| Mon 26 May 2008, 9:19 | | ERB - Erbacon Investment Holdings Limited - Review |
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ERB
ERB
ERB - Erbacon Investment Holdings Limited - Reviewed provisional report for the
year ended 29 February 2008
ERBACON INVESTMENT HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2007/014490/06)
JSE code: ERB ISIN: ZAE000111571
("Erbacon" or "the company" or "the Group")
REVIEWED PROVISIONAL REPORT FOR THE YEAR ENDED 29 FEBRUARY 2008
CONDENSED GROUP INCOME STATEMENT
Reviewed Unaudited
Pro forma
Figures in Rand 2008 2007
Revenue 224 726 826 117 816 587
Cost of sales (159 561 739) (87 644 824)
Gross profit 65 165 087 30 171 763
Other income 285 395 530 736
Administrative and operating expenses (19 745 819) (9 864 215)
Operating profit 45 704 663 20 838 284
Finance income 1 355 238 244 247
Finance costs (2 465 720) (1 363 389)
Profit before taxation 44 594 181 19 719 142
Taxation (12 914 020) (7 227 003)
Net profit for the year attributable to
ordinary shareholders 31 680 161 12 492 139
Reconciliation of headline earnings:
Profit attributable to ordinary shareholders 31 680 161 12 492 139
Adjustments for non-trading items:
loss/(profit) on disposal of plant and
equipment 2 226 296 (530 736)
Headline earnings 33 906 457 11 961 403
Earnings per share (cents)
Basic 31,12 12,89
Headline 33,31 12,34
Weighted average number of shares in issue
(thousands) 101 800 96 945
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Unaudited
Pro forma
Figures in Rand 2008 2007
Cash receipts from customers 194 722 994 110 488 360
Cash paid to suppliers and employees (163 085 257) (87 752 771)
Cash generated from operations 31 637 737 22 735 589
Net finance income/(cost) (1 110 482) (1 119 142)
Tax paid (6 936 181) (4 203 542)
Net cash from operating activities 23 591 074 17 412 905
Acquisition of subsidiary - net cash acquired 703 962 -
Acquisition of property, plant and equipment (8 772 249) (5 405 678)
Acquisition of plant for hire (30 376 137) (14 340 789)
Proceeds on disposal of property, plant and
equipment 341 584 598 814
Proceeds on disposal of plant for hire 1 759 518 1 413 737
Proceeds on disposal of financial assets - 29 573
Net cash from investing activities (36 343 322) (17 704 343)
Net proceeds on share issue 50 552 860 -
Movement in borrowings 4 347 772 3 997 657
Dividends paid - (3 500 000)
Net cash from financing activities 54 900 632 497 657
Net movement in cash and cash equivalents 42 148 384 206 219
Cash and cash equivalents at the beginning
of the year 255 274 49 055
Cash and cash equivalents at the end of the
year 42 403 658 255 274
CONDENSED GROUP BALANCE SHEET
Reviewed Unaudited
Pro forma
Figures in Rand 2008 2007
ASSETS
Non-current assets
Property, plant and equipment 19 994 378 7 191 680
Plant for hire 42 464 956 22 357 548
Premium to be allocated 61 622 110 -
Deferred tax assets 414 679 124 340
124 496 123 29 673 568
Current assets
Trade and other receivables 108 365 214 26 895 375
Inventories 8 690 192 488 667
Cash and cash equivalents 42 403 658 255 274
159 459 064 27 639 316
TOTAL ASSETS 283 955 187 57 312 884
EQUITY AND LIABILITIES
Equity
Share capital and share premium 244 382 860 193 830 300
Common control deficit (177 246 106) (177 246 106
Retained earnings 40 672 300 8 992 139
107 809 054 25 576 333
Non-current liabilities
Borrowings 10 968 525 7 444 589
Deferred tax liabilities 3 128 118 899 253
14 096 643 8 343 842
Current liabilities
Trade and other payables 138 753 941 13 317 972
Borrowings 13 222 763 6 133 116
Income tax liability 10 072 786 3 941 621
162 049 490 23 392 709
TOTAL EQUITY AND LIABILITIES 283 955 187 57 312 884
Total number of shares in issue (thousands) 116 364 96 945
Net asset value per share (cents) 92,65 26,38
Supplementary information:
Capital expenditure 39 148 386 19 746 467
Capital commitments
- authorised by directors and contracted for 6 651 000 -
- authorised by directors not yet
contracted for 12 000 000 -
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Total share
Share Share capital and
Figures in Rand capital premium premium
Balance as at 1 March 2006 300 - 300
Issue of shares 969 150 192 860 850 193 830 000
Balance as at 28 February 2007 969 450 192 860 850 193 830 300
Profit for the year
Issue of shares 194 194 53 268 757 53 462 951
Share issue expenses - (2 910 391) (2 910 391)
Balance as at 29 February 2008 1 163 644 243 219 216 244 382 860
Common
control Retained Total
Figures in Rand deficit earnings equity
Balance as at 1 March 2006 - 16 583 894 16 584 194
Issue of shares (177 246 106) (16 583 894) -
Profit for the year - 12 492 139 12 492 139
Dividends - (3 500 000) (3 500 000)
Balance as at 28 February
2007 (177 246 106) 8 992 139 25 576 333
Profit for the year - 31 680 161 31 680 161
Issue of shares - - 53 462 951
Share issue expenses - - (2 910 391)
Balance as at 29 February
2008 (177 246 106) 40 672 300 107 809 054
CONDENSED GROUP SEGMENTAL REPORT
Civils Construction
Reviewed Unaudited
Business Segment 2008 2007
Segment revenue and result
Revenue
Total segment revenue 156 319 290 81 306 713
Less: inter-segment revenue - -
Total Revenue 156 319 290 81 306 713
Result
Operating profit 20 327 468 10 704 291
Finance income 361 381 241 220
Finance costs (175 930) (74 484)
Profit before taxation 20 512 919 10 871 027
Segment assets and liabilities
Assets 53 089 996 20 436 096
Liabilities 29 877 061 11 756 335
Other information
Capital additions 4 024 281 875 483
Depreciation 1 128 191 542 250
Small Plant and
Formwork
Reviewed Unaudited
Business Segment 2008 2007
Segment revenue and result
Revenue
Total segment revenue 73 210 402 38 413 874
Less: inter-segment revenue (4 802 866) (1 904 000)
Total Revenue 68 407 536 36 509 874
Result
Operating profit 25 299 011 10 133 993
Finance income - 3 027
Finance costs (2 286 020) (1 288 905)
Profit before taxation 23 012 991 8 848 115
Segment assets and liabilities
Assets 70 858 378 36 876 488
Liabilities 27 105 985 19 980 216
Other information
Capital additions 35 124 105 18 870 984
Depreciation 1 899 211 1 136 534
Commercial and
Industrial Building
Reviewed Unaudited
Business Segment 2008 2007
Segment revenue and result
Revenue
Total segment revenue - -
Less: inter-segment revenue - -
Total Revenue - -
Result
Operating profit - -
Finance income - -
Finance costs - -
Profit before taxation - -
Segment assets and liabilities
Assets 56 891 879 -
Liabilities 40 058 987 -
Other information
Capital additions - -
Depreciation - -
Services
Reviewed Unaudited
Business Segment 2008 2007
Segment revenue and result
Revenue
Total segment revenue - -
Less: inter-segment revenue - -
Total Revenue - -
Result
Operating profit 78 184 -
Finance income 993 857 -
Finance costs (3 770) -
Profit before taxation 1 068 271 -
Segment assets and liabilities
Assets 103 114 934 300
Liabilities 79 104 100 -
Other information
Capital additions -
-Depreciation - -
Total Group
Reviewed Unaudited
Business Segment 2008 2007
Segment revenue and result
Revenue
Total segment revenue 229 529 692 119 720 587
Less: inter-segment revenue (4 802 866) (1 904 000)
Total Revenue 224 726 826 117 816 587
Result
Operating profit 45 704 663 20 838 284
Finance income 1 355 238 244 247
Finance costs (2 465 720) (1 363 389)
Profit before taxation 44 594 181 19 719 142
Segment assets and liabilities
Assets 283 955 187 57 312 884
Liabilities 176 146 133 31 736 551
Other information
Capital additions 39 148 386 19 746 467
Depreciation 3 027 402 1 678 784
NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS
1. Overview
Erbacon Investment Holdings Limited ("Erbacon") is the newly formed holding
company for Erbacon Construction (Pty) Limited ("Erbacon Construction") and
Erbacon Small Plant (Pty) Limited ("Erbacon Small Plant"), which were converted
from close corporations into private companies on 12 and 13 September 2007,
respectively, and have subsequently become wholly owned subsidiaries of Erbacon
in terms of a share-for-share exchange.
Erbacon listed on the AltX of the JSE Limited ("JSE") on 7 December 2007. These
consolidated results are published to provide information to the holders of
Erbacon shares. For annual reporting purposes, Erbacon is preparing financial
statements for the Erbacon group of companies ("the Group") for the year-ended
29 February 2008, which will be posted to shareholders on or about 1 July 2008.
2. Basis of preparation
The financial information has been prepared in accordance with IAS 34: Interim
Financial Reporting, International Financial Reporting Standards (IFRS), the
International Financial Reporting Interpretations Committee (IFRIC)
interpretations adopted by the International Accounting Standards Board, the
Listing Requirements of the JSE, and the Companies Act of South Africa.
The financial information has been prepared under the historical cost
convention. The accounting policies have been consistently applied, throughout
the Group, to all the years presented, except for the adoption of IFRS 7
Financial Instruments: Disclosure. This is a disclosure standard which has no
impact on recognition, measurement and presentation of financial instruments
and consequently has no impact on profit or loss or equity for the year.
3. Acquisition
On 28 February 2008, the acquisition of all of the shares in issue and claims
against Davgram Construction (Pty) Limited (trading as "Armstrong
Construction") was concluded, with the required clearance having been obtained
from the Competition Commission authorities. The Armstrong Construction balance
sheet has been consolidated in the Group balance sheet on 28 February 2008. As
Armstrong Construction was purchased within only two trading days of the
financial year-end, it made no contribution to the consolidated Group revenue
during the year under review.
Due to time constraints, the purchase price has not yet been allocated to the
fair value of the net assets acquired. The excess over the book value of assets
acquired amounts to R61,6 million and is reflected as premium to be allocated
in the balance sheet.
4. Post balance sheet event
Post the financial year-end, Erbacon paid R20,0 million, from the private
placement proceeds, to the vendors of Armstrong Construction, whilst the JSE
granted approval on 18 March 2008 for an additional allotment of 11 171 329
ordinary shares at R2,86 per share.
This increased the ordinary share capital to 127 535 693 shares out of an
authorised share capital of 300 000 000 shares. On the assumption that
Armstrong Construction achieves its warranted profit at 29 February 2008,
approval will be sought from the JSE for a further, and final, allotment of 9
267 482 shares for this portion of the deferred purchase consideration. This
would bring the total purchase price to R78,5 million at an historic
price:earnings ratio of 6,5 times.
COMMENTARY
OVERVIEW
This provisional report represents the maiden set of results for Erbacon since
the company listed on the AltX of the JSE on Friday, 7 December 2007.
The business environment in South Africa remained robust as the construction
sector continued to reflect strong civil construction and non-residential
building activity. These favourable operating conditions are reflected in the
solid set of results produced by each of the companies in the Group.
RESTRUCTURING
The restructuring undertaken during the course of August - October 2007
resulted in the interposition of Erbacon as the holding company, and the
establishment of Erbacon Small Plant and Erbacon Construction as its two
wholly-owned subsidiaries. Erbacon issued,
in aggregate, 96 915 000 ordinary shares, and accounted for this transaction as
a common control transaction using predecessor values.
After a private placing by Erbacon of 19 383 000 ordinary shares at R2,75 per
share, thereby raising R53,3 million, the issued ordinary share capital of
Erbacon comprised 116 364 364 ordinary shares with a par value of R0,01 per
share, and a total share premium of R246,1 million, excluding listing expenses.
ACQUISITION
The Armstrong Construction deal, which became unconditional on the 28 February
2008, adds a complimentary business to Erbacon, in the Commercial and
Industrial building sector, and brings with it an excellent management team and
skills base.
FINANCIAL REVIEW
Consolidated Income Statement
Group revenue increased by 91% to reach a record R224,7 million (2007 - R117,8
million) in respect of the two original companies, namely Erbacon Small Plant
and Erbacon Construction. Armstrong Construction made no contribution to the
consolidated Group revenues during the period under review.
The Civils Construction segment contributed R156,3m (2007 - R81,3 million) or
70% (2007 - 69%) of Group revenue, with Small Plant and Formwork making up the
balance of 30% (2007 - 31%).
At the operating profit level, the higher margins generated by the Small Plant
and Formwork segment has elevated the consolidated operating profit to R45,7
million (2007 - R20,8 million), a substantial year-on-year increase of 119,3%.
Small Plant and Formwork contributed 55,4% of the Group operating profit, and
Civils Construction 44,6%. Erbacon Investment Holdings Limited (Services)
operated to a near break-even recovery position for the three months since
listing, after charging management fees to subsidiaries.
Administrative and operating expenses doubled year-on-year as the jump in
activity resulted in increases in depreciation, repairs and maintenance to
hired plant, lease rentals, insurance, and administrative control.
The interest charge of R2,5 million for the period (2007 - R1,4 million) is
offset by the positive benefit of the investment of the private placement
proceeds in anticipation of their release to fund the acquisition of Armstrong
Construction, and the establishment of additional branches for Small Plant and
Formwork. Although interest neutral, an amount of R10 million was utilised from
these proceeds to settle plant and equipment hire purchase loans.
The net profit for the year attributable to ordinary shareholders is R31,7
million (2007 - R12,5 million), resulting in maiden headline earnings per share
of 33,31 cps, compared to 28,61 cps forecasted in the pre-listing prospectus,
an improvement of 16,4% - a very pleasing performance.
Dividend
No dividend is declared for the financial year ended 2008 (2007 - R3,5
million). As soon as a predictable and sustainable cash flow trend becomes
evident, dividends will become payable.
Consolidated Balance Sheet and Cash Flow
Most categories of the trading and operating balance sheet increased on the
back of heightened activity levels, in particular plant for hire assets, and
trade debtors and creditors.
Trade payables include the full outstanding purchase price of the Armstrong
Construction acquisition of R78,5 million, whilst trade receivables include a
contract debtor which is overdue. The overdue amount in Erbacon Construction in
respect of the
aforementioned debtor is R19,2 million, and is as a result of unresolved issues
between the developer and the Land Bank. The company is of the opinion that the
debt remains fully recoverable.
The Group was ungeared at 29 February 2008, and operating cash flows for the
financial year amounted to R23,6 million (2007 - R17,4 million) before the
receipt of proceeds from the private placing of R53 million.
Capital expenditure on property, plant and equipment in the period amounted to
R13,8 million (2007 - R9,1 million) of which the majority was allocated to
transport. Plant-for-hire purchases increased by 112% to R30,4 million (2007 -
R14,3 million), more or less in line with revenue growth in the period.
OPERATIONAL REVIEW
Civils Construction
This business segment executes a variety of projects for private clients,
parastatals, government departments, municipalities, roads agencies and other
provincial bodies, as well as private property developers. The products and
services offered include concrete structures and buildings, concrete and bridge
rehabilitation, pipeline construction, township services and developments, bulk
earthworks and roadworks.
Erbacon Construction had another solid year of trading, as operating profit
margins were maintained on a significantly higher revenue base. Whilst most
activity in the year was centred around the KwaZulu-Natal province, covering
bridges, roads, water treatment and pipeline contracts, projects are now
commencing in the Eastern Cape and Mpumalanga.
Small Plant and Formwork
Initially established to service the needs of Erbacon Construction, the company
has shown impressive growth over the past few years and manages to compliment
the civil and commercial construction businesses with a steady flow of
shorter-term contract revenue flows, at higher margins. Its ever-increasing
client base extends throughout the country, with a geographical emphasis in
Gauteng.
Revenue increased by 90,6% year-on-year, and was only constrained by
availability of plant to hire.
Operating profit margins at 34,6% (2007 - 26,4%) reflected countrywide demand,
although these margins are required to cover the cost of equipment replacement
and funding. The two new branches to be funded from the proceeds of the private
placing will give impetus to an already committed order book for the following
trading period. Authorised capital expenditure carried forward from 2008,
amounting to R18,7 million, provides working capital, premises and transport
facilities for these branches.
Commercial and Industrial Building
This business segment is now represented by Armstrong Construction, a company
that was established by its founder, Dave Armstrong, in 1996. In 2002,
Armstrong Construction acquired Collins Contractors, another
KwaZulu-Natal-based construction company with a formidable track record of
nearly 100 years in the industry.
Although not a contributor to the consolidated income statement in 2008, the
company recorded revenue of R292,4 million at 29 February 2008 (2007 - R144,7
million), with an operating profit margin of 6,2% (2007 - 4,9%). Completed
contracts included shopping centres, office blocks and industrial complexes,
mainly in KwaZulu-Natal and the Eastern Cape.
Services
The holding company, Erbacon Investment Holdings Limited, executes management
oversight and governance functions in respect of subsidiary companies, in
addition to the normal centralised functions of strategy and budgetary
methodologies, finance, treasury, tax, secretarial and other support services.
OUTLOOK
The Erbacon Group is looking forward to the new financial year with much
anticipation, especially as the intended utilisation of the private placement
proceeds has materialised in the form of:
a) the finalisation of the Armstrong Construction acquisition; and
b) the investment in new branches for Erbacon Small Plant, evidenced by
authorised capital expenditure of R18,7 million carried forward to 2008.
All companies in the Group are well positioned to carry out their contribution
to the secured forward order book of more than R500m, which is anticipated to
result in another year of exceptional growth. Tender activity remains strong in
Erbacon`s target areas, and the Group is equipped and resourced to execute the
available workload at respectable margins. Although the Group intends to
consolidate its position in the short term, there is also capacity within the
expanded Group to take on more contracts. Erbacon has, subject to market
conditions continuing to remain buoyant, budgeted for increased earnings per
share year-on-year.
REVIEW OPINION
The financial information has been reviewed by PricewaterhouseCoopers Inc., the
Group`s external auditors. A copy of their review report is available for
inspection at the company`s registered office.
For and on behalf of the board
A Dawson DB Erskine
Chairman Chief Executive Officer
Durban
26 May 2008
Directors: David Graham Armstrong, Frans Petrus Boraine,
Robin Kevin Braithwaite, Alan Dawson (Chairman)#,
David Boyd Erskine (CEO), Sydney Mark Hedley*, Pierre Malan*,
Petrus Johannes Mouton*, Wayne Michael Ric-Hansen,
* Non-executive # Independent non-executive
Company secretary: Robin Kevin Braithwaite
Registered office: 2 Montreal Road, Glen Anil, 4051
Auditor: PricewaterhouseCoopers Inc.
Designated advisors: Questco Sponsors (Proprietary) Limited
Corporate advisor: PSG Capital (Proprietary) Limited
Erbacon Investment Holdings Limited +27 31 569 2866
Web site: http://www.erbacon.co.za
Date: 26/05/2008 09:19:01 Produced by the JSE SENS Department.
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