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ERB
ERB
ERB - Erbacon Investment Holdings - Unaudited interim results for the
period ended 31 August 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")
UNAUDITED INTERIM RESULTS FOR THE PERIOD ENDED 31 AUGUST 2008
- 215% increase in revenue
- 95% increase in profit after tax
- 45% increase in headline earnings per share
CONDENSED GROUP INCOME STATEMENT
Six months Six months Full year
Unaudited Unaudited Audited
31 August 31 August 29 February
Figures in Rand 2008 2007 2008
Revenue 341 802 543 108 523 175 224 726 826
Cost of sales (292 803 735) (83 364 884) (159 561 739)
Gross profit 48 998 808 25 158 291 65 165 087
Other income 1 300 398 207 673 285 395
Administrative and
operating expenses (16 175 294) (6 100 203) (19 745 819)
Operating profit 34 123 912 19 265 761 45 704 663
Finance income 2 847 789 44 305 1 355 238
Finance costs (1 529 674) (847 261) (2 465 720)
Profit before taxation 35 442 027 18 462 805 44 594 181
Taxation (9 923 767) (5 354 213) (12 914 020)
Net profit for the year
attributable to
ordinary shareholders 25 518 260 13 108 592 31 680 161
Reconciliation of headline
earnings:
Profit attributable to
ordinary shareholders 25 518 260 13 108 592 31 680 161
Adjustments for
non-trading items:
loss/(profit) on disposal
of plant
and equipment (936 287) (141 007) 2 226 296
Heading earnings 24 581 973 12 967 585 33 906 457
Earnings per share (cents)
Basic 20,15 13,52 31,12
Headline 19,41 13,38 33,31
Weighted average number of
shares
in issue (thousands) 126 655 96 945 101 800
CONDENSED GROUP CASH FLOW STATEMENT
Six months Six months Full year
Unaudited Unaudited Audited
31 August 31 August 29 February
Figures in Rand 2008 2007 2008
Cash receipts from
customers 286 367 551 90 802 253 194 722 994
Cash paid to suppliers and
employees (251 317 176) (86 914 171) (163 085 257)
Cash generated from
operations 35 050 375 3 888 082 31 637 737
Net finance income/(cost) 1 318 115 (802 956) (1 110 482)
Tax paid (4 869 126) (3 230 606) (6 936 181)
Net cash from operating
activities 31 499 364 (145 480) 23 591 074
Acquisition of subsidiary -
net cash acquired - - 703 962
Acquisition of property,
plant
and equipment (16 905 084) (5 554 284) (8 772 249)
Acquisition of plant for
hire (26 252 591) (653 673) (30 376 137)
Proceeds on disposal of
property,
plant and equipment 1 345 788 222 955 341 584
Proceeds on disposal of
plant for hire 2 492 439 586 505 1 759 518
Net cash from investing
activities (39 319 448) (5 398 497) (36 343 322)
Net proceeds on share issue (123 743) - 50 552 860
Settlement of cash portion
of purchase
price - Armstrong
Construction (20 000 000) - -
Movement in borrowings 800 604 6 580 985 4 347 772
Net cash from financing
activities (19 323 139) 6 580 985 54 900 632
Net movement in cash and
cash equivalents (27 143 223) 1 037 008 42 148 384
Cash and cash equivalents
at the
beginning of the year 42 403 658 255 274 255 274
Cash and cash equivalents
at the end
of the year 15 260 435 1 292 282 42 403 658
CONDENSED GROUP BALANCE SHEET
Unaudited Unaudited Audited
31 August 31 August 29 February
Figures in Rand 2008 2007 2008
ASSETS
Non-current assets
Property, plant and
equipment 32 279 325 11 411 011 19 994 378
Plant for hire 61 997 883 19 997 548 42 464 956
Premium to be allocated 54 264 143 - 54 264 143
Deferred tax assets 538 012 - 414 679
Current assets 149 079 363 31 408 559 117 138 156
Trade and other receivables 163 800 206 44 616 297 108 365 214
Inventories 12 037 847 11 368 127 8 690 192
Cash and cash equivalents 15 260 435 1 292 282 42 403 658
191 098 488 57 276 706 159 459 064
TOTAL ASSETS 340 177 851 88 685 265 276 597 220
EQUITY AND LIABILITIES
Equity
Share capital and share
premium 295 356 150 193 830 300 244 382 860
Common control deficit (177 246 106) (177 246 106) (177 246 106)
Shares to be issued - - 51 097 033
Retained earnings 66 190 560 22 100 731 40 672 300
Non-current liabilities 184 300 604 38 684 925 158 906 087
Borrowings 15 698 627 11 371 045 10 968 525
Deferred tax liabilities 3 251 451 774 621 3 128 118
Current liabilities 18 950 078 12 145 666 14 096 643
Trade and other payables 112 506 477 23 001 801 80 298 941
Borrowings 9 293 265 8 787 645 13 222 763
Current income tax
liability 15 127 427 6 065 228 10 072 786
136 927 169 37 854 674 103 594 490
TOTAL EQUITY AND
LIABILITIES 340 177 851 88 685 265 276 597 220
Total number of shares in
issue (thousands) 136 803 96 945 116 364
Net asset value per share
(cents) 134,72 39,90 136,56
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Total share Common
Share Share capital and control
Figures in Rand capital premium premium deficit
Balance as at 1
March 2006 300 - 300 -
Issue of shares 969 150 192 860 850 193 830 000 (177 246 106)
Profit for the
financial
period - - - -
Dividends - - - -
Balance as at
28 February
2007 969 450 192 860 850 193 830 300 (177 246 106)
Profit for the
financial
period - - - -
Balance as at
31 August 2007 969 450 192 860 850 193 830 300 (177 246 106)
Profit for the
financial
period - - - -
Issue of shares 194 194 53 268 757 53 462 951 -
Share issue
expenses - (2 910 391) (2 910 391) -
Acquisition of
subsidiary - - - -
Balance as at
29 February
2008 1 163 644 243 219 216 244 382 860 (177 246 106)
Issue of shares 204 388 50 892 645 51 097 033 -
Share issue
expenses - (123 743) (123 743) -
Profit for the
financial
period - - - -
Balance as at
31 August 2008 1 368 032 293 988 118 295 356 150 (177 246 106)
Shares Retained Total
Figures in Rand to be issued earnings equity
Balance as at 1 March 2006 - 16 583 894 16 584 194
Issue of shares - (16 583 894) -
Profit for the financial
period - 12 492 139 12 492 139
Dividends - (3 500 000) (3 500 000)
Balance as at 28 February 2007 - 8 992 139 25 576 333
Profit for the financial
period - 13 108 592 13 108 592
Balance as at 31 August 2007 - 22 100 731 38 684 925
Profit for the financial
period - 18 571 569 18 571 569
Issue of shares - - 53 462 951
Share issue expenses - - (2 910 391)
Acquisition of subsidiary 51 097 033 - 51 097 033
Balance as at 29 February 2008 51 097 033 40 672 300 158 906 087
Issue of shares (51 097 033) - -
Share issue expenses - - (123 743)
Profit for the financial
period - 25 518 260 25 518 260
Balance as at 31 August 2008 - 66 190 560 184 300 604
CONDENSED GROUP SEGMENTAL REPORT
Small Plant
Civils Construction Civils Construction and Formwork
Six months Six months Six months
Unaudited Unaudited Unaudited
31 August 31 August 31 August
Business
segment 2008 2007 2008
Segment
revenue and
result
Revenue
Total segment
sales 79 568 583 73 270 362 45 907 165
Less:
Intersegments
sales - - (3 536 445)
Total revenue 79 568 583 73 270 362 42 370 720
Result
Operating
profit 10 580 793 5 708 994 11 046 977
Finance income 1 747 703 44 305 68 115
Finance costs (125 045) (29 967) (1 109 129)
Profit before
taxation 12 203 451 5 723 332 10 005 963
Segment assets
and liabilties
Assets 71 672 311 33 679 292 100 859 121
Liabilities (38 650 723) (22 315 747) (40 941 645)
Small Plant Commercial and Commercial and
and Formwork Industrial Building Industrial Building
Six months Six months Six months
Unaudited Unaudited Unaudited
31 August 31 August 31 August
Business
segment 2007 2008 2007
Segment
revenue and
result
Revenue
Total segment
sales 35 252 813 219 863 240 -
Less:
Intersegments
sales - - -
Total revenue 35 252 813 219 863 240 -
Result
Operating
profit 13 556 767 13 965 886 -
Finance income - 468 810 -
Finance costs (817 294) (268 104) -
Profit before
taxation 12 739 473 14 166 592 -
Segment assets
and liabilties
Assets 55 005 673 103 062 780 -
Liabilities (27 684 593) (75 529 943) -
Services Services Total Group Total Group
Six months Six months Six months Six months
Unaudited Unaudited Unaudited Unaudited
31 August 31 August 31 August 31 August
Business
segment 2008 2007 2008 2007
Segment
revenue and
result
Revenue
Total segment
sales 1 800 000 - 347 138 988 108 523 175
Less:
Intersegments
sales (1 800 000) - (5 336 445) -
Total revenue - - 341 802 543 108 523 175
Result
Operating
profit (1 469 744) - 34 123 912 19 265 761
Finance income 563 161 - 2 847 789 44 305
Finance costs (27 396) - (1 529 674) (847 261)
Profit before
taxation (933 979) - 35 442 027 18 462 805
Segment
assets and
liabilties
Assets 64 583 639 300 340 177 851 88 685 265
Liabilities (754 936) - (155 877 247) (50 000 340)
Notes to the condensed Group financial statements
1. Basis of preparation
The financial information has been prepared in accordance with, and containing
the information required by, 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
Listings Requirements of the JSE Limited, 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 periods 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.
2. Shares and employee share options
The JSE granted approval on 18 March 2008 for an allotment of 11 171 329
ordinary shares to the vendors of Davgram Construction (Proprietary) Limited
(trading as "Armstrong Construction") at R2,86 per share. As Armstrong
Construction achieved its warranted profit at 29 February 2008, approval was
obtained from the JSE on 29 August 2008 for a further, and final, allotment of
9 267 482 shares for this portion of the deferred purchase consideration. This
increases the issued ordinary share capital to 136 803 175 shares out of an
authorised share capital of 300 000 000 shares.
In terms of IFRS 3: Business Combinations, the purchase consideration to be
settled with shares should be measured at the fair value of the shares at the
acquisition date of 28 February 2008, which was R2,50 per share.
The company has granted options that give employees the right to subscribe for
4 255 000 ordinary shares between 2011 and 2012 at R1,93 per share.
COMMENTARY
OVERVIEW
The construction sector in South Africa continues to provide the Group with a
satisfactory base load of contracts.
The unaudited interim results for the period ended 31 August 2008 includes the
consolidation of the earnings of Armstrong Construction for the first time.
Basic earnings per share increased by 49% from 13,52 cents per share (no
interim results were published for the previous period) to 20,15 cents per
share, and headline earnings per share increased by 45% from 13,38 cents per
share to 19,41 cents per share.
The earnings per share, stated above, takes into account a 30,64% increase in
the weighted average number of shares in issue during the reporting period.
FINANCIAL REVIEW
Consolidated Income Statement
Group revenue increased by 215% from R108,5 million in 2007 to R341,8 million
in 2008, with the Commercial and Industrial Building segment, represented by
Armstrong Construction, contributing 64% of total Group revenue (2007: nil).
The Civils Construction segment contributed R79,6 million (2007: R73,3 million)
or 23% (2007: 67%) with Small Plant and Formwork making up the balance of R42,4
million (2007: R35,5 million) or 13% (2007: 33%).
The Civils Construction segment experienced certain key project mobilisation
delays, although momentum was substantially restored by August. The opening of
two new branches by the Small Plant and Formwork segment gave impetus to a
20,2% year-on-year revenue increase.
Operating profit increased by 77% to R34,1 million (2007: R19,3 million) with
satisfactory returns from the Civils Construction and Commercial and Industrial
Building segments. Small Plant and Formwork continued to contribute materially
to operating profits despite the fact that margins were adversely eroded by the
upfront costs of establishing the new branches, and to weather affected sites.
Encouragingly, administrative and operating expenses reduced to 4,7% of Group
revenue, from 5,6% in the previous corresponding period.
The net profit for the interim period attributable to ordinary shareholders is
R25,5 million (2007: R13,1 million), an increase of 95%.
Dividend
No dividend is declared for the interim period ended 31 August 2008 (2007: nil).
The directors will review this position at the financial year-end.
Consolidated Balance Sheet and Cash Flow
Investments in property for new branches, additional plant and equipment to
service new contract awards, increased plant-for-hire demands, and the payment
of the cash portion of the Armstrong Construction acquisition resulted in a
reduction of cash balances.
The unaudited balance sheet at 31 August 2007 excludes the Armstrong
Construction acquisition. A pleasing development during the period under review
was the resolution of issues affecting Erbacon Construction directly in respect
of a contract debtor amounting to R19,2 million. The debt was repaid in full.
The excess over the book value of assets acquired for Armstrong Construction
amounts to R54,2 million and is still reflected as a premium to be allocated in
the balance sheet. The purchase price for Armstrong Construction has not yet
been allocated to the fair value of the net assets acquired in terms of IFRS 3.
This allocation will give rise to a contract based intangible assets that will
be amortised over the period of the contracts existing at the acquisition date.
Outlook
In spite of the fact that global growth and market conditions have been
affected by the current banking crisis emanating out of the USA, the Erbacon
Group remains well placed to execute its solid forward order book. The
construction sector in South Africa is likely to remain robust for the
foreseeable future and the Group is confident of recording earnings
growth for the financial year ended 28 February 2009.
Directorate
The following changes were made to the board of directors after an internal
director rotation by Paladin Capital Limited, a major shareholder of the
company:
- Mr P Malan resigned with effect from 20 October 2008, and is replaced by Mr
JA Holtzhausen on the same date; and
- Mr PJ Mouton resigned with effect from 20 October 2008, and is replaced by
Ms S Totaram on the same date.
For and on behalf of the board
A Dawson DB Erskine
Chairman Chief Executive Officer
Durban
20 October 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")
Directors: David Graham Armstrong, Sydney Mark Hedley*, Frans Petrus Boraine
Johan Andries Holtzhausen*, Robin Kevin Braithwaite, Samara Totaram*
Alan Dawson (Chairman)#, Wayne Michael Ric-Hansen, David Boyd Erskine (CEO)
*Non-executive #Independent non-executive
Company secretary: Robin Kevin Braithwaite
Registered office: 2 Montreal Road, Glen Anil, 4051
Telephone: +27 31 569 2866
Web site: http://www.erbacon.co.za
Auditor: PricewaterhouseCoopers Inc
Designated advisor: Questco Sponsors (Proprietary) Limited
Corporate advisor: PSG Capital (Proprietary) Limited
Date: 20/10/2008 15:11:10 Produced by the JSE SENS Department.
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