94 529     94 529                 
Goodwill                          9 547       -          -                      
Deferred taxation                 -           2 285      2 677                  
Current assets                                                                  
Inventories                       10 964      9 077      7 224                  
Investments                       5 053       -          -                      
Taxation                          13 576      8 626      3 527                  
Trade and other receivables       295 900     194 061    271 914                
Cash at bank and on hand          68 712      128 736    115 859                
Total assets                      847 329     597 118    758 471                
EQUITY AND LIABILITIES                                                          
Share capital and premium         213 887     176 124    213 587                
Equity compensation reserve       3 139       1 582      2 361                  
Foreign currency translation      6 431       174        6 683                  
reserve                                                                         
Post retirement benefit reserve   4           (1 681)    4                      
Accumulated profits               174 243     106 561    167 029                
Non-current liabilities                                                         
Secured borrowings*               133 425     67 078     85 169                 
Post retirement benefits          8 106       10 382     8 106                  
Deferred taxation                 31 128      17 759     14 048                 
Current liabilities                                                             
Current portion of secured        26 017      13 952     21 304                 
borrowings*                                                                     
Taxation                          35 743      22 894     26 781                 
Provisions                        32 059      28 234     15 559                 
Trade and other payables          183 147     154 059    197 840                
Total equity and liabilities      847 329     597 118    758 471                
Net asset value per share         163,0       128,81     160,3                  
(cents)                                                                         
Tangible net asset value per      119,5       85,75      121,5                  
share (cents)                                                                   
* Interest-bearing debt                                                         
Condensed consolidated segmental analysis                                       
                                6 months ended         Year ended               
                                31 August   31 August  29 February              
(Reviewed)  (Reviewed) (Audited)                
                                2008        2007       2008                     
                                R`000       R`000      R`000                    
Revenue                                                                         
South Africa                   464 535     391 113    848 273                  
 Other regions                  114 072     82 462     169 207                  
                                578 607     473 575    1 017 480                
Profit before interest and tax                                                  
South Africa                   55 385      64 012     114 484                  
 Other regions                  30 226      19 993     38 623                   
                                85 611      84 005     153 107                  
Profit after tax                                                                
South Africa                   33 904      41 591     82 438                   
 Other regions                  21 949      14 601     33 564                   
                                55 853      56 192     116 002                  
Total assets                                                                    
South Africa                   664 405     503 258    628 708                  
 Other regions                  182 924     93 860     129 763                  
                                847 329     597 118    758 471                  
Total liabilities                                                               
South Africa                   390 178     278 688    341 762                  
 Other regions                  59 447      35 669     27 045                   
                                449 625     314 357    368 807                  
Consolidated statement of recognised income and expenditure                     
6 months ended         Year ended               
                                31 August   31 August  29 February              
                                (Reviewed)  (Reviewed) (Audited)                
                                2008        2007       2008                     
R`000       R`000      R`000                    
Defined benefit plan actuarial   -           (1 000)    685                     
gain/(loss)                                                                     
Shares issued                    1 258       -          8 670                   
Share issue expenses             (958)       -          (435)                   
Share-based payments             778         -          1 703                   
Derecognition of special         -           -          30 667                  
purpose entity                                                                  
Dividends paid                   (48 639)    (14 290)   (14 290)                
Foreign currency translation     (252)       134        6 642                   
differences for foreign                                                         
operations                                                                      
Net expenses recognised          (47 813)    (15 156)   33 642                  
directly in equity                                                              
Profit for the period            55 853      56 192     116 002                 
Total recognised income and      8 040       41 036     149 644                 
expenses for the period                                                         
COMMENTS                                                                        
Introduction                                                                    
The results of Esor for the six months ended 31 August 2008 ("the interim       
period") reflect meaningful growth in revenue which indicates that the group    
is on track to achieve its budgeted revenue for the full year to February       
2009.                                                                           
Esor`s strategy of pursuing selective contracts yielding higher margins has     
proved successful to a degree, notwithstanding the impact of economic factors   
that depressed margins industry-wide during the interim period. Focus on        
lucrative cross-border projects also yielded benefit for the group with a       
large percentage of profit after tax ("PAT") being generated from these         
contracts in hard currency.                                                     
Review of operations                                                            
While the strategy of contract selection continues to result in good margins,   
growth in margins for the interim period has declined. Specifically the         
rising cost of steel during the interim period and extraordinary, successive    
increases in the fuel price had a negative effect. The relatively short         
duration of most of Esor`s contracts (three to six weeks) precludes the         
inclusion of escalation clauses to mitigate against these cost fluctuations.    
Further, intensified competition in Esor`s industry following the downturn in   
the local economy in light of the power crisis, escalating interest rates and   
political uncertainty served to compound the adverse effect on margins.         
Overall negative sentiment due to the factors above weakened Esor`s market      
generally, and affected the group`s workforce and productivity to an extent     
during the interim period.                                                      
In contrast, Esor`s African operations performed well, contributing 19,7% to    
group revenue and a significant 39,3% to PAT. Particularly operations based     
in oil-rich Angola - a country with excellent growth prospects - contributed    
strongly to the group`s performance.                                            
Notwithstanding the negative trading conditions, demand for geotechnical        
services remains buoyant driven by government`s continued and sustainable       
commitment to infrastructure development.                                       
CAPEX and plant replacement policy                                              
During the interim period the group continued to invest in organic growth       
with the purchase of capital equipment to the value of R99 million. An          
additional R75 million worth of plant is currently in the pipeline. All         
orders were placed prior to the recent devaluation of the Rand against major    
world currencies and adequate forward cover is in place.                        
Management remains committed to enhancing the group`s existing fleet of         
equipment, which is highly productive, with "state-of-the-art" modern rigs.     
This aggressive plant renewal policy resulted in the depreciation charge for    
the interim period more than doubling from that of the same period in the       
previous year ("the comparative period").                                       
The full benefit of the new plant will be realised in the financial years       
ending February 2010 and 2011 and going forward, as certain of the new          
equipment is not yet fully operational due to the delay between commissioning   
and roll-out into use. Research & Development to ensure the optimal             
utilisation of equipment such as Full Displacement Screwpiles, which involve    
the latest technology, is currently underway and deployment will take place     
in accordance with this process. The group has already identified the           
contracts in respect of which the new equipment will be utilised.               
Going forward Esor intends to prioritise retooling and upgrading of plant in    
Angola where demand is flourishing.                                             
Black economic empowerment                                                      
Esor is currently rated as a `Level 6` contributor to broad-based BEE.          
The group`s commitment to transformation is evidenced by its 30,3% black        
shareholding (including retail shareholders on the open market). Through the    
Esor Broad-based Share Ownership Scheme, staff now holds a 7,56% stake in the   
company.                                                                        
More than 70% of the group`s 1 500-strong workforce is black. Esor is           
cognisant of the need to increase black participation at senior and middle      
management levels. In this regard the group is starting to realise the          
benefits of earlier initiatives as newly-skilled senior black employees begin   
to come through the ranks. Three of Esor`s four non-executive directors on      
the board of directors are black.                                               
The group remains committed to improving all aspects of its BEE scorecard       
including affirmative procurement and enterprise development.                   
Financial results                                                               
Revenue increased by 22,2% to R579 million from the comparative period.         
Management is confident revenue growth will continue into the next financial    
year to February 2010 with the current order book at the date of this report    
standing at more than R1 billion (excluding the acquisitions - see `Post        
Balance Sheet Events`).                                                         
Gross profit was 9,7% higher at R159 million compared to R145 million in the    
comparative period while EBITDA increased 12,3% to R106,2 million. Net asset    
value ("NAV") per share increased by 26,5% to 163,0 cents from 128,8 cents      
(and 1,7% when compared with the NAV per share of 160,3 cents for the           
previous full year ended 29 February 2008).                                     
A higher effective tax rate than in the comparative period resulted in          
marginally lower headline earnings of R56.0 million compared to R56,1           
million. This translated to headline earnings per share ("HEPS") of 23,0        
cents, down from 25,6 cents. Growth in HEPS was further constrained by an       
increase in the number of average weighted shares in issue. (The Esor Broad-    
based Share Ownership Scheme was de-recognised during the previous year ended   
February 2008, which resulted in the 18,75 million treasury shares held by      
the Scheme being accounted for during the interim period as fully issued        
shares.)                                                                        
Post balance sheet events                                                       
With effect from 1 May 2008 Franki Africa (Pty) Limited - a wholly-owned        
subsidiary of Esor - acquired the business of Geo Compaction Dynamics (Pty)     
Limited for R18,044 million. Geo Compaction Dynamics specialises in             
geotechnical contracting services for the civil engineering industry            
including dynamic compaction, percussion piling and permanent and temporary     
lateral support. The company has integrated well into the group and the         
benefits of the acquisition are expected to be realised in the future.          
Further, as previously announced on 22 and 29 September 2008, Esor has          
acquired civil engineering groups Patula Construction ("Patula") and            
Shearwater Construction ("Shearwater") for maximum purchase considerations of   
R430 million and R220 million, respectively (collectively "the                  
acquisitions").                                                                 
Effective control of these companies will be obtained once all conditions       
precedent have been fulfilled.                                                  
The acquisitions are set to re-position Esor alongside other major JSE civil    
engineering construction groups. This will further expose the group to the      
multi-billion Rand infrastructure programme locally and in Africa.              
Specifically the acquisitions will expand services from sub-surface             
foundation work for major non-residential buildings, infrastructure, mines      
and marine projects to above-surface civil engineering and construction         
services. These will include road building, mining and township                 
infrastructure work, water delivery contracts and concrete projects for         
government, major mining houses and the private sector as well as specialist    
expertise in the construction and rehabilitation of onshore pipelines.          
Prospects                                                                       
The outlook for the local civil engineering and construction industry remains   
buoyant, boding well for Esor`s growth. The group is closely aligned to         
government`s infrastructure spend which according to the medium-term budget     
is set to continue at an unprecedented rate notwithstanding the effects of      
the current global economic crisis on the South African economy.                
The market in the Western Cape is slowly showing signs of revival and the       
group expects to see good work flow from the region going forward. Further,     
Esor`s repositioning as a civil engineering construction group following the    
acquisitions will enhance its exposure to public sector spend. The benefits     
of the acquisitions should start to be realised in the six months ahead to      
year-end but should be felt more fully in the next financial year to February   
2010 when they will have been included for a full 12 months.                    
Further, the lower price of oil and falling prices worldwide of commodities     
including steel should provide some relief on margin pressure going forward.    
Esor and Franki will also continue to secure contracts in Sub-Saharan Africa    
across all disciplines. Prospects in countries outside of South Africa remain   
promising. Development in oil-related infrastructure in Angola is continuing    
at exceptional levels and Mauritius, Mozambique and Tanzania all offer strong   
opportunities.                                                                  
Dividend policy                                                                 
In line with group policy no interim dividend has been declared. The board      
remains committed to declaring a full-year dividend for the year to 28          
February 2009.                                                                  
Appreciation                                                                    
Our staff are key to the success of the group and we thank them for their       
contribution. Our commitment to a healthy and inspiring workplace environment   
is evidenced in their exceptional loyalty, which is in turn reflected in the    
net gain of employees over the last year. We also thank our business            
partners, advisors, suppliers, clients and most importantly our shareholders    
for their ongoing support and faith in the group.                               
Basis of preparation                                                            
The reviewed condensed consolidated interim financial statements for the six    
months ended 31 August 2008 have been prepared in compliance with               
International Accounting Standard ("IAS") 34 - Interim Financial Reporting.     
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 29 February 2008, which comply with International Financial      
Reporting Standards ("IFRS").                                                   
Auditor`s independent review                                                    
These condensed consolidated financial results for the interim period have      
been reviewed by the company`s auditors, RSM Betty & Dickson (Durban), 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.                                               
On behalf of the board.                                                         
Bernard Krone                      Wayne van Houten                             
Chief Executive Officer            Chief Financial Officer                      
5 November 2008                                                                 
CORPORATE INFORMATION                                                           
Non-executive directors:                                                        
DM Thompson (Chairman), E Dube, JM Hlongwane, FA Sonn (Alternate: JC van        
Reenen)                                                                         
Executive directors:                                                            
ML Barber, AM Field*, B Krone (Chief Executive), RP McLintock, ML               
Trevisani**, W van Houten     * British ** Italian                              
Group secretary:                                                                
ID Stephen                                                                      
Registered office:                                                              
130 Aberdare Drive, Phoenix Industrial Park, Durban, 4051                       
PO Box 40096, Red Hill, 4071                                                    
Telephone:  +27 31 507 1051                                                     
Fax:  +27 31 507 5709                                                           
Transfer secretaries:                                                           
Computershare Investor Services (Proprietary) Limited                           
Ground Floor, 70 Marshall Street, Johannesburg, 2001                            
PO Box 61051, Marshalltown, 2107                                                
Auditors:                                                                       
RSM Betty & Dickson (Durban), Block A Surrey Park                               
6 Barham Road, Westville, 3629                                                  
PO Box 2120, Westville, 3630                                                    
Designated advisors:                                                            
Exchange Sponsors (Proprietary) Limited                                         
44 A Boundary Road, Inanda, 2196                                                
www.esor.co.za                                                                  
Date: 05/11/2008 07:28:01 Supplied by www.sharenet.co.za                     
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