| Thu 29 Oct 2009, 11:15 | | ERB - Erbacon - Unaudited Interim Results For The Six Month Period Ended |
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ERB
ERB
ERB - Erbacon - Unaudited Interim Results For The Six Month Period Ended
31 August 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")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTH PERIOD ENDED 31 AUGUST 2009
- 16% increase in revenue
- 24% increase in profit after tax
- 18% increase in headline earnings per share
CONDENSED GROUP INCOME STATEMENT
Unaudited Unaudited Audited
Six months Six months Full year
31 August 31 August 28 February
Figures in Rand 2009 2008 2009
Revenue 395 145 723 341 802 543 720 956 601
Cost of sales (329 621 308) (292 803 735) (608 133 909)
Gross profit 65 524 415 48 998 808 112 822 692
Other income 692 955 1 300 398 664 694
Administrative and
operating expenses (22 328 925) (16 175 294) (40 828 549)
Operating profit 43 888 445 34 123 912 72 658 837
Finance income 3 431 141 2 847 789 5 403 793
Finance costs (1 965 480) (1 529 674) (3 594 246)
Profit before taxation 45 354 106 35 442 027 74 468 384
Taxation (13 736 223) (9 923 767) (21 024 940)
Profit for the period 31 617 883 25 518 260 53 443 444
Reconciliation of
headline earnings:
Profit attributable to
ordinary shareholders 31 617 883 25 518 260 53 443 444
Adjustments for
non-trading items:
(Profit) on disposal
of plant and equipment (498 928) (936 287) (696 591)
Headline earnings 31 118 955 24 581 973 52 746 853
Earnings per share
Basic (cents) 23,24 20,15 40,64
Diluted (cents) 23,24 20,15 40,64
Headline earnings per
share
Basic (cents) 22,87 19,41 40,11
Diluted (cents) 22,87 19,41 40,11
Weighted averaged number
of shares in issue 136 073 694 126 654 660 131 517 332
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Full year
31 August 31 August 28 February
Figures in Rand 2009 2008 2009
Profit for the period 31 617 883 25 518 260 53 443 444
Total comprehensive income
attributable
to ordinary shareholders 31 617 883 25 518 260 53 443 444
CONDENSED GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months Full year
31 August 31 August 28 February
Figures in Rand 2009 2008 2009
Cash receipts from
customers 351 314 183 286 367 551 694 447 373
Cash paid to suppliers
and employees (323 443 666) (271 317 176) (604 529 633)
Cash generated from
operations 27 870 517 15 050 375 89 917 740
Net finance income 1 465 661 1 318 115 1 809 547
Dividends paid (7 524 175) - -
Tax paid (10 247 835) (4 869 126) (17 718 495)
Other non-cash items 491 118 - 572 971
Net cash from operating
activities 12 055 286 11 499 364 74 581 763
Purchase of property,
plant and equipment (3 435 737) (16 905 084) (25 879 706)
Proceeds on disposal of
property, plant and equipment 226 860 1 345 788 1 880 359
Purchase of plant for hire (17 669 390) (26 252 591) (40 369 478)
Proceeds on disposal of
plant for hire 2 643 798 2 492 439 5 006 705
Net cash from investing
activities (18 234 469) (39 319 448) (59 362 120)
Net proceeds on share issue - (123 743) -
Borrowings (repaid)/raised (2 861 817) 800 604 (319 658)
Net cash from financing
activities (2 861 817) 676 861 (319 658)
Net movement in cash and
cash equivalents (9 041 000) (27 143 223) 14 899 985
Cash and cash equivalents
at the beginning
of the year 57 303 643 42 403 658 42 403 658
Cash and cash equivalents
at the end of the year 48 262 643 15 260 435 57 303 643
CONDENSED GROUP BALANCE SHEET
Unaudited Unaudited Audited
31 August 31 August 28 February
Figures in Rand 2009 2008 2009
ASSETS
Non-current assets
Plant for hire 75 186 692 61 997 883 66 986 191
Property, plant and
equipment 35 681 491 32 279 325 36 900 573
Goodwill 52 822 314 54 264 143 52 822 314
Deferred tax assets - 538 012 173 737
163 690 497 149 079 363 156 882 815
Current assets
Inventories 24 814 764 12 037 847 31 024 552
Trade and other
receivables 172 026 646 163 800 206 128 195 106
Cash and cash equivalents 48 262 643 15 260 435 57 303 643
245 104 053 191 098 488 216 523 301
TOTAL ASSETS 408 794 550 340 177 851 373 406 116
EQUITY AND LIABILITIES
Equity
Share capital and share
premium 293 919 518 295 356 150 293 919 518
Common control deficit (177 246 106) (177 246 106) (177 246 106)
Share-based payments
reserve 1 064 089 - 572 971
Retained earnings 118 209 452 66 190 560 94 115 744
235 946 953 184 300 604 211 362 127
Non-current liabilities
Borrowings 15 425 371 15 698 627 16 558 854
Deferred tax liabilities 1 097 632 3 251 451 986 713
16 523 003 18 950 078 17 545 567
Current liabilities
Borrowings 5 584 442 9 293 265 7 312 776
Current income tax
liability 19 044 137 15 127 427 15 840 405
Trade and other payables 131 696 015 112 506 477 121 345 241
156 324 594 136 927 169 144 498 422
TOTAL EQUITY AND
LIABILITIES 408 794 550 340 177 851 373 406 116
Total number of shares in
issue (net of treasury
shares) 136 073 694 136 803 175 136 073 694
Net asset value per share
(cents) 173,40 134,72 155,33
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Total share
Share Share capital and
Figures in Rand capital premium premium
Balance at 1 March 2007 969 450 192 860 850 193 830 300
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 at 29 February 2008 1 163 644 243 219 216 244 382 860
Profit for the financial period - - -
Issue of shares 204 388 50 892 645 51 097 033
Share issue expenses - (123 743) (123 743)
Balance at 31 August 2008 1 368 032 293 988 118 295 356 150
Profit for the financial period - - -
Share issue expenses - 25 978 25 978
Treasury shares (7 295) (1 455 315) (1 462 610)
Value of employee services - - -
Balance at 28 February 2009 1 360 737 292 558 781 293 919 518
Profit for the financial period - - -
Dividends - - -
Value of employee services - - -
Balance at 31 August 2009 1 360 737 292 558 781 293 919 518
Share-based Common
payments control Shares
Figures in Rand reserve deficit to be issued
Balance at 1 March 2007 - (177 246 106) -
Profit for the financial
period - - -
Issue of shares - - -
Share issue expenses - - -
Acquisition of subsidiary - - 51 097 033
Balance at 29 February 2008 - (177 246 106) 51 097 033
Profit for the financial
period - - -
Issue of shares - - (51 097 033)
Share issue expenses - - -
Balance at 31 August 2008 - (177 246 106) -
Profit for the financial
period - - -
Share issue expenses - - -
Treasury shares - - -
Value of employee services 572 971 - -
Balance at 28 February 2009 572 971 (177 246 106) -
Profit for the financial
period - - -
Dividends - - -
Value of employee services 491 118 - -
Balance at 31 August 2009 1 064 089 (177 246 106) -
Retained Total
Figures in Rand earnings equity
Balance at 1 March 2007 8 992 139 25 576 333
Profit for the financial period 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 at 29 February 2008 40 672 300 158 906 087
Profit for the financial period 25 518 260 25 518 260
Issue of shares - -
Share issue expenses - (123 743)
Balance at 31 August 2008 66 190 560 184 300 604
Profit for the financial period 27 925 184 27 925 184
Share issue expenses - 25 978
Treasury shares - (1 462 610)
Value of employee services - 572 971
Balance at 28 February 2009 94 115 744 211 362 127
Profit for the financial period 31 617 883 31 617 883
Dividends (7 524 175) (7 524 175)
Value of employee services - 491 118
Balance at 31 August 2009 118 209 452 235 946 953
CONDENSED GROUP SEGMENTAL REPORT
Civils Construction Civils Construction
Six months Six months
Unaudited Unaudited
31 August 31 August
Business segment 2009 2008
Segment revenue and result
Revenue
Total segment sales 270 279 211 79 568 583
Less: Intersegment sales - -
Total revenue 270 279 211 79 568 583
Result
Operating profit 29 022 229 10 580 793
Finance income 1 412 587 1 747 703
Finance costs (64 263) (125 045)
Profit before taxation 30 370 553 12 203 451
Segment assets and liabilities
Assets 147 857 030 71 672 311
Liabilities (77 451 024) (38 650 723)
Other information
Capital additions 1 776 065 1 775 391
Depreciation 967 663 792 594
Small Plant Small Plant
and Formwork and Formwork
Six months Six months
Unaudited Unaudited
31 August 31 August
Business segment 2009 2008
Segment revenue and result
Revenue
Total segment sales 48 311 489 45 907 165
Less: Intersegment sales (3 979 525) (3 536 445)
Total revenue 44 331 964 42 370 720
Result
Operating profit 12 506 026 11 046 977
Finance income 387 068 68 115
Finance costs (1 718 673) (1 109 129)
Profit before taxation 11 174 421 10 005 963
Segment assets and liabilities
Assets 133 125 451 100 859 121
Liabilities (30 521 943) (40 941 645)
Other information
Capital additions 18 923 085 39 542 423
Depreciation 9 072 343 6 580 294
Commercial and Commercial and
Industrial Building Industrial Building
Six months Six months
Unaudited Unaudited
31 August 31 August
Business segment 2009 2008
Segment revenue and result
Revenue
Total segment sales 137 570 736 219 863 240
Less: Intersegment sales (57 036 188) -
Total revenue 80 534 548 219 863 240
Result
Operating profit 4 282 479 13 965 886
Finance income 1 299 333 468 810
Finance costs (182 531) (268 104)
Profit before taxation 5 399 281 14 166 592
Segment assets and liabilities
Assets 127 371 147 103 062 780
Liabilities (63 344 172) (75 529 943)
Other information
Capital additions 394 507 1 716 911
Depreciation 1 628 896 1 412 024
Services Services
Six months Six months
Unaudited Unaudited
31 August 31 August
Business segment 2009 2008
Segment revenue and result
Revenue
Total segment sales 2 988 000 1 800 000
Less: Intersegment sales (2 988 000) (1 800 000)
Total revenue - -
Result
Operating profit (1 922 289) (1 469 744)
Finance income 332 153 563 161
Finance costs (13) (27 396)
Profit before taxation (1 590 149) (933 979)
Segment assets and liabilities
Assets 440 922 64 583 639
Liabilities (1 530 458) (754 936)
Other information
Capital additions 11 470 122 950
Depreciation 21 426 17 060
Total Group Total Group
Six months Six months
Unaudited Unaudited
31 August 31 August
Business segment 2009 2008
Segment revenue and result
Revenue
Total segment sales 459 149 436 347 138 988
Less: Intersegment sales (64 003 713) (5 336 445)
Total revenue 395 145 723 341 802 543
Result
Operating profit 43 888 445 34 123 912
Finance income 3 431 141 2 847 789
Finance costs (1 965 480) (1 529 674)
Profit before taxation 45 354 106 35 442 027
Segment assets and liabilities
Assets 408 794 550 340 177 851
Liabilities (172 847 597) (155 877 247)
Other information
Capital additions 21 105 127 43 157 675
Depreciation 11 690 328 8 801 972
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 (`IASB`), the Listing 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 are consistent with those used in preparation of the
Group`s 2009 annual financial statement.
The following new standards and amendments to standards, that are applicable
to the Group, were adopted during the current financial year:
IAS 1 (revised) Presentation of Financial Statements. This standard requires
non- owner changes in equity to be presented separately from owner changes in
equity in a separate performance statement. In terms of this standard,
entities can choose whether to present one performance statement (the
statement of comprehensive income) or two statements (the income statement and
statement of comprehensive income). The Group has elected to present two
performance statements.
IFRS 8 Operating Segments. IFRS 8 replaces IAS 14 Segment Reporting. It
requires a `management approach` under which segment information is presented
on the same basis as that used for internal reporting purposes.
COMMENTARY
Overview
The Group recorded another satisfactory six-month period of trading as profits
after tax increased by 24% at 31 August 2009, on a 16% increase in revenue.
Reduced activity at the Commercial and Industrial Building division was
substantially compensated for by a 240% year-on-year revenue growth from the
Civils Construction division.
Basic earnings per share increased by 15,3% from 20,15 cents per share to
23,24 cents per share, and headline earnings per share increased by 17,8% from
19,41 cents per share to 22,87 cents per share. These earnings are stated
after taking into account a 7,4% increase in the weighted average number of
shares in issue during the reporting period.
FINANCIAL REVIEW
Consolidated income statement
Group revenue increased by 16% to reach R395,1 million (2008: R341,8 million)
with the Civils Construction division, represented by Erbacon Construction,
contributing 68% of total Group revenue as compared to 23% for the period
ended 31 August 2008. In the prior period the major contributor had been
Armstrong Construction of the Commercial and Industrial Building division,
which accounted for 64% of Group revenue, and has now dropped to 20% of Group
revenue. The diversification provided by Erbacon`s three primary segments,
Civils Construction, Commercial and Industrial Building and Small Plant and
Formwork therefore remains important to the Group. The Group is not involved
in any residential sector projects.
Erbacon Construction invoiced R270,3 million for the period under review
(2008: R79,6 million), which included several freeway upgrade projects and
work on two soccer stadium contracts in KwaZulu-Natal. Armstrong Construction
still managed to attract a useful base load of contracts amounting to R137,6
million (2008: R219,9 million).
The branch expansion initiatives undertaken in the prior period by the Small
Plant and Formwork division was partially offset by a rationalisation of
certain other sites, culminating in a 5% year-on-year increase in revenue to
R48,3 million (2008: R45,9 million). However, the revenue opportunities that
were presented as a result of the electricity blackouts in the first half of
2008 were not repeated during the current period under review.
Operating profits increased by a pleasing 28,6% to R43,9 million (2008: R34,1
million) as Small Plant and Formwork rectified several productivity issues
resulting in improved margins. Armstrong Construction managed to maintain
contract margins at the gross profit level in a very competitive national
sector, but its overhead to revenue ratio was elevated. Erbacon Construction
produced a record profit for a six-month period, booking satisfactory margins
on their significantly increased activity.
Although consolidated administrative and operating expenses increased to 5,7%
of revenue (2008: 4,7%), costs were appropriately contained, resulting in an
operating profit margin of 11,1%, which surpassed the operating profit margin
of 10% achieved in each half of the prior year.
Net profit after tax increased 24% to R31,6 million (2008: R25,5 million),
assisted by continued net interest receipts. The effective tax rate increased
to 30% (2008: 28%) after accounting for STC on the maiden dividend.
Consolidated balance sheet and cash flow
Total assets increased to R408,8 million (2008: R340,2 million). The
acquisition of property, plant and equipment amounted to only R3,4 million as
compared to the R16,9 million outlay in the prior period when several
properties for Small Plant and Formwork were obtained. Plant for hire
additions at R17,7 million were also curtailed (2008: R26,2 million) and
expenditure over the following trading session will also be restricted.
Net working capital (comprising trade receivables and payables, plus
inventories) increased only marginally as cash and cash equivalents ended the
period at R48,3 million (2008: R15,3 million). Cash generated from operating
activities amounted to R12,1 million (2008: R11,5 million) after the
settlement of an increased tax liability and the payment of the maiden
dividend on 26 June 2009. The Group balance sheet remains in a healthy and un-
geared position.
Outlook
The combined forward order book is currently in excess of R650 million.
Erbacon remains optimistic that the public sector infrastructure spend,
initiated by government, will maintain sizeable momentum over the medium to
longer term. Whilst the base load of infrastructure related projects and
opportunities remains positive for the civil construction sector, the well
documented global financial crisis has affected local commercial building
ventures, particularly in the private sector, as funding constraints and
concerns over the short to medium term of the robustness of the regional
economy has resulted in a lesser number of plans being converted into new-
builds.
However, Erbacon`s confidence is evident by virtue of its intent to expand its
geographic footprint into civil construction outside of its traditional
KwaZulu-Natal base with the anticipated acquisition of Gauteng-based
Civcontract Civils (Pty) Limited (`Civcon`), and the entry of Medu Capital
(Pty) Limited ("Medu Capital") as Erbacon`s BEE financing partner.
As stated before, confidence levels post 2010 will be maintained or increased
only if government, in particular, keeps to their infrastructure spend
programme.
Dividend
No dividend is declared for the interim period ended 31 August 2009 (2008:
nil). It is the intention of Erbacon to pay shareholders an annual final
dividend.
Shareholders are, however, referred to the Circular to shareholders dated 28
October 2009 (`the Circular`), described more fully below, whereby a notice
was given that an interim dividend number 2 of 21,93 cents per share was
declared on 28 October 2009 to ordinary shareholders, which payment is subject
to the fulfilment of all suspensive conditions to the transaction with Civcon
and Medu Capital ("the transaction"). Shareholders will be advised of the
distribution timetable on fulfilment of all suspensive conditions to the
transaction.
Circular to shareholders dated 28 October 2009
In the announcements to Erbacon shareholders, released on SENS on 22 September
2009, and 28 October 2009, shareholders were advised that:
a) Erbacon had entered into an agreement, on 21 September 2009, with the
Civcon vendors in terms of which Erbacon would acquire all the shares in the
issued share capital of and all claims on shareholders` loan account against
Civcon from the Civcon vendors;
b) Erbacon had also entered into a share subscription agreement, on 21
September 2009, with Medu Capital in terms of which Medu Capital, on behalf of
its funds under management, will subscribe for 67 410 000 fully paid-up
convertible, redeemable and participating preference shares at an issue price
of R1,68 per preference share. Immediately following the Erbacon preference
share issue, Medu Capital, as Erbacon`s BEE financing partner, will have an
economic interest of approximately 29,41% in Erbacon, which will enhance
Erbacon`s overall BEE ownership status.
Following the issue of the Circular to shareholders on 28 October 2009,
shareholders are advised that a general meeting of Erbacon shareholders will
be held at 10:00 on Thursday, 19 November 2009 at the registered office of
Erbacon in order to consider and, if deemed fit, pass with or without
modification, the ordinary and special resolutions required to give effect to
the transaction.
For and on behalf of the board
A Dawson DB Erskine
Chairman Chief Executive Officer
Durban
29 October 2009
Directors: David Graham Armstrong, Sydney Mark Hedley*, Frans Petrus Boraine,
Johan 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: 29/10/2009 11:15:21 Produced by the JSE SENS Department.
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