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Investor Overview

Erbacon Investment Holdings Limited listed on the Alternative Exchange (AltX) of the JSE Limited on 7 December 2007 and is the holding company for the following operating divisions: Erbacon Construction (Pty) Limited (Erbacon Construction), Civcontract Civils (Pty) Limited (Civcon), Davgram Construction (Pty) Limited (Armstrong Construction), Bo's Hire & Sales (Pty) Limited (Erbacon Small Plant), Erbacon Roads and Earthworks (Pty) Limited (Erbacon Roads and Earthworks) and BO’s Hire & Sales (Pty) Limited (BO’s Hire).

Following the excellent performance in 2010, the 2011 financial year proved to be a very difficult and disappointing one for the Erbacon Group, with all divisions (except Armstrong Construction) underperforming. The reasons for this were not just the severe market conditions that developed post the 2010 Soccer World Cup, but certain shortcomings in the management structure of the newly formed Group. This was recognised at an early stage, and steps were taken to correct the situation, the most important of which was the appointment of a Chief Executive Officer from outside the organisation. This had the effect of corporatising and rebalancing the owner/manager entrepreneurship culture with a more structured approach.

The Group’s objective is to position itself to tackle the larger construction projects, and also to achieve geographic and sector diversification. In order to achieve these objectives, capacity within the organisation has been strengthened considerably, and suitable opportunities are being pursued.

Financial Highlights – 28 February 2010

Revenue	R1, 011 billion
Operating profit / (loss)	(R80, 7 million)
Net profit / (loss)	(R68, 3 million)
HEPS	33.36 cents

Segmental performance	Revenue	Contribution
Civils Construction	R610,4 million	61%
Commercial and Industrial Building	R347 million	34%
Small Plant and Formwork	R53,6 million	5%

Business model

Civcon serves as a prime example of the Group’s focus on, and execution of, its business model. In 2009 Erbacon concluded a merger with Civcontract Civils (Pty) Limited (trading as Civcon) in terms of which Erbacon acquired all the shares in the issued share capital of, and all claims on, shareholders’ loan account against Civcon from the Civcon vendors of this well known Gauteng-based civils contracting company.

This acquisition is in line with the Group’s business model which is set to focus its energy and effort on:

• civils and related projects in the less interest rate sensitive public sector, and private sector (Civcon);
• expanding small plant and formwork hire to service the broader-based construction activity (Erbacon Small Plant); and
• commercial and industrial building developments (Armstrong Construction).

Erbacon believes its overall exposure, both to opportunity and risk, is well balanced as a result of its focus on these primary business segments.

In addition, Erbacon has also entered into a share subscription agreement with Medu Capital during 2009 in terms of which Medu Capital subscribed for 67 410 000 fully paid-up convertible, redeemable and participating preference shares. Medu Capital now has an economic interest of approximately 29, 41% in Erbacon, enhancing Erbacon’s overall BEE ownership status.

Building and construction sector

Looking ahead it is evident that the global economy and the South African economy in particular, have not yet fully recovered from the recession that came in the aftermath of the global financial crisis of 2008. However, there are signs that certain sectors within which we operate are showing signs of recovery. The mining sector, for example, is expected to experience moderate growth leading up to 2016. Some estimates anticipate the mining sector growing at an average rate of 3,4% per annum in that period, which will necessitate new investment in both mine production and processing capacity. Africa too, is caught up with major mining investments being made in Botswana, Ghana, Namibia, Tanzania, Zambia, the Democratic Republic of Congo, Mali, Senegal and Mozambique. Projects range from the expansion of coal, gold and diamond mines to new investment in lead extraction, zinc, uranium, copper, cobalt, nickel and titanium.

It is also widely accepted that an emerging Africa, with its burgeoning population, is in dire need of increased spending on infrastructure – specifically, in power, transportation and public amenities. Conversely, the building sector in South Africa remains under pressure. The outlook for new, private sector residential property development remains flat while commercial property vacancy rates remain high and industrial property is in oversupply.