Esorfranki Limited - results for the year ended 28 February 2010

HIGHLIGHTS
Revenue up 31,3%
PAT up 37,8%
NAV per share up 23,5%
HEPS up 15,6%

COMMENTARY
The audited summarised consolidated results of Esorfranki for the year ended 28 February 2010 ("the year") demonstrate the group's delivery of promised returns through sustained leadership and continued resilience in a challenging market, with significant year-on-year increases in profit after tax ("PAT") and headline earnings per share ("HEPS").

Revenue of R1,9 billion reflects the group's expansion from a geotechnical leader to a broader civil engineering operation, including the positive contributions of the civil engineering and pipelines acquisitions in 2009.

In a strategic milestone Esorfranki transferred to the `Heavy Construction' sector of the Main Board of the JSE on 25 June 2009, capping three successful years on AltX. The group is now appropriately positioned alongside civil engineering construction peers.

Financial results
Revenue increased 31,3% compared to the previous year with PAT of R197,6 million translating into HEPS of 71,3 cents, 15,6% higher than the previous year.

Earnings before interest, taxation, deprecation, impairments and amortisation ("EBITDA") increased 19,4% to R389 million from R325,9 million. EBITDA includes a R19,3 million amortisation of customer contracts following the acquisition of Esorfranki Civils (formerly Patula Construction (Pty) Limited) and Esorfranki Pipelines (formerly Shearwater Plant Hire (Pty) Limited).

The strengthening of the South African Rand in the second half of the year negatively impacted on the translation of foreign operation income, resulting in a post tax charge of R28,9 million.

Cash generated by operations remained robust at R159,6 million (2009: R161,6 million), after tax payments of R126,9 million following changes to the South African provisional tax regulations which became effective in the year.

Esorfranki met all its loan covenants during the year.

Review of operations

Notwithstanding the negative impact of excessive rain in the second half of the year, contract delays and pressure on margins, the business units achieved pleasing results in a challenging macro-economic environment. Esorfranki Geotechnical (comprising Esor Africa and Franki Africa)

As anticipated, revenue declined 20,6% to R944,8 million from R1,2 billion due to the adverse economic and trading conditions, resulting in a contracting market. Operating margins improved year-on-year by 3,3% to 17,4%. Foreign operations accounted for 27,2% (2009: 24%) of Geotechnical revenue.

The business unit recently won a number of major cross-border projects with a combined value of R55 million. These include pipe-jacking for a Gaborone sewer and piling and dynamic compaction for the Jwaneng Cut 8 project. Current contracts for both Gautrain and the new Kusile Power Station remain ongoing in the short-term.

Esorfranki Civils

Revenue increased 17,4 % to R715 million from R609 million in the previous year. The business unit achieved PAT of R100,5 million and respectable operating margins of 20,2%.

Esorfranki Civils is continuing work on Johannesburg's R21 between the N12 interchange and Pomona Road, and is also progressing with the R174 million contract for the second carriageway from the Modikane interchange to the R512 Brits West interchange on the N4. Esorfranki Pipelines

Esorfranki Pipelines posted year-on-year revenue growth of 13,6% to R229 million. Notwithstanding the negative impact of contract delays in the latter part of the year, the business unit posted operating profits of R31 million equating to operating margins of 13,6%.

The business unit was recently awarded a R240 million contract from Rand Water for the construction of the BG3 Pipeline.

CAPEX

Esorfranki regards fleet maintenance and enhancement as key to growth and a significant differentiator. During the year the group invested R96 million (2009: R188,4 million) in property, plant and equipment ("PPE") to expand and maintain operations. The Geotechnical business unit accounted for R42,8 million of this, with R49,7 million invested in PPE at Esorfranki Civils and R3,0 million at Esorfranki Pipelines.

To accommodate future growth and to maintain its competitive edge, the board hasapproved capital expenditure for Esorfranki of R72,0 million for the 2011 financial year.

Black Economic Empowerment

During the year Esorfranki improved its rating to a `Level 5' contributor (from `Level 6') in terms of the Department of Trade & Industry's B-BBEE Codes of Good Practice. The group has set the short-term target of elevation to `Level 4' and intends to focus on improving all areas of scorecarding to achieve this
objective.

Incorporating retail shareholders on the open market, direct black ownership stands at 29%. Included in this is the 4,4% stake in the company held by black staff through the Esor Broad Based Share Ownership Scheme. More than 85% of the group's 3 225 strong workforce is black and emphasis is placed on skills training and development to accelerate promotion into middle and senior management.

Prospects

The board remains positive that Esorfranki is on track to achieve its targets for the year ahead despite the continued tough trading conditions.

With an order book in hand of approximately R1,6 billion (Geotechnical: R534 million; Esorfranki Civils: R726 million; Esorfranki Pipelines: R314 million) prospects for growth are sufficiently promising to support the board's optimistic outlook.

Esorfranki will continue to focus on Africa and is expected to benefit from an established presence and operating track record in growth nodes on the continent. In the Geotechnical business unit the intention is to significantly escalate the foreign contribution to revenue from 27% to 40% to improve growth.

Esorfranki is therefore actively re-deploying plant and personnel across the continent including to Angola, Botswana, the DRC and Mozambique.

Esorfranki Civils anticipates continued construction projects, with work phases on the Medupi Power Station expected to come back on-stream following the IMF loan award to Eskom. In addition, the business unit is targeting opportunities in the mining sector, particularly in the coal and platinum arenas.

Esorfranki Pipelines is expected to benefit from increasing demand in KwaZulu- Natal, Gauteng and Mpumalanga mainly from municipalities and parastatals including Trans-Caledon Tunnel Authority.

Directorate

During the year Jonathan (Mlungisi) Hlongwane resigned as an independent non- executive director with effect from 26 February 2010. Alternate director to Dr FA Sonn, Johan van Reenen, resigned with effect from 30 November 2009. We thank both Mlungisi and Johan for their contribution.

Dividend declaration

The board has declared a dividend of 15,0 cents per share (2009: 15 cents per share), which equates to 4,75 times dividend cover on HEPS. It remains the policy of the group to review the dividend annually in light of cash flow, gearing and net external debt on the statement of financial position, future availability of credit and the covenants imposed in terms of current financing arrangements.

The salient dates for the dividend are as follows:
Last day to trade cum dividend Thursday, 10 June 2010
Shares trade ex dividend Friday, 11 June 2010
Record date Friday, 18 June 2010
Payment date Monday, 21 June 2010

No share certificates may be dematerialised or rematerialised between Friday, 11 June 2010 and Friday, 18 June 2010, both dates inclusive.
Annual general meeting
The annual general meeting of the company will be held at the company's offices,30 Activia Road, Activia Park, Germiston on Friday, 25 June 2010 at 10h00.