Esorfranki disposes Geotechnical division after ‘flat period’
Esorfranki CEO Bernie Krone said the geotechnical division “has been a bit flat over the past few years” — with annual revenues during the past three years of below R800m‚ compared with about R1.2bn prior to that.
Listed civil engineering and construction group Esorfranki yesterday announced the sale for R500m of its Geotechnical division — the group’s core founding business and only division operating in the rest of Africa.
Esorfranki CEO Bernie Krone said the geotechnical division “has been a bit flat over the past few years” — with annual revenues during the past three years of below R800m‚ compared with about R1.2bn prior to that.
The deal‚ with global ground-engineering specialist‚ Keller Group‚ will also see Esorfranki revert to its original name‚ Esor.
Following the sale announcement‚ Esorfranki’s share price dropped 12.8% to an intra-day low of R1.57‚ although the stock recovered to finish the day’s trade 6.11% lower at R1.69.
Mr Krone said the proceeds of the sale‚ which was subject to shareholder approval‚ would see Esorfranki “probably halving our debt”‚ as well as funding a proposed 38c special dividend for shareholders‚ and paying tax obligations from the deal.
“But we do want some money left over for working capital and future growth so that we can claw back the revenue that we have lost‚” Mr Krone said.
Esorfranki’s geotechnical division is its only arm operating in the rest of Africa. Mr Krone said other divisions had “priced work elsewhere” but had not yet “physically crossed the borders”.
Esorfranki Civils was eyeing opportunities in Botswana and Mozambique‚ while Esorfranki Pipelines had “some fairly hot prospects” in Zambia and Zimbabwe‚ he said.
Meanwhile‚ Mr Krone said Esorfranki’s newly-established developments division had secured “significant long-term visibility” through its projects in South Africa involving development infrastructure for entry-level housing.
The Orchards‚ Diepsloot East‚ Soshanguve and Uitvlugt projects were worth more than R4bn combined and would “go on for up to five years in certain instances”.
Although Esorfranki’s geotechnical division was its core founding business‚ more than half of the group now comprises Esorfranki Civils and Esorfranki Pipelines.
Mr Krone said the geotechnical arm’s relatively “flat” revenue growth was the result of stiff local competition and limited demand‚ which triggered margin squeeze and limited income growth.
Although prospects in the rest of Africa “have been more upbeat for the division”‚ Keller’s imminent entry into the African market “would have made its mark”.
Keller‚ which was 30 times the size of Esorfranki‚ “is a purely geotechnical contracting company that operates globally — everywhere except in sub-Saharan Africa”.
Had Keller acquired another geotechnical business in Africa‚ “we would have had them as a major competitor”.
Although Esorfranki had originally looked at doing a joint venture with Keller to grow its geotechnical operations‚ Keller was not interested‚ prompting Esorfranki “to go willingly” once the sale price was right.
A possible further R150m may be paid by Keller for the business‚ “contingent on the business’s performance over the next three years”.
Imara SP Reid research head Stephen Meintjes said the deal would “unlock value” for shareholders‚ who were likely to approve the transaction.
Mr Meintjes said : “I don’t think it will necessarily dent their growth” into the rest of Africa‚ while “obviously Keller is also angling for African growth”.
Although the geotechnical operations were a core part of Esorfranki’s business‚ the sale had “unlocked value” and would significantly reduce the company’s borrowings and gearing.
Esorfranki said comparative pro forma data provided to show the effects of the transaction showed basic and diluted earnings per share for the year ended February 2013 would have been 30.7% higher‚ while net asset value per share would have been up 6.3%.
