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

Release Date: 28/05/2012 07:05:10      Code(s): ESR
ESR - Esorfranki Limited - Audited abridged consolidated results for the year   
ended 29 February 2012                                                          
ESORFRANKI LIMITED                                                              
(Registration number: 1994/000732/06)                                           
Incorporated in the Republic of South Africa                                    
JSE Code: ESR       ISIN: ZAE000133369                                          
("Esorfranki" or "the company" or "the group")                                  
AUDITED ABRIDGED CONSOLIDATED RESULTS                                           
FOR THE YEAR ENDED 29 FEBRUARY 2012                                             
HIGHLIGHTS                                                                      
HEPS 6,2 CENTS PER SHARE                                                        
REVENUE R1,8 BILLION                                                            
FOREIGN REVENUE R274 MILLION                                                    
ORDER BOOK R1,8 BILLION                                                         
COMMENTARY                                                                      
Introduction                                                                    
The audited condensed consolidated financial results for the year to 29         
February 2012 ("the year") reflect Esorfranki`s successful turnaround with a    
resumption of profitability. The group`s performance was enhanced by effective  
rationalisation and optimisation processes in all divisions cementing a         
healthier contract base. A number of major new contract wins saw the order book 
stabilise at a solid R1,8 billion at year-end.                                  
Financial results                                                               
Consolidated revenue increased to R1,8 billion from R1,4 billion in the         
previous year. Earnings before interest, taxation, depreciation, impairments    
and amortisation ("EBITDA") increased by 170,4% to R132,7 million (2011: R49,1  
million). Headline earnings per share ("HEPS") was up 148%, reversing prior     
year loss into a positive 6,2 cents. Net asset value ("NAV") per share          
increased to 241,5 cents (2011: 238,9 cents) based on the number of shares in   
issue at year-end, net of treasury shares.                                      
Review of operations                                                            
Revenue from foreign operations in Esorfranki Geotechnical grew 34% to R273,7   
million, driving growth in the division`s total revenue of 4% year-on-year.     
Record revenues were recorded specifically in Mozambique and Mauritius. Foreign 
operations achieved an operating margin of 14% and contributed 68% to the       
division`s total operating profit. In contrast South African-based revenue was  
down 8% year-on-year due to intensifying competition, which further saw a       
reduced gross margin contribution. Operating margins did, however, improve      
substantially in the second half of the year to 10%.                            
Esorfranki Civils` revenue increased 59% and the division returned to           
profitability in the second half of the year, following prior losses and margin 
reversals on the R21 contract and contract completion costs on the N4 project   
(Phase I). These contracts have now been concluded. The division has adopted    
stringent risk management in its contract tendering and project execution       
policies to avoid a recurrence of such adverse challenges in the future.        
Operating margins in the division improved substantially to 10% in the second   
half of the year due to optimised operational efficiency on existing long-term  
contracts. Exceptional plant utilisation was achieved on the back of the        
ongoing capital expansion programme.                                            
Despite tightly competitive conditions in the Government projects sector, the   
division managed to grow its order book by 41%. Private sector awards included  
a R271 million construction contract for an integrated township development     
related to the mining industry.                                                 
Esorfranki Pipelines` revenue was up 35%, notwithstanding a turbulent financial 
year which included the cancellation of the Western Aqueduct contract. Revenue  
was further negatively impacted by contractual disputes on the flagship BG 3    
contract. However, the latter was resolved in Esorfranki`s favour on mediation. 
It has since been referred to arbitration by the client and is expected to be   
finalised in FY2013. Operating margins sustained a break even financial         
performance.                                                                    
The division secured a number of new major contracts in the last quarter of the 
financial year.                                                                 
CAPEX                                                                           
During the year the group acquired property, plant and equipment amounting to   
R257,7 million (2011: R50,4 million).                                           
Esorfranki Geotechnical acquired land and developed workshops and offices in    
Mauritius totalling R4,5 million, and invested R51,1 million in rebuilds and    
new equipment including a R17,0 million BG 28 oscillator piling rig. Esorfranki 
Civils spent R205,3 million in acquiring plant to enhance capacity on the back  
of long-term secured contracts while Esorfranki Pipelines invested R0,6         
million.                                                                        
The total capex approved for the year ahead is R199 million.                    
BEE                                                                             
Esorfranki is currently a `Level 4` contributor in terms of the Department of   
Trade & Industry`s B-BBEE Codes of Good Practice. During the year ownership was 
diluted by 8,67 points following the completion of the rights issue. In line    
with the Construction Charter`s targeted increase in ownership from 27,5% to    
30,0% by December 2013, the group will consider a B-BBEE equity transaction. To 
this end Esorfranki has initiated an evaluation process to ensure that the      
group`s strategic objectives, compliance with the Codes and properly            
representative ownership are achieved.                                          
78% of the group`s 3 402 (2011: 3 184)-strong workforce is Black and emphasis   
is on skills training and development to accelerate promotion into middle and   
senior management.                                                              
Prospects                                                                       
Esorfranki will continue to explore further expansion into Africa, while also   
keeping a keen eye on the domestic market. The focus going forward will remain  
on expansion into new markets in Africa, to strengthen and diversify revenue    
streams while taking advantage of the South African Government`s renewed        
commitment to infrastructure as per February`s State of the Nation Address. It  
should offer Esorfranki significant opportunity, especially in terms of         
development and unlocking of South Africa`s resource wealth through transport,  
energy and water logistics.                                                     
The group has secured a number of significant local and African contracts in    
all divisions to overcome tough market conditions. Esorfranki Geotechnical`s    
first contract in Ghana, worth R13 million, has been completed and formed the   
foundation for a further three contracts in the country for lateral support and 
marine structures worth R120 million. Esorfranki Civils has scooped long-term   
contracts including from Bakwena Corridor Concessionaire, Gauteng Roads         
Department, Eskom and Anglo Coal, amongst others. Esorfranki Pipelines` recent  
new contracts include a major project in KwaZulu-Natal for Umgeni Water valued  
at R130 million.                                                                
The next year to 18 months will see Esorfranki continue optimising efficiencies 
and prioritising diversification of products, including opportunities in the    
solar green energy arena for Esorfranki Geotechnical.                           
Within South Africa, infrastructure development in power, water, transport and  
resources is desperately required. Esorfranki is well-positioned to take        
advantage of new projects as and when they come to the market.                  
Directorate                                                                     
Andy Brookstein, former Managing Director of Esorfranki Civils, was appointed   
as an executive director of the group with effect from 26 August 2011.          
Dividend declaration                                                            
The board has resolved not to declare a dividend in respect of this financial   
year (2011: Nil). It remainsthe policy of the company to review the dividend    
policy annually in light of solvency, liquidity, cash flow, gearing and capital 
requirements.                                                                   
Events after the reporting date                                                 
There were no significant events after the reporting date.                      
Statement of compliance                                                         
The audited abridged consolidated results for the year have been prepared in    
accordance with the recognition and the measurement requirements of             
International Financial Reporting Standards, the presentation and disclosure    
requirements of IAS 34: Interim Financial Reporting, the AC 500 standards and   
the JSE Limited Listings Requirements and in the manner required by the South   
African Companies Act, 71 of 2008. The accounting policies applied in           
preparation of the audited abridged consolidated annual financial statements    
are consistent with those applied in the group`s audited consolidated annual    
financial statements for the year ended 28 February 2011, which comply with     
International Financial Reporting Standards.                                    
Audit opinion                                                                   
The auditors, KPMG Inc., have issued an unmodified audit opinion on the group`s 
annual financial statements for the year ended 29 February 2012. 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 audited abridged consolidated annual financial statements have    
been derived from the group audited annual financial statements and are         
consistent in all material respects.                                            
Annual general meeting                                                          
The annual general meeting of the company will be held at the company`s         
offices, 30 Activia Road, Activia Park, Germiston on Friday, 13 July 2012 at    
10:00.  The salient dates relating to the annual general meeting are as         
follows:                                                                        
Last day to trade to be eligible to vote at the                                 
annual general meeting                             Friday, 29 June 2012         
Record date for determining those shareholders                                  
entitled to vote at the annual general meeting     Friday, 6 July 2012          
Appreciation                                                                    
We thank our management and staff for their steadfast commitment during another 
trying year.We also thank our board for their continued invaluable guidance and 
extend our appreciation to our business associates, customers and shareholders  
for their ongoing support.                                                      
On behalf of the board                                                          
Bernie Krone                          Wayne van Houten                          
CEO                                   CFO                                       
28 May 2012                                                                     
Abridged consolidated statement of comprehensive income                         
                                          2012          2011                    
                                          R`000         R`000                   
Revenue                                    1 771 692     1 366 433              
Cost of sales                              (1 549 955)   (1 204 988)            
Gross profit                               221 737       161 445                
Other income                               1 705         3 654                  
Operating expenses                         (90 786)      (116 033)              
Profit before interest, income tax,        132 656       49 066                 
amortisation, impairments and                                                   
depreciation                                                                    
Depreciation, impairments and              (79 510)      (65 489)               
amortisation                                                                    
Results from operating activities          53 146        (16 423)               
Finance costs                              (73 233)      (54 371)               
Finance income                             49 726        23 703                 
Profit/(loss) before income tax            29 639        (47 091)               
Income tax expense                         (11 423)      6 330                  
Profit/(loss) after tax                    18 216        (40 761)               
Other comprehensive income                                                      
Foreign currency translation differences   13 655        (21 334)               
for foreign operations                                                          
Actuarial loss on post-retirement benefit  (73)          (261)                  
Income tax on translation differences      (1 862)       2 441                  
Other comprehensive income for the year,   11 720        (19 154)               
net of tax                                                                      
Total comprehensive income attributable                                         
to:                                                                             
Owners of the company                      29 936        (59 915)               
Basic earnings/(loss) per share (cents)    4,7           (13,9)                 
Diluted earnings/(loss) per share (cents)  4,7           (13,8)                 
Headline earnings/(loss) per share         6,2           (12,9)                 
(cents)                                                                         
Diluted headline earnings/(loss) per       6,2           (12,8)                 
share (cents)                                                                   
Reconciliation of headline                                                      
earnings/(loss):                                                                
Profit/(loss) attributable to ordinary     18 216        (40 761)               
shareholders                                                                    
Adjusted for:                                                                   
Loss on disposal of property, plant and    5 830         4 609                  
equipment                                                                       
Gain on disposal of subsidiary             -             (3 654)                
Impairment of assets                       -             2 032                  
Headline earnings/(loss) attributable to   24 046        (37 774)               
ordinary shareholders                                                           
Number of ordinary shares (`000)                                                
in issue                                   395 185       302 162                
diluted weighted average                   386 731       294 555                
weighted average                           386 731       293 763                
Abridged consolidated statement of financial position                           
                                          2012          2011                    
R`000         R`000                   
ASSETS                                                                          
Non-current assets                         1 151 181     966 187                
Property, plant and equipment              737 312       565 775                
Intangible assets                          88 226        90 117                 
Goodwill                                   305 715       305 715                
Financial assets at fair value through     1 291         -                      
profit or loss                                                                  
Deferred tax assets                        18 637        4 580                  
Current assets                             665 288       498 164                
Inventories                                20 622        16 983                 
Non-current assets held-for-sale           3 293         -                      
Other investments                          -             420                    
Taxation                                   15 617        3 855                  
Trade and other receivables                529 103       413 768                
Cash and cash equivalents                  96 653        63 138                 
Total assets                               1 816 469     1 464 351              
EQUITY AND LIABILITIES                                                          
Share capital and reserves                 937 432       703 156                
Share capital and premium                  592 045       389 449                
Equity compensation reserve                16 188        14 444                 
Foreign currency translation reserve       (21 395)      (33 188)               
Retained earnings                          350 594       332 451                
Non-current liabilities                    316 658       195 562                
Secured borrowings*                        179 911       84 516                 
Post-retirement benefits                   1 806         1 657                  
Deferred tax liabilities                   134 941       109 389                
Current liabilities                        562 379       565 633                
Current portion of secured borrowings*     105 923       241 527                
Bank overdraft                             3 047         -                      
Taxation                                   15 872        9 953                  
Provisions                                 16 350        3 213                  
Trade and other payables                   421 187       310 940                
Total equity and liabilities               1 816 469     1 464 351              
Net asset value per share (cents)          241,5         238,9                  
Net tangible asset value per share         168,5         142,1                  
(cents)**                                                                       
*    Interest-bearing debt                                                      
**   (Net asset value less intangible assets, net of tax)/(shares in issue less 
treasury shares)                                                                
Abridged consolidated statement of cash flows                                   
                                          2012          2011                    
                                          R`000         R`000                   
Cash flows from operating activities       124 205       58 075                 
Cash receipts from customers               1 541 006     1 464 009              
Cash paid to suppliers and employees       (1 385 546)   (1 330 934)            
Cash generated from operations             155 460       133 075                
Dividends paid                             -             (43 642)               
Finance income                             49 726        23 703                 
Finance cost                               (73 090)      (54 224)               
Taxation paid                              (7 891)       (837)                  
Cash flows from investing activities       (256 057)     (41 979)               
Proceeds from sale of property, plant and  8 872         3 032                  
equipment                                                                       
Disposal of business, net of cash          -             (980)                  
acquired                                                                        
Acquisition of property, plant and         (257 722)     (50 373)               
equipment                                                                       
(Acquisition)/disposal of investments and                                       
financial assets                           (7 207)       6 342                  
Cash flows from financing activities       162 320       (69 820)               
Proceeds from the issue of share capital   202 596       1 261                  
Decrease in secured borrowings             (40 209)      (70 665)               
Post-retirement benefits paid              (67)          (416)                  
Net increase/(decrease) in cash and cash   30 468        (53 725)               
equivalents                                                                     
Cash and cash equivalents at beginning of  63 138        116 863                
year                                                                            
Cash and cash equivalents at end of year   93 606        63 138                 
Abridged consolidated statement of changes in equity                            
                                 Share      Share       Equity                  
                                                        compensation            
capital    premium     reserve                 
                                 R`000      R`000       R`000                   
Balance at 1 March 2010           292        396 664     8 253                  
Loss for the year                 -          -           -                      
Other comprehensive income                                                      
Foreign currency translation      -          -           -                      
differences from foreign                                                        
operations                                                                      
Post-retirement benefit           -          -           -                      
adjustment                                                                      
Total other comprehensive income  -          -           -                      
Total comprehensive income for    -          -           -                      
the year                                                                        
Transactions with owners,                                                       
recorded directly in equity:                                                    
Contributions by and                                                            
distributions to owners                                                         
Share issue expenses              -          (8 768)     -                      
Dividends to equity holders       -          -           -                      
Share-based payment transactions  -          -           6 191                  
Treasury shares - options         2          1 259       -                      
exercised                                                                       
Total contributions by and        2          (7 509)     6 191                  
distributions to owners                                                         
Balance at 28 February 2011       294        389 155     14 444                 
Profit for the year               -          -           -                      
Other comprehensive income                                                      
Foreign currency translation      -          -           -                      
differences from foreign                                                        
operations                                                                      
Post-retirement benefit           -          -           -                      
adjustment                                                                      
Total other comprehensive income  -          -           -                      
Total comprehensive income for    -          -           -                      
the year                                                                        
Transactions with owners,                                                       
recorded directly in equity:                                                    
Contributions by and                                                            
distributions to owners                                                         
Rights issue                      93         199 907     -                      
Share-based payment transactions  -          -           1 744                  
Treasury shares - options         1          2 595       -                      
exercised                                                                       
Total contributions by and        94         202 502     1 744                  
distributions to owners                                                         
Balance at 29 February 2012       388        591 657     16 188                 
                                 2012       2011                                
Dividends per ordinary share      -          -                                  
(cents)                                                                         
                                 Translation   Retained    Total                
                                 reserve       earnings    equity               
                                 R`000         R`000       R`000                
Balance at 1 March 2010           (14 295)      417 115     808 029             
Loss for the year                 -             (40 761)    (40 761)            
Other comprehensive income                                                      
Foreign currency translation      (18 893)      -           (18 893)            
differences from foreign                                                        
operations                                                                      
Post-retirement benefit           -             (261)       (261)               
adjustment                                                                      
Total other comprehensive income  (18 893)      (261)       (19 154)            
Total comprehensive income for    (18 893)      (41 022)    (59 915)            
the year                                                                        
Transactions with owners,                                                       
recorded directly in equity:                                                    
Contributions by and                                                            
distributions to owners                                                         
Share issue expenses              -             -           (8 768)             
Dividends to equity holders       -             (43 642)    (43 642)            
Share-based payment transactions  -             -           6 191               
Treasury shares - options         -             -           1 261               
exercised                                                                       
Total contributions by and        -             (43 642)    (44 958)            
distributions to owners                                                         
Balance at 28 February 2011       (33 188)      332 451     703 156             
Profit for the year               -             18 216      18 216              
Other comprehensive income                                                      
Foreign currency translation      11 793        -           11 793              
differences from foreign                                                        
operations                                                                      
Post-retirement benefit           -             (73)        (73)                
adjustment                                                                      
Total other comprehensive income  11 793        18 143      29 936              
Total comprehensive income for    11 793        18 143      29 936              
the year                                                                        
Transactions with owners,                                                       
recorded directly in equity:                                                    
Contributions by and                                                            
distributions to owners                                                         
Rights issue                      -             -           200 000             
Share-based payment transactions  -             -           1 744               
Treasury shares - options         -             -           2 596               
exercised                                                                       
Total contributions by and        -             -           204 340             
distributions to owners                                                         
Balance at 29 February 2012       (21 395)      350 594     937 432             

                                                                                
Information about Reportable Segments                                           
                      Geotechnical           Civils                             
2012       2011        2012         2011                  
                      R`000      R`000       R`000        R`000                 
External revenue       734 475    684 989     820 396      512 439              
Inter-segment revenue  10 617     21 683      3 655        6 348                
Segment revenue        734 092    706 672     824 051      518 787              
Segment result:                                                                 
Profit/(loss) before   50 253     18 747      25 376       (3 113)              
interest and taxation                                                           
Finance cost           (56 352)   (53 608)    (15 680)     (9 286)              
Finance income         50 561     24 858      4 224        4 168                
Taxation               (921)      7 773       (8 242)      (3 014)              
Segment profit/(loss)  43 541     (2 230)     5 678        (11 245)             
Segment assets         722 746    662 228     583 537      454 761              
Segment liabilities    321 438    643 020     531 512      219 261              
Capital and non-cash                                                            
items:                                                                          
Additions to property, 51 100     11 794      205 317      17 964               
plant and equipment                                                             
Depreciation           21 686     23 183      45 452       21 039               
Impairment loss        -          1 624       -            -                    
Number of employees    1 191      1 287       1 820        1 453                
                      Pipelines              Corporate and                      
                                             Eliminations                       
                      2012        2011       2012         2011                  
R`000       R`000      R`000        R`000                 
External revenue       227 821     169 005    -            -                    
Inter-segment revenue  -           -          (14 272)     (28 031)             
Segment revenue        227 821     169 005    (14 272)     (28 031)             
Segment result:                                                                 
Profit/(loss) before   2 234       (3 548)    (24 717)     (28 509)             
interest and taxation                                                           
Finance cost           (72)        (79)       (1 129)      8 602                
Finance income         1 915       3 361      (6 974)      (8 684)              
Taxation               (4 407)     (794)      2 147        2 365                
Segment profit/(loss)  (330)       (1 060)    (30 673)     (26 226)             
Segment assets         84 007      87 092     426 179      260 270              
Segment liabilities    83 817      54 024     (57 730)     (155 109)            
Capital and non-cash                                                            
items:                                                                          
Additions to property, 620         6 104      685          14 512               
plant and equipment                                                             
Depreciation           2 817       1 640      9 555        14 807               
Impairment loss        -           -          -            1 200                
Number of employees    373         434        18           10                   
Consolidated                                              
                      2012           2011                                       
                      R`000          R`000                                      
External revenue       1 771 692      1 366 433                                 
Inter-segment revenue  -              -                                         
Segment revenue        1 771 692      1 366 433                                 
Segment result:                                                                 
Profit/(loss) before   53 146         (16 423)                                  
interest and taxation                                                           
Finance cost           (73 233)       (54 371)                                  
Finance income         49 726         23 703                                    
Taxation               (11 423)       6 330                                     
Segment profit/(loss)  18 216         (40 761)                                  
Segment assets         1 816 469      1 464 351                                 
Segment liabilities    879 037        761 196                                   
Capital and non-cash                                                            
items:                                                                          
Additions to property, 257 722        50 374                                    
plant and equipment                                                             
Depreciation           79 510         60 669                                    
Impairment loss        -              2 824                                     
Number of employees    3 402          3 184                                     
Geographical information                                                        
                    South Africa              Other regions                     
2012        2011          2012       2011                   
                    R`000       R`000         R`000      R`000                  
Total revenue        1 497 994   1 162 814     273 698    203 619               
Property, plant and  625 352     463 705       111 960    102 070               
equipment                                                                       
                    Consolidated                                                
                    2012        2011                                            
                    R`000       R`000                                           
Total revenue        1 771 692   1 366 433                                      
Property, plant and  737 312     565 775                                        
equipment                                                                       
DIRECTORS:                                                                      
DM Thompson* (Chairman)                                                         
B Krone (CEO)                                                                   
W van Houten (CFO)                                                              
AC Brookstein                                                                   
EG Dube*                                                                        
MB Mathabathe*                                                                  
Dr FA Sonn*                                                                     
*Independent non-executive                                                      
REGISTERED OFFICE:                                                              
30 Activia Road, Activia Park, Germiston, 1401                                  
(PO Box 6478, Dunswart, 1508)                                                   
Telephone: +27 11 776 8700                                                      
Fax: +27 11 822 1158                                                            
SPONSOR:                                                                        
Vunani Corporate Finance                                                        
Vunani House, Athol Ridge Office Park                                           
151 Katherine Street, Sandton, 2196                                             
(PO Box 652419, Benmore, 2010)                                                  
TRANSFER SECRETARIES:                                                           
Computershare Investor Services (Pty) Limited                                   
70 Marshall Street, Johannesburg, 2001                                          
(PO Box 61051, Marshalltown, 2107)                                              
COMPANY SECRETARY:                                                              
iThemba Governance and Statutory Solutions (Pty) Limited                        
Monument Office Park, Suite 5 - 102                                             
79 Steenbok Avenue, Monument Park, 0181                                         
(PO Box 25160, Monument Park, 0105)                                             
INVESTOR RELATIONS:                                                             
Envisage Investor & Corporate Relations                                         
4th Floor, South Wing, Hyde Park Offices                                        
(Hyde Park Shopping Centre)                                                     
Jan Smuts Avenue, Hyde Park 2196                                                
(PO Box 413031, Craighall, 2024)                                                
www.esorfranki.co.za                                                            
Date: 28/05/2012 07:05:09 Supplied by www.sharenet.co.za                     
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