Johannesburg - Geotechnical and civil engineering contractor
Esrofranki [JSE:ESR] has returned to the black, reporting diluted headline
earnings per share of 6.2 cents for the year ended February 2012 from a loss of
12.8 cents a year ago.
The group's performance was enhanced by effective
rationalisation and optimisation processes in all divisions cementing a
healthier contract base. A number of major new contract wins saw the order book
stabilise at a solid R1.8bn at year-end.
Consolidated revenue increased to R1.8bn from R1.4bn in the
previous year and earnings before interest, taxation, depreciation, impairments
and amortisation (EBITDA) increased by 170.4% to R132.7m.
Revenue from foreign operations in Esorfranki Geotechnical
grew 34% to R273.7m, driving growth in the division's total revenue of 4%
year-on-year. Record revenues were recorded specifically in Mozambique and
Foreign operations achieved an operating margin of 14% and
contributed 68% to the division's total operating profit. In contrast SA-based
revenue was down 8% year-on-year due to intensifying competition, which further
saw a reduced gross margin contribution.
Operating margins did, however, improve substantially in the
second half of the year to 10%.
Esorfranki Civils' revenue increased 59% and the division
returned to profitability in the second half of the year, following prior
losses and margin reversals on the R21 contract and contract completion costs
on the N4 project (Phase I). These contracts have now been concluded.
The division has adopted stringent risk management in its
contract tendering and project execution policies to avoid a recurrence of such
adverse challenges in the future.
Operating margins in the division improved substantially to
10% in the second half of the year due to optimised operational efficiency on
existing long-term contracts. Exceptional plant utilisation was achieved on the
back of the ongoing capital expansion programme. Despite tightly competitive
conditions in the Government projects sector, the division managed to grow its
order book by 41%. Private sector awards included a R271m construction contract
for an integrated township development related to the mining industry.
Esorfranki Pipelines' revenue was up 35%, notwithstanding a
turbulent financial year which included the cancellation of the Western
Aqueduct contract. Revenue was further negatively impacted by contractual
disputes on the flagship BG 3 contract. However, the latter was resolved in
Esorfranki's favour on mediation. It has since been referred to arbitration by
the client and is expected to be finalised in FY2013.
Operating margins sustained a break even financial
performance. The division secured a number of new major contracts in the last
quarter of the financial year.
Looking ahead, the group said it would continue to explore
further expansion into Africa, while also keeping a keen eye on the domestic
market. The focus going forward will remain on expansion into new markets in
Africa, to strengthen and diversify revenue streams while taking advantage of
the SA government's renewed commitment to infrastructure.
This should offer Esorfranki significant opportunity, it
The group has secured a number of significant local and
African contracts in all divisions to overcome tough market conditions.
Esorfranki Geotechnical's first contract in Ghana, worth R13m, has been
completed and formed the foundation for a further three contracts in the
country for lateral support and marine structures worth R120m. Esorfranki
Civils has scooped long-term contracts including from Bakwena Corridor
Concessionaire, Gauteng Roads Department, Eskom and Anglo Coal, amongst others.
Esorfranki Pipelines' recent new contracts include a major project in
KwaZulu-Natal for Umgeni Water valued at R130m.
The next year to 18
months will see Esorfranki continue optimising efficiencies and prioritising
diversification of products, including opportunities in the solar green energy
arena for Esorfranki Geotechnical. Within SA, infrastructure development in power,
water, transport and resources is desperately required. Esorfranki is
well-positioned to take advantage of new projects as and when they come to the