| Thu 28 May 2009, 13:35 | | ERB - Erbacon Investment Holdings Limited - Audited provisional report for |
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ERB
ERB
ERB - Erbacon Investment Holdings Limited - Audited provisional report for
the year ended 28 February 2009
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")
AUDITED PROVISIONAL REPORT FOR THE YEAR ENDED 28 FEBRUARY 2009
221% increase in revenue
69% increase in profit after tax
20,4% increase in headline earnings per share
CONDENSED GROUP INCOME STATEMENT
Audited Audited
Year ended Year ended
28 February 29 February
Figures in Rand 2009 2008
Revenue 720 956 601 224 726 826
Cost of sales (608 133 909) (159 561 739)
Gross profit 112 822 692 65 165 087
Other income 664 694 285 395
Administrative and operating expenses (40 828 549) (19 745 819)
Operating profit 72 658 837 45 704 663
Finance income 5 403 793 1 355 238
Finance costs (3 594 246) (2 465 720)
Profit before taxation 74 468 384 44 594 181
Taxation (21 024 940) (12 914 020)
Net profit for the year attributable to
ordinary shareholders 53 443 444 31 680 161
Reconciliation of headline earnings
Profit attributable to ordinary shareholders 53 443 444 31 680 161
Adjustments for non-trading items:
Loss/(profit) on disposal of
plant and equipment (696 591) 2 226 296
Headline earnings 52 746 853 33 906 457
Earnings per share (cents)
Basic 40,64 31,12
Headline 40,11 33,31
Diluted headline 40,11 33,31
Weighted average number of shares
in issue (thousands) 131 517 101 800
CONDENSED GROUP CASH FLOW STATEMENT
Audited Audited
Year ended Year ended
28 February 29 February
Figures in Rand 2009 2008
Cash receipts from customers 694 447 373 194 722 994
Cash paid to suppliers and employees (604 529 633) (163 085 257)
Cash generated from operations 89 917 740 31 637 737
Net finance income/(cost) 1 809 547 (1 110 482)
Tax paid (17 718 495) (6 936 181)
Other non-cash items 572 971 -
Net cash from operating activities 74 581 763 23 591 074
Acquisition of subsidiary - net cash acquired - 703 962
Acquisition of property, plant and equipment (25 879 706) (8 772 249)
Acquisition of plant for hire (40 369 478) (30 376 137)
Proceeds on disposal of property,
plant and equipment 1 880 359 341 584
Proceeds on disposal of plant for hire 5 006 705 1 759 518
Net cash from investing activities (59 362 120) (36 343 322)
Net proceeds on share issue - 50 552 860
Movement in borrowings (319 658) 4 347 772
Net cash from financing activities (319 658) 54 900 632
Net movement in cash and cash equivalents 14 899 985 42 148 384
Cash and cash equivalents at the
beginning of the year 42 403 658 255 274
Cash and cash equivalents at the
end of the year 57 303 643 42 403 658
CONDENSED GROUP BALANCE SHEET
Audited Audited
28 February 29 February
Figures in Rand 2009 2008
ASSETS
Non-current assets
Property, plant and equipment 36 900 573 19 994 378
Plant for hire 66 986 191 42 464 956
Goodwill 52 822 314 54 264 143
Deferred tax assets 173 737 414 679
156 882 815 117 138 156
Current assets
Trade and other receivables 128 195 106 108 365 214
Inventories 31 024 552 8 690 192
Cash and cash equivalents 57 303 643 42 403 658
216 523 301 159 459 064
Total assets 373 406 116 276 597 220
EQUITY AND LIABILITIES
Equity
Share capital and premium 293 919 518 244 382 860
Common control deficit (177 246 106) (177 246 106)
Share-based payments reserve 572 971 -
Shares to be issued - 51 097 033
Retained earnings 94 115 744 40 672 300
211 362 127 158 906 087
Non-current liabilities
Borrowings 16 558 854 10 968 525
Deferred tax liabilities 986 713 3 128 118
17 545 567 14 096 643
Current liabilities
Borrowings 7 312 776 13 222 763
Current income tax liability 15 840 405 10 072 786
Trade and other payables 121 345 241 80 298 941
144 498 422 103 594 490
TOTAL EQUITY AND LIABILITIES 373 406 116 276 597 220
Total number of shares in issue excluding
treasury shares (thousands) 136 074 116 364
Net asset value per share (cents) 155,33 136,56
Supplementary information
Capital expenditure (66 249 184) (39 148 386)
Capital commitments
- authorised by directors and contracted for 86 693 6 651 000
- authorised by directors not yet
contracted for - 12 000 000
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Share Share
Figures in Rand capital premium
Balance as at 1 March 2007 969 450 192 860 850
Profit for the year - -
Issue of shares 194 194 53 268 757
Share issue expenses - (2 910 391)
Acquisition of subsidiary - -
Balance as at 1 March 2008 1 163 644 243 219 216
Profit for the year - -
Issue of shares 204 388 50 892 645
Share issue expenses - (97 765)
Treasury shares (7 295) (1 455 315)
Share-based payment charge - -
Balance as at 28 February 2009 1 360 737 292 558 781
Total share Share-based
capital and payment
Figures in Rand premium reserve
Balance as at 1 March 2007 193 830 300 -
Profit for the year - -
Issue of shares 53 462 951 -
Share issue expenses (2 910 391) -
Acquisition of subsidiary - -
Balance as at 1 March 2008 244 382 860 -
Profit for the year - -
Issue of shares 51 097 033 -
Share issue expenses (97 765) -
Treasury shares (1 462 610) -
Share-based payment charge - 572 971
Balance as at 28 February 2009 293 919 518 572 971
Common
control Shares
Figures in Rand deficit to be issued
Balance as at 1 March 2007 (177 246 106) -
Profit for the year - -
Issue of shares - -
Share issue expenses - -
Acquisition of subsidiary - 51 097 033
Balance as at 1 March 2008 (177 246 106) 51 097 033
Profit for the year - -
Issue of shares - (51 097 033)
Share issue expenses - -
Treasury shares - -
Share-based payment charge - -
Balance as at 28 February 2009 (177 246 106) -
Retained Total
Figures in Rand earnings equity
Balance as at 1 March 2007 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)
Acquisition of subsidiary - 51 097 033
Balance as at 1 March 2008 40 672 300 158 906 087
Profit for the year 53 443 444 53 443 444
Issue of shares - -
Share issue expenses - (97 765)
Treasury shares - (1 462 610)
Share-based payment charge - 572 971
Balance as at 28 February 2009 94 115 744 211 362 127
CONDENSED GROUP SEGMENTAL REPORT
Small Plant
Civils Construction Civils Construction and Formwork
Business
segment 2009 2008 2009
Segment
revenue and result
Revenue
Total segment sales 201 867 066 156 319 290 83 063 650
Less:
Inter-segmental sales - - (6 084 681)
Total revenue 201 867 066 156 319 290 76 978 969
Result
Operating profit 33 420 757 20 327 467 8 007 814
Finance income 3 030 248 361 381 341 543
Finance costs (399 707) (175 930) (2 642 485)
Profit before
taxation 36 051 298 20 512 918 15 706 872
Assets 107 438 093 53 089 996 115 667 846
Liabilities 68 814 343 29 877 062 27 074 420
Other information
Capital additions 2 965 261 4 024 281 58 653 474
Depreciation 1 746 003 1 128 191 14 571 631
Small Plant Commercial and Commercial and
and Formwork Industrial Building Industrial Building
Business segment 2008 2009 2008
Segment revenue
and result
Revenue
Total segment
sales 73 210 402 444 855 103 -
Less:
Inter-segmental
sales (4 802 866) (2 744 537) -
Total revenue 68 407 536 442 110 566 -
Result
Operating
profit 25 299 011 22 353 471 -
Finance income - 1 415 952 -
Finance costs (2 286 020) (524 657) -
Profit before
taxation 23 012 991 23 244 766 -
Assets 70 858 378 148 853 187 111 156 020
Liabilities 27 105 985 64 953 090 40 058 987
Other
information
Capital
additions 35 124 105 4 507 499 -
Depreciation 7 945 859 3 086 943 -
Services Services Total group Total group
Business segment 2009 2008 2009 2008
Segment revenue
and result
Revenue
Total segment
sales 5 400 000 - 735 185 819 229 529 692
Less:
Inter-segmental
sales (5 400 000) - (14 229 218) (4 802 866)
Total revenue - - 720 956 601 224 726 826
Result
Operating
profit (1 123 205) 78 185 72 658 837 45 704 663
Finance income 616 050 993 857 5 403 793 1 355 238
Finance costs (27 397) (3 770) (3 594 246) (2 465 720)
Profit before
taxation (534 552) 1 068 272 74 468 384 44 594 181
Assets 1 446 990 41 492 826 373 406 116 276 597 220
Liabilities 1 202 136 20 649 099 162 043 989 117 691 133
Other information
Capital additions 122 950 - 66 249 184 39 148 386
Depreciation 37 530 - 19 442 107 9 074 050
Notes to the condensed group financial statements
1. Basis of preparation
The audited group financial statements for the year ended 28 February 2009,
from which these condensed financial statements are derived, are prepared in
accordance with International Financial Reporting Standards ("IFRS"). The
principal accounting policies adopted are consistent with those used in the
annual financial statements for the period ended 28 February 2009. These
condensed financial statements are prepared in terms of IAS 34: Interim
Financial Reporting and in accordance with the Listing Requirements of the JSE
Limited ("JSE").
2. Acquisition of Armstrong Construction 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 Armstrong Construction at R2,86 per share.
Following the achievement of the warranted profit at 29 February 2008, the JSE
granted approval on 29 August 2008 for a further, and final, allotment of 9 267
482 shares for this portion of the deferred purchase consideration.
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 during July 2011 at R1,93 per share.
IFRS 2: Share-based Payment requires that fair value is estimated using a
valuation model to determine the expense to be recognised in the income
statement.
Accordingly, the effect on headline earnings per share as a result of expensing
share options amounted to 0,31 cents per share (2008: nil).
COMMENTARY
OVERVIEW
The high volume, secured order book brought forward from the prior year,
together with a steady flow of contract awards through 2008, produced record
revenues at satisfactory operating margins. Both construction companies
performed exceptionally well, whilst Erbacon Small Plant ("ESP") made another
solid contribution in a very competitive environment.
Acquisition - Armstrong Construction
The financial results of Davgram Construction (Proprietary) Limited (trading as
"Armstrong Construction"), acquired on 28 February 2008, which comprises the
Commercial and Industrial Building segment, were fully consolidated for the
year under review, and made a significant contribution to the Group in its
first year. The integration process proceeded smoothly and the business has
fitted in extremely well, executing a strong order book. A highlight of the
Armstrong Construction acquisition has been the optimisation of synergies
across the two construction businesses, which culminated in the award of
several contracts for the 2010 Soccer World Cup.
During the year the exercise, required in terms of IFRS 3: Business
Combinations, to finalise the allocation of the purchase price was
completed. The excess over the fair value of the assets acquired amounts to
R52,8 million and is allocated to goodwill. The allocation of the purchase
price also gave rise to a contract-based intangible asset amounting to R1,5
million which was amortised over the period of the contracts that existed at
acquisition date. The after-tax charge on headline earnings per share arising
from the contract amortisation was 0,83 cents per share.
FINANCIAL REVIEW
Consolidated income statement
Group revenue increased by 221% to reach a record R720,9 million (2008: R224,7
million). The order pipeline was particularly strong for the Commercial and
Industrial Building segment, with Armstrong Construction invoicing most of the
Unilever contract in 2008/2009. A project delay early in the financial year
inhibited revenue growth for Erbacon Construction, but this growth curve will
be substantially rectified in the new financial year. Certain branch closures,
and a slow uptake at new locations, restricted revenue growth at ESP.
The Civils Construction segment contributed R201,8 million (2008: R156,3
million) or 28% (2008: 69%) of group revenue, whilst the Commercial and
Industrial Building segment brought in a material workload of R442,1 million
(2008: nil), with the Small Plant and Formwork segment making up the balance of
10,7% (2008: 31%).
The Armstrong Construction contribution raised the consolidated operating
profit to R72,6 million (2008: R45,7 million), a year-on-year increase of 59%.
ESP contributed 25% of the group operating profit, whilst Armstrong
Construction accounted for 31% and Erbacon Construction a significant 46%.
Comparatives with the prior year are meaningless without the inclusion of
Armstrong Construction. Nevertheless, the Group`s profit before tax margin of
10,3% (2008: 19,8%) is commendable given the quantum of revenue skewed to the
Commercial and Industrial Building segment in 2009.
Administrative and operating expenses represent an encouraging reduction to
5,7% of revenue (2008: 8,8%) due to the lower overhead weighting attributed to
Armstrong Construction, and to year-on-year cost control.
The net interest charge of R1,1 million for the prior year has converted into a
net interest receipt of R1,8 million following strong cash generation in the
period. The net attributable profit for the year is R53,4 million (2008: R31,7
million) resulting in a headline earnings per share of 40,1 cents per share
(2008: 33,3 cents per share), an improvement of 20,4%.
The earnings per share calculation takes into account an increase of 29,2% in
the weighted average number of shares in issue during the reporting period.
Basic earnings per share increased by 30,6% to 40,64 cents per share (2008:
31,12 cents per share).
Consolidated Balance Sheet and Cash Flow
During the year under review the JSE granted approval for the additional
allotment of 20 438 811 ordinary shares in respect of the Armstrong
Construction acquisition. This increases the issued ordinary share capital to
136 803 175 shares out of an authorised share capital of 300 000 000 shares.
Total group assets amount to R373,4 million (2008: R276,6 million), an increase
of 35%. The net asset value per share at 28 February 2009 was 155,33 cents per
share (2008: 136, 56 cents per share).
In the prior year trade creditors included the full outstanding purchase price
of the Armstrong Construction acquisition of R20,0 million. Prior year listing
proceeds funded the acquisition of plant for hire to provide working capital to
new branches, in growth locations, for ESP. Several fixed properties were also
purchased, as suitable rental premises were not available. Inventories, mostly
materials on site, trade receivables and trade payables increased with the
heightened activity levels.
The group was in a net un-geared position at 28 February 2009, with cash and
cash equivalents bulking up substantially to reach R57,3 million at year end
(2008: R42,3 million including listing proceeds) and well ahead of the R15,3
million recorded at the interim stage.
Cash generated from operations increased by 184% to R89,9 million (2008: R31,6
million).
Capital expenditure on property, plant and equipment in the period amounted to
R25,9 million (2008: R8,8 million) of which the majority was allocated to
properties and transport. Plant for hire purchases increased by 32,8% to R40,3
million (2008: R30,4 million).
Dividend
Although no dividend was declared for the interim period ended 31 August 2008,
shareholders were advised that the directors would review this position at the
financial year end. Accordingly, the Board has declared a maiden dividend of
5,5 cents per share. We regard the declaration of this dividend as a significant
accomplishment at this early stage of Erbacon`s listing on the Altx.
Outlook
Erbacon remains of the opinion that its overall exposure, both to opportunity
and risk, is well balanced as a result of its three primary business segments -
Civils Construction, Commercial and Industrial Building, and Small Plant and
Formwork. However, the mix of new tender awards has shifted to Civils
Construction which was previously skewed towards Commercial and Industrial
Building as per the last financial year end.
The combined forward order book through to 2010 is in excess of R750 million
which is expected to prove positive to the Erbacon Group. Confidence levels
post 2010 will be maintained or increased only if the government, in
particular, keeps to their infrastructure spend, by awarding new projects
during the course of 2009.
Audit opinion
The auditors, PriceWaterhouseCoopers Inc., have issued their opinion on the
group`s financial statements for the year ended 28 February 2009. The audit was
conducted in accordance with International Standards on Auditing. They have
issued an unmodified audit opinion. A copy of their audit report is available
for inspection at the company`s registered office. These condensed financial
statements have been derived from the group financial statements and are
consistent, in all material respects, with the group financial statements.
Cautionary notice
Shareholders are further referred to the last renewal of cautionary
announcement of 15 May 2009 in which shareholders were advised that Erbacon has
entered into discussions, which, if successfully concluded, may have a material
impact on the company`s securities. Shareholders are accordingly advised to
continue to exercise caution when dealing in the company`s securities until a
further announcement is made.
For and on behalf of the board
A Dawson DB Erskine
Chairman Chief Executive Officer
Durban
28 May 2009
DIVIDEND DECLARATION
Notice is hereby given that a first dividend, number 1 of 5,5 cents per share,
in respect of the year ended 28 February 2009, was declared on Thursday, 28 May
2009 payable to ordinary shareholders recorded in the register at the close of
business on Friday, 26 June 2009. The timetable for the payment of the dividend
is as follows:
Last date to trade cum dividend Friday, 19 June 2009
Commence trading ex dividend Monday, 22 June 2009
Record date Friday, 26 June 2009
Dividend payable Monday, 29 June 2009
Share certificates may not be dematerialised or rematerialised between Monday,
22 June 2009 and Friday, 26 June 2009, both dates inclusive.
By order of the board
RK Braithwaite
Company Secretary 28 May 2009
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
Website: http://www.erbacon.co.za
Auditor: PricewaterhouseCoopers Inc
Designated Advisor: Questco Sponsors (Proprietary) Limited
Corporate advisor: PSG Capital (Proprietary) Limited
Date: 28/05/2009 13:35:02 Produced by the JSE SENS Department.
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