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ESR - Esorfranki Limited - Audited condensed consolidated results for the year

Release Date: 19/05/2009 07:05:10      Code(s): ESR
ESR - Esorfranki Limited - Audited condensed consolidated results for the year  
ended 28 February 2009                                                          
ESORFRANKI LIMITED                                                              
(formerly Esor Limited)                                                         
(Incorporated in the Republic of South Africa)                                  
(Registration number 1994/000732/06)                                            
JSE Code : ESR ISIN Code : ZAE000133369                                         
("Esorfranki" or "the company" or "the group")                                  
AUDITED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2009      
HIGHLIGHTS                                                                      
* Revenue up 39% to R1,4 billion                                                
* EBITDA up 78% to R325,9 million                                               
* Headline earnings up 35% to R155,3 million                                    
* Headline earnings per share up 20% to 61,7 cents                              
* Dividend of 15 cents per share                                                
* Patula and Shearwater acquisitions successfully completed                     
* Order book of R1,5 billion                                                    
CONDENSED CONSOLIDATED BALANCE SHEET                                            
                                                          2009        2008      
R`000       R`000      
ASSETS                                                                          
Non-current assets                                      987 520     386 415     
Property, plant and equipment                           588 545     262 741     
Intangible assets                                       113 022      94 529     
Goodwill (1)                                            280 173      26 468     
Deferred tax asset                                        5 780       2 677     
Current assets                                          875 972     398 524     
Inventories                                              11 379       7 224     
Other investments                                        14 269           -     
Taxation                                                  4 699       3 527     
Trade and other receivables                             572 800     271 914     
Cash and cash equivalents                               272 825     115 859     
Total assets                                          1 863 492     784 939     
EQUITY AND LIABILITIES                                                          
Share capital and reserves                              619 577     389 664     
Share capital and premium                               339 078     213 587     
Equity compensation reserve                               3 917       2 361     
Foreign currency translation reserve                     14 651       6 683     
Accumulated profits                                     261 931     167 033     
Non-current liabilities                                 470 080     133 791     
Secured borrowings                                      370 603      85 169     
Post-retirement benefits                                  1 587       8 106     
Deferred tax liability (1)                               97 890      40 516     
Current liabilities                                     773 835     261 484     
Current portion of secured borrowings                   147 664      21 304     
Taxation                                                 84 358      26 781     
Provisions                                               31 118      15 559     
Trade and other payables                                510 695     197 840     
Total equity and liabilities                          1 863 492     784 939     
Number of ordinary shares in issue (`000)               289 496     247 904     
Weighted average number of ordinary shares (`000)       251 780     224 560     
Diluted weighted average number of shares (`000)        265 149     228 677     
Net asset value per share (cents)                         223,2       160,3     
Net tangible asset value per share (cents)(2)             121,2       121,4     
STATEMENT OF RECOGNISED                                                         
INCOME AND EXPENSES                                                             
Defined benefit plan actuarial gain                         155         685     
Foreign currency translation differences for                                    
foreign operations                                        7 968       6 642     
Income and expenses recognised directly to equity         8 123       7 327     
Profit for the year                                     143 382     116 002     
Total recognised income and expenses for the year       151 505     123 329     
Note:                                                                           
(1) A restatement was made in the comparative period for the omission to raise  
deferred taxation on the intangible asset. The directors have corrected this    
error in the current and comparative periods.                                   
(2) Net tangible asset value is calculated by excluding from net asset value    
the intangible assets as well as the deferred taxation liability relating to    
the intangible assets.                                                          
CONDENSED CONSOLIDATED INCOME STATEMENT                                         
                                                        2009          2008      
R`000         R`000      
Revenue                                             1 414 722     1 017 480     
Cost of sales                                       (981 829)     (745 546)     
Gross profit                                          432 893       271 934     
Other operating income                                  1 631         1 651     
Operating expenses                                  (108 601)      (90 087)     
Profit before interest, depreciation, impairments,                              
amortisations and taxation                            325 923       183 498     
Depreciation, impairments and amortisations          (92 473)      (30 391)     
Profit before interest and taxation                   233 450       153 107     
Finance costs                                        (78 279)      (28 171)     
Finance income                                         55 600        32 883     
Profit before taxation                                210 771       157 819     
Taxation                                             (67 389)      (41 817)     
Profit for the year                                   143 382       116 002     
Reconciliation of headline earnings:                                            
Profit for the year                                   143 382       116 002     
Profit on disposal of property, plant and equipment      (39)         (714)     
Impairment of intangible assets                        11 944             -     
Headline earnings                                     155 287       115 288     
Earnings per share                                                              
Basic earnings per share (cents)                         56,9          51,7     
Diluted earnings per share (cents)                       54,1          50,7     
Headline earnings per share (cents)                      61,7          51,3     
Diluted headline earnings per share                      58,5          50,4     
Dividends per share (cents)                              15,0          20,0     
CONDENSED CONSOLIDATED CASH FLOW                                                
STATEMENT                                                                       
Cash flows from operating activities                  161 628       119 066     
Cash receipts from customers                        1 066 242       909 365     
Cash paid to suppliers and employees                (802 960)     (759 138)     
Cash generated from operations                        263 282       150 227     
Dividends paid                                       (48 639)      (14 290)     
Finance income                                         55 600        10 805     
Finance costs                                        (78 279)       (8 669)     
Taxation paid                                        (30 336)      (19 007)     
Cash flows from investing activities                (323 846)     (146 399)     
Acquisition of property, plant and equipment        (188 355)     (147 470)     
Proceeds on disposal of property, plant and                                     
equipment                                               1 234         1 071     
Investments acquired                                  (6 042)             -     
Acquisition of business combinations net of                                     
cash acquired                                       (130 683)             -     
Cash flows from financing activities                  319 184        90 544     
Decrease in unsecured loans                             2 911             -     
Increase in secured borrowings                        319 646        54 619     
Proceeds from share issue net of issue expenses         2 990        38 235     
Post-retirement benefit paid                          (6 363)       (2 310)     
Net increase in cash and cash equivalents             156 966        63 211     
Net cash and cash equivalents at beginning of year    115 859        52 648     
Cash and cash equivalents at end of year              272 825       115 859     
SEGMENTAL REPORT                                                                
Geotechnical         
                                                        2009          2008      
Operating segments                                      R`000         R`000     
Segment revenue                                                                 
Total revenue                                       1 190 192     1 017 480     
Intersegment revenue                                        -             -     
Total external revenue                              1 190 192     1 017 480     
Segment result                                                                  
Profit before interest and taxation                   167 418       153 107     
Finance costs                                        (68 718)      (28 171)     
Finance income                                         56 539        32 883     
Taxation                                             (49 827)      (41 817)     
Segment profit/(loss)                                 105 412       116 002     
Segment assets                                        994 471       784 939     
Segment liabilities                                 1 006 706       395 275     
Capital and non-cash items                                                      
Additions to property, plant and equipment            163 831       147 470     
Depreciation                                           46 887        30 391     
Impairment losses                                           -             -     
Number of employees at year-end                         1 812         1 506     
Corporate and      
                                    Civils     Pipelines      eliminations      
                                      2009          2009              2009      
Operating segments                    R`000         R`000             R`000     
Segment revenue                                                                 
Total revenue                       148 993        85 361           (9 824)     
Intersegment revenue                      -             -                 -     
Total external revenue              148 993        85 361           (9 824)     
Segment result                                                                  
Profit before interest and taxation  61 746        32 027          (27 741)     
Finance costs                       (3 743)          (86)           (5 732)     
Finance income                            -         1 977           (2 916)     
Taxation                           (15 778)       (9 493)             7 709     
Segment profit/(loss)                42 225        24 425          (28 680)     
Segment assets                      382 169       197 011           289 841     
Segment liabilities                 223 673       167 798         (154 262)     
Capital and non-cash items                                                      
Additions to property, plant and                                                
equipment                            14 435         8 824             1 265     
Depreciation                         17 493           384             3 853     
Impairment losses                         -             -            16 590     
Number of employees at year-end       1 170           354                 -     
                                                         Consolidated           
                                                        2009          2008      
Operating segments                                      R`000         R`000     
Segment revenue                                                                 
Total revenue                                       1 414 722     1 017 480     
Intersegment revenue                                        -             -     
Total external revenue                              1 414 722     1 017 480     
Segment result                                                                  
Profit before interest and taxation                   233 450       153 107     
Finance costs                                        (78 279)      (28 171)     
Finance income                                         55 600        32 883     
Taxation                                             (67 389)      (41 817)     
Segment profit/(loss)                                 143 382       116 002     
Segment assets                                      1 863 492       784 939     
Segment liabilities                                 1 243 915       395 275     
Capital and non-cash items                                                      
Additions to property, plant and equipment            188 355       147 470     
Depreciation                                           68 617        30 291     
Impairment losses                                      16 590             -     
Number of employees at year-end                         3 336         1 506     
                                                           South Africa         
                                                          2009        2008      
Geographical information                                  R`000       R`000     
Total revenue                                         1 128 748     848 273     
Property, plant and equipment                           509 069     219 843     
                                                           Other regions        
2009        2008      
Geographical information                                  R`000       R`000     
Total revenue                                           285 974     169 207     
Property, plant and equipment                            79 476     42 898      
Consolidated            
                                                        2009          2008      
Geographical information                                R`000         R`000     
Total revenue                                       1 414 722     1 017 480     
Property, plant and equipment                         588 545       262 741     
INTRODUCTION                                                                    
The audited condensed consolidated results of Esorfranki for the year ended 28  
February 2009 ("the year") reflect solid growth in revenue and profit after tax 
("PAT") notwithstanding challenging economic conditions.                        
During the year the group successfully positioned itself alongside listed civil 
engineering construction groups with the acquisitions of Patula Construction    
(Pty) Limited ("Patula") and Shearwater Plant Hire (Pty) Limited                
("Shearwater"). These acquisitions expanded the group`s services from           
sub-surface foundation work to include above-surface civil engineering and      
construction services. Following the integration of the acquisitions the group  
is competitively advantaged by its broader product range and enhanced economies 
of scale.                                                                       
To leverage the strong brand power of its principal operating subsidiary,       
Franki Africa (Pty) Limited ("Franki"), the group changed its name to           
Esorfranki subsequent to year-end.                                              
Esorfranki remains firmly aligned with Government`s committed infrastructure    
spend.                                                                          
The results reflect the inclusion of Patula and Shearwater for four months from 
the effective date of acquisition on 31 October 2008.                           
BUSINESS COMBINATIONS                                                           
With effect from 1 May 2008, Franki - a wholly-owned subsidiary of Esorfranki - 
acquired the business of Geo Compaction Dynamics ("GCD") for R18,0 million. GCD 
specialises in geotechnical contracting services for the civil engineering      
industry including dynamic compaction, percussion piling and permanent and      
temporary lateral support.                                                      
With effect from 31 October 2008, Esorfranki acquired civil engineering groups  
Patula and Shearwater for purchase considerations of R345 million and R166      
million, respectively. Civil engineering construction contractor Patula is      
focused on road building, mining and township infrastructure work, water        
reticulation contracts and concrete projects for Government, major mining       
houses and the private sector. Shearwater is a specialist in the construction   
and rehabilitation of onshore pipelines and operates mainly in the oil and gas, 
water, stormwater and sewerage sectors.                                         
FINANCIAL RESULTS                                                               
Revenue increased 39% to R1,4 billion from R1,0 billion for the previous year,  
generating earnings before interest, taxation, depreciation, impairments and    
amortisations                                                                   
("EBITDA") of R325,9 million up 78%. Gross profit margins increased from 27% to 
31%, mainly due to the Patula and Shearwater acquisitions which together        
achieved higher gross profit margins than the Geotechnical business unit.       
Headline earnings rose 35% to R155,3 million, which translated to 61,7 cents    
per share ("HEPS"). Net asset value per share increased by 39% from 160,3 cents 
to 223,2 cents, based on the number of shares in issue at year-end.             
Cash generated by operations remained robust, amounting to R161,6 million       
(2008: R119,1 million).                                                         
Borrowings                                                                      
Debt levels have increased due to the expansive capital expenditure programme   
and the finance raised to acquire the Esor business unit in terms of an         
internal restructuring. Post year-end debt levels have been reduced by R112,5   
million due to an early settlement.                                             
Trade and other payables includes a deferred contingent consideration in the    
amount of R140,8 million, of which R26,8 million will be settled in shares      
subject to certain conditions.                                                  
Aggregated financing costs included a pre-tax charge of R7,8 million and a fair 
value adjustment of R8,7 million on an interest rate swap agreement on the term 
loan funding for the acquisition of the Esor business unit. This reduced growth 
in earnings and headline earnings per share by approximately 4,7 cents. The     
financial effects of the above are reflected in the Esorfranki Geotechnical     
segmental report.                                                               
REVIEW OF OPERATIONS                                                            
Esorfranki Geotechnical                                                         
This division comprises Franki (which includes GCD for ten months of trading    
since acquisition in May 2008) and Esor Africa (Pty) Limited ("Esor Africa").   
Revenue increased 17% to R1 190 million from the previous year`s R1 017 million,
of which foreign revenue accounted for 24%. The foreign operations contributed  
R57,1 million (2008: R33,5 million) to PAT. The operating margin of 14,1% was   
down on the previous year`s operating margin of 15%.                            
As the single largest contract, the Gautrain project generated turnover of R165 
million.                                                                        
Esorfranki Civils (comprising Patula)                                           
Accounting for the full 12 months, Patula recorded revenue up 104,4% to R609,3  
million and PAT of R115,9 million. The contribution to Esorfranki PAT for the   
four months since acquisition amounted to R42,2 million.                        
As Patula`s performance for the full 12 months met the profit warranty in terms 
of the acquisition agreement, the deferred contingent consideration is payable  
in September 2009 in ordinary shares and cash.                                  
The R280 million road contract for the R55/K71, through the Gauteng Department  
of Transport, remains the division`s flagship contract and generated R141,1     
million revenue in the year. This contract is due for completion in November    
2009. A R200 million infrastructure and housing contract near Medupi Power      
Station has given Patula good impetus going forward with the potential for two  
additional phases in the near future.                                           
Esorfranki Pipelines (comprising Shearwater)                                    
This division achieved PAT of R36,2 million for the full 12 months,             
contributing R24,4 million PAT to the group in the four months since            
acquisition.                                                                    
Shearwater`s failure to meet the profit warranty did not result in any          
impairment to the fair value of the goodwill paid on acquisition. The profit    
warranty was not achieved mainly as a result of a delayed order intake in the   
first eight months of the financial year due to the economic slowdown. However, 
orders improved in the third quarter of the financial year and should translate 
into growth going forward.                                                      
The KwaZulu-Natal market has remained buoyant with contracts completed at       
Empangeni, Dube and Richards Bay and new awards at Ngcebo and Mkwanazi. In the  
Gauteng region contracts at Motherwell, Steelpoort, Milton and Nebo are in      
various stages of completion with some projects still to be awarded. The        
onshore pipeline market is expected to be particularly robust over the next     
three to five years in light of anticipated growth in the oil and gas and       
infrastructure sectors.                                                         
CAPEX AND PLANT REPLACEMENT POLICY                                              
During the year the group continued its aggressive enhancement of plant and     
invested R188,3 million (2008: R147,5 million). In addition property, plant and 
equipment increased by R206,8 million as a result of the consolidation of the   
acquisitions.                                                                   
The group`s expansive capital expenditure programme is now complete with R66,9  
million spend planned to maintain group operations for the current financial    
year ending February 2010. Esorfranki is satisfied that the fleet is now        
well-positioned to accommodate future growth and effectively service the        
increase in projects.                                                           
BLACK ECONOMIC EMPOWERMENT                                                      
Esorfranki is currently rated as a "Level 6" contributor to broad-based BEE.    
More than 82% of the group`s 3 300 strong workforce is black.                   
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 hold a 6,48% stake in the    
company.                                                                        
Esorfanki undertakes to be an equal opportunity employer and gives precedence   
to appropriately qualified black candidates.                                    
DIRECTORATE                                                                     
With effect from 5 February 2009 Esorfranki streamlined its board to            
appropriately facilitate the group`s recent growth and enhance compliance with  
King II and the DTI Transformation Codes. As a result executive directors       
Michael Barber, Arthur Field, Roy McLintock and Mauro Trevisani resigned from   
the board. They remain with the group as executive directors of their           
respective operational entities.                                                
Following the acquisition of Patula, Malemadutje Briss Mathabathe was appointed 
to the board as a non-executive director with effect from 5 February 2009.      
The reconstituted board of the company now comprises: DM Thompson* (Chairman),  
B Krone (CEO), W van Houten (Financial Director), EG Dube*, JM Hlongwane*,      
MB Mathabathe* and Dr FA Sonn* (*independent non-executive).                    
POST BALANCE SHEET EVENTS                                                       
Post year-end a special resolution was passed by shareholders at a general      
meeting on 20 April 2009 to change the company name to Esorfranki Limited.      
PROSPECTS                                                                       
The board remains positive regarding Esorfranki`s prospects. The order book of  
R1,5 billion at the beginning of April 2009 positions the group favourably for  
the year ending February 2010.                                                  
The Gautrain project is expected to generate explosive developmental growth     
around the urban nodes where the stations are located. Notwithstanding the      
current slowdown in the commercial building sector, Esorfranki believes this is 
likely to result in high-rise office towers, hotels, apartment blocks and       
various retail and commercial buildings beyond 2010.                            
All operating units are expected to benefit from Government`s reaffirmation of  
its commitment to infrastructure spend. Esorfranki Geotechnical is already      
reaping the benefits at Kusile Power Station and the NMPP pipeline; Esorfranki  
Civils at Medupi Power Station and Esorfranki Pipelines from various pipelines  
countrywide. Further, SANRAL, Eskom and Transnet all have major projects        
awaiting tender and the board is confident that Esorfranki will be awarded its  
share of these.                                                                 
Cross-border the group`s established presence in several African economies      
including Angola positions Esorfranki to capitalise on exciting growth          
prospects in the sub-Saharan region.                                            
DIVIDEND DECLARATION                                                            
The board has declared a final dividend of 15 cents per share for the year. The 
dividend policy was reviewed and adjusted in the current year. After taking     
cognisance of the market conditions, the current availability of credit and     
recent acquisitions made by the company, the directors consider it prudent to   
conserve cash. It remains the policy of the group to review the dividend policy 
annually in light of cash flow, gearing and capital requirements.               
The salient dates for the dividend are as follows:                              
Last day to trade cum dividend                          Friday, 5 June 2009     
Shares trade ex dividend                                Monday, 8 June 2009     
Record date                                            Friday, 12 June 2009     
Payment date                                           Monday, 15 June 2009     
Share certificates may not be dematerialised or re-materialised between Monday, 
8 June 2009 and Friday, 12 June 2009, both dates inclusive.                     
BASIS OF PREPARATION                                                            
The audited condensed consolidated financial statements for the year have been  
prepared in accordance with the recognition and measurement principles of       
International Financial Reporting Standards, the disclosure requirements of IAS 
34: Interim Financial Reporting and in the manner required by the South African 
Companies Act, 1973. The accounting policies and method of measurement and      
recognition applied in preparation of the audited consolidated annual 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.                                                  
AUDIT OPINION                                                                   
The auditors KPMG Inc. have issued their unmodified audit opinion on the        
group`s financial statements for the year ended 28 February 2009. The audit was 
conducted in accordance with International Standards on Auditing. A copy of     
their audit report is available for inspection at the company`s registered      
office. These condensed financial statements have been derived from the group   
financial statements and are consistent in all material respects.               
APPRECIATION                                                                    
We welcome all our new employees and thank our fellow directors, management and 
the whole team for their efforts and hard work which have helped drive the      
group`s performance. Our appreciation is also extended to our business          
partners, advisors, suppliers, clients and shareholders for their ongoing       
support.                                                                        
On behalf of the board                                                          
Bernard Krone                                           Wayne van Houten        
Chief Executive Officer                                 Financial Director      
19 May 2009                                                                     
Directors: DM Thompson* (Chairman), B Krone (CEO),                              
          W van Houten (Financial Director), EG Dube*,                          
JM Hlongwane*, MB Mathabathe*, Dr FA Sonn*                            
(*independent non-executive)                                                    
Registered office: 30 Activia Road, Activia Park,                               
                  Germiston (PO Box 6478, Dunswart, 1508)                       
Telephone: +2711 822 3906, Fax: +27 11 822 3112               
Designated Adviser: Vunani Corporate Finance, 39 1st Road, Hyde Park,           
                   2196 (PO Box 413972, Craighall, 2024)                        
Transfer secretaries: Computershare Investor Services (Pty) Limited,            
70 Marshall Street, Johannesburg,                          
                     2001 (PO Box 61051, Marshalltown, 2107)                    
Company secretary: ID Stephen                                                   
Auditors: KPMG Inc., KPMG Crescent, 85 Empire Road, Parktown,                   
2193 (Private Bag X9, Parkview, 2122)                                  
Date: 19/05/2009 07:05:09 Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                             .                  
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