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ERBACON INVESTMENT HOLDINGS LIMITED
UNAUDITED CONDENSED GROUP INTERIM RESULTS
FOR THE PERIOD ENDED 31 AUGUST 2012
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Erbacon Investment Holdings Limited FY 2012 results

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Erbacon Investment Holdings Limited FY 2012 results

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Erbacon Investment Holdings Limited FY 2012 results

  1. 1. ERBACON INVESTMENT HOLDINGS LIMITED UNAUDITED CONDENSED GROUP INTERIM RESULTS FOR THE PERIOD ENDED 31 AUGUST 2012 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”) DIVIDEND For the foreseeable future the Board intends to allocate cash resources to the growth of the Group, consequently no dividend has been declared for the interim period ended 31 August 2012. PROSPECTS The imperative for the government to renew and deliver infrastructure should result in a further improvement of trading conditions. However, the Board notes the short-term risks of work-stoppages and delayed contract awards resulting from widespread labour unrest affecting many of the Group’s clients. The secured order book of work still to be completed totals R1 300 million of which 40% is to be completed during the current financial year. Management has forecasted that the Group will continue to achieve increases in revenue and operating profit in the next six months compared to the prior financial year. The results for the second six-month period of the current financial year will, following management’s further participation in share-based equity instruments in August 2012, reflect a material increase in the reported (non-cash) share-based payment expense. The once-off, non- cash finance charges related to the recently completed Group recapitalisation, which have been fully accounted for in the interim results, will result in a total loss and comprehensive loss to owners of the parent for the year to 28 February 2013. Due to forecasted lower revenues during the short trading months of the annual December/January construction shut-down, the financial position of the Group is not forecasted to be as liquid at year-end as it was at this interim stage. DIRECTORATE Johan Holtzhausen and his alternate, Nico de Waal, resigned as non-executive director and alternate non-executive director, respectively, of the company, with effect from 1 September 2012. In compliance with paragraph 3.59(b) of the JSE Limited Listings Requirements, the Board of directors hereby notifies its’ shareholders that Ms Samara Totaram resigned as non-executive director and Chairperson of the Audit Committee on 3 October 2012, and that Mr Neill Davies has been re-appointed as an independent non-executive director, and is also appointed a member of the Audit Committee on 3 October 2012. The Nominations Committee is currently presiding over the election of additional independent non-executive directors to the Board. Further details will be provided in due course. For and on behalf of the Board A Dawson SJ Flanagan AR Langham Chairman Chief Executive Officer Group Financial Director Midrand 3 October 2012 CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME for the period ended 31 August 2012 Unaudited Unaudited Audited Interim Interim Year-end 31 August 31 August 29 February Figures in Rand thousands 2012 2011 2012 Revenue from continuing operations 758 183 553 191 1 137 069 Operating profit/(loss) before non-trading items and depreciation from continuing operations 26 007 (18 378) (79 652) Share-based payment expense (791) (389) (790) Depreciation and amortisation (10 090) (10 739) (31 568) Operating profit/(loss) from continuing operations 15 126 (29 506) (112 010) Finance income 224 746 1 159 Finance costs (45 221) (7 799) (18 764) Banks (1 045) (1 371) (2 493) Preference share interest (5 988) (5 251) (10 502) Loss on early conversion of preference shares (31 859) – – Shareholder loans (6 329) (1 177) (5 769) Loss before taxation from continuing operations (29 871) (36 559) (129 615) Taxation (5 904) 10 297 19 551 Total loss and comprehensive loss for the period from continuing operations (35 775) (26 262) (110 064) Total loss and comprehensive loss for the period from discontinued operations – (67 493) (78 986) Total loss and comprehensive loss for the period (35 775) (93 755) (189 050) Total loss and comprehensive loss for the period attributable to: Owners of the parent (35 775) (83 714) (179 009) Non-controlling interests – (10 041) (10 041) (35 775) (93 755) (189 050) Headline loss reconciliation Loss attributable to owners of the parent (35 775) (83 714) (179 009) Losses on assets included in discontinued operations – – 42 179 Loss/(profit) on disposal of plant and equipment 54 (483) (440) Impairment on re-measurement of assets held for sale – 32 353 – Headline loss (35 721) (51 844) (137 270) Basic loss and diluted loss per share (cents)^ (17) (43) (92) From continuing operations (17) (13) (56) From discontinued operations – (30) (36) Headline loss and diluted headline loss per share (cents)^ Basic headline loss and diluted headline loss per ordinary share (17) (27) (71) From continuing operations (17) (13) (51) From discontinued operations – (14) (20) Total number of shares in issue less treasury shares (’000) 730 818 193 848 193 848 Weighted average number of shares in issue (’000) 208 440 193 848 193 848 Diluted weighted average number of shares in issue (’000) 208 440 261 258 261 258 ^ Due to the company being in a loss position while the convertible preference shares were still in issue, the anti- dilutive effect should not have been calculated in terms of IFRS. The August 2011 comparative figures have been restated accordingly. JOURNEY TO BEST IN CLASS Erbacon, a 52% black owned business, provides heavy civil engineering construction and commercial and industrial building services. The implementation of the Group’s medium-term strategy of “Best-in-Class” (comprising quality Order Book Development, Project Execution and Business Sustainability) continues to progress well. Management remains focused on the imperatives of liquidity, the risk assessment process, a culture of safe behaviour, growth, Black Economic Empowerment, people capacity and sound governance. During the period under review the Group has delivered on its commitments to clients, returned to trading profitability, recapitalised its balance sheet, significantly improved its liquidity position and continued to deepen its construction capabilities through the appointment of experienced management. OVERVIEW OF THE SIX-MONTH PERIOD TO 31 AUGUST 2012 The Group increased revenues by 37% to R758 million (2011: R553 million) as a result of strong growth in both civil and building construction activities. The Group returned to trading profitability, while bank finance charges were well controlled as the Group’s liquidity position improved further. The Group’s total loss and comprehensive loss to owners of the parent, in terms of IFRS requirements, has been materially negatively impacted by non-recurring and non-cash finance charges relating to the recapitalisation of the Group. The table below reflects the Group’s profits, excluding certain non-cash charges (employee share charges, non-recurring finance charges and tax): Six months to Six months to 12 months to 31 August 31 August 29 February 2012 2011 2012 Rm Rm Rm Revenue 758 553 1 137 Operating profit/(loss) before non-trading items and depreciation 26 (18) (80) Depreciation and amortisation (10) (11) (32) Net bank finance charges (1) (1) (3) Profit/(loss) excluding certain non-cash charges 15 (30) (115) A once-off depreciation charge of R10 million was recognised in the six months to 29 February 2012 to cater for the estimated residual values on various sundry construction assets. The Group retains a material cash-tax shield as a result of historical losses incurred. Deferred tax assets have not been raised in operating companies which are not trading profitably. The tax charge for the period under review resulted from the net of a release of deferred tax assets against profits and the reversal, on recapitalisation of the Group, of the preference share-related deferred tax liability. The recapitalisation of the Group’s balance sheet was fully implemented during the period under review. The key features resulting from the recapitalisation are: • The conversion to ordinary equity of the R113 million convertible, redeemable, participating preference shares; • The raising of a further R26 million from shareholders and the subsequent conversion of R101 million of interest- bearing debt to equity; • A resultant increase in the number of issued ordinary shares to 732 million (2011: 195 million); • Total ordinary equity of the Group improved to R272 million as at 31 August 2012 (2011: R151 million); and • Medu Capital, a Black owned private equity investor, now owns 52% of the ordinary equity of the Group. Management now owns over 20% of the ordinary equity. The Group’s cash balances of R97 million (2011: R27 million) consisted of R91 million held in its own bank accounts and a R6 million share in joint venture bank accounts as at 31 August 2012, while the Group had no debt (2011: overdraft of R21 million) other than R12 million (2011: R16 million) of asset-based financing. Unutilised overdraft banking facilities of R40 million remain available to the Group. In addition, the facility limits for contract guarantees were increased by the Group’s insurance providers during the period under review. OPERATIONAL REVIEW During the previous financial year ended 29 February 2012, the Group incurred a material loss from the impairment and subsequent disposal of its external plant hire business. This disposal has enabled the Group to strategically focus on its core business of construction. The Corporate Office, which provides services to the operations, maintained its cost structure in-line with the prior year but has refocused its capabilities on risk reviews and growth opportunities. Civil Construction (CIVCON) Revenue increased by 15% as the division continued to grow its capacity in heavy civil engineering construction. The division produced sound profitability from most contracts entered into over the past 18 months. Several commercial claims were satisfactorily resolved during the period under review, however these upsides were negated by completion costs on historical contracts that had been poorly selected and tendered on in the difficult trading conditions post the 2010 FIFA World Cup. Activity in the mining and resources industry remains consistent while tender activity from government institutions continues to improve, and margins firm. Commercial and Industrial Building (ARMSTRONG) Revenue increased by 116% as the division increased both the scope and geography of its activities. The division worked throughout KwaZulu-Natal as well as the Eastern Cape and Gauteng. Estimated losses to completion have been taken on a substantial rural contract where logistical difficulties have been encountered. In addition, certain contract claims not yet agreed, in Armstrong’s favour, have arisen as a result of information delays and contract variations. Tender activity from both private and government clients have improved, but margins remain low. CONDENSED GROUP STATEMENT OF FINANCIAL POSITION as at 31 August 2012 Unaudited Unaudited Audited 31 August 31 August 29 February Figures in Rand thousands 2012 2011 2012 ASSETS Non-current assets Property, plant and equipment 70 397 98 013 76 575 Intangible assets 129 368 128 635 129 425 Deferred income tax assets 10 462 19 357 26 899 210 227 246 005 232 899 Current assets Inventories* 3 020 5 026 3 118 Trade and other receivables*# 333 386 286 793 293 882 Cash and cash equivalents 97 329 26 674 17 610 Income tax receivables 1 742 10 106 3 817 435 477 328 599 318 427 Assets of disposal group classified as held-for-sale – 37 183 – TOTAL ASSETS 645 704 611 787 551 326 EQUITY AND LIABILITIES Equity attributable to owners of the parent 271 791 183 439 95 131 Ordinary equity related 271 791 151 423 66 896 Preference share related** – 32 016 28 235 Non-controlling interests – (2 283) – TOTAL EQUITY 271 791 181 156 95 131 Liabilities Non-current liabilities Preference share related** – 68 782 74 033 Asset finance 8 282 6 387 4 868 Deferred income tax liabilities 449 13 111 11 365 Preference share related** – 12 450 10 980 Related to other timing differences 449 661 385 8 731 88 280 90 266 Current liabilities Borrowings 4 032 92 096 103 098 Shareholder loans – 53 225 68 769 Bank overdraft – 21 121 27 022 Minority shareholder loan – 8 010 – Asset finance 4 032 9 740 7 307 Trade and other payables* 361 150 238 065 262 831 365 182 330 161 365 929 Liabilities of disposal group classified as held-for-sale – 12 190 – TOTAL LIABILITIES 373 913 430 631 456 195 TOTAL EQUITY AND LIABILITIES 645 704 611 787 551 326 Total number of shares in issue (net of treasury shares and including contingently issuable shares) (’000) 730 818 193 848 193 848 Net asset value per ordinary equity share (cents) 37 78 35 ** Preference share subscription/redemption value – 113 248 113 248 * Materials on site and construction work in progress has been reclassified in the August 2011 comparative period from inventory to amounts due from contract customers and/or amounts due to contract customers to provide more meaningful disclosure. # Trade and other receivables have been ceded to the Group’s bankers as security for general banking facilities. GROUP SEGMENTAL REPORT The segment information set out below is based on the requirements of IFRS 8: Segment Reporting. The Executive Committee has determined the operating segments based on the reports that are used to make strategic decisions. The Executive Committee assesses the performance of the operating segments based on a measure of operating profit/(loss). 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 Executive Committee is measured in a manner consistent with that in the statement of comprehensive income. Commercial and Total continuing Discontinued Civils Construction Industrial Building Services operations operations Total Group August August August August August August August August August August August August Figures in Rand thousands 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Segment revenue and result Revenue Total external revenue 497 872 433 069 260 311 120 122 – – 758 183 553 191 – 17 586 758 183 570 777 Result Operating profit/(loss) before non-trading items 42 427 (18 815) (17 052) (2 222) (9 458) (8 080) 15 917 (29 117) – (71 297) 15 917 (100 414) Share-based payment expenses – – – – (791) (389) (791) (389) – – (791) (389) Operating profit/(loss) 42 427 (18 815) (17 052) (2 222) (10 249) (8 469) 15 126 (29 506) – (71 297) 15 126 (100 803) Segment assets and liabilities Assets 298 130 329 294 192 243 63 812 25 963 52 044 516 336 445 150 – 37 183 516 336 482 333 Liabilities (177 074) (202 443) (191 991) (43 405) (4 848) (132 098) (373 913) (377 946) – (52 685) (373 913) (430 631) Intangibles 187 212 546 607 128 635 128 635 129 368 129 454 – – 129 368 129 454 Net asset/(liability) 121 243 127 063 798 21 014 149 750 48 581 271 791 196 658 – (15 502) 271 791 181 156 CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY Total Share- share based Common Shares Non- capital and payments control to be Retained controlling Total Figures in Rand thousands premium reserve deficit issued earnings Total interests equity Balance at 1 March 2011 427 923 2 884 (177 246) 2 075 20 750 276 386 (1 864) 274 522 Total loss and comprehensive expense for the period – – – – (83 714) (83 714) (10 041) (93 755) Issue of shares – acquisition of subsidiary 2 075 – – (2 075) – – – – Non-controlling interests gain on loan forgiveness by owners of the parent – – – – (9 822) (9 822) 9 822 – Non-controlling interests share of losses recognised – – – – 200 200 (200) – Release of share-based payment reserve – (2 504) – – – (2 504) – (2 504) Value of employee services – 389 – – – 389 – 389 Balance at 31 August 2011 429 998 769 (177 246) – (72 586) 180 935 (2 283) 178 652 Total loss and comprehensive expense for the year – – – – (95 295) (95 295) – (95 295) Value of employee services – 401 – – – 401 – 401 Release of share-based payment reserve – – – – 2 504 2 504 – 2 504 Transfer of common control deficit – – 177 246 – (177 246) – – – Non-controlling interests gain on loan forgiveness by owners of the parent – – – – 6 586 6 586 (6 586) – Sale of businesses – – – – – – 8 869 8 869 Balance at 29 February 2012 429 998 1 170 – – (336 037) 95 131 – 95 131 Total loss and comprehensive expense for the period – – – – (35 775) (35 775) – (35 775) Rights issue and recapitalisation of shareholder funding 101 590 – – – – 101 590 – 101 590 Preference share conversion 112 263 – – – – 112 263 – 112 263 Reversal of income statement effect on preference share liability interest 7 648 – – – (7 648) – – – Share issue expenses (2 209) – – – – (2 209) – (2 209) Value of employee services – 791 – – 791 – 791 Balance at 31 August 2012 649 290 1 961 – – (379 460) 271 791 – 271 791 CONDENSED GROUP STATEMENT OF CASH FLOW for the period ended 31 August 2012 Unaudited Unaudited Audited 31 August 31 August 29 February Figures in Rand thousands 2012 2011 2012 Cash receipts from customers 721 553 512 921 1 102 020 Cash paid to customers, suppliers and employees (636 789) (562 532) (1 184 429) Cash generated from/(used by) operations 84 764 (49 611) (82 409) Finance income 224 835 1 159 Finance cost (1 045) (3 261) (3 739) Tax received/(paid) 2 075 (1 877) 4 384 Net cash inflow/(outflow) from operating activities 86 018 (53 914) (80 605) Acquisition of property, plant and equipment (4 688) (3 098) (4 836) Proceeds on disposal of property, plant and equipment 1 059 2 865 3 671 Proceeds from sale of subsidiary sold less cash – – 9 338 Acquisition of plant for hire – (191) (191) Proceeds on disposal of plant for hire – 1 151 1 151 Net cash (outflow)/inflow from investing activities (3 629) 727 9 133 Proceeds from shareholder loans 25 500 52 000 63 000 Proceeds from rights issue 923 – – Capitalised costs of debt restructure plan (2 209) – – Proceeds from/(repayment of) asset finance 138 (6 962) (14 642) Net cash inflow from financing activities 24 352 45 038 48 358 Net increase/(decrease) in cash and cash equivalents 106 741 (8 149) (23 114) Cash and cash equivalents at the beginning of the period (9 412) 13 702 13 702 Cash and cash equivalents and bank overdrafts at the end of the period 97 329 5 553 (9 412) Basis of preparation The consolidated interim financial information has been prepared in terms of International Financial Reporting Standards (IFRS), IAS 3: Interim Financial Reporting, the AC 500 series, the South African Companies Act, 2008, 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 29 February 2012. The preparation of these interim financial results was done under the supervision of the Group Financial Director, Andrew Ralph Langham, CA(SA). Any references to the future financial performance of the Group has not been reviewed or reported on by the company’s auditors. Directors: A Dawson (Chairman)# , SJ Flanagan (CEO) AR Langham (GFD), AH Henning, CHA Ramsay CJB Vermaak, ZR Angamia*, NP Mkwanazi* S Totaram*, NO Davies# *Non-executive #Independent non-executive Company Secretary: RK Braithwaite Registered office: Block 3 – Unit 6 The Willows Office Park 276 George Road, Erand Gardens, Midrand, 1685 Telephone: +27 11 206 9660 Auditor: PricewaterhouseCoopers Inc Designated and corporate advisor: PSG Capital (Pty) Limited Website: http://www.erbacon.co.za

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