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GRF
GRF
GRF - Group Five - Unaudited Interim Group Results For The Six Months
Ended 31 December 2006
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
Revenue (R`000)
Change 37,7%
2006 4 004 824
2005 2 909 321
Headline earnings per share
Before external bee ownership expense (cents)
Change 74,4%
2006 121,0
2005 69,4
Earnings per share
Before external bee ownership expense (cents)
Change 49,4%
2006 121,0
2005 81,0
Dividend per share (cents)
Change 50,0%
2006 30
2005 20
CONDENSED INCOME STATEMENT
UNAUDITED
Six months ended 31 December
AUDITED
Year ended 30 June
As As
previously previously
As reported As reported
restated restated
(R`000) 2006 2005 2005 2006 2006
Revenue 4 004 824 2 909 3 131 347 5 864 5 864 721
321 721
Operating 137 548 85 496 91 038 240 799 240 799
profit
Fair value
adjustment
relating
to investment - 7 146 7 146 26 538 26 538
properties
Fair value
adjustment
relating to
investment in
service 4 000 2 100 2 100 1 385 1 385
concessions
Expense
relating to
issue of
shares in terms
of broad
based employee - (6 420) (6 420) (6 420) (6 420)
scheme
Expense
relating to
issue of
shares in terms
of external
BEE ownership - (91 000) - (91 000) -
scheme
Share of loss - (1 301) (1 301) - -
of associates
Profit/(loss)
before finance
costs
and taxation 141 548 (3 979) 92 563 171 302 262 302
Finance costs (12 676) (14 350) (17 807) (30 329) (30 329)
Profit/(loss) 128 872 (18 329) 74 756 140 973 231 973
before taxation
Taxation (35 957) (12 211) (14 951) (62 754) (62 754)
Profit/(loss)
after taxation
from
continuing 92 915 (30 540) 59 805 78 219 169 219
operations
Loss for the
year from
discontinued (1 129) (656) - (21 074) (21 074)
operations
Profit/(loss) 91 786 (31 196) 59 805 57 145 148 145
for the year
Allocated as
follows:
Equity
shareholders of
Group Five 89 717 (32 136) 58 865 52 555 143 555
Limited
Minority 2 069 940 940 4 590 4 590
interest
91 786 (31 196) 59 805 57 145 148 145
Determination
of
headline
earnings
Attributable 89 717 (32 136) 58 865 52 555 143 555
profit/(loss)
Deduct after
tax effect of
-
Fair value
adjustment
relating to
investment
properties - (8 412) (8 412) (16 850) (16 850)
-
Losses on
disposal/
abandonment of
discontinued - - - 15 254 15 254
operations
Headline 89 717 (40 548) 50 453 50 959 141 959
earnings/(loss)
CONDENSED BALANCE SHEET
UNAUDITED AUDITED
Six months ended 31 December Year
ended
As previously 30 June
As reported
restated
(R`000) 2006 2005 2005 2006
ASSETS
Non-current
assets
Property, plant 580 545 530 476 600 599 522 794
and equipment
Investment - 63 701 133 762 133 762 59 701
service
concessions
Other non-current 256 722 141 040 151 512 210 139
assets
900 968 805 278 885 873 792 634
Current assets
Other current 3 390 414 1 585 350 1 859 680 3 060
assets 102
Bank balances and 722 607 527 996 526 284 712 999
cash
4 113 021 2 113 346 2 385 964 3 773
101
Assets related to 164 941 355 574 - 338 667
discontinued
operations
Total assets 5 178 930 3 274 198 3 271 837 4 904
402
EQUITY AND
LIABILITIES
Capital and
reserves
Equity
attributable to
equity
holders of the 754 086 599 017 599 017 681 257
parent
Minority interest 3 681 5 168 5 168 1 762
757 767 604 185 604 185 683 019
Non-current
liabilities
Interest bearing 136 424 108 041 135 302 126 305
borrowings
Provision for 34 301 42 431 42 431 35 364
employment
obligations
170 725 150 472 177 733 161 669
Current
liabilities
Other current 4 012 327 2 219 726 2 287 784 3 767
liabilities 580
Bank overdrafts 238 111 202 135 202 135 143 849
4 250 438 2 421 861 2 489 919 3 911
429
Liabilities
related to
discontinued
operations - 97 680 - 148 285
Total liabilities 4 421 163 2 670 013 2 667 652 4 221
383
Total equity and 5 178 930 3 274 198 3 271 837 4 904
liabilities 402
CONDENSED CASH FLOW STATEMENT
UNAUDITED AUDITED
Six months ended 31 December Year
ended
As previously 30 June
As restated reported
(R`000) 2006 2005 2005 2006
Cash flow from
operating
activities
Cash from 196 729 108 676 117 763 307 099
operations
Working capital (208 315 039 179 638 294 164
changes 342)
Cash (utilised
in)/generated
from operations (11 613) 423 715 297 401 601 263
Finance costs (12 676) (14 350) (17 807) (30 329)
Taxation and (64 841) (26 119) (30 173) (194
dividends paid 350)
Net cash
(utilised
in)/generated by
operating (89 130) 383 246 249 421 376 584
activities
Property, plant
and equipment
and
investment (61 381) (19 458) (26 163) 20 926
property (net)
Investments (150) (14 645) (14 645) 26 799
(net)
Net cash
(utilised
in)/generated by
investing (61 531) (34 103) (40 808) 47 725
activities
Net cash
generated
by/(utilised in)
financing 40 566 (74 503) (71 194) 67 407
activities
Net cash
generated
by/(utilised in)
discontinued 25 441 (126 894) - (100
operations 681)
Net (decrease)/
increase in cash
and cash
equivalents
(84 654) 147 746 137 419 391 035
STATISTICS
UNAUDITED AUDITED
Six months ended 31 December Year ended 30 June
As As
previously previously
As reported As reported
restated restated
2006 2005 2005 2006 2006
Number of
ordinary
shares 74 357 73 891 73 891 218 73 918 73 918 218
843 218 218
Shares in issue 99 724 99 248 99 248 956 99 724 99 724 556
556 956 556
Less: Shares
held by
share trusts (25 (25 357 (25 357 (25 806 (25 806
366 738) 738) 338) 338)
713)
Weighted
average
shares (`000s) 74 131 72 677 72 677 73 496 73 496
Fully diluted
weighted
average shares 89 418 81 912 81 912 80 903 80 903
(`000s)
Earnings/(loss)
per share
- cents 121,0 (44,2) 81,0 71,5 195,3
Earnings per
share before
external BEE
ownership
expense - cents 121,0 81,0 81,0 195,3 195,3
Earnings/(loss)
per share
from continuing
operations - 122,5 (43,3) 81,0 100,2 224,0
cents
Headline
earnings/(loss)
per share - 121,0 (55,8) 69,4 69,3 193,2
cents
Headline
earnings per
share before
external BEE
ownership
expense
- cents 121,0 69,4 69,4 193,2 193,2
Headline
earnings/(loss)
per share from
continuing
operations - 122,5 (54,9) 69,4 98,0 221,8
cents
Fully diluted
earnings/
(loss) per 100,3 (39,2) 71,9 65,0 177,4
share - cents
Fully diluted
headline
earnings/(loss)
per share
- cents 100,3 (49,5) 61,6 63,0 175,5
Dividend cover
(based
on earnings per 4,0 (2,2) 4,1 1,3 3,5
share)
Dividends per
share
(cents) 30 20 20 56,0 56,0
Interim 30 20 20 20,0 20,0
Final - - - 36,0 36,0
Net asset value
per share 1 810,7 810,7 921,6 921,6
(cents) 014,1
Current ratio 1 1 1 1 1
CONDENSED STATEMENT OF CHANGES IN EQUITY
UNAUDITED AUDITED
Six months ended 31 December Year ended 30 June
As As
previously previously
As reported As reported
restated restated
(R`000) 2006 2005 2005 2006 2006
Balance at 1 683 019 579 098 579 098 601 218 601 218
July
Translation
differences
arising from
foreign
operations 17 548 (10 851) (10 851) (28 915) (28 915)
Share
options
issued and
issue of
shares in
terms of
BEE
ownership
transactions (7 445) 90 756 (245) 99 339 8 339
- net of
costs
Attributable
profit for
the year 91 786 (31 196) 59 805 57 145 148 145
Purchase of (150) (79) (79) (7 134) (7 134)
minorities
Dividends (26 991) (23 543) (23 543) (38 634) (38 634)
paid
Balance at 757 767 604 185 604 185 683 019 683 019
end of
period
SEGMENTAL ANALYSIS - PRIMARY
UNAUDITED AUDITED
Six months ended Year ended
31 December 30 June
As restated
(R`000) 2006 2005 2006
Revenue
Infrastructural Developments 227 961 140 173 316 217
Property Development Services 130 461 45 866 126 970
Infrastructure Development 97 500 94 307 189 247
Services
Manufacturing 261 019 242 356 472 975
Everite 232 001 234 083 450 736
Group Five Pipe 29 018 8 273 22 239
Construction 3 515 2 526 792 5 075 529
844
Building and Housing 1 868 1 524 918 2 788 466
676
Civil Engineering 1 271 717 601 1 662 700
391
Engineering Projects 375 777 284 273 624 363
Total revenue 4 004 2 909 321 5 864 721
824
Operating profit
Infrastructural Developments 6 103 8 754 32 450
Property Development Services 5 663 6 854 25 244
Infrastructure Development 440 1 900 7 206
Services
Manufacturing 38 067 30 616 60 651
Everite 31 265 29 537 57 109
Group Five Pipe 6 802 1 079 3 542
Construction 93 378 46 126 147 698
Building and Housing 46 807 32 201 81 467
Civil Engineering 29 629 10 372 51 650
Engineering Projects 16 942 3 553 14 581
Total operating profit 137 548 85 496 240 799
CAPITAL EXPENDITURE
UNAUDITED AUDITED
Six months Year
ended ended
31 December 30 June
(R`000) 2006 2006
Capital expenditure for the period 100 515 265 993
Capital expenditure committed or 93 242 151 156
authorised at the period end
Depreciation for the period 41 776 70 874
Estimates and Contingencies
The Group makes estimates and assumptions concerning the future, particularly
as regards construction contract profit taking, provisions, arbitrations and
claims and various fair value accounting policies. The resulting accounting
estimates 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 R1 962 million as at 31 December 2006,
compared to R1 977 million as at 30 June 2006.
Dividend Declaration
The directors have declared an interim dividend number 58 of 30 cents per
ordinary share (2005: 20 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) Thursday, 19 April 2007
Shares to commence trading (ex-dividend) Friday, 20 April 2007
Record date (date shareholders recorded Thursday, 26 April 2007
in books)
Payment date Monday, 30 April 2007
No share certificates may be dematerialised or rematerialised between Friday,
20 April 2007 and Thursday, 26 April 2007, both dates inclusive.
Accounting Policies
These consolidated condensed interim 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 annual financial statements for the year
ended 30 June 2006 and for the prior comparative interim period other than as
set out below.
During the six months ended 30 June 2006, the Group re-evaluated the current
and future ability of certain business units and their respective market
segments to support the group`s short to medium term financial targets. As a
result, Group Five sold its 50% interest in WSSA, its 25% interest in Group
Five Saudi Pipe, closed down and sold off its concession and operations and
maintenance business in India and disposed of its 100% interest in Vaal
Sanitaryware and its 40% interest in DPI Plastics.
In terms of International Financial Reporting Standards (IFRS) 5 "Non current
Assets Held for Sale and Discontinued Operations", the results and the losses
on disposal and abandonment of these operations have thus been disclosed as
discontinued for all periods presented.
IFRIC 8 - "Scope of IFRS 2", issued in January 2006 and 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 period`s reported results have been
restated accordingly.
COMMENTARY
Overview
The group delivered strong results in the period under review and is pleased
to announce a 74,4% increase in headline earnings per share and a 49,4%
increase in earnings per share from R0,81 to R1,21. The prior period figures
are stated before accounting for the cost of the external BEE ownership
transaction.
Revenue increased by 37,7% from R2,9 billion to R4 billion and operating
profit increased by 60,9% from R85,5 million to R137,5 million. This resulted
in the overall operating margin percentage improving from 2,9% to 3,4%,
primarily due to an improved operating performance from the group`s largest
contributor, Construction, where the overall operating margin percentage
improved from 1,8% to 2,7%.
Finance costs improved from R14,4 million to R12,7 million due to a lower
average net debt position during the period. Although cash of R84,7 million
was utilised in the period compared to the R147,8 million generated in the
prior comparative period, the group`s cash position is expected to improve
significantly in the next few months.
The effective tax rate of 27,9% approximates the South African statutory tax
rate due to the effects of a lower than expected contribution from Dubai,
which has a lower effective tax rate.
The interim dividend has been increased by 50% to 30 cents (2005: 20 cents),
congruent with the current policy of approximately four times cover.
Operational review
The group delivered a robust performance with the majority of the group`s
businesses improving performances and its core business of Construction
posting especially strong results.
Infrastructural Developments
Infrastructural Developments houses the businesses of Property Development
Services and Infrastructure Development Services. Higher returns are sought
through risk-managed participation throughout a project lifecycle. Both
businesses are characterised by lengthy lead and deal conclusion times (two to
four years), with returns enhanced by the utilisation of intellectual capacity
and the Group Five brand. During the period under review, Infrastructural
Developments contributed 5,7% (2005: 4,8%) to group revenue.
Property Development Services (PDS)
The slight decrease in operating profit compared to the prior year was
expected due to the number of projects to be concluded in the second half of
the current financial year. The full year`s operating profit performance is
therefore expected to match that of the previous financial year. Strong
demand has been seen in the non-residential sector of the market and
residential sector demand still remains high in the under R1 million housing
bracket. Group Five is well positioned in both these market sectors.
Infrastructure Development Services (IDS)
Revenue of R97,5 million (2005: R94,3 million) improved in line with budget.
As expected, the toll road operations` operating margin percentage improved to
5,3% (2005: 4,6%), although overall operating profit of the entire business
decreased by approximately R1,5 million, primarily due to the continued policy
of writing off development costs on targeted large infrastructure projects.
A great deal of time and effort in the period was spent on becoming the
preferred bidder for the new King Shaka Airport in KwaZulu Natal, continuing
to develop medium-term independent power projects (IPPs), as well as pursuing
various government building PPP opportunities in Southern Africa.
IDS` participation on these fronts is also extremely valuable in securing
profitable business for the Construction business units.
Manufacturing
Manufacturing contributed 6,5% (2005: 8,3%) to group revenue. Revenue
increased by 7,7% from R242,4 million to R261 million. Operating profit
increased by 24.3% from R30,6 million to R38,1 million, resulting in operating
margin percentages increasing from 12,6% to 14,6%.
Everite continues to operate at full capacity and the project to secure a 25%
increase in capacity is expected to be completed and commissioned by 30 June
2007. Ongoing factory improvements, together with minimal price increases, led
to the operating margin percentage improving from 12,6% to 13,5%. Strong
demand continues in Everite`s markets, particularly in the low cost and
affordable residential building market, supported by strong refurbishment
demand in the mid to upper end of the residential market.
Group Five Pipe`s growth in both revenue and operating profit reflects the
effects of the VRESAP pipeline project for which supply of product began in
the second half of F2006.
Construction
The group`s largest contributor at 87,8% of revenue (2005: 86,7%) continued
its strong growth and remains well positioned for future growth in this
sector, both locally and internationally.
Construction revenue increased by 39,1% from R2 527 million to R3 516 million,
operating profit by 102,4% to R93,3 million (2005: R46,1 million) and overall
operating margin percentage improved from 1,8% to 2,7%. Over-border work
contributed 52% (2005: 41,2%) to construction revenue, above the group`s
stated target of 33% due to the amount of opportunities currently experienced
in Civil Engineering and Engineering Projects.
Building and Housing revenue increased by 22,5% from R1,5 billion (71,4%
local) to R1,9 billion (61,7% local), while operating profit increased by
45,4% from R32,2 million to R46,8 million, resulting in an overall operating
margin percentage of 2,5% (2005: 2,1%). This is less than the overall
operating margin percentage of 2,9% achieved for the full year to June 2006 as
Building and Housing`s high margin East African contracts were substantially
completed towards the end of F2006. Margins remain tight in the local market,
particularly in the residential sector, and management is currently
considering transferring skills from Building and Housing to Civil Engineering
where higher margin work is coming through. The secured order book for F2007
is R3 billion (72% local) and the one year secured order book to 31 December
2007 is R1,7 billion (92% local) which will facilitate moving the future
unutilised capacity to areas of expected higher margin.
Civil Engineering revenue increased by 77,2% from R718 million (36% local) to
R1,3 billion (38% local).
Operating profit increased nearly threefold from R10,4 million to R29,6
million, primarily due to the improved market environment locally and in
Africa. This resulted in an overall operating margin percentage increase from
1,4% to 2,3%. The total Civil Engineering order book for F2007 is R2,8 billion
(29,8% local) and the order book to 31 December 2007 is also at R2,8 billion
(21,4% local). The planned move of skills from Building and Housing, described
above, will allow Civil Engineering to capitalise on the ever-improving
environment in South Africa and Dubai.
Engineering Projects had an extremely encouraging six months, with revenue
increasing by 32,2% from R284,3 million (49,8% local) to R375,8 million (13,2%
local) and operating profits increasing almost fivefold from R3,6 million to
R16,9 million. This resulted in the overall operating margin percentage
increasing from 1.2% to 4,5%, as the business shrugged off the effects of two
poor performing contracts that were completed in F2006. The operating margin
percentages are returning to their expected levels and a number of exciting
mining and power contracts are being pursued in Africa. The secured order book
for F2007 is at R676 million (26% local) and the one year order book to 31
December 2007 at R476 million (58% local).
Business Restructure
As outlined in the 2006 Annual Report, during the six months ended 30 June
2006, the group re-evaluated the current and future ability of certain
business units and their respective market segments to support the group`s
short- to medium-term financial targets. The group also started identifying
additional annuity revenue streams in the infrastructure value chain.
This resulted in the sale of the group`s interests in the Saudi pipe business,
the water and sanitation business, and the Vaal Sanitaryware and DPI Plastics
businesses, which were finally concluded at the end of September 2006. The
group also exited its toll road operations and maintenance and concession
business in India, for which a claim is being pursued against the Indian
highway authorities.
This business refocus also resulted in the group announcing the R750 million
acquisition of Quarry Cats, a sand and stone supply, contract crushing and
readymix supply business located primarily in Gauteng and for which all
conditions precedent are expected to be fulfilled by the end of February 2007.
The Quarry Cats acquisition will be margin-enhancing, but is not expected to
have a meaningful impact on margins until the first half of F2008.
The group is currently investigating a number of further opportunities and has
launched a R1 billion domestic medium-term funding note programme on the Bond
Exchange of South Africa to fund these potential acquisitions, as well as to
eliminate expensive short-term debt and manage working capital, as the focus
of Construction shifts from Building and Housing to Civil Engineering. The
first tranche of the bond issuance is expected to take place at the end of
February 2007.
PROSPECTS
Group Five is well positioned to take advantage of the upswing in
infrastructure spend in its identified target markets locally, in Africa and
in Dubai. The total secured construction order book for F2007 is at a record
R6,5 billion (49% local) and the secured one year order book to 31 December
2007 at R5 billion (49% local). These order books exclude the effects of the
group`s preferred bidder status on the King Shaka Airport and new 2010 Durban
soccer stadium.
With the pending acquisition of Quarry Cats and the imminent raising of bonds,
the group is gearing itself for significant future growth.
On behalf of the board
D Paizes MH Lomas
Chairman Chief Executive Officer
15 February 2007
Board of Directors: D Paizes* (Chairman), M Lomas+ (Chief Executive Officer),
P O`Flaherty, L Chalker*+, K Mpinga*#, S Morris*, MR Upton, MSV Gantsho*, WV
Mavimbela*
*(Non-executive director) +(British) #(DRC)
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Ltd, 70
Marshall Street Johannesburg 2001
www.g5.co.za
Date: 16/02/2007 08:00:00 Produced by the JSE SENS Department.
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