Esorfranki slips into the red

2011-05-26 09:18

Johannesburg - Geotechnical and civil engineering contractors Esorfranki [JSE:ESR] slipped into the red in the year ended February 2011, with a diluted headline loss per share of 12.8 cents after headline earnings per share of 70.5 cents a year ago. No dividend was declared.

The group's revenue was 26.5% lower at R1.366bn, with a pre-tax loss of R47.09m from a profit of R275.75m before. Earnings before interest, depreciation, impairments, amortisation and taxation (Ebitda) fell 87.4% to R49.07m.

The group said the results reflected a struggling construction sector which continued to depress group revenue and pressure margins. Esorfranki's weak performance was further impacted by substantial losses incurred on problem contracts and unusually inclement weather which hampered project progression.

Post year-end the group structure was streamlined for greater cost-efficiency and resilience in the prevailing economic conditions. This saw the divisionalisation of operations and their amalgamation into a single operating company effective from March 1 2011.

All group businesses are now housed under the re-branded company Esorfranki Construction, consolidating and strengthening the Esorfranki brand in the market. Esorfranki Geotechnical, Esorfranki Civils and Esorfranki Pipelines are therefore divisions of Esorfranki Construction.

It incurred once-off restructuring costs of approximately R7m and contract losses for the year of approximately R90m.

Esorfranki's work in hand and future pipeline remain healthy, with a secured order book in excess of R1.9bn, and awarded work imminently pending of approximately R1.2bn.

The rights offer announced in November 2010 was concluded post year-end in March 2011, successfully raising R200m for the group.

Looking ahead, the group said with 3.5% GDP growth in South Africa anticipated in 2011, increasing to 4% in 2012, a gradual recovery in the economy is evident. Nonetheless market conditions are expected to remain challenging in the short-term with a real improvement only noticeable in 2012 and more strongly in 2013.

On a positive note, Esorfranki has concluded loss-making contracts and secured a number of substantial new projects, which affirm the first signs of improving trading conditions.

Although sub-Saharan Africa offered little respite for the group during the year, high GDP growth targets in buoyant regions including Mozambique and Angola bode well for future growth. Other regions such as Mauritius and Tanzania also offer robust prospects and the group has secured a R35m contract in Mozambique and a R27m contract in Tanzania. The group is further targeting R200m worth of work in Angola.

A key growth driver in sub-Saharan Africa is expected to be the increasing demand for beneficiated resources. In addition the need for infrastructure development in power, water, transport and resources should result in inevitable investment, especially given the South African Government's recently-reiterated commitment in this regard.

"Esorfranki is well-positioned to take advantage of new projects coming to market," it concluded.