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ESORFRANKI LIMITED - Audited results for the year ended 28 February 2013

Release Date: 27/05/2013 07:05:00      Code(s): ESR       PDF(s):  
Audited results for the year ended 28 February 2013

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")

ANNUAL RESULTS PRESENTATION
for the year ended 28 February 2013

Highlights

REVENUE UP 31,3% TO R2,33 BILLION

HEPS 20,5 CENTS

ORDER BOOK UP 43,7% TO R2,5 BILLION

NAV 280 CENTS PER SHARE

GROSS PROFIT R375 MILLION

Commentary

Introduction

The audited abridged consolidated financial results for the year to 28 February 2013 ("the year")
reflect Esorfranki's continued solid performance, which has sustained the group's turnaround over
the past two reporting periods. Activity levels improved across all divisions despite the challenging
domestic construction sector. The group's performance reflects the maturity gained
in the past few tough years and also an established foundation for a sustainable turnaround.

The order book has increased for the third consecutive year and stood at R2,5 billion at
28 February 2013, a 43,7% year-on-year gain.

Financial results

Consolidated revenue increased 31,3% to R2,33 billion from R1,77 billion in the previous year.
Earnings before interest, taxation, depreciation, impairments and amortisation ("EBITDA")
increased by 103% to R269,3 million (2012: R132,7 million). Headline earnings per share ("HEPS")
was 20,5 cents up 230,6% (2012: 6,2 cents). Net asset value ("NAV") per share increased to
280,3 cents per share (2012: 241,5 cents).

Review of operations

Esorfranki Geotechnical's revenue increased 7,3% to R787,9 million (2012: R734,1 million), driven
by growth in sub-Saharan Africa. Operating profit was up 52% to R76 million (2012: R50 million),
which includes a profit on sale of a property in KwaZulu-Natal of R25 million. Operating margins
for the year were 10%, with foreign operations achieving an operating margin of 17% and
contributing 79% of the division's profit.

To capitalise on promising cross border prospects the division focused on consolidating its footprint
across sub-Saharan Africa and established on the ground operations in Ghana. In addition
the division secured its first contract in Uganda, which, like Ghana, has significant infrastructure
prospects. Esorfranki Geotechnical is well established across sub-Saharan Africa with regional
offices now in Angola, Ghana, Mauritius, Mozambique, Tanzania and Zimbabwe. With a 20 year
track record in African markets, Esorfranki is well positioned to benefit from the opportunities in the
region, its considerable experience of operating in Africa offsetting the high risk.

In South Africa intense competition continued to squeeze margins. In an effort to diversify, in line
with strategy, the division successfully secured projects in the renewable energy sector and for the
infrastructure for cellular transmission towers.

Revenue in Esorfranki Civils increased 48,4% to R1,2 billion from R824,1 million in the previous year,
generating significantly higher operating profit of R76,5 million (2012: R25,4 million). The order book
grew by 4,5% year-on-year to R1,27 billion on the back of major long-term contracts from amongst
others Eskom, Bakwena Platinum Corridor Concessionaire, Gauteng Department of Roads and
private infrastructure developments. Operational efficiency was honed with a plant expansion
programme totalling R132,4 million.

Esorfanki Civils also expanded into Africa in line with the group focus, securing a contract in
Botswana.

Esorfranki Pipelines' revenue was up 42% to R324 million (2012: R228 million) due to a number of
contract awards which effectively served to offset the cancellation of the Western Aqueduct
contract and add impetus to growth beyond that. In addition the BG3 contract was successfully
completed and handed over post year-end. At year-end the order book totalled R518 million
compared to R220 million in the previous year. Operating profit of R31 million was up significantly
from R2,2 million in the previous year. Esorfranki Pipelines also extended its footprint into Africa
with a new contract in Swaziland.

CAPEX

During the year the group invested R193,9 million (2012: R257,7 million) to improve operational
efficiencies and capacity in anticipation of long-term contracts now in hand.

The total capex approved for the year ahead is R92 million, with the declining trend year-on-year
reflecting the stability and currency of the group's plant and equipment, as well as capacity to
accommodate new contracts.

Transformation

Esorfranki remained a Level 4' contributor in terms the Department of Trade & Industry's B-BBEE
Codes of Good Practice. Considerable effort continues to be channelled into improving the
group's B-BBEE level to a Level 3 in the short term. As per the renewal of cautionary of 10 May 2013,
Esorfranki remains in discussions with a BEE investment consortium for the acquisition of Esorfranki
ordinary shares. The transaction is expected to be finalised in June 2013. In addition the board is
focused on appointing a black female non-executive director by the end of the first half of the
new financial year.

The group has made substantial investment in enterprise development with 11 companies
currently receiving Esorfranki's support.

Prospects

Despite the still challenging environment in the construction sector, which has started showing
only the first slow signs of recovery, Esorfranki has boosted its order book with pleasing contract
awards across the group.

Esorfranki Geotechnical has secured a respectable 45% of its targeted order book for FY2014,
with positive prospects locally and in all regions of sub-Saharan Africa. In South Africa in the year
ahead the division will embark on new piling projects in KwaZulu-Natal and Gauteng, a wind farm
in the Eastern Cape, and a solar farm in the Northern Cape. In addition to the renewable energy
sector in which it is making successful inroads, the division will continue targeting infrastructure
for the cellular transmission towers market. In sub-Saharan Africa two new projects in Ghana and
Uganda will begin, while projects in Angola continue steadily.

Esorfranki Civils intends to further expand its focus in the year ahead to the private housing market,
roads, infrastructure and water in order to broaden its customer base. Esorfranki Civils has an
order book in excess of R1 billion with a number of pending awards. Esorfranki Civils has invested
in property developments such as the Orchards project near Pretoria and other mixed use
developments, securing a five year pipeline. In addition it will continue to pursue contracts outside
South Africa.

Esorfranki Pipelines has secured an order book for FY2014 of R440 million. Contracts throughout
South Africa include work in the Eastern Cape, KwaZulu-Natal, Gauteng and Limpopo.

While challenges remain, Esorfranki's size and experience supported resilience and the group is
well positioned for the year ahead. The growth in the business as well as investments in property
development opportunities has put pressure on the group's cash resources. Cash reduced by
R60 million from R93,6 million to R33,6 million.

Directorate

During the year chief financial officer Wayne van Houten resigned, effective 30 September 2012,
and was replaced by Wessel van Zyl effective 8 October 2012. We welcome Wessel to the board
and are looking forward to his contribution.

Andy Brookstein retired as an executive director with effect from 31 January 2013.
We thank both Wayne and Andy for their valuable service to the group.

Dividend declaration

The board has resolved not to declare a dividend in respect of the year under review, which
accords with the board's decision in the previous year (2012: Nil). It remains the policy of the
company to review the dividend 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 abridged consolidated financial statements are prepared in accordance with the framework
concepts and the measurement and recognition requirements of International Financial Reporting
Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, and also, as a minimum, to contain the information required by IAS 34: Interim
Financial Reporting and the requirements of the Companies Act of South Africa. The accounting
policies applied in the preparation of the audited consolidated financial statements, from which
the abridged consolidated financial statements were derived, are in terms of International
Financial Reporting Standards and are consistent with the accounting policies applied in the
preparation of the previous audited consolidated financial statements.

The financial statements have been prepared by WC van Zyl, CFO.

Audit opinion

The auditors, KPMG Inc., have issued an unmodified audit opinion on the group's financial
statements for the year ended 28 February 2013. 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 abridged consolidated financial statements are derived from
the audited consolidated financial statements and are consistent in all material respects.
The group audited financial statements are available for inspection at the company's registered
office and will be included in the Integrated Annual Report 2013 to be posted to stakeholders
on or about 27 May 2013.

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, 28 June 2013 at 10h00. The notice of annual general meeting
forms part of the Integrated Annual Report 2013, to be posted to stakeholders on or about
27 May 2013.

Appreciation

We thank our management and staff for their endurance and unflagging spirit in the face of
ongoing challenges. Their efforts make as significant an impact on the group's performance as
does their enthusiasm and positivity. We also thank our business partners, suppliers, advisors and
our valued clients and shareholders for your continued confidence in the group.

On behalf of the board

Bernie Krone                                      Wessel van Zyl
CEO                                               CFO

27 May 2013

Statements of financial position
at 28 February 2013

                                                    Group                    Company
                                            2013              2012         2013          2011
                                           R'000             R'000        R'000         R'000
Assets
Non-current assets                     1 237 461          1 151 181     678 466        679 632
Property, plant and equipment            822 678            737 312                         
Intangible assets                         86 336             88 226                         
Goodwill                                 305 715            305 715                         
Financial assets at fair value
  through profit or loss                       3              1 291                         
Deferred tax asset                        22 729             18 637                         
Investments in subsidiaries                                           678 466        679 632
Current assets                         1 006 320            665 288     393 997         20 357
Inventories                               69 721             20 622                         
Non-current assets held for sale                             3 293                         
Other investments                         27 726                                           
Unsecured loans                                                       388 777         20 335
Taxation                                  14 513             15 617                         
Trade and other receivables              826 713            529 103       5 213              
Cash and cash equivalents                 67 647             96 653           7             22

Total assets                           2 243 781          1 816 469   1 072 463        699 989
Equity and liabilities
Share capital and reserves             1 053 262            937 432     869 426        635 754
Share capital and premium                571 300            592 045     607 445        608 232
Equity compensation reserve               18 606             16 188      18 606         16 188
Foreign currency translation reserve       3 850            (21 395)                        
Retained earnings                        459 506            350 594     243 375         11 334
Non-current liabilities                  540 326            316 658     202 500              
Secured borrowings                       368 507            179 911     202 500              
Preference shares                         21 000                                           
Post-retirement benefits                   1 913              1 806                         
Deferred tax liability                   148 906            134 941                         

Current liabilities                      650 193            562 379         537         64 235

Current portion of secured borrowings     79 481            105 923                         
Unsecured loans                                                                      63 482
Bank overdraft                            34 059              3 047                         
Taxation                                   4 508             15 872                         
Provisions                                38 329             16 350                         
Trade and other payables                 493 816            421 187         537            753

Total equity and liabilities           2 243 781          1 816 469   1 072 463        699 989

Statements of comprehensive income
for the year ended 28 February 2013

                                                           Group                  Company
                                                  2013               2012        2013          2012
                                                 R'000              R'000       R'000         R'000

Revenue                                      2 325 958          1 771 692     239 707             
Cost of sales                               (1 950 798)        (1 549 955)                       
Gross profit                                   375 160            221 737     239 707             
Other income                                    27 239              1 705         218           218
Operating expenses                            (133 134)           (90 786)     (4 300)       (2 309)
Profit/(loss) before interest, tax,
 amortisation, impairments
 and depreciation                              269 265            132 656     235 625        (2 091)
Depreciation, impairments and
amortisation                                  (118 271)           (79 510)     (3 584)     (286 488)
Results from operating activities              150 994             53 146     232 041      (288 579)
Finance income                                  42 369             49 726      12 805             
Finance costs                                  (86 684)           (73 233)    (12 805)           (2)
Profit/(loss) before income tax                106 679             29 639     232 041      (288 581)
Income tax (expense)/income                    (18 969)           (11 423)                     553
Profit/(loss) after tax                         87 710             18 216     232 041      (288 028)
Other comprehensive income:
Foreign currency translation
  differences for foreign operations            30 157             13 655                        
Actuarial loss on post-retirement
  benefits                                         (97)               (73)                       
Income tax on translation differences           (4 912)            (1 862)                       
Other comprehensive income
 for the period, net of tax                     25 148             11 720                        
Total comprehensive income
attributable to:
Owners of the company                          112 858             29 936     232 041      (288 028)
Basic earnings/(loss) per share (cents)           23,5                4,7        58,7         (73,1)
Diluted earnings/(loss) per share (cents)         23,5                4,7        58,7         (73,1)
Reconciliation of headline
earnings/(loss):
Profit/(loss)after tax                          87 710             18 216     232 041      (288 028)
Net (profit)/loss on disposal of property,
 plant and equipment                           (16 988)             5 830                        
Impairment of intangible assets,
 property, plant and equipment
 and investments                                 6 305                         3 584       206 271
Headline earnings/(loss)                        77 027             24 046     235 625       (81 757)

Statements of changes in equity
for the year ended 28 February 2013

                                                        Equity      Foreign
                                                        compen-     currency
                                 Share       Share       sation  translation    Retained       Total
                               capital     premium      reserve      reserve    earnings      equity
Group                            R'000       R'000        R'000        R'000       R'000       R'000

Balance at 1 March 2011            294     389 155       14 444      (33 188)    332 451     703 156
Profit for the year                                                           18 216      18 216
Other comprehensive
income
Foreign currency translation
  difference net of taxation                                       11 793                 11 793
Post-retirement benefit
  adjustment                                                                     (73)        (73)
Total other comprehensive
 income                                                            11 793         (73)     11 720
Total comprehensive income
 for the year                                                      11 793      18 143      29 936
Transactions with owners,
  recorded directly in equity
Contributions by and
  distributions to owners
Rights issue                        93     199 907                                        200 000
Share-based payment
  transactions                                          1 744                              1 744
Treasury shares  options
  exercised                          1       2 595                                          2 596
Total contributions by and
 distributions to owners            94     202 502        1 744                            204 340
Balance at 29 February 2012        388     591 657       16 188      (21 395)    350 594     937 432
Balance at 1 March 2012            388     591 657       16 188      (21 395)    350 594     937 432
Profit for the year                                                           87 710      87 710
Other comprehensive
income
Foreign currency translation
  difference net of taxation                                       25 245                 25 245
Post-retirement benefit
  adjustment                                                                     (97)        (97)
Total other comprehensive
 income                                                            25 245         (97)     25 148
Total comprehensive income
 for the year                                                      25 245      87 613     112 858
Transactions with owners,
  recorded directly in equity
Contributions by and
  distributions to owners
Share issue expenses                         (787)                                          (787)
Share-based payment
  transactions                                         2 418                               2 418
Treasury shares  options
  exercised                          1       1 340                                          1 341
Treasury shares acquired           (13)    (21 286)                             21 299           
Total contributions by and
 distributions to owners           (12)    (20 733)      2 418                   21 299       2 972
Balance at 28 February 2013        376     570 924      18 606         3 850     459 506   1 053 262

Statements of changes in equity (continued)
for the year ended 28 February 2013

                                                        Equity
                                                        compen-     Common
                                 Share       Share       sation    control     Retained       Total
                               capital     premium      reserve    reserve     earnings      equity
Company                          R'000       R'000        R'000      R'000        R'000       R'000

Balance at 1 March 2011            302     407 930       14 023    261 107       38 255     721 617
Loss for the year                                                          (288 028)   (288 028)
Transfer to retained earnings                                  (261 107)     261 107           
Total comprehensive
 income for the year                                           (261 107)     (26 921)   (288 028)
Transactions with owners,
  recorded directly in equity
Contributions by and
  distributions to owners
Rights issue                        93     199 907                                       200 000
Share-based payment
  transactions                                          2 165                             2 165
Total contributions by and
 distributions to owners            93     199 907        2 165                           202 165
Balance at 29 February 2012        395     607 837       16 188                  11 334    635 754
Balance at 1 March 2012            395     607 837       16 188                  11 334    635 754
Profit for the year                                                          232 041    232 041
Total comprehensive
 income for the year                                                         232 041    232 041
Transactions with owners,
  recorded directly in equity
Contributions by and
  distributions to owners
Share issue expenses                         (787)                                         (787)
Share-based payment
  transactions                                          2 418                             2 418
Total contributions by and
 distributions to owners                     (787)       2 418                             1 631
Balance at 28 February 2013        395     607 050       18 606                 243 375    869 426

Statements of cash flow
for the year ended 28 February 2013

                                                     Group                         Company
                                            2013               2012        2013             2012
                                           R'000              R'000       R'000            R'000

Cash flows from operating activities     (32 853)           124 205     230 196           (9 697)

Cash receipts from customers           1 995 185          1 541 006      239 707               
Cash paid to suppliers and employees  (1 960 683)        (1 385 546)      (9 511)        (10 248)
Cash generated by/(utilised in)
 operations                               34 502            155 460      230 196         (10 248)
Finance income                            42 369             49 726       12 805               
Finance costs                            (86 684)           (73 090)     (12 805)             (2)
Taxation paid                            (23 040)            (7 891)                        553
Cash flows from investing activities    (210 980)          (256 057)                          
Additions to property, plant
  and equipment                         (193 930)          (257 722)                          
Proceeds on disposal of property,
  plant and equipment                     39 132              8 872                           
Acquisition of business, net of cost     (28 456)                                            
Investments acquired                     (27 726)            (7 207)                          
Cash flows from financing activities     183 815            162 320     (230 211)          9 663
Decrease in unsecured loans                                           (431 924)       (190 337)
Increase/(decrease) in secured
  borrowings                             162 154            (40 209)     202 500               
Preference shares issued                  21 000                                             
Proceeds from share issue net
  of issue expenses                          554             202 596        (787)        200 000
Post-retirement benefits paid                107                 (67)                         

Net increase/(decrease) in
 cash and cash equivalents               (60 018)             30 468         (15)            (34)
Net cash and cash equivalents
 at beginning of year                     93 606              63 138          22              56
Cash and cash equivalents
 at end of year                           33 588              93 606           7              22

Segmental analysis
for the year ended 28 February 2013

Operating segments
                                                                                                                      Corporate and
                                  Geotechnical                    Civils                    Pipelines                  eliminations                Consolidated
                                  2013       2012          2013              2012         2013          2012           2013       2012          2013          2012
                                 R'000      R'000         R'000             R'000        R'000         R'000          R'000      R'000         R'000         R'000

External revenue               787 857    723 475     1 214 549           820 396      323 552       227 821                             2 325 958     1 771 692
Inter segment revenue                     10 617         8 713             3 655                                  (8 713)   (14 272)                         
Segment revenue                787 857    734 092     1 223 262           824 051      323 552       227 821         (8 713)   (14 272)    2 325 958     1 771 692
Segment result
Profit/(loss) before interest
and taxation                    76 105     50 253        76 525            25 376       30 583         2 234        (32 219)   (24 717)      150 994        53 146
Net finance (cost)/
 income                        (12 663)    (5 791)      (22 286)          (11 456)        (157)        1 843         (9 209)    (8 103)      (44 315)       23 507
Taxation                        (1 239)      (921)      (14 859)           (8 242)      (8 883)       (4 407)         6 012      2 147       (18 969)      (11 423)
Segment profit/(loss)           62 203     43 541        39 380             5 678       21 543          (330)       (35 416)   (30 673)       87 710        18 216
Segment assets                 734 464    722 746       963 994           583 537      191 552        84 007        353 771    426 179     2 243 781     1 816 469
Segment liabilities            325 267    321 438       872 001           531 512      169 549        83 817        (84 276)   (57 730)    1 190 519       879 037
Capital and non-cash
 items
Additions to property,
 plant and equipment            42 814     51 100       132 407           205 317       17 083           620         1 626        685        193 930       257 722
Depreciation                    27 817     21 686        61 959            45 452        4 082         2 817        13 766      9 555        107 624        79 510
Impairment loss                                                                                                8 757                    8 757             
Number of employees              1 169      1 191         2 701             1 820          763           373            21         18          4 654         3 402


                                                              South Africa                           Other regions                         Consolidated
                                                           2013                  2012                 2013               2012              2013              2012
Geographical information                                  R'000                 R'000                R'000              R'000             R'000             R'000

Total revenue from external customers                 1 961 439             1 497 994              364 519            273 698         2 325 958         1 771 692
Property, plant and equipment                           646 915               625 352              158 473            111 960           805 388           737 312

A separate segment report has not been prepared for the company as it had no trading operations.


DIRECTORS:

DM Thompson* (Chairman)
B Krone (CEO)
WC van Zyl (CFO)
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, Vunani 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, Corner Jan Smuts Avenue, Hyde Park, 2196

30 Activia Road, Activia Park
Germiston, South Africa

Tel: +27 11 776 8700
Fax: +27 11 822 1158

www.esorfranki.co.za

Esorfranki construction (Pty) Ltd is a wholly-owned subsidiary of Esorfranki Limited.
Esorfranki civils I Esorfranki pipelines I Esorfranki Geotechnical
are divisions of Esorfranki constuction (Pty) Ltd.



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