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Oct 25, 2012

Turnaround strategy sees Esorfranki restore profitability

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JSE-listed civil engineering and construction group Esorfranki has returned to profitablity in the six months ended August, with revenue increasing 33%.

The company on Thursday reported 300% growth in its headline earnings a share to 7.8c, up from a headline loss a share of 3.9c in the year-ago comparitive period, owing to group-wide rationalisation processes which were put in place in the previous financial year.

Esorfranki boosted its six-month revenue to R1.14-billion, while net asset value a share increased 16.5% to 267.9c.

CEO Bernie Krone said the group managed to grow its order book by 35% to R2.43-billion, despite the depressed South African construction sector.

“We are aiming to continue growing our order book with more long-term contracts,” he said, adding that Esorfranki’s focus would be on expansion into Africa, while capitalising on opportunities in the local market when they became available.

Krone was particularly upbeat about Gautrain private development spinoffs, stating that it expected signficant development to occur around Park station and into the Braamfontein surrounds, now that the final leg of the passenger rail system was operational.

Meanwhile, Krone said he was satisfied with the group’s well-sustained profitability in a still tough economic climate.

During the period under review, the group spent R126-million on beefing up property, plant and equipment, the majority in Esorfranki Civils.

Formerly beleaguered Esorfranki Civils saw an ongoing revival following on the stronger second half of the previous year. Revenue increased 69% to R599-million, while the division’s order book grew 101% to R1.8-billion with improved operating margins.

“The R21 road contract has turned around and is now breaking even and work on the Northern Cape’s Bestwood housing project is progressing well,” said Krone. Esorfranki’s part in the R340-million Orchards development, near Pretoria, also kicked off during the period.

With affordable housing projects planned in the Vaal Triangle and Thabazimbi and a low-cost housing development in Johannesburg, the group was expected to further capitalise on opportunities in housing.

He noted that securing mining sector contracts remained difficult in light of market conditions. Nonetheless, Esorfranki Civils managed to secure contracts at Kusile power station.

Esorfranki Pipelines achieved an order book of R314-million at period-end, which compensated for the loss of the Western Aqueduct contract in the previous year, while resolution of the ongoing BG3 contract dispute was expected in early 2013.

“We are optimistic regarding Esorfranki Pipelines’ prospects,” said Krone, referring to potential projects in KwaZulu-Natal and Gauteng, and further afield in the rest of the Southern African Development Community region.  He expected that the slow delivery of pipes from suppliers, which is currently hampering growth, would be alleviated in the next six months.

Turning to Esorfranki Geotechnical, he said growing offshore revenue reflected the success of expansion moves into sub-Saharan Africa, and offset to an extent a slowing South African construction sector.

“Locally competition remains stiff, although we have a 40% market share. Domestic revenue increased only 1.2%, with South Africa still beset by pricing pressures and limited demand, compared to offshore revenue, which grew 26%.”

He pointed out that Ghana, Mauritius and the coal mining sector in Mozambique offered some attractive opportunities for growth.  “Despite competitive markets Esorfranki Geotechnical expects to achieve targets in all regions this year.

“Although the Angolan market has become more competitive with the entry of international construction companies, the divison is confident of further contract awards,” Krone said.

Edited by: Mariaan Webb
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