| Fri 5 Nov 2010, 15:04 | | ERB - Erbacon Investment Holdings Limited - Unaudited condensed interim results |
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ERB
ERB
ERB - Erbacon Investment Holdings Limited - Unaudited condensed interim results
for the period ended 31 August 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")
UNAUDITED CONDENSED INTERIM RESULTS FOR THE PERIOD ENDED 31 AUGUST 2010
29,4% increase in revenue
95,3% decrease in EBITDA
(8,30)cents headline loss per share
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand 2010 2009 2010
Revenue 511 427 297 395 145 723 834 531 633
Earnings before interest,
depreciation and amortisation 2 586 894 55 578 773 123 011 354
Depreciation (15 426 931) (11 690 328) (22 703 413)
Amortisation of intangibles (3 577 019) - (5 905 490)
Operating (loss)/profit (16 417 056) 43 888 445 94 402 451
Finance income 2 594 889 3 431 141 7 108 222
Finance costs (note 3) (6 501 344) (1 965 480) (6 112 732)
(Loss)/earnings before taxation (20 323 511) 45 354 106 95 397 941
Taxation 2 071 335 (13 736 223) (30 055 330)
Total (loss)/profit and
comprehensive (loss)/income
for the period attributable to
equity holders of the Company (18 252 176) 31 617 883 65 342 611
The presentation of the statement
of comprehensive income has been
changed to provide information
that is more relevant to users.
The comparative information has
been restated to reflect the
updated presentation format.
The revised presentation does
not impact previously reported
earnings. The following line
items are no longer disclosed as
part of the statement of
comprehensive income and are
provided below to allow comparability
with the last annual report of the
Group.
Gross profit 40 264 531 65 524 415 142 779 135
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand 2010 2009 2010
Reconciliation of headline
(loss)/earnings:
(Loss)/profit attributable to
ordinary shareholders (18 252 176) 31 617 883 65 342 611
Adjustments for non-trading items
net of taxation:
Impairment of plant for hire 2 105 684 - -
Loss/(profit) on disposal of plant
and equipment 126 565 (498 928) (323 965)
Headline (loss)/earnings (16 019 927) 31 118 955 65 018 646
Loss/earnings per share (cents)
Basic (loss)/earnings per
ordinary share (9,46) 23,24 45,33
Diluted (loss)/earnings per
ordinary share (5,76) 23,24 37,81
Headline (loss)/earnings per
share (cents)
Basic headline (loss)/earnings
per ordinary share (8,30) 22,87 45,10
Diluted headline (loss)/earnings
per ordinary share (4,91) 22,87 37,62
Weighted average number of shares
in issue 192 959 500 136 073 694 144 151 421
Diluted weighted average number
of shares in issue 260 369 500 136 073 694 176 289 287
CONDENSED GROUP STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand 2010 2009 2010
Cash receipts from customers 449 031 505 351 314 183 821 233 621
Cash paid to suppliers and
employees (477 769 225) (323 443 666) (726 751 081)
Cash generated by operations (28 737 720) 27 870 517 94 482 540
Net finance income adjusted
for non-cash interest 599 553 1 465 661 2 810 490
Dividends paid (34 863 476) (7 524 175) (37 325 014)
Taxation paid (12 162 456) (10 247 835) (60 226 517)
Other non-cash items - 491 118 -
Net cash from operating
activities (75 164 099) 12 055 286 (258 501)
Purchase of property, plant
and equipment (33 880 262) (3 435 737) (9 602 539)
Proceeds on disposal of
Property, plant and equipment 601 081 226 860 1 212 205
Acquisition of subsidiary
- net of cash acquired - - (26 769 369)
Disposal/(purchase) of
investment in Unit Trusts 41 858 077 - (19 275 077)
Purchase of plant for hire (8 075 738) (17 669 390) (23 300 740)
Proceeds on disposal of
plant for hire 2 518 630 2 643 798 5 500 818
Net cash from investing
activities 3 021 788 (18 234 469) (72 234 702)
Proceeds from the issue of
convertible redeemable and
participating preference shares - - 113 248 800
Proceeds from/(repayment of)
borrowings 24 334 253 (2 861 817) (16 327 401)
Net cash from financing
activities 24 334 253 (2 861 817) 96 921 399
Net movement in cash and
cash equivalents (47 808 058) (9 041 000) 24 428 196
Cash and cash equivalents at
the beginning of the period 81 731 839 57 303 643 57 303 643
Cash and cash equivalents at
the end of the period 33 923 781 48 262 643 81 731 839
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 August 31 August 28 February
Figures in Rand 2010 2009 2010
ASSETS
Non-current assets
Plant for hire 67 548 734 75 186 692 72 215 117
Property, plant and equipment 118 546 308 35 681 491 93 570 912
Intangible assets 126 559 949 52 822 314 126 559 949
Deferred income tax assets - - 1 990 238
312 654 991 163 690 497 294 336 216
Current assets
Inventories 17 163 904 24 814 764 24 448 705
Income tax receivable 11 059 218 - 1 014 868
Trade and other receivables 249 768 872 172 026 646 187 373 080
Intangible assets - - 3 577 019
Investments - - 41 858 077
Cash and cash equivalents 33 923 781 48 262 643 81 731 839
311 915 775 245 104 053 340 003 588
Total assets 624 570 766 408 794 550 634 339 804
EQUITY AND LIABILITIES
Equity
Share capital and premium 428 432 835 293 919 518 377 233 636
Common control deficit (177 246 106) (177 246 106) (177 246 106)
Share-based payments reserve 1 858 820 1 064 089 1 414 432
Shares to be issued - - 51 199 199
Retained earnings 69 017 690 118 209 452 122 133 341
322 063 239 235 946 953 374 734 502
Non-current liabilities
Convertible redeemable and
participating
preference shares 59 025 166 - 54 519 158
Borrowings 24 517 638 15 425 371 14 861 192
Deferred income tax
liabilities 20 793 556 1 097 632 25 218 197
104 336 360 16 523 003 94 598 547
Current liabilities
Borrowings 25 749 913 5 584 442 11 072 106
Income tax liability - 19 044 137 1 755 038
Trade and other payables 172 421 254 131 696 015 152 179 611
198 171 167 156 324 594 165 006 755
Total equity and liabilities 624 570 766 408 794 550 634 339 804
Total number of shares in
issue (net of treasury shares
and including contingently
issuable shares) 192 959 500 136 073 694 192 959 500
Net asset value per share (cents) 166,91 173,40 194,20
OTHER INFORMATION
Unaudited Unaudited Unaudited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand 2010 2009 2010
Core headline
(loss)/earnings per share
Headline (loss)/earnings (16 019 927) 31 118 955 65 018 646
Adjustments for non-core
items net of taxation:
Amortisation of
contract-based intangible 2 575 454 - 4 251 953
Impairment of Small Plant
and Formwork
debtors and inventory 5 099 009 - -
Erbacon Roads and Earthworks
losses 3 057 840 - -
Interest on convertible
redeemable and participating
preference shares 3 244 326 - 1 306 800
Share-based payments 319 959 353 605 841 461
Restructuring provision 972 000 - -
Core headline (loss)/earnings (751 340) 31 472 560 71 418 860
Core headline (loss)/earnings
per ordinary share (0,29) 23,13 40,51
Core earnings has been calculated using headline earnings, adjusted for non-
recurring and non-operational items, after tax where necessary (ie: interest on
preferences shares, amortisation, share-based payment expenses). Core earnings
per share is calculated based on the diluted weighted average number of shares
as set out above.
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 period - -
Issue of shares - acquisition of subsidiary 204 388 50 892 645
Treasury shares (7 295) (1 455 315)
Share issue expenses - (97 765)
Value of employee services - -
Balance at 28 February 2009 1 360 737 292 558 781
Total profit and comprehensive income
for the period - -
Dividends - -
Value of employee services - -
Balance at 31 August 2009 1 360 737 292 558 781
Total profit and comprehensive income
for the period - -
Issue of shares - acquisition of subsidiary 250 209 39 783 193
Treasury shares (1 346) (193 781)
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)
Share issue expenses - (116 299)
Value of employee services - -
Dividends - -
Balance at 28 February 2010 2 283 700 374 949 936
Total loss and comprehensive loss for the period - -
Issue of shares - acquisition of subsidiary 319 995 50 879 204
Value of employee services - -
Dividends - -
Balance at 31 August 2010 2 603 695 425 829 140
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
period - -
Issue of shares - acquisition of subsidiary 51 097 033 -
Treasury shares (1 462 610) -
Share issue expenses (97 765) -
Value of employee services - 572 971
Balance at 28 February 2009 293 919 518 572 971
Total profit and comprehensive income for
the period - -
Dividends - -
Value of employee services - 491 118
Balance at 31 August 2009 293 919 518 1 064 089
Total profit and comprehensive income for
the period - -
Issue of shares - acquisition of subsidiary 40 033 402 -
Treasury shares (195 127) -
Convertible redeemable and participating
preference shares 60 544 642 -
Deferred tax on liability component of convertible
redeemable and participating preference shares (16 952 500) -
Share issue expenses (116 299) -
Value of employee services - 350 343
Dividends - -
Balance at 28 February 2010 377 233 636 1 414 432
Total loss and comprehensive loss
for the period - -
Issue of shares - acquisition of subsidiary 51 199 199 -
Value of employee services - 444 388
Dividends - -
Balance at 31 August 2010 428 432 835 1 858 820
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 period - -
Issue of shares - acquisition of subsidiary - (51 097 033)
Treasury shares - -
Share issue expenses - -
Value of employee services - -
Balance at 28 February 2009 (177 246 106) -
Total profit and comprehensive income
for the period - -
Dividends - -
Value of employee services - -
Balance at 31 August 2009 (177 246 106) -
Total profit and comprehensive income for the
period - -
Issue of shares - acquisition of subsidiary - 51 199 199
Treasury shares - -
Convertible redeemable and participating
preference shares - -
Deferred tax on liability component of convertible
redeemable and participating preference shares - -
Share issue expenses - -
Value of employee services - -
Dividends - -
Balance at 28 February 2010 (177 246 106) 51 199 199
Total loss and comprehensive loss for the period - -
Issue of shares - acquisition of subsidiary - (51 199 199)
Value of employee services - -
Dividends - -
Balance at 31 August 2010 (177 246 106) -
Retained
Figures in Rand earnings Total equity
Balance at 1 March 2008 40 672 300 158 906 087
Total profit and comprehensive income
for the period 53 443 444 53 443 444
Issue of shares - acquisition of subsidiary - -
Treasury shares - (1 462 610)
Share issue expenses - (97 765)
Value of employee services - 572 971
Balance at 28 February 2009 94 115 744 211 362 127
Total profit and comprehensive income for the
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
Total profit and comprehensive income
for the period 33 724 728 33 724 728
Issue of shares - acquisition of subsidiary - 91 232 601
Treasury shares - (195 127)
Convertible redeemable and participating
preference shares - 60 544 642
Deferred tax on liability component of convertible
redeemable and participating preference shares - (16 952 500)
Share issue expenses - (116 299)
Value of employee services - 350 343
Dividends (29 800 839) (29 800 839)
Balance at 28 February 2010 122 133 341 374 734 502
Total loss and comprehensive loss for the period (18 252 176) (18 252 176)
Issue of shares - acquisition of subsidiary - -
Value of employee services - 444 388
Dividends (34 863 476) (34 863 476)
Balance at 31 August 2010 69 017 690 322 063 239
GROUP SEGMENTAL REPORT
The segment information set out below is based on the requirements of IFRS 8 -
Segment Reporting. For management purposes the Group is split into five
distinctive operating segments. The board of directors has determined the
operating segments based on the reports reviewed that are used to make strategic
decisions. The board assesses the performance of the operating segments based on
a measure of profit before taxation. This measurement is consistent with the
recognition and measurement principles applied within the statement of
comprehensive income. Sales amongst segments are carried out at arm`s length.
The revenue from external customers reported to the board is measured in a
manner consistent with that in the statement of comprehensive income.
Business segment
Civils Civils Civils
Construction Construction Construction
(Coastal) (Coastal) (Inland)
August 2010 August 2009 August 2010
Figures in Rand
SEGMENT REVENUE AND RESULT
Revenue
Total segment sales 110 483 697 270 279 211 149 358 346
Less: intersegment sales (1 859 302) - (20 520)
Total external revenue 108 624 395 270 279 211 149 337 826
Result
Operating (loss)/profit (4 876 908) 29 022 229 (2 056 824)
Finance income 342 025 1 412 587 374 285
Finance costs (12 667) (64 263) (502 773)
(Loss)/profit before taxation (4 547 550) 30 370 553 (2 185 312)
Taxation 1 552 194 (8 603 753) 500 187
(Loss)/profit after taxation (2 995 356) 21 766 800 (1 685 125)
SEGMENT ASSETS AND LIABILITIES
Assets 99 586 634 147 857 030 251 636 239
Plant for hire - - -
Property, plant and equipment 24 242 559 5 856 424 65 376 203
Goodwill - - 73 737 635
Income tax asset 1 956 725 - 4 376 271
Intangible assets - - -
Inventories 5 635 682 10 078 523 1 797 140
Trade and other receivables 64 487 336 107 585 755 86 940 749
Investments - - -
Cash and cash equivalents 3 264 332 24 336 328 19 408 241
Liabilities (39 796 155) (77 451 024) (77 659 585)
Convertible redeemable and
participating preference shares - - -
Borrowings (62 207) (751 125) (14 812 019)
Deferred tax liabilities 1 762 814 (672 152) (7 043 703)
Income tax liabilities - (13 605 214) -
Trade and other payables (41 496 762) (62 422 533) (55 803 863)
OTHER INFORMATION
Capital additions 18 643 226 1 776 065 14 187 278
Property, plant and equipment 18 643 226 1 776 065 14 187 278
Plant for hire - - -
Depreciation 1 045 489 967 663 5 963 676
Amortisation of contract-based
intangibles - - 3 577 019
EBITDA (3 831 419) 29 989 892 7 483 871
Civils
Construction Small Plant Small Plant
(Inland) and Formwork and Formwork
August 2009 August 2010 August 2009
Figures in Rand
SEGMENT REVENUE AND RESULT
Revenue
Total segment sales - 35 291 024 48 311 489
Less: intersegment sales - (6 664 384) (3 979 525)
Total external revenue - 28 626 640 44 331 964
Result
Operating (loss)/profit - (12 606 445) 12 506 026
Finance income - 653 698 387 068
Finance costs - (1 408 917) (1 718 673)
(Loss)/profit before taxation - (13 361 664) 11 174 421
Taxation - 4 046 506 (3 228 118)
(Loss)/profit after taxation - (9 315 158) 7 946 303
SEGMENT ASSETS AND LIABILITIES
Assets - 115 402 414 133 125 451
Plant for hire - 67 548 734 75 186 692
Property, plant and equipment - 21 394 544 22 384 515
Goodwill - - -
Income tax asset - 4 584 498 -
Intangible assets - - -
Inventories - 1 803 719 5 028 474
Trade and other receivables - 19 910 437 28 809 300
Investments - - -
Cash and cash equivalents - 160 482 1 716 470
Liabilities - (44 133 831) (30 521 943)
Convertible redeemable and
participating preference shares - - -
Borrowings - (34 168 145) (17 654 237)
Deferred tax liabilities - (424 703) 67 379
Income tax liabilities - - (1 637 976)
Trade and other payables - (9 540 983) (11 297 109)
OTHER INFORMATION
Capital additions - 8 367 496 18 923 085
Property, plant and equipment - 291 758 1 253 695
Plant for hire - 8 075 738 17 669 390
Depreciation - 7 630 158 9 072 343
Amortisation of contract-based
intangibles - - -
EBITDA - (4 976 287) 21 578 369
Commercial Commercial
and Industrial and Industrial
Building Building Services
August 2010 August 2009 August 2010
Figures in Rand
SEGMENT REVENUE AND RESULT
Revenue
Total segment sales 227 890 837 137 570 736 2 988 000
Less: intersegment sales (3 052 401) (57 036 188) (2 988 000)
Total external revenue 224 838 436 80 534 548 -
Result
Operating (loss)/profit 8 694 019 4 282 479 (5 570 898)
Finance income 476 185 1 299 333 748 696
Finance costs (70 979) (182 531) (4 506 008)
(Loss)/profit before taxation 9 099 225 5 399 281 (9 328 210)
Taxation (2 295 235) (1 597 172) (1 732 317)
(Loss)/profit after taxation 6 803 990 3 802 109 (11 060 527)
SEGMENT ASSETS AND
LIABILITIES
Assets 157 209 226 127 371 147 736 253
Plant for hire - - -
Property, plant and equipment 7 492 377 7 365 088 40 625
Goodwill 52 822 314 52 822 314 -
Income tax asset (475 255) - 616 979
Intangible assets - - -
Inventories 7 927 363 9 707 767 -
Trade and other receivables 78 428 103 35 653 591 2 247
Investments - - -
Cash and cash equivalents 11 014 324 21 822 387 76 402
Liabilities (65 267 405) (63 344 172) (75 650 551)
Convertible redeemable and
participating preference
shares - - (59 025 166)
Borrowings (1 225 180) (2 604 451) -
Deferred tax liabilities (156 262) (314 561) (14 931 702)
Income tax liabilities - (4 396 221) -
Trade and other payables (63 885 963) (56 028 939) (1 693 683)
OTHER INFORMATION
Capital additions 747 795 394 507 10 205
Property, plant and
equipment 747 795 394 507 10 205
Plant for hire - - -
Depreciation 764 945 1 628 896 22 663
Amortisation of
contract-based intangibles - - -
EBITDA 9 458 964 5 911 375 (5 548 235)
Total Total
Services Group Group
August 2009 August 2010 August 2009
Figures in Rand
SEGMENT REVENUE AND RESULT
Revenue
Total segment sales 2 988 000 526 011 904 459 149 436
Less: intersegment sales (2 988 000) (14 584 607) (64 003 713)
Total external revenue - 511 427 297 395 145 723
Result
Operating (loss)/profit (1 922 289) (16 417 056) 43 888 445
Finance income 332 153 2 594 889 3 431 141
Finance costs (13) (6 501 344) (1 965 480)
(Loss)/profit before taxation (1 590 149) (20 323 511) 45 354 106
Taxation (307 180) 2 071 335 (13 736 223)
(Loss)/profit after taxation (1 897 329) (18 252 176) 31 617 883
SEGMENT ASSETS AND LIABILITIES
Assets 440 922 624 570 766 408 794 550
Plant for hire - 67 548 734 75 186 692
Property, plant and equipment 75 464 118 546 308 35 681 491
Goodwill - 126 559 949 52 822 314
Income tax asset - 11 059 218 -
Intangible assets - - -
Inventories - 17 163 904 24 814 764
Trade and other receivables (22 000) 249 768 872 172 026 646
Investments - - -
Cash and cash equivalents 387 458 33 923 781 48 262 643
Liabilities (1 530 458) (302 507 527) (172 847 597)
Convertible redeemable and
participating preference shares - (59 025 166) -
Borrowings - (50 267 551) (21 009 813)
Deferred tax liabilities (178 298) (20 793 556) (1 097 632)
Income tax liabilities 595 274 - (19 044 137)
Trade and other payables (1 947 434) (172 421 254) (131 696 015)
OTHER INFORMATION
Capital additions 11 470 41 956 000 21 105 127
Property, plant and equipment 11 470 33 880 262 3 435 737
Plant for hire - 8 075 738 17 669 390
Depreciation 21 426 15 426 931 11 690 328
Amortisation of contract-based
intangibles - 3 577 019 -
EBITDA (1 900 863) 2 586 894 55 578 773
NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS
1. Basis of preparation
The financial information has been prepared in terms of International Financial
Reporting Standards (IFRS), IAS 34 - Interim Financial Reporting, the
International Financial Reporting Interpretations Committee (IFRIC)
interpretations adopted by the International Accounting Standards Board, the AC
500 series, in the manner required by the Companies Act, as amended, and in
compliance with the Listings Requirements of the JSE Limited. The accounting
policies used in the preparation of the interim financial information are
consistent with those used in the Annual Financial Statements for the year ended
28 February 2010.
2. Share capital
The authorised ordinary share capital was increased to 500 000 000 ordinary
shares with a par value of R0,01 (2009: 300 000 000). As part of the Civcon
purchase consideration, 25 020 876 ordinary shares were issued at R1,68 in
December 2009 to the vendors of Civcon. The contingent consideration arrangement
for the acquisition of Civcon required the further issue of Erbacon ordinary
shares in terms of the profit warranty payment that was concluded as part of the
acquisition agreement. As a result, the Civcon vendors were issued 31 999 500
shares of R0,01 each on 24 June 2010, which shares were recognised at R1,60
each, being the listed price at the effective date of the acquisition. Erbacon`s
total issued share capital is 193 823 551 ordinary shares.
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand 2010 2009 2010
3. Finance costs
Bank overdraft and borrowings (1 995 336) (1 965 480) (4 297 732)
Interest on convertible redeemable
and participating preference shares (4 506 008) - (1 815 000)
COMMENTARY
OVERVIEW
Erbacon provides a comprehensive suite of heavy civil engineering, commercial
and industrial building, general construction and plant hire services.
FINANCIAL RESULTS
As stated in prior announcements, growth prospects for the construction sector
in the short to medium term is reliant on the momentum of government`s budgeted
infrastructure spend programme. In addition, it was stated that heightened
competition and lower margins are impacting performance in the current financial
year. The heavy civils businesses have indeed suffered from post Soccer World
Cup inertia and an inadequate pipeline of public sector and mining related
contracts during the period under review.
Group income statement
Group revenue increased to R511 million (2009: R395 million) with Civils
Construction, represented by Erbacon Construction (Pty) Limited (Erbacon
Construction) and Civcontract Civils (Pty) Limited (Civcon), contributing a
disappointing R258 million (2009: R270 million), or 50,4% (2009: 68%) of Group
revenue.
EBITDA decreased by 95,3% to R2,6 million (2009: R55,6 million) with margins
declining following a reduced availability of work in the industry, and, inter
alia, a larger contribution to revenue from the lower-margin Commercial and
Industrial Building segment.
The overheads to revenue ratio breached historical norms, as overhead structures
were maintained at Civcon in view of the heightened activity anticipated in the
second half of the financial year, whilst Erbacon Construction maintained
resources and supervision over a larger number of generally smaller contracts.
Corporate overheads increased due to actions taken to bolster capacity to build
a sustainable business and position the Group for anticipated future growth.
A number of non-recurring and non-operational items have been disclosed under
the core headline earnings calculation, certain of which relate to management`s
decision to exit the business of Erbacon Small Plant when the opportunity to do
so is right, and to absorb the business of Erbacon Roads and Earthworks (ERE).
These decisions were accelerated, in part by a below par operating performance
from these respective management teams and, furthermore, in the case of Erbacon
Small Plant, a change in strategic focus of the Group.
The purchase price for Civcon was allocated to the fair value of assets acquired
in terms of IFRS 3 - Business Combinations, in the prior year. This allocation
gave rise to a contract-based intangible asset of R9,5 million, of which R5,9
million was amortised in the prior year. The remaining portion of R3,6 million
(2009: nil) was amortised in the income statement for the interim
period ended 31 August 2010.
The convertible redeemable and participating preference shares issued to Medu
Capital (Pty Limited) (Medu Capital) in the prior year is a compound financial
instrument, which has been split into a liability and an equity portion. The
notional interest expense on the liability portion amounts to R4,5 million
(2009: nil), which charge is included under finance costs.
As a result of the above adjustments, the effective core headline earnings
recorded a small loss for the period under review of R(0,75) million (2009:
R31,5 million).
Secondary tax on companies at 10% was paid during the period on dividend number
3 (being 13,39 cents per share). The effective tax rate, excluding the STC
charge, is 27,4% (2009: 28,6%).
The increase in the weighted average number of shares in issue is due to further
shares issued to the Civcon vendors following the acquisition of Civcon in the
prior year, in accordance with the acquisition agreements.
Diluted earnings per share and headline earnings per shares is calculated based
on the current weighted average number of shares in issue, incorporating the
aforementioned shares issued to the Civcon vendors, and the convertible
redeemable and participating preference shares issued to Medu Capital.
Furthermore, the interest charge on the preference shares and related deferred
tax adjustments have been adjusted for in the calculation.
The Group reported a loss after tax of R18,3 million for the period ended 31
August 2010 (2009: profit after tax of R31,6 million). As a result, basic
earnings per share decreased from 23,24 cents per share for the corresponding
prior period to a loss of 9,46 cents per share at 31 August 2010. Headline
earnings per share also decreased, from 22,87 cents per share to a loss of 8,30
cents per share. These earnings are stated after taking into account a 41,8%
increase in the weighted average number of shares in issue.
Group balance sheet
During the period under review, the JSE Limited (JSE) granted approval for the
additional allotment and issue of a further 31 999 500 ordinary shares to the
Civcon vendors in respect of the Civcon acquisition, increasing the issued
ordinary share capital to 193 823 551 shares.
The equity portion of the convertible redeemable and participating preference
shares issued to Medu Capital has been calculated at R43,6 million (2009: nil)
after taking account of deferred tax of R15,2 million (2009: nil) at 28%.
Total Group assets increased to R625 million (2009: R409 million) following the
consolidation of the Civcon balance sheet. The net asset value per share at 31
August 2010 was 166,91 cents per share (2009: 173,4 cents per share).
Group cash flow
The Group moved into a slightly geared position at 31 August 2010 (excluding the
preference share liability portion), with cash and cash equivalents reducing to
R12,3 million (net of bank overdraft) at the end of August 2010 (2009: R48,3
million). The investment of R41,9 million in cash unit trusts were also called
by the Group during the period under review.
Working capital funding, and particularly the increased debtors balance at the
end of August 2010, resulted in cash being absorbed by operations to the extent
of R28,7 million (2009: R27,9 million generated).
The civils businesses accounted for the majority of spend on plant and
equipment, whilst new plant for hire acquisitions in Erbacon Small Plant was
restricted.
DEVELOPMENTS DURING THE PERIOD
At the beginning of the period under review, Erbacon Construction purchased
various claims, rights, titles and the interests of various sellers` claims
against PSC Civil Contractors (Pty) Limited for approximately R18,5 million, in
order to enhance the Group`s footprint in roads and earthworks. The originally
intended vehicle for this transaction was ERE. The plan of a stand-alone
business in this sector has been reviewed following the below expectation
contract tender success rate, and therefore penetration of the target market.
Whilst the management team has been disbanded, plant and equipment and other
resources are currently being absorbed into existing operations, thereby
streamlining the Group`s cost base.
REVIEW OF OPERATIONS
Civils Construction (Coastal) - The lower than expected release of material
projects from the government`s infrastructure programme affected Erbacon
Construction, which had anticipated access to municipality spending on water and
sewer treatment works, in particular, ahead of the 2011 municipal elections. In
addition, Erbacon Construction suffered rectification costs to certain Soccer
World Cup related contracts closed in the prior financial period, affecting
gross profits in the period under review. The newly acquired roads and
earthworks business incurred initial losses as overheads were not offset by any
material projects during the period under review.
Civils Construction (Inland) - There are no segmental comparatives as the Civcon
transaction was only concluded in the second half of the prior year.
Whilst Civcon`s secured order book has strengthened, activity was slow in the
first half year as access to the various construction sites was delayed on
secured contracts.
Small Plant and Formwork - This division suffered from weak levels of activity
in the general construction sector. Revenue reduced by 27% from the prior
comparative period, with a very competitive market resulting in depressed
margins. The contribution to Group revenue was 6,7% (2009: 10,5%).
Notwithstanding the disappointing trading performance, this division was also
severely affected by self-inflicted management issues. Poor utilisation of
branch plant hire assets, plus system deficiencies, particularly in invoicing
procedures, occurred. Corrective measures are currently being implemented by the
Group to address these concerns and management has decided to exit this business
at some point in the future due to a change in strategic focus.
Commercial and Industrial Building - This segment benefitted from good market
penetration with a number of contract awards for shopping malls and office
blocks, but without any sizeable individual projects, to record a significant
65,6% increase in revenue to R228 million (2009: R138 million). The contribution
to Group revenue was up at 43,3% (2009: 30%).
DIVIDEND
In line with the current Group policy, no dividend is declared for the interim
period ended 31 August 2010.
OUTLOOK
Although it is uncertain as to when government`s planned infrastructural spend
will gain momentum, management is positive that construction activity in the
second half of the year will prove more beneficial to Erbacon.
The secured forward order book is more encouraging, at a record high of nearly
R1 billion, of which R550 million is attributable to Civcon.
The Group`s strategic intent has been re-examined following changes made to the
executive leadership of the Group. The Board concluded its search for a Chief
Executive Officer with the appointment of Mr SJ (Sean) Flanagan, effective 1
June 2010. Sean has an in-depth knowledge of construction and significant
corporate experience.
He, together with the executive management of Erbacon, has set in motion a "One
Company, One Brand, One Culture" initiative that will result in an internal
merger of Erbacon Construction and Civcon to create a single Civil Construction
business. The intention is to induce flexibility to better utilise Group
resources, and to bulk up the organisation to target those project opportunities
which offer sustainable earnings growth.
DIRECTORATE
Dave Erskine resigned as CEO, effective 1 June 2010, but continues to serve as
an executive director of the Group and has reverted to his preferred role as the
managing director of Erbacon Construction, a company he founded.
For and on behalf of the board
A Dawson SJ Flanagan RK Braithwaite
Chairman Chief Executive Officer Group Finance Director
Durban 5 November 2010
Directors: A Dawson (Chairman)#, SJ Flanagan (CEO) RK Braithwaite (GFD),
DB Erskine, 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
Telephone: +27 31 569 2866
Website: http://www.erbacon.co.za
Date: 05/11/2010 15:04:01 Produced by the JSE SENS Department.
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