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GRF
GRF
GRF - Group Five - Audited group results For the year ended 30 June 2007
Group Five
Audited group results
For the year ended 30 June 2007
371 Rivonia Boulevard, Rivonia
PO Box 5016, Rivonia 2128, South Africa
Tel: +27 11 806 0111, 0860 55 55 56
Fax: +27 11 803 5520,
email: info@g5.co.za
www.g5.co.za
Incorporated in the Republic of South Africa
Reg. no. 1969/000032/06
JSE code: GRF
ISIN: ZAE000027405
Revenue (R`000)
Change 31.1%
2007 7 689 168
2006 5 864 721
EARNINGS PER SHARE BEFORE EXTERNAL BEE OWNERSHIP EXPENSE (cents)
Change 49.2%
2007 291
2006 195
Operating profits (R`000)
Change 62.6%
2007 391 624
2006 240 799
HEADLINE EARNINGS PER SHARE BEFORE EXTERNAL BEE OWNERSHIP
EXPENSE (cents)
Change 46.6%
2007 283
2006 193
Profit after taxation from continuing operations before external
bee ownership expense (R`000)
Change 44.0%
2007 243 731
2006 169 219
Dividend per share (cents)
Change 28.6%
2007 72
2006 56
Condensed Income Statement
for the year ended 30 June 2007
Audited
As As previously
restated reported
(R`000) 2007 2006 2006
Revenue 7 689 168 5 864 721 5 864 721
Operating profit 391 624 240 799 240 799
Fair value adjustment
relating
to investment properties 9 393 26 538 26 538
Fair value adjustment
relating to
investment in service 14 227 1 385 1 385
concessions
Expense relating to issue of
shares
in terms of BEE broad-based - (6 420) (6 420)
scheme
Expense relating to issue of
shares
in terms of external BEE - (91 000) -
ownership scheme
Profit before finance costs 415 244 171 302 262 302
and taxation
Finance costs (41 953) (30 329) (30 329)
Profit before taxation 373 291 140 973 231 973
Taxation (129 560) (62 754) (62 754)
Profit after taxation from
continuing operations 243 731 78 219 169 219
Loss for the year from
discontinued operations (1 129) (21 074) (21 074)
Profit for the year 242 602 57 145 148 145
Allocated as follows:
Equity shareholders of Group 234 879 52 555 143 555
Five Limited
Minority interest 7 723 4 590 4 590
242 602 57 145 148 145
Determination of headline
earnings:
Attributable profit 234 879 52 555 143 555
Deduct after tax effect of
- fair value increase in (6 669) (16 850) (16 850)
investment property
- Losses on disposal of
discontinued operations - 15 254 15 254
Headline earnings 228 210 50 959 141 959
Condensed Balance Sheet
as at 30 June 2007
Audited
(R`000) 2007 2006
ASSETS
Non-current assets
Property, plant and equipment and
investment property 1 836 073 522 794
Investments - service concessions 73 928 59 701
Other non-current assets 188 215 210 139
2 098 216 792 634
Current assets
Other current assets 3 955 084 3 060 102
Bank balances and cash 670 507 712 999
4 625 591 3 773 101
Non-current assets classified as held for 163 967 338 667
sale
Total assets 6 887 774 4 904 402
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to equity holders
of the parent 1 612 587 681 257
Minority interest 9 335 1 762
1 621 922 683 019
Non-current liabilities
Interest bearing borrowings 902 475 126 305
Other non-current liabilities 94 147 35 364
996 622 161 669
Current liabilities
Other current liabilities 4 227 456 3 767 580
Bank overdrafts 41 774 143 849
4 269 230 3 911 429
Liabilities directly associated with non-
current
assets classified as held for sale - 148 285
Total liabilities 5 265 852 4 221 383
Total equity and liabilities 6 887 774 4 904 402
Condensed Cash Flow Statement
for the year ended 30 June 2007
Audited
(R`000) 2007 2006
Cash flow from operating activities
Cash from operations 487 195 307 099
Working capital changes (388 685) 294 164
Cash generated from operations 98 510 601 263
Finance costs (41 953) (30 329)
Taxation and dividends paid (164 270) (194 350)
Net cash (utilised in)/generated by
operating activities (107 713) 376 584
Property, plant and equipment and
investment property (net) (112 003) 20 926
Investments (net) (42 849) 26 799
Net cash (utilised in)/generated by
investing activities (154 852) 47 725
Net cash generated from financing activities 295 733 67 407
Net cash generated by/(utilised in)
discontinued operations 26 415 (100 681)
Net increase in cash and cash equivalents 59 583 391 035
Statistics
as at 30 June 2007
Audited
As As
previously
restated reported
(R`000) 2007 2006 2006
Number of ordinary shares 92 421 101 73 918 218 73 918 218
Shares in issue 118 446 901 99 724 556 99 724 556
Less: Shares held by (26 025 (25 806 338) (25 806 338)
share trusts 800)
Weighted average shares 80 672 73 496 73 496
(`000s)
Fully diluted weighted 98 056 80 903 80 903
average shares (`000s)
Earnings per share - R 2,91 0,72 1,95
Earnings per share from
continuing
operations - R 2,93 1,00 2,24
Headline earnings per 2,83 0,69 1,93
share - R
Headline earnings per
share from
continuing operations - R 2,84 0, 98 2,22
Fully diluted earnings 2,40 0,65 1,77
per share - R
Fully diluted earnings
per share from
continuing operations - R 2,41 0,91 2,04
Fully diluted headline
earnings
per share - R 2,33 0,63 1,75
Fully diluted headline
earnings per share
from continuing 2,34 0,89 2,02
operations - R
Dividend cover (based on
earnings
per share) 4,0 1,3 3,5
Dividends per share 72,0 56,0 56,0
(cents)
Interim 30,0 20,0 20,0
Final 42,0 36,0 36,0
Net asset value per share 17,45 9,22 9,22
- R
Net debt to equity ratio 36,9 - -
Current ratio 1 1 1
Condensed Statement Of Changes In Equity
for the year ended 30 June 2007
Audited
As As
previously
restated reported
(R`000) 2007 2006 2006
Balance at 1 July 683 019 601 218 601 218
Translation differences arising from
foreign operations (6 475) (28 915) (28 915)
Share options and BEE ownership
transaction costs 7 879 99 339 8 339
Issue of shares 750 000 - -
Attributable profit for the year 242 602 57 145 148 145
Distribution to minorities (150) (7 134) (7 134)
Dividends paid (54 953) (38 634) (38 634)
Balance at 30 June 1 621 922 683 019 683 019
Segmental Analysis - Primary
for the year ended 30 June 2007
Audited
(R`000) 2007 2006
REVENUE
Infrastructure Concessions 226 016 189 247
Property Developments 307 784 126 970
Manufacturing and Construction Materials 754 849 472 975
Everite 457 925 450 736
Quarry Cats 231 081 -
Group Five Pipe 65 843 22 239
Construction 6 400 519 5 075 529
Building and Housing 3 121 921 2 788 466
Civil Engineering 2 484 293 1 662 700
Engineering Projects 794 305 624 363
Total revenue 7 689 168 5 864 721
OPERATING profit
Infrastructure Concessions 17 927 12 398
Property Developments 25 164 25 132
Manufacturing and Construction Materials 112 050 60 205
Everite 55 189 56 658
Quarry Cats 45 531 -
Group Five Pipe 11 330 3 547
Construction 236 483 143 064
Building and Housing 84 276 78 903
Civil Engineering 105 037 50 169
Engineering Projects 47 170 13 992
Total operating profit 391 624 240 799
Capital Expenditure And Depreciation
for the year ended 30 June 2007
Audited
(R`000) 2007 2006
Capital expenditure for the year 374 214 263 379
Capital expenditure committed or
authorised for the next year 234 585 151 156
Depreciation for the year 105 261 70 874
Estimates And Contingencies
The group makes estimates and judgements concerning the future,
particularly with regards to construction contract profit taking,
provisions, arbitrations and claims and various fair value accounting
policies. The resulting accounting estimates and judgements can, by
definition, only approximate the actual results. Estimates and judgements
are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.
Total financial institution guarantees given to third parties on behalf of
subsidiary companies amounted to R2 375 million as at 30 June 2007 compared
to R1 977 million at 30 June 2006. The directors do not believe any
exposure to loss is likely.
Dividend Declaration
The directors have declared a final dividend number 59 of 42 cents per
ordinary share (2006: 36 cents) payable to shareholders.
To comply with the requirements of STRATE the relevant details are:
Event Date
Last day to trade (cum-dividend) Thursday, 20 September 2007
Shares to commence trading (ex- Friday, 21 September 2007
dividend)
Record date (date shareholders Friday, 28 September 2007
recorded in books)
Payment date Monday, 1 October 2007
No share certificates may be dematerialised or rematerialised between
Friday, 21 September 2007 and Friday, 28 September 2007, both dates
inclusive.
Accounting Policies
These consolidated condensed financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS) and
Schedule 4 of the South African Companies Act. The accounting policies are
consistent with those used in the prior year other than as set out below:
AC 503 - "Accounting for Black Economic Empowerment (BEE) transactions" and
IFRIC 8 - "Scope of IFRS 2", which were effective for all years beginning
on or after 1 May 2006 concluded that the discounts arising on the issue of
shares to external BEE shareholders in terms of a BEE ownership transaction
should be expensed if there are no performance related conditions. As a
result, the R91 million discount arising on the group`s external BEE
ownership transaction, which was concluded on 29 September 2005, has been
accounted for as of that date. All prior years` reported results have been
restated accordingly.
These results have been audited by PricewaterhouseCoopers Inc., Chartered
Accountants (SA), Registered Auditors. Their unqualified audit opinion is
available for inspection at the company`s registered office.
Commentary
Overview
The group is pleased to announce another solid year of growth. Earnings per
share increased by 49.2% from R1,95 to R2,91 and headline earnings per
share increased by 46.6% from R1,93 to R2,83. To ensure a like-for-like
comparison, the prior year`s figures are stated before accounting for the
cost of the external BEE ownership transaction, as noted under Accounting
Policies.
The group is also pleased to announce that during the year it successfully
bid, in joint venture, for the R6,8 billion King Shaka International
Airport and the R1,8 billion Moses Mabhida Durban Soccer Stadium for the
2010 World Cup. Post year end, the group has also been awarded a R1,8
billion contract by Transnet to widen Durban`s existing harbour by 100
metres and to increase the depth by six metres. Group Five`s share in the
above work amounts to R4,3 billion over the next two to three years.
Group revenue increased by 31.1% from R5 865 million to R7 689 million and
operating profit increased by 62.6% from R241 million to R392 million. The
group achieved its short term overall operating profit margin percentage
goal of 5% by recording a margin percentage of 5.1% (2006: 4.1%).
Fair value upward adjustments of R23,6 million (2006: R27,9 million) were
recorded during the year, relating primarily to the group`s interests in
its Eastern European service concessions.
Despite the increase in operating profit, cash generated from operations
decreased from R601,3 million to R98,5 million. This was primarily due to
the growth in revenue, particularly in Civil Engineering as opposed to
Building and Housing over the last six months. Civil Engineering is
traditionally more working capital intensive than Building and Housing due
to differing contract conditions in terms of payments and the fact that
Civil Engineering consists of more own work than Building and Housing,
which is more sub-contractor based. This was not unexpected and was one of
the reasons for issuing the group`s corporate bonds, noted later. The cash
situation is regarded as a once-off switch due to a change in business mix
and the short term target of the group is to be cash neutral in working
capital going forward.
Cash of R154,9 million was spent on investing activities (2006: R47,8
million cash inflow) due to investments in investment property of R65,3
million (2006: R7,1 million) and net cash to acquire Quarry Cats of R42,8
million. In addition, cash inflows from the proceeds on the disposal of
the JSE bare dominium of R73,9 million were recorded in F2006.
Net cash generated from financing activities of R295,7 million (2006: R67,4
million) reflects the raising of the R850 million bonds and the
restructuring and repayment of the majority of the group`s finance leases,
which were at higher interest rates.
Net cash of R26,4 million (2006: R100,7 million outflow) was generated from
discontinued operations relating to net payments received in the current
year from the sale of Vaal Sanitaryware and DPI Plastics. All of the above
resulted in net cash generated of R59,6 million (2006: R391 million). Cash
and cash equivalents at the end of the year amounted to R628,7 million
(2006: R569,2 million).
In line with expectations, finance costs increased by 38.3% from R30,3
million to R41,9 million. This was mainly due to the issue of the bonds at
the end of February 2007 following the refocusing of the group, as
discussed under Business Restructuring. The group was awarded an A1 short
term and an A long term rating by the international credit rating agency,
Global Credit Rating.
The effective tax rate of 34.7% is higher than the South African statutory
tax rate of 29% due to the effect of secondary tax on companies paid,
together with the final losses incurred in Angola for which no deferred tax
asset has been raised.
The final dividend of 42 cents per share (2006: 36 cents) brings the total
dividend for the year to 72 cents per share (2006: 56 cents), an increase
for the year of 28.6%. The dividend is in line with the group`s philosophy
of four times covered based on earnings per share.
Business Refocusing
As noted in the interim announcement on 15 February 2007 and subsequent
SENS announcements, the group continued its business refocusing, which was
started in F2006. This is aimed at continuing Group Five`s stated strategy
of building a balanced portfolio across focused geographies.
During the current year, the following were concluded:
* Final approvals for the sale of Vaal Sanitaryware and DPI Plastics
* Final approvals for the acquisition of Quarry Cats, a sand and stone
supply, contract crushing and readymix supply business, with effect from 1
February 2007. This was fully funded through an issue of shares
* The issue of R850 million bonds out of a R1 billion domestic medium-term
funding note programme on the Bond Exchange of South Africa at the end of
February 2007 to fund potential future acquisitions, eliminate expensive
short term debt, manage working capital and consolidate long term finance
leases
* Final approvals for the acquisition of Sky Sands, a business involved in
the supply to building materials merchants, the building industry and the
pre-cast concrete products industry, with effect from July 2007
This business complements Quarry Cats and further expands the group`s
presence in the infrastructure sector.
The group will continue to review its current businesses, as well as
further opportunities to:
* Align itself to and diversify itself along the infrastructure value chain
* Enhance profit margins and cash generation
* Take interests in strategic investments
Operational Review
As outlined above, the group continued to modify its structure in F2007.
The current structure is as follows:
Investments And Concessions
Infrastructure Concessions
Infrastructure Concessions
Property Developments
Property Development
Manufacturing And Construction Materials
Manufacturing And Construction Materials
Everite Building products
Quarry Cats
Group Five Pipe
Construction
Construction
Building And Housing
Civil Engineering
Engineering Projects
Investments And Concessions
Investments and Concessions consists of Infrastructure Concessions and
Property Developments. Infrastructure Concessions includes toll road
concession contract developments. Property Developments creates quality
Group Five branded property assets generating operating investment returns.
Investments and Concessions contributed 6.9% (2006: 5.4%) to group revenue.
Infrastructure Concessions
The business currently consists of toll road operations and maintenance
services, including toll system design, procurement, implementation and
operation and routine road maintenance services, together with equity
interests in selected toll road service concessions.
The presentation of the results of this business was amended in the current
and prior year to more accurately reflect the operating results of the
business. Direct costs incurred in pursuing large-scale contracts, which do
not relate specifically to this business, have been reallocated throughout
the group.
Revenue, which consists primarily of fees for the operation and maintenance
of toll roads, increased in line with budget by 19.4% from R189,2 million
to R226 million, primarily due to the unfolding of the operations in
Hungary and Poland.
Due to the increasing contribution from Eastern Europe, the operating
profit margin increased to 7.9% (2006: 6.6%), with operating profit
improving by 44.6% to R17,9 million (2006: R12,4 million). In addition,
outside of operating profit, the business recorded R14,2 million (2006:
R1,4 million) fair value increases relating to investments in its Eastern
Europe concession businesses.
Property Developments
Since its inception three years ago, Property Developments has focused on
property development opportunities in South Africa in the commercial,
industrial, retail and residential markets, together with taking an
interest in specific investment properties.
Its revenues consisted primarily of development fees, rentals on investment
properties and profits made through the conclusion of property development
sales. In addition, its profitability was enhanced by fair value increases
on its investment properties, although these increases are reflected
outside of operating profits.
In the year under review, Property Developments` revenue doubled in line
with its capacity and expectations to R307,8 million (2006: R126,9
million). Operating profit was in line with the prior year at R25,1
million, although operating profit margin percentage decreased to a more
realistic 8.2% (2006: 19.8%). This was in line with expectations, as F2006
was positively affected by the profits from a once-off large-scale
redevelopment of one of the previous Everite factories. In addition,
outside of operating profit, the business recorded fair value increases of
R9,4 million (2006: R26,5 million) relating to its investment properties.
The group is currently evaluating a repositioning of its property
development portfolio.
Manufacturing And Construction Materials
Manufacturing and Construction Materials contributed 9.8% (2006: 8.1%) to
group revenue. The increased contribution from the prior year was primarily
due to the acquisition of Quarry Cats,
with effect from 1 February 2007. Operating profit almost doubled to R112,1
million (2006:
R60,2 million) and overall operating profit margin percentage improved to
14.9% (2006: 12.7%).
Everite continued to operate at full capacity, with the newly installed
capacity coming on line in July 2007 and expected to increase output by 20%
to 25% over the next few years. Although pressure on prices continued to
affect the business` performance, revenue remained in line with the prior
year at R457,9 million (2006: R450,7 million), with the operating profit
margin percentage maintained at 12.1% (2006: 12.6%).
Quarry Cats performed in line with expectations since its acquisition on 1
February 2007 and achieved revenue of R231,1 million, with operating profit
of R45,5 million at an overall operating profit margin percentage of almost
20%. Quarry Cats is margin enhancing, complements the group`s expansion and
growth strategy in the infrastructure sector and mitigates the risk of
future material shortages with respect to key building and infrastructure
contracts in Gauteng. The group`s management also has prior experience in
the crushing and readymix concrete sectors. The outlook is extremely
positive for this business and further contract mining opportunities are
being pursued.
As with Quarry Cats, with the group`s purchase of Sky Sands with effect
from 1 July 2007, additional margin-enhancing capacity has been secured in
the infrastructure value chain and further mitigation of material shortage
risk has been assured.
As noted in the prior year and in the interim announcement, the full
positive effects of the VRESAP pipeline contract flowed through the group`s
joint venture, Group Five Pipe, in the current year. Group Five`s share of
the revenue and operating profits trebled to R65,8 million (2006: R22,2
million) and R11,3 million (2006: R3,5 million), respectively, resulting in
an operating profit margin percentage of 17.2% (2006: 15.9%). Further work
is being pursued.
Construction
The group`s largest contributor at 83.2% (2006: 86.5%) of revenue continued
its strong growth and remains well positioned for future growth in the
sector, both locally and internationally.
Overall construction revenue increased by 26.1% from R5 076 million to R6
401 million and operating profit increased by a significant 65.3% from R143
million to R236 million, resulting in an overall operating profit margin
percentage of 3.7% (2006: 2.8%). The group is confident that given the
current market conditions, a medium term operating profit margin percentage
of 5% is achievable for the overall construction business. In fact, this
business sector achieved a margin of 5% for the six months ending 30 June
2007.
Building and Housing revenue increased by 12.0% from R2 788 million (73%
local) to R3 122 million (73% local), while operating profit increased by
6.8% from R78,9 million to R84,3 million, resulting in the overall
operating margin percentage remaining constant at around 2.7% (2006: 2.8%).
As noted in the interim announcement, the prior year`s margins were
positively affected by the completion of higher-margin East African
contracts. Margins continue to remain tight in the local market and the
group has started transferring skills to work in joint venture with the
Civil Engineering business where higher-margin work is coming through,
particularly on the large contracts such as the King Shaka Airport and the
Moses Mabhida Durban Soccer Stadium for the 2010 World Cup. Accordingly,
the secured one year order book is R1,9 billion (100% local) compared to
R2,5 billion at 30 June 2006.
Civil Engineering revenue increased by 49% from R1 663 million (35% local)
to R2 484 million (33% local), while operating profit more than doubled to
R105 million from R50,2 million, resulting in an operating profit margin
percentage increase to 4.2% (2006: 3%). Civil Engineering activity locally,
in Africa and Dubai continues to improve and Dubai, in particular, produced
its best results to date. The secured one-year order book stands at R2,2
billion (45% local), the highest of the construction businesses and
surpassing Building and Housing for the first time in many years,
reflecting the increased activity in this sector. This compares favourably
to a secured one-year order book of R1,8 billion at 30 June 2006.
Subsequent to year-end, an agreement was reached with the group`s sponsors
in Dubai, Al Naboodah Construction Group, to form a new joint venture
company to grow the current civil engineering business and set up an
engineering projects business in the mechanical, electrical and piping
market. This should ensure sustainable growth in this region going forward.
Engineering Projects had an impressive year following the disappointing
results in the prior year. Revenue increased by 27.2% from R624 million
(33% local) to R794 million (26% local) and operating profit more than
trebled from R14 million to R47 million, with operating profit margin
percentage improving to 5.9% (2006: 2.2%). Activity in the mining and power
sectors in Africa remains buoyant and, as noted above, an opportunity
exists to enter Dubai. The secured one-year order book stands at R735
million (27% local), which, prior to this year, is equal to or greater than
the annual revenues achieved in this business in the previous five years.
This compares favourably to the secured one-year order book at 30 June 2006
of R400 million.
BOARD CHANGES
During the year under review and subsequent to the year-end, a number of
changes were made to the board of directors:
* Ms P Buthelezi was appointed to the board on 4 July 2007 to take over as
chairperson from
Mr D Paizes who will be retiring on 16 October 2007 after serving for 11
years on the board, of which two were as chairman
* Mr MR Upton was appointed to the board on 17 November 2006 to take over
as CEO on 1 April 2007 from Mr MH Lomas who retired on 31 March 2007
* Mr PS O`Flaherty, deputy CEO and CFO, resigned with effect from 30 June
2007. A replacement CFO is actively being sought
* Mr MR Maruma resigned on 26 January 2007 to pursue other opportunities
* Mr MSV Gantsho was appointed on 17 November 2006. He is a representative
of the iLima consortium, a partner in the group`s BEE ownership
shareholding structure
Prospects
The construction one-year order book stands at R4,8 billion, of which 63%
is local. Given the current group construction revenue capacity of around
R7,3 billion, significant scope exists to enhance profitability through
securing higher-margin work. The construction market, particularly in South
Africa, remains strong. This strong environment provides the group with the
scope to choose higher-margin contracts, improve management of cash flows,
reduce risk exposure on new contracts and maximise its allocation of
resources.
With a full year`s contribution from Quarry Cats and Sky Sands at higher
than average margins and increased capacity output from Everite, the
Manufacturing and Construction Materials business is expected to provide an
increased contribution to operating profit in the next year.
Given the above, the group is expected to achieve further strong earnings
growth in F2008.
On behalf of the board
D Paizes M R Upton
Chairman Chief Executive Officer
8 August 2007
Date: 13/08/2007 08:00:06 Produced by the JSE SENS Department.
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