JSE civils and construction group, Esor, ended the year to February 2014 in a solid financial position  with Pipelines significantly strengthened in the year and new start-up division Developments already performing well. On the back of an order book for existing operations up 18,6% year-on-year to R2,6 billion, the group is positioned for contained growth after a turbulent year. Esor’s Geotechnical business was sold to UK-based Keller Group plc for R592 million, which prevented future impeding of the business’ value, facilitated Esor’s full settlement of its R202,5 million high yield bond programme and helped reduce gearing.  Esor also managed to up its BEE status to level 3 in the year and even further improve its safety record. 

Esor CEO Bernie Krone says the return of the company to a satisfactory financial position is the result of the group’s strategic overhaul and consolidation.  “We have hunkered down and faced our challenges head-on – both macro and internal - which has made for a very tough two years,” he says.  “Reacting to the hard-hit economy and its impact on the group,  we sold our Geotechnical business to a future competitor in Africa who could have dominated the African geotechnical market and edged us out, applied the proceeds to settle our debt and strengthen our balance sheet, addressed major loss making contracts in Civils and rightsized and restructured the business to align with future work.” He adds that the group also started a new division – Developments – to augment revenues and open a new project stream for the remaining divisions of Civils and Pipelines.

Revenue for existing operations for the year grew slightly to R1,6 billion due mainly to a stellar performance in Pipelines, which posted a 79% increase in revenue. The group’s headline loss per share of 11,3 cents reflects the severe impact of the three loss-making contracts in the Civils business. Krone points out that two of the three contracts have since been completed, with the third due for completion in August. Gearing was lowered to a credible 27%.  The board did not declare a dividend but paid a special dividend during the year of 38 cents a share following the sale of the Geotechnical business.

He says: “The ongoing bleed from the problem contracts in Civils is admittedly a problem that should have been uncovered and stemmed earlier on.  We assume full responsibility at executive level and have addressed this and relooked at contracting practices and management reporting to prevent future recurrence.”  He explains that losses were compounded by contract margins that were only break-even to begin with given the dire economy and depressed construction market at the time of contracting. He adds that the relevant managers have been terminated and the Civils management team successfully revitalised with new appointments. The group has also devised a comprehensive turnaround strategy for the business.

During the year Civils’ fleet was reviewed and R78 million worth of old or sub-par equipment was sold.

Krone is excited about the potential of the new Developments business, “which is already contributing positively to the group in less than a year since establishment”.  Work in hand for the next two years totals R725 million with the full potential in excess of R4 billion.  There are four projects currently on the go in various phases, all in the affordable and low income housing sector.  Krone says this is good space to be as demand outstrips supply, although he cautions that the speed and scale of roll-out may be constrained by the availability and cost of bulk services.

Looking ahead he says the group is on a firmer financial footing supported by promising secured order books in all three divisions.  “The group has translated the hard lessons learned over recent years into a workable strategy, streamlined structure and viable businesses going forward.”  He concludes that the SADC region offers good opportunity in the foreseeable future and government and parastatal projects within South Africa are a strong prospect in light of committed budgets and projects planned for various sectors including roads, rail, ports, energy, water and schools. Esor shares closed yesterday at R0.32.