Annual Presentation February 2014

Transcript Annual Presentation February 2014

CONSOLIDATED RESULTS

FOR THE YEAR ENDED 28 FEBRUARY 2014

STORY LINE

Lowlights Highlights

Loss making contracts in Civils Trading environment Geotechnical sale Developments established Pipelines maintained growth

Financial position

Gearing Order book Going concern

AGENDA

• Salient features • Financial overview • Operational overview • Strategy • Prospects and order book • Conclusion

SALIENT

FEATURES

SALIENT FEATURES

(CONTINUED OPERATIONS)

Revenue

R1,593bn ▲ 3,6% R1,538bn

Order book

R2,6bn ▲ 18,6% R2,2bn

Net cash

R20,9 million ▼ R33,6 million

Health & Safety

LTIFR 0,86 ▲ LTIFR 0,59

Non-recurring items in financial year 2014

• Sale of Geotechnical business • Impairment of goodwill

Reduced to 0,43 at April 2014

Gearing

27,0% ▼ 16,4% 32,3%

HEPS

(11,3) cents ▼ 155,1% 20,5 cents A year of many highs and lows

SALIENT FEATURES

CONTINUED

Sale of Geotechnical business

• Approval at GM - 18 November 2013 • Disposal valued at R592 million including fair value of contingent consideration of R65 million • Cash received to date R497 million • Outstanding Issues › Registration of off-shore properties › Rationalisation of legacy legal structures • Sale proceeds utilised as follows: R’mil › Settle HYB › Dividend of 38 cents/share › Working capital investment › Geotech borrowings settled 210 150 70 45

FINANCIAL

REVIEW

FINANCIAL RESULTS

IN CONTEXT

Major drainage at N4

Lowlights

• • • Finalisation of

loss making contracts

›

impacted by Marikana unrest, bridge design error and consequential late completion ›

Kriel Civils and Boxhole

contracts impacted by changes in construction methodology, subject to claims (not traded) ›

Hwelereng

road contract for RAL subject to numerous delays and consequential late completion

Labour unrest

impacted productivity on most sites

Civil’s

conservative view on estimated final completion margin on Kusile contracts

Highlights

• • • • Increase in revenue and profitability maintained in

Pipelines

• Established

Developments

business

Gearing Order book B-BBEE

down to 27% increase to R2,6 billion certified as Level 3 at 78,96 from level 4 On the back of weak markets with margins remaining under pressure

SUMMARY STATEMENT OF COMPREHENSIVE INCOME

Segmental summary of Earnings

Geotechnical Civils Pipelines Developments Corporate and eliminations

Consolidated earnings

Adjusted Loss/impairment of assets Loss on disposal of discontinued operations

Headline earnings 2014 R’000 50 178 (142 546) 29 319 962 (104 074) (166 161) 84 934 38 190 (43 043) 2013 R’000

62 203 39 380 21 543 (35 416)

87 710

(10 683)

77 027 10

STATEMENT OF COMPREHENSIVE INCOME

Continuing operations

Revenue EBITDA PBIT - Operating (loss)/profit before non-recurring items - Non-recurring items Net Finance expense PBT Taxation (Loss)/profit from continuing operations Order book

2014 R’000 1 592 835 (135 342) (281 761)

(158 639) (123 122) (37 440)

(319 201)

102 862

(216 339)

2 607 718

2013 R’000

1 538 101 163 454 74 890 64 207 10 683 (31 652)

43 238

(18 136)

25 102

2 168 485

% Change

3,6 (182,8) (476,2) (347,1) n/a 18,9

n/a

n/a

n/a

18,6

STATEMENT OF COMPREHENSIVE INCOME

Discontinued operations

Revenue EBITDA Attributable earnings Sale consideration NAV of discontinued operation Loss on disposal Net profit from discontinued operations Taxation effect Surplus on disposal

2014 R’000 724 052 96 361 50 178 592 485

624 458

(31 973)

50 178 36 349

54 554 2013 R’000

787 857 106 217 62 608

STATEMENT OF COMPREHENSIVE INCOME

Earnings per share

(Loss)/profit after tax Adjustment Headline earnings (Loss)/earnings per share (cents) Headline (loss)/earnings per share (cents)

2014 R’000 (166 161) 123 122 (43 039) (43,5) (11,3) 2013 R’000

87 710 10 683 77 027 23,5 20,5

STATEMENT OF FINANCIAL POSITION

Financial overview

Property, plant and equipment Intangibles and goodwill Financial asset at fair value Deferred tax Long-term receivables Trade debtors and contracts in progress

45 days in trade receivable

Inventories and land for development Taxation Cash and cash equivalents

Total assets NTAV/share 168,6 cents NAV/share 203,5 cents 2014 R’000 320 135 185 062 64 923 11 457 32 083 659 928 221 345 13 455 40 423 1 548 811 2013 R’000

822 678 392 051 3 22 729 27 726 826 713 69 721 14 513 67 647 2 243 781

2014 Current ratio 1,65 14

STATEMENT OF FINANCIAL POSITION

Financial overview

Share capital and reserves Secured borrowings Deferred tax liability Bank overdraft Preference shares Taxation Trade and other payables Provisions

Total equity and liabilities

Debt/equity

64 days in trade payables 2014 R’000 777 219 237 393 21 335 19 583 23 424 19 131 437 013 13 713 1 548 811 26,5% 2013 R’000

1 053 262 447 988 148 906 34 059 21 000 4 508 493 816 40 242 2 243 781 32,3%

CASH FLOW

600 500 400 300 200 100 0

Cash balance March 2013 EBITDA cash items Disposal of Geotech division Dividends paid Repay ment of HYB Disposal of fixed assets Other secured borrowings Acquisition of develop ment properties Acquisition of fixed assets Working capital Shares issued Tax paid Other investing activities Interest Cash balance February 2014 16

OPERATIONAL

REVIEW

THE YEAR

GENERAL

General market

• General tough contracting conditions - tight margins and fierce competition • Risk transfer to contractor • Focus on contract completion • Finalising commercial compensation claims • Still awaiting budgeted public sector expenditure • Tender activity increased but seems to be budgetary • Infrequent and delayed awards

Reaction

• Rebuilding order book - focus on skills • Cautious approach to Africa • Right-sizing

Action

• Look to consolidate construction operations in year ahead • Office established in Zimbabwe

PIPELINES

Pipelines

Revenue PBIT Segment assets Number of employees Revenue growth Operating margins Order book Pending awards Prospects Non-government Government

2014 R’000

579 285 39 892 254 857 1 163 79% 9% 654 205 351 700 1 380 000 -% 100%

2013 R’000

323 552 30 583 191 552 763 42% 10% 518 822 32 000 1 630 000 -% 100%

PIPELINES

CONTINUED

BG3 100ton crane Focus on project delivery pipe lift Office established in Zimbabwe

• Focused on contract completion and commercial compensation (BG3 and Mopani) • Infrequent and delayed awards impacting 2014/15 • Start-up of major contracts - Northern and Western Aqueduct • Competition from new entrants (perceived low barrier of entry) • Impact of level 3 B-BBEE rating • Cross-border focus - Namibia, Zambia and Zimbabwe › Time and cost • Sanitation project for eThekwini progressing well • Plant expansion of R10 million on back of awarded work

CIVILS

Civils

Revenue PBIT Segment assets Number of employees Revenue growth Operating margins Order book Pending awards Prospects Non-government Government

2014 R’000

961 599 (183 881) 788 590 1 969 (20,8)% (13,9)% 1 228 500 552 000 723 000 35% 65%

2013 R’000

1 214 549 76 525 963 994 2 701 47% 6% 1 269 039 1 235 000 2 940 000 45% 55%

CIVILS

CONTINUED

N4 Temporary staging to portal structure Look to continue consolidating construction operations in year ahead Reinvigorated business

• Loss making contracts (N4, Kriel and RAL) • Generally tough contracting conditions • Focus on contract completion and commercial compensation • Rebuilding order book at acceptable margins and risk • Still awaiting budgeted public sector expenditure • Delayed awards • Fierce competition at tight margins • Contracts at Kusile › Crushing nearing completion (no claims) › General services piping 62% complete (no claims) › Bulk earthworks - original contract nearing completion with minor claims › Underground facilities 51% complete with substantial scope changes and claims submitted • Plant optimisation nearing completion

CIVILS

LOSS MAKING CONTRACTS

Placing selected fill at N4

N4 Bakwena

• Contract award • Value at award • Duration 4 May 2011 R370 million originally 30 months

What happened

• Tendered at time of economic crisis at break even • Anticipated/historical productivity never achieved resulting in R62 million loss on allowable › Steel and fuel strikes in 2012/13 › Marikana killings in March 2013 › Platinum strike 2014 • Consequential effects: › Plant utilisation achieved 60% and R60 million loss › Late completion of project forecasted to be August 2014 with impact on P&G

What now

• Agreed programme with client - completion August 2014 • Reduced resources to activity levels • Negotiating contractual entitlements and claims • Design errors - variation agreed with costs

CIVILS

LOSS MAKING CONTRACTS

Earthworks at Kriel

Kriel Civils and Boxhole

Civils • Contract award 11 April 2012 • Value at award • Duration R109 million 12 months Boxhole • Contract award 11 April 2012 • Value at award • Duration R35 million 8 months

What happened

• Tendered at time of low work on hand at break even • Scope changed materially - subject to claim • Client imposed restrictions on methodology and access • Availability of client supplied materials • Consequential effects: › Productivity and utilisation never achieved, R32 million loss on labour and plant › Late completion of project – Civils in May 2014 – Boxhole in July 2014

What now

• Civil contract complete - snags being finalised • Agreed Boxhole programme with client - completion July 2014 • Reduced resources to activity levels • Continued with commercial claims process

CIVILS

LOSS MAKING CONTRACTS | CONTINUED

Road upgrade at Hwelereng for RAL

RAL road contract - Hwelereng

• Contract award • Value at award • Duration 10 March 2011 R80 million 18 months

What happened

• Tendered at time of economic crisis at break even • Re-work impacting completion • Availability of crushed materials • Never achieved tendered production rates • Consequential effects: › Productivity and utilisation never achieved, R27 million loss on labour and plant › Late completion of project with associated costs

What now

• Contract complete - handover finalised • Awarded associated works contract of R30 million, mainly subcontractors

CIVILS

TURNAROUND STARTED NOVEMBER 2012

Actions and timeline

• Loss making contracts • Productivity • Utilisation • Tender and estimating • Commercial • Civils Recovery Strategy 2014.ppt

Building bridges at Diepsloot 26

DEVELOPMENTS

Developments

Revenue PBIT Segment assets Number of employees Revenue growth Operating margins Order book Pending awards Prospects Non-government Government

2014 R’000

63 356 1 401 264 454 3 N/A 2,2% 724 632 895 876 4 000 000 51% 49%

2013 R’000

(1 668) 57 123 1 N/A N/A 410 900 1 000 000 2 000 000 N/A N/A

DEVELOPMENTS

CONTINUED

Orchards Completed houses Strategically important division due to secondary work potential for group

Established division during the year

•

Orchards

R30 million sales in 2014 › Project potential to be realised exceeds R240 million • • Broke ground at

Diepsloot East

, north of Johannesburg › Project potential to be realised exceeds R2 billion, with commercial element

Uitvlugt

is an integrated residential development in Three Rivers East with land transferred to Esor › Project potential excluding top structures to be realised exceeds R600 million •

Soshanguve

is a residential development in Tshwane with Esor acquiring development rights › Project potential to be realised exceeds R150 million • Division may expand into top structure development • Potential in social and gap housing expected to increase over the next few years • Demand for affordable housing exceeds supply, but may be impacted by rising interest rates and unemployment

STRATEGY

Strategic alignment to improve combined strength Keep it simple

Strategic themes

• Consolidate and rationalise • Streamline support functions • Build on strong brand • Leadership • Commercial astuteness • Cash flow • Positive about SADC

PROSPECTS AND ORDER BOOK

LOOKING AHEAD Prospects

• SANRAL - budget of R10 billion pa • Transnet - various rail and port projects in the pipeline • Eskom - ongoing work at Kusile and Medupi power stations with potential for Coal 3 • Major water projects planned for SA, Lesotho and Zambia • Schools - R5 billion worth of tenders submitted and still to be awarded

Order book

• Order book increased by 18,6% to R2,6 billion • One-year and total order book both at satisfactory levels against FY2014 revenue • Work on hand heavily weighted in favour of Government and Parastatal work

ORDER BOOK

2 year secured order book

Civils Developments Pipelines

Total secured

Non-government Government Pending awards Civils Developments Pipelines

Total pending Order book R’mil 1 228 500 724 632 654 586 2 607 718 13% 87% Secured revenue FY 2015 R’mil

828 500 157 000 357 498

1 342 998

11% 89%

Secured revenue FY 2015 + R’mil

400 000 567 632 297 088

1 264 720

15% 85%

552 000 895 876 351 700 1 799 576

257 000 41 053 235 700

533 753

295 000 854 823 116 000

1 265 823 33

ORDER BOOK

LEGACY LOSS MAKING CONTRACTS IN WOH

Old work still to be completed

R203,8m R25,4m

Impact of loss making contracts on 2015 order book

• Civils order book - R1,2 billion • Included FY15 order book is R25,4 million re legacy loss making contracts • Order book includes R203,8 million work secured prior to FY14 • New work secured represents 81% of order book R998,3m Old work still to be completed Old loss making work to be completed 2015 New secured work

CAPEX

CAPEX

Civils Pipelines Corporate

Total spend/approved

Depreciation Depreciation cover

2015 R’mil

20 300 6 960

27 260

48 124 0,57

2014 R’mil

26 313 9 596 2 117

38 026

61 780 0,62

2013 R’mil

132 406 17 083 1 626

151 115

79 807 1,89

CONCLUSION

IN SUMMARY

• Tough year across industry • Maintained growth in Pipelines • Established Developments

Actions taken

• Gearing improved • Controlled growth mainly in RSA with prospects in select African countries • Rebuilding Civils › Implemented and tracking progress › Complete loss making contracts › Improve commercial acumen

DISCLAIMER

Forward-looking statements This presentation contains forward-looking statements that, unless otherwise indicated, reflect the company’s expectations as at 28 February 2014. Actual results may differ materially from the company’s expectations if known and unknown risks or uncertainties affect its business or if estimates or assumptions prove inaccurate.

The company cannot guarantee that any forward-looking statement will materialise and, accordingly, readers are cautioned not to place undue reliance on these forward-looking statements. The company disclaims any intention and assumes no obligation to update or revise any forward-looking statement even if new information becomes available as a result of future events or for any other reason save as required by statute or regulation.

CONTACT US

Esor Limited 30 Activia Road, Activia Park, Germiston 1401 PO Box 6478, Dunswart, 1508, South Africa

Bernie Krone | CEO

+ 27 83 259 5984 +27 11 776 8700 +27 11 822 1158 [email protected]

Wessel van Zyl | CFO

+ 27 82 498 3518 +27 11 776 8700 +27 11 822 1158 [email protected]