Esor profit up despite revenue drop

Civils and construction company Esor on Thursday posted a 21.7% increase in profit for the six months ended September 30, up from R6.2-million in 2015, to R7.5-million this year.

Basic earnings a share for the half-year grew 24.2% to 2.05c, while headline earnings a share increased by 6.8% to 2.15c.

Esor noted that its profit was positively impacted on by improved productivity at Eskom’s Kusile site, following the introduction of a night shift, which had limited disruptions and ensured adequate access.

This was largely offset by losses at its Northern Aqueduct project, in KwaZulu-Natal, owing to additional repair works and a subsequent extended completion date. The project involves large-diameter bulk potable water pipelines that will augment eThekwini municipality’s existing bulk supply pipeline network.

As a result, the company, which has an order book of R1.4-billion that remains largely dependent on government, municipal and parastatal work, saw its revenue drop 13.8% to R666.3-million.

Esor notes that repair work following the quality issues identified at the Northern Aqueduct project during the first six months of the year is ongoing and expected to be completed during December.

One section has been tested and passed, with a further two sections currently undergoing testing. Esor expects construction work and testing to be completed by the middle of December, with the works handed over and the team off site by the end of February 2017.

A loss of R59.8-million was recognised at Northern Aqueduct during the previous financial year ended February 29, compounded by an additional loss of R31.4-million that accumulated during the current interim period. This represents the full loss to completion of the repairs in February 2017.

Meanwhile, the company submitted a number of insurance and contractual claims in pursuit of compensation from the specialist subcontractor and employer. These insurance claims are yet to be recognised, although Esor and its legal team remain confident that the cost of repairs will be recovered under the relevant insurance contract.

The group’s cash flow also remains under pressure given the additional costs incurred on the Northern Aqueduct project, the nonresolution of a number of claims and delayed payments from municipalities and water authorities.

Cash on hand at the end of the period was R18.5-million.

Esor added that the year ahead would remain challenging. “The continued lack of new major infrastructure works is still impacting on our ability to secure additional works and grow in the sector. To this end, we have managed to secure new mining infrastructure work and are also in final negotiations to secure further work in this sector,” said the company.

Esor’s Kusile power station contracts remain an anchor for the company and continue to perform strongly, with Package 25 nearing completion. All claims on this package have been successfully resolved and the project is profitable, says Esor.

“We are still in the final phases of negotiations on resolving the Package 26 claims that should be finalised by the end of this year. We have recognised revenue to the value of R105-million against these claims in the previous financial year and, to date, we have received R60-million as an interim payment against the claims,” it stated.

Meanwhile, Esor said that fierce competition in the pipejacking market partially accounted for the company’s reduced revenue for the six months under review, adding that the sector has been fully consolidated into the geographical footprint of the group, with contracts in five provinces in South Africa, as well as in Botswana.

The longer-term contracts are the O6 pipeline for Rand Water, which is nearing completion, as well as the 110 m jacks at Steelpoort for Basil Read.

“We are currently in negotiations with Basil Read on claims regarding the Steelpoort contract, which has had a R35-million negative effect on cash flow. A number of opportunities exist both within South Africa and Botswana that, once secured, will result in a full order book for the next six months,” said the company.

PORTFOLIO GROWTH
Esor also remains focused on identifying the right opportunities that fit its strategy, with the aim of growing its development portfolio on a considered and selective basis.

The Orchards development, near Pretoria, remains on track and the final extension will be ready for proclamation and registration by January 2017. The only remaining opportunities will be the two commercial sites that are available for development.

Esor’s affordable housing project in Khayelitsha, in the Western Cape, is awaiting the final administration step of land registration. A total of 368 serviced stands are available for development, with a number of sales in place following the registration, as well as a further 1 000 opportunities to be serviced and developed.

The group’s Uitvlugt integrated residential development, in Three Rivers East, near Vereeniging, is in the final phases of township planning and layout. This will be followed by environmental applications and approvals and will ultimately comprise 16 smaller phases. This will ensure the viability of the development but may take 12 months to get to market.