| Mon 11 Aug 2008, 8:00 | | GRF - Group Five Limited - Audited Group Results For The Year Ended 30 June 2008 |
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GRF
GRF
GRF - Group Five Limited - Audited Group Results For The Year Ended 30 June 2008
GROUP FIVE LIMITED
371 Rivonia Boulevard, Rivonia
PO Box 5016, Rivonia 2128, South Africa
Tel: +27 11 806 0111, 0860 55 55 56
Fax: +27 11 803 5829, 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
AUDITED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2008
Highlights
40.3%
OPERATING
MARGIN
(%)
`08 7.14%
`07 5.09%
62.3%
Operating
Profits BEFORE FAIR VALUE ADJUSTMENTS
(R`000)
`08 635 660
`07 391 624
CASH AND CASH EQUIVALENTS
(R`000)
`08 1 824 214
`07 628 733
57.9%
FULLY DILUTED EARNINGS PER SHARE
(Cents)
`08 379
`07 240
70.8%
FULLY DILUTED HEADLINE EARNINGS PER SHARE
(Cents)
`08 398
`07 233
CONDENSED INCOME STATEMENT
for the year ended 30 June 2008
2008 - 2007 Audited
(R`000) % change 2008 2007
Revenue 16 8 899 578 7 689 168
Operating profit before fair
value adjustments 62 635 660 391 624
Fair value adjustment
relating to
investment properties - 9 393
Fair value adjustment
relating to
investments in service 111 464 14 227
concessions
Income from associates 140 -
Operating profit 80 747 264 415 244
Finance costs - net 95 (81 727) (41 953)
Profit before taxation 78 665 537 373 291
Taxation 61 (208 041) (129 560)
Profit after taxation from
continuing operations 88 457 496 243 731
Loss for the year from
discontinued operations (28 207) (1 129)
Profit for the year 77 429 289 242 602
Allocated as follows:
Equity shareholders of Group 418 507 234 879
Five Limited
Minority interest 10 782 7 723
429 289 242 602
Determination of headline
earnings:
Attributable profit 418 507 234 879
Deduct after tax effect of
?- fair value increase in - (6 669)
investment property
?- profit on sale of (7 328) -
investment property
?- Losses on disposal of 28 207 -
discontinued operations
Headline earnings 93 439 386 228 210
CONDENSED BALANCE SHEET
as at 30 June 2008
Audited
(R`000) 2008 2007
ASSETS
Non-current assets
Property, plant and equipment and 2 256 584 1 836 073
investment property
Goodwill 24 859 -
Investments - service concessions 135 070 73 928
Other non-current assets 152 448 188 215
2 568 961 2 098 216
Current assets
Other current assets 4 709 212 3 955 084
Bank balances and cash 1 835 813 670 507
6 545 025 4 625 591
Non-current assets classified as held for 135 760 163 967
sale
Total assets 9 249 746 6 887 774
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to equity holders of 2 006 664 1 612 587
the parent
Minority interest 16 517 9 335
2 023 181 1 621 922
Non-current liabilities
Interest bearing borrowings 1 023 737 902 475
Other non-current liabilities 149 212 94 147
1 172 949 996 622
Current liabilities
Other current liabilities 6 042 017 4 227 456
Bank overdrafts 11 599 41 774
6 053 616 4 269 230
Liabilities directly associated with non-
current
assets classified as held for sale - -
Total liabilities 7 226 565 5 265 852
Total equity and liabilities 9 249 746 6 887 774
CONDENSED CASH FLOW STATEMENT
for the year ended 30 June 2008
Audited
(R`000) 2008 2007
Cash flow from operating activities
Cash from operations 798 985 487 195
Working capital changes 1 018 269 (388 685)
Cash generated from operations 1 817 254 98 510
Finance costs - net (81 727) (41 953)
Taxation and dividends paid (275 787) (164 270)
Net cash generated by/(utilised in)
operating activities 1 459 740 (107 713)
Property, plant and equipment and (72 550) (112 003)
investment property (net)
Investments (net) (65 828) (42 849)
Net cash utilised in investing activities (138 378) (154 852)
Net cash (utilised in)/generated from
financing activities (125 881) 295 733
Net cash generated by
discontinued operations - 26 415
Net increase in cash and cash equivalents 1 195 481 59 583
STATISTICS
as at 30 June 2008
Audited
2008 2007
Number of ordinary shares 93 740 418 92 421 101
?Shares in issue 119 165 118 446
241 901
?Less: Shares held by share trusts (25 424 (26 025
823) 800)
Weighted average shares (`000s) 93 545 80 672
Fully diluted weighted average shares 110 527 98 056
(`000s)
Earnings per share - R 4,47 2,91
Earnings per share from continuing 4,78 2,93
operations - R
Headline earnings per share - R 4,70 2,83
Headline earnings per share from
continuing operations - R 5,00 2,84
Fully diluted earnings per share - R 3,79 2,40
Fully diluted earnings per share from
continuing operations - R 4,04 2,41
Fully diluted headline earnings per share - 3,98 2,33
R
Fully diluted headline earnings per share
from continuing operations - R 4,23 2,34
Dividend cover (based on earnings per 4,3 4,0
share)
Dividends per share (cents) 105,0 72,0
?Interim 45,0 30,0
?Final 60,0 42,0
Net asset value per share - R 21,41 17,45
Net debt to equity ratio - 36,9
Current ratio 1 1
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2008
Audited
(R`000) 2008 2007
Balance at 1 July 1 621 922 683 019
Translation differences arising from 25 907 (6 475)
foreign operations
Share options and BEE ownership transaction 31 196 7 879
costs
Issue of shares - 750 000
Attributable profit for the year 429 289 242 602
Distribution to minorities (3 600) (150)
Dividends paid (81 533) (54 953)
Balance at 30 June 2 023 181 1 621 922
SEGMENTAL ANALYSIS - PRIMARY
for the year ended 30 June 2008
2008 - 2007 Audited
(R`000) % change 2008 2007
REVENUE
Infrastructure 44 326 554 226 016
Concessions
Property Developments (17) 255 131 307 784
Manufacturing 6 554 656 523 768
Construction 198 689 220 231 081
Materials
Construction 11 7 074 017 6 400
519
Building and Housing (9) 2 848 795 3 121
921
Civil Engineering 19 2 964 184 2 484
293
Engineering Projects 59 1 261 038 794 305
Total revenue 16 8 899 578 7 689
168
OPERATING PROFIT 2008Margin
%
Infrastructure 9 71 30 735 17 927
Concessions
Property Developments 9 (10) 22 747 25 164
Manufacturing 10 (15) 56 211 66 519
Construction 21 212 141 946 45 531
Materials
Construction 5 62 384 021 236 483
Building and Housing 5 66 140 294 84 276
Civil Engineering 5 36 142 857 105 037
Engineering Projects 8 114 100 870 47 170
Total operating 7 62 635 660 391 624
profit
CAPITAL EXPENDITURE AND DEPRECIATION
for the year ended 30 June 2008
Audited
(R`000) 2008 2007
* Capital expenditure for the year 449 341 374 214
* Capital expenditure committed or 301 644 234 585
authorised for the next year
* Depreciation for the year 150 791 105 261
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 R6,428 million as at 30 June 2008 (2007: R2,375
million).
The directors do not believe any exposure to loss is likely.
DIVIDEND DECLARATION
The directors have declared a final dividend number 61 of 60 cents per ordinary
share (2007: 42 cents) payable to shareholders.
To comply with the requirements of Strate the relevant details are:
Event Date
Last day to trade (cum-dividend) Friday, 26 September 2008
Shares to commence trading (ex- Monday, 29 September 2008
dividend)
Record date (date shareholders Friday, 3 October 2008
recorded in books)
Payment date Monday, 6 October 2008
No share certificates may be Monday, 29 September 2008 and
dematerialised or rematerialised Friday, 3 October 2008, both
between dates inclusive.
ACCOUNTING POLICIES
These consolidated condensed financial statements are prepared in accordance
with International Financial Reporting Standards (IFRS), IAS 34 - Interim
Reporting, 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:
The adoption of IFRS 7 Financial Instruments: Disclosures which is effective for
annual reporting periods beginning on or after 1 January 2007 and the
consequential amendments to IAS 1 Presentation of Financial Statements.
Restatement of comparatives was not required as these statements deal with
disclosure requirements.
These results have been audited by PricewaterhouseCoopers Inc., 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 year of excellent growth where
management has concentrated on extracting improved performances from the
substantial asset base. Fully diluted earnings per share increased by 58% from
R2,40 to R3,79 and fully diluted headline earnings per share increased by 71%
from R2,33 to R3,98.
Group revenue increased by 16% from R7 689 million to R8 900 million, showing a
pleasing acceleration in the rate of trading in the second half. Operating
profit before fair value adjustments increased by 62% from R392 million to R636
million. The most significant highlight of the year`s result was that the group
exceeded its short term group operating profit margin goal of 5% by recording a
margin of 7.1% (2007: 5.1%). For comparative purposes we continue to calculate
operating margins after the allocation of all costs. Going forward, we will
continue to focus on improving group margins, having set targets of 7-9% over
the next two to three years.
In addition to the pleasing operating margin achieved, fair value upward
adjustments of R111,4 million (2007: R23,6 million) were recorded during the
year, relating primarily to the group`s interests in Eastern European service
concessions, enhanced by the group`s disposal of its interest in the M5
motorway in Hungary. This investment, reflected in F2007 at a carrying value of
R48 million, realised cash of R134 million during the year, demonstrating the
inherent value accessible from these investments. It also demonstrates the
success of our strategy of diversification and further investment in concessions
to enhance shareholder returns.
During the year, an amount of R28,2 million was charged to the income statement,
mainly as a result of a change in managements view on the valuation of the claim
due to the group associated with the previously reported discontinued operations
in India.
In addition a surplus on the company pension fund of R23 million was recorded in
the year. This had an 0.3 positive effect on group margin.
In line with expectations, finance costs increased from R41,9 million to R81,7
million.
This number includes a full year of interest on the bond raised in March 2007,
compared to three months in the prior reporting year.
The effective tax rate of 31.3% is higher than the South African statutory tax
rate of 28% due to the effect of secondary tax on companies paid and the effect
of the corporate tax rate change on the group`s deferred taxation assets. The
group operates in a number of tax jurisdictions with differing taxation rates.
The taxation benefits arising from areas with lower taxation rates have been
largely offset by those countries with higher rates.
The final dividend of 60 cents per share (2007: 42 cents) brings the total
dividend for the year to 105 cents per share (2006: 72 cents), an increase for
the year of 46%.
The board has decided that, for F2008, the approximately four times EPS
dividend cover philosophy should be maintained due to the high growth phase in
which the group is operating.
The group generated R1,8 billion cash from operations during the period under
review. This represents a marked improvement over the last year.
The improvement was as a result of continued working capital focus within all
business areas, reflected in an increase in the levels of advanced payments
received during the year as well as a decrease in work-in-progress.
BUSINESS COMBINATIONS
Our Strategy continues to move the group from the role of contractor to that of
a diversified construction services, materials and investment group, providing
both product and geographic diversification. In support of the construction
materials component of this strategy the following transactions were concluded
during the year under review:
* With effect from 9 July 2007 the group acquired Sky Sands, a plaster and
washed sand products supply business, for R134 million. The business supplies
building materials merchants in the building industry and the precast products
industry.
* With effect from 1 October 2007 Bernoberg Millings was acquired for R32
million. Bernoberg Milings is a niche manufacturer of cement extenders and
further diversifies our business portfolio in the construction materials supply
sector.
In addition:
* The group acquired a 33% share of Jozi Power for R7 million, a niche company
focused on supplying between 1 - 10 megawatt standby power and power rental
solutions to mining and industrial customers.
The group received R134 million on the disposal of its 3.47% equity interest in
its investment in the M5 motorway in Hungary and reinvested R77 million to
acquire 10% of the M6 Phase 3 motorway in Hungary.
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.
* Expand strategic interests in concessions to include public infrastructure and
power.
* Entrench itself as a turnkey construction business.
OPERATIONAL REVIEW
Group Five`s reporting structure remains largely unchanged from the prior year.
However, Construction Materials and Manufacturing are now separately reported as
the two business areas operate as separate businesses. The four areas of
business are detailed below:
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 and investment returns. Investments and Concessions
contributed 6.5% (2007: 6.9%) 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 business enjoyed an excellent year, with Intertoll Europe rolling out new
contracts in Poland and Hungary.
Revenue, which consists primarily of fees for the operation and maintenance of
toll roads, increased by 44% from R226 million to R326,5 million, primarily due
to the growth of the operations in Poland and Hungary.
The operating profit margin increased to 9.4% (2007: 7.9%), with operating
profit improving by 71% to R30,7 million (2007: R17,9 million). Over and above
this operating profit increase, the business recorded R111,4 million (2007:
R14,2 million) fair value increases relating to investments in its Eastern
Europe concession businesses, enhanced by the sale of its investment in the M5
motorway concession in Hungary.
We achieved financial close on the R12 billion M6 Phase III contract in Hungary
where Intertoll acquired a 10% investment in the concession company.
Property Developments
As expected, in the year under review, Property Developments` revenue decreased
by 17% from R307,8 million in F2007 to R255,1 million. Operating profit remained
largely unchanged at R22,7 million (2007: 25,2 million). No fair value
adjustments on investment properties have been reported this year (2007: R9,4
million).
The business continued to realign its portfolio by way of selective divestment
within its old asset portfolio, particularly in the residential sector. It also
continued to focus on the development of A-grade property opportunities within
Southern Africa that are aligned to core group interests in Construction,
Manufacturing and Construction Materials.
The business has now successfully re-positioned itself to take advantage of the
new investment opportunities in both the commercial and retail markets. As
stated at interim stage, whilst medium to long term prospects for the business
are promising, new developments will take time to realise and a decline in
revenue and profitability is therefore forecast over the next few years.
MANUFACTURING
Manufacturing contributed 6.2% (2007: 6.8%) to group revenue. After a 50%
decline in operating profit in the first half of the year, conditions improved
in the second half of the year as the steel operations increased their
contribution and, as planned, Everite benefitted from firmer pricing and better
volumes. The decrease in operating profit was therefore limited to 15,4% to
R56,2 million (2007: R66,5 million) and the overall operating profit margin
percentage decreased to 10.1% (2007: 12.7%).
This business was refocused during the year and structured along the two
businesses of Everite and Steel.
Group Five Steel comprises a 50% share in Barnes Reinforcing Industries, a 50%
share in Group Five Pipe and the wholly-owned formwork and structural steel
entities that have been moved from the Plant and Equipment business into a
focused steel fabrication entity. Group Five Pipe had a quiet year, as expected
large water projects were delayed to F2009, and showed a slight decrease in
operating profit. Start-up business, BRI, performed well, while the group will
benefit from the start-up steel fabrication business in F2009.
BRI and fabrication of steel will benefit from the groups record order book and
Group Five Pipe is well placed to benefit from large water projects in F2009/10.
The business of Everite manufactures fibre cement roofing, cladding, building
materials and supplies into the wider market and a growing internal market in
the building and low cost and temporary housing sectors.
The first half-year proved to be challenging for Everite, with a significant
percentage of revenue aligned to the buildware merchant market which slowed in
the second quarter.
Against this background Everite focused on winning business back from competing
materials such as steel and bricks, as well as growing the product range to
serve the government`s drive to deliver low-cost housing units. The business
recovered in the second half and prospects for continued improved performance in
F2009 are strong, with government sponsored mass and temporary housing demand
accelerating.
CONSTRUCTION MATERIALS
In its first full year of contribution Construction Materials contributed 7.7%
(2007: 3.0%) to group revenue. Operating profit increased by 221.7% to R141,9
million (2007: R45,5 million). The overall operating profit margin increased to
a satisfactory 20.6% (2007: 19.7%). The group has benefited from this new higher
margin business stream which is part of the group`s strategy of diversification.
Construction Materials consists of businesses concerned with mining, crushing,
milling, aggregates, powders and readymix concrete.
Strong market conditions were experienced for the Gauteng operations in the
first half as the local building boom continued unabated. In the second half of
the year heavy rains dampened sales initially and, in the last quarter, weaker
market conditions were felt as the interest rate cycle and other local market
factors impacted negatively on building market clients. Major infrastructure
projects, however, continued to provide base loading to the operations overall.
Part of the Construction Materials acquisition rationale was the convenient
location of quarries in Gauteng, closely aligned to the coming roads
developments that are now becoming a reality. It is a higher technology business
than many of its competitors, which will be a differentiator in the
infrastructure to be built in the region. Future growth will be also aligned
towards contract mining services and high specification concrete materials in
the Civils market as we grow our number of strategic locations.
CONSTRUCTION
The group`s largest contributor at 79.5% of revenue, has reduced its
contribution from last year (2007: 83.3%), in line with the group`s progress
towards a more balanced portfolio of businesses. It continues its strong growth
and remains well positioned for future growth both locally and internationally.
Overall construction revenue increased by 10,5% from R6 401 million to R7 074
million and operating profit increased by a significant 62.4% from R236 million
to R384 million, resulting in an overall operating profit margin percentage of
5.4% (2007: 3.7%).
The construction 1 year-order book as at 30 June 2008 stands at R8 514 million,
up 76% compared to the prior year reported order book and reflects the groups
strategic positioning in the Public infrastructure cycle with a mix of 65:35 in
favour of Public works. In addition the group has restricted its reliance on the
traditional domestic housing market (where high interest rates and the NCA have
curbed spending) to a mere 6% of future construction revenues. The order book is
rich in terms of over-border, mining and power market contract wins. The group`s
total order book of R14 billion has been maintained, despite an acceleration in
trading in the second half.
The group has successfully built capacity and knowledge to win higher margin
turnkey and large, multidisciplinary work, which positions Group Five for
further infrastructure works in power, public concessions, oil and gas and
mining.
Building and Housing revenue decreased by 9% from R3 122 million (73% local) to
R2 849 million (91% local), while operating profit increased by 66% from R84,3
million to R140,2 million, resulting in the overall operating margin percentage
increasing to 4.9% (2007: 2.7%). The secured one-year order book stands at R2,2
billion (100% local) (2007: R1,9 billion (100% local) and full secured work at
R3,0 billion (100% local).
Power problems in South Africa`s national power utility Eskom and interest rates
have had a negative effect on both the private sector building and housing
segment markets. We have successfully hedged our exposure to this through our
ability to transfer skills to the public sector infrastructure market and
redirected housing market strategy, with the forward order book weighted 80% in
favour of public works.
Civil Engineering revenue increased by 19.3% from R2 484 million (33% local) to
R2 964 million (49% local), while operating profit increased to R142,8 million
from R105,0 million, resulting in an operating profit margin percentage increase
to 4.8% (2007: 4.2%). Civil Engineering activity locally, in Africa and Dubai
continues to improve with, many of the larger projects in the start-up phase.
These returns will be realised as the projects mature. The secured one-year
order book stands at R4,3 billion (60% local), compared to R2,2 billion (45%
local) as at 30 June 2007. This is the largest order book of our construction
businesses reflecting the increased activity in this sector.
The South African and Dubai forward work load is weighted 80% in favour of large
public sector infrastructure works, balanced with a healthy exposure to the
mining market in Africa.
During the year 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. The Middle East business is
well placed for further growth.
Engineering Projects, the Groups Mechanical and Electrical construction cluster
that operates in the mining, power and Oil and gas markets, had an impressive
year. Revenue increased by 58.8% from R794 million (26% local) to R1 261 million
(14% local) and operating profit more than doubled from R47,2 million to R100,9
million, with operating profit margin percentage improving to 8.0% (2007: 5.9%).
Activity in the mining and power sectors in Africa remains buoyant. The secured
one-year order book stands at R1 987 million (31% local) as compared to 30 June
2007 which reported R735 million secured work (27% local) Engineering Projects
is well placed in key growth sectors for rapid growth in target territories.
PROSPECTS
The construction market, particularly in South Africa, is strong and likely to
remain so for at least the foreseeable future in the key sectors in which Group
Five has strategically positioned itself. The line of sight of opportunities
in the record order book provide the group with the scope to choose higher-
margin contracts, improve cash flow management, reduce risk exposure on new
contracts and maximise its allocation of resources.
The group`s primary international focus for F2009 will be around the buoyant
African resources and power markets, as well as continued growth in the Middle
East and Eastern Europe.
In South Africa, the group will continue to service its private sector customer
base and has also committed resources to the nation`s infrastructure building
programme, with specific attention to housing, infrastructure PPP`s, ACSA,
Eskom, Transnet, Sanral, DWAF and their technology partners.
With respect to the baseload power contracts, the group is bidding for various
work packages directly to Eskom and as a civil engineering, electrical and
mechanical construction partner to the main generating equipment suppliers. This
applies to both the coal-fired and nuclear programmes.
Separately, the group sees potential in the secondary power market and is
already contracting in partnership with equipment suppliers for engineering
turnkey and alliancing construction projects for mainly gas or liquid-fired
power plants.
The group has a clear strategy and has a balanced portfolio of business
diversification aligned to the markets we serve.
Given the above, the group is expected to achieve further strong earnings growth
in F2009.
BOARD AND EXCO CHANGES
During the year under review and subsequent to the year-end, the following
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 retired on 16 October 2007
* Ms CMF Teixeira was appointed to the Board on 1 June 2008 as Chief Financial
Officer
Over and above the new Executive Committee appointments in F2007, the group`s
Exco has been further strengthened in F2008 by the appointment of:
* Ms CMF Teixeira as Chief Financial Officer
*Mr J Allie as Head of Human Resources
* Mr W Zeelie as Executive Director of Engineering Projects: Energy
On behalf of the board
P Buthelezi
Chairperson
MR Upton
Chief Executive Officer
6 August 2008
Board of Directors: P Buthelezi* (chairperson), MR Upton (CEO), CMF Teixeira, L
Chalker*+, WV Mavimbela*, SG Morris*, KK Mpinga*, Dr MSV Gantsho*
* (Non-executive director) + (British) * (DRC)
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street Johannesburg 2001
For further information please visit our website: www.g5.co.za
Date: 11/08/2008 08:00:01 Produced by the JSE SENS Department.
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