Onerous aqueduct project splashes Esor results with red ink
Civil engineering and construction group swings into a loss for the year to February because of its struggling Northern Aqueduct project
Civil engineering and construction group Esor swung into a loss for the year to February because of its struggling Northern Aqueduct project and other asset write-downs.
The group reported a loss of R139.8m compared with profit of R3.7m in the prior financial year. The group has struggled over the past few years and its share price has fallen about 83% over the past five.
It reported revenue of R1.4bn to February 2017.
There was an increase in its order book to R1.54bn from R1.4bn at the end of the first half of its financial year.
CEO Wessel van Zyl said the top-line performance was satisfactory given the losses on the additional repair work that Esor completed at Northern Aqueduct, which amounted to R102m for the 2017 financial year.
The Northern Aqueduct is being built in Umhlanga and forms part of long-term plans to facilitate efficient delivery of water to the north of Durban.
"It remains an onerous contract to complete, given the nature of the repair work....
"A number of factors prevented completion by year-end, including rain and community unrest, resulting in cost overruns," said Van Zyl.
Esor expects to complete the project in December and is finalising an agreement on the replacement of bedding materials. Esor’s initial professional indemnity insurance claim relating to the repair costs of the defective welds at the project has been accepted and R48m has been given to Esor.
Van Zyl said profitability had also been affected by the impairment of Esor’s goodwill to the value of R51m.
He said Esor was in a healthy position to successfully navigate the next two years. Pending awards of R1.6bn at May 2017 meant Esor had secured sufficient work to see the group through the cycle ahead.
Investec chief economist Annabel Bishop said there were weaknesses in building and construction in SA.
"Building plans passed fell in the first quarter of 2017, suggesting there would be weak building activity in the second and third quarters of the year as the housing market is constrained by costs and affordability following on from rising interest rates and unemployment over the past few years," said Bishop.