| Tue 26 Oct 2010, 7:05 | | ESR - Esorfranki - Reviewed interim results for the six months ended 31 August |
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ESR
ESR
ESR - Esorfranki - Reviewed interim results for the six months ended 31 August
2010
ESORFRANKI LIMITED
(Registration number 1994/000732/06)
Incorporated in the Republic of South Africa
JSE Code: ESR ISIN: ZAE000133369
("Esorfranki" or "the company" or "the group")
REVIEWED INTERIM RESULTS
for the six months ended 31 August 2010
ORDER BOOK: R1 billion
REVENUE: DOWN 26%
EBITDA: DOWN 68%
HEPS: DOWN 90%
OPERATING CASH GENERATED: R58,7 million
SHORT-TERM PROSPECTS PIPELINE: R1 billion
Condensed consolidated statement of financial position
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2010 2009 2010
R`000 R`000 R`000
Assets
Non-current assets 986 302 999 341 999 551
Property, plant and equipment 586 833 602 042 596 429
Intangible assets 91 057 94 789 93 737
Goodwill 305 715 299 759 305 715
Deferred tax asset 2 697 2 751 3 670
Current assets 622 468 768 221 648 273
Inventories 10 989 13 661 14 827
Other investments 8 846 15 895 6 762
Taxation - 3 929 9 952
Trade and other receivables 514 623 540 372 499 869
Cash and cash equivalents 88 010 194 364 116 863
Total assets 1 608 770 1 767 562 1 647 824
EQUITY AND LIABILITIES
Share capital and reserves 758 829 673 374 808 028
Share capital and premium 396 958 340 421 396 956
Equity compensation reserve 10 687 4 696 8 253
Foreign currency translation (34 630) (6 409) (14 296)
reserve
Retained earnings 385 814 334 666 417 115
Non-current liabilities 376 813 367 499 405 711
Secured borrowings* 255 638 259 918 275 031
Post-retirement benefits 1 665 1 587 1 665
Deferred tax liabilities 119 510 105 994 129 015
Current liabilities 473 128 726 689 434 085
Current portion of secured 136 437 112 324 121 677
borrowings*
Taxation 17 027 84 311 6 644
Provisions 14 510 35 321 21 087
Trade and other payables 305 154 494 733 284 677
Total equity and liabilities 1 608 770 1 767 562 1 647 824
Net asset value per share 258,4 241,7 275,6
(cents)
Tangible net asset value per 161,1 139,7 177,5
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)
2010 2009 Change 2010
R`000 R`000 % R`000
Revenue 750 798 1 018 268 (26,3) 1 857 817
Cost of sales (603 294) (727 180) (17,0) (1 361 041)
Gross profit 147 504 291 088 (49,3) 496 776
Other income 2 969 603 392,4 3 937
Operating expenses (75 302) (56 103) 34,2 (111 661)
Profit before interest, 75 171 235 588 (68,1) 389 052
tax, amortisation,
impairments and
depreciation
Depreciation, impairments (37 158) (59 328) (37,4) (83 478)
and amortisation
Results from operating 38 013 176 260 (78,4) 305 574
activities
Finance costs (17 184) (61 599) (72,1) (93 106)
Finance income 3 079 46 039 (93,3) 63 281
Profit before income tax 23 908 160 700 (85,1) 275 749
Income tax expense (11 597) (45 846) (74,7) (78 108)
Profit after tax 12 311 114 854 (89,3) 197 641
Other comprehensive
income:
Foreign currency (22 553) (21 060) 7,1 (32 630)
translation differences
for foreign operations
Actuarial loss on post - - - (28)
retirement benefit
Income tax on other 2 219 - 100 3 683
comprehensive income
Other comprehensive loss (20 334) (21 060) (3,5) (28 975)
for the period, net of
tax
Total comprehensive (8 023) 93 794 (108,6) 168 666
(loss)/income for the
period
Profit attributable to:
Owners of the company 12 311 114 854 (89,3) 197 641
Total comprehensive
(loss)/income
attributable to:
Owners of the company (8 023) 93 794 (108,6) 168 666
Basic earnings per share 4,2 41,3 (89,8) 69,4
(cents)
Diluted earnings per 4,2 40,9 (89,7) 68,6
share (cents)
Headline earnings per 4,1 41,3 (90,1) 71,3
share (cents)
Diluted headline earnings 4,1 40,9 (90,0) 70,5
per share (cents)
Reconciliation of
headline earnings
Profit attributable to 12 311 114 854 197 641
ordinary shareholders
Adjusted for:
Loss on disposal of 918 31 5 396
property, plant and
equipment
De-recognition of non- (3 605) - -
controlling interests in
subsidiary
Impairment of property, 1 200 - -
plant and equipment
Impairment of intangible 1 182 - -
assets
Headline earnings 12 006 114 885 89,5 203 037
attributable to ordinary
shareholders
Number of ordinary shares
in issue (`000) 302 162 289 495 302 162
diluted weighted average 295 628 281 122 288 038
weighted average 293 403 278 121 284 743
Condensed consolidated statement of cash flows
Six months ended Year ended
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2010 2009 2010
R`000 R`000 R`000
Cash flows from operating
activities
Profit for the period 23 908 160 700 275 749
Adjustments for:
Depreciation of property, plant 33 278 41 095 64 193
and equipment
Impairment of intangible assets 1 624 - -
Impairment of property, plant and 1 200 - -
equipment
Amortisation of intangible assets 1 056 18 233 19 285
Profit on disposal of property, - - (182)
plant and equipment
Loss on disposal of property, 1 275 31 7 806
plant and equipment
Unrealised foreign exchange (14 806) (24 777) (16 512)
differences
Equity settled share-based payment 2 434 779 4 336
transactions
Income tax refund/(paid) 5 702 (30 272) (126 898)
55 671 165 789 227 777
Change in inventories 3 838 (2 282) (3 448)
Change in trade and other (14 754) 32 428 72 931
receivables
Change in trade and other payables 20 477 (35 548) (85 165)
Change in provisions (6 577) 4 203 (10 031)
Net cash from operations 58 655 164 590 202 064
Cash flows from investing
activities
Proceeds from sale of property, 125 9 411 3 085
plant and equipment
Acquisition of business - - (113 828)
Acquisition of property, plant and (37 306) (64 034) (96 034)
equipment
(Acquisition)/disposal of other (2 084) (1 626) 7 507
investments
Net cash used in investing (39 265) (56 249) (199 270)
activities
Cash flows from financing
activities
Proceeds from the issue of shares 2 1 342 5 311
Decrease in secured borrowings (4 633) (146 025) (121 559)
Post-retirement benefits paid - - (79)
Dividends paid (43 612) (42 119) (42 429)
Net cash used in financing (48 243) (186 802) (158 756)
activities
Net decrease in cash and cash (28 853) (78 461) (155 962)
equivalents
Cash and cash equivalents at 116 863 272 825 272 825
beginning of period
Cash and cash equivalents at end 88 010 194 364 116 863
of period
Condensed consolidated statement of changes in equity
Equity
Share Share compensation
R`000 capital premium reserve
Balance at 1 March 2009 278 338 800 3 917
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 1 1 342
Dividends to equity holders
Share-based payment transactions 779
Share options exercised
Total contributions by and 1 1 342 779
distributions to owners
Balance at 31 August 2009 279 340 142 4 696
Balance at 1 March 2010 292 396 664 8 253
Profit
Other comprehensive income
Foreign currency translation
differences for foreign
operations
Total other comprehensive income -
Total comprehensive -
(loss)/income for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Dividends to equity holders
Share-based payment transactions 2 434
Share options exercised 2
Total contributions by and 2 - 2 434
distributions to owners
Balance at 31 August 2010 294 396 664 10 687
Translation Retained Total
R`000 reserve earnings equity
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
Total other comprehensive income (21 060) - (21 060)
Total comprehensive income for (21 060) 114 854 93 794
the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Issue of ordinary shares 1 343
Dividends to equity holders (42 119) (42 119)
Share-based payment transactions 779
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
Balance at 1 March 2010 (14 296) 417 115 808 028
Profit 12 311 12 311
Other comprehensive income
Foreign currency translation (20 334) (20 334)
differences for foreign
operations
Total other comprehensive income (20 334) - (20 334)
Total comprehensive (loss)/income (20 334) 12 311 (8 023)
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Dividends to equity holders (43 612) (43 612)
Share-based payment transactions 2 434
Share options exercised 2
Total contributions by and - (43 612) (41 176)
distributions to owners
Balance at 31 August 2010 (34 630) 385 814 758 829
Six months ended Year ended
31 August 31 August 28 February
(Reviewed) (Reviewed) (Audited)
2010 2009 2010
Dividends per ordinary share - - 15,0
(cents)
Information about reportable segments for the six months ended 31 August
Geotechnical Civils
R`000 2010 2009 2010 2009
External revenues 423 180 527 674 225 321 375 498
Reportable segment profit 12 016 70 913 20 849 89 217
before income tax
Reportable segment assets 713 901 793 534 459 909 498 805
Corporate and
Pipelines eliminations
R`000 2010 2009 2010 2009
External revenues 102 297 130 553 - (15 457)
Reportable segment 2 254 27 587 (11 211) (27 017)
profit before income tax
Reportable segment 103 546 181 791 331 414 293 432
assets
Consolidated
R`000 2010 2009
External revenues 750 798 1 018 268
Reportable segment 23 908 160 700
profit before income tax
Reportable segment 1 608 770 1 767 562
assets
Geographical information
South Africa Other
regions
R`000 2010 2009 2010 2009
Total revenue 589 879 906 763 160 899 111 505
Profit before interest 4 215 155 202 33 802 21 058
and tax
Profit after tax (9 867) 112 411 22 178 2 443
Total assets 1 307 756 1 561 031 301 014 206 531
Consolidated
R`000 2010 2009
Total revenue 750 798 1 018 268
Profit before interest 38 013 176 260
and tax
Profit after tax 12 311 114 854
Total assets 1 608 770 1 767 562
COMMENTARY
The directors of Esorfranki present the results of the group for the six months
ended 31 August 2010 ("the period"). A number of factors negatively impacted on
the group during the period, pressuring certain key financial indicators (as per
Esorfranki`s trading updates of 16 July 2010 and 5 October 2010). These included
difficult trading conditions in the construction sector, inclement weather,
intensifying competition and margin squeeze. The disruptive effects of the
Soccer World Cup on certain projects, and the general lassitude in the wake of
this event, further restricted top and bottom line growth.
Financial results
Revenue reduced by 26,3% to R750,8 million from R1 018,3 million in the previous
comparative period, generating EBITDA of R75,2 million compared to EBITDA of
R235,6 million in August 2009. Headline earnings decreased by 89,5% translating
into HEPS of 4,1 cents per share, 90,1% lower than the previous comparative
period.
Cash generated by operations totalled R58,7 million.
Gearing
Through focused attention on reduction of net external debt notwithstanding less
cash generated from operations, gearing was lowered to 34,1% from 35,6% for the
previous comparative period. Borrowings are as a result of the finance raised
for the acquisition of the Esorfranki business operations, working capital and
the now restricted capital expansion programme (see `CAPEX and plant replacement
policy` below).
Review of operations
Protracted delays in the award of certain major contracts particularly affected
Esorfranki Pipelines and Esorfranki Civils, while challenges in Sub-Saharan
Africa reflected in the poorer performance of Franki Africa`s East and West
coast operations. This situation is expected to improve in the second half of
the year as both delayed and new projects start to come on stream.
Operating margins came under pressure on some of the group`s contracts due to
lower activity levels in the industry overall. Unfavourable weather conditions
further exacerbated the situation, with excessive rainfall in the Gauteng region
during the period. In addition Esorfranki incurred a once-off cost for
restructuring initiatives.
Working capital cycles increased as a result of delayed collections from
government as well as from main contractors in the Geotechnical business unit.
This resulted in the group effectively borrowing a further R33 million, by re-
advancing previously paid-up facilities, to fund its working capital
requirements.
In Africa the geotechnical market has not developed as anticipated and has been
subjected to economic constraints similar to the rest of the world, the effect
of which on Esorfranki has been compounded by the Rand`s strength.
The rapid decline in contract awards, and consequently in group revenue,
necessitated an immediate and extreme restructuring of both the KwaZulu-Natal
and Gauteng geotechnical operations. This unfortunately resulted in nearly 600
retrenched positions. A restructuring exercise has also been completed at
Esorfranki Pipelines and Esorfranki Civils, with the offices combined into one
premises using shared administrative support functions.
Esorfranki Geotechnical
This business unit comprises Franki Africa and Esor Africa. Despite a tough
economic environment, revenue of R423,2 million declined only 19,8% from the
previous comparative period. This equates to 56,4% of group revenue and
generated a contribution to group Profit Before Tax ("PBT") of R12 million.
Foreign revenue accounted for 38% of the business unit`s revenue. Overall
operating margins decreased to 5,9%.
Franki Africa amassed a loss of R20,5 million in the completion of the DP7
package of the Gautrain during this period. This was mainly due to the effects
of excessive rain in March, April and May and challenging geotechnical
conditions in confined working areas. Difficult piling conditions on the N4
contract resulted in a loss of R6 million for Esor Africa. In addition to
trading hurdles in African countries, foreign operations were also adversely
affected by the strengthening of the Rand during the period.
Esorfranki Civils
This business unit achieved revenue of R225,3 million, or 30% of group revenue,
and generated PBT of R20,8 million. Heavy rainfall as mentioned above also
impacted on this business unit, specifically the R21 contract, exacerbated by a
six week disruption for the duration of the World Cup. The weather had an
equally negative impact on the N4 and other mining infrastructure contracts.
Esorfranki Pipelines
This business unit achieved revenue of R102,3 million, a contribution of 13,6%
to group revenue, with PBT of R2,3 million. The flagship contract - the BG3
project for Rand Water - has been slow to start as a result of access problems
related to landowner issues, service relocations and water permits as well as
blasting trials. In addition the contract was unexpectedly halted for six weeks
for the duration of the World Cup. Certain other contracts have also been
subjected to extended award periods and continual extensions of tender
validities.
CAPEX and plant replacement policy
During the period the group invested R37,3 million (31 August 2009: R64,0
million) in property, plant and equipment. Going forward the directors have
placed on hold any planned capital expenditure pending normalisation of market
conditions.
R2,0 million of the total spend in respect of property relates to the office
conversion at the Germiston premises, which saw the Esorfranki Pipelines offices
consolidated into the Esorfranki Civils` premises. Construction on a proposed
new head office at Commercia in Midrand (where the group`s plant yard is
currently situated) began during the period but has since been suspended.
Black Economic Empowerment
Esorfranki is currently rated as a `Level 5` contributor to broad-based BEE.
The group`s commitment to transformation is evidenced by its 29,07% black
shareholding (including retail shareholders on the open market). Through the
Esor Broad Based Share Ownership Scheme, staff hold a 4,4% stake in the company.
More than 85% of the group`s 3 059 (3 700 in 2009) strong workforce is black.
Events after the reporting date
There were no significant events after the reporting date.
Prospects
The board remains positive of the group`s growth prospects in the second half of
the year notwithstanding prevailing market conditions, clients experiencing
liquidity constraints and decline in demand continuing to result in project
cancellations and postponements. Esorfranki`s order book stood at R1,0 billion
at 31 August 2010, which includes R300 million worth of orders to be completed
in the 2012 financial year.
The group is shortlisted for the award of a further R1 billion of potential
projects in the short term.
However, a number of adverse factors outside of Esorfranki management`s control
may continue to impact on these and other future opportunities. The factors
include the non-award of tenders, ongoing funding constraints hampering client
activity and increasingly tight competition.
In the long term general prospects are more positive. The economy is slowly
recovering and projects are likely to go ahead as spending is inevitable to
facilitate positive annual GDP growth. This optimistic outlook is underpinned by
Government`s reiterated commitment to infrastructure. The need for considerable
spending in certain sectors should drive work despite tough economic conditions,
such as in water and sanitation, road infrastructure and power (the current
infrastructure will reach the end of its efficient life cycle by 2020/25).
The group will maintain its established presence across Sub-Saharan Africa to
capitalise on growth opportunities in this region. Conditions in certain areas
such as Mauritius and Mozambique are showing sustainable buoyancy, and while
only comprising a small portion of Esorfranki`s offshore revenue currently,
these areas are growing healthily in contribution.
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, capital requirements and bank covenants.
Statement of compliance
The reviewed condensed consolidated interim financial statements for the period
have been prepared in accordance with and contain the information required by
International Accounting Standard ("IAS") 34 - Interim Financial Reporting and
the AC500 series issued by the Accounting Practices Board. 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 2010, 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, 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 executives, management and staff for their tenacity and efforts in
a tough environment. Esorfranki`s people remain our key strength and competitive
advantage. Thank you also to our fellow directors for your wise counsel.
Finally, thanks to our advisors, suppliers, clients and stakeholders for your
ongoing support.
On behalf of the board.
Bernard Krone Wayne van Houten
Chief Executive Officer Chief Financial Officer
26 October 2010
CORPORATE INFORMATION
DIRECTORS:
DM Thompson* (Chairman)
B Krone (CEO)
W van Houten (CFO)
EG Dube*
MB Mathabathe*
Dr FA Sonn*
*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
Vunani House, Athol Ridge Office Park
151 Katherine Street, Sandown, Sandton, 2196
(PO Box 413972, Craighall, 2024)
TRANSFER SECRETARIES:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
COMPANY SECRETARY:
iThemba Governance and Statutory Solutions (Pty) Limited
Monument Office Park, Suite 5-102
79 Steenbok Avenue, Monument Park
(PO Box 25160, Monument Park, 0105)
AUDITORS:
KPMG Inc.
KPMG Crescent
85 Empire Road, Parktown, 2193
(Private Bag 9, Parkview, 2122)
www.esorfranki.co.za
Date: 26/10/2010 07:05:08 Produced by the JSE SENS Department.
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