| Fri 7 Oct 2011, 15:09 | | ERB - Erbacon Investment Holdings Limited - Unaudited condensed group interim |
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ERB
ERB
ERB - Erbacon Investment Holdings Limited - Unaudited condensed group interim
results for the period ended 31 August 2011
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 GROUP INTERIM RESULTS
FOR THE PERIOD ENDED 31 AUGUST 2011
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Restated Restated
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand thousands 2011 2010 2011
Revenue 553 191 482 801 957 798
(Loss)/earnings before interest tax,
depreciation and amortisation (19 148) 7 563 (21 439)
Depreciation (10 739) (7 797) (18 455)
Amortisation of intangibles - (3 577) (3 605)
Operating loss (29 887) (3 811) (43 499)
Finance income 746 1 941 4 663
Finance costs (6 428) (5 092) (10 291)
Loss before taxation (35 569) (6 962) (49 127)
Taxation 10 297 (1 975) 12 617
Total loss and comprehensive
loss for the period from
continuing operations (25 272) (8 937) (36 510)
Total loss and comprehensive loss for
the period from discontinued operations (68 483) (9 315) (31 874)
Total loss and comprehensive
loss for the period (93 755) (18 252) (68 384)
Total loss and comprehensive loss for
the period attributable to:
Owners of the parent (83 714) (18 252) (66 520)
Non-controlling interests (10 041) - (1 864)
(93 755) (18 252) (68 384)
Reconciliation of headline loss
Loss attributable to owners of
the parent (83 714) (18 252) (66 520)
Impairment of property, plant and
equipment - 2 106 -
Loss/(profit) on disposal of plant
and equipment (519) 126 1 967
Impairment on remeasurement of assets
held for sale 38 062 - -
Headline loss (46 171) (16 020) (64 553)
Basic loss per share (cents) (43,19) (9,46) (34,38)
From continuing operations (13,04) (4,63) (18,87)
From discontinued operations (30,15) (4,83) (15,51)
Diluted loss per ordinary share (cents) (30,60) (5,76) (22,94)
From continuing operations (8,23) (2,19) (11,47)
From discontinued operations (22,37) (3,57) (11,47)
Headline loss per share (cents)
Basic headline loss per ordinary share (23,82) (8,30) (33,36)
From continuing operations (13,18) (5,71) (18,92)
From discontinued operations (10,64) (2,59) (14,44)
Diluted headline loss per
ordinary share (16,22) (4,91) (22,19)
From continuing operations (8,33) (2,99) (11,51)
From discontinued operations (7,89) (1,92) (10,68)
Weighted average number of shares
in issue 193 848 192 960 193 494
Diluted weighted average number of
shares in issue 261 258 260 370 261 661
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand thousands 2011 2010 2011
ASSETS
Non-current assets
Plant for hire - 67 549 67 027
Property, plant and equipment 98 013 118 546 109 999
Intangible assets 128 635 126 560 132 516
Deferred income tax assets 19 357 - 21 405
246 005 312 655 330 947
Current assets
Inventories 24 572 17 164 33 056
Income tax receivable 10 106 11 059 8 627
Trade and other receivables 270 197 249 769 221 286
Cash and cash equivalents 26 674 33 924 34 614
331 549 311 916 297 583
Assets of disposal group classified as
held for sale 37 183 - -
Total assets 614 737 624 571 628 530
EQUITY AND LIABILITIES
Equity
Share capital and premium 429 998 428 433 427 923
Common control deficit (177 246) (177 246) (177 246)
Share-based payments reserve 769 1 859 2 884
Shares to be issued - - 2 075
Retained earnings (70 082) 69 018 20 750
183 439 322 064 276 386
Non-controlling interest (2 283) - (1 864)
Total Equity 181 156 322 064 274 522
Non-current liabilities
Convertible redeemable and
participating preference shares 68 782 59 025 63 531
Borrowings 6 387 24 517 23 174
Deferred income tax liabilities 13 111 20 794 17 776
88 280 104 336 104 481
Current liabilities
Borrowings 70 975 25 750 21 340
Income tax liability - - -
Trade and other payables 241 015 172 421 207 275
Bank overdraft 21 121 - 20 912
333 111 198 171 249 527
Liabilities of disposal group
classified as held for sale 12 190 - -
Total equity and liabilities 614 737 624 571 628 530
Total number of shares in issue
(net of treasury shares and including
contingently issuable shares) 193 848 192 960 193 848
Net asset value per share (cents) 94,63 166,91 142,58
CONDENSED GROUP STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand thousands 2011 2010 2011
Cash receipts from customers 512 921 449 032 977 472
Cash paid to suppliers and employees (562 532) (477 769) (1 002 606)
Cash utilised in operations (49 611) (28 737) (25 134)
Finance income 835 2 593 -
Finance costs (3 261) (1 995) 153
Dividends paid - (34 863) (34 863)
Tax paid (1 877) (12 162) (15 626)
Net cash outflow from operations (53 914) (75 164) (75 469)
Acquisition of property, plant
and equipment (3 098) (33 880) (40 344)
Proceeds from the disposal of property,
plant and equipment 2 574 601 3 876
Sale of investment - 41 858 41 858
Acquisition of plant for hire (191) (8 076) (11 968)
Proceeds on disposal of plant for hire 1 442 2 519 6 923
Acquisition of intangibles - - (1 486)
Net cash inflow/(outflow) from
investing activities 727 3 022 (1 141)
Net proceeds from borrowings 45 038 24 334 8 581
Net cash inflow from
financing activities 45 038 24 334 8 581
Net decrease in cash and
cash equivalents (8 149) (47 808) (68 030)
Cash and cash equivalents at the
beginning of the year 13 702 81 732 81 732
Cash and cash equivalents and bank
overdrafts at the end of the period 5 553 33 924 13 702
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Total share Share-based
Share Share capital and payment
Figures in Rand thousands capital premium premium reserve
Balance as at 1 March 2009 1 361 292 559 293 920 574
Total profit and comprehensive
income for the year - - - -
Issue of shares -
acquisition of subsidiary 250 39 783 40 033 -
Treasury shares (1) (194) (195) -
Convertible redeemable
and participating
preference shares 674 59 871 60 545 -
Deferred tax on liability
component of convertible
redeemable and participating
preference shares - (16 953) (16 953) -
Share issue expenses - (116) (116) -
Value of employee services - - - 841
Dividends - - - -
Balance as at 28 February
2010 2 284 374 950 377 234 1 415
Total loss and comprehensive
expense for the period - - - -
Issue of shares -
acquisition of subsidiary 320 50 879 51 199 -
Value of employee services - - - 444
Dividends - - - -
Balance as at 31 August
2010 2 604 425 829 428 433 1 859
Total loss and comprehensive
expense for the period - - - -
Issue of shares -
acquisition of subsidiary - - - -
Treasury shares (4) (506) (510) -
Issue of shares -
acquisition of subsidiary - - - -
Value of employee services - - - 1 025
Dividends - - - -
Balance as at 28 February
2011 2 600 425 323 427 923 2 884
Total loss and comprehensive
expense for the period - - - -
Issue of shares -
acquisition of subsidiary 13 2 062 2 075 -
Non-controlling interests`
gain on loan forgiveness
by owners of the parent - - - -
Non-controlling interests`
share of losses recognised - - - -
Release of share-based
payment reserve - - - (2 504)
Value of employee services - - - 389
Balance as at 31 August 2011 2 613 427 385 429 998 769
Common
control Shares to Retained
Figures in Rand thousands deficit be issued earnings
Balance as at 1 March 2009 (177 246) - 94 115
Total profit and comprehensive income for
the year - - 65 343
Issue of shares - acquisition of subsidiary - 51 199 -
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 - - (37 325)
Balance as at 28 February 2010 (177 246) 51 199 122 133
Total loss and comprehensive expense for
the period - - (18 252)
Issue of shares - acquisition of
subsidiary - (51 199) -
Value of employee services - - -
Dividends - - (34 863)
Balance as at 31 August 2010 (177 246) - 69 018
Total loss and comprehensive expense for
the period - - (48 268)
Issue of shares - acquisition of subsidiary - - -
Treasury shares - - -
Issue of shares - acquisition of subsidiary - 2 075 -
Value of employee services - - -
Dividends - - -
Balance as at 28 February 2011 (177 246) 2 075 20 750
Total loss and comprehensive expense
for the period - - (83 714)
Issue of shares - acquisition of subsidiary - (2 075) -
Non-controlling interests` gain on loan
forgiveness by owners of the parent - - (9 822)
Non-controlling interests` share of
losses recognised - - 200
Release of share-based payment reserve - - 2 504
Value of employee services - - -
Balance as at 31 August 2011 (177 246) - (70 082)
Non-
controlling
Figures in Rand thousands Total interests Total equity
Balance as at 1 March 2009 211 363 - 211 363
Total profit and comprehensive
income for the year 65 343 - 65 343
Issue of shares - acquisition of
subsidiary 91 232 - 91 232
Treasury shares (195) - (195)
Convertible redeemable and
participating preference shares 60 545 - 60 545
Deferred tax on liability component
of convertible redeemable and
participating preference shares (16 953) - (16 953)
Share issue expenses (116) - (116)
Value of employee services 841 - 841
Dividends (37 325) - (37 325)
Balance as at 28 February 2010 374 735 - 374 735
Total loss and comprehensive expense
for the period (18 252) - (18 252)
Issue of shares - acquisition of
subsidiary - - -
Value of employee services 444 - 444
Dividends (34 863) - (34 863)
Balance as at 31 August 2010 322 064 - 322 064
Total loss and comprehensive expense
for the period (48 268) (1 864) (50 132)
Issue of shares - acquisition of
subsidiary - - -
Treasury shares (510) - (510)
Issue of shares - acquisition of
subsidiary 2 075 - 2 075
Value of employee services 1 025 - 1 025
Dividends - - -
Balance as at 28 February 2011 276 386 (1 864) 274 522
Total loss and comprehensive expense
for the period (83 714) (10 041) (93 755)
Issue of shares - acquisition of
subsidiary - - -
Non-controlling interests` gain on
loan forgiveness by owners of
the parent (9 822) 9 822 -
Non-controlling interests` share of
losses recognised 200 (200) -
Release of share-based payment reserve - - -
Value of employee services 389 - 389
Balance as at 31 August 2011 183 439 (2 283) 181 156
GROUP SEGMENTAL REPORT
The segment information set out below is based on the requirements of IFRS 8:
Segment Reporting. The Group has been restructured and the Civils coastal and
civils inland operating segments are being managed and run by the same
executive. There is no longer a civils coastal and inland segment but a civils
segment only. The Group is now split into four distinctive operating segments,
in comparison to five in the prior year. The Board of directors has determined
the operating segments based on the reports 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.
Restated Commercial
Civils Civils and Industrial
Construction Construction Building
Figures in Rand thousands August 2011 August 2010 August 2011
Segment revenue and result
Revenue
Total segment sales 434 147 259 842 120 251
Less: Inter-segment sales (1 078) (1 880) (129)
Total external revenue 433 069 257 962 120 122
Result
Operating (loss)/profit (19 196) (6 934) (2 222)
Finance income 209 716 93
Finance costs (1 151) (515) (26)
(Loss)/profit before taxation (20 138) (6 733) (2 155)
Taxation 5 977 2 052 603
(Loss)/profit after taxation (14 161) (4 681) (1 552)
Segment assets and liabilities
Assets 461 142 351 224 117 241
Plant for hire - - -
Property, plant and equipment 88 558 89 619 9 420
Intangible assets 75 812 73 738 52 822
Deferred tax asset 19 166 - 191
Income tax asset 8 358 6 333 1 742
Inventories 16 496 7 433 8 076
Trade and other receivables 231 151 151 428 39 042
Cash and cash equivalents 21 600 22 673 5 948
Liabilities (259 559) (117 455) (43 405)
Convertible redeemable and
participating preference shares - - -
Borrowings (69 004) (14 874) (348)
Deferred tax liabilities (4 132) (5 281) -
Trade and other payables (186 423) (97 300) (43 057)
Bank overdraft - - -
Other information
Capital additions 1 537 32 831 908
Property, plant and equipment 1 537 32 831 908
Plant for hire - - -
Depreciation 9 868 7 009 858
Amortisation of
contract-based intangibles - 3 577 -
EBITDA (9 329) 3 652 (1 363)
Commercial
and Industrial
Building Services Services
Figures in Rand thousands August 2010 August 2011 August 2010
Segment revenue and result
Revenue
Total segment sales 227 891 2 633 2 988
Less: Inter-segment sales (3 052) (2 633) (2 988)
Total external revenue 224 839 - -
Result
Operating (loss)/profit 8 694 (8 469) (5 571)
Finance income 476 444 749
Finance costs (71) (5 251) (4 506)
(Loss)/profit before taxation 9 099 (13 276) (9 328)
Taxation (2 295) 3 717 (1 732)
(Loss)/profit after taxation 6 804 (9 559) (11 060)
Segment assets and liabilities
Assets 157 209 (829) 736
Plant for hire - - -
Property, plant and equipment 7 492 35 40
Intangible assets 52 822 - -
Deferred tax asset - - -
Income tax asset (475) 6 617
Inventories 7 927 - -
Trade and other receivables 78 429 4 2
Cash and cash equivalents 11 014 (874) 77
Liabilities (65 267) (77 932) (75 651)
Convertible redeemable and
participating preference shares - (68 782) (59 025)
Borrowings (1 225) - -
Deferred tax liabilities (156) (8 979) (14 932)
Trade and other payables (63 886) (171) (1 694)
Bank overdraft - - -
Other information
Capital additions 748 - 10
Property, plant and equipment 748 - 10
Plant for hire - - -
Depreciation 765 13 23
Amortisation of contract-based
intangibles - - -
EBITDA 9 459 (8 456) (5 548)
Small Plant
Total Total and Formwork
continuing continuing (discontinued
operations operations operation)
Figures in Rand thousands August 2011 August 2010 August 2011
Segment revenue and result
Revenue
Total segment sales 557 031 490 721 23 325
Less: Inter-segment sales (3 841) (7 920) (5 739)
Total external revenue 553 191 482 801 17 586
Result
Operating (loss)/profit (29 887) (3 811) (71 297)
Finance income 746 1 941 88
Finance costs (6 428) (5 092) (2 082)
(Loss)/profit before taxation (35 569) (6 962) (73 291)
Taxation 10 297 (1 975) 4 808
(Loss)/profit after taxation (25 272) (8 937) (68 483)
Segment assets and liabilities
Assets 577 554 509 169 37 183
Plant for hire - - 12 160
Property, plant and equipment 98 013 97 151 15 432
Intangible assets 128 635 126 560 -
Deferred tax asset 19 357 - -
Income tax asset 10 106 6 475 -
Inventories 24 572 15 360 647
Trade and other receivables 270 197 229 859 8 944
Cash and cash equivalents 26 674 33 764 -
Liabilities (380 896) (258 373) (52 685)
Convertible redeemable and
participating preference shares (68 782) (59 025) -
Borrowings (69 352) (16 099) (20 200)
Deferred tax liabilities (13 111) (20 369) -
Trade and other payables (229 651) (162 880) (11 364)
Bank overdraft - - (21 121)
Other information
Capital additions 2 445 33 589 844
Property, plant and equipment 2 445 33 589 653
Plant for hire - - 191
Depreciation 10 739 7 797 7 301
Amortisation of contract-based
intangibles - 3 577 -
EBITDA (19 148) 7 563 (63 995)
Small Plant
and Formwork
(discontinued Total Total
operation) Group Group
Figures in Rand thousands August 2010 August 2011 August 2010
Segment revenue and result
Revenue
Total segment sales 35 291 580 356 526 012
Less: Inter-segment sales (6 664) (9 529) (14 584)
Total external revenue 28 627 570 777 511 428
Result
Operating (loss)/profit (12 607) (101 184) (16 418)
Finance income 654 834 2 595
Finance costs (1 409) (8 510) (6 501)
(Loss)/profit before taxation (13 362) (108 860) (20 324)
Taxation 4 047 15 105 2 072
(Loss)/profit after taxation (9 315) (93 755) (18 252)
Segment assets and liabilities
Assets 115 402 614 737 624 571
Plant for hire 67 549 12 160 67 549
Property, plant and equipment 21 395 113 445 118 546
Intangible assets - 128 635 126 560
Deferred tax asset - 19 357 -
Income tax asset 4 584 10 106 11 059
Inventories 1 804 25 219 17 164
Trade and other receivables 19 910 279 141 249 769
Cash and cash equivalents 160 26 674 33 924
Liabilities (44 134) (433 581) (302 507)
Convertible redeemable and
participating preference shares - (68 782) (59 025)
Borrowings (34 168) (89 552) (50 267)
Deferred tax liabilities (425) (13 111) (20 794)
Trade and other payables (9 541) (241 015) (172 421)
Bank overdraft - (21 121) -
Other information
Capital additions 8 368 3 289 41 957
Property, plant and equipment 292 3 098 33 881
Plant for hire 8 076 191 8 076
Depreciation 7 630 18 040 15 427
Amortisation of contract-based
intangibles - - 3 577
EBITDA (4 976) (83 143) 2 587
OTHER INFORMATION
Unaudited Unaudited Unaudited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand thousands 2011 2010 2011
Core headline loss
Headline loss (46 171) (16 020) (64 553)
Adjustments for non-core items net
of taxation:
Amortisation of contract-based intangible - 2 575 2 575
Impairment of Small Plant and Formwork
debtors and inventory - 5 099 -
Impairment on remeasurement of
assets held for sale 15 877 - -
Erbacon Roads and Earthworks losses 339 3 058 2 554
Interest on convertible redeemable and
participating preference shares 3 781 3 244 6 489
Share-based payments 280 320 1 058
Restructuring costs 1 060 973 973
Core headline loss (24 834) (751) (50 904)
Core diluted headline loss per
ordinary share (9,51) (0,29) (19,45)
Core losses is based on headline losses from continuing and discontinued
operations, adjusted for non-recurring and non-operational items, after tax
where necessary (ie: interest on preferences shares, amortisation, share-based
payment expenses). Core losses per share is calculated based on the diluted
weighted average number of shares.
NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS
1. Basis of preparation
The consolidated interim financial information has been prepared in terms of
International Financial Reporting Standards (IFRS), IAS 34: Interim Financial
Reporting, the AC 500 series, the South African 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 2011.
The person who supervised the preparation of these interim results is RK
Braithwaite CA(SA).
Any references to future financial performance has not been reviewed or reported
on by the Company`s auditors.
2. Share capital
There have been no changes to the authorised share capital during the period.
The contingent consideration arrangement for the acquisition of Civcon required
a further issue of Erbacon ordinary shares in terms of the final recalculation
of warranted profits for the Civcon financial year ended 28 February 2010. As a
result, the Civcon vendors were issued 1 296 746 shares of R0,01 each on 30 May
2011, 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 195
120 297 ordinary shares.
Unaudited Unaudited Audited
Interim Interim Year end
31 August 31 August 28 February
Figures in Rand thousands 2011 2010 2011
3. Finance costs
Bank overdraft and borrowings (3 259) (1 995) (4 509)
Interest on convertible redeemable and
participating preference shares (5 251) (4 506) (9 012)
4. Non-current assets held for sale
and discontinued operations
The assets and liabilities which relate
to Erbacon Small Plant (Pty) Ltd. have
been presented as held for sale following
the approval of the Board in July 2011,
to discontinue the operation.
Operating cash flows (17 674) (15 263) (38 380)
Investing cash flows 18 857 (5 209) (5 659)
Financing cash flows (1 393) (2 293) 21 891
Total cash flows (210) (22 765) (22 148)
Assets of disposal group classified
as held for sale
Property, plant and equipment 15 432 21 395 20 992
Plant for hire 12 160 67 549 67 027
Intangible assets - - 3 078
Inventory 647 1 804 1 973
Trade and other receivables 8 944 19 910 12 908
Cash and cash equivalents - 160 90
Income tax asset - 4 584 367
Deferred tax asset - - 7 705
Total assets 37 183 115 402 114 140
Liabilities of disposal group
classified as held for sale
Borrowings (12 190) (34 168) (23 930)
Analysis of the result of discontinued
operations, and the result recognised
on the remeasurement of assets within
the disposal group, is as follows:
Revenue 17 586 28 627 53 586
Expenses (55 237) (41 989) (94 023)
Loss before tax of discontinued
operations (37 651) (13 362) (40 437)
Tax 4 808 4 047 8 563
Loss after tax of discontinued
operations (32 843) (9 315) (31 874)
Pre-tax loss recognised on the
remeasurement of assets of the
disposal group (35 640) - -
Tax - - -
After tax loss recognised on the
remeasurement of assets of the
disposal group (35 640) - -
Loss for the year from discontinued
operations (68 483) (9 315) (31 874)
COMMENTARY
OVERVIEW
Erbacon provides a comprehensive suite of heavy civil engineering, commercial
and industrial building, and general construction services.
Market conditions in the local construction sector showed no major evidence of
improving during the period under review amidst a globally volatile economic
outlook.
Furthermore, the government`s planned infrastructures spend to accelerate growth
and employment opportunities did not materialise as anticipated. This, coupled
with a still subdued commercial and industrial building sector, resulted in yet
another trading period of highly competitive tendering at low margins which
contributed to the loss from continuing operations for the period under review.
Notwithstanding the current difficult trading environment, management and the
Board have initiated a series of actions over the past 15 months in order to
deal with loss-making contracts, to ensure that appropriate capacity exists in
each operating entity, to ensure that succession planning is addressed, and to
ensure that an operational platform exists to deliver operational excellence in
the future. All of these actions are intended to position the Group to target
opportunities offering better sustainable earnings growth. In this context,
substantial manpower and resources have been mobilised to give substance to the
Board`s aspirations for future growth.
The Board resolved in July 2011 to discontinue its involvement in the Small
Plant business and, Formwork accordingly, Erbacon Small Plant (Pty) Ltd. ("Small
Plant") was treated as a discontinued operation at 31 August 2011. This decision
is in accordance with the Group`s stated strategic focus. The Group balance
sheet has accordingly been impaired to account for the discontinuance during the
period under review.
FINANCIAL REVIEW
The Group reported a loss after tax for continuing operations of R25,2 million
for the period ended 31 August 2011 (2010: loss after tax of R8,9 million). As a
result, the basic loss per share for continuing operations increased to 13,04
cents per share at 31 August 2011 from a loss of 4,63 cents per share for the
corresponding prior period. The headline loss per share for continuing
operations increased to 13,18 cents per share from a loss of 5,71 cents per
share for the corresponding prior period.
The total loss from discontinued operations, relating to Small Plant, amounted
to R68,5 million (2010: loss of R9,3 million) of which R14,6 million (2010: loss
of R9,3 million) was attributable to trading losses incurred up to 31 August
2011, and the balance to impairments to the carrying value of plant for hire,
property, plant and equipment ("PPE"), debtors, inventory, deferred tax assets
and goodwill.
The Group therefore reported a loss after tax of R93,8 million for the period
ended 31 August 2011 (2010: loss after tax of R18,2 million), which includes
asset impairment provisions and write-offs amounting to R53,9 million following
the resolution to discontinue the Small Plant division.
Accordingly, the basic loss per share increased to 43,19 cents per share from a
basic loss per share for the corresponding prior period of 9,46 cents per share.
OPERATIONAL REVIEW
Commercial and Industrial Building
This segment suffered the consequences of a severe downturn in private sector
investment with revenues reducing by 47% year on year. A number of near orders
or secured contracts were either delayed or cancelled entirely, resulting in the
business carrying underutilised resources associated with these sites. This
sector remained highly competitive throughout the period under review.
Civils Construction
The merger of the businesses of Civcon and Erbacon Construction into a single
civils construction business became effective on 1 March 2011.
Revenue for this segment increased by 68% for the period under review as private
sector contracts, postponed in 2010 by a combination of customer related issues
and rain delays, were either accelerated or fully mobilised in the period under
review. Notwithstanding the increase in revenue, associated gross margins were
negatively impacted by material unresolved claims in the current period (where
the costs had already been accounted for), and poor productivity on certain
sites.
The combined entity has been the beneficiary of a number of actions intended to
increase management and operational capacity with a particular focus on
performance management with a view to managing future higher activity and larger
scale contracts. The issue of succession has also been managed, with the recent
appointments of a new managing director and financial director to the Civils
Construction operation.
Small Plant and Formwork
The plant hire business does not fit into the Group`s definition of core
business. Whilst actions were taken to rejuvenate the business and bolster the
management team in order to prepare the business for disposal, the poor trading
pattern continued from the prior year, which was also due to weak activity
levels in the construction sector, and the Board formally resolved to
discontinue its involvement in this business.
Group income statement
Group revenue from continuing operations increased 14.6% to R553,2 million
(2010: R482,8 million) with Civils Construction contributing R433,1 million
(2010: R257,9 million), or 78% (2010: 53%) of Group revenue. Satisfactory
private sector contract awards, in particular from the mining industry and
Eskom, offset weak order intake from the public sector. Revenue growth was also
inhibited by difficulties in successfully negotiating numerous, and material,
claims to certification stage.
Armstrong Construction invoiced revenues amounting to R120,1 million (2010:
R224,8 million) which mirrored a similar level of activity over the immediately
preceding six-month period, where R122,6 million of revenue was recorded.
Although this division obtained contracts from its traditional customer base,
the size of contract awards reduced in value, whilst the number of contractors
bidding on available tenders increased significantly.
The now discontinued business of Small Plant made a limited contribution to
Group revenue in a competitive market. It should be noted that formwork assets
from Small Plant were redeployed to continuing operations within the Group
during the period under review to allow for more efficient utilisation.
Contract gross margins from continuing operations were severely affected by
several loss making contracts. Substantial resources were directed to these
contracts and losses have since been contained.
Operating overheads were maintained at acceptable levels in the continuing
operations. However, the corporate overhead increased the Group expense to
revenue ratio to 8%. This reflects the intent of the Group to establish capacity
at various levels in the organisation to implement the aspirational growth
plans, and to build a sustainable business.
The notional interest expense on the liability portion of the convertible
redeemable and participating preference shares amounts to R5,3 million (2010:
R4,5 million), which charge is included under finance costs. Finance costs also
increased as losses eroded cash resources.
Included in the deferred tax asset balance of R19,3 million (2010: nil) are
assessable tax losses that have been recognised which relate to Civcon, Erbacon
Construction and the holding company.
The Group recorded a loss before interest, tax, depreciation and amortisation
from continuing operations amounting to R19,1 million (2010: EBITDA of R7,6
million).
A number of non-recurring and non-operational items have been disclosed under
the core headline loss calculation, including, inter alia, the impairment of the
Small Plant deferred tax, inventory and debtors. As a result of these
adjustments, the core headline loss for the period under review was R24,8
million (2010: loss of R10,8 million).
The diluted loss per share and diluted headline loss per share is calculated
based on the current weighted average number of shares in issue and includes the
convertible redeemable preference shares issued to Medu Capital. The interest
charge on the preference shares and related deferred tax adjustments have been
adjusted for in the calculation.
Group balance sheet
A further 1 296 746 ordinary shares were issued and allotted to the Civcon
vendors during the period under review following a final determination of the
2010 profit warranty.
Total Group assets decreased marginally to R614,7 million (2010: R624,6 million)
due primarily to the impairment of the Small Plant business, but offset by
increased trade receivables and inventories.
Formwork assets were transferred from "plant for hire" to PPE in the continuing
operations.
During the period certain major shareholders, namely Paladin Capital Limited,
the Medu Capital Fund II partnership, the Medu II Development Fund and four
executive directors approved a Loan Facility Agreement to make available to the
Company a capital sum to a maximum amount of R53 million.
On 9 May 2011, each of the major operating subsidiaries of the Group executed a
cession of debtors in favour of First National Bank in support of the banking
facilities offered to the Group.
Group cash flow
Group cash utilised by operations amounted to R49,6 million (2010: R28,7
million) which necessitated the cash injection of R53 million from the
abovementioned shareholders.
Going concern
These results have been prepared on the basis of accounting policies applicable
to a going concern.
DIVIDEND
No dividend is declared for the interim period ended 31 August 2011.
OUTLOOK
The civil, commercial and industrial construction markets are expected to remain
competitive for the remainder of this financial year. Notwithstanding the above,
opportunities exist within the mining sector of SA and elsewhere in Africa.
The Group continues to pursue all opportunities with recognised clients, and
expects the performance in the second half of the year to be an improvement on
the first half.
DIRECTORATE
Coenie Vermaak was appointed as an Executive Director of the Board on 31 August
2011 having joined the Group as Managing Director of Civils Construction. Lex
Henning has stepped down from his role as Managing Director of Civcon but will
remain on the Board as an Executive Director of the Group.
In addition, Nico de Waal was appointed as an alternate Director to JA
Holtzhausen on 4 July 2011.
For and on behalf of the Board
A Dawson SJ Flanagan RK Braithwaite
Chairman Chief Executive Officer Group Finance Director
Clayville
7 October 2011
Directors: A Dawson (Chairman)#, SJ Flanagan (CEO)
RK Braithwaite (GFD), DB Erskine, AH Henning, CHA Ramsay CJB Vermaak,
ZR Angamia*, JA Holtzhausen*, NP Mkwanazi*, S Totaram*` ** PN de Waal
*Non-executive, #Independent non-executive, ** Alternate Director
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) Ltd.
Date: 07/10/2011 15:09:01 Produced by the JSE SENS Department.
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