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GROUP FIVE - UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2004
AND CAUTIONARY ANNOUNCEMENT
GROUP FIVE
Incorporated in the Republic of South Africa
Reg. no. 1969/000032/06
Share code: GRF ISIN: ZAE000027405
Positioned for growth
- Customer focused - Innovative solutions
- Co-operative approach - Quality & safety
Unaudited interim results for the six months ended 31 December 2004 and
Cautionary Announcement
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
Website www.g5.co.za
Highlights
- Earnings improvement for the fifth interim period
- Cash generated improved by R98,4 million
- Manufacturing businesses post continued growth
- Construction achieve improved results
- Turnaround of Roads complete
- Robust performance in Engineering
- Buildings secure a R2,2 billion order book for the full year
- Civils balancing difficult local conditions with cross-border initiatives
SALIENT FEATURES
Change 2004 2003
Revenue - R000"s 13% 2 322 578 2 052 427
Headline earnings
per share - cents 19,5% 53,3 44,6
Net cash generated/
(utilised) - R000"s 326% 68 256 (30 158)
Earnings per share - cents 8,5% 70,4 64,9
Dividend per share - cents 13% 17,0 15,0
CONDENSED GROUP INCOME STATEMENT (R"000)
UNAUDITED AUDITED
Six months Year ended
ended 31 Dec 30 June
2004 2003 2004
Revenue 2 322 578 2 052 427 4 252 175
Operating profit 78 300 71 989 179 121
Finance costs (12 936) (17 008) (34 085)
Profit before taxation 65 364 54 981 145 036
Taxation (14 380) (10 996) (27 012)
Profit after taxation 50 984 43 985 118 024
Minority interest (2 561) (250) (2 600)
Net profit 48 423 43 735 115 424
Determination of
headline earnings:
Net profit 48 423 43 735 115 424
Deduct after tax effect of:
- Fair value increase in
investment property (5 088) (3 587) (5 491)
- Profit on disposal of property,
plant and equipment (6 679) (10 098) (18 562)
Headline earnings 36 656 30 050 91 371
Operating profit is stated after
(charging)/crediting:
Income/(loss) from associates 2 340 (2 768) (6 026)
Fair value increase in
investments - net - - 48 465
Depreciation and amortisation (42 382) (49 251) (97 144)
Foreign exchange gains/(losses) 577 (18 274) (33 517)
CONDENSED GROUP BALANCE SHEET (R"000)
ASSETS
Non-current assets
Property, plant and equipment 551 864 524 824 576 436
Investment - concessions 75 787 82 061 101 443
Other non-current assets 45 099 6 040 49 855
672 750 612 925 727 734
Current assets
Other current assets 1 404 550 1 149 808 1 365 410
Bank balances and cash 216 683 199 200 275 902
1 621 233 1 349 008 1 641 312
Total assets 2 293 983 1 961 933 2 369 046
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" interest 572 060 473 793 536 923
Minority interest 13 714 10 149 11 447
585 774 483 942 548 370
Non-current liabilities
Interest-bearing borrowings 142 069 113 890 130 175
Provision for post-employment
obligations 38 288 44 443 41 515
180 357 158 333 171 690
Current liabilities
Other current liabilities 1 463 260 1 117 749 1 456 922
Bank overdrafts 64 592 201 909 192 064
1 527 852 1 319 658 1 648 986
Total liabilities 1 708 209 1 477 991 1 820 676
Total equity and liabilities 2 293 983 1 961 933 2 369 046
CONDENSED CASH FLOW STATEMENT (R"000)
Cash flow from operating activities
Cash from operations 119 124 108 102 199 836
Working capital changes (17 660) (95 107) (21 131)
Cash generated from operations 101 464 12 995 178 705
Finance costs (12 936) (17 008) (34 085)
Taxation and dividends paid (49 709) (32 541) (54 007)
Net cash generated by/(utilised in)
operating activities 38 819 (36 554) 90 613
Fixed assets (net) (19 305) (50 545) (102 674)
Investments (net) 40 075 5 639 24 263
Net cash generated by/(utilised in)
investing activities 20 770 (44 906) (78 411)
Net cash from financing activities 8 667 51 302 44 193
Net increase/(decrease) in cash and
cash equivalents 68 256 (30 158) 56 395
STATISTICS
UNAUDITED AUDITED
Six months Year ended
ended 31 Dec 30 June
2004 2003 2004
as restated
Number of ordinary shares 71 701 218 67 795 093 68 560 468
Shares in issue 73 573 023 73 573 023 73 573 023
Less: Treasury shares - 4 453 432 4 453 432
Less: Shares held by share trust 1 871 805 1 324 498 559 123
Headline earnings per share - cents 53,3 44,6 135,1
Earnings per share - cents 70,4 64,9 170,7
Fully diluted earnings per share - cents 68,4 63,7 169,8
Dividend cover 4,1 4,3 3,9
Dividend per share - cents 17 15,0 44,0
Interim 17 15,0 15,0
Final - - 29,0
Net asset value per share - cents 797,8 698,9 783,1
Current ratio 1 1 1
CONDENSED STATEMENT OF CHANGES IN EQUITY (R"000)
Balance on 1 July - as
previously reported 536 923 455 080 444 767
Adjusted for change in accounting
for share trust - (10 313) -
Attributable profit for the year 48 423 43 735 115 424
Issue of shares from share trust
to employees 6 759 1 189 2 999
Dividend paid (20 045) (15 898) (26 267)
Balance at end of period 572 060 473 793 536 923
SEGMENTAL ANALYSIS (R"million) - PRIMARY
UNAUDITED AUDITED
Six months Six months Year
ended ended ended
31 Dec 30 June 30 June
2004 2003 2004 2004
as restated
Revenue
Construction 1 773 1 531 1 651 3 182
Manufacturing 412 359 361 720
Operations and Maintenance 122 147 148 295
Property Development
Services 16 15 40 55
Total revenue 2 323 2 052 2 200 4 252
Operating profit
Construction 31 28 19 47
Manufacturing 39 35 30 65
Operations and Maintenance 5 8 51 59
Property Development Services 3 1 7 8
Total operating profit 78 72 107 179
CAPITAL EXPENDITURE (R"000)
Capital and investment expenditure
for the period 35 214 75 106 165 613
Capital expenditure
committed/authorised 79 532 37 486 18 715
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 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 backed guarantees given to third parties on behalf
of subsidiary companies amounted to R904 million as at 31 December 2004 as
compared to R862 million at 30 June 2004. The directors do not believe any
exposure to loss is likely.
ACCOUNTING POLICIES
These consolidated condensed interim financial statements 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. Certain 2003 comparatives have been restated as
a result of the consolidation of the Group Five Share Incentive Trust. There was
no effect on net profit previously reported.
Income tax expense is recognised based on the best estimate of the weighted
average annual income tax rate expected for the full financial year. The
estimated average annual tax rate used for the first half of the 2005 financial
year was 22% (2004: 20%).
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 period of 68 823 (2003: 67 365). Headline earnings per
share is calculated by dividing headline earnings by the weighted average number
of ordinary shares in issue during the period. 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 an interim dividend number 54 of 17 cents per
ordinary share (2003: 15 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, 21 April 2005
Shares to commence trading (ex-dividend) Friday, 22 April 2005
Record date (date shareholders recorded in books) Friday, 29 April 2005
Payment date Tuesday, 3 May 2005
No share certificates may be dematerialised or rematerialised between Friday, 22
April 2005 and Friday, 29 April 2005, both dates inclusive.
COMMENTS
Overview
A solid improvement in earnings was achieved for the fifth interim period in
succession. Headline earnings were up 19,5% to 53,3 cents (2003: 44,6 cents)
and earnings per share grew by 8,5% to 70,4 cents (2003: 64,9 cents).
Revenue increased by 13% to R2,3 billion (2003: R2,1 billion) with cross-border
revenue contribution decreasing to 30% (Year to 30 June 2004: 36%) as a result
of the continued strengthening of the Rand.
As promised at year-end, continued efforts in managing working capital effected
a significant improvement in the Group"s cash position from the comparative six-
month period. Cash generated improved by R98,4 million to R68,2 million (2003:
R30,2 million utilised). This resulted in a R4 million decrease in the Group"s
interest bill and a reduction in the net gearing ratio from 23% at 30 June 2004
to 15% (31 December 2003: 36%).
The results are especially pleasing in light of a strengthening Rand that
negatively affected cross-border work, a continued depressed local civils market
and a delay in the start up of secured work in the building and housing sectors.
Overall margins decreased slightly to 3,4% (31 December 2003: 3,5%) primarily as
a result of a reduction in higher margin cross-border construction revenue from
40% of total construction revenue to 36% and production problems at DPI
following an explosion at Sasol"s Secunda plant.
Foreign exchange losses, which arise solely from the translation and settlement
of net foreign current assets, decreased by R18,9 million. This was mainly due
to the settlement of a large amount of outstanding net working capital on the
Group"s Angolan housing contract during the period and the focused management of
exposure to net foreign current assets.
The interim dividend has been increased by 13% to 17 cents per share (2003: 15
cents), which is in line with the current policy of four times covered.
Operational review
Property Development Services
As noted in the annual report for the year ended 30 June 2004, Property
Development Services was refocused into residential, commercial and retail
property development and a number of exciting projects are currently being
negotiated. Benefits are expected to flow through during the next 18 months.
Manufacturing
Once again all Manufacturing businesses showed solid growth which resulted in
revenue increasing by 14,8% to R412 million (2003: R359 million) and operating
profit by 11,4% to R39 million (2003: R35 million). Manufacturing contributed
17,7% to Group revenue.
Despite the strong Rand and subsequent threat of imports, Everite Building
Products improved both revenue and operating margins. The solid results were
achieved following increased manufacturing capacity utilisation due to an
improvement in local housing expenditure and the management of customer loyalty
programmes.
Whilst imported products continued to impact the local market, Vaal Sanitaryware
maintained its position and delivered good results.
Margins in DPI Plastics, the Group"s joint venture with Sasol, were negatively
impacted following an explosion at Sasol"s Secunda plant which resulted in the
import of raw material at higher costs. This position has now returned to
normality.
Construction
Construction, which contributed 76% to Group revenue, increased revenue by 16%
to R1,8 billion (2003: R1,5 billion). A strategic reduction in Road"s revenue
and a negative R103 million effect on cross-border revenue, as a result of a
strong Rand, were more than offset by growth in both Engineering and Building
revenues.
Operating profit improved by 10,7% to R31 million (2003: R28 million). When
compared to operating profit of R19 million for the six months ended 30 June
2004, it improved by 63,2%. This was achieved primarily due to the significant
improvement in Engineering and the turnaround at Roads.
Building contributed 42,8% of Group turnover, although margins were reduced
following the completion of an exceptional Angolan housing project at the end of
the previous financial year. Delays of approximately R150 million in the start
up of secured projects in the period negatively affected performance. Building,
however, have secured a strong order book for the year ended 30 June 2005 of
R2,2 billion.
Focus in the Engineering business on cross-border mining opportunities together
with projects in the power, oil and gas sector resulted in very strong growth,
with revenue increasing by 181% and margins more than doubling.
Following the efforts in the six months to 30 June 2004 and the introduction of
a new managing director, the turnaround in Roads was successfully completed. As
expected, revenue was down 33,1% compared with the six-month period to 31
December 2003. The forecast tail-end of unrecovered overheads was incurred in
the current period. Roads is on track to achieve its targeted secured revenue of
approximately R400 million (R380 million secured to date) and to break even for
the year ended 30 June 2005.
Civils results were disappointing as the business continued to experience the
deferral of expenditure in the local resource sector and the low levels of
infrastructure expenditure by government. Margins were affected as the business
secured short-term projects at lower margins to maintain capacity for the
expected upturn. However, the business is focused on pursuing more profitable
cross-border opportunities to match skills base.
Operations and Maintenance
Operations and Maintenance revenue and margins were down due to the
strengthening Rand and disappointing results from the Indian operations. The
concession contracts in Poland and Hungary are proceeding well, with final
closure expected in the next six months. WSSA performed well and improved its
operating profit.
Prospects
The Group starts the second six months with a secured construction order book to
30 June 2005 of R3,7 billion (30 June 2004: R3,0 billion) of which 36% is cross-
border. Forecasts have been prepared using an exchange rate of R6:$1 and any
improvements on this should have a positive effect on results. The depressed
local Civils market and delay in government expenditure on infrastructure remain
a concern. The Group continues to focus on cross-border opportunities to buffer
work shortages in the local market.
Manufacturing growth is anticipated, particularly with the continuance of
housing and property related expenditure. A fair value upward adjustment is
expected on the final closure of the Polish concession although it is not
expected to have a material effect on the results for the year. Cash management
will continue to be a major focus area.
Group Five"s second half is historically stronger than the first and the Group
is on track to achieve its target of improved annual earnings for the fifth
consecutive year.
Cautionary Announcement
The Group is also pleased to announce that it has commenced its BEE ownership
initiatives and is currently engaged in discussions with various parties in this
regard. The Board will communicate further details to the market at the
appropriate time. Shareholders are therefore advised to exercise caution when
trading in the Group"s shares.
By order of the Board
GM Thomas MH Lomas
Chairman Chief Executive Officer
15 February 2005
Date: 16/02/2005 08:00:19 AM Supplied by www.sharenet.co.za
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