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ESOR LIMITED - Abridged summarised consolidated results for the year ended 28 February 2018

Release Date: 29/06/2018 17:30:00      Code(s): ESR       PDF(s):  
Abridged summarised consolidated results
for the year ended 28 February 2018

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")

FULL SENS ANNOUNCEMENT Esor Limited - Abridged summarised consolidated results
for the year ended 28 February 2018

ESR 201706290006A
Abridged consolidated results for the year ended 28 February 2018.

Abridged summarised consolidated results for the year ended 28 February 2018
The financial statements that are summarised in this report were prepared by the acting CFO, Wessel
van Zyl.

The abridged summarised consolidated financial statements have not been audited, but are extracted
from the underlying audited information.

Copies of the full announcement may also be requested at the company's registered office or from the
company's sponsor, at no charge, from 09:00 to 16:00 on weekdays.

SALIENT FEATURES (not audited)
Challenging local operating environment
Non-RSA revenue increasing
Cash constraints negatively impacting operations
Medium-term liquidity constraints relief
LTIFR further improved to 0,15
Three Aqueduct projects imminent finalisation
Successful professional indemnity insurance claim at Northern Aqueduct

COMMENTARY
Introduction
FY2018 brought little relief to the harsh operating landscape for civil and construction companies in South
Africa, with many of the larger players shedding their construction subsidiaries and restructuring in a bid
to sustain themselves. As a smaller competitor in the industry, Esor has proven innovative in maintaining
our sustainability.

We have focused successfully on water and sanitation and the contribution to group revenue now stands
at approximately 53%. Within construction we have migrated away from long lead-time, large-scale civil
and building construction projects to smaller, quicker turnaround construction projects and viable
development opportunities. We have also looked to mining projects as a revenue underpin. Within all
sectors of operation, the South African government bottleneck remains the key obstacle to implementation
of projects and actioning of tenders.

Outside of South Africa, the situation was more promising in FY2018 as reflected in the comparative
operational ease of our Africa projects which progressed on time and on budget, and our increase in
contribution therefrom. Non-South Africa revenue now accounts for 16,2% overall in the FY2018.

Within the group we have employed more commercial personnel to cater for the increasing complexity of
the industry and trimmed our headcount and overheads where our order book could not sustain the
resource allocation. Retrenchment costs of R13,6 million were incurred in the year. We have successfully
fought protracted legal battles to ensure we are not unjustifiably out of pocket at the end of any project.
Nevertheless, these initiatives come at a price.

In the year the group experienced a cash flow and liquidity crunch, which necessitated a R42,5 million
bridging loan from our major investor Geomer Investments. Esor is and remains a going concern with
liquidity measures in place and relief on the horizon.

The order book at year-end was R881 million compared to R1,54 billion at February 2017. This is mainly
attributed to a reduction of R300 million in Developments order book due to the group reducing the
exposure to large-scale developments in favour of smaller affordable housing developments.

Financial results
Revenue was down to R1 billion from R1,4 billion in the prior period. This is driven by reduced activity
levels in the sector and the lack of new contract awards. Also contributing to this lower revenue generated
is the revenue losses incurred due to the non-revenue generating repair work at the Northern Aqueduct.
This accounted for around R50 million. The impairment of claims due to changes in contractual
circumstances, that are not deemed to be at an advanced stage of negotiation amounted to R84 million.

Profitability was severely impacted by further losses of R60 million and R119 million incurred on the
Northern and Western Aqueduct projects, respectively, and the impairment of goodwill of R61,8 million.
The above losses were partially offset by strong performance in the Mpumalanga and Limpopo regions
and resulted in a consolidated loss of R306,9 million compared to a loss of R139,8 million in the prior year.
                                                      Page 1
                                         Esor year-end results 2018 SENS
This resulted in a basic loss per share of 66,2 cents compared to a loss of 38,1 cents per share in the prior
year.

Cash flow and liquidity remained challenging in the current environment. We remain focused on both
debtor and supplier management with net cash balance at year-end of negative R36,7 million (2017:
negative R22,1 million). Our professional indemnity claim against the quality assurance sub-contractor has
been settled with proceeds received in full in April 2018.

Safety (not audited)
Esor continued to successfully improve on our Lost Time Injury Frequency Ratio ("LTIFR") to 0,15
(February 2017: 0,17). We are proud to have recorded in excess of 20 million fatality free man hours. This
reflects our continued focus on training and leading indicators to prevent incidents, rather than repeat
accidents. We employ more than 50% contract-specific employees, a challenge we continue to address
to remain one of the leading companies in SHEQ.

We are ISO 9001, 14001 and OHSAS 18001 accredited for the next three years across all operations.

Review of operations (not audited)
Esor Construction
We remain focussed on water and sanitation, which given recent commitment and budget allocation by
Government to future water projects, continues to look promising. However, in the year Government's
verbal commitment to investment did not translate into action and R2 billion of Esor awards and pending
awards were cancelled. Even given the Cape's drought crisis, very few of the tenders on bid were actually
awarded in the year and government delays traversed all levels of government from national to local.

The four main KZN Aqueduct projects (two contracts each and Northern and Western) were further
delayed by community unrest, rain and operational challenges. At the Northern Aqueduct completion of
Phases 1 and 3 is imminent and agreed rehabilitation and demobilisation should be fully completed by
July 2018. Our professional indemnity claim against the quality assurance subcontractor has been settled
with proceeds received in full in April 2018. However, the two-year process had a severe impact on liquidity
through funding losses on the Northern Aqueduct to the value of R207 million. Delays to our handover had
a significant impact on other group operations in order to fund the Northern Aqueduct project cash flows,
which at peak were a R25 million a month drain on the group's resources.

The Tshelimnyama contract is in the process of being handed over to the client. The Phase I of Western
Aqueduct was subject to certain client delays and impacted by operational issues. Various legal and claim
disputes are being addressed and remain in various stages of finalisation. For FY2018 these resulted in a
loss of R119 million and will continue to impact cash flow and liquidity until September 2018, when it is
anticipated this will be finalised.

The successful completion of the above Aqueduct projects will greatly assist in improving the liquidity and
provide much needed relief as explained above. Not only will the group benefit by the savings in cash
outflows but will be in a position to invoice for the first tranche of retention that amounts to R17 million as
well as the cancellation of around R60 million in guarantees, that will assist in freeing up facility for future
works.

Excellent performances of the Inland projects for power, mining and water projects have ensured that the
group still has a strong base for future work and shielded the results from the unacceptable level of losses
incurred in KZN. Dedication and commitment from all team members to realise profits of R86 million is
commended.

Esor Developments
This segment experienced mixed fortune in the year. On the upside, the remaining 360 residential sites
at our Orchards development were completed and transferred. We have full proclamation of the three
commercial sites which are being marketed with fair interest. Our focus on smaller developments proved
successful, for instance a 10-unit development in Timm Street Boksburg on which construction is due to
start in the next month. A number of other opportunities are being evaluated that may come to market
during H2 FY2019.

Our Uitvlugt development remained impacted by ongoing township approval and planning delays, not
helped by the slow economic growth in the region. We have accepted an offer for the sale of shares in the
project, with the payment of a non-refundable deposit to be finalised in July 2018. With regards to the
Khayelitsha project in Cape Town, we terminated our agreement with the developer, due to the unresolved
and protracted delay in the transfer of land and the resultant impact on the business plan. Material
differences between the parties in the vision of implementing the project ultimately resulted in the mutual
termination of the partnership.

Africa (not audited)
Our international order book of 37,9% at year-end compares favourably to 23% in February 2017. We
have seen positive growth in Swaziland, Botswana and Zimbabwe for the past three years and over one
third of our secured work is now outside South Africa. However, this too comes at a price - capital
demands and working capital investment, resources including local indigenisation requirements, and
exchange control restrictions. The requirement for bonding facilities in the bidding process further adds to
the costs and complexity of doing business outside our borders.

                                                     Page 2
                                         Esor year-end results 2018 SENS
The Lusip II infrastructure project in Swaziland, in joint venture with a local construction company, is
progressing well. The certified VAT has now been repaid by the Swazi government and the project is cash
neutral. The joint venture is set to reimburse its partners to the aggregate value of R35 million.

The ZINWA and Harare Water and Sewer Projects are all on track for timeous completion. This has given
us a solid base for other projects in Zimbabwe. There has been no impact on repatriation of funds as the
major projects are funded from offshore and enables us to receive the revenue in off-shore bank accounts.

Transformation (audited)
In terms of the Revised Construction Sector Charter issued in December 2017, Esor is a Level 3 BEE
contributor. In the short term we aim to retain Level 3 and improve to Level 2 in the medium term.

Competition Commission/CIDB (not audited)
Esor was not party to the Competition Commission's settlement reached in October 2016 between
government and seven other South African construction companies. Esor settled separately and amicably
with the company concerned in the Franki-related matter.

Negotiations with the Competition Commission are ongoing in relation to the Tribunal Enquiry into the 2009
complaint of collusive tendering practices in the geotechnical exploration and investigation works. We
continue to follow the legal process and timelines. The final hearing was expected to be completed in April
2018, but due to time constraints has been extended to November 2018.

Esor received a formal enquiry letter in December 2016 related to the CIDB intention to institute a
Regulation 29 formal enquiry against the construction firms that were not party to the voluntary rebuild
programme. We are in ongoing negotiations to reach an amicable settlement.

Directorate (audited)
As previously announced, Heather Sonn resigned as an independent non-executive director during the
year to pursue other business interests. Effective 16 November 2017, Haroon Takolia was appointed in
her stead as an independent non-executive and chairman of the Audit and Risk Committee.

Subsequent to year-end Bruce Atkinson has resigned as CFO in order to pursue interests outside of the
construction environment. Proceedings to appoint a successor are under way and details will be
announced in due course. In the meantime we have requested and received approval from the JSE to
combine the roles of CEO and acting CFO until 31 August 2018.

Prospects (not audited)
Looking ahead we are hopeful. We remain a going concern with a number of positive cash flow reliefs
outlined above, together with approximately R2 billion in pending awards and almost R4 billion in targeted
projects such as the 2B and 2E pipeline contracts in Limpopo and a number of funded projects in
Zimbabwe, including the long-awaited Diepsloot mixed housing development for the Department of
Human Settlements in Gauteng. We are cautiously optimistic that the new political leadership and agenda
will resolve the government bottleneck to project implementation. Government's commitment to raise
USD100 billion for investment opportunities also bodes well in this regard.

We remain focused on water, particularly in the Western Cape. The five-year restraint of trade on the
geotechnical business expires in November 2018 and we are gearing-up to proactively re-enter the
Geotechnical market.

In Africa we continue to focus on Botswana, Zimbabwe and Swaziland as future growth opportunities and
align with local partners to improve competitiveness and profitability. In Zimbabwe, particularly, there are
some low hanging fruit for the taking in collaboration with our local partners.

We will continue to do what needs be done to return the group to profitability including continuing to
restructure, down-scale and learn from past mistakes to prevent future recurrence, while actively seeking
out positive opportunity.

Dividend declaration
In line with group policy and Companies Act Requirements no dividend has been declared (2017: 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.

Ability to continue as a going concern
The group results had been impacted negatively by incurring further losses at the Aqueduct projects in
KZN during this financial year, impairment of certain claims as well as writing-off goodwill to the value of
R61,8 million. As a result, the group reported a net loss after tax of R306,9 million and a headline loss of
R241,6 million. The losses accounted for in the FY18 financial year at the Aqueduct projects, totalling
R179 million as well as delays in finalising contractual claims and entitlements have resulted in severe
pressure on liquidity and the ability to pay obligations as they fall due.

The group plans, to improve cash flow sustainability, has focused on:
- Finalising legacy contracts and therefore stop cash outflows, through the practical completion of three
  of the four Aqueduct projects in Q12018. This will also release substantial retention monies;
- Disposal of idle and non-core assets following the strategic positioning of the group to focus on Water,
  sanitation and developments. Proceeds to the value of R20,7 million has been received subsequent to
                                                      Page 3
                                           Esor year-end results 2018 SENS
    year-end;
-   Refinancing of selected equipment through vendor finance that has generated R12,2 million inflow and
    repayment over an 18-month instalment sales period;
-   Renegotiating payment terms with major suppliers and subcontractors to more closely match inflows
    with outflows;
-   Ensuring that adequate security is provided to the primary bankers to cover the facilities that are made
    available in terms of the facilities arrangements;
-   Ongoing communication with guarantor providers to maintain adequate bonding facilities to facilitate
    successful implementation of contract awards;
-   Negotiations to sell-off development land in Uitvlugt, in excess of 400ha, which has been on the balance
    sheet for over four years but needs working capital to unlock these major projects. Instead we will focus
    on small private developments that can be largely leveraged and have a quick turnaround life.

Post year-end, R8 million of the bridging loan was repaid to Geomer Investments, with the balance of
repayment being linked to specific claims and events occurring after financial year-end. The minimum
repayment of R2 million per month will commence from 31 August 2018 and may be increased on
successful settlement of the labour loss claim at Kusile.

Further imminent liquidity relief includes the release in H1 FY2019 of R30 million retention that includes
the release for the Northern and Western Aqueduct projects, three of the four work packages are
concluding. The cash settlement, received by the group in April 2018 from the professional indemnity
insurance claim on the Northern Aqueduct project assisted with unlocking certain supplies and the
ability to complete the critical aspects of the Aqueduct projects. The timing of the settlement was some
six months later than expected and has definitely had an impact on revenue generation in Q42018.

In addition, the cash flow of the Esor Joint Venture ("JV") in Swaziland has been impacted negatively by
the non-payment of VAT since inception, but a large payment was made in May 2018 to bring the balance
outstanding up to date. This has led to the JV being unable to pay the partners for their share of plant and r
esources supplied to the JV. Post year-end an amount of R7 million was received as partial payment
towards Esor's outstanding balance of R22 million.

Given the current liquidity constraints experienced by the group, management has prepared a 15-month
cash flow forecast from the date of this report, which if successfully implemented, indicates that the group
will have sufficient cash resources for the foreseeable future. These cash flows are, however, based on
certain key assumptions that are potentially uncertain either in their timing and/or quantum some of which
are detailed below:
- Significant claims on contracts that management believes are contractually due but have not been
  awarded;
- The finalisation of certain insurance claims with their insurers relating to equipment damaged/destroyed
  on certain contract sites;
- The continued ability of certain customers to settle their outstanding debts in accordance with the
  agreed payment terms;
- The successful profitable completion of new and existing contracts;
- The timely payment of obligations due to creditors, subcontractors and providers of debt capital for
  which extended payment term plans have been re-negotiated and for those obligations where the terms
  have not been re-negotiated;
- The successful disposal of idle and non-core plant and equipment.

Consequently, the ability of the group to settle its liabilities as and when they fall due is largely dependent
on the successful realisation of these initiatives to improve cash inflows. If the group does not realise the
cash inflows in a timely manner and in the quanta estimated, then the cash flow resources available to the
group will be materially impacted.

As a result of the events and conditions described above, there is material uncertainty on the timing and
quantum of the cash inflows included in the cash flow forecast that may cast significant doubt on the
group's ability to continue as going concern.

KPMG issued a Reportable Irregularity report on 19 April 2018, citing the liquidity crunch as an indicator of
financial distress. Continued efforts and plans have been put in place to ensure Esor's ability to pay
creditors when they fall due. The board is satisfied that the company is solvent and liquid both
commercially and factually.

Events after the reporting date
The management and board continue to evaluate the liquidity of the group and in an effort to realign the
resources to workload, the group has started a Section 189 process of anticipated retrenchment that will
see the reduction in headcount to align with workload as well as reducing costs by around R4 million a
month. The total anticipated retrenchment cost for the 2019 financial year is estimated at R10 million.

Basis of preparation
The summary consolidated financial statements are prepared in accordance with the requirements of the
JSE Limited Listings Requirements for abridged reports, and the requirements of the Companies Act of
South Africa applicable to summary financial statements. The Listings Requirements require abridged
reports to be prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
                                                      Page 4
                                         Esor year-end results 2018 SENS
Financial Reporting Standards Council and to also, as a minimum, contain the information required by
IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated
financial statements, from which the summary 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 consolidated annual financial statements.

Use of judgements and estimates
In preparing these abridged summarised consolidated results, management has made judgements,
estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the group's accounting policies and the key
sources of estimation uncertainty were the same as those that applied to the consolidated financial
statements as at and for the year ended 28 February 2018.

Audit opinion
This summarised report is extracted from audited information but is not itself audited.

The annual financial statements were audited by KPMG Inc. whose unmodified opinion included an
emphasis of matter in relation to material uncertainty over going concern. The audited consolidated annual
financial statements and the auditor's report thereon are available for inspection at the company's
registered office.

The directors take full responsibility for the preparation of the abridged summarised consolidated financial
statements and that the financial information has been correctly extracted from the underlying
consolidated annual financial statements.

On behalf of the board

Bernie Krone
Chairman

Wessel van Zyl
CEO

29 June 2018

Abridged summarised consolidated statement of financial position
as at 28 February 2018
                                                                                            GROUP
                                                                                  2018                2017
                                                                                 R'000               R'000
Assets
Non-current assets                                                              231   619           337   556
Property, plant and equipment                                                   157   014           197   624
Goodwill                                                                          3   630            65   447
Deferred tax asset                                                               17   323            31   044
Investment and loan to joint venture                                             52   891            42   680
Loans and long-term receivables                                                       761                 761
Current assets                                                                  404   686           680   421
Loans and receivables                                                            40   578            40   578
Inventories                                                                      97   921            98   557
Taxation                                                                               54            13   840
Trade and other receivables                                                     253   342           522   086
Cash and cash equivalents                                                         9   291             5   360
Sub total                                                                       401   186           680   421
Non-current assets held-for-sale                                                  3   500                   -
Total assets                                                                    636   305       1 017     977
Equity and liabilities
Share capital and reserves                                                      259   776         566 794
Share capital and premium                                                       617   236         617 236
Equity compensation reserve                                                       1   421             557
Foreign currency translation reserve                                             27   554          28 497
Retained deficit                                                               (386   435)        (79 496)
Non-current liabilities                                                          66   267          71 136
Secured borrowings                                                               58   332          38 814
Deferred tax liability                                                            7   935          32 322
Current liabilities                                                             310   262         380 047
Current portion of secured borrowings                                            32   614          31 869
Bank overdraft                                                                   45   947          27 487
Taxation                                                                          5   086             146
Trade and other payables                                                        226   615         320 545
Total equity and liabilities                                                    636   305       1 017 977

Abridged summarised consolidated statement of profit or loss and other comprehensive income
                                                      Page 5
                                         Esor year-end results 2018 SENS
for the year ended 28 February 2018
                                                                                             GROUP
                                                                                     2018            2017
                                                                                    R'000           R'000
Revenue                                                                           959 357       1 373 048
Cost of sales                                                                  (1 077 306)     (1 358 591)
Gross (loss)/profit                                                              (117 949)         14 457
Other income                                                                        4 274          19 635
Operating expenses                                                                (83 016)       (121 969)
Loss before interest, tax, impairments and depreciation                          (196 691)        (87 877)
Impairments and depreciation                                                      (94 834)        (72 967)
Results from operating activities                                                (291 525)       (160 844)
Finance income                                                                      1 210          13 670
Finance costs                                                                     (10 815)         (8 248)
Loss before income tax                                                           (301 130)       (155 422)
Taxation (charge)/income                                                           (5 809)         15 666
Loss for the year                                                                (306 939)       (139 756)
Other comprehensive income:
Items that will be reclassified to profit or loss
Foreign currency translation differences for
foreign operations (net of tax)                                                      (943)             741
Other comprehensive income, net of tax                                               (943)             741
Loss attributable to:
Owners of the company                                                            (306 939)       (139 756)
Total comprehensive income attributable to:
Owners of the company                                                            (307 882)       (139 015)
Earnings per share
Basic loss per share (cents)                                                        (66,2)           (38,1)
Diluted loss per share (cents)                                                      (64,9)           (36,7)

Abridged summarised consolidated statements of changes in equity
for the year ended 28 February 2018
                                                                                                   Equity
                                                                                                  compen-
                                                                      Share         Share          sation
                                                                    capital       premium         reserve
GROUP                                                                 R'000         R'000           R'000
Balance at 29 February 2016                                             365       580 649              72
Loss for the year                                                         -             -               -
Other comprehensive income                                                -             -               -
Total comprehensive
income for the year                                                        -            -                -
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Shares issued                                                            98        37 444                -
Share issue expenses                                                      -        (1 320)               -
Share-based payment                                                       -             -              485
Total transactions with owners                                           98        36 124              485
Balance at 28 February 2017                                             463       616 773              557
Loss for the year                                                         -             -                -
Other comprehensive income                                                -             -                -
Total comprehensive
income for the year                                                        -            -                -
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share-based payment                                                       -             -              864
Total transactions with owners                                            -             -              864
Balance at 28 February 2018                                             463       616 773            1 421

                                                                    Foreign
                                                                   currency      Retained
                                                                translation     earnings/           Total
                                                                    reserve      (deficit)         equity
GROUP                                                                 R'000         R'000           R'000
Balance at 29 February 2016                                          27 756        60 260         669 102
Loss for the year                                                         -      (139 756)       (139 756)
Other comprehensive income                                              741             -             741
Total comprehensive
income for the year                                                     741      (139 756)       (139 015)
Transactions with owners,
recorded directly in equity
                                                     Page 6
                                         Esor year-end results 2018 SENS
Contributions by and
distributions to owners
Shares issued                                                             -             -      37 542
Share issue expenses                                                      -             -      (1 320)
Share-based payment                                                       -             -         485
Total transactions with owners                                            -             -      36 707
Balance at 28 February 2017                                          28 497       (79 496)    566 794
Loss for the year                                                         -      (306 939)   (306 939)
Other comprehensive income                                             (943)            -        (943)
Total comprehensive
income for the year                                                      (943)   (306 939)   (307 882)
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Share-based payment                                                       -             -         864
Total transactions with owners                                            -             -         864
Balance at 28 February 2018                                          27 554      (386 435)    259 776

Abridged summarised consolidated statement of cash flow for the year ended 28 February 2018
                                                                                         GROUP
                                                                                   2018           2017
                                                                                  R'000          R'000
Cash flows from operating activities                                            (46 722)       (23 946)
Cash receipts from customers                                                  1 228 101      1 379 501
Cash paid to suppliers and employees                                         (1 264 609)    (1 400 847)
Cash utilised in operations                                                     (36 508)       (21 346)
Finance income                                                                    1 210          6 573
Finance costs                                                                   (10 815)        (6 220)
Taxation paid                                                                      (609)        (2 953)
Cash flows from investing activities                                             11 930        (31 287)
Additions to property, plant and equipment                                      (18 299)       (20 373)
Proceeds on disposal of property, plant and equipment                            20 721         10 473
Acquisition through business combination                                              -        (36 387)
Loan repaid by joint venture                                                      9 508         15 000
Cash flows from financing activities                                             20 263         (9 316)
Secured borrowings
- raised                                                                         42 563          4 662
- repaid                                                                        (22 300)       (37 841)
Preference shares redeemed                                                            -        (12 359)
Shares issued net of expenses                                                         -         36 222
Net decrease in cash and cash equivalents                                       (14 529)       (64 549)
Net cash and cash equivalents at beginning of year                              (22 127)        42 422
Cash and cash equivalents at end of year                                        (36 656)       (22 127)

Extract of Notes to the financial statements for the year ended 28 February 2018
                                                                            Accumulated      Carrying
                                                                  Cost       impairment         value
                                                                 R'000            R'000         R'000
1. Goodwill
   Group
   2018
   Esor Construction                                           273 330         (269 700)        3 630
   2017
   Esor Construction                                           273 330         (207 883)       65 447

   The carrying amount of goodwill can be reconciled as follows:

                                                 Carrying                     Acquisition    Carrying
                                                 value at                         through       value
                                                beginning                        business      at end
                                                  of year   Impairment        combination     of year
                                                    R'000        R'000              R'000       R'000
   2018
   Esor Construction                               65 447      (61 817)                 -       3 630
   2017
   Esor Construction                              112 091      (50 274)             3 630      65 447

   Goodwill arising from business combinations is allocated to individual reporting unit or cash-
   generating units. The smallest CGU which is separately identifiable is Esor Construction.

   The recoverable amount of this cash-generating unit was estimated based on its value in use.
   The carrying amount was higher than its recoverable amount and an impairment loss was recognised.
   An impairment loss of R61,8 million (2017: R50,3 million) was recognised on the goodwill. The
   recoverable amount was determined internally using the Discounted Cash Flow method, as follows:
                                                      Page 7
                                         Esor year-end results 2018 SENS

                                                                                   2018          2017
                                                                                  R'000         R'000
   Esor Construction                                                             68 000       489 391

   Value in use was determined by discounting the future cash flows generated from the continuing use
   of the individual CGU and was based on the following key assumptions:
   - Cash flows were projected based on actual operating results and a forecast period of five years;
   - Revenue growth was projected at negative 1,9% for 2019 year based on secured work load and
     past experience and then at a growth rate of 4,5% thereafter;
   - Gross margins were maintained at margins expected in the industry over the forecast period based
     on past experience;
   - Operating expenses were not expected to increase significantly but have been increased in line
     with revenue growth; and
   - A weighted average cost of capital of 18,34% (2017: 16%) was applied in determining the
     recoverable amount of the cash-generating unit. The discount rate was estimated based on
     weighted average cost of capital and a targeted debt-equity ratio of 20% (2017: 20%).

   We determined the value in use using post-tax cash flows and a post-tax discount rate on the basis
   that the outcome will not differ to that determined by discounting pre-tax cash flows using pre-tax
   discount rates.

   The post-tax discount rate applied in the value in use calculation was determined using WACC as a
   starting point, and was adjusted to reflect the specific amount and timing of the future tax cash flows,
   though still excluding the effects of any existing temporary differences and available tax losses at
   the measurement date.

   The rate also took into account adjustments for:
   a. Systematic risk premium
   b. Beta
   c. Unsystematic risk premium

   Furthermore, we analysed the debt-equity ratio of comparable companies in the construction sector
   and determined a target ratio based on these which we used to adjust the Beta.

   The values assigned to key assumptions represent management's assessment of future trends in the
   construction industry and are based on both internal and external sources.

   The above estimates are sensitive in the following areas:
   - Discount rate applied;
   - Forecasted revenues and margins; and
   - Working capital levels.

   If all assumptions remain unchanged a 1% increase/(decrease) in the discount rate would result in
   an (decrease)/increase in the value in use of R1 million.

   Based on a range of estimates in the above areas, management impaired goodwill by R61,8 million
   (2017: R50,3 million). The remainder of the difference between the carrying value of the CGU and the
   value in use was not allocated to the remaining assets within the CGU as they are all stated at their
   recoverable amounts as at 28 February 2018.

2. Segmental analysis
   Operating segments
                                                                   Esor       Corporate
                                                     Esor      Develop-             and      Consoli-
                                             Construction         ments    eliminations         dated
                                                    R'000         R'000           R'000         R'000
   Group
   2018
   External revenue                               958 878           479               -       959 357
   Inter-segment revenue                           79 439             -         (79 439)            -
   Segment revenue                              1 038 317           479         (79 439)      959 357
   Segment result
   Loss before interest and taxation             (146 316)       (4 957)       (139   457)   (290   730)
   Net finance (cost)/income                       (3 448)          505          (6   663)     (9   606)
   Taxation                                           731           (11)         (6   280)     (5   560)
   Segment loss after tax                        (149 033)       (4 463)       (152   400)   (305   896)
   Segment assets                                 514 017        85 983          36   305     636   305
   Segment liabilities                            334 122        40 325           2   082     376   529
   Capital and non-cash items
   Additions to property, plant
   and equipment                                   17 892             -             407        18   299
   Depreciation                                    29 072             -           3 945        33   017
   Impairment                                           -             -         (61 817)      (61   817)
   Number of employees                              1 431             3              44         1   478
                                                      Page 8
                                           Esor year-end results 2018 SENS
   2017
   External revenue                              1 306 785         66 263             -         1 373 048
   Inter-segment revenue                            35 511              -       (35 511)                -
   Segment revenue                               1 342 296         66 263       (35 511)        1 373 048
   Segment result
   (Loss)/profit before interest
   and taxation                                    (66 288)         3 594       (98   150)       (160     844)
   Net finance (cost)/income                        (2 276)          (703)        8   401           5     422
   Taxation                                              -              -        15   666          15     666
   Segment (loss)/profit after tax                 (68 564)         2 891       (74   083)       (139     756)
   Segment assets                                  825 026         90 445       102   506       1 017     977
   Segment liabilities                             391 207         51 509         8   467         451     183
   Capital and non-cash items
   Additions to property, plant
   and equipment                                         -              -        20 373              20   373
   Depreciation                                          -              -        22 693              22   693
   Impairment reversal                                   -              -        (3 876)             (3   876)
   Number of employees                               2 234              2           259               2   495




   Revenue generated from significant customers includes:
                                                                                Revenue           Revenue
                                                                                   2018              2017
   Customer                                        Business unit                  R'000             R'000
   Eskom Holdings SOC Limited                      Construction                 358 526           505 350
   eThekwini Municipality                          Construction                 121 165           162 731
   Vhembe District Municipality                    Construction                  52 749            67 563
   Orchards Developments (Pty) Limited             Developments                     720            66 263
   uThukela District Municipality                  Construction                  14 516            53 929
   Greater Sekhukhune District Municipality        Construction                   2 165            44 380
   Rand Water                                      Construction                  54 376            42 310
   Umgeni Water                                    Construction                   2 651            18 143
   South 32 SA Coal Holdings (Pty) Limited         Construction                  47 866            21 579
   City of Cape Town                               Construction                  55 310            70 103
   Swaziland Water and Agricultural
   Development Enterprise                          Construction                  81 516              23 043

                                                                                      South Africa
                                                                                   2018          2017
   Geographical information                                                       R'000         R'000
   Total revenue from external customers                                      1 217 631     1 331 735
   Property, plant and equipment                                                195 823       195 699

                                                                                      Other regions
                                                                                   2018          2017
   Geographical information                                                       R'000         R'000
   Total revenue from external customers                                        155 417        41 313
   Property, plant and equipment                                                  1 801         1 925

                                                                                      Consolidated
                                                                                   2018          2017
   Geographical information                                                       R'000         R'000
   Total revenue from external customers                                        959 357     1 373 048
   Property, plant and equipment                                                157 014       197 624

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

                                                                                             GROUP
                                                                                   2018                2017
                                                                                  R'000               R'000
3. Earnings per share
   Basic loss per share (cents)                                                   (66,2)              (38,1)
   Diluted loss per share (cents)                                                 (64,9)              (36,7)
   Headline loss per share (cents)                                                (52,1)              (24,4)
   Diluted headline loss per share (cents)                                        (51,0)              (23,5)
   Dividend per share (cents)                                                         -                   -

                                                                                             GROUP
                                                                                   2018                2017
                                                                                  R'000               R'000
   The calculation of the headline loss per share
   attributable to the ordinary equity holders of
   the parent is based on the following information:
                                                       Page 9
                                         Esor year-end results 2018 SENS
   Reconciliation of headline loss:
   Loss after tax                                                              (306 939)         (139 756)
   Net loss on disposal of property, plant and equipment                          1 442                85
   Impairment of property, plant and equipment,
   investments and goodwill                                                      63 912              50 274
   Headline loss                                                               (241 585)            (89 397)
   Weighted average number of ordinary shares:
   Issued ordinary shares                                                   493 981 787       493   981   787
   Effect of own shares held                                                (30 244 012)      (30   244   012)
   Effect of shares issued                                                            -       (96   636   874)
   Weighted average number of shares                                        463 737 775       367   100   901
   Dilutive average number of ordinary shares:
   The calculation of the diluted earnings per share
   attributable to the ordinary equity holders of the
   parent is based on the following information:
   Weighted average number of ordinary shares                               463 737 775       367 100 901
   Effect of share incentive allocations                                      9 532 108        13 788 333
   Diluted weighted average number of shares                                473 269 883       380 889 234

                                                                                             GROUP
                                                                                   2018                2017
                                                                                  R'000               R'000
4. Onerous contract provision
   Balance at beginning of year                                                  50   700            46   000
   Provisions made during the year                                               29   700            50   700
   Provisions used during the year                                              (50   700)          (46   000)
   Balance at end of year                                                        29   700            50   700

   Quality issues were addressed at the Northern Aqueduct contract for eThekwini Municipality in
   KwaZulu-Natal, where certain of the costs in repairing the defective welds were being claimed from
   the insurance underwriter. This matter was resolved during April 2018. The contract was due for
   completion in September 2015 but will only be completed and tested in June 2018. The total
   estimated cost to complete amounts to an additional cost of R6,7 million for losses to be
   incurred post FY2018. After year-end the insurer agreed the quantum for the professional
   indemnity claim that relates to the costs in gaining access to and reinstating the pipeline.

   Phase I of Western Aqueduct was subject to certain client delays and impacted
   by operational issues. Various legal and claim disputes are being addressed and remain in
   various stages of finalisation. For FY2018 these resulted in a loss of R119 million and will
   continue to impact cash flow and liquidity until finalised. The total estimated cost to complete
   amounts to an additional cost of R23 million for losses to be incurred post FY2018.

5. Going concern and subsequent events
   The directors are required to make an assessment of the ability of the group to continue as a going
   concern and have disclosed their considerations below.

   The group incurred a loss for the year of R306 million (2017: loss of R140 million).

   The matters described below have placed significant pressure on the overall liquidity of the group:
   - Significant losses incurred on certain construction contracts by the group in the current and prior
     financial years;
   - The current challenging economic environment within the construction sector, particularly in respect
     of the inability of the government and municipalities to execute and award contracts and the
     significant delays experienced in receiving payments due in respect of contract receivables
     relating to these entities;
   - The inability of the group to obtain further short to medium term funding.

   In order to mitigate the negative effects of the above, the directors have implemented various
   strategies to ensure that the group is able to meet the group's obligations as and when they
   fall due. These include:
   - Expediting the completion of the legacy loss making contracts in order to minimize further losses
     and the consequential cash outflows;
   - Disposal of idle and non-core assets following the strategic positioning of the group to focus on
     water, sanitation and developments. Proceeds to the value of R20,7 million have been received
     subsequent to year end;
   - Refinancing of selected vehicles and equipment through vendor financing which has resulted in
     an inflow of cash subsequent to year end of R12,2 million. The terms of financing are over an
     18-month period;
   - Renegotiating payment terms with major suppliers and subcontractors to more closely match the
     renegotiated outflows with the timing of anticipated future cash inflows;
   - Ensuring that adequate security is provided to the primary bankers to cover the facilities that are
     made available in terms of the facilities arrangements;
   - Ongoing support of guarantee providers to maintain adequate bonding facilities to facilitate
     successful implementation of contract awards;
   - Negotiations to dispose of the certain development land.
                                                     Page 10
                                         Esor year-end results 2018 SENS
   - In an effort to realign the resources to workload, the group has started a Section 189 process of
     anticipated retrenchment that will see the reduction in headcount to align with workload as well as
     reducing costs by around R4 million a month.
   - Renegotiating payment terms of the shareholders loan received from Geomer Investments (Pty) Ltd.

   Management have prepared a 15-month cash flow forecast from the date of the audit report, which
   if successfully implemented, indicates that the group will have sufficient cash resources for the
   foreseeable future. These cash flows are, however, based on certain key assumptions that are
   potentially uncertain either in their timing or quantum or both which are detailed below:
   - Significant claims and awards on contracts that management believe are contractually due;
   - The finalisation of certain insurance claims with their insurers relating to equipment
     damaged/destroyed on certain contract sites;
   - The continued ability of certain customers to settle their outstanding debts in accordance
     with the agreed payment terms;
   - The successful profitable completion of contracts in progress and of newly awarded contracts;
   - The timely payment of creditors/subcontractors and loans for which extended term payment plans
     have been re-negotiated and for those creditors whose terms have not been re-negotiated;
   - The disposal of idle and non-core plant and equipment.

   Consequently, the ability of the group to settle its liabilities as and when they fall due is largely
   dependent on the successful realisation of these projected cash inflows. If the group does not realise
   the cash inflows in a timely manner and in the quantum estimated, then the cash flow resources
   available to the group will be materially impacted.

   As a result of the events and conditions described above, there is material uncertainty on the
   timing and quantum of the cash inflows included in the cash flow forecast that may cast significant
   doubt on the group's ability to continue as a going concern and, therefore, the group may be unable
   to realise its assets and discharge its liabilities in the normal course of business.

6. Reportable Irregularity
   Following the receipt of an external service provider's report on the liquidity position of the group
   our auditors made a determination that there appeared to be reasonable grounds that the company
   was financially distressed. Therefore there was reason to believe that a reportable irregularity, as
   defined in the Auditing Profession Act was taking place as a result of the board not complying with
   the following:
   - In accordance with section 129(7) of the Companies Act 71 of 2008 if the board of a company
     has reasonable grounds to believe that the company is financially distressed, but the board has not
     adopted a resolution contemplated in section 129(1)(a) of the Companies Act 71 of 2008, the board
     must deliver a written notice to each affected person, setting out the criteria referred to in section
     128(1)(e) of the Companies Act 71 of 2008 that are applicable to the company, and its reasons for
     not adopting a resolution contemplated in section 129(1)(a) of the Companies Act 71 of 2008.

   In response to the reported irregularity it was the boards view that Esor is not financially distressed
   and that Esor will not become financially distressed. This view was informed by amongst other
   actions, the following proactive steps which have been taken/or matters concluded to avoid such
   financial distress and ensure Esor's creditors remain satisfied:
   - Formal contracts (re-payment agreements) have been concluded with a number of Esor's major
     creditors. These contracts aim to enable Esor to pay the relevant creditors in accordance with an
     agreed plan assisting Esor and enabling it to meet its financial requirements relating to the
     underlying debts. The result of concluding such re-payment agreements is a total deferment of
     R46 million of due and payable creditors and subcontractors to future periods.
   - A section 189 Labour Relations Act procedure for the retrenchment of about 33% of
     employees is underway. Provision has been made in the cash flow forecast for retrenchment
     costs of around R10 million.
   - An agreement relating to a shareholder claim against Esor, in an approximate amount of
     R33 million, is in the process of being finalised with Esor's largest shareholder, Geomer. In terms
     of such agreement the repayment date for the full outstanding amount due, at 30 June 2018 is
     to be amended to commence repayment from 31 August 2018 and thereafter repayment will be
     effected in monthly instalments of R2 million until the claim fully settled.
   - A number of plant assets have already been disposed of which resulted in an injection of
     about R16,6 million in the cash flow of Esor.
   - A net insurance settlement claim of R42 million in favour of Esor, was received by Esor during
     April 2018.
   - A refinancing facility agreement was concluded for purposes of raising approximately
     R13 million cash for an improved cash flow. The net cash proceeds were received in early May 2018.
   - A cash flow and debt forecast (which excludes uncertain inflows relating to claims) for the
     period ending March 2019 illustrates an ultimate cash flow position within the available
     facilities for Esor for the applicable period and continuing thereafter.
   - There are a number of movable, underutilised assets that can be rented out and/or disposed
     of to increase cash flow.

   Consequently the Board was of the view that the directors have taken sufficient steps to
   alleviate the immediate cash flow problems of Esor and have acted in terms of the requirements
   of the Companies Act.

                                                     Page 11
                                         Esor year-end results 2018 SENS
Directors: B Krone (Chairman)*
WC van Zyl (CEO)
Dr OSW Franks* (Lead Independent)
R Masemene*
H Takolia*
* Independent non-executive

Company secretary
iThemba Governance and Statutory Solutions (Pty) Limited
R21 Corporate Park
72 Regency Drive
Block A,
Irene,
0157
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
Rosebank Towers
15 Biermann Avenue
Rosebank
(PO Box 61051, Marshalltown, 2107)

Investor relations
Singular Systems IR
28 Fort Street
Birnam
Johannesburg
2196
(PO Box 785261, Sandton, 2146)




                                                     Page 12

Date: 29/06/2018 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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