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Group Five - Audited group results for the year ended 30 June 2005
Group Five Limited
(Incorporated in the Republic of South Africa)
(Reg. no. 1969/000032/06)
JSE code: GRF & ISIN: ZAE000027405
371 Rivonia Boulevard Rivonia, PO Box 5016, Rivonia 2128, South Africa
Tel +27 11 806 0111, Fax +27 11 806 0187, Email info@g5.co.za
AUDITED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2005
Salient features
Change 2005 2004
Revenue (R000`s) 16.2% 4 939 4 252 175
838
Earnings per share (cents) 11.4% 190,1 170,7
Headline earnings per share (cents) 12.2% 151,6 135,1
Dividend per share (cents) 11.4% 49,0 44,0
Net cash generated (R000`s) 82.4% 102 892 56 395
Condensed Income Statement (R`000)
Audited
Year ended 30 June
2005 2004
Revenue 4 938 838 4 252 175
Operating profit 197 720 179 121
Finance costs 31 399 (34 085)
Profit before taxation 166 321 145 036
Taxation (30 723) (27 012)
Profit after taxation 135 598 118 024
Minority interests (1 898) (2 600)
Net profit 133 700 115 424
Determination of headline earnings:
Net profit 133 700 115 424
Deduct after tax effect of
- Fair value increase in investment property (5 088) (5 491)
- Profit on disposal of property, plant and (21 975) (18 562)
equipment
Headline earnings 106 637 91 371
Operating profit is stated after
(charging)/crediting:
Income/(loss) from associates 2 904 (6 026)
Fair value increase in investment property - 6 690 6 814
net
Fair value increase in investments - net 35 702 48 465
Depreciation and amortisation (95 520) (97 144)
Foreign exchange gains/(losses) - net 3 484 (33 517)
Condensed Balance Sheet (R`000)
Audited
Year ended 30 June
2005 2004
ASSETS
Non-current assets
Property, plant and equipment 616 940 576 436
Investments - service concessions 119 079 101 443
Other non-current assets 60 351 49 855
796 370 727 734
Current assets
Other current assets 1 735 045 1 365 410
Bank balances and cash 335 346 275 902
2 070 391 1 641 312
Total assets 2 866 761 2 369 046
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` interest 644 955 536 923
Minority interests 4 306 11 447
649 261 548 370
Non-current liabilities
Interest bearing borrowings 132 144 130 175
Provision for post-employment obligations 40 442 41 515
172 586 171 690
Current liabilities
Other current liabilities 1 896 298 1 456 922
Bank overdrafts and short-term borrowings 148 616 192 064
Current liabilities 2 044 914 1 648 986
Total liabilities 2 217 500 1 820 676
Total equity and liabilities 2 866 761 2 369 046
Condensed Cash Flow Statement (R`000)
Cash flow from operating activities
Cash from operations 217 509 199 836
Working capital changes 100 662 (21 131)
Cash generated from operations 318 171 178 705
Finance costs (31 399) (34 085)
Taxation and dividends paid (103 065) (54 007)
Net cash generated by operating activities 183 707 90 613
Fixed assets (net) (42 799) (102 674)
Investments (net) 8 273 24 263
Net cash utilised by investing activities (34 526) (78 411)
Net cash from financing activities (46 289) 44 193
Net increase in cash and cash equivalents 102 892 56 395
Statistics
Audited
Year ended 30 June
2005 2004
Number of ordinary shares 71 895 718 68 560 468
Shares in issue 73 573 023 73 573 023
Less: Treasury shares - (4 453 432)
Less: Shares held by share trust (1 677 305) (559 123)
Earnings per share (cents) 190,1 170,7
Fully diluted earnings per share (cents) 183,1 169,8
Headline earnings per share (cents) 151,6 135,1
Dividend cover 3,9 3,9
Dividends per share (cents) 49,0 44,0
Interim 17,0 15,0
Final 32,0 29,0
Net asset value per share (cents) 897,1 783,1
Current ratio 1 1
Condensed Statement of Changes in Equity (R`000)
Audited
Year ended 30 June
2005 2004
Balance at 1 July 536 923 444 767
Attributable profit for the year 133 700 115 424
Issue of shares from share trust to employees 6 884 2 999
Dividends paid (32 552) (26 267)
Balance at 30 June 644 955 536 923
Segmental Analysis (R million) - Primary
Revenue
Property Development Services 95 55
Construction 3 808 3 182
Manufacturing 793 720
Operations and Maintenance 242 295
4 938 4 252
Operating profit
Property Development Services 16 8
Construction 73 47
Manufacturing 63 65
Operations and Maintenance 46 59
198 179
Capital Expenditure (R`000)
* Capital expenditure for the year 168 738 165 613
* Capital expenditure committed or authorised 162 982 18 715
for the next year
Contingencies
There are no legal or arbitration proceedings including any that are pending or
that the group is aware of or any obligations relating thereto, that have had or
that may have, in the opinion of the directors, a material effect on the group`s
financial position and accordingly no contingencies or provisions have been
raised.
Total financial institution guarantees given to third parties on behalf of
subsidiary companies amounted to R1,337 million as at 30 June 2005 as compared
to R862 million at 30 June 2004. The directors do not believe any exposure to
loss is likely.
Accounting Policies
These consolidated abridged financial statements for the year ended 30 June 2005
are prepared in accordance with South African Statements of Generally Accepted
Accounting Practice and Schedule 4 of the South African Companies Act. The
accounting policies used are consistent with those used in the annual financial
statements for the year ended 30 June 2004.
The auditors of Group Five Limited are PricewaterhouseCoopers Inc., Chartered
Accountants (SA), Registered Accountants and Auditors. Their unqualified audit
opinion is available from the company`s registered office.
From a dividend per share point of view disclosure has been provided based on
the period to which the dividends relate. Basic earnings per share is calculated
by dividing net profit by the weighted average number of ordinary shares in
issue (000s) during the year of 70 329 (2004: 67 625). Headline earnings per
share is calculated by dividing headline earnings by the weighted average number
of ordinary shares in issue during the year. In both calculations, treasury and
share trust shares are excluded. Fully diluted earnings per share takes into
account the dilutive effect of shares held by the share trust. In terms of a
general meeting held on 24 November 2004, the treasury shares were issued to the
share trust.
Dividend Declaration
The directors have declared a final dividend number 55 of 32 cents per ordinary
share (2004: 29 cents) payable to shareholders.
In order to comply with the requirements of STRATE the relevant details are:
Event Date
Last day to trade (cum-dividend) Friday, 23 September 2005
Shares to commence trading (ex-dividend) Monday, 26 September 2005
Record date (date shareholders recorded Friday, 30 September 2005
in books)
Payment date Monday, 3 October 2005
No share certificates may be dematerialised or rematerialised between Monday, 26
September 2005 and Friday, 30 September 2005, both dates inclusive.
Commentary
Overview
Group Five is pleased to announce its fifth consecutive year of earnings growth
and a second consecutive year of improved cash generation, bearing testimony to
the success of a strategy which focuses on profitable, cash-positive growth.
Revenue increased during the year by 16.2% to R4 939 million (2004: R4 252
million) and operating profit increased by 10.4% to R197,7 million from R179,1
million. Earnings per share improved by 11.4% to R1,90 from R1,71 and headline
earnings by 12.2% to R1,52 from R1,35.
Continued efforts in leveraging working capital effected a R102,9 million
generation of cash (2004: R56,4 million). This resulted in a decrease in finance
costs of 7.9% to R31,4 million (2004: R34,1 million).
These solid results were achieved in tough market conditions, particularly given
the effects of a strengthening Rand. The Rand strengthened on average during the
year by approximately 11.8% against the US Dollar, negatively affecting the
contribution of revenue from over border work and increasing the level of import
competition in the manufacturing businesses. Over border work is generally
secured at higher margins. The strengthening Rand also continued to have a
negative effect on local mining related work and, together with a lack of
government infrastructural spend, resulted in group profit margins decreasing
from 4.2% to 4.0%. The Civil Engineering and DPI Plastics businesses were
particularly affected. Margins were also impacted by a lower fair value
adjustment arising on the investments in service concessions of R35,7 million as
compared to R48,5 million during 2004.
The effective tax rate of 18.5% is in line with the prior year of 18.6%. This
reflects profits earned in jurisdictions with lower tax rates than South Africa
and the utilisation of tax losses in South Africa for which no deferred tax was
previously provided.
The final dividend has been increased by 10.3% to 32 cents per share (2004: 29
cents). Total dividends for the year increased by 11.4% to 49 cents (2004: 44
cents), which is in line with the current policy of four times covered.
Operational Review
Property Development Services
Property development services performed well, increasing operating profit by 89%
to R15,8 million (2004: R8,3 million). This was due to the focus on specifically
identified commercial, industrial, retail and residential projects. Although the
residential market demand has shown signs of decreasing in certain areas in
South Africa, coastal demand continues to grow. Commercial, industrial and
retail opportunities also continue to improve. The business is currently
reviewing approximately 50 potential projects. Through the use of a formalised
risk filter, projects are accepted or rejected at an early stage with
approximately 20% of projects being ultimately pursued.
Construction
Construction, which contributed 77% (2004: 75%) to group revenue, increased
revenue by 20% to R3 808 million (2004: R3 182 million). A significant overall
improvement in the construction businesses resulted in operating profit
increasing 55.3% to R73 million (2004: R47 million) with overall profit margin
percentage improving to 1.9% (2004: 1.5%).
Revenue from over border work contributed 41% (2004: 44%) of total construction
revenue and was affected by the strengthening Rand during the year.
Buildings/Housing, which contributed 60% (2004: 60%) to total construction
revenue, increased revenue by 18.3% to R2,269 million (2004: R1,917 million).
Overall profit margin percentage declined by approximately 1.4%. This was
primarily due to the adverse effect following the completion of an exceptional
Angolan housing project in the prior year, as we cautioned at interim stage, and
the effect of a lower contribution from higher margin over border contracts due
to the year on year strengthening of the Rand.
The business currently has a strong secured order book for the next financial
year of approximately R2,4 billion, at improved margins.
Engineering Projects had an outstanding year, with revenue increasing by 75.6%
to R487,9 million (2004: R277,7 million) and operating profit increasing by 66%.
The focus on over border mining opportunities, together with projects in the
heavy industrial, power, oil and gas sectors, has proved successful and will be
continued. The secured order book, which currently boasts the highest margins in
the construction order book, for the next financial year is R250 million.
Roads and Earthworks` revenue of R356,5 million was 16.7% less than the R428
million achieved in the prior year and below the targeted revenue of
approximately R420 million. This was mainly due to competitive market
conditions. However, as the group promised, this business achieved break-even at
the operating profit line, compared to an operating loss in the prior year. The
current secured order book for the next financial year is R270 million and the
business is expected to return to profitability.
Revenue from the local and African Civil Engineering business increased by 24%
to R695,2 million (2004: R558,8 million), although an overall operating loss was
incurred due to a significant downturn in government infrastructural and local
mining spend, resulting in overhead under-recoveries. With a current order book
of over R400 million and numerous tenders being evaluated, the business is
expected to return to profitability.
Revenue and operating profit were positively affected by the formation of a
civil engineering business in Dubai towards the end of the previous financial
year. A total twelve-month order book of R680 million has been secured in this
region alone. The current total civil engineering order book for the next
financial year is R1,1 billion and is expected to increase further with the
planned government infrastructural spend in South Africa.
Manufacturing
Manufacturing contributed 16% (2004: 17%) of total revenue. Despite the
continued presence of imports in the local market and problems experienced by
DPI Plastics, manufacturing maintained operating profit. Revenue increased by
10.3% to R793 million (2004: R719,5 million) and operating profit decreased
slightly to R63 million (2004: R65 million).
Everite Building Products had another successful year, with revenue increasing
by 20.5% to R431,8 million (2004: R358,3 million) and operating profit
increasing by 47.4%. For the first time in many years, the factory regularly
operated at full capacity.
Despite import competition, overall price increases of 7% were achieved through
a focused development of the value added range of products as commodity price
adjustments remained under threat. Volume growth of 13% was experienced, with
strong performances in the Cape, KwaZulu Natal and Eastern Cape.
Vaal Sanitaryware performed well in tough trading conditions, with revenue
remaining constant at approximately R101 million. The overall profit margin
percentage decreased by approximately 3.8% due to import and competitor
strength, which resulted in virtually no sales price increases in the current
year.
In addition, yield/recovery problems experienced in the factory during the first
quarter of the 2005 calendar year, primarily due to the delayed commissioning of
robotic technology, resulted in under-recoveries in the factory and a subsequent
negative effect on margins. This has since been rectified and yield percentages
are currently approaching benchmarked levels.
DPI Plastics had a tough year. The explosion at the Sasol Secunda plant
interrupted supplies and increased the cost of raw material between November
2004 and January 2005. Revenue and margins were severely affected by a
significant decline in civils projects in South Africa. In addition, the drive
to lower costs and improve productivity resulted in industrial action in the
South African factories. This has subsequently been resolved.
As a result, revenue decreased by 5.6% to R245,7 million (2004: R260,3 million)
and the overall profit margin percentage decreased by 3.8%. The civils market is
showing signs of improvement and the business is expected to improve current
margins.
The Group Five Pipe factory in Meyerton, which is 50% owned by Group Five, was
decommissioned 18 months previously due to specific orders obtained and produced
a small operating profit.
Operations and Maintenance
Excluding fair value adjustments, Intertoll had a tough year with revenue
declining by 22.7% to R157,3 million (2004: R203,4 million) and operating profit
declining by approximately 30%. This was primarily due to the ongoing
disappointing results from the Indian operations due to contractual delays
relating to higher margin equipment supply revenues. Executive management
attention is being paid to this operation. WSSA performed well and improved its
operating profit.
A fair value adjustment of R35,7 million (2004: R48,5 million), recorded in the
current year, included R3,1 million (2004: Rnil) relating to the recently signed
investment in the Polish toll road concession and R32,6 million (2004: R48,5
million) relating to the Hungarian toll road concession. No fair value
adjustment arose on the Indian toll road concession.
Prospects
Prospects for 2006 are encouraging and double digit earnings growth is expected.
The group starts the year with a record construction order book of over R4
billion (2004: R3,0 billion) of which 53% is over border and at better average
margins than the local work. Additional construction capacity of R1,5 billion
exists in the group, which is expected to be matched through the roll out of
local government infrastructural spend, additional commercial, retail,
industrial and residential project opportunities in South Africa, and over
border opportunities. The local and African civil engineering business is
expected to return to profitability as the market turns.
Manufacturing growth is anticipated. This will be particularly due to the
continuance of housing and property related expenditure, and accelerated
affordable housing initiatives led by government, as well as the expected turn
in the local civils market, which will have a positive effect on DPI.
As the Indian and Hungarian toll road concessions have moved from the
construction to the operations and maintenance phase and the traffic risk is
minimised, further fair value adjustments are expected. The Polish concession
has not commenced the construction phase as yet and, therefore, fair value
adjustments are limited in the medium-term.
On behalf of the board
D Paizes MH Lomas
Chairman Chief Executive Officer
8 August 2005
website: www.g5.co.za
Date: 10/08/2005 07:05:15 AM
Produced by the JSE SENS Department
