Esorfranki will pay a R115 850 fine as a result of the Competition Commission’s investigation into collusion in the South African construction industry, says Esorfranki CEO Bernie Krone.

This is substantially less than the penalties reported earlier by larger competitors Raubex and Stefanutti Stocks, fined R58.8-million and R323-million respectively.

Krone says Esorfranki was found guilty on one matter, and has already “signed the cheque”.

However, the civils, geotechnical and pipelines group is not yet in the clear.

The Competition Commission’s investigation into alleged anticompetitive behaviour in the piling and drilling markets has been referred to the Competition Tribunal, following a failed settlement offer, but negotiations were reopened after the financial year-end.

The Esorfranki board is convinced an estimated penalty provision made in a previous financial year will suffice, notes Krone.

This provision is around R6-million, he adds, while Esorfranki believes the penalty should be more in the order of R2-million.

This investigation related to events prior to 2005.

Esorfranki reported a 31.3% increase in revenue to R2.3-billion for the year ended February 28, compared with the previous financial year.

Profit after tax was up 382% to R87.7-million.

The order book increased by 43.7% to R2.5-billion, up from R1.8-billion.

Operating cash decreased, however, by R60-million to R33.6-million.

Krone attributes this drop to the group’s strategy to invest in property developments in order to secure a project pipeline.

He adds that Esorfranki is “quite pleased” with the growth in the order book.

He notes that the group is attempting to secure more larger, longer-term civil contracts, rather than the shorter-duration contracts which are currently the norm. Another goal is to improve the company’s black economic-empowerment (BEE) status from Level 4 to Level 3 by the end of June, with Esorfranki in discussions with a BEE investment consortium on the acquisition of ordinary shares within the group.

Krone says Esorfranki has already lost a contract owing to its Level 4 status.

He adds that it is also a stated goal of the group to move away from government business into more private-sector developments, with continued expansion into Africa also on the table.

Government contracts in the geotechnical division, for the financial year ending February 28, decreased to 16% of the con- tracts awarded, down from 33% in the previous year, while also dropping to 55% in the civils division, down from 77%.
Government remained the sole client in the pipelines division.

Esorfranki earned 18% of its revenue outside South Africa in the past financial year, largely from the geotechnical division, with Krone keen to increase this number.

Following 20 years on the continent, the geotechnical division has operations in Angola, Ghana, Mauritius, Zimbabwe, Tanzania and Mozambique.