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ESORFRANKI LIMITED - Reviewed condensed consolidated interim results for the six months ended 31 August 2012

Release Date: 25/10/2012 07:05:00      Code(s): ESR       PDF(s):  
Reviewed condensed consolidated interim results for the six months ended 31 August 2012

ESORFRANKI LIMITED
(Registration number: 1994/000732/06)
Incorporated in the Republic of South Africa
(Share code: ESR ISIN: ZAE000133369)
("Esorfranki" or "the company" or "the group")

REVIEWED CONDENSED
CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2012

HIGHLIGHTS

REVENUE UP 33,3%
HEPS UP 300%
ORDER BOOK R2,4 BILLION
SHORT-TERM PROSPECTS R4,8 BILLION

COMMENTARY
Esorfranki's reviewed condensed consolidated interim results for the six months ended 31 August 2012 ("the period")
reflect the group's continuing turnaround and the resumption of sustainable profitability. Effective rationalisation and
optimisation processes in all divisions are further strengthening profitability. The group's continued growth is affirmed
by our order book, standing at R2,43 billion at the end of the period.

Strategy to improve the group's BEE rating progressed well during the period, particularly in terms of ownership, with
the announcement that Esorfranki is in negotiations with a BEE investment consortium to acquire a stake
in the group.

In addition, the High Yield Bond Programme was successfully concluded in August 2012 raising funds of
R202,5 million. These will be used primarily to settle existing credit lines and free facilities to support future
growth. The group has secured adequate facilities to support the working capital requirements commensurate
with increased activity levels and expansion in the property development market.

During the period, the group assumed control of the Esor Broad Based Share Ownership Scheme, following a change
in trustees in March 2012. Accordingly the 13,3 million treasury shares have been consolidated into the group.

Financial results
Revenue increased 33% to R1,14 billion from R857,5 million in the comparative period. Earnings before interest,
depreciation, impairments, amortisation and taxation ("EBITDA") was up 437% to R136,4 million from R25,4 million.
HEPS increased 300% to 7,8 cents per share from a headline loss per share of 3,9 cents in the comparative
period. Net asset value per share ("NAV") increased 16,4% to 267,9 cents from 230,1 cents. The order book was
up 35% to R2,43 billion from R1,8 billion at 31 August 2012. An impairment of R8,5 million was recognised on the
property in Midrand as a result of the group's changed strategy regarding divisionalisation with respect to office
and yard requirements.

Review of operations
Although the construction sector in South Africa remains tough, Esorfranki has managed to sustain the turnaround
started in the latter half of FY2012, putting the group firmly on track for growth with good prospects going forward.

Esorfranki Civils' revenue increased 69% to R598 million from R354 million. Profit before tax increased by 210% to
R28,7 million compared to a loss of R25,9 million in the comparative period. The division maintained the profitability
achieved in the second half of FY2012. The order book grew by 101% to R1,80 billion from R984 million. Operating
margins increased considerably over the previous period.

The R21 road contract, which recorded a loss at the end of the previous year, achieved a pleasing turnaround
to a near break-even position. Work on the R271 million Bestwood housing and infrastructure contract near
Kathu in the Northern Cape is progressing well and attaining reasonable margins. An additional housing and
property development contract  the R340 million Orchards development in Rosslyn near Pretoria  also
commenced. This project required the acquisition of a new subsidiary in July 2012. The acquisition resulted
in the inclusion of inventory totalling R33,1 million, which comprised land for development and development
costs already incurred at acquisition date.

Although work in the mining sector is available, a slight slowdown is fuelling a more competitive market with eroding
margins. The company secured additional contracts at Kusile Power Station including two earthworks contracts
encompassing the formation of terraces and the crushing of stockpiled materials. The N4 contract at Mooinooi for
Bakwena Concessions is progressing well.

Esorfranki Pipelines' revenue was up 32% to R149 million from R113 million which, coupled with an order book of
R314 million at period-end, more than compensates for the cancelled Western Aqueduct contract. The KZN region
provided a number of new contracts including Umlaas Road for Umgeni Water and The Bluff Military Base and the
Richmond Road Off-take in Woodmead. In the Free State, a new contract was awarded for the Ezenzeleni Water
Treatments Works in Warden.

The BG 3 dispute remains unresolved and is in the process of arbitration. Resolution is expected early in 2013.

Esorfranki Geotechnical's revenue grew marginally by 1,2% to R410 million from R405 million, reflecting continued
difficult trading conditions. Profit before tax increased by 159% to R39,3 million from R15,2 million. This included
a profit of R24,4 million on the sale of property in Pinetown for R30,5 million following the consolidation of the two
offices in Durban. Off-shore revenue increased 26% to R179,4 million from R142,9 million, translating into an increase
in offshore profit before tax of 19,7% to R22,5 million from R18,8 million. In South Africa, stiff competition and limited
demand are constraining margins which are currently lower than historical averages.

The division continues to focus on expansion in high-growth Ghana and has demonstrated pleasing progress with
a fifth contract awarded. The Ada Groynes contract is moving quickly following the completion of all temporary and
establishment works.

Safety
Esorfranki Civils recently won an award for its safety record at the Kusile Power Station for achieving 1 million injury
free hours. The group's Lost Time Injury Frequency Ratio (LTIFR) of 0,74 at period-end is significantly better than the
industry norm of 1,33.

CAPEX
During the period, the group invested R126 million in property, plant and equipment compared to R152 million in the
comparative period. The majority of CAPEX requirements are applied in Esorfranki Civils. The CAPEX spend for the
period was supported by the successful listing of the High Yield Bond Programme.

Black Economic Empowerment
Esorfranki is currently a Level 4' contributor in terms of the Department of Trade and Industry's B-BBEE Codes
of Good Practice, a critical differentiator in an environment dependent on Government infrastructure spend.

The group remains focused on continually reviewing and enhancing all areas of scorecarding and will look to
improve the rating in the medium term. To this end, specific training is being implemented to ensure that all
B-BBEE spend is correctly allocated with respect to skills development, procurement, enterprise development
and socio-economic development.

In terms of ownership, should the BEE transaction currently in negotiation advance, Esorfranki would considerably
exceed industry Charter requirements. Details will be announced in due course.

Incorporating retail shareholders on the open market, current direct black ownership totals 18,3% (2011: 29,64%).

Included in this is the 3,3% stake in the company held by black staff through the Esor Broad Based Share Ownership
Scheme.

More than 80% of the group's 3 799 strong workforce is black and emphasis is placed on skills training and
development to accelerate promotion into middle and senior management.

Competition Commission update
As previously announced, Esorfranki was named in July 2009 by the Competition Commission in an investigation
into alleged anti-competitive behaviour in the piling and drilling industry. The allegations related to transgressions by
Franki Africa prior to that company's acquisition by the group and by the then-named Esor (Proprietary) Limited prior
to listing. Esorfranki has co-operated fully with the Competition Commission. The investigation is ongoing and no
updates have occurred since the announcement at the previous year-end.

Directorate
Post period-end CFO Wayne van Houten resigned effective 1 October 2012. The board thanks him for his contribution
to the group. Wessel van Zyl, CA(SA) was appointed as CFO effective 8 October 2012.

Events after the reporting date
There were no significant events after the reporting date.

Prospects
Esorfranki has started to benefit from the tentative recovery in the South African economy. The promised government
infrastructure spend did not progress as anticipated during the period and a full economic recovery is expected only
in the medium term.

Esorfranki Civils is expected to further capitalise on opportunities in housing, with affordable housing projects
planned in the Vaal Triangle and Thabazimbi and a low-cost house development in Johannesburg. Despite the
slowdown in the mining sector, opportunities remain in the coal mining sector from which Esorfranki anticipates
benefiting.

Esorfranki Pipelines started the second half of the year securing a significant R250 million contract in Stanger. In
addition the Rand Water Augmentation continues and there are good prospects in KZN and Gauteng.
The sector remains challenged by the slow delivery of pipes from suppliers. This is expected to be alleviated
in the second half of the current year to boost production. Further promising prospects exist with potential
reticulation in the SADC region.

Esorfranki Geotechnical's prospects in Sub-Saharan Africa are varied, but promising. The Mauritian market is
currently flat and is likely to remain so for the next reporting period, but in the medium term PPP projects around
Port Louis offer attractive opportunities. Mozambique is looking positive with a number of large projects to be
awarded in the coal mining sector. Although the Angolan market has become more competitive with the entry
of international construction companies, the division is confident of further contract awards. Despite some
challenges, the group expects to achieve targets in all regions this year.

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, capital requirements and bank covenants.

Statement of compliance
The reviewed condensed consolidated interim financial statements for the period 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 Listings Requirements and in the manner required by the South African Companies Act, 71 of 2008.
The accounting policies applied in preparation of the condensed consolidated interim financial statements are
consistent with those applied in the group's annual financial statements for the year ended 29 February 2012,
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 management teams and employees for their persistence and loyalty in a trying period and challenging
environment. Our appreciation also extends to our customers, suppliers, advisors and stakeholders for their continued
support.

On behalf of the board.

Bernard Krone	                                         Dave Thompson
Chief Executive Officer	                                 Chairman

25 October 2012

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
                                                Six months ended                          Year ended
                                              Reviewed          Reviewed                     Audited
                                             31 August         31 August                 29 February
                                                  2012              2011     Change             2012
                                                 R'000             R'000          %            R'000

Revenue                                      1 142 776           857 524       33,3        1 771 692
Cost of sales                                (992 177)         (777 629)       27,6      (1 549 955)
Gross profit                                   150 599            79 895       88,5          221 737
Other income                                    25 072             1 058    2 269,8            1 705
Operating expenses                            (39 266)          (55 546)       29,3         (90 786)
Profit before interest, tax,
  amortisation, impairments
  and depreciation                            136 405             25 407      436,9          132 656
Depreciation, impairments
  and amortisation                            (57 730)          (39 822)     (45,0)         (79 510)
Results from operating activities               78 675          (14 415)      645,8           53 146
Finance costs                                 (16 868)          (12 073)     (39,7)         (73 233)
Finance income                                   1 654             2 614     (36,7)           49 726
Profit/(loss) before tax                        63 461          (23 874)      365,8           29 639
Taxation                                      (16 125)             5 197      410,3         (11 423)
Profit/(loss) after tax                        47 336           (18 677)      353,4           18 216
Other comprehensive income:
Foreign currency translation differences
  for foreign operations                        18 268             6 864      166,1           13 655
Actuarial gain on post-retirement
  benefit                                                                                    (73)
Income tax on other comprehensive
 income                                        (2 119)             (546)    (288,1)          (1 862)
Other comprehensive income
 for the period, net of tax                     16 149             6 318    (155,6)           11 720
Total comprehensive income
attributable to:
Owners of the company                           63 485          (12 359)      613,7           29 936
Basic earnings/(loss) per share (cents)           12,6             (4,8)      362,5              4,7
Diluted earnings/(loss) per share (cents)         12,6             (4,8)      362,5              4,7
Reconciliation of headline
earnings/(loss)
Profit/(loss) attributable to
 ordinary shareholders                          47 336          (18 677)      353,4           18 216
Adjusted for:
Profit/(loss) on disposal of property,
 plant and equipment                          (23 437)             3 630    (745,6)            5 830
Profit on acquisition of subsidiary              (801)                                           
Impairment of property, plant
 and equipment                                   6 113                                           
Headline earnings/(loss) attributable
 to ordinary shareholders                       29 211          (15 047)    (294,1)           24 046
Number of ordinary shares in
 issue ('000)                                  395 185           395 185                     395 185
 Diluted weighted average                      374 787           387 980                     386 731
 Weighted average                              374 787           387 812                     386 731
Headline earnings/(loss)
 per share (cents)                                 7,8             (3,9)      300,0              6,2
 
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                        Reviewed         Reviewed        Audited
                                                       31 August        31 August    29 February
                                                            2012             2011           2012
                                                           R'000            R'000          R'000
ASSETS
Non-current assets                                     1 230 999        1 085 923      1 151 181
Property, plant and equipment                            807 095          678 242        737 312
Intangible assets                                         87 281           89 170         88 226
Goodwill                                                 320 507          305 715        305 715
Financial asset                                              449            7 829          1 291
Deferred tax asset                                        15 667            4 967         18 637
Current assets                                           960 341          626 951        665 288
Inventories                                               56 144           14 933         20 622
Non-current assets held for sale                           2 139                          3 293
Other investments                                         29 092            1 593              
Taxation                                                  14 697            4 218         15 617
Trade and other receivables                              640 139          556 663        529 103
Cash and cash equivalents                                218 130           49 544         96 653
Total assets                                           2 191 340        1 712 874      1 816 469
EQUITY AND LIABILITIES
Share capital and reserves                             1 003 921          893 375        937 432
Share capital and premium                                570 162          589 700        592 045
Equity compensation reserve                               17 655           16 225         16 188
Foreign currency translation reserve                     (3 127)         (26 324)       (21 395)
Retained earnings                                        419 231          313 774        350 594
Non-current liabilities                                  535 757          298 564        316 658
Secured borrowings*                                      384 493          195 040        179 911
Post-retirement benefits                                   1 806            1 657          1 806
Deferred tax liabilities                                 149 458          101 867        134 941
Current liabilities                                      651 662          520 935        562 379
Current portion of secured borrowings*                   102 353           77 907        105 923
Taxation                                                  12 119           18 529         15 872
Provisions                                                34 401           23 882         16 350
Bank overdraft*                                                           48 410          3 047
Trade and other payables                                 502 789          352 207        421 187
Total equity and liabilities                           2 191 340        1 712 874      1 816 469
Net asset value per share (cents)                          267,9            230,1          241,5
Tangible net asset value per share (cents)**               189,5            156,9          168,5

* Interest-bearing debt
** (Net asset value less intangible assets net of deferred tax)/weighted average shares.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                          Six months ended            Year ended
                                                        Reviewed         Reviewed        Audited
                                                       31 August        31 August    29 February
                                                            2012             2011           2012
                                                           R'000            R'000          R'000
Cash flows from operating activities
Profit/(loss) before taxation                             63 461         (23 874)         29 639
Adjustments for:
Depreciation of property, plant and equipment             48 294           38 875         77 619
Impairment of land and buildings                           8 491                              
Amortisation of intangible assets                            945              947          1 891
Amortisation of financial asset                            1 670              979          2 463
Profit on disposal of property, plant and equipment     (28 124)             (62)          (585)
Loss on disposal of property, plant and equipment                          5 104          8 682
Foreign currency translation reserve adjustment            7 095            2 879          2 217
Equity settled share-based payment transactions            1 467            1 781          1 744
Fair value adjustment of derivative instruments            1 699                              
Gain on bargain purchase of subsidiary                   (1 113)                              
Interest expense                                                                           143
Income tax (paid)/refund                                 (6 585)            5 314        (7 891)
                                                          97 300           31 943        115 922
Change in inventories                                   (27 581)            2 050        (3 639)
Change in trade and other receivables                  (112 983)        (151 703)      (111 462)
Change in trade and other payables                        81 369           41 267        110 247
Change in provisions                                       6 923           20 669         13 137
Net cash generated/(used) from operations                 45 028         (55 774)        124 205
Cash flows from investing activities
Proceeds from sale of property, plant
  and equipment                                           44 992              130          8 872
Acquisition of business, net of cash                    (10 840)                              
Acquisition of property, plant and equipment           (125 994)        (152 342)      (257 722)
Acquisition of other investments                        (29 092)          (1 173)        (7 207)
Net cash used in investing activities                  (120 934)        (153 385)      (256 057)
Cash flows from financing activities
Proceeds from the issue of share capital,
 net of expenses                                           (582)          200 251        202 596
Increase/(decrease) in secured borrowings                201 012         (53 096)       (40 209)
Post-retirement benefits paid                                                             (67)
Net cash generated in financing activities               200 430          147 155        162 320
Net increase/(decrease) in cash and
 cash equivalents                                        124 524         (62 004)         30 468
Cash and cash equivalents at beginning of period          93 606           63 138         63 138
Cash and cash equivalents at end of period               218 130            1 134         93 606

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                                              Equity
                                                                   Share       Share    compensation   Translation    Retained        Total
R'000                                                            capital     premium         reserve       reserve    earnings       equity

Balance at 1 March 2011                                              294     389 155          14 444      (33 188)     332 451      703 156
Loss for the period                                                                                               (18 677)     (18 677)
Other comprehensive income
Foreign currency translation differences for foreign operations                                           6 864                   6 864
Total other comprehensive income                                                                          6 864                   6 864
Total comprehensive income/(loss) for the period                                                          6 864    (18 677)     (11 813)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share issues                                                          93     199 907                                             200 000
Share-based payment transactions                                                             1 781                                1 781
Share options exercised                                                8         243                                                 251
Total contributions by and distributions to owners                   101     200 150           1 781                              202 032
Balance at 31 August 2011                                            395     589 305          16 225      (26 324)     313 774      893 375
Balance at 1 March 2012                                              388     591 657          16 188      (21 395)     350 594      937 432
Profit for the period                                                                                               47 336       47 336
Other comprehensive income
Foreign currency translation differences for foreign operations                                          18 268                  18 268
Total other comprehensive income                                                                         18 268                  18 268
Total comprehensive income for the period                                                                18 268      47 336       65 604
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share issues                                                                  (582)                                               (582)
Share-based payment transactions                                                             1 467                                1 467
Acquisition of trust treasury shares                                (13)    (21 287)                                  21 300            
Total contributions by and distributions to owners                  (13)    (21 869)           1 467                   21 300          885
Balance at 31 August 2012                                            375     569 788          17 655       (3 127)     419 230    1 003 921

Information about reportable segments for the six months ended 31 August/12 months ended 29 February 2012

                                      Esorfranki Geotechnical                  Esorfranki Civils                    Esorfranki Pipelines             Corporate and Eliminations                    Consolidated
                                  August        August     February     August       August      February      August       August     February     August      August    February       August       August     February
R'000                               2012          2011         2012       2012         2011          2012        2012         2011         2012       2012        2011        2012         2012         2011         2012
External revenues                410 327       405 611      734 092    598 765      354 366       824 051     149 163      113 320      227 821   (15 479)    (15 773)    (14 272)    1 142 776      857 524    1 771 692
Reportable segment profit/(loss)
 before income tax                39 246        15 211       42 620     28 670     (25 958)       (2 564)      10 418          637      (4 767)   (14 873)    (13 764)    (28 526)       63 461     (23 874)        6 763
Reportable segment assets        726 991       674 136      722 746    795 274      718 654       583 537     125 166      115 445       84 007    543 909     204 635     426 179    2 191 340    1 712 874    1 816 469

Geographical information
                                            South Africa                         Other Regions                           Consolidated
                                  August        August     February     August       August      February      August       August     February
R'000                               2012          2011         2012       2012         2011          2012        2012         2011         2012
Total revenue                    963 374       714 633    1 497 994    179 402      142 891       273 698   1 142 776      857 524    1 771 692
Profit/(loss) before interest
 and tax                          48 241      (33 219)          439     30 434       18 804        46 711      78 675     (14 415)       47 150
Total assets                   1 895 389     1 300 919    1 568 821    295 951      411 955       247 648   2 191 340    1 712 874    1 816 469                                      

DIRECTORS: DM Thompson* (Chairman); B Krone (CEO); W van Zyl (CFO); EG Dube*; MB Mathabathe*; Dr FA Sonn*; AC Brookstein         
*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 (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)

COMPANY SECRETARY: iThemba Governance and Statutory Solutions (Proprietary) Limited, Monument Office Park, Suite 5  102, 79 Steenbok Avenue, Monument Park, 0181 (PO Box 25160, Monument Park, 0105)

AUDITORS: KPMG Inc. KPMG Crescent, 85 Empire Road, Parktown, 2193 (Private Bag 9, Parkview, 2122)

www.esorfranki.co.za
Date: 25/10/2012 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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