| Fri 21 May 2010, 16:48 | | ERB - Erbacon Investment Holdings - Reviewed provisional report for the year |
|
ERB
ERB
ERB - Erbacon Investment Holdings - Reviewed provisional report for the year
ended 28 February 2010
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")
Reviewed Provisional Report for the year ended 28 February 2010
15,8% increase in revenue
22,3% increase in profit after tax
12,5% increase in headline earnings per share to 45,1 cents
CONDENSED GROUP INCOME STATEMENT
Reviewed Audited
Year ended Year ended
28 February 28 February
Figures in Rand 2010 2009
Revenue 834 531 633 720 956 601
Cost of sales (691 752 498) (608 133 909)
Gross profit 142 779 135 112 822 692
Other income 1 618 598 664 694
Administrative and operating expenses (49 995 282) (40 828 549)
Operating profit 94 402 451 72 658 837
Finance income 7 108 222 5 403 793
Finance costs (6 112 732) (3 594 246)
Profit before taxation 95 397 941 74 468 384
Taxation (30 055 330) (21 024 940)
Profit for the year 65 342 611 53 443 444
Reconciliation of headline earnings:
Profit attributable to equity shareholders 65 342 611 53 443 444
Adjustments for non-trading items:
Profit on disposal of plant and equipment (323 965) (696 591)
Headline earnings 65 018 646 52 746 853
Earnings per share
Basic (cents) 45,33 40,64
Diluted (cents) 38,03 40,64
Headline earnings per share
Basic (cents) 45,10 40,11
Diluted (cents) 37,84 40,11
Weighted average number of shares in issue 144 151 421 131 517 332
Diluted weighted average number of shares
in issue 175 262 841 131 517 332
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
Year ended Year ended
28 February 28 February
Figures in Rand 2010 2009
Profit for the year 65 342 611 53 443 444
Total comprehensive income attributable to
equity shareholders 65 342 611 53 443 444
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Reviewed Audited
28 February 28 February
Figures in Rand 2010 2009
ASSETS
Non-current assets
Plant for hire 72 215 117 66 986 191
Property, plant and equipment 93 570 912 36 900 573
Goodwill 121 479 915 52 822 314
Deferred tax assets 1 990 238 173 737
289 256 182 156 882 815
Current assets
Intangible assets 3 577 019 -
Inventories 20 504 801 31 024 552
Income tax asset 1 014 868 -
Trade and other receivables 183 852 992 128 195 106
Investments 41 858 077 -
Cash and cash equivalents 81 731 839 57 303 643
332 539 596 216 523 301
TOTAL ASSETS 621 795 778 373 406 116
EQUITY AND LIABILITIES
Equity
Share capital and share premium 377 233 636 293 919 518
Common control deficit (177 246 106) (177 246 106)
Share-based payments reserve 1 414 432 572 971
Shares to be issued 46 119 165 -
Retained earnings 122 133 341 94 115 744
369 654 468 211 362 127
Non-current liabilities
Convertible redeemable and participating
preference shares 54 519 158 -
Borrowings 21 010 681 16 558 854
Deferred tax liabilities 25 218 197 986 713
100 748 036 17 545 567
Current liabilities
Borrowings 4 922 617 7 312 776
Income tax liability 1 755 038 15 840 405
Trade and other payables 144 715 619 121 345 241
151 393 274 144 498 422
TOTAL EQUITY AND LIABILITIES 621 795 778 373 406 116
Total number of shares in issue (net of
treasury shares and
including contingently issuable shares) 189 784 478 136 073 694
Net asset value per share (cents) 194,78 155,33
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Share Share
Figures in Rand capital premium
Balance at 1 March 2008 1 163 644 243 219 216
Total profit and comprehensive
income for the year - -
Issue of shares 204 388 50 892 645
Share issue expenses - (97 765)
Treasury shares (7 295) (1 455 315)
Value of employee services - -
Balance at 28 February 2009 1 360 737 292 558 781
Total profit and comprehensive income
for the year - -
Issue of shares - acquisition of subsidiary 250 209 39 783 193
Share issue expenses - (116 299)
Convertible redeemable and
participating preference shares 674 100 59 870 542
Deferred tax on liability component of
convertible redeemable and
participating preference shares - (16 952 500)
Treasury shares (1 346) (193 781)
Dividends - -
Value of employee services - -
Balance at 28 February 2010 2 283 700 374 949 936
Total share Share-based
capital and payments
Figures in Rand premium reserve
Balance at 1 March 2008 244 382 860 -
Total profit and comprehensive
income for the year - -
Issue of shares 51 097 033 -
Share issue expenses (97 765) -
Treasury shares (1 462 610) -
Value of employee services - 572 971
Balance at 28 February 2009 293 919 518 572 971
Total profit and comprehensive income
for the year - -
Issue of shares - acquisition of subsidiary 40 033 402 -
Share issue expenses (116 299) -
Convertible redeemable and
participating preference shares 60 544 642 -
Deferred tax on liability component of
convertible redeemable and
participating preference shares (16 952 500) -
Treasury shares (195 127) -
Dividends - -
Value of employee services - 841 461
Balance at 28 February 2010 377 233 636 1 414 432
Common
control Shares to
Figures in Rand deficit be issued
Balance at 1 March 2008 (177 246 106) 51 097 033
Total profit and comprehensive
income for the year - -
Issue of shares - (51 097 033)
Share issue expenses - -
Treasury shares - -
Value of employee services - -
Balance at 28 February 2009 (177 246 106) -
Total profit and comprehensive income
for the year - -
Issue of shares - acquisition of subsidiary - 46 119 165
Share issue expenses - -
Convertible redeemable and
participating preference shares - -
Deferred tax on liability component of
convertible redeemable and
participating preference shares - -
Treasury shares - -
Dividends - -
Value of employee services - -
Balance at 28 February 2010 (177 246 106) 46 119 165
Retained Total
Figures in Rand earnings equity
Balance at 1 March 2008 40 672 300 158 906 087
Total profit and comprehensive
income for the year 53 443 444 53 443 444
Issue of shares - -
Share issue expenses - (97 765)
Treasury shares - (1 462 610)
Value of employee services - 572 971
Balance at 28 February 2009 94 115 744 211 362 127
Total profit and comprehensive income
for the year 65 342 611 65 342 611
Issue of shares - acquisition of subsidiary - 86 152 567
Share issue expenses - (116 299)
Convertible redeemable and
participating preference shares - 60 544 642
Deferred tax on liability component of
convertible redeemable and
participating preference shares - (16 952 500)
Treasury shares - (195 127)
Dividends (37 325 014) (37 325 014)
Value of employee services - 841 461
Balance at 28 February 2010 122 133 341 369 654 468
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Audited
Year ended Year ended
28 February 28 February
Figures in Rand 2010 2009
Cash receipts from customers 824 753 709 694 447 373
Cash paid to suppliers and employees (730 271 168) (604 529 633)
Cash generated from operations 94 482 541 89 917 740
Net finance income adjusted for non-cash
interest 2 810 490 1 809 547
Dividends paid (37 325 014) -
Tax paid (58 502 629) (17 718 495)
Other non-cash items - 572 971
Net cash from operating activities 1 465 388 74 581 763
Acquisition of subsidiary - net of cash
acquired (26 769 369) -
Purchase of investment (19 275 077) -
Purchase of property, plant and equipment (9 602 539) (25 879 706)
Proceeds on disposal of property, plant and
equipment 1 212 205 1 880 359
Purchase of plant for hire (23 300 740) (40 369 478)
Proceeds on disposal of plant for hire 3 776 929 5 006 705
Net cash from investing activities (73 958 591) (59 362 120)
Net proceeds on issue of convertible
redeemable and participating
preference shares 113 248 800 -
Borrowings repaid (16 327 401) (319 658)
Net cash from financing activities 96 921 399 (319 658)
Net movement in cash and cash equivalents 24 428 196 14 899 985
Cash and cash equivalents at the beginning
of the year 57 303 643 42 403 658
Cash and cash equivalents at the end of the
year 81 731 839 57 303 643
CONDENSED GROUP SEGMENTAL REPORT
Civils Civils Civils
Construction Construction Construction
(Coastal) (Coastal) (Inland)
Reviewed Audited Reviewed
28 February 28 February 28 February
Business segment 2010 2009 2010
Segment revenue and result
Revenue
Total segment sales 531 039 381 201 867 066 77 400 623
Less: Intersegment sales (3 947 510) - -
Total external revenue 527 091 871 201 867 066 77 400 623
Result
Operating profit 56 433 553 33 420 757 10 816 487
Finance income 2 717 225 3 030 248 899 260
Finance costs (179 392) (399 707) (704 098)
Profit before taxation 58 971 386 36 051 298 11 011 649
Segment assets and
liabilities
Assets 116 366 526 107 438 093 242 180 076
Plant for hire - - -
Property, plant and equipment 6 774 218 5 238 634 56 679 390
Goodwill - - 68 657 601
Deferred tax asset 1 990 238 - -
Income tax asset - - 637 143
Intangible assets - - 3 577 019
Inventories 3 422 342 21 379 504 2 008 945
Trade and other receivables 82 953 165 54 260 996 44 270 297
Investments - - 41 858 077
Cash and cash equivalents 21 226 563 26 558 959 24 491 604
Liabilities 47 154 079 68 814 343 47 433 943
Convertible redeemable
and participating
preference shares - - -
Borrowings 377 335 1 088 240 8 879 718
Deferred tax liabilities - 672 152 8 216 424
Income tax liabilities 1 755 038 7 721 466 -
Trade and other payables 45 021 706 59 332 485 30 337 801
Other information
Capital additions (3 694 027) (2 965 261) (3 477 528)
Property, plant and equipment (3 694 027) (2 965 261) (3 477 528)
Plant for hire - - -
Depreciation 1 724 091 1 746 003 3 953 655
Civils
Construction Small Plant Small Plant
(Inland) & Formwork & Formwork
Audited Reviewed Audited
28 February 28 February 28 February
Business segment 2009 2010 2009
Segment revenue and result
Revenue
Total segment sales - 86 675 676 83 063 650
Less: Intersegment sales - (9 832 107) (6 084 681)
Total external revenue - 76 843 569 76 978 969
Result
Operating profit - 18 229 960 18 007 814
Finance income - 80 356 341 543
Finance costs - (3 331 375) (2 642 485)
Profit before taxation - 14 978 941 15 706 872
Segment assets and
liabilities
Assets - 120 888 686 115 667 846
Plant for hire - 72 215 117 66 986 191
Property, plant and equipment - 22 234 804 22 936 126
Goodwill - - -
Deferred tax asset - - 67 379
Income tax asset - 184 120 -
Intangible assets - - -
Inventories - 4 266 918 5 098 293
Trade and other receivables - 20 661 534 18 916 469
Investments - - -
Cash and cash equivalents - 1 326 193 1 663 388
Liabilities - 19 933 902 27 074 420
Convertible redeemable
and participating
preference shares - - -
Borrowings - 14 861 267 19 289 198
Deferred tax liabilities - 528 485 -
Income tax liabilities - - 1 489 140
Trade and other payables - 4 544 150 6 296 082
Other information
Capital additions - (24 731 043) (58 653 474)
Property, plant and equipment - (1 430 303) (18 283 996)
Plant for hire - (23 300 740) (40 369 478)
Depreciation - 15 366 969 14 571 631
Commercial Commercial
& Industrial & Industrial
Building Building Services
Reviewed Audited Reviewed
28 February 28 February 28 February
Business segment 2010 2009 2010
Segment revenue and result
Revenue
Total segment sales 299 610 157 444 855 103 5 976 000
Less: Intersegment sales (146 414 587) (2 744 537) (5 976 000)
Total external revenue 153 195 570 442 110 566 -
Result
Operating profit 16 310 690 22 353 471 (7 388 239)
Finance income 2 042 893 1 415 952 1 368 488
Finance costs (82 590) (524 657) (1 815 277)
Profit before taxation 18 270 993 23 244 766 (7 835 028)
Segment assets and
liabilities
Assets 126 189 842 148 853 187 16 170 648
Plant for hire - - -
Property, plant and equipment 7 829 417 8 640 393 53 083
Goodwill 52 822 314 52 822 314 -
Deferred tax asset - -
Income tax asset 80 704 - 112 901
Intangible assets - - -
Inventories 10 806 596 4 546 755
Trade and other receivables 35 891 850 54 877 851 76 146
Investments - - -
Cash and cash equivalents 18 758 961 27 965 874 15 928 518
Liabilities 64 261 867 64 953 090 73 357 519
Convertible redeemable
and participating
preference shares - - 54 519 158
Borrowings 1 814 978 3 494 192 -
Deferred tax liabilities 279 904 314 561 16 193 384
Income tax liabilities - 6 629 799 -
Trade and other payables 62 166 985 54 514 538 2 644 977
Other information
Capital additions (989 212) (4 507 499) (11 469)
Property, plant and equipment (989 212) (4 507 499) (11 469)
Plant for hire - - -
Depreciation 1 614 892 3 086 943 43 806
Services Total Group Total Group
Audited Reviewed Audited
28 February 28 February 28 February
Business segment 2009 2010 2009
Segment revenue and result
Revenue
Total segment sales 5 400 000 1 000 701 837 735 185 819
Less: Intersegment sales (5 400 000) (166 170 204) (14 229 218)
Total external revenue - 834 531 633 720 956 601
Result
Operating profit (1 123 205) 94 402 451 72 658 837
Finance income 616 050 7 108 222 5 403 793
Finance costs (27 397) (6 112 732) (3 594 246)
Profit before taxation (534 552) 95 397 941 74 468 384
Segment assets and
liabilities
Assets 1 446 990 621 795 778 373 406 116
Plant for hire - 72 215 117 66 986 191
Property, plant and equipment 85 420 93 570 912 36 900 573
Goodwill - 121 479 915 52 822 314
Deferred tax asset 106 358 1 990 238 173 737
Income tax asset - 1 014 868 -
Intangible assets - 3 577 019 -
Inventories - 20 504 801 31 024 552
Trade and other receivables 139 790 183 852 992 128 195 106
Investments - 41 858 077 -
Cash and cash equivalents 1 115 422 81 731 839 57 303 643
Liabilities 1 202 136 252 141 310 162 043 989
Convertible redeemable
and participating
preference shares - 54 519 158 -
Borrowings - 25 933 298 23 871 630
Deferred tax liabilities - 25 218 197 986 713
Income tax liabilities - 1 755 038 15 840 405
Trade and other payables 1 202 136 144 715 619 121 345 241
Other information
Capital additions (122 950) (32 903 279) (66 249 184)
Property, plant and equipment (122 950) (9 602 539) (25 879 706)
Plant for hire - (23 300 740) (40 369 478)
Depreciation 37 530 22 703 413 19 442 107
NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS
1. Basis of preparation
The reviewed financial statements have been prepared in terms of International
Financial Reporting Standards ("IFRS"), IAS 34: Interim Financial Reporting,
Standards, the AC 500 series as issued by the Accounting Practices Board, in
compliance with the Listings Requirements of the JSE Limited, and Schedule 4 of
the Companies Act of South Africa, 1973. The accounting policies used in the
preparation of the reviewed financial statements are consistent with those used
in the annual financial statements for the year ended 28 February 2009. The
company adopted IAS 1: Presentation of Financial Statements and IFRS 8:
Operating Segments for the first time in the current year.
2. Share capital
The authorised ordinary share capital was increased to 500 000 000 ordinary
shares with a par value of R0,01 per share (2009: 300 000 000). As part of the
Civcontract Civils (Pty) Limited ("Civcon") purchase consideration, 25 020 876
ordinary shares at R1,68 were issued to the vendors of Civcon in December 2009.
3. Compound financial instruments
The company issued 67 410 000 fully paid-up convertible redeemable and
participating preference shares with a par value of R0,01 per share effective 3
November 2009 at an issue price of R1,68 per share. These shares can be
converted, subject to the preference share terms, at the option of the holder
into ordinary shares on a one-for-one basis. The company is obliged to
immediately redeem at R1,68 per share, should the preference shares not be
converted into ordinary shares at the end of five years from the date of issue.
The company is furthermore obliged to redeem the preference shares at R1,68 per
share on the occurrence of an actionable event as set out in the preference
share terms. Management is of the opinion that the occurrence of an actionable
event is remote.
The fair value of the liability component, included in non-current liabilities,
was calculated using a market related interest rate of 16,53% for an equivalent
debt instrument. The residual amount, representing the value of the equity
component, is included in shareholders` equity in share capital and premium,
net of taxes.
4. Acquisition of Civcon
On 3 November 2009 the group acquired 100% of the ordinary share capital of
Civcon.
A portion of the purchase consideration was settled by a cash payment of
R95 418 260. The remaining portion is settled by the issue of 53 845 354 shares
in Erbacon at R1,60 per share, being the listed share price at the effective
date of acquisition, 3 November 2009.
The contingent consideration arrangement requires the issue of Erbacon
ordinary shares based on profit after tax of Civcon for the years ended 28
February 2010 and 28 February 2011.
Figures in Rands Heading
Fair value of assets acquired
Goodwill 68 657 601
Civcontract Civils (Pty) Limited - fair value of assets 117 675 704
186 333 305
Purchase consideration
Consideration paid in cash (95 418 260)
25 020 876 ordinary shares in Erbacon Investment Holdings
Limited - issued (40 033 402)
28 824 478 ordinary shares in Erbacon Investment Holdings
Limited - contingently issuable shares (46 119 165)
Costs directly attributable to the business combination (4 762 478)
(186 333 305)
Cash consideration paid including costs attributable to the
business combination (100 180 738)
Cash acquired 73 411 369
Net cash outflow on acquisition (26 769 369)
The assets and liabilities at 3 November 2009 arising from the acquisition
are as follows:
Acquiree`s
Figures in Rands Fair value carrying amount
Property, plant and equipment 57 382 522 34 332 973
Intangible assets 9 482 509 -
Inventories 555 787 555 787
Trade and other receivables 45 879 962 45 879 962
Investments 22 583 000 22 583 000
Cash and cash equivalents 73 411 369 73 411 369
Borrowings (18 389 069) (18 389 069)
Deferred taxation liability (8 993 616) 115 360
Income tax liability (11 539 819) (11 539 819)
Trade and other payables (52 696 941) (52 696 941)
Fair value of assets acquired 117 675 704 94 252 622
Goodwill 68 657 601 -
Total cost of business acquisition 186 333 305 94 252 622
Goodwill of R68 657 601 arising from the acquisition consists largely of the
synergies and economies of scale expected from combining the operations of the
entities, as well as the highly skilled workforce. Goodwill is not deductible
for income tax purposes.
The acquired business contributed revenue of R77 400 623 and net profit after
tax of R8 315 925 for the period 3 November 2009 to 28 February 2010.
If the acquisition had occurred on 1 March 2009, Civcon would have contributed
revenues of R318 487 245 and net profit after tax of R57 076 498. These amounts
have been calculated applying the Group accounting policies but do not include
the additional depreciation and amortisation that would have been charged
assuming the fair value adjustments to property, plant and equipment and
intangible assets had applied from 1 March 2009.
Figures in Rands Heading
5. Dividends
Final dividend for the 2009 year, paid on 29 June 2009, 5,5 7 524 175
cents (2008: nil)
Interim dividend for the current year: 21,93 cents (2009: nil) 30 000 936
Dividends paid to Erbacon Investment Holdings Limited Share
Incentive Trust (200 097)
37 325 014
COMMENTARY
OVERVIEW
Erbacon provides a comprehensive suite of heavy civil engineering, commercial
and industrial building, general construction and plant hire services to many
of the major projects being undertaken in South Africa.
The Group recorded another satisfactory result with profits after tax
increasing by 22,3% (2009: 69%) at 28 February 2010, on a 15,8% (2009: 221%)
increase in revenue. The civils construction company, Erbacon Construction
(Pty) Limited ("Erbacon Construction") produced a record result which offset
the anticipated reduced activity from the Commercial and Industrial Building
division, and a weaker performance from the Small Plant and Formwork division.
Basic earnings per share increased by 11,5% from 40,64 cents per share to 45,3
cents per share, and headline earnings per share increased by 12,5% from 40,11
cents per share to 45,1 cents per share. These earnings are stated after taking
into account a 9,6 % increase in the weighted average number of shares in
issue.
The Group also delivered on its intention to build a more sustainable business
to participate in South Africa`s infrastructural development over the next
decade and beyond. In this context, important sustainability issues such as BEE
and diversification were successfully concluded.
Developments during the year
Erbacon entered into an agreement on 21 September 2009 with Civcon in terms of
which Erbacon acquired all the shares in the issued share capital of and all
claims on shareholders` loan account against Civcon from the Civcon vendors.
Civcon operates mainly in the mining construction and heavy industrial markets.
All conditions precedent, including Competition Commission approval, were met
resulting in an effective date of the transaction of 3 November 2009.
Erbacon also concluded a share subscription agreement on 21 September 2009 with
Medu Capital (Pty) Limited ("Medu Capital"), on behalf of its funds under
management, in terms of which Medu Capital were allotted 67 410 000 fully
paid-up convertible redeemable and participating preference shares at an issue
price of R1,68 per preference share. Medu Capital currently has an economic
interest of approximately 29,41% in Erbacon and is the company`s BEE partner.
FINANCIAL REVIEW
Consolidated income statement
Group revenue increased to R834,5 million (2009: R720,9 million) with the
buoyant Civils Construction segment (Coastal and Inland) contributing a
significant R604 million (2009: R202 million) or 72% (2009: 28%) of Group
revenue. Erbacon Construction lifted year-on-year revenues by 163% assisted by
its involvement on World Cup Soccer stadium and freeway contracts.
Civcon was consolidated from November 2009, but its revenue contribution of
R77,4 million was limited as a result of the intervening construction sector
shut-down, and the delay of certain projects towards the end of 2009. It is
noted that Civcon`s annual revenue amounted to R318,5 million (2009: R352,3
million), with a profit after tax of R57,1 million (2009: R51,3 million).
The Commercial and Industrial Building segment was affected by industry-wide
project funding constraints and increased competition for available work, and
reflected a reduced revenue of R299,6 million (2009: R445 million).
Small Plant and Formwork`s contribution to Group revenue was 9,2% (2009: 10,7%)
on a marginal increase in annual revenue of R86,7 million (2009: R83 million).
Gross profit increased by 26,6% to R142,8 million (2009: R112,8 million) with
margins improving to 17,1% from 15,6% in the prior year.
At the operating profit level, the Civils Construction segment accounted for
71% (2009: 46%) of the total, and follows the trend of heavy civils activity
experienced country-wide and targeted by Erbacon. Reduced revenue pulled the
Commercial and Industrial segment down to a 17,3% contribution compared to a
significant 31% in 2009. A competitive plant hire market, plus a reduction in
formwork opportunities due to reduced demand from the commercial construction
sector, resulted in a static contribution from this business.
Administration and operating expenses increased to 6,0% of revenue from 5,7% in
2009 with the incorporation of Civcon, and a higher than normal write-off of
debtors, in Small Plant and Formwork in particular.
The purchase price for Civcon was allocated to the fair value of assets
acquired in terms of IFRS 3: Business Combinations. This allocation gave rise
to a contract-based intangible asset amounting to R9,5 million. The portion
amortised to the income statement for the four-month period ended 28 February
2010 was R5,9 million.
The convertible redeemable and participating preference shares issued to Medu
Capital is a compound financial instrument, which has been split into a
liability and an equity portion. The notional interest expense of the liability
portion amounts to R1,8 million (2009: nil) which charge is included under
finance costs. Secondary tax on companies at 10% was paid during the year on
dividends, being dividend number one (for 5,5 cents per share) and
two (for 21,93 cents per share). The effective tax rate excluding the STC
charge is 27,6% (2009: 28,2%).
The number of shares used in diluted earnings and headline earnings per share
is based on the current weighted average number of shares in issue, plus shares
issued to the Civcon vendors on the effective date, plus contingently issuable
shares relating to the Civcon profit warranties for the financial years ending
February 2010 and 2011, and the preference shares issued to Medu Capital that
are convertible into ordinary shares. The interest charge on the preference
shares and related deferred tax adjustments have been removed in determining
the diluted earnings and diluted headline earnings per share.
Profit after tax increased 22,3% to R65,3 million (2009: R53,4 million). The
contribution to profit after tax from the original Erbacon companies (excluding
the effects of the Civcon acquisition) is R61,3 million, a 14,7% growth on the
prior year.
The Group accounted for a change in accounting estimate of its depreciation
rate to align itself with its peers in the construction industry. The after tax
effect of this change in estimate resulted in an increase in profit after tax
of R4,1 million.
Consolidated balance sheet and cash flow
During the year under review, the JSE Limited granted approval for the
additional allotment of 25 020 876 ordinary shares in respect of the Civcon
acquisition which increases the issued ordinary share capital to 161 824 051
shares. This was in addition to an aggregate cash amount of R95 418 260 paid to
the Civcon vendors. This represents 51,5% of the purchase consideration on the
effective date out of an aggregate maximum purchase consideration of R266 804
410 in terms of the agreement which was based on R1,6807 per ordinary Erbacon
share. The estimated contingent purchase consideration of Civcon of R46,1
million is treated as shares to be issued, being 28 824 478 shares valued at
R1,60 per ordinary share, being the Erbacon share price at the acquisition
date. This calculation, together with the purchase price allocation, has
resulted in a goodwill value of R68,7 million for the Civcon transaction.
The equity portion of the convertible redeemable and participating preference
shares issued to Medu Capital has been calculated at R43 592 142 after taking
account of deferred tax of R16 952 500 at 28%.
Total Group assets therefore increased to R621,8 million (2009: R373,4 million)
following the consolidation of the Civcon balance sheet. The net asset value
per share at 28 February 2010 was 194,8 cents per share (2009: 155,33 cents per
share), calculated based on a total number of shares of 189 784 478,
incorporating the contingently issued shares to Civcon in terms of the profit
warranty calculation.
The Group was in a healthy net un-geared position at 28 February 2010, with
cash and cash equivalents reaching R81,7 million at year end (2009: R57,3
million), plus R41,9 million (2009: nil) in a near cash investment product.
Cash generated from operations was R94,5 million (2009: R89,9 million) and is
stated after significantly increased taxation.
Post balance sheet event
Erbacon`s wholly owned subsidiary, Erbacon Construction, purchased various
claims, rights, titles and the interests of various sellers` claims against PSC
Civil Contractors (Pty) Limited for R17,5 million, effective 2 March 2010, in
order to enhance the Group`s footprint in roads and earthworks.
Dividend
The board has resolved that the company is in a position to declare a final
dividend, the quantum of which will be announced to shareholders in due course.
Outlook
The merger with Civcon, the recent enhancement of the Group`s roads and
earthworks capability, together with the attainment of an elevated BEE status,
affords Erbacon an increased level of diversification and geographic spread
with which to confront the well documented, and immense, infrastructural
backlog currently prevalent in South Africa and neighbouring territories.
Although the combined forward order book is in excess of R800 million, and
tender activity remains satisfactory despite the termination of Soccer World
Cup related construction activity, heightened competition and lower margins
are however anticipated over the next financial year.
As stated in prior reports, confidence levels post 2010 will be maintained or
increased only if government, in particular, keeps to their budgeted
infrastructure spend programme.
Review opinion
The financial information has been reviewed by PricewaterhouseCoopers Inc., the
Group`s external auditors. A copy of their review report is available for
inspection at the company`s registered office.
Directorate
With effect from 1 January 2010, following the Civcon acquisition and the
capital injection by Medu Capital, the composition of the board was amended as
follows: Nhlanganiso Mkwanazi and Zeyn Angamia are welcomed as non-executive
directors, whilst Lex Henning and Charles Ramsay join the board as executive
directors.
On the same date, Messrs Dave Armstrong, Wayne Ric-Hansen and Frans Boraine
resigned as executive directors of the board, but remain executive directors of
the various subsidiary companies. Mark Hedley also resigned as a non-executive
director.
For and on behalf of the board
A Dawson DB Erskine RK Braithwaite
Chairman Chief Executive Officer Group Finance Director
Durban
21 May 2010
Directors: A Dawson (Chairman)#, DB Erskine (CEO), RK Braithwaite (GFD),
AH Henning, CHA Ramsay, ZR Angamia*, JA Holtzhausen*, NP Mkwanazi*,
S Totaram* *Non-executive #Independent non-executive
Company Secretary: D Godfrey
Registered office: 2 Montreal Road, Glen Anil, 4051
Telephone: +27 31 569 2866
Website: http://www.erbacon.co.za
Auditor: PricewaterhouseCoopers Inc.
Designated and corporate advisor: PSG Capital (Pty) Limited
Date: 21/05/2010 16:48:52 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.
