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ESR
ESR
ESR - Esorfranki - Reviewed Interim Results For The Six Months Ended
31 August 2009
ESORFRANKI LIMITED
(formerly Esor Limited)
(Registration number 1994/000732/06)
Incorporated in the Republic of South Africa
JSE Code: ESR & SIN: ZAE000133369
("Esorfranki" or "the company" or "the group")
REVIEWED INTERIM RESULTS
for the six months ended 31 August 2009
- REVENUE up 76%
- EBITDA up 122%
- NAV per share up 48%
- HEPS up 79,6%
- Operating cash generated R119 million
Condensed consolidated statement of financial position
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2009 2008 2009
R`000 R`000 R`000
Assets
Non-current assets 999 341 453 124 987 520
Property, plant and 602 042 346 931 588 545
equipment
Intangible assets 94 789 96 646 113 022
Goodwill 299 759 9 547 280 173
Deferred tax asset 2 751 - 5 780
Current assets 768 221 394 205 875 972
Inventories 13 661 10 964 11 379
Other investments 15 895 5 053 14 269
Taxation 3 929 13 576 4 699
Trade and other receivables 540 372 295 900 572 800
Cash and cash equivalents 194 364 68 712 272 825
Total assets 1 767 562 847 329 1 863 492
EQUITY AND LIABILITIES
Share capital and reserves 673 374 397 704 619 577
Share capital and premium 340 421 213 887 339 078
Equity compensation reserve 4 696 3 139 3 917
Foreign currency (6 409) 6 431 14 651
translation reserve
Accumulated profits 334 666 174 247 261 931
Non-current liabilities 367 499 172 659 470 080
Secured borrowings* 259 918 133 425 370 603
Post-retirement benefits 1 587 8 106 1 587
Deferred tax liabilities 105 994 31 128 97 890
Current liabilities 726 689 276 966 773 835
Current portion of secured 112 324 26 017 147 664
borrowings*
Taxation 84 311 35 743 84 358
Provisions 35 321 32 059 31 118
Trade and other payables 494 733 183 147 510 695
Total equity and 1 767 562 847 329 1 863 492
liabilities
Net asset value per share 241,7 163,0 223,2
(cents)
Tangible net asset value 139,7 119,5 121,2
per share (cents)**
* Interest-bearing debt
** (Net asset value less
intangible assets)/weighted
average shares
Condensed consolidated statement of comprehensive income
Six months ended Year ended
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2009 2008 Change 2009
R`000 R`000 % R`000
Continuing operations
Revenue 1 018 268 578 607 76 1 414 722
Cost of sales (727 180) (420 027) 73 (981 829)
Gross profit 291 088 158 580 84 432 893
Other income 603 616 (2) 1 631
Operating expenses (56 103) (52 988) 6 (108 601)
Profit before 235 588 106 208 122 325 923
interest, tax,
depreciation,
amortisation and
impairments
Depreciation, (59 328) (20 597) (188) (92 473)
impairments and
amortisation
Results from 176 260 85 611 106 233 450
operating activities
Finance costs (61 599) (11 636) (429) (78 279)
Finance income 46 039 11 907 287 55 600
Profit before income 160 700 85 882 87 210 771
tax
Income tax expense (45 846) (30 029) (53) (67 389)
Profit from 114 854 55 853 106 143 382
continuing operations
Other comprehensive
income:
Foreign currency (21 060) (252) 7 968
translation
differences for
foreign operations
Defined benefit plan - - 155
actuarial gain
Other comprehensive (21 060) (252) 8 123
income/(loss) for the
period, net of tax
Total comprehensive 93 794 55 601 151 505
income for the period
Profit attributable
to:
Owners of the company 114 854 55 853 143 382
Total comprehensive
income attributable
to:
Owners of the company 93 794 55 601 151 505
Basic earnings per 41,3 22,9 56,9
share (cents)
Diluted earnings per 40,9 22,7 54,1
share (cents)
Headline earnings per 41,3 23,0 61,7
share (cents)
Reconciliation of
headline earnings
Profit attributable 114 854 55 853 143 382
to ordinary
shareholders
Adjusted for:
Profit on disposal of - (101) (266)
property, plant and
equipment
Loss on disposal of 31 229 227
property, plant and
equipment
Impairment of - - 11 944
intangible assets
Headline earnings 114 885 55 981 155 287
attributable to
ordinary shareholders
Number of ordinary
shares (`000)
in issue 289 495 244 007 247 904
diluted weighted 281 122 246 525 265 149
average
weighted average 278 121 243 513 251 780
Condensed consolidated statement of cash flows
Six months ended Year ended
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2009 2008 2009
R`000 R`000 R`000
Cash flows from operating
activities
Profit for the period 114 854 55 853 143 382
Adjustments for:
Depreciation of property, 41 095 20 597 68 617
plant and equipment
Impairment of intangible - - 16 590
assets
Amortisation of intangible 18 233 - 7 266
assets
Net finance (income)/costs 15 560 (271) 22 679
Profit on disposal of - (101) (370)
property, plant and
equipment
Loss on disposal of 31 229 316
property, plant and
equipment
Foreign currency translation (24 777) 527 7 735
reserve adjustment
Fair value adjustments - - 10 017
Equity settled share-based 779 - 1 556
payment transactions
Income tax expense 45 846 30 029 67 389
211 621 106 863 345 177
Change in inventories (2 282) (3 740) 3 506
Change in trade and other 32 428 (23 986) (156 079)
receivables
Change in trade and other (35 548) (14 693) 65 283
payables
Change in provisions 4 203 16 500 5 395
210 422 80 944 263 282
Interest paid (61 599) (11 636) (78 279)
Income taxes paid (30 272) (11 359) (30 336)
Net cash from operations 118 551 57 949 154 667
Cash flows from investing
activities
Interest received 46 039 11 907 55 600
Proceeds from sale of 9 411 179 1 234
property, plant and
equipment
Acquisition of subsidiary, - - (130 683)
net of cash acquired
Acquisition of business - (6 380) -
Acquisition of property, (64 034) (98 715) (188 355)
plant and equipment
Acquisition of brand name - (2 117) -
Acquisition of goodwill - (9 547) -
Acquisition of other (1 626) (5 053) (6 042)
investments
Net cash used in investing (10 210) (109 726) (268 246)
activities
Cash flows from financing
activities
Proceeds from the issue of 1 342 300 2 990
share capital
Increase in unsecured loans - - 2 911
Increase/(decrease) in (146 025) 52 969 319 646
secured borrowings
Post-retirement benefits - - (6 363)
paid
Dividends paid (42 119) (48 639) (48 639)
Net cash (used in)/from (186 802) 4 630 270 545
financing activities
Net (decrease)/increase in (78 461) (47 147) 156 966
cash and cash equivalents
Cash and cash equivalents at 272 825 115 859 115 859
beginning of period
Cash and cash equivalents at 194 364 68 712 272 825
end of period
Condensed consolidated statement of changes in equity
Equity
Share Share compensation
R`000 capital premium reserve
Balance at 1 March 2008 243 213 644 2 361
Profit
Other comprehensive income
Foreign currency translation
differences for foreign
operations
Total other comprehensive
income
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares
related to business
combinations
Issue of ordinary shares -
Dividends to equity holders
Share-based payment 778
transactions
Share options exercised
Total contributions by and - 778
distributions to owners
Balance at 31 August 2008 243 213 644 3 139
Balance at 1 March 2009 278 338 800 3 917
Profit
Other comprehensive income
Foreign currency translation
differences for foreign
operations
Defined benefit plan
actuarial gain
Total other comprehensive
income
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares
related to business
combinations
Issue of ordinary shares 1 1 342
Dividends to equity holders
Share-based payment 779
transactions
Share options exercised
Total contributions by and 1 1 342 779
distributions to owners
Balance at 31 August 2009 279 340 142 4 696
Six months ended Year ended
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2009 2008 2009
Dividends per ordinary share - - 15,0
(cents)
Translation Retained Total
R`000 reserve earnings equity
Balance at 1 March 2008 6 683 167 033 389 964
Profit 55 853 55 853
Other comprehensive income
Foreign currency translation (252) (252)
differences for foreign
operations
Total other comprehensive (252) (252)
income
Total comprehensive income (252) 55 853 55 601
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares
related to business
combinations
Issue of ordinary shares -
Dividends to equity holders (48 639) (48 639)
Share-based payment 778
transactions
Share options exercised
Total contributions by and (48 639) (47 861)
distributions to owners
Balance at 31 August 2008 6 431 174 247 397 704
Balance at 1 March 2009 14 651 261 931 619 577
Profit 114 854 114 854
Other comprehensive income
Foreign currency translation (21 060) (21 060)
differences for foreign
operations
Defined benefit plan
actuarial gain
Total other comprehensive (21 060) (21 060)
income
Total comprehensive income (21 060) 114 854 93 794
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares
related to business
combinations
Issue of ordinary shares 1 343
Dividends to equity holders (42 119) (42 119)
Share-based payment 779
transactions
Share options exercised
Total contributions by and (42 119) (39 997)
distributions to owners
Balance at 31 August 2009 (6 409) 334 666 673 374
Information about reportable segments for the six months ended 31 August
R`000 Geotechnical Esorfranki Esorfranki
operations Civils Pipelines
2009 2008 2009* 2009*
External revenues 527 674 578 607 375 498 130 553
Reportable segment 70 913 85 882 89 217 27 587
profit before
income tax
Reportable segment 793 534 847 329 498 805 181 791
assets
R`000 Corporate and
eliminations Consolidated
2009* 2009 2008
External revenues (15 457) 1 018 268 578 607
Reportable segment (27 017) 160 700 85 882
profit before
income tax
Reportable segment 293 432 1 767 562 847 329
assets
*No 2008 comparatives as the businesses in these segments were acquired post 31
August 2008
Geographical information
R`000 South Africa
2009 2008
Total revenue 906 763 464 535
Profit before interest and tax 155 202 55 385
Profit after tax 112 411 33 904
Total assets 1 561 031 664 405
R`000 Other regions
2009 2008
Total revenue 111 505 114 072
Profit before interest and tax 21 058 30 226
Profit after tax 2 443 21 949
Total assets 206 531 182 924
R`000 Consolidated
2009 2008
Total revenue 1 018 268 578 607
Profit before interest and tax 176 260 85 611
Profit after tax 114 854 55 853
Total assets 1 767 562 847 329
COMMENTARY
The reviewed results of Esorfranki for the six months ended 31 August 2009 ("the
period") reflect a continued strong performance with exceptional growth in
earnings per share ("EPS") and headline earnings per share ("HEPS")
notwithstanding tough market conditions.
Further, a number of strategic milestones were achieved during the period.
Following three successful years as one of the AltX top performers, Esorfranki
transferred to the Main Board of the JSE on 25 June 2009. The group is now
positioned alongside its civil engineering construction peers in the `Heavy
Construction` sector.
In addition, to appropriately leverage the brand power of its principal
operating subsidiary, Franki Africa, the group changed its name to Esorfranki
Limited on 11 May 2009.
Financial results
Revenue increased by 76% to R1,02 billion from R579 million in the comparative
period, generating EBITDA of R235,6 million, an increase of 122%. Headline
earnings rose 105% translating into HEPS of 41,3 cents, an increase of 79,6%.
Cash generated by operations totalled R119 million for the period.
Gearing
Gearing rose to 35,6% from 28,6% for the comparative period. Borrowings
increased as a result of the finance raised for the acquisition of the
Esorfranki business operations and the capital expansion programme. Esorfranki
met all its loan covenants during the period.
Review of operations
Notwithstanding the group`s excellent results, the year began slowly with
certain Esorfranki operations adversely impacted by the weak economy and
difficult trading conditions. A number of delays in major contracts hampered
growth at Esorfranki Pipelines and at Franki Africa`s Angolan operations. This
situation is expected to improve in the second half of the year as both delayed
projects and new projects come on stream.
Esorfranki Geotechnical
This business unit comprises Franki Africa and Esor Africa. It posted revenue of
R527,7 million, down marginally by 9% on the comparative period last year, and
equating to 52% of group revenue. Foreign revenue accounted for 21% of the
business unit`s total revenue - the foreign operations were adversely affected
by the strengthening of the Rand during the period. The division contributed
R70,9 million to group profit before tax ("PBT") and operating margins increased
to 17%.
The largest revenue generators to date include the Gautrain contracts valued at
over R184 million for piling, lateral support and earthworks, work at Kusile
Power Station and several major road projects for SANRAL. A number of contracts
in Botswana have recently been awarded to both companies, and piling contracts
in Mozambique and Mauritius are progressing well.
Esorfranki Civils
This business unit achieved revenue of R375,5 million, or 36% of group revenue,
and generated PBT of R89,2 million.
Esorfranki Civils is benefiting extensively from SANRAL expansion plans, having
won a contract valued at approximately R400 million in June 2009 for the upgrade
of the R21 between the Rietfontein and Pomona Interchanges and a R170 million
contract for a section of the N4 upgrade near Brits. In addition Esorfranki
Civils was awarded a multi-million Rand contract for the township development at
Eskom`s Medupi Power Station.
Esorfranki Pipelines
This business unit achieved revenue of R130,5 million, 13% to group revenue,
with PBT of R27,6 million.
Recent new contract wins include three major pipeline and associated works - at
Ngcebo, Mkwanazi and Nsezi - which together are worth more than R100 million.
Approximately 90% of the projects in this field out to tender are in the water
sector and emanate mainly from Government, Regional Water Authorities,
Provinces, Municipalities and State Enterprises. Esorfranki Pipelines is well-
placed to capitalise on these projects. Notwithstanding the current scope of
work within its area of expertise, diversification into complementary areas
would be considered to drive additional growth.
CAPEX and plant replacement policy
Esorfranki regards fleet maintenance and enhancement as key to growth and a
significant differentiator. During the period the group invested R64,0 million
(2008: R99,0 million) in plant, with R115,3 million spend planned group-wide for
the current financial year ending February 2010 in line with forecast. The group
is satisfied that the current fleet is well positioned to accommodate future
growth and maintain its competitive edge in the market.
Black Economic Empowerment
Esorfranki is currently rated as a `Level 6` contributor to broad-based BEE.
The group`s commitment to transformation is evidenced by its 29% black
shareholding (including retail shareholders on the open market and the Esor
Broad Based Share Ownership Scheme, which holds 6,48%).
More than 85% of the group`s 3 700 strong workforce is black.
People
With succession planning an operational priority across the group, a number of
new appointments were made at divisional level during the period. These reflect
Esorfranki`s commitment to attracting superior talent, developing skills and
steering experienced candidates through the ranks to sustain deep management
resources. (Refer SENS announcement of 7 July 2009 for further detail.)
Post-balance sheet events
As the performance of Esorfranki Civils (previously Patula Construction) for the
previous financial year met the profit warranty in terms of the acquisition
agreement, a deferred contingent consideration of R190 million was paid on 17
September 2009. In terms of the agreement, 60% of the final payment was payable
in cash while the balance was settled through the issue of 12 666 667 Esorfranki
shares. (Refer SENS announcement of 17 September 2009 for further detail.)
In terms of the loan agreement, Esor Africa borrowed a further R80,0 million in
September 2009 to finance the acquisition of the Esorfranki business unit. This
has the estimated effect of reducing EPS by 0,89 cents per share for the
remainder of the year to February 2010.
Esorfranki is currently named in a Competition Commission enquiry into the
construction industry and remains committed to full and transparent co-operation
with the authority, in the interests of a speedy and beneficial conclusion of
the matter.
Prospects
Notwithstanding harsh market conditions the board remains positive regarding the
group`s growth prospects. With the order book at R1,2 billion as at 31 August
2009, Esorfranki is well on track for the year ending February 2010.
All operating units are expected to continue benefiting from Government
infrastructure spend with projects at Kusile Power Station, the NMPP pipeline
and Medupi Power Station already underway.
The group will maintain its established presence across sub-Saharan Africa to
capitalise on growth opportunities in this region.
Dividend policy
In line with group policy no interim dividend has been declared. It remains the
policy of the group to review the dividend policy annually in light of cash
flow, gearing and capital requirements.
Statement of compliance
The reviewed condensed consolidated interim financial statements for the period
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 28 February 2009, which comply
with International Financial Reporting Standards ("IFRS").
Auditor`s independent review
These condensed consolidated financial results for the period have been reviewed
by the company`s auditors, KPMG Inc., 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.
Appreciation
We thank our whole team for their ongoing effort and hard work that have
contributed to our outstanding results. Thank you also to our fellow directors
for your valuable input. Finally, thanks to our advisors, suppliers, clients and
stakeholders for your support.
On behalf of the board.
Bernard Krone Wayne van Houten
Chief Executive Officer Chief Financial Officer
4 November 2009
CORPORATE INFORMATION
DIRECTORS:
DM Thompson* (Chairman)
B Krone (CEO)
W van Houten (CFO)
EG Dube*
JM Hlongwane*
MB Mathabathe*
Dr FA Sonn*(alternate: JC van Reenen)
*Non-executive
REGISTERED OFFICE:
30 Activia Road, Activia Park, Germiston, 1401
(PO Box 6478, Dunswart, 1508)
Telephone: +27 11 822 3906
Fax: +27 11 822 3112
SPONSOR:
Vunani Corporate Finance
151 Katherine Street, Sandown, Sandton, 2196
(PO Box 652419, Benmore, 2010)
TRANSFER SECRETARIES:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
COMPANY SECRETARY:
ID Stephen
AUDITORS:
KPMG Inc.
KPMG Crescent, 85 Empire Road, Parktown, 2193
(Private Bag 9, Parkview, 2122)
www.esorfranki.co.za
Date: 04/11/2009 08:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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