| Tue 10 Aug 2010, 8:00 | | GRF - Group Five Limited - Audited group results for the year ended 30 June 2010 |
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GRF
GRF
GRF - Group Five Limited - Audited group results for the year ended 30 June 2010
GROUP FIVE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/000032/06)
Share code: GRF ISIN: ZAE000027405
("Group Five" or "the group")
Audited group results for the year ended 30 June 2010
371 Rivonia Boulevard, Rivonia / PO Box 3951, Rivonia 2128, South Africa
Tel: +27 11 806 0111, 0860 55 55 56 /Fax: +27 11 803 5829
Revenue (R`000)
down 06%
Jun 10 11 337 588
Jun 09 12 090 236
Operating profit before fair value adjustments and impairment adjustments
(R`000)
up10%
Jun 10 876 896
Jun 09 797 182
Cash and cash equivalents
(R`m)
up 327 m
Jun 10 3 105 817
Jun 09 2 778 424
Earnings per share
(cents)
down 48%
Jun 10 280
Jun 09 544
Fully diluted headline earnings per share
(cents)
up10%
Jun 10 561
Jun 09 508
Consolidated condensed income statement
for the year ended 30 June 2010
(R`000) Audited
2010 2009
Revenue 11 337 588 12 090 236
Operating profit before fair value adjustments and 876 895 797 182
impairment adjustments
Fair value adjustment relating to
Investments in service concessions 13 532 15 718
Impairment of property, plant and equipment (325 569) -
Operating profit 564 858 812 900
Share of profit/(loss) from associates 1 347 (69)
Finance income 143 303 137 173
Finance costs (115 432) (167 993)
Profit before taxation 594 076 782 011
Taxation (258 297) (224 567)
Profit after taxation from continuing operations 335 779 557 444
Loss for the year from discontinued operations (22 102) (22 890)
Profit for the year 313 677 534 554
Allocated as follows:
Equity shareholders of Group Five Limited 267 377 514 733
Non controlling interest 46 300 19 821
313 677 534 554
Earnings per share R 2,80 5,44
Fully diluted earnings per share R 2,56 4,86
Determination of headline earnings
for the year ended 30 June 2010
(R`000) Audited
2010 2009
Attributable profit 267 377 514 733
Adjusted for (net of tax) 318 534 22 909
(Profit)/loss on sale of property plant and equipment (267) 19
and investment property
Loss on disposal of subsidiary 3 567 -
Impairment of property, plant and equipment 293 132 -
Losses on disposal of discontinued operations 22 102 22 890
Headline earnings 585 911 537 642
Consolidated statement of comprehensive income
for the year ended 30 June 2010
(R`000) Audited
2010 2009
Profit for the year 313 677 534 554
Other comprehensive income for the year net of tax
Exchange differences on translating foreign operations (68 889) (78 006)
Total comprehensive income for the year 244 788 456 548
Total comprehensive income for the year attributable
to
Equity shareholders of Group Five Limited 198 488 436 727
Non-controlling interest 46 300 19 821
Total comprehensive income for the year 244 788 456 548
Consolidated statement of cash flow
for the year ended 30 June 2010
(R`000) Audited
2010 2009
Cash flow from operating activities
Profit before working capital changes 1 132 993 1 124 512
Working capital changes 58 001 685 293
Cash generated from operations 1 190 994 1 809 805
Finance income/(costs) - net 27 871 (30 820)
Taxation and dividends paid (284 241) (222 194)
Net cash generated by operating activities 934 624 1 556 791
Property, plant and equipment and investment property (124 739) (213 018)
(net)
Investments (net) (46 901) (191 906)
Net cash utilised in investing activities (171 640) (404 924)
Net cash utilised in financing activities (398 601) (219 051)
Effects of exchange rates on cash and cash equivalents (36 990) (10 306)
Net cash generated by discontinued operations - 31 700
Net increase in cash and cash equivalents 327 393 954 210
Consolidated condensed statement of financial position
as at 30 June 2010
(R`000) Audited
2010 2009
ASSETS
Non-current assets
Property, plant and equipment and investment property 2 106 573 2 444 837
Goodwill 24 859 24 859
Investments - service concessions 224 311 186 482
Investments - property developments 128 691 120 000
Other non-current assets 173 918 63 364
2 658 352 2 839 542
Current assets
Other current assets 4 096 899 4 654 112
Bank balances and cash 3 129 990 2 798 046
7 226 889 7 452 158
Non-current assets classified as held for sale 65 153 81 170
Total assets 9 950 394 10 372 870
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to equity holders of the parent 2 486 357 2 373 477
Non-controlling interest 75 055 34 366
2 561 412 2 407 843
Non-current liabilities
Interest bearing borrowings 843 244 897 867
Other non-current liabilities 64 945 62 069
908 189 959 936
Current liabilities
Other current liabilities 6 456 620 6 985 469
Bank overdrafts 24 173 19 622
6 480 793 7 005 091
Total liabilities 7 388 982 7 965 027
Total equity and liabilities 9 950 394 10 372 870
Consolidated condensed segmental analysis
for the year ended 30 June 2010
(R`000) % Audited
change 2010 2009
Revenue
Investments and Concessions (6) 591 871 626 795
Infrastructure Concessions 6 557 227 527 938
Property Developments (65) 34 644 98 857
Manufacturing 6 866 221 816 132
Construction Materials (27) 491 860 671 317
Construction (6) 9 387 9 975
636 992
Building and Housing 10 3 186 2 899
142 773
Civil Engineering 2 4 713 4 633
487 259
Engineering Projects (39) 1 488 2 442
007 960
Total revenue (6) 11 337 12 090
588 236
2010
Operating profit Margin %
Investments and Concessions 12.8 8 75 928 82 570
Infrastructure Concessions 15.1 5 83 974 80 234
Property Developments (23.2) 444 (8 046) 2 336
Manufacturing 9.5 (5) 82 300 86 887
Construction Materials 3.6 (69) 17 624 56 261
Construction 6.9 11 649 967 582 933
Building and Housing 6.9 52 220 022 144 314
Civil Engineering 6.2 27 290 001 229 123
Engineering Projects 9.4 (33) 139 944 209 496
Total core
operating profit 7.3 2 825 819 808 651
Adjustment for non-operational
transactions
Pension fund valuation surplus 55 161 (11 469)
Loss on sale of subsidiary (4 085) -
Reported operating profit before fair
value
and impairment adjustments 876 895 797 182
Consolidated condensed statement of changes in
equity
for the year ended 30 June 2010
(R`000) Audited
2010 2009
Balance at 1 July 2 407 843 2 023 181
Net profit for the year 313 677 534 554
Other comprehensive income for the year (68 889) (78 006)
Share options expense 43 002 41 916
Distribution to non-controlling interest (5 611) (1 972)
Dividends paid (128 610) (111 830)
Balance at 30 June 2 561 412 2 407 843
Statistics
as at 30 June 2010
Audited
2010 2009
Number of ordinary shares 95 335 170 94 614 042
Shares in issue 120 911 817 120 093 047
Less: Shares held by share trusts (25 576 647) (25 479 005)
Weighted average shares (`000s) 95 378 94 670
Fully diluted weighted average shares (`000s) 104 376 105 804
Earnings per share - R 2,80 5,44
Headline earnings per share - R 6,14 5,68
Fully diluted earnings per share - R 2,56 4,86
Fully diluted headline earnings per share - R 5,61 5,08
Dividend cover (based on earnings per share) 2,0 4,2
Dividends per share (cents) 137,0 130,0
Interim 63,0 58,0
Final 74,0 72,0
Net asset value per share - R 26,08 25,09
Net debt to equity ratio - -
Current ratio 1,1 1,1
Capital expenditure and depreciation
as at 30 June 2010
(R`000) Audited
2010 2009
Capital expenditure for the year 210 026 429 511
Capital expenditure committed or authorised for 209 577 139 561
the next year
Depreciation for the year 245 235 258 370
Estimates and contingencies
The group makes estimates and judgments 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 judgments can, by definition, only approximate the actual results.
Estimates and judgments 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 R5 062 million as at 30 June 2010 (2009: R6 268
million).
Dividend declaration
The directors have declared a final dividend number 65 of 74 cents per ordinary
share (2009: 72 cents) payable to shareholders.
To comply with the requirements of Strate the relevant details are:
Event Date
Last day to trade (cum-dividend) Thursday,
23 September 2010
Shares to commence trading (ex-dividend) Monday,
27 September 2010
Record date (date shareholders recorded in books) Friday, 1 October 2010
Payment date Monday,
4 October 2010
No share certificates may be dematerialised or
rematerialised between Monday, 27 September 2010,
and
Friday, 1 October 2010,
both dates inclusive.
Basis of preparation
These consolidated condensed financial statements for the year ended 30 June
2010 have been prepared in accordance with IAS 34, Interim Financial Reporting
and in the manner required by the Companies Act of South Africa. The
consolidated condensed financial statements should be read in conjunction with
the annual financial statements for the year ended 30 June 2010 which have been
prepared in accordance with International Financial Reporting Standards (IFRS).
The accounting policies are consistent with those used in the prior year.
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
Financial overview
In the context of current economic conditions, the group is pleased to announce
another year of robust performance. The results can be attributed to the group`s
geographic diversity and its strong positioning in key public sector and
resources markets.
The group`s contracts for the South African public works programmes in
transport, power, and infrastructure associated with the 2010 Soccer World Cup
contributed strongly, as well as African resources and energy contracts and
Eastern European concessions.
Financial performance
Headline earnings per share increased by 8% from R5,68 to R6,14 and fully
diluted headline earnings per share increased by 10% from R5,08 to R5,61. The
group`s earnings per share of R2,80 was 48% lower than that of the prior year of
R5,44 per share, directly as a result of the Construction Materials impairment
adjustment discussed below.
Group revenue decreased by 6% from R12,1 billion to R11,3 billion. This decrease
was mainly due to a reduction in domestic construction materials volumes and in
African resources markets.
Operating profit before fair value adjustments and impairment adjustments
increased by 10% from R797 million to R877 million. Included within operating
profit is a surplus on the group`s pension fund of R55,2 million (2009: deficit
of R11,5 million).
The group operating profit margin is 7.7% (2009: 6.6%), This strong result is
attributable to the exceptional results from the Construction cluster, which
compensated for the decline in the Construction Materials market and the
slowdown in African mining and South African private real estate.
Fair value net upward adjustments of R13,5 million (2009: R15,7 million) were
recorded during the year, relating to the group`s interests in Eastern European
service concessions.
In line with expectations, net finance income of R27,9 million was recorded for
the year compared to finance costs of R30,8 million in the prior year. This was
assisted by decreases in interest rates, as well as an increase in cash and cash
equivalents.
The effective tax rate of 43% was higher than the South African statutory tax
rate of 28%, mainly due to the effect of the limited taxation deduction on the
Construction Materials impairment adjustment and secondary tax on companies
paid. The group operates in tax jurisdictions with differing taxation rates. The
taxation benefits arising from areas with lower taxation rates have somewhat
been largely offset by those countries with higher rates.
Financial position
Practice requires that the carrying values of non-current assets owned by the
group, including property, plant and equipment and goodwill, are reviewed on an
annual basis. The weakened market conditions applicable to the Construction
Materials cluster therefore resulted in detailed impairment tests being
conducted. As there is currently uncertainty around the timing of the recovery
of construction materials markets, and a delay in contract roll out and awards
in the public sector, management adopted a prudent consideration of the carrying
value of these assets and processed an impairment of R326 million.
Furthermore, during the year, an amount of R22,1 million (2008: R22,9 million)
was charged to the income statement, mainly as a result of a prudent treatment
on the amount due from contract claims on a terminated Indian toll road
contract, carried as a discontinued operation.
Cash flow
The group generated R327 million in net cash with R1,2 billion cash from
operations during the year under review. The improvement was as a result of
continued generation of cash profits as well as a focus on maintaining working
capital levels. The year under review saw in increase in advance payments of
R128 million while excess billings decreased by R756 million in line with
expectations, as large contracts progressed to completion.
Dividends
The group`s adopted dividend policy is approximately four times basic earnings
per share dividend cover. In recognition of the group`s headline performance,
and the non-cash nature of the Construction Materials impairment adjustment, the
board has approved a final dividend based on a cover of approximately four times
earnings per share before recording of impairment adjustments and pension fund
surplus of R5,50.
The final dividend of 74 cents per share (2009: 72 cents) brings the total
dividend for the year to 137 cents per share (2009: 130 cents), an increase for
the year of 5%.
Business combinations
There were no business combinations during the current financial year.
Operational overview
Group
For comparative purposes, we provide both the group`s reported operating margins
and those net of the non-core/headline transactions of profit/loss on sale of
assets, pension fund surpluses and deficits, fair value adjustments, and
profit/loss on sale of investment properties. We refer to this as the core
operating margin, as it reflects the underlying operating performance. Both
margins exclude the impairment on long-term assets adjustment.
The group`s operating margins are reflected below.
Year ended Year ended
30 June 2010 30 June 2009
Revenue - (R`000) 11 337 588 12 090 236
Reported Operating Margin % 7.7 6.6
Core Operating Margin % 7.3 6.7
Notes:
Reported operating margin % is defined as operating profit before fair value
adjustments and impairment adjustments as a % of revenue.
Core operating margin % is defined as reported operating margin % adjusted for
the non-core transactions listed above.
Investments and Concessions
Year ended Year ended
30 June 2010 30 June 2009
Revenue (R`000) 591 871 626 795
Reported Operating Margin % 12.7 13.1
Core Operating Margin % 12.8 13.2
Investments and Concessions consists of Infrastructure Concessions and Property
Developments. This cluster contributed 5.2% (2009: 5.2%) to group revenue.
Infrastructure Concessions
This segment demonstrated an expected and consistent performance, with growth in
both revenue and profit, despite the effects of the deep recession across the
Eastern Europe region. Intertoll Europe achieved the successful completion of
the M6 Phase III equipment supply contract, with operations commencing during
the year.
Intertoll Africa was awarded 12-month contract extensions on some of its South
African tolling contracts.
Revenue, which consists primarily of fees for the operation and maintenance of
toll roads, increased by 6% from R527,9 million to R557,2 million. The core
operating profit margin remained largely unchanged at 15.1% (2009: 15.2%), with
reported operating profit increasing by 7.5% to R85,6 million (2009: R79,6
million). The cluster also recorded fair value adjustments of R13,5 million
(2009: R15,7 million) as described above.
Property Developments
Although Property Developments did not generate positive returns during this
financial year, its performance was in line with expectations, as the group
progressed its strategy of disinvestment from the residential sector in favour
of securing A-grade commercial and retail property development positions in
South Africa.
Therefore, as expected, Property Developments` revenue decreased by 65% from
R98,9 million in F2009 to R34,6 million. The business incurred a reported
operating loss for the year of R10,7 million (2009: profit of R2,3 million). No
fair value adjustments on investment properties have been reported this year or
in the prior year.
The group anticipates a return to stronger results post F2011.
Manufacturing
Year ended Year ended
30 June 2010 30 June 2009
Revenue - (R`000) 866 221 816 132
Reported Operating Margin % 10.0 10.5
Core Operating Margin % 9.5 10.6
Manufacturing contributed 7.6% (2009: 6.8%) to group revenue.
The cluster produced resilient results in a market where both private and public
sector conditions remained weak.
The Fibre Cement business unit achieved reasonable returns by establishing
alternative income streams, whilst removing costs within the traditional
business model. The group continued to build the Structural Steel business unit
under new leadership in a market of volatile input costs and high levels of
pricing pressure, as supply exceeded demand. Group Five Pipe benefited from
increasing demand for bulk water transport systems.
Revenue increased by 6.1% from R816,1 million to R866,2 million. The reported
operating profit repeated the prior year`s delivery of R86,8 million (2009:
R86,0 million) although the overall core operating profit margin percentage
decreased to 9.5% (2009: 10.6%).
Construction Materials
Year ended
30 June 2010 30 June 2009
Revenue (R`000) 491 860 671 317
Reported Operating Margin % 4.1 8.3
Core Operating Margin % 3.6 8.4
Construction Materials contributed 4.3% (2009: 5.6%) to group revenue.
This cluster experienced a particularly tough trading year, with volumes and
prices depressed by the slow roll out of public infrastructure and current
recessionary pressures in the residential property market.
Reported operating profit decreased by 64% to R20,2 million (2009: R55,8
million) and the overall core operating profit margin decreased to 3.6% (2009:
8.4%).
Against continued difficult markets, the cluster was re-engineered and right-
sized to survive the downturn and to create improved returns as the market
recovers.
Structural, management and operational changes were implemented and a detailed
market validation and asset verification and valuation exercise undertaken.
Process costs have been reduced and efficiencies gained to limit the margin
impact from depressed volumes and prices. A gradual recovery is expected over
the next 12 - 18 months.
Construction
Construction comprises the business segments of Building and Housing, Civil
Engineering and Engineering Projects.
Year ended Year ended
30 June 2010 30 June 2009
Revenue - (R`000) 9 387 636 9 975 992
Reported Operating Margin % 7.4 5.7
Core Operating Margin % 6.9 5.8
Construction contributed 82.8% of group revenue in the year under review (2009:
82.5%).
Construction revenue decreased by 6% from R9,9 billion to R9,4 billion and
reported operating profit increased by 21% from R573 million to R695 million.
This resulted in an overall core operating profit margin percentage of 6.9%
(2009: 5.8%).
Building and housing
Year ended Year ended
30 June 2010 30 June 2009
Revenue (R`000) 3 186 142 2 899 773
Reported Operating Margin % 7.4 4.9
Core Operating Margin % 6.9 5.0
Building and Housing achieved substantial growth, with revenue increasing from
R2,9 billion (98% local) to R3,2 billion (94% local). The segment reported a 68%
increase in reported operating profit over that of the prior year, with
operating profit increasing from R141,0 million to R236,6 million, resulting in
the overall core operating margin percentage increasing from 5.0% to 6.9%.
The strong results were achieved due to the timeous and very successful
completion of large contracts, such as the Moses Mabhida Soccer Stadium and the
King Shaka International Airport, as well as the timeous securing of new over-
border contracts and domestic contracts in public buildings and the educational
and healthcare sectors.
During the year, the private sector property market remained weak, which was
coupled with the slowdown in government`s promised infrastructure spend and
delays in awards of certain PPP projects. A slow recovery over the next 12 -
18months is expected.
The secured one-year order book stands at R2,6 billion (78% local) (2009: R3,5
billion and 90% local) and secured work at R3,5 billion (77% local) (2009: R4,6
billion (81% local).
Civil Engineering
Year ended Year ended
30 June 2010 30 June 2009
Revenue - (R`000) 4 713 487 4 633 259
Reported Operating Margin % 6.6 4.9
Core Operating Margin % 6.2 4.9
Civil Engineering did well to maintain revenue levels considering the sizeable
revenue base. Revenue increased by 1.7% from R4,6 billion (60% local) to R4,7
billion (83% local), while reported operating profit increased pleasingly by 38%
to R310,7 million from R225,7 million. This resulted in a core operating profit
margin percentage increase to 6.2% (2009: 4.9%).
A large order book, relatively strong demand for South African primary
infrastructure (and good delivery supported the results.
In the Middle East, the group has been prudent in its treatment of the cancelled
contracts that continue to progress to resolution.
Civil`s secured one-year order book stands at R3,0 billion (85% local), compared
to R4,2 billion (86% local) as at 30 June 2009. The full order book is at R3,8
billion (80% local) (2009: R5,9 billion (61% local)). This is the largest order
book of our construction businesses.
Based on the group`s tender pipeline, it expects material contract opportunities
to realise over the next 12 to 18 months, both in terms of its target
geographies and sectors. The group therefore remains cautiously optimistic about
future prospects.
Engineering Projects
Year ended Year ended
30 June 2010 30 June 2009
Revenue - (R`000) 1 488 007 2 442 960
Reported Operating Margin % 9.9 8.5
Core Operating Margin % 9.4 8.6
Engineering Projects encountered a more difficult year, with many contracts in
Africa and the Middle East postponed and delayed due to the financial
constraints following the economic downturn. Revenue therefore decreased by
39.1% from R2,4 billion (12% local) to R1,5 billion (50% local) and reported
operating profit decreased by 29% from R206,7 million to R147,7 million.
However, the core operating profit margin percentage improved to 9.4% (2009:
8.6%).
During the second half of F2010, a recovery in enquiry levels from the sub-
Saharan African mining markets was experienced, which resulted in some contract
awards. This trend is expected to continue in certain minerals categories. There
was also a significant progression in the South African power, energy and mining
markets over the past six months, which augurs well for a recovery.
The secured one-year order book stands at R1,4 billion (51% local) as compared
to 30 June 2009 which reported R921 million secured work (49% local). The full
secured order book stands at R1,9 billion (64% local) (2009: R1,1 billion (43%
local).
Prospects
The group continues to be strategically well positioned in active market
sectors, as detailed above. The Construction one-year order book as at 30 June
2010 stands at R7,1 billion (2009: R8,6 billion). The group`s total secured
Construction order book stands at R9,2 billion (2009: R11,6 billion).
The value of the group`s target pipeline as at 30 June 2010 stood at R119
billion, up from R115 billion in February 2010, with activity in all its
markets.
The South African government`s public works programme - specifically in the
areas of power generation, transport, water and housing - has the potential to
create growth opportunities within the South African construction sector.
The African outlook for private sector fixed investment and primary
infrastructure has started to improve, but spending is likely to only come
through slowly during the 2011 calendar year, with more certainty emerging from
2012.
In the Middle East, the group has moved into new territories outside of Dubai.
These markets provide technically attractive opportunities aligned to the
group`s capabilities in infrastructure contracts related to industrial works,
power, transport and water.
Group Five continues to grow its expertise and capacity in areas where it has
developed a multi-disciplinary delivery capability, namely power, transport and
water, mining and large infrastructure works, with a geographic expansionary
stance.
In the year ahead, growth could well be slow. However, the group`s current order
book and its pipeline of opportunities support a generally positive outlook.
Board changes
During the year under review, the following changes were made to the Board of
Directors as Non-executive directors:
Dr MSV Gantsho resigned from the Board on 14 January 2010
Mr Z Mtshotshisa resigned from the Board on 3 May 2010
Acknowledgments
The group wishes to recognise the hard work and commitment of its employees,
without whom these results would not have been achieved.
On behalf of the board
P Buthelezi MR Upton
Chairperson Chief Executive Officer
5 August 2010
Board of Directors: P Buthelezi* (Chairperson), MR Upton (CEO), CMF Teixeira
(CFO), LE Bakoro*, L Chalker*+, Dr JL Job*, SG Morris*, KK Mpinga*
*(Non-executive director) +(British) (DRC)
Transfer Secretaries: Computershare Investor Services (Pty) Ltd,
70 Marshall Street, Johannesburg 2001
Please visit our website: www.groupfive.co.za
Sponsor
Nedbank Capital
Date: 10/08/2010 08:00:01 Produced by the JSE SENS Department.
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