| Wed 5 Nov 2008, 7:28 | | ESR - Esor - Reviewed Interim Results For The Six Months Ended 31 August 2008 |
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ESR
ESR
ESR - Esor - Reviewed Interim Results For The Six Months Ended 31 August 2008
Esor Limited
(Registration number 1994/000732/06 )
Incorporated in the Republic of South Africa
(Share Code: ESR & ISIN Code: ZAE000078408)
("Esor" or "the company")
SALIENT FEATURES
- Revenue up 22,2%
- EBITDA up 12,3%
- NAV per share up 26,5%
- PPE up R187,1 million
- Operating cash generated R83,5 million
REVIEWED INTERIM RESULTS
for the six months ended 31 August 2008
Consolidated income statement
6 months ended Year ended
31 August 31 August 29 February
(Reviewed) (Reviewed) (Audited)
2008 2007 Change 2008
R`000 R`000 % R`000
Revenue 578 607 473 575 22,2 1 017 480
Gross profit 158 580 144 521 9,7 271 934
Other income 616 433 1 651
Operating expenses (52 988) (50 337) (90 087)
Profit before 106 208 94 617 12,3 183 498
interest, tax and
depreciation
Depreciation (20 597) (10 612) (30 391)
Profit before interest 85 611 84 005 153 107
and taxation
Interest paid (11 636) (9 268) (28 171)
Interest received 11 907 6 713 32 883
Profit before taxation 85 882 81 450 5,4 157 819
Taxation (30 029) (25 258) (41 817)
Profit for the period 55 853 56 192 116 002
Reconciliation of
headline earnings
Profit attributable to 55 853 56 192 116 002
ordinary shareholders
Adjusted for:
Profit on disposal of (101) (93) (760)
property, plant and
equipment
Loss on disposal of 229 - 46
property, plant and
equipment
Headline earnings 55 981 56 099 115 288
attributable to
ordinary shareholders
Number of ordinary
shares (`000)
in issue 244 007 219 515 243 019
diluted weighted 246 525 223 638 228 677
average
weighted average 243 513 218 993 224 560
Earnings per ordinary
share (cents)
basic 22,9 25,7 51,7
diluted earnings 22,7 25,1 50,7
headline 23,0 25,6 51,3
Dividends per ordinary - - 20,0
share (cents)
Condensed consolidated cash flow statement
6 months ended Year ended
31 August 31 August 29 February
(Reviewed) (Reviewed) (Audited)
2008 2007 2008
R`000 R`000 R`000
Cash flows from operating 69 856 98 957 133 356
activities
Cash generated from operations 83 507 106 808 150 227
Interest received 3 626 2 477 10 805
Interest paid (5 918) (4 394) (8 669)
Taxation paid (11 359) (5 934) (19 007)
Cash flows from investing (121 633) (30 566) (146 399)
activities
Acquisition of property, plant (98 715) (30 874) (147 470)
and equipment
Proceeds on disposal of 179 308 1 071
property, plant and equipment
Brand name acquired (2 117) - -
Goodwill acquired (9 547) - -
Investment acquired (5 053) - -
Acquisition of business (6 380) - -
Cash flows from financing 4 630 7 697 76 254
activities
Net movement in borrowings 52 969 20 797 54 619
Share issues net of issue 300 1 190 38 235
expenses
Dividend paid (48 639) (14 290) (14 290)
Post retirement benefit - - (2 310)
Cash flows for the period (47 147) 76 088 63 211
Cash and cash equivalents at 115 859 52 648 52 648
beginning of period
Cash and cash equivalents at 68 712 128 736 115 859
end of period
Consolidated balance sheet
31 August 31 August 29 February
(Reviewed) (Reviewed) (Audited)
2008 2007 2008
R`000 R`000 R`000
Assets
Property, plant and equipment 346 931 159 804 262 741
Intangible assets 96 646 94 529 94 529
Goodwill 9 547 - -
Deferred taxation - 2 285 2 677
Current assets
Inventories 10 964 9 077 7 224
Investments 5 053 - -
Taxation 13 576 8 626 3 527
Trade and other receivables 295 900 194 061 271 914
Cash at bank and on hand 68 712 128 736 115 859
Total assets 847 329 597 118 758 471
EQUITY AND LIABILITIES
Share capital and premium 213 887 176 124 213 587
Equity compensation reserve 3 139 1 582 2 361
Foreign currency translation 6 431 174 6 683
reserve
Post retirement benefit reserve 4 (1 681) 4
Accumulated profits 174 243 106 561 167 029
Non-current liabilities
Secured borrowings* 133 425 67 078 85 169
Post retirement benefits 8 106 10 382 8 106
Deferred taxation 31 128 17 759 14 048
Current liabilities
Current portion of secured 26 017 13 952 21 304
borrowings*
Taxation 35 743 22 894 26 781
Provisions 32 059 28 234 15 559
Trade and other payables 183 147 154 059 197 840
Total equity and liabilities 847 329 597 118 758 471
Net asset value per share 163,0 128,81 160,3
(cents)
Tangible net asset value per 119,5 85,75 121,5
share (cents)
* Interest-bearing debt
Condensed consolidated segmental analysis
6 months ended Year ended
31 August 31 August 29 February
(Reviewed) (Reviewed) (Audited)
2008 2007 2008
R`000 R`000 R`000
Revenue
South Africa 464 535 391 113 848 273
Other regions 114 072 82 462 169 207
578 607 473 575 1 017 480
Profit before interest and tax
South Africa 55 385 64 012 114 484
Other regions 30 226 19 993 38 623
85 611 84 005 153 107
Profit after tax
South Africa 33 904 41 591 82 438
Other regions 21 949 14 601 33 564
55 853 56 192 116 002
Total assets
South Africa 664 405 503 258 628 708
Other regions 182 924 93 860 129 763
847 329 597 118 758 471
Total liabilities
South Africa 390 178 278 688 341 762
Other regions 59 447 35 669 27 045
449 625 314 357 368 807
Consolidated statement of recognised income and expenditure
6 months ended Year ended
31 August 31 August 29 February
(Reviewed) (Reviewed) (Audited)
2008 2007 2008
R`000 R`000 R`000
Defined benefit plan actuarial - (1 000) 685
gain/(loss)
Shares issued 1 258 - 8 670
Share issue expenses (958) - (435)
Share-based payments 778 - 1 703
Derecognition of special - - 30 667
purpose entity
Dividends paid (48 639) (14 290) (14 290)
Foreign currency translation (252) 134 6 642
differences for foreign
operations
Net expenses recognised (47 813) (15 156) 33 642
directly in equity
Profit for the period 55 853 56 192 116 002
Total recognised income and 8 040 41 036 149 644
expenses for the period
COMMENTS
Introduction
The results of Esor for the six months ended 31 August 2008 ("the interim
period") reflect meaningful growth in revenue which indicates that the group
is on track to achieve its budgeted revenue for the full year to February
2009.
Esor`s strategy of pursuing selective contracts yielding higher margins has
proved successful to a degree, notwithstanding the impact of economic factors
that depressed margins industry-wide during the interim period. Focus on
lucrative cross-border projects also yielded benefit for the group with a
large percentage of profit after tax ("PAT") being generated from these
contracts in hard currency.
Review of operations
While the strategy of contract selection continues to result in good margins,
growth in margins for the interim period has declined. Specifically the
rising cost of steel during the interim period and extraordinary, successive
increases in the fuel price had a negative effect. The relatively short
duration of most of Esor`s contracts (three to six weeks) precludes the
inclusion of escalation clauses to mitigate against these cost fluctuations.
Further, intensified competition in Esor`s industry following the downturn in
the local economy in light of the power crisis, escalating interest rates and
political uncertainty served to compound the adverse effect on margins.
Overall negative sentiment due to the factors above weakened Esor`s market
generally, and affected the group`s workforce and productivity to an extent
during the interim period.
In contrast, Esor`s African operations performed well, contributing 19,7% to
group revenue and a significant 39,3% to PAT. Particularly operations based
in oil-rich Angola - a country with excellent growth prospects - contributed
strongly to the group`s performance.
Notwithstanding the negative trading conditions, demand for geotechnical
services remains buoyant driven by government`s continued and sustainable
commitment to infrastructure development.
CAPEX and plant replacement policy
During the interim period the group continued to invest in organic growth
with the purchase of capital equipment to the value of R99 million. An
additional R75 million worth of plant is currently in the pipeline. All
orders were placed prior to the recent devaluation of the Rand against major
world currencies and adequate forward cover is in place.
Management remains committed to enhancing the group`s existing fleet of
equipment, which is highly productive, with "state-of-the-art" modern rigs.
This aggressive plant renewal policy resulted in the depreciation charge for
the interim period more than doubling from that of the same period in the
previous year ("the comparative period").
The full benefit of the new plant will be realised in the financial years
ending February 2010 and 2011 and going forward, as certain of the new
equipment is not yet fully operational due to the delay between commissioning
and roll-out into use. Research & Development to ensure the optimal
utilisation of equipment such as Full Displacement Screwpiles, which involve
the latest technology, is currently underway and deployment will take place
in accordance with this process. The group has already identified the
contracts in respect of which the new equipment will be utilised.
Going forward Esor intends to prioritise retooling and upgrading of plant in
Angola where demand is flourishing.
Black economic empowerment
Esor is currently rated as a `Level 6` contributor to broad-based BEE.
The group`s commitment to transformation is evidenced by its 30,3% black
shareholding (including retail shareholders on the open market). Through the
Esor Broad-based Share Ownership Scheme, staff now holds a 7,56% stake in the
company.
More than 70% of the group`s 1 500-strong workforce is black. Esor is
cognisant of the need to increase black participation at senior and middle
management levels. In this regard the group is starting to realise the
benefits of earlier initiatives as newly-skilled senior black employees begin
to come through the ranks. Three of Esor`s four non-executive directors on
the board of directors are black.
The group remains committed to improving all aspects of its BEE scorecard
including affirmative procurement and enterprise development.
Financial results
Revenue increased by 22,2% to R579 million from the comparative period.
Management is confident revenue growth will continue into the next financial
year to February 2010 with the current order book at the date of this report
standing at more than R1 billion (excluding the acquisitions - see `Post
Balance Sheet Events`).
Gross profit was 9,7% higher at R159 million compared to R145 million in the
comparative period while EBITDA increased 12,3% to R106,2 million. Net asset
value ("NAV") per share increased by 26,5% to 163,0 cents from 128,8 cents
(and 1,7% when compared with the NAV per share of 160,3 cents for the
previous full year ended 29 February 2008).
A higher effective tax rate than in the comparative period resulted in
marginally lower headline earnings of R56.0 million compared to R56,1
million. This translated to headline earnings per share ("HEPS") of 23,0
cents, down from 25,6 cents. Growth in HEPS was further constrained by an
increase in the number of average weighted shares in issue. (The Esor Broad-
based Share Ownership Scheme was de-recognised during the previous year ended
February 2008, which resulted in the 18,75 million treasury shares held by
the Scheme being accounted for during the interim period as fully issued
shares.)
Post balance sheet events
With effect from 1 May 2008 Franki Africa (Pty) Limited - a wholly-owned
subsidiary of Esor - acquired the business of Geo Compaction Dynamics (Pty)
Limited for R18,044 million. Geo Compaction Dynamics specialises in
geotechnical contracting services for the civil engineering industry
including dynamic compaction, percussion piling and permanent and temporary
lateral support. The company has integrated well into the group and the
benefits of the acquisition are expected to be realised in the future.
Further, as previously announced on 22 and 29 September 2008, Esor has
acquired civil engineering groups Patula Construction ("Patula") and
Shearwater Construction ("Shearwater") for maximum purchase considerations of
R430 million and R220 million, respectively (collectively "the
acquisitions").
Effective control of these companies will be obtained once all conditions
precedent have been fulfilled.
The acquisitions are set to re-position Esor alongside other major JSE civil
engineering construction groups. This will further expose the group to the
multi-billion Rand infrastructure programme locally and in Africa.
Specifically the acquisitions will expand services from sub-surface
foundation work for major non-residential buildings, infrastructure, mines
and marine projects to above-surface civil engineering and construction
services. These will include road building, mining and township
infrastructure work, water delivery contracts and concrete projects for
government, major mining houses and the private sector as well as specialist
expertise in the construction and rehabilitation of onshore pipelines.
Prospects
The outlook for the local civil engineering and construction industry remains
buoyant, boding well for Esor`s growth. The group is closely aligned to
government`s infrastructure spend which according to the medium-term budget
is set to continue at an unprecedented rate notwithstanding the effects of
the current global economic crisis on the South African economy.
The market in the Western Cape is slowly showing signs of revival and the
group expects to see good work flow from the region going forward. Further,
Esor`s repositioning as a civil engineering construction group following the
acquisitions will enhance its exposure to public sector spend. The benefits
of the acquisitions should start to be realised in the six months ahead to
year-end but should be felt more fully in the next financial year to February
2010 when they will have been included for a full 12 months.
Further, the lower price of oil and falling prices worldwide of commodities
including steel should provide some relief on margin pressure going forward.
Esor and Franki will also continue to secure contracts in Sub-Saharan Africa
across all disciplines. Prospects in countries outside of South Africa remain
promising. Development in oil-related infrastructure in Angola is continuing
at exceptional levels and Mauritius, Mozambique and Tanzania all offer strong
opportunities.
Dividend policy
In line with group policy no interim dividend has been declared. The board
remains committed to declaring a full-year dividend for the year to 28
February 2009.
Appreciation
Our staff are key to the success of the group and we thank them for their
contribution. Our commitment to a healthy and inspiring workplace environment
is evidenced in their exceptional loyalty, which is in turn reflected in the
net gain of employees over the last year. We also thank our business
partners, advisors, suppliers, clients and most importantly our shareholders
for their ongoing support and faith in the group.
Basis of preparation
The reviewed condensed consolidated interim financial statements for the six
months ended 31 August 2008 have been prepared in compliance with
International Accounting Standard ("IAS") 34 - Interim Financial Reporting.
The accounting policies and method of measurement and recognition applied in
preparation of the condensed consolidated interim financial statements are
consistent with those applied in the group`s annual financial statements for
the year ended 29 February 2008, which comply with International Financial
Reporting Standards ("IFRS").
Auditor`s independent review
These condensed consolidated financial results for the interim period have
been reviewed by the company`s auditors, RSM Betty & Dickson (Durban), in
terms of International Standards on Review Engagements 2410. The scope of the
review was to enable the auditors to report that nothing had come to their
attention that caused them to believe that the accompanying condensed
consolidated interim financial statements are not presented, in all material
respects, in accordance with IAS 34 - Interim Financial Reporting and the
South African Companies Act. Their unmodified review report on the condensed
consolidated interim financial statements is available for inspection at the
registered office of the company.
On behalf of the board.
Bernard Krone Wayne van Houten
Chief Executive Officer Chief Financial Officer
5 November 2008
CORPORATE INFORMATION
Non-executive directors:
DM Thompson (Chairman), E Dube, JM Hlongwane, FA Sonn (Alternate: JC van
Reenen)
Executive directors:
ML Barber, AM Field*, B Krone (Chief Executive), RP McLintock, ML
Trevisani**, W van Houten * British ** Italian
Group secretary:
ID Stephen
Registered office:
130 Aberdare Drive, Phoenix Industrial Park, Durban, 4051
PO Box 40096, Red Hill, 4071
Telephone: +27 31 507 1051
Fax: +27 31 507 5709
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Auditors:
RSM Betty & Dickson (Durban), Block A Surrey Park
6 Barham Road, Westville, 3629
PO Box 2120, Westville, 3630
Designated advisors:
Exchange Sponsors (Proprietary) Limited
44 A Boundary Road, Inanda, 2196
www.esor.co.za
Date: 05/11/2008 07:28:01 Produced by the JSE SENS Department.
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