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ESR - Esorfranki - Reviewed Interim Results For The Six Months Ended

Release Date: 04/11/2009 08:00:02      Code(s): ESR
ESR - Esorfranki - Reviewed Interim Results For The Six Months Ended            
                        31 August 2009                                          
ESORFRANKI LIMITED                                                              
(formerly Esor Limited)                                                         
(Registration number 1994/000732/06)                                            
Incorporated in the Republic of South Africa                                    
JSE Code: ESR & SIN: ZAE000133369                                               
("Esorfranki" or "the company" or "the group")                                  
REVIEWED INTERIM RESULTS                                                        
for the six months ended 31 August 2009                                         
-    REVENUE up 76%                                                             
-    EBITDA up 122%                                                             
-    NAV per share up 48%                                                       
-    HEPS up 79,6%                                                              
-    Operating cash generated R119 million                                      
Condensed consolidated statement of financial position                          
                            31 August    31 August   28 February                
                            (Reviewed)   (Reviewed)  (Audited)                  
                            2009         2008        2009                       
R`000        R`000       R`000                      
Assets                                                                          
Non-current assets           999 341      453 124     987 520                   
Property, plant and          602 042      346 931     588 545                   
equipment                                                                       
Intangible assets            94 789       96 646      113 022                   
Goodwill                     299 759      9 547       280 173                   
Deferred tax asset           2 751        -           5 780                     
Current assets               768 221      394 205     875 972                   
Inventories                  13 661       10 964      11 379                    
Other investments            15 895       5 053       14 269                    
Taxation                     3 929        13 576      4 699                     
Trade and other receivables  540 372      295 900     572 800                   
Cash and cash equivalents    194 364      68 712      272 825                   
Total assets                 1 767 562    847 329     1 863 492                 
EQUITY AND LIABILITIES                                                          
Share capital and reserves   673 374      397 704     619 577                   
Share capital and premium    340 421      213 887     339 078                   
Equity compensation reserve  4 696        3 139       3 917                     
Foreign currency             (6 409)      6 431       14 651                    
translation reserve                                                             
Accumulated profits          334 666      174 247     261 931                   
Non-current liabilities      367 499      172 659     470 080                   
Secured borrowings*          259 918      133 425     370 603                   
Post-retirement benefits     1 587        8 106       1 587                     
Deferred tax liabilities     105 994      31 128      97 890                    
Current liabilities          726 689      276 966     773 835                   
Current portion of secured   112 324      26 017      147 664                   
borrowings*                                                                     
Taxation                     84 311       35 743      84 358                    
Provisions                   35 321       32 059      31 118                    
Trade and other payables     494 733      183 147     510 695                   
Total equity and             1 767 562    847 329     1 863 492                 
liabilities                                                                     
Net asset value per share    241,7        163,0       223,2                     
(cents)                                                                         
Tangible net asset value     139,7        119,5       121,2                     
per share (cents)**                                                             
* Interest-bearing debt                                                         
** (Net asset value less                                                        
intangible assets)/weighted                                                     
average shares                                                                  
Condensed consolidated statement of comprehensive income                        
                       Six months ended              Year ended                 
31 August  31 August          28 February                
                       (Reviewed) (Reviewed)         (Audited)                  
                       2009       2008        Change 2009                       
                       R`000      R`000       %      R`000                      
Continuing operations                                                           
Revenue                 1 018 268  578 607     76     1 414 722                 
Cost of sales           (727 180)  (420 027)   73     (981 829)                 
Gross profit            291 088    158 580     84     432 893                   
Other income            603        616         (2)    1 631                     
Operating expenses      (56 103)   (52 988)    6      (108 601)                 
Profit before           235 588    106 208     122    325 923                   
interest, tax,                                                                  
depreciation,                                                                   
amortisation and                                                                
impairments                                                                     
Depreciation,           (59 328)   (20 597)    (188)  (92 473)                  
impairments and                                                                 
amortisation                                                                    
Results from            176 260    85 611      106    233 450                   
operating activities                                                            
Finance costs           (61 599)   (11 636)    (429)  (78 279)                  
Finance income          46 039     11 907      287    55 600                    
Profit before income    160 700    85 882      87     210 771                   
tax                                                                             
Income tax expense      (45 846)   (30 029)    (53)   (67 389)                  
Profit from             114 854    55 853      106    143 382                   
continuing operations                                                           
Other comprehensive                                                             
income:                                                                         
Foreign currency        (21 060)   (252)              7 968                     
translation                                                                     
differences for                                                                 
foreign operations                                                              
Defined benefit plan    -          -                  155                       
actuarial gain                                                                  
Other comprehensive     (21 060)   (252)              8 123                     
income/(loss) for the                                                           
period, net of tax                                                              
Total comprehensive     93 794     55 601             151 505                   
income for the period                                                           
Profit attributable                                                             
to:                                                                             
Owners of the company   114 854    55 853             143 382                   
Total comprehensive                                                             
income attributable                                                             
to:                                                                             
Owners of the company   93 794     55 601             151 505                   
Basic earnings per      41,3       22,9               56,9                      
share (cents)                                                                   
Diluted earnings per    40,9       22,7               54,1                      
share (cents)                                                                   
Headline earnings per   41,3       23,0               61,7                      
share (cents)                                                                   
Reconciliation of                                                               
headline earnings                                                               
Profit attributable     114 854    55 853             143 382                   
to ordinary                                                                     
shareholders                                                                    
Adjusted for:                                                                   
Profit on disposal of   -          (101)              (266)                     
property, plant and                                                             
equipment                                                                       
Loss on disposal of     31         229                227                       
property, plant and                                                             
equipment                                                                       
Impairment of           -          -                  11 944                    
intangible assets                                                               
Headline earnings       114 885    55 981             155 287                   
attributable to                                                                 
ordinary shareholders                                                           
Number of ordinary                                                              
shares (`000)                                                                   
in issue              289 495    244 007            247 904                    
 diluted weighted      281 122    246 525            265 149                    
average                                                                         
 weighted average      278 121    243 513            251 780                    
Condensed consolidated statement of cash flows                                  
                             Six months ended        Year ended                 
                             31 August   31 August   28 February                
                             (Reviewed)  (Reviewed)  (Audited)                  
2009        2008        2009                       
                             R`000       R`000       R`000                      
Cash flows from operating                                                       
activities                                                                      
Profit for the period         114 854     55 853      143 382                   
Adjustments for:                                                                
Depreciation of property,     41 095      20 597      68 617                    
plant and equipment                                                             
Impairment of intangible      -           -           16 590                    
assets                                                                          
Amortisation of intangible    18 233      -           7 266                     
assets                                                                          
Net finance (income)/costs    15 560      (271)       22 679                    
Profit on disposal of         -           (101)       (370)                     
property, plant and                                                             
equipment                                                                       
Loss on disposal of           31          229         316                       
property, plant and                                                             
equipment                                                                       
Foreign currency translation  (24 777)    527         7 735                     
reserve adjustment                                                              
Fair value adjustments        -           -           10 017                    
Equity settled share-based    779         -           1 556                     
payment transactions                                                            
Income tax expense            45 846      30 029      67 389                    
                             211 621     106 863     345 177                    
Change in inventories         (2 282)     (3 740)     3 506                     
Change in trade and other     32 428      (23 986)    (156 079)                 
receivables                                                                     
Change in trade and other     (35 548)    (14 693)    65 283                    
payables                                                                        
Change in provisions          4 203       16 500      5 395                     
210 422     80 944      263 282                    
Interest paid                 (61 599)    (11 636)    (78 279)                  
Income taxes paid             (30 272)    (11 359)    (30 336)                  
Net cash from operations      118 551     57 949      154 667                   
Cash flows from investing                                                       
activities                                                                      
Interest received             46 039      11 907      55 600                    
Proceeds from sale of         9 411       179         1 234                     
property, plant and                                                             
equipment                                                                       
Acquisition of subsidiary,    -           -           (130 683)                 
net of cash acquired                                                            
Acquisition of business       -           (6 380)     -                         
Acquisition of property,      (64 034)    (98 715)    (188 355)                 
plant and equipment                                                             
Acquisition of brand name     -           (2 117)     -                         
Acquisition of goodwill       -           (9 547)     -                         
Acquisition of other          (1 626)     (5 053)     (6 042)                   
investments                                                                     
Net cash used in investing    (10 210)    (109 726)   (268 246)                 
activities                                                                      
Cash flows from financing                                                       
activities                                                                      
Proceeds from the issue of    1 342       300         2 990                     
share capital                                                                   
Increase in unsecured loans   -           -           2 911                     
Increase/(decrease) in        (146 025)   52 969      319 646                   
secured borrowings                                                              
Post-retirement benefits      -           -           (6 363)                   
paid                                                                            
Dividends paid                (42 119)    (48 639)    (48 639)                  
Net cash (used in)/from       (186 802)   4 630       270 545                   
financing activities                                                            
Net (decrease)/increase in    (78 461)    (47 147)    156 966                   
cash and cash equivalents                                                       
Cash and cash equivalents at  272 825     115 859     115 859                   
beginning of period                                                             
Cash and cash equivalents at  194 364     68 712      272 825                   
end of period                                                                   
Condensed consolidated statement of changes in equity                           
Equity                    
                             Share        Share       compensation              
R`000                         capital      premium     reserve                  
Balance at 1 March 2008       243          213 644     2 361                    
Profit                                                                          
Other comprehensive income                                                      
Foreign currency translation                                                    
differences for foreign                                                         
operations                                                                      
Total other comprehensive                                                       
income                                                                          
Total comprehensive income                                                      
for the period                                                                  
Transactions with owners,                                                       
recorded directly in equity                                                     
Contributions by and                                                            
distributions to owners                                                         
Issue of ordinary shares                                                        
related to business                                                             
combinations                                                                    
Issue of ordinary shares      -                                                 
Dividends to equity holders                                                     
Share-based payment                                    778                      
transactions                                                                    
Share options exercised                                                         
Total contributions by and    -                        778                      
distributions to owners                                                         
Balance at 31 August 2008     243          213 644     3 139                    
Balance at 1 March 2009       278          338 800     3 917                    
Profit                                                                          
Other comprehensive income                                                      
Foreign currency translation                                                    
differences for foreign                                                         
operations                                                                      
Defined benefit plan                                                            
actuarial gain                                                                  
Total other comprehensive                                                       
income                                                                          
Total comprehensive income                                                      
for the period                                                                  
Transactions with owners,                                                       
recorded directly in equity                                                     
Contributions by and                                                            
distributions to owners                                                         
Issue of ordinary shares                                                        
related to business                                                             
combinations                                                                    
Issue of ordinary shares      1            1 342                                
Dividends to equity holders                                                     
Share-based payment                                    779                      
transactions                                                                    
Share options exercised                                                         
Total contributions by and    1            1 342       779                      
distributions to owners                                                         
Balance at 31 August 2009     279          340 142     4 696                    
                             Six months ended         Year ended                
31 August    31 August   28 February               
                             (Reviewed)   (Reviewed)  (Audited)                 
                             2009         2008        2009                      
Dividends per ordinary share  -            -           15,0                     
(cents)                                                                         
                             Translation  Retained   Total                      
R`000                         reserve      earnings   equity                    
Balance at 1 March 2008       6 683        167 033    389 964                   
Profit                                     55 853     55 853                    
Other comprehensive income                                                      
Foreign currency translation  (252)                   (252)                     
differences for foreign                                                         
operations                                                                      
Total other comprehensive     (252)                   (252)                     
income                                                                          
Total comprehensive income    (252)        55 853     55 601                    
for the period                                                                  
Transactions with owners,                                                       
recorded directly in equity                                                     
Contributions by and                                                            
distributions to owners                                                         
Issue of ordinary shares                                                        
related to business                                                             
combinations                                                                    
Issue of ordinary shares                              -                         
Dividends to equity holders                (48 639)   (48 639)                  
Share-based payment                                   778                       
transactions                                                                    
Share options exercised                                                         
Total contributions by and                 (48 639)   (47 861)                  
distributions to owners                                                         
Balance at 31 August 2008     6 431        174 247    397 704                   
Balance at 1 March 2009       14 651       261 931    619 577                   
Profit                                     114 854    114 854                   
Other comprehensive income                                                      
Foreign currency translation  (21 060)                (21 060)                  
differences for foreign                                                         
operations                                                                      
Defined benefit plan                                                            
actuarial gain                                                                  
Total other comprehensive     (21 060)                (21 060)                  
income                                                                          
Total comprehensive income    (21 060)     114 854    93 794                    
for the period                                                                  
Transactions with owners,                                                       
recorded directly in equity                                                     
Contributions by and                                                            
distributions to owners                                                         
Issue of ordinary shares                                                        
related to business                                                             
combinations                                                                    
Issue of ordinary shares                              1 343                     
Dividends to equity holders                (42 119)   (42 119)                  
Share-based payment                                   779                       
transactions                                                                    
Share options exercised                                                         
Total contributions by and                 (42 119)   (39 997)                  
distributions to owners                                                         
Balance at 31 August 2009     (6 409)      334 666    673 374                   
Information about reportable segments for the six months ended 31 August        

R`000                Geotechnical            Esorfranki Esorfranki              
                    operations              Civils     Pipelines                
                    2009          2008      2009*      2009*                    
External revenues    527 674       578 607   375 498    130 553                 
Reportable segment   70 913        85 882    89 217     27 587                  
profit before                                                                   
income tax                                                                      
Reportable segment   793 534       847 329   498 805    181 791                 
assets                                                                          
                                                                                
R`000                Corporate and                                              
eliminations         Consolidated                           
                    2009*                2009          2008                     
External revenues    (15 457)             1 018 268     578 607                 
Reportable segment   (27 017)             160 700       85 882                  
profit before                                                                   
income tax                                                                      
Reportable segment   293 432              1 767 562     847 329                 
assets                                                                          
*No 2008 comparatives as the businesses in these segments were acquired post 31 
August 2008                                                                     
Geographical information                                                        
R`000                                 South Africa                              
2009           2008                        
Total revenue                         906 763        464 535                    
Profit before interest and tax        155 202        55 385                     
Profit after tax                      112 411        33 904                     
Total assets                          1 561 031      664 405                    
                                                                                
R`000                                 Other regions                             
                                     2009           2008                        
Total revenue                         111 505        114 072                    
Profit before interest and tax        21 058         30 226                     
Profit after tax                      2 443          21 949                     
Total assets                          206 531        182 924                    

R`000                                 Consolidated                              
                                     2009           2008                        
Total revenue                         1 018 268      578 607                    
Profit before interest and tax        176 260        85 611                     
Profit after tax                      114 854        55 853                     
Total assets                          1 767 562      847 329                    
                                                                                
COMMENTARY                                                                      
The reviewed results of Esorfranki for the six months ended 31 August 2009 ("the
period") reflect a continued strong performance with exceptional growth in      
earnings per share ("EPS") and headline earnings per share ("HEPS")             
notwithstanding tough market conditions.                                        
Further, a number of strategic milestones were achieved during the period.      
Following three successful years as one of the AltX top performers, Esorfranki  
transferred to the Main Board of the JSE on 25 June 2009. The group is now      
positioned alongside its civil engineering construction peers in the `Heavy     
Construction` sector.                                                           
In addition, to appropriately leverage the brand power of its principal         
operating subsidiary, Franki Africa, the group changed its name to Esorfranki   
Limited on 11 May 2009.                                                         
Financial results                                                               
Revenue increased by 76% to R1,02 billion from R579 million in the comparative  
period, generating EBITDA of R235,6 million, an increase of 122%. Headline      
earnings rose 105% translating into HEPS of 41,3 cents, an increase of 79,6%.   
Cash generated by operations totalled R119 million for the period.              
Gearing                                                                         
Gearing rose to 35,6% from 28,6% for the comparative period. Borrowings         
increased as a result of the finance raised for the acquisition of the          
Esorfranki business operations and the capital expansion programme. Esorfranki  
met all its loan covenants during the period.                                   
Review of operations                                                            
Notwithstanding the group`s excellent results, the year began slowly with       
certain Esorfranki operations adversely impacted by the weak economy and        
difficult trading conditions. A number of delays in major contracts hampered    
growth at Esorfranki Pipelines and at Franki Africa`s Angolan operations. This  
situation is expected to improve in the second half of the year as both delayed 
projects and new projects come on stream.                                       
Esorfranki Geotechnical                                                         
This business unit comprises Franki Africa and Esor Africa. It posted revenue of
R527,7 million, down marginally by 9% on the comparative period last year, and  
equating to 52% of group revenue. Foreign revenue accounted for 21% of the      
business unit`s total revenue - the foreign operations were adversely affected  
by the strengthening of the Rand during the period. The division contributed    
R70,9 million to group profit before tax ("PBT") and operating margins increased
to 17%.                                                                         
The largest revenue generators to date include the Gautrain contracts valued at 
over R184 million for piling, lateral support and earthworks, work at Kusile    
Power Station and several major road projects for SANRAL. A number of contracts 
in Botswana have recently been awarded to both companies, and piling contracts  
in Mozambique and Mauritius are progressing well.                               
Esorfranki Civils                                                               
This business unit achieved revenue of R375,5 million, or 36% of group revenue, 
and generated PBT of R89,2 million.                                             
Esorfranki Civils is benefiting extensively from SANRAL expansion plans, having 
won a contract valued at approximately R400 million in June 2009 for the upgrade
of the R21 between the Rietfontein and Pomona Interchanges and a R170 million   
contract for a section of the N4 upgrade near Brits. In addition Esorfranki     
Civils was awarded a multi-million Rand contract for the township development at
Eskom`s Medupi Power Station.                                                   
Esorfranki Pipelines                                                            
This business unit achieved revenue of R130,5 million, 13% to group revenue,    
with PBT of R27,6 million.                                                      
Recent new contract wins include three major pipeline and associated works - at 
Ngcebo, Mkwanazi and Nsezi - which together are worth more than R100 million.   
Approximately 90% of the projects in this field out to tender are in the water  
sector and emanate mainly from Government, Regional Water Authorities,          
Provinces, Municipalities and State Enterprises.  Esorfranki Pipelines is well- 
placed to capitalise on these projects. Notwithstanding the current scope of    
work within its area of expertise, diversification into complementary areas     
would be considered to drive additional growth.                                 
CAPEX and plant replacement policy                                              
Esorfranki regards fleet maintenance and enhancement as key to growth and a     
significant differentiator. During the period the group invested R64,0 million  
(2008: R99,0 million) in plant, with R115,3 million spend planned group-wide for
the current financial year ending February 2010 in line with forecast. The group
is satisfied that the current fleet is well positioned to accommodate future    
growth and maintain its competitive edge in the market.                         
Black Economic Empowerment                                                      
Esorfranki is currently rated as a `Level 6` contributor to broad-based BEE.    
The group`s commitment to transformation is evidenced by its 29% black          
shareholding (including retail shareholders on the open market and the Esor     
Broad Based Share Ownership Scheme, which holds 6,48%).                         
More than 85% of the group`s 3 700 strong workforce is black.                   
People                                                                          
With succession planning an operational priority across the group, a number of  
new appointments were made at divisional level during the period. These reflect 
Esorfranki`s commitment to attracting superior talent, developing skills and    
steering experienced candidates through the ranks to sustain deep management    
resources. (Refer SENS announcement of 7 July 2009 for further detail.)         
Post-balance sheet events                                                       
As the performance of Esorfranki Civils (previously Patula Construction) for the
previous financial year met the profit warranty in terms of the acquisition     
agreement, a deferred contingent consideration of R190 million was paid on 17   
September 2009. In terms of the agreement, 60% of the final payment was payable 
in cash while the balance was settled through the issue of 12 666 667 Esorfranki
shares. (Refer SENS announcement of 17 September 2009 for further detail.)      
In terms of the loan agreement, Esor Africa borrowed a further R80,0 million in 
September 2009 to finance the acquisition of the Esorfranki business unit. This 
has the estimated effect of reducing EPS by 0,89 cents per share for the        
remainder of the year to February 2010.                                         
Esorfranki is currently named in a Competition Commission enquiry into the      
construction industry and remains committed to full and transparent co-operation
with the authority, in the interests of a speedy and beneficial conclusion of   
the matter.                                                                     
Prospects                                                                       
Notwithstanding harsh market conditions the board remains positive regarding the
group`s growth prospects. With the order book at R1,2 billion as at 31 August   
2009, Esorfranki is well on track for the year ending February 2010.            
All operating units are expected to continue benefiting from Government         
infrastructure spend with projects at Kusile Power Station, the NMPP pipeline   
and Medupi Power Station already underway.                                      
The group will maintain its established presence across sub-Saharan Africa to   
capitalise on growth opportunities in this region.                              
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 and capital requirements.                                         
Statement of compliance                                                         
The reviewed condensed consolidated interim financial statements for the period 
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 28 February 2009, 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 whole team for their ongoing effort and hard work that have        
contributed to our outstanding results. Thank you also to our fellow directors  
for your valuable input. Finally, thanks to our advisors, suppliers, clients and
stakeholders for your support.                                                  
On behalf of the board.                                                         
Bernard Krone                     Wayne van Houten                              
Chief Executive Officer           Chief Financial Officer                       
4 November 2009                                                                 
CORPORATE INFORMATION                                                           
DIRECTORS:                                                                      
DM Thompson* (Chairman)                                                         
B Krone (CEO)                                                                   
W van Houten (CFO)                                                              
EG Dube*                                                                        
JM Hlongwane*                                                                   
MB Mathabathe*                                                                  
Dr FA Sonn*(alternate: JC van Reenen)                                           
*Non-executive                                                                  
REGISTERED OFFICE:                                                              
30 Activia Road, Activia Park, Germiston, 1401                                  
(PO Box 6478, Dunswart, 1508)                                                   
Telephone: +27 11 822 3906                                                      
Fax: +27 11 822 3112                                                            
SPONSOR:                                                                        
Vunani Corporate Finance                                                        
151 Katherine Street, Sandown, Sandton, 2196                                    
(PO Box 652419, Benmore, 2010)                                                  
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 9, Parkview, 2122)                                                 
www.esorfranki.co.za                                                            
Date: 04/11/2009 08:00:01 Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                             .                  
The SENS service is an information dissemination service administered by the    
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or            
implicitly, represent, warrant or in any way guarantee the truth, accuracy or   
completeness of the information published on SENS. The JSE, their officers,     
employees and agents accept no liability for (or in respect of) any direct,     
indirect, incidental or consequential loss or damage of any kind or nature,     
howsoever arising, from the use of SENS or the use of, or reliance on,          
information disseminated through SENS.                                          



                                        
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