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Group Five - Unaudited Interim Results For The Six Months Ended 31 December 2005
GROUP FIVE
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
Unaudited interim results for the six months ended 31 December 2005
Salient features
Change 2005 2004
Revenue (R000"s) Up 34,8% 3 131 347 2 322 578
Headline earnings per share (cents) Up 35,8% 69,4 51,1
Earnings per share (cents) Up 18,8% 81,0 68,2
Dividend per share (cents) Up 17,6% 20,0 17,0
Net cash generated (R000"s) Up 101,3% 137 419 68 256
Condensed Group Income Statement (R"000)
UNAUDITED
Six months ended 31 December
As restated Original
2005 2004 2004
Revenue 3 131 347 2 322 578 2 322 578
Operating profit 92 563 76 390 78 300
Finance costs (17 807) (12 936) (12 936)
Profit before taxation 74 756 63 454 65 364
Taxation (14 951) (13 946) (14 380)
Profit after taxation 59 805 49 508 50 984
Minority interest (940) (2 561) (2 561)
Net profit 58 864 46 947 48 423
Determination of headline earnings:
Attributable profit 58 864 46 947 48 423
Deduct after tax effect of
- Fair value increase in investment (8 412) (5 088) (5 088)
property
- Profit on disposal of fixed - (6 679) (6 679)
assets
Headline earnings 50 452 35 180 36 656
Operating profit is stated after
(charging)/crediting:
(Loss)/income from associates (1 301) 2 340 2 340
Fair value increase in investments - 2 100 - -
net
Depreciation and amortisation (51 715) (43 532) (42 382)
Expense relating to issue of shares (6 420) - -
in terms of Broad-Based Scheme
UNAUDITED AUDITED
Year ended 30 June
As restated Original
2005 2005
Revenue 4 938 838 4 938 838
Operating profit 193 694 197 720
Finance costs (31 399) (31 399)
Profit before taxation 162 295 166 321
Taxation (29 962) (30 723)
Profit after taxation 132 333 135 598
Minority interest (1 898) (1 898)
Net profit 130 435 133 700
Determination of headline earnings:
Attributable profit 130 435 133 700
Deduct after tax effect of
- Fair value increase in investment property (5 088) (5 088)
- Profit on disposal of fixed assets (21 975) (21 975)
Headline earnings 103 372 106 637
Operating profit is stated after
(charging)/crediting:
(Loss)/income from associates 2 904 2 904
Fair value increase in investments - net 35 702 35 702
Depreciation and amortisation (97 928) (95 520)
Expense relating to issue of shares in terms of - -
Broad-Based Scheme
Condensed Group Balance Sheet (R"000)
UNAUDITED
Six months ended 31 December
As Original
restated
2005 2004 2004
ASSETS
Non-current assets
Property, plant and equipment 600 599 503 132 551 864
Investment - concessions 133 762 75 787 75 787
Other non-current assets 151 512 63 861 45 099
885 873 642 780 672 750
Current assets
Other current assets 1 859 680 1 404 550 1 404
550
Bank balances and cash 526 284 216 683 216 683
2 385 964 1 621 233 1 621
233
Total assets 3 271 837 2 264 013 2 293
983
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" interest 599 017 508 171 572 060
Minority interest 5 168 13 714 13 714
604 185 521 885 585 774
Non-current liabilities
Interest bearing borrowings 135 302 142 069 142 069
Provision for employment obligations 42 431 39 485 38 288
177 733 181 554 180 357
Current liabilities
Other current liabilities 2 287 784 1 495 982 1 463
260
Bank overdrafts 202 135 64 592 64 592
2 489 919 1 560 574 1 527
852
Total liabilities 2 667 652 1 742 128 1 708
209
Total equity and liabilities 3 271 837 2 264 013 2 293
983
UNAUDITED AUDITED
Year ended 30 June
As restated Original
2005 2005
ASSETS
Non-current assets
Property, plant and equipment 566 976 616 940
Investment - concessions 119 079 119 079
Other non-current assets 84 924 60 351
770 979 796 370
Current assets
Other current assets 1 735 045 1 735 045
Bank balances and cash 335 346 335 346
2 070 391 2 070 391
Total assets 2 841 370 2 866 761
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" interest 584 793 644 955
Minority interest 4 306 4 306
589 099 649 261
Non-current liabilities
Interest bearing borrowings 132 144 132 144
Provision for employment obligations 42 431 40 442
174 575 172 586
Current liabilities
Other current liabilities 1 929 080 1 896 298
Bank overdrafts 148 616 148 616
2 077 696 2 044 914
Total liabilities 2 252 271 2 217 500
Total equity and liabilities 2 841 370 2 866 761
Condensed Group Cash Flow Statement (R"000)
UNAUDITED
Six months ended 31 December
As Original
restated
2005 2004 2004
Cash flow from operating activities
Cash from operations 117 763 116 402 119 124
Working capital changes 179 638 (14 938) (17 660)
Cash generated from operations 297 401 101 464 101 464
Finance costs (17 807) (12 936) (12 936)
Taxation and dividends paid (30 173) (49 709) (49 709)
Net cash generated by operating 249 421 38 819 38 819
activities
Fixed assets (net) (26 163) (19 305) (19 305)
Investments (net) (14 645) 40 075 40 075
Net cash (utilised in)/generated by (40 808) 20 770 20 770
investing activities
Net cash (utilised in)/generated by (71 194) 8 667 8 667
financing activities
Net increase in cash and cash 137 419 68 256 68 256
equivalents
UNAUDITED AUDITED
Year ended 30 June
As restated Original
2005 2005
Cash flow from operating activities
Cash from operations 214 727 217 509
Working capital changes 103 444 100 662
Cash generated from operations 318 171 318 171
Finance costs (31 399) (31 399)
Taxation and dividends paid (103 065) (103 065)
Net cash generated by operating activities 183 707 183 707
Fixed assets (net) (42 799) (42 799)
Investments (net) 8 273 8 273
Net cash (utilised in)/generated by investing (34 526) (34 526)
activities
Net cash (utilised in)/generated by financing (46 289) (46 289)
activities
Net increase in cash and cash equivalents 102 892 102 892
Statistics
UNAUDITED
Six months ended 31 December
As restated Previous
2005 2004 2004
Number of ordinary shares 73 891 218 71 701 218 71 701 218
Shares in issue 99 248 956 73 573 023 73 573 023
Less: Shares held by share trusts (25 357 738) (1 871 805) (1 871 805)
Weighted average shares ("000s) 72 677 68 823 68 823
Fully diluted weighted average 81 912 70 744 70 744
shares ("000s)
Headline earnings per share - cents 69,4 51,1 53,3
Earnings per share - cents 81,0 68,2 70,4
Fully diluted earnings per share - 71,9 66,3 68,4
cents
Fully diluted headline earnings per 61,6 49,7 51,8
share - cents
Dividend cover 4,1 4,0 4,1
Dividends per share 20 17 17
Interim 20 17 17
Final - - -
Net asset value per share (cents) 810,7 708,7 797,8
Current ratio 1 1 1
UNAUDITED AUDITED
Year ended 30 June
As restated Previous
2005 2005
Number of ordinary shares 71 895 718 71 895 718
Shares in issue 73 573 023 73 573 023
Less: Shares held by share trusts (1 677 305) (1 677 305)
Weighted average shares ("000s) 70 329 70 329
Fully diluted weighted average shares ("000s) 73 005 73 005
Headline earnings per share - cents 147,0 151,6
Earnings per share - cents 185,5 190,1
Fully diluted earnings per share - cents 178,7 183,1
Fully diluted headline earnings per share - 141,6 146,1
cents
Dividend cover 3,8 3,9
Dividends per share 49 49
Interim 17 17
Final 32 32
Net asset value per share (cents) 813,4 897,1
Current ratio 1 1
Condensed Group Statement of Changes in Equity (R"000)
UNAUDITED
Six months ended 31 December
As restated Original
2005 2004 2004
Balance on 1 July - as previously 584 793 536 923 536 923
reported
Adjusted for change in accounting - (62 413) -
policies as a result of the adoption of
IFRS
* Adjustment arising as a result of (10 001) - -
using fair-value-as-deemed cost for
mobile plant and equipment
* Cumulative translation differences (10 851) - -
arising from foreign operations
Attributable profit for the year 58 864 46 947 48 423
Issue of shares in terms of share 4 299 6 759 6 759
schemes and BEE ownership transaction
Costs related to BEE ownership (4 544) - -
transaction
Dividends paid (23 543) (20 045) (20 045)
Balance at end of period 599 017 508 171 572 060
UNAUDITED AUDITED
Year ended 30 June
As restated Original
2005 2005
Balance on 1 July - as previously reported 536 923 536 923
Adjusted for change in accounting policies as a (56 897) -
result of the adoption of IFRS
* Adjustment arising as a result of using fair- - -
value-as-deemed cost for mobile plant and
equipment
* Cumulative translation differences arising from - -
foreign operations
Attributable profit for the year 130 435 133 700
Issue of shares in terms of share schemes and BEE 6 884 6 884
ownership transaction
Costs related to BEE ownership transaction - -
Dividends paid (32 552) (32 552)
Balance at end of period 584 793 644 955
Segmental Analysis (R million) - Primary
UNAUDITED
Six months ended 31 December
As Original
restated
2005 2004 2004
Revenue
Property Development Services 45 16 16
Manufacturing 429 412 412
Everite Building Products 234 222 222
Vaal Sanitaryware 52 48 48
Piping 143 142 142
Construction 2 527 1 773 1 773
Building and Housing 1 525 993 993
Civils, Roads and Earthworks 718 490 490
Engineering Projects 284 290 290
Concessions/O & M 130 122 122
3 131 2 323 2 323
Operating profit
Property Development Services 14 3 3
Manufacturing 29 38 39
Everite Building Products 25 15 16
Vaal Sanitaryware 5 15 15
Piping (1) 8 8
Construction 46 30 31
Building and Housing 36 17 18
Civils, Roads and Earthworks 6 (2) (2)
Engineering Projects 4 15 15
Concessions/O & M 4 5 5
93 76 78
UNAUDITED AUDITED
Year ended 30 June
As restated Original
2005 2005
Revenue
Property Development Services 95 95
Manufacturing 793 793
Everite Building Products 432 432
Vaal Sanitaryware 101 101
Piping 260 260
Construction 3 808 3 808
Building and Housing 2 269 2 269
Civils, Roads and Earthworks 1 051 1 051
Engineering Projects 488 488
Concessions/O & M 242 242
4 938 4 938
Operating profit
Property Development Services 16 16
Manufacturing 60 63
Everite Building Products 31 32
Vaal Sanitaryware 20 21
Piping 9 10
Construction 72 73
Building and Housing 55 56
Civils, Roads and Earthworks (10) (10)
Engineering Projects 27 27
Concessions/O & M 46 46
194 198
Capital Expenditure (R"000)
UNAUDITED AUDITED
Six months ended Year ended
31 December 30 June
2005 2004 2005
* Capital and investment expenditure 113 490 35 214 168 738
for the period
* Future capital expenditure committed 111 474 79 532 162 982
or authorised at period end
Estimates and Contingencies
The Group makes estimates and assumptions concerning the future, particularly as
regards construction contract profit taking, provisions, arbitrations and
claims. 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 599 million as at 31 December 2005 as
compared to R986 million at 31 December 2004. The directors do not believe any
exposure to loss is likely.
Dividend Declaration
The directors have declared an interim dividend number 56 of 20 cents per
ordinary share (2004: 17 cents) payable to shareholders.
In order to comply with the requirements of STRATE the relevant details are:
EventDate
Last day to trade (cum-dividend) Thursday, 20 April 2006
Shares to commence trading (ex-dividend) Friday, 21 April 2006
Record date (date shareholders recorded in books) Friday, 28 April 2006
Payment date Tuesday, 2 May 2006
No share certificates may be dematerialised or rematerialised between Friday, 21
April 2006 and Friday, 28 April 2006, both dates inclusive.
Accounting Policies
With effect from 1 July 2005, the Group adopted International Financial
Reporting Standards (IFRS) using certain exemptions allowed under IFRS 1 "First-
time Adoption of IFRS". These consolidated condensed interim financial
statements are thus prepared in accordance with IFRS, specifically in terms of
IAS 34 "Interim Financial Reporting" and Schedule 4 of the South African
Companies Act. The pre-tax effect resulting from the adoption of IFRS on
comparative reporting periods is set out below:
Pre-tax effect
Six Year ended
months
ended
31 30 June
December 2005
2004
R"000 R"000
* Expensing of share options granted to employees 700 1 492
over their vesting period (IFRS 2 "Share-Based
Payments"), for all options granted after 7 Nov 2002
that had not vested by 1 July 2005 (previously this
cost was accounted for through equity)
* Increase in depreciation as a result of the 1 210 2 534
adoption of IAS 16 "Property, Plant and Equipment"
which now requires depreciation of items of property,
plant and equipment by major component as well as an
annual reassessment of residual values (in adopting
this policy an exemption under IFRS 1 was used
whereby fair value was used as deemed cost at 1 July
2005 for mobile plant and equipment)
1 910 4 026
It should be noted that when adopting IAS 21 "The Effects of Changes in Foreign
Exchange Rates", the IFRS 1 exemption was used, whereby IAS 21 is applied
prospectively and cumulative translation gains at 30 June 2005 are set at zero.
On 29 September 2005, shareholders approved an issue of shares amounting to
approximately 26% of the issued share capital, after such issue, in terms of a
Black Economic Empowerment (BEE) ownership transaction. Shares issued to
employees in terms of the BEE ownership transaction are accounted for in terms
of IFRS 2.
The discount of R51 million arising on the issue of the shares to the external
BEE ownership consortium has been accounted for through equity in terms of the
Group"s current accounting policies. However, IFRIC 8 "Scope of IFRS 2", issued
in January 2006 and applicable for all financial years beginning on or after 1
May 2006, has concluded that these types of share issues fall within the scope
of IFRS 2.
As a result of IFRIC 8, guidance on the accounting treatment of the external BEE
ownership consortium share issue discount is being awaited from the South
African Institute of Chartered Accountants. Such accounting guidance will,
however, only be effective for financial years beginning on or after 1 May 2006
with retrospective application.
Commentary
OVERVIEW
Group Five is pleased to announce a 35,8% increase in headline earnings per
share and an 18,8% increase in earnings per share for the six months ended 31
December 2005. These results were achieved against challenging current market
conditions in certain businesses.
Revenue increased by 34,8% to R3 131 million (2004: R2 323 million), with over-
border revenue activity increasing by 61,4% to R1 112 million (2004: R689
million).
Operating profit increased by 21,2% to R92,6 million (2004: R76,4 million), with
overall margins decreasing from 3,3% to 3,0%, primarily due to a decrease in
margins in the manufacturing operations from 9,2% to 6,8%. This was as a result
of the continued competitive environment and lack of civils projects affecting
DPI Plastics.
Net cash generated more than doubled to R137,4 million (2004: R68,3 million).
Finance costs were R17,8 million (2004: R12,9 million). This is however more
comparable with the direct preceding six months to 30 June 2005 where R18,5
million was incurred. This change is in line with the strategy implemented 18
months previously to fund long-term assets with long-term borrowings.
The effective tax rate of 20% has increased over the 18,5% achieved for the year
to 30 June 2005 but remains lower than the South African statutory tax rate of
29% due to contributions from operations in lower tax jurisdictions, together
with tax losses previously not raised now being utilised. The effective tax rate
is expected to approximate 23% to 25% for the full year to 30 June 2006.
The interim dividend has been increased by 17,6% to 20 cents (2004: 17 cents),
congruent with the current policy of approximately four times covered.
In line with the Group"s desire to further enhance its financial reporting and
as a result of the focused reorganisation of the businesses, as noted in the
annual financial statements for the year ended 30 June 2005, improved segmental
disclosure has been provided.
OPERATIONAL REVIEW
Property Development Services
As expected and noted in the year ended 30 June 2005, Property Development
Services has continued its strong growth, with operating profit increasing
significantly to R14 million (2004: R3 million). Project opportunities continue
to grow in the commercial, industrial, retail and residential markets and
further growth in operating profit in the next six months is expected.
Manufacturing
Revenue increased slightly by 4,1% to R429 million (2004: R412 million),
restrained by a decrease in DPI Plastics" revenue, where strong competition and
low civils activity was experienced. As a result, a loss was incurred at DPI in
the six months, compared to a profit in the comparative six-month period.
Despite the continuation of strong results from Everite, the margin pressure at
Vaal, due to strong competition and market oversupply in the first quarter and
the operating loss at DPI, resulted in a reduced operating profit in
manufacturing to R29 million (2004: R38 million).
Revenues at Everite increased by 5,4% despite flat prices. Operating margins
increased to 10,7% (2004: 6,8%), bringing the increase in operating profit of
66,7% to R25 million (2004: R15 million). The Everite factory is operating at
full capacity, encouraged by a strong residential building market. The business
has also deftly met the threat of imports through strategic initiatives. Everite
has committed to invest in an expanded capacity programme over the next eighteen
months of approximately R40 million to take advantage of the anticipated future
increases in housing initiatives. This is expected to result in a 25% increase
in capacity. Margins are expected to be maintained in the second six months.
Revenue and operating margins at Vaal and DPI are expected to improve in the
second half. The Group is currently reviewing the overall strategic positioning
of its manufacturing operations and is considering ways to realise value from
certain of its operations.
Construction
The Group"s largest contributor continued its strong growth and continues to be
well positioned for growth in this sector. Construction revenue increased by
42,5% to R2 527 million (2004: R1 773 million), operating profit by 53,3% to R46
million (2004: R30 million) and overall margin improved from 1,7% to 1,8%. Over-
border work contributed 41,2% (2004: 36,3%) to construction revenue.
Buildings and Housing revenue increased by 53,6% to R1 525 million (2004: R993
million), with operating profit more than doubling to R36 million (2004: R17
million). Overall margins improved to 2,4% from 1,7%. This margin is expected to
decrease slightly in the next six months.
The Civils and Roads and Earthworks businesses were merged during the period to
improve efficiencies and lower the overhead base of the businesses. A problem
roads contract in Malawi was terminated with all known losses being accounted
for in prior periods. Revenue of the combined business increased by 46,5% to
R718 million (2004: R490 million) and an operating profit of R6 million (0,8%
margin) (2004: operating loss R2 million) was achieved. Civils project tender
activity locally has started to show signs of increasing and the contribution
from the Dubai business continues to increase as its order book unfolds. Roads
and Earthworks contributed an operating loss due to unrecovered overheads, which
should improve going forward due to the merging of the business with Civils
during the six months. Overall margins are expected to improve in the next six
months due to increased activity both locally and in Dubai.
As expected, Engineering Projects had a slow start to the year, with revenue in
line with 2004 and operating profit decreasing to R4 million (2004: R15
million). The business began the year with a lower than targeted order book and,
combined with further project delays and two underperforming contracts,
operating profit was negatively affected. The underperforming contracts have
been addressed. A meaningful improvement is expected in the second six months
due to the current strong order book in the mining, heavy industry and power
sectors.
Concessions/Operations and Maintenance
Revenue increased by 6,6% to R130 million (2004: R122 million), with operating
profit remaining in line with the comparative period. Subsequent to 31 December
2005, the Group has decided to exit all Indian operations over the next six
months and has terminated certain of its operations and maintenance contracts.
The Indian operations incurred a break-even for the period with all known losses
being accounted for in prior periods. The Polish concession is proceeding
favourably towards the construction phase and further opportunities in the road
concession market are being pursued in Europe.
PROSPECTS
The business is well positioned to take advantage of the anticipated upswing in
infrastructural spend in South Africa. The construction secured and completed
order book to 30 June 2006 is at a record R5,3 billion (Buildings/Housing R2,9
billion; Civils/Roads and Earthworks R1,8 billion; Engineering Projects R600
million) and the secured one year order book to 31 December 2006 is at R4,4
billion (with a similar split by business sectors). Approximately 45% of the
order book is over-border.
Continued improvement in the local Civils market, as well as growth in over-
border construction markets, together with an expected second half improvement
at manufacturing and property development services, should lead to good earnings
growth for the full year to 30 June 2006.
On behalf of the board
D Paizes M Lomas
Chairman Chief Executive Officer
14 February 2006
Board of Directors:
D Paizes* (Chairman), M Lomas+ (Chief Executive Officer), P O"Flaherty, L
Chalker*+, R Maruma*, K Mpinga*#, S Morris*
*(Non-executive director) +(British) #(DRC)
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Ltd 70 Marshall Street Johannesburg
2001
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