A profitable future predicted

LISTED construction group Esor believes it is positioned for profitable future growth after concluding legacy loss-making contracts and settling a claim on the Kusile power station project.

Wessel van Zyl, the chief executive of Esor, yesterday said the successful resolution in the six months to August of challenges facing Esor Civils meant the division was now positioned for a turnaround.

“The beleaguered Bakwena N4 contract incurred a further R50 million loss, primarily resulting from late completion due in part to late changes to the scope of works and the spillover from labour unrest at nearby Marikana mine.

“However, the road is now open and we have certification of completion. Prudent provisions have been made for associated costs,” he said.

Van Zyl said Eskom’s claims on the Kusile project had now also been finalised, resulting in more than R150m of advance payments being repaid. He said this had eliminated the balance sheet risk associated with these advance payments.

Van Zyl said a significant portion of the Esor Civils order book remained reliant on Kusile, but new contact terms had been agreed for the remainder of this project.

He added that two of the four Kusile projects, the joint venture projects for bulk earthworks and crushing, were successfully completed in the reporting period.

The remaining projects were for the terrace underground facilities and general service piping. Van Zyl said the terrace underground facilities contract remained subject to moderate delays and disruptions and a continued claims process was being dealt with on a monthly basis to ensure issues were addressed timeously.

Esor yesterday reported a headline loss a share of 6.59c for the six months to August compared to headline earnings a share of 0.01c in the previous corresponding period.

Revenue declined 22 percent to R789.8m from R1.01bn.

Van Zyl said this decline was in line with the consolidation initiatives under way at the group. The operating loss widened to R30.9m from R8.8m. The loss after tax increased by almost 62 percent to R24m from R14.8m. Net asset value a share deteriorated by 32 percent to 198.4c from 291.7c.

Net cash generated by operations improved to R38.6m from the R21.2m consumed in the previous corresponding period. However, Van Zyl said cash remained tight given the group’s working capital requirements. A dividend was not declared. The group has a consolidated two-year order book of R2.4bn and reports it has an imminent project pipeline of about R500m. Of the consolidated two-year order book, Esor Civils accounts for R1bn, Esor Pipelines R604m and Esor Developments R700m. Van Zyl said previously delayed projects were expected to come on stream and the consolidation and reorganisation within the group was nearing completion.

Esor shares rose by R2 yesterday to close at R24.