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ESOR LIMITED - Reviewed Condensed Consolidated Interim Results for the Six Months Ended 31 August 2015

Release Date: 05/11/2015 07:15:00      Code(s): ESR       PDF(s):  
Reviewed Condensed Consolidated Interim Results for the Six Months Ended 31 August 2015

Esor Limited
(Registration number 1994/000732/06)
Incorporated in the Republic of South Africa
JSE Code: ESR
ISIN: ZAE000184669)
('Esor' or 'the company' or 'the group')

Reviewed condensed consolidated interim results
for the six months ended 31 August 2015

Highlights
Return to profitability
HEPS up 131%
2 year order book of R1,62 billion
Gearing reduced to 18%
Developments division on track and delivering positive results
Level 3 B-BBEE rating maintained

Commentary
Introduction
The reviewed condensed consolidated interim results for the six months to August 2015 ('the period')
saw the group successfully return to profitability following previous loss-making periods. The full
integration of the group restructure, which included the rationalisation of the Civils operations, and
a 'back to basics' approach were key drivers of restoring bottom line health. Trading conditions
remained challenging in the period.

Financial results
Revenue for the period was flat at R773 million (2014: R790 million). Esor nonetheless posted profit
before tax of R10,8 million to reverse the R32,5 million loss before tax in the comparative period.
This translated into positive headline earnings per share of 2,0 cents (2014: headline loss of 6,59
cents per share). Profit was slightly curtailed by losses on an RDP housing project in KwaZulu-Natal
(see Review of operations). Borrowings improved with the group settling vehicle asset finance of
R42,7 million. A comfortable gearing level of 18,4% has been achieved.

Cash flow improved 11,6% on February 2015 with the group ending the period with R40,5 million
cash on hand.

Following approval of the Esor Limited Share Plan at the annual general meeting on 26 June 2015,
the group repurchased 4,7 million treasury shares during the period.

Safety
As previously announced, Esor experienced a regrettable fatality at the Northern Aqueduct project
on 2 April 2015. Esor again extends its condolences to the family and colleagues. Any loss of life
impacts the wider Esor family and steps have been put in place to prevent further such incidents.

During the period Esor achieved two million lost-time injury-free hours at the Kusile project. The
group Lost Time Injury Frequency Ratio ('LTIFR') at 31 August was 0,59 (2014: 0,39) although above
the group target still a world-class achievement. Esor continues to focus on leading indicators to
ensure accidents are prevented and on maintaining its ISO 9001, ISO 14001 and OHSAS 18001
accreditations.

Review of operations
The group performed largely on budget despite the low-cost housing loss-making contract
impacting profit. Esor incurred a R10 million loss at the Umzumbe low-cost housing project in
KwaZulu-Natal due to excessive rain, increased transport costs, subcontractor delays and increased
plant requirements, all impacting project time overruns. These issues have been addressed and
steps put in place to avoid similar occurrences. The group has accounted for all expected losses
and the project is due for completion in April 2016.

Esor reports in two core divisions being Esor Developments and Esor Construction. The construction
division has five focus areas: Esor Infrastructure, Esor Building and Housing, Esor Pipelines, Esor
Sanitation and Esor Pipe Services.

Esor Construction
Esor Infrastructure remained focused on the Kusile project where the terrace underground facilities
works contract and the general services piping are currently under way. The Kusile project is on
track and has achieved the set milestones of 'ready for coal stock out' and 'raw water available'
within the milestone dates set. Claims on both Package 25 and 26 remain outstanding and the group
remains focused on entrenching its strong relationship with Eskom, who has proven a reliable debtor.
Resolution on the Package 25 claim is expected by the end of the calendar year while Package 26
claims are being dealt with through the project.

In line with strategy the division focused mainly on current work, limiting work to the Kusile project
as above, ongoing projects and some internal infrastructure work for Esor Developments. However,
the division has recently started to price new work in areas of core competence such as infrastructure
and smaller roadworks projects.

Ongoing projects in Esor Building and Housing continued to progress well, with upgrades for ACSA
to the OR Tambo Duty-free Mall and the SAA Domestic Lounge as well as the Eloff Street office
renovation for Transnet. Smaller new projects awarded in the period included a regeneration project
in Maboneng Johannesburg and upgrading of parking facilities at the Randburg Home Affairs building.

This division is tasked with the completion of the current RDP housing projects that were awarded
two years ago and is expected to complete the last of the current awarded contracts by March 2016.

The order book for the combined divisions (Esor Infrastructure and Esor Building and Housing) at
31 August was R902 million (2014: R1 billion), now including the Diepsloot project previously
allocated to Esor Developments' order book.

Esor Pipelines and the newly formed Esor Sanitation continued to perform solidly and within budget.
The Western Aqueduct project is progressing well while the current eThekwini sanitation contract
has been completed and only final accounts are outstanding. The group continually engages with
clients on the major projects to find solutions on outstanding claims.

Esor Pipe Services continued to grow both locally and cross-border while securing longer term
contracts at Steelpoort and the O6 pipeline. Esor remains the recognised leader in South Africa
with a track record in excess of 30 years.

Esor Pipelines, Sanitation and Pipe Services had an order book of R604 million (2014: R605 million)
at 31 August 2015.

Esor Developments
The division progressed well in implementing current projects and is now contributing positively to
group performance despite delays in the Diepsloot project. Esor eliminated its market volatility risk
on the Orchards development with the conclusion of an exclusivity sale agreement for all remaining
stands to RBA Homes. The deal is backed by guarantees from Old Mutual. The preference share
repayment terms have been restructured to coincide with the project cash flows.

Environmental delays and objections lodged by neighbouring residents continue to delay the Diepsloot
development that is currently estimated to commence with infrastructure work only in Q1 2017.

The group is currently finalising negotiations for a 1 000+ unit low-cost housing development in
Khayelitsha in partnership with the current land owner. This will secure both infrastructure and top
structure opportunities within the next three months.

At 31 August the division's order book stood at R116 million (2014: R725 million) with a pipeline in
excess of R1 billion, reflecting the transfer of projects to the Esor Infrastructure and Esor Building
and Housing order book.

In Africa the group has progressed in line with strategy and has secured two projects in Botswana
and completed three small piling jobs in Zimbabwe, where the group has no restraint of trade following
the sale of Franki. The Pipelines projects in Swaziland continue to progress well. Revenue from
operations outside South Africa totalled R18 million (2014: Nil) during the period.

CAPEX
There were no significant capital expenditure investments during the period. A further R28,9 million
of underutilised plant was disposed of. The approach to capital remains to balance the percentage
of owned plant to rental plant.

Transformation
Esor maintained its Level 3 B-BBEE accreditation in terms the Department of Trade & Industry's
B-BBEE Codes of Good Practice, and is targeting Level 2 by 2016 (based on the 2009 Construction
Sector Charter).

The Esor Broad Based Share Ownership Scheme ('EBBSOS') holds a 5,32% stake in the company.
Following the approval of the Esor Share Plan at the June 2015 AGM, the company acquired 4 721 762
shares to hedge the volatility in the share price.

The group continues to invest heavily in enterprise development with eight SMMEs currently
receiving Esor's support.

Prospects
The general market outlook is expected to fare neither worse nor better in the foreseeable future.
There has been a slight uptick in tender activity although no commensurate increase in awards.

At 31 August the group order book totalled R1,62 billion (February 2015: R1,94 billion), marking a
decline in line with industry conditions as well as the group's strategy of focusing on existing work.

Pending awards total R681 million on a par with February 2015.

The board anticipates Esor's recovery to continue into the year ahead. The benefits of the restructure
and a more streamlined group are expected to continue, with Esor Developments and Pipe Services
poised for growth.

Directorate
Eugene Erasmus and Ethan Dube resigned as independent non-executive directors effective 22 May
and 17 July 2015, respectively. The board thanks them for their valuable contribution and guidance
during their tenure.

The board believes the size and skills mix of the current board, which includes business, finance,
engineering and legal expertise, is appropriate to the size and diversity of the business.

Dividend declaration
In line with group policy, no dividend has been declared (2014: Nil). It remains the policy of the
group to review the dividend policy annually in light of cash flow, gearing, capital requirements
and bank covenants.

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

Statement of compliance
The condensed consolidated interim financial statements are prepared in accordance with
International Financial Reporting Standard, (IAS) 34 Interim Financial Reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by Financial Reporting Standards Council and the requirements of the
Companies Act of South Africa. The accounting policies applied in the preparation of these interim
financial statements are in terms of International Financial Reporting Standards and are consistent
with those applied in the previous annual financial statements.

The financial statements have been prepared under supervision of the CFO, Mr B Atkinson CA(SA),
and were approved by the board on 29 October 2015.

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 directors for their wise counsel and management and all employees for their ongoing
hard work and commitment. We also thank our business partners, suppliers, advisors and our valued
clients and shareholders for their continued confidence in the group.

On behalf of the board

Bernie Krone 
Chairman 

Wessel van Zyl
CEO

5 November 2015

Condensed consolidated statement of financial position
at 31 August 2015
                                                                Reviewed    Reviewed       Audited
                                                               31 August   31 August   28 February
                                                                    2015        2014          2015
                                                                   R'000       R'000         R'000
Assets                                                       
Non-current assets                                               457 168     587 727       475 950
Property, plant and equipment                                    208 786     289 719       230 932
Goodwill                                                        155 323      185 062       155 323
Loans and long-term receivables                                     761       36 630           761
Financial assets at fair value through profit or loss            29 488       64 923        29 488
Deferred tax asset                                               11 805       11 393        10 566
Investment and loan to joint venture                             51 005            -        48 880
Current assets                                                  656 073      903 953       753 117
Loans and receivables                                            37 619            -        35 014
Inventories                                                     127 222      228 536       149 374
Non-current assets held for sale                                      -            -        20 046
Taxation                                                          2 692            -         8 014
Trade and other receivables                                     448 003      624 736       504 330
Cash and cash equivalents                                        40 537       50 681        36 339
Total assets                                                  1 113 241    1 491 680     1 229 067
Equity and liabilities                                       
Share capital and reserves                                      673 420      742 475       667 340
Share capital and premium                                       582 381      583 730       583 730
Foreign currency translation reserve                             16 040       12 970        27 033
Retained earnings                                                74 999      145 775        56 577
Non-current liabilities                                         110 100      159 514       121 586
Secured borrowings*                                              83 984      123 372       101 837
Preference shares*                                                5 000       22 279             -
Deferred tax liabilities                                         21 116       13 863        19 749
Current liabilities                                             329 721      589 691       440 141
Current portion of secured borrowings*                           58 116      105 216        82 920
Current portion of preference shares*                             5 239            -        21 000
Taxation                                                              -        7 337         2 644
Provisions                                                       12 813       15 817        11 458
Trade and other payables                                        253 553      461 321       322 119
Total equity and liabilities                                  1 113 241    1 491 680     1 229 067
Net asset value per share (cents)                                 182,3        198,4         178,3
Tangible net asset value per share (cents)**                      152,0        162,8         148,4
*  Interest-bearing debt.
** (Net asset value less intangible assets net of deferred tax)/issued shares at period end.


Condensed consolidated statement of comprehensive income
for the six months ended 31 August 2015
                                                   Reviewed    Reviewed
                                                   6 months    6 months                    Audited
                                                      ended       ended                 year ended
                                                  31 August   31 August                28 February
                                                       2015        2014       Change          2015
                                                      R'000       R'000            %         R'000
Revenue                                             772 551     789 831         (2,2)    1 448 363
Cost of sales                                      (721 088)   (756 908)         4,7    (1 385 681)
Gross profit                                         51 463      32 923         56,3        62 682
Other income                                         10 876      5 612          93,8        10 170
Operating expenses                                  (32 760)    (45 553)        28,1       (95 963)
Profit/(loss) before interest, tax,               
amortisation, impairments and                     
depreciation                                         29 579      (7 018)       521,5       (23 111)
Depreciation, impairments and                     
amortisation                                        (16 385)    (23 920)        31,5       (78 650)
Results from operating activities                    13 194     (30 938)       142,6      (101 761)
Finance costs                                        (6 880)     (7 544)         8,8       (22 983)
Finance income                                        4 445       5 944        (25,2)       19 538
Profit/(loss) before tax                             10 759     (32 538)       133,1      (105 206)
Taxation                                             (4 599)      8 546        153,8         5 314
Profit/(loss) for the period                          6 160     (23 992)       125,7       (99 892)
Other comprehensive income:                       
Foreign currency translation                      
differences for foreign operations                   (1 627)     (9 808)       83,41        (9 770)
Income tax on other                               
comprehensive income                                    358       1 471        (75,7)        2 198
Other comprehensive income                        
for the period, net of tax                           (1 269)     (8 337)        84,8        (7 572)
Total comprehensive income
attributable to:
Owners of the company                                 4 891     (32 329)       115,1      (107 464)
Basic earnings/(loss) per
share (cents)                                          1,65       (6,28)       126,3         (26,4)
Diluted earnings/(loss) per
share (cents)                                          1,65       (6,28)       126,3         (26,4)
Reconciliation of headline earnings
Profit attributable to ordinary
shareholders                                          6 160     (23 992)       125,7       (99 892)
Adjusted for:
Loss/(profit) on disposal of
property, plant and equipment                         1 371      (1 147)      (219,5)         (893)
Impairment of goodwill                                    -           -            -        29 739
Headline earnings/(loss)
attributable to ordinary
shareholders                                          7 531     (25 139)       130,0       (71 046)
Number of ordinary shares in
issue ('000)                                        395 185     395 185                    395 185
Diluted weighted average                            374 096     381 747                    378 109
Weighted average                                    374 096     381 747                    378 109
Headline earnings/(loss) per
share (cents)                                          2,01       (6,59)       130,5         (18,8)


Condensed consolidated statement of changes in equity
for the six months ended 31 August 2015
                                                                                            Equity
                                                                                           compen-
                                                                  Share        Share        sation
R'000                                                           capital      premium       reserve
Balance at 1 March 2014                                             382      585 763        19 213
Loss for the period                                            
Other comprehensive income                                     
Foreign currency translation differences                       
for foreign operations                                         
Total other comprehensive income                                      -            -             -
Total comprehensive income for the period                             -            -             -
Transactions with owners, recorded directly                    
in equity                                                      
Contributions by and distributions to owners                   
Shares acquired                                                      (8)      (2 407)
Transfer to retained earnings                                                              (19 213)
Total contributions by and distributions to owners                   (8)      (2 407)      (19 213)
Balance at 31 August 2014                                           374      583 356             -
Balance at 1 March 2015                                             374      583 356             -
Profit for the period                                          
Other comprehensive income                                     
Foreign currency translation differences                       
for foreign operations                                         
Total other comprehensive income                                      -            -             -
Total comprehensive income for the period                             -            -             -
Transactions with owners, recorded directly                    
in equity                                                      
Contributions by and distributions to owners                   
Shares acquired                                                      (5)      (1 344)
Foreign currency translation differences                       
transferred to retained earnings                               
Total contributions by and distributions to owners                   (5)      (1 344)            -
Balance at 31 August 2015                                           369      582 012             -
                                                                 
                                                                 
                                                            Translation     Retained         Total
R'000                                                           reserve     earnings        equity
Balance at 1 March 2014                                          23 665      148 196       777 219
Loss for the period                                                          (23 992)      (23 992)
Other comprehensive income                                       
Foreign currency translation differences                         
for foreign operations                                           (8 337)                    (8 337)
Total other comprehensive income                                 (8 337)           -        (8 337)
Total comprehensive income for the period                        (8 337)     (23 992)      (32 329)
Transactions with owners, recorded directly                      
in equity                                                        
Contributions by and distributions to owners                     
Shares acquired                                                                             (2 415)
Transfer to retained earnings                                    (2 358)      21 571             -
Total contributions by and distributions to owners               (2 358)      21 571        (2 415)
Balance at 31 August 2014                                        12 970      145 775       742 475
Balance at 1 March 2015                                          27 033       56 577       667 340
Profit for the period                                                          6 160         6 160
Other comprehensive income                                       
Foreign currency translation differences                         
for foreign operations                                            1 269                      1 269
Total other comprehensive income                                  1 269            -         1 269
Total comprehensive income for the period                         1 269        6 160         7 429
Transactions with owners, recorded directly                      
in equity                                                        
Contributions by and distributions to owners                     
Shares acquired                                                                             (1 349)
Foreign currency translation differences                         
transferred to retained earnings                                (12 262)      12 262             -
Total contributions by and distributions to owners              (12 262)      12 262        (1 349)
Balance at 31 August 2015                                        16 040       74 999       673 420
                                                                 
                                                                 
Condensed consolidated statement of cash flows                   
for the six months ended 31 August 2015                          
                                                               Reviewed     Reviewed
                                                               6 months     6 months       Audited
                                                                  ended        ended    year ended
                                                              31 August    31 August   28 February
                                                                   2015         2014          2015
                                                                  R'000        R'000         R'000
Cash flows from operating activities                             
Profit/(loss) before taxation                                    10 759      (32 538)     (105 206)
Adjustments for:                                                 
Depreciation of property, plant and equipment                    16 385       23 920        48 911
Impairment of intangible assets                                       -            -        29 739
Amortisation and fair value adjustments                          
of financial assets                                                   -            -        35 444
Loss/(profit) on disposal of property,                           
plant and equipment                                               1 904       (1 593)       (1 240)
Foreign currency adjustment                                      (4 573)      (8 337)       (9 816)
Income tax (paid)/refund                                         (1 793)       2 799       (10 299)
                                                                 22 682       15 749       (12 467)
Change in inventories                                            22 152       (7 191)       23 210
Change in trade and other receivables                            56 327       35 192       151 381
Change in trade and other payables                              (68 566)      24 308       (61 926)
Change in provisions                                              1 355        2 104        (2 255)
Net cash generated from operations                               33 950       38 664        97 943
Cash flows from investing activities                             
Proceeds from sale of property,                                  
plant and equipment                                              26 804       20 089        41 954
Loan advanced to joint venture                                        -            -       (48 880)
Acquisition of property, plant and equipment                     (2 050)     (12 000)      (20 468)
Disposal of discontinued operation, net of cash                       -            -             1
Acquisition of other investments                                      -       (4 547)            -
Net cash generated by/(used in) investing activities             24 754        3 542       (27 393)
Cash flows from financing activities                             
Preference shares redeemed                                      (10 500)           -            -
Decrease in secured borrowings                                  (42 657)      (9 950)     (52 636)
Shares acquired                                                  (1 349)      (2 415)      (2 415)
Net cash generated by financing activities                      (54 506)     (12 365)     (55 051)
Net decrease in cash and cash equivalents                         4 198       29 841       15 499
Cash and cash equivalents at beginning of period                 36 339       20 840       20 840
Cash and cash equivalents at end of period                       40 537       50 681       36 339


Information about reportable segments
for the six months ended 31 August 2015/ twelve months ended 28 February 2015
                                                                 August       August*    February*
                                                                   2015         2014         2015
Operating segment                                                 R'000        R'000        R'000
Construction
Segment revenues                                                726 869      781 852    1 423 314
Reportable segment profit/(loss) before
income tax                                                       16 632      (28 834)     (18 857)
Reportable segment assets                                       659 664      938 448      775 588
Developments
Segment revenues                                                 47 883       32 075       75 873
Reportable segment profit/(loss) before
income tax                                                        5 446         (688)         297
Reportable segment assets                                       121 213      244 321      196 644
Corporate and eliminations
Segment revenues                                                 (2 201)     (24 096)     (50 824)
Reportable segment loss before income tax                       (11 319)      (3 016)     (86 666)
Reportable segment assets                                       332 364      308 911      216 835
Consolidated
Segment revenues                                                772 551      789 831    1 448 363
Reportable segment profit/(loss) before
income tax                                                       10 759      (32 538)    (105 206)
Reportable segment assets                                     1 113 241    1 491 680    1 229 067
Geographical information
South Africa
Total revenue                                                   754 706      789 831    1 447 464
Reportable segment profit/(loss) before
income tax                                                        9 164      (32 538)    (101 350)
Total assets                                                  1 097 725    1 491 680    1 227 946
Other regions
Total revenue                                                    17 845            -          899
Reportable segment profit/(loss) before
income tax                                                        1 595            -       (3 856)
Total assets                                                     15 516            -        1 121
Consolidated
Total revenue                                                   772 551      789 831    1 448 363
Reportable segment profit/(loss) before
income tax                                                       10 759      (32 538)    (105 206)
Total assets                                                  1 113 241    1 491 680    1 229 067
* Comparative amounts have been revised to reflect the new reporting structure of the group as
  indicated on page 1 of the commentary.


Disposal of business unit
for the six months ended 31 August/ twelve months ended 28 February
                                                              31 August    31 August  28 February
                                                                   2015         2014         2015
                                                                  R'000        R'000        R'000
Inventories                                                           -            -       48 761
Trade and other receivables                                           -            -        4 208
Cash                                                                  -            -           (1)
Post-retirement benefits                                              -            -      (48 880)
Trade and other payables                                              -            -       (4 087)
Net asset value                                                       -            -            1
Profit on disposal                                                                              -
Net cash outflow                                                      -            -            1


Financial asset at fair value through profit or loss
The contingent consideration receivable, a Level 3 financial asset, arose from the disposal of the
discontinued operation in the 2014 year, which includes a clause that entitles the seller to an amount
of R150 million if the discontinued operation's cumulative EBITDA over the next three years exceeds
a threshold. The fair value is determined considering the estimated receivable, discounted to present
value. The fair value is based on key unobservable inputs of EBITDA growth of the business of 3%
and 12% in the years ending December 2015 and 2016 respectively, and a discount factor of 9%.
Prior year growth was calculated at 8%. The fair value was determined by the group finance department.
Scenarios on EBITDA growth were developed by management together with management of the
discontinued operation considering the economy generally and their knowledge of the geotechnical
business. The estimated fair value increases the higher the annual EBITDA growth rate, the higher
the EBITDA margin and the lower the discount rate. Management considers that changing the above
mentioned unobservable inputs to reflect other reasonably possible alternative assumptions would
not result in a significant change in the estimated fair value.

Directors
B Krone (Chairman)#
WC van Zyl (CEO)
BW Atkinson (CFO)
Dr OW Franks* (Lead Independent)
KR Moloko*
HJ Sonn*
* Independent non-executive
# Non-executive

Company secretary
iThemba Governance and Statutory Solutions (Pty) Limited
Monument Office Park
Suite 5 - 102 79 Steenbok Avenue
Monumentpark
0181

PO Box 25160
Monumentpark
0181

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 652 419
Benmore
2010

Transfer secretaries
Computershare Investor Services (Pty) Limited
70 Marshall Street
Johannesburg
2001

PO Box 61051
Marshalltown
2107

Investor relations
Envisage Investor & Corporate Relations
16th Floor
Sinosteel Plaza
159 Rivonia Road Morningside Ext
Sandton






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