SUMMARY OF AUDITED CONSOLIDATED RESULTS - … Results/ESOR Results... · SUMMARY OF AUDITED...

SUMMARY OF AUDITED CONSOLIDATED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2014

REVENUE FROM CONTINUING OPERATIONS UP 3,6% TO

R1,6 billion

R202,5 millionHIGH YIELD BOND PROGRAMME SUCCESSFULLY SETTLED

GEARING IMPROVED TO

27%ORDER BOOK (EXCL. GEOTECHNICAL) UP 18,6% TO

R2,6 billionDISPOSAL OF GEOTECHNICAL FOR

R592 million INCLUDING FAIR VALUE CONTINGENT CONSIDERATION

SPECIAL DIVIDEND OF

38 cents

Level 3 B-BBEE ACHIEVED

HIGHLIGHTS

Consolidated results for the year ended 28 February 2014 1

COMMENTARY

IntroductionThe summarised consolidated financial results for the year to 28 February 2014 (“the year”) reflect the results of the company’s preceding consolidation phase which saw the sale of the Geotechnical business to Keller Group plc (“Keller”) for a cash consideration of R525 million plus a potential earn-out of an additional R150 million, the full settlement of the R202,5 million High Yield Bond programme and the declaration of a 38 cents per share special dividend.

The company is now positioned on firmer financial footing and is poised for growth in the remaining operations. The order book (excluding Geotechnical) has increased for the fourth consecutive year and stood at R2,6 billion at year-end, an 18,6% year-on-year gain.

The Pipelines business achieved growth in revenue and profits and the Developments division was successfully established. The new division signifies a further diversification of the group’s revenue stream that balances the contracting revenue derived from Civils and Pipelines, and an opportunity to capture a greater percentage of the civils and construction value chain.

Three problem contracts in Civils resulted in an operating loss of R134 million for that division. Two of the three contracts have since been completed, while the third is due for completion at the end of August 2014.

Financial resultsConsolidated revenue for the group’s continuing businesses increased by R55 million to R1,6 billion on improved activity levels in the Pipelines division. Esor focussed on consolidating operations in the Civils business and progressing the Developments division. The group recorded a headline loss per share of 11,3 cents (2013: earnings of 20,50 cents per share).

Gross profit margins from continuing operations deteriorated to –1,2% (2013: 15,0%) while overheads increased to R127,1 million (8,0% of revenue) from R69,1 million (4,5% of revenue). Improved efficiency resulting from the rationalisation impacted the middle line offset by retrenchment costs and the once-off costs in settling the High Yield Bond programme.

The loss after tax including the discontinued business (Geotechnical) amounted to R166,1 million (2013: profit R87,7 million).

Review of operationsRevenue in Esor Civils decreased by 17,9% to R1,0 billion from R1,2 billion resulting in a net operating loss. The business experienced significant disruption from labour unrest both internally and from strikes in adjacent areas that impacted on certain sites. It was further hampered by legacy loss-making contracts that have and are reaching conclusion. The results of these contracts had a material effect on the result of the group as a whole.

During the year Civils was restructured and successfully right-sized. Led by new management, the business has revitalised employee morale and revised contracting practices for improved controls.

Locally the construction market remained subdued with construction confidence still low. Overcapacity in the industry persisted with fewer tenders and low margins. However, Civils is well placed to secure intra-group contracts by leveraging the synergies within the group. Further, significant growth opportunity has been identified cross-border in specific African countries. The business will selectively enter these markets on the back of funding agencies or existing clients.

The order book remained stable year-on-year at R1,2 billion.

Esor Pipelines delivered impressive results with revenue up 79% to R579 from R324 million in the previous year. At year-end the order book totalled R655 million, up from R518 million in 2013, comprising mainly government contracts.

Esor’s core original pipejacking business has been incorporated into Pipelines with effect from 1 March 2014, which has improved synergies within the business.

Although the market is buoyant in terms of demand and activity, Pipelines is being increasingly challenged by tighter competition as the market is rationalised. Further expansion into African markets is targeted, with significant growth potential identified in Zambia and Zimbabwe (potential projects include the Zambia Millennium Project and water projects in Zimbabwe).

Esor Developments was established during the year and is already contributing positively to results. The division has a secured order book for the next two years of R725 million, with a potential in excess of R4 billion. It is making its mark by targeting large integrated housing projects aimed at the private (bonded) and government subsidised sectors.

2 Consolidated results for the year ended 28 February 2014

The division operates in the affordable and low-income housing sector (comprising the full spectrum of bonded, social rental, gap, FLISP and RDP/BNG markets), where demand currently outstrips supply. However, this sector is constrained by the availability and cost of providing bulk services.

During the year the R2 billion integrated housing project at Diepsloot in Gauteng broke ground, which includes the construction of two iconic pedestrian bridges across William Nicol Drive. Engineering services were installed in The Orchards housing project near Rosslyn and the first stands were transferred to top-structure developers. The deal with Investec on the Uitvlugt integrated housing project near Three Rivers in Vereeniging was concluded and the land transferred into an Esor-owned special purpose vehicle.

CAPEXCapital expenditure from continuing operations of R38 million (2013: R151,1 million) was incurred in the year. This improved operational efficiencies primarily in the Pipelines division in light of secured long-term contracts. The group disposed of R78 million worth of fleet and plant in the Civils business which comprised mainly older and non-standard equipment and to align the fleet better with the current and projected workload.

The board has approved R26 million capex for the 2015 financial year (2014: R92 million) for application mainly in Pipelines.

TransformationIn February 2014 Esor achieved a Level 3 B-BBEE accreditation in terms the Department of Trade & Industry’s B-BBEE Codes of Good Practice, and is targeting Level 2 by 2016.

In line with the Construction Charter’s targeted increase to 30% ownership, the group is considering the outright purchase of shares through the Esor Broad Based Share Ownership Scheme (“EBBSOS”). Following the sale of the Geotechnical business and the subsequent payment of a 38 cents per share special dividend, the EBBSOS Trust has R5 million available for re-investment in shares to create future value for employees. The potential shareholding of the EBBSOS Trust can increase to 7%.

ProspectsLooking ahead we have a secured order book for Civils of R1,2 billion, weighted in the power sector, including Kusile for another three years. In addition three low cost housing projects have commenced in KwaZulu-Natal with further opportunities in that province and the Eastern Cape. In Gauteng we are also seeing potential work from the schools project which is expected to roll-out shortly and will include new schools as well as refurbishments and maintenance.

In Pipelines we have a secured order book of R655 million, mainly in KwaZulu-Natal and the Eastern Cape. The pipejacking business recently secured a R68 million contract for Rand Water. Further opportunities are expected to come from sanitation projects throughout the country and potential opportunities in Zimbabwe.

The Developments division has secured four long-term projects with a potential order book in excess of R4 billion. These include Diepsloot, Orchards, Uitvlugt and Soshanguve.

At year-end Esor is in a stronger financial position with improved gearing. The Civils division has been restructured both from strategic and operational perspectives and the Developments business is geared for implementation with the appointment of a Project Manager to lead the roll-out of the Diepsloot and Soshanguve projects.

DirectorateDr Oswald (“Ossie”) Franks and Ms Monhla Hlahla were appointed on 23 May 2013, but Ms Hlahla resigned effective 29 October 2013 in order to pursue personal business interests. Mr Briss Mathabathe also resigned as director effective 26 February 2014. The board thanks Mr Mathabathe and Ms Hlahla for their contributions.

Dividend declarationThe board has resolved not to declare a final dividend for the year, which accords with its decision in the previous year (2013: Nil). It remains the policy of the company to review the dividend annually in light of solvency, liquidity, cash flow, gearing and capital requirements.

The board declared a special dividend of 38 cents per share following the sale of the Geotechnical business which was paid on 9 December 2013 totalling R145,1 million.

Events after the reporting dateThere were no significant events after the reporting date.


Basis of preparationThe summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require abridged reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated financial statements were derived, are in terms of International Financial Reporting Standards and are consistent with the accounting policies applied in the preparation of the previous consolidated annual financial statements.

Audit opinionThis summarised report is extracted from audited information, but is not itself audited. The annual financial statements were audited by KPMG Inc., who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor’s report thereon are available for inspection at the company’s registered office. The directors take full responsibility for the preparation of the abridged report and the financial information has been correctly extracted from the underlying annual financial statements.

The group audited financial statements, which were prepared under the supervision of the CFO, Wessel van Zyl CA(SA), are available for inspection at the company’s registered office and will be included in the Integrated Annual Report 2014 to be posted to stakeholders on or about 29 May 2014.

Annual general meetingThe annual general meeting of the company will be held at the company’s offices, 30 Activia Road, Activia Park, Germiston on Friday, 27 June 2014 at 10h00. The notice of annual general meeting forms part of the Integrated Annual Report 2014, to be posted to stakeholders on or about 29 May 2014.

AppreciationWe thank our management and employees for their steadfast loyalty and efforts in this year of flux. Your consistent hard work in the face of ongoing change is much appreciated. We also thank our business partners, suppliers, advisors and our valued clients and shareholders for their continued confidence in the group.

On behalf of the board

Bernie Krone Wessel van ZylCEO CFO

29 May 2014


STATEMENTS OF FINANCIAL POSITIONAT 28 FEBRUARY 2014

Group

2014 2013

R’000 R’000

Assets

Non-current assets 613 660 1 237 461

Property, plant and equipment 320 135 822 678

Intangible assets – 86 336

Goodwill 185 062 305 715

Financial assets at fair value through profit or loss 64 923 3

Deferred tax asset 11 457 22 729

Loans and long-term receivables 32 083 –

Current assets 935 151 1 006 320

Loans and long-term receivables – 27 726

Inventories 221 345 69 721

Taxation 13 455 14 513

Trade and other receivables 659 928 826 713

Cash and cash equivalents 40 423 67 647

Total assets 1 548 811 2 243 781

Equity and liabilities

Share capital and reserves 777 219 1 053 262

Share capital and premium 586 145 571 300

Equity compensation reserve 19 213 18 606

Foreign currency translation reserve 23 665 3 850

Retained earnings 148 196 459 506

Non-current liabilities 207 802 540 326

Secured borrowings 163 043 368 507

Preference shares 23 424 21 000

Post-retirement benefits – 1 913

Deferred tax liability 21 335 148 906

Current liabilities 563 790 650 193

Current portion of secured borrowings 74 350 79 481

Bank overdraft 19 583 34 059

Taxation 19 131 4 508

Provisions 13 713 38 329

Trade and other payables 437 013 493 816

Total equity and liabilities 1 548 811 2 243 781


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 28 FEBRUARY 2014

Group

2014 2013*restated

CONTINUING OPERATIONS R’000 R’000

Revenue 1 592 835 1 538 101Cost of sales (1 611 624) (1 306 865)Gross profit (18 789) 231 236Other income 10 564 1 324Operating expenses (127 117) (69 106)(Loss)/profit before interest, tax, amortisation, impairments and depreciation (135 342) 163 454Amortisation, impairments and depreciation (146 419) (88 564)Results from operating activities (281 761) 74 890Finance income 4 980 17 811Finance costs (42 420) (49 463)(Loss)/profit before income tax (319 201) 43 238Income tax income/(expense) 102 862 (18 136)(Loss)/profit from continuing operations (216 339) 25 102Discontinued operationsProfit from discontinued operations, net of income tax 50 178 62 608(Loss)/profit (166 161) 87 710Other comprehensive income:Items that will never be reclassified to profit or lossActuarial loss on post retirement benefits – (97)Items that are or may be reclassified to profit or lossForeign currency translation differences for foreign operations 25 568 30 157Related taxes (5 753) (4 912)Other comprehensive income, net of tax 19 815 25 148(Loss)/profit attributable to:Owners of the company (166 161) 87 710Total comprehensive income attributable to:Owners of the company (146 346) 112 858

Reconciliation of headline earnings:Reconciliation of headline (loss)/earnings:(Loss)/profit after tax (166 161) 87 710Net loss/(profit) on disposal of property, plant and equipment 294 (16 988)Impairment of intangible assets, property, plant and equipment and investments 84 638 6 305Loss on disposal of discontinued operations 38 190 –Headline (loss)/earnings (43 039) 77 027Reconciliation of headline (loss)/earnings from continuing operations:(Loss)/profit after tax (216 339) 25 102Net profit on disposal of property, plant and equipment 294 (1958)Impairment of property, plant and equipment and goodwill 84 638 6 305Loss on disposal of discontinued operations 38 190 –Headline (loss)/earnings from continuing operations (93 217) 31 212Earnings per shareBasic (loss)/earnings per share (cents) (43,5) 23,5Diluted (loss)/earnings per share (cents) (43,5) 23,5Headline (loss)/earnings per share (cents) (11,3) 20,5Earnings per share from continuing operationsBasic (loss)/earnings per share (cents) (56,6) 6,8Diluted (loss)/earnings per share (cents) (56,6) 6,8Headline (loss)/earnings per share (cents) (24,4) 8,3Earnings per share from discontinued operationsBasic (loss)/earnings per share (cents) 13,1 16,7Diluted (loss)/earnings per share (cents) 13,1 16,7Headline earnings per share (cents) 13,1 12,2

* Restated due to application of IFRS 5 relating to discontinued operations.


STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 28 FEBRUARY 2014

Share capital

Share premium

Equity compen-

sation reserve

Foreign currency

translation reserve

Retained earnings

Total equity

Group R’000 R’000 R’000 R’000 R’000 R’000

Balance at 1 March 2012 388 591 657 16 188 (21 395) 350 594 937 432

Profit for the year – – – – 87 710 87 710

Other comprehensive income – – – 25 245 (97) 25 148

Total comprehensive income – – – 25 245 87 613 112 858

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Share issue expenses – (787) – – – (787)

Share-based payment transactions – – 2 418 – – 2 418

Treasury shares – options exercised 1 1 340 – – – 1 341

Treasury shares acquired (13) (21 286) – – 21 299 –

Total transactions with owners (12) (20 733) 2 418 – 21 299 2 972

Balance at 28 February 2013 376 570 924 18 606 3 850 459 506 1 053 262

Loss for the year – – – – (166 161) (166 161)

Other comprehensive income – – – 19 815 – 19 815

Total comprehensive income for the year – – – 19 815 (166 161) (146 346)

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Dividends to equity holders – – – – (145 149) (145 149)

Share-based payment transactions – – 607 – – 607

Treasury shares – disposed 6 14 839 – – – 14 845

Total transactions with owners 6 14 839 607 – (145 149) (129 697)

Balance at 28 February 2014 382 585 763 19 213 23 665 148 196 777 219


STATEMENTS OF CASH FLOWFOR THE YEAR ENDED 28 FEBRUARY 2014

Group

2014 2013

R’000 R’000

Cash flows from operating activities (279 069) (32 853)

Cash receipts from customers 1 487 579 1 995 185

Cash paid to suppliers and employees (1 575 788) (1 960 683)

Cash (utilised in)/generated by operations (88 209) 34 502

Finance income 25 957 42 369

Finance costs (71 213) (86 684)

Dividends paid (145 149) –

Taxation paid (455) (23 040)

Cash flows from investing activities 422 816 (210 980)

Additions to property, plant and equipment (52 564) (193 930)

Proceeds on disposal of property, plant and equipment 79 312 39 132

Acquisition of business, net of cash (40 558) (28 456)

Disposal of discontinued operations, net of cash 437 387 –

Investments acquired (761) (27 726)

Cash flows from financing activities (156 495) 183 815

(Decrease)/increase in secured borrowings (171 340) 162 154

Preference shares issued – 21 000

Proceeds from share issue, net of issue expenses 14 845 554

Post-retirement benefits paid – 107

Net decrease in cash and cash equivalents (12 748) (60 018)

Net cash and cash equivalents at beginning of year 33 588 93 606

Cash and cash equivalents at end of year 20 840 33 588


Effective 21 November 2013, the group disposed of 100% of its Geotechnical business unit to Keller. This comprised operations in South African branches as well as the subsidiaries in Botswana, Ghana, Mauritius, Lesotho, Seychelles, Mozambique, Namibia and Swaziland.

The profit or loss of the discontinued operations for the year was as follows:

Group

2014 2013R’000 Restated R’000

Revenue 724 052 787 857Cost of sales (548 477) (637 325)

Gross profit 175 575 150 532Other income 3 006 25 915Operating expenses (82 220) (70 230)

Profit before interest, tax, amortisation, impairments and depreciation 96 361 106 217Amortisations, imparments and depreciation (25 324) (29 707)

Results from operations 71 037 76 510Finance income 24 573 24 558Finance costs (31 217) (37 221)

Profit before income tax 64 393 63 847Income tax expense (14 215) (1 239)

Profit after tax from discontinued operations 50 178 62 608

Financial asset at fair value through profit or loss

The contingent consideration receivable, a Level 3 financial asset, arose from the disposal of the discontinued operation, which includes a clause that entitles the seller to an amount of R150 million if the discontinued operation’s cumulative EBITDA over the next three years exceeds a threshold. The fair value is determined considering the estimated receivable, discounted to present value. The fair value is based on key unobservable inputs of EBITDA growth of the business of 8% and a discount factor of 9%. The fair value was determined by the group finance department. Scenarios on EBITDA growth were developed by the management considering the economy generally and their knowledge of the geotechnical business. The estimated fair value increases the higher the annual EBITDA growth rate, the higher the EBITDA margin and the lower the discount rate. Management considers that changing the above mentioned unobservable inputs to reflect other reasonably possible alternative assumptions would not result in a significant change in the estimated fair value. 64 923 –

DISCONTINUED OPERATIONS


Operating segmentsThe group has three reportable segments, which are the group’s strategic business units.

Geotechnical Civils Pipelines

Deve-lop-

mentsCorporate and

eliminations Consolidated

2014 2013 2014 2013 2014 2013 2014 2014 2013 2014 2013

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

External revenue 712 646 787 857 961 599 1 214 549 579 285 323 552 63 356 – – 2 316 887 2 325 958

Inter segment revenue 11 406 – 42 690 8 713 – – – (54 096) (8 713) – –

Segment revenue 724 052 787 857 1 004 289 1 223 262 579 285 323 552 63 356 (54 096) (8 713) 2 316 887 2 325 958

Segment result

Profit/(loss) before interest and taxation 71 037 76 105 (183 881) 76 525 39 892 30 583 1 404 (139 176) (32 219) (210 724) 150 994

Net finance (cost)/income (6 644) (12 663) (15 179) (22 286) 1 318 (157) (342) (23 237) (9 209) (44 084) (44 315)

Taxation (14 215) (1 239) 56 514 (14 859) (11 891) (8 883) (100) 58 339 6 012 88 647 (18 969)

Segment profit/(loss) 50 178 62 203 (142 546) 39 380 29 319 21 543 962 (104 074) (35 416) (166 161) 87 710

Segment assets – 734 464 788 590 963 994 254 857 191 552 264 454 313 449 353 771 1 621 350 2 243 781

Segment liabilities – 325 267 875 797 872 001 204 802 169 549 245 312 (481 780) (84 276) 844 131 1 190 519

Capital and non-cash items

Additions to property, plant and equipment 14 538 42 814 26 313 132 407 9 596 17 083 – 2 117 1 626 52 564 193 930

Depreciation 23 435 27 817 50 257 61 959 6 176 4 082 – 5 347 13 766 85 215 107 624

Impairment loss – – – – – – – 84 446 8 757 84 446 8 757

Number of employees – 1 169 1 969 2 701 1 163 763 3 35 21 3 170 4 654

SEGMENTAL ANALYSIS


Revenue generated from significant customers includes:

Revenue

Customer Business unit2014

R’0002013

R’000

Eskom Holdings SOC Limited Civils 596 492 364 594

Umgeni Water Pipelines 146 064 1 944

Ethekwini Municipality Pipelines 98 824 57 877

Bakwena Platinum Corridor Concessionaire (Pty) Limited Civils 69 213 119 385

Anglo American Inyosi Coal Civils 47 672 –

Rand Water Pipelines 23 484 117 250

Katu Developers (Pty) Ltd Civils 59 990 117 248

SEGMENTAL ANALYSIS (CONTINUED)

ESOR LIMITED(Registration number: 1994/000732/06)Incorporated in the Republic of South AfricaJSE Code: ESR ISIN: ZAE000184669(“Esor” or “the company” or “the group”)

DIRECTORS: DM Thompson* (Chairman)B Krone (CEO)WC van Zyl (CFO)EG Dube*Dr O Franks*Dr FA Sonn* *Independent non-executive

REGISTERED OFFICE: 30 Activia Road, Activia Park, Germiston, 1401 (PO Box 6478, Dunswart, 1508)Telephone: +27 11 776 8700Fax: +27 11 822 1158

SPONSOR: Vunani Corporate FinanceVunani House, Vunani Office Park151 Katherine Street, Sandton, 2196 (PO Box 652419, Benmore, 2010)

TRANSFER SECRETARIES: Computershare Investor Services (Pty) Limited70 Marshall Street, Johannesburg, 2001(PO Box 61051, Marshalltown, 2107)

COMPANY SECRETARY: iThemba Governance and Statutory Solutions (Pty) LimitedMonument Office Park, Suite 5 – 102, 79 Steenbok Avenue, Monument Park, 0181(PO Box 25160, Monument Park, 0105)

INVESTOR RELATIONS:Envisage Investor & Corporate Relations4th Floor, South WingHyde Park CornerJan Smuts AvenueHyde Park, 2196

30 Activia Road, Activia ParkGermiston South Africa

Tel: +27 11 776 8700Fax: +27 11 822 1158

www.esor.co.za

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