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GRF - Group Five - Unaudited interim group results for the six months ended 31
December 2007
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, 0860 55 55 56
Fax: +27 11 803 5520, email: info@g5.co.za
Unaudited Interim Group Results For the six months ended 31 December 2007
Operating Profit (R`000)
Change 103.3%
December 2007 279 638
December 2006 137 548
Cash Generated (R`000)
Increase 360 392
December 2007 989 125
June 2007 628 733
Headline Earnings (R`000)
Change 80.0%
December 2007 161 528
December 2006 89 717
Fully Diluted Headline Earnings per share (cents)
Change 45.0%
December 2007 145
December 2006 100
Condensed Income Statement
Unaudited Audited
Six months ended Year ended
31 December 30 June
(R`000) 2007 2006 2007
Revenue 4 495 273 4 004 824 7 689 168
Operating profit 279 638 137 548 391 624
Fair value adjustment relating to
investment properties - - 9 393
Fair value adjustment relating to 6 327 4 000 14 227
investment in service concessions
Profit before finance costs and 285 965 141 548 415 244
taxation
Finance costs (41 026) (12 676) (41 953)
Profit before taxation 244 939 128 872 373 291
Taxation (67 929) (35 957) (129 560)
Profit after taxation from
continuing operations 177 010 92 915 243 731
Loss for the year from
discontinued operations - (1 129) (1 129)
Profit for the year 177 010 91 786 242 602
Allocated as follows:
Equity shareholders of Group Five 168 273 89 717 234 879
Limited
Minority interest 8 737 2 069 7 723
177 010 91 786 242 602
Determination of headline
earnings
Attributable profit 168 273 89 717 234 879
Deduct after tax effect of
- Fair value increase in - - (6 669)
investment property
- Profit on sale of property, (6 745) - -
plant and equipment and
investment property
Headline earnings 161 528 89 717 228 210
Condensed Balance Sheet
Unaudited Audited
Six months ended Year ended
31 December 30 June
(R`000) 2007 2006 2007
ASSETS
Non-current assets
Property, plant and equipment and 2 095 759 580 545 1 836 073
investment property
Investments - service concessions 163 584 63 701 73 928
Other non-current assets 160 312 256 722 188 215
2 419 655 900 968 2 098 216
Current assets
Other current assets 4 492 145 3 390 414 3 955 084
Bank balances and cash 989 125 722 607 670 507
5 481 270 4 113 021 4 625 591
Non-current assets classified as 163 967 164 941 163 967
held for sale
Total assets 8 064 892 5 178 930 6 887 774
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to equity 1 760 458 754 086 1 612 587
holders of the parent
Minority interest 16 221 3 681 9 335
1 776 679 757 767 1 621 922
Non-current liabilities
Interest bearing borrowings 998 472 136 424 902 475
Other non-current liabilities 111 210 34 301 94 147
1 109 682 170 725 996 622
Current liabilities
Other current liabilities 5 178 531 4 012 327 4 227 456
Bank overdrafts - 238 111 41 774
5 178 531 4 250 438 4 269 230
Liabilities directly associated - - -
with non-current assets
classified as held for sale
Total liabilities 6 288 213 4 421 163 5 265 852
Total equity and liabilities 8 064 892 5 178 930 6 887 774
Condensed Cash Flow Statement
Unaudited Audited
Six months ended Year ended
31 December 30 June
(R`000) 2007 2006 2007
Cash flow from operating
activities
Cash from operations 359 958 196 729 487 195
Working capital changes 364 140 (208 342) (388 685)
Cash generated from/(utilised in) 724 098 (11 613) 98 510
operations
Finance costs (41 026) (12 676) (41 953)
Taxation and dividends paid (106 306) (64 841) (164 270)
Net cash generated by/(utilised 576 766 (89 130) (107 713)
in)operating activities
Property, plant and equipment and (17 251) (61 381) (112 003)
investment property (net)
Investments (net) (188 775) (150) (42 849)
Net cash utilised in investing (206 026) (61 531) (154 852)
activities
Net cash (utilised in)/generated (10 348) 40 566 295 733
by financing activities
Net cash generated by - 25 441 26 415
discontinued operations
Net increase/(decrease) in cash 360 392 (84 654) 59 583
and cash equivalents
Statistics
Unaudited Audited
Six months ended Year ended
31 December 30 June
(R`000) 2007 2006 2007
Number of ordinary shares 92 664 457 74 357 843 92 421 101
Shares in issue 119 039 763 99 724 556 118 446 901
Less: Shares held by share (26 375 306) (25 366 713) (26 025 800)
trusts
Weighted average shares 93 083 74 131 80 672
(`000s)
Fully diluted weighted 111 259 89 418 98 056
average shares (`000s)
Earnings per share - R 1,81 1,21 2,91
Earnings per share from 1,81 1,23 2,93
continuing operations - R
Headline earnings per 1,74 1,21 2,83
share - R
Headline earnings per 1,74 1,23 2,84
share from continuing
operations - R
Fully diluted earnings per 1,51 1,00 2,40
share - R
Fully diluted earnings per 1,51 1,02 2,41
share from continuing
operations - R
Fully diluted headline 1,45 1,00 2,33
earnings per share - R
Fully diluted headline 1,45 1,02 2,34
earnings per share from
continuing operations - R
Dividend cover (based on 4,0 4,0 4,0
earnings per share)
Dividend per share (cents) 45,0 30,0 72,0
Interim 45,0 30,0 30,0
Final - - 42,0
Net asset value per share 19,00 10,14 17,45
- R
Net debt to equity ratio 22,4 6,5 36,9
Current ratio 1 1 1
Condensed Statement Of Changes In Equity
Unaudited Audited
Six months ended Year ended
31 December 30 June
(R`000) 2007 2006 2007
Balance at 1 July 1 621 922 683 019 683 019
Translation differences arising
from
foreign operations 7 641 17 548 (6 475)
Share options and BEE ownership
transaction costs 11 104 (7 445) 7 879
Issue of shares - - 750 000
Attributable profit for the 177 010 91 786 242 602
year
Distribution to minorities (1 851) (150) (150)
Dividends paid (39 147) (26 991) (54 953)
Balance at end of period 1 776 679 757 767 1 621 922
Segmental Analysis - Primary
Unaudited Audited
Six months ended Year ended
31 December 30 June
(R`000) 2007 2006 2007
Revenue
Investments and Concessions 337 860 227 961 533 800
Infrastructure Concessions 159 379 97 500 226 016
Property Developments 178 481 130 461 307 784
Manufacturing 320 092 261 019 523 768
Construction Materials 334 312 - 231 081
Construction 3 503 009 3 515 844 6 400 519
Building and Housing 1 502 828 1 868 676 3 121 921
Civil Engineering 1 486 677 1 271 391 2 484 293
Engineering Projects 513 504 375 777 794 305
Total revenue 4 495 273 4 004 824 7 689 168
Operating profit
Investments and Concessions 25 877 10 548 43 091
Infrastructure Concessions 12 054 5 037 17 927
Property Developments 13 823 5 511 25 164
Manufacturing 19 431 37 760 66 519
Construction Materials 73 602 - 45 531
Construction 160 728 89 240 236 483
Building and Housing 51 966 35 177 84 276
Civil Engineering 71 170 30 563 105 037
Engineering Projects 37 592 23 500 47 170
Total operating profit 279 638 137 548 391 624
Capital Expenditure
Unaudited Audited
Six months Year
ended ended
31 December 30 June
(R`000) 2007 2006
* Capital expenditure for the period 205 468 374 214
* Capital expenditure committed or authorised 134 136 234 585
at the period end
* Depreciation for the period 74 668 105 261
Estimates And Contingencies
The group makes estimates and assumptions concerning the future, particularly
with regard 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 R3 088 million as at 31 December 2007, compared
to R2 375 million as at 30 June 2007. The directors do not believe any exposure
to loss is likely.
Dividend Declaration
The directors have declared an interim dividend number 60 of 45 cents per
ordinary share (2006: 30 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, 18 April 2008
Shares to commence trading (ex-dividend) Monday, 21 April 2008
Record date (date shareholders recorded in books) Friday, 25 April 2008
Payment date Tuesday, 29 April 2008
No share certificates may be dematerialised or rematerialised between Monday, 21
April 2008, and Friday, 25 April 2008, both dates inclusive.
Accounting Policies
These consolidated condensed interim financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS) on Interim
Financial Reporting (IAS34) 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 2007 and for the prior comparative interim
period.
Commentary
Overview
The group delivered strong results in the period under review and is pleased to
announce a 103% increase in operating profits and an 80% increase in headline
earnings. This translates into a 45% increase in fully diluted headline earnings
per share and a 50% increase in earnings per share. The group is also pleased to
announce that R360 million in cash was generated in the six months under review.
Revenue increased by 12,2% from R4 billion to R4,5 billion and operating profit
increased by 103,3% from R137,5 million to R279,6 million. This resulted in the
overall operating margin percentage improving from 3,4% to 6,2%, demonstrating
delivery on the stated strategy of focusing on margin improvement and increased
real returns rather than turnover growth. Operating performance improved at all
group segments except Manufacturing.
As expected, finance costs increased as a result of the gearing introduced
during the latter part of the prior financial year under the R1 billion domestic
medium-term funding note programme on the Bond Exchange of South Africa. The
R850 million issued has been used to fund acquisitions and reduce expensive
short-term debt.
Although interest cover for the period reduced to 7,0x compared to the prior
full year cover of 9,9x, the net gearing ratio for the group decreased compared
to the prior full year from 37% to 22%. Cash and cash equivalents for the period
increased by R360 million (2006: -R85 million) compared to an increase of R60
million for the year ended 30 June 2007. The increase was as a result of
improvements in working capital changes, which generated R364 million in the
current period (2006: -R208 million) compared to an absorption of R389 million
for the full prior year.
The effective tax rate of 28% is as a result of the contribution from operations
in Dubai wherethe effective tax rate is lower. The interim dividend has been
increased by 50% to 45 cents (2006: 30 cents), congruent with the current
dividend cover policy of approximately four times covered.
Segmental reporting
To properly reflect the group`s structural changes resulting from the
implementation of its strategy of creating a balanced portfolio, the group will
be reporting on its businesses in the four sectors of Investments and
Concessions, Manufacturing, Construction Materials and Construction.
Comparatives numbers have been restated to reflect this change.
Operational review
The focus on improving the quality of the order book, improving contract
execution and improving cash collections has delivered a robust performance,
with the majority of the group`s businesses showing an improvement. The core
business of Construction posted an improvement in returns and the business of
Construction Materials performed well in line with expectations and delivered
margin enhancing returns to the group`s results. Manufacturing activities were
affected by slow first quarter sales and pricing pressures from imports.
Acquisitions
Group Five formed a new joint venture in August 2007 with the Barnes Group of
Companies - Barnes Reinforcing Industries - supplying rebar, weld mesh, brick
force and binding wire. This operation has expanded and strengthened the group`s
manufacturing portfolio and supported the Construction operations` drive to
improve margins.
The group further expanded its Construction Materials portfolio by acquiring
100% of plaster firm Sky Sands for R124 million, with effect from 1 July 2007.
Sky Sands, which is involved in the supply of plaster and washed sand products
to building materials merchants, the building industry and the pre-cast concrete
products industry, has exploitable sand reserves estimated to be in excess of 25
years of production, together with further mining opportunities on the Sky Sands
properties. The acquisition of Sky Sands complements the group`s expansion and
growth strategy in the infrastructure sector and assists in mitigating the risk
of future materials shortages with respect to key building and infrastructure
contracts, especially in the Gauteng market. In addition, the group acquired
Bernoberg, a small niche manufacturer of cement extender, for R32 million.
Bernoberg further diversifies the business portfolio in the construction
materials supply sector and complements the existing product range. The
Bernoberg acquisition was effective from 1 October 2007.
Investments and Concessions
Investments and Concessions contributed 7,5% to group revenue and 9,3% to group
operating profit.
Infrastructure Concessions
The concessions business is a core component of the group strategy as it
provides long term operating revenues at good margins, capital value
appreciation over the life of the investment and the opportunity to work with
world class partners.
Revenue grew to R159,4 million (2006: R97,5 million) as a result of growth in
the business of Intertoll Europe, primarily driven by the roll out of the A1
project in Poland. Improved economies of scale increased margins to 7,6% (2006:
5,2%) resulting in the more than doubling of operating profit to R12,1 million
(2006: R5 million)
Additional attractive concession opportunities are available to the group in
Eastern Europe in the coming year where the group`s Intertoll business is a bid
partner for new concessions in Hungary, Romania and Slovakia. Although the
potential impact of any new work will not be realised in F2008, additional value
and cash from prior concession investments will be realised as they mature in
2008/9.
Property Developments
As stated in the prior reporting period, the group is rationalising its
portfolio of current developments in favour of focusing on development
opportunities that are aligned to core group interests in Construction,
Manufacturing and Construction Materials. The process is underway, with revenue
up to R178,5 million (2006: R130,5 million) and operating profit improving to
R13,8 million from R5,5 million at an increased margin of 7,7% (2006: 4,2%).
Manufacturing
Manufacturing comprises the businesses of Everite, Group Five Pipe and the
recently established steel related activities of the group. Everite comprises
77% of the revenue and 61% of the profit of Manufacturing. Group Five Pipe
comprises 9% of the revenue and 16% of the profit of Manufacturing.
Manufacturing contributed 7,1% (2006: 6,5%) to group revenue and 6,9% to group
operating profit. Revenue increased by 22,6% from R261 million to R320 million.
Operating profit decreased by 48,5% from R37,8 million to R19,4 million,
resulting in operating margin percentages decreasing from 14,5% to 6,1%.
Everite had a difficult period under review as first quarter volumes were
adversely affected by slower demand in the domestic housing market, the delay in
the awarding of a large contract for temporary housing in the Cape and price
pressure from imports.
Volumes recovered in the second quarter and Everite`s marketing, distribution
and pricing strategy has been refocused, which has resulted in a growing market
of direct sales at better prices and an expanding acceptance of entry level and
temporary accommodation solutions that utilise Everite products. In addition,
the product range has been expanded to include concrete roof tiles incorporating
waste products from the fibre cement process. The actions taken and the effects
of a weaker rand on imports will see a second half recovery more in line with
the second half performance of the prior financial year.
As expected, Group Five Pipe has also had a slow start to the year as the VRESAP
pipeline project has been fully supplied. Whilst there is an ongoing supply to
smaller contracts, new large piping projects for infrastructural projects have
still to be secured.
Construction Materials
Construction Materials contributed 7,4% to group revenue and 26,3% to group
operating profit.
Construction Materials currently comprises the acquired businesses of Quarry
Cats, Sky Sands and Bernoberg Milling.
These business performed well and revenue in the period under review was R334,3
million, generating an operating profit of R73,6 million and a 22% margin, which
is line with expectations. These acquisitions have contributed positively to
group earnings after funding costs. Construction Materials will continue to be
an attractive area of growth for the group. The acquisitions provide a sound
platform for organic growth in the year ahead as the businesses are fully
integrated into the group`s operations.
Construction
Construction contributed 77,9% to group revenue and 57,5% to group operating
profit.
Construction comprises the business segments of Building and Housing, Civil
Engineering and Engineering Projects. As previously indicated, resources would
be migrated from the Building and Housing sector to mega contracts that
encompass all construction disciplines. The change in the Construction revenue
mix therefore reflects this migration, as well as a slower than anticipated
start to the year due to delays in the awarding of certain contracts in which
Building and Housing was the lead contractor.
Construction revenue therefore remained unchanged at R3,5 billion, although
operating profit increased by 80% from R89,2 million to R160,7 million. The
overall operating margin percentage improved from 2,5% to 4,6%, which indicates
significant progress towards the group`s stated objective of achieving a 5% full
year margin in construction. Over-border work contributed 37% (2006: 52%) to
Construction revenue, reflecting the growth in opportunities in the South
African market. The full secured order book indicates that this percentage is
expected to remain largely unchanged at +/-40% for the full year.
Even though Building and Housing experienced delays in contracts as outlined
above, it still managed to deliver a pleasing performance. Although revenue
decreased by 19,6% from R1,9 billion (62% local) to R1,5 billion (89% local),
operating profit increased by 47,7% from R35,2 million to R52 million, resulting
in a significant improvement in the overall operating margin percentage to 3,5%
(2006: 1,9%).
The total secured order book is R5,1 billion (97% local) and the one-year
secured order book to 30 June 2008 is R2,8 billion (94% local). The market
conditions currently favour large infrastructural projects and the PPP
concession opportunities that are being rolled out by government in the areas of
airports, prisons and public buildings. In addition, the power station programme
provides large scale housing opportunities. These are core activities for the
group`s Building and Housing business, which is not significantly exposed to the
domestic bonded housing market.
Civil Engineering revenue increased by 16,9% from R1,3 billion (38% local) to
R1,5 billion (44% local). Operating profit more than doubled from R30,6 million
to R71,2 million, resulting in an overall operating margin percentage increase
from 2,4% to 4,8%. The total secured order book is R6,9 billion (42% local) and
the one year secured order book to 30 June 2008 is R3 billion (42% local). The
large domestic contracts associated with public works, including power,
transport and water, will add to the existing customer base in this sector,
which will see domestic revenue growth exceeding 15% in the year. The Group`s
Dubai operations continue to perform well, current contracts are profitable, and
new work is being procured regularly.
Engineering Projects` revenue increased by 36,7% from R375,8 million (13,2%
local) to R513,5 million (38% local) and operating profits increased by 60% from
R23,5 million to R37,6 million. This resulted in the overall operating margin
percentage increasing from 6,3% to 7,3%. The total secured order book is R2,1
billion (33% local) and the one year secured order book to 30 June 2008 is R1,1
billion (35% local). The success of the Engineering business is due to the
implementation of a clear strategy of focusing on growing multi-disciplinary
contract delivery capability into selected high value, high growth markets. The
Engineering business has solid experience in the expanding Power, Energy and
Mining sectors in the region and is well placed to participate in the many
opportunities arising in this area. This will continue to drive a high rate of
growth for the full year.
Prospects
The recent power outages have not materially affected Group Five`s construction
operations, as measures had already been put in place to address such an
occurrence. Short term risks to performance are primarily related to the effect
on suppliers and the group`s Manufacturing operations, should the number of
power outages worsen.
A detailed investigative risk review of all of the group`s operations and
construction sites has been completed and steps taken to mitigate the effect of
outages. At the time of reporting, these risks had not significantly
materialised.
The group continues to receive a number of attractive opportunities in local
fixed investment spending. Mining, power and oil and gas activity in Africa also
continues to offer high growth potential.
Group Five has a good balance of core businesses, has demonstrated competence in
securing and executing large multi-disciplinary contracts in key sectors and has
a good mix of geographies in its areas of operations.
The group has been increasingly successful in securing and executing larger
contracts that extend beyond one financial year and is pleased to report that
the total secured construction order book as at 31 December 2007 is R14,1
billion (60% local) and the secured one year order book for F2008 is R7,0
billion ( 62% local) (2006: R6,5 billion; 49% local). Management is satisfied
that the group has access to sufficient resources to successfully execute the
higher levels of activity ahead.
The group is therefore well placed to achieve another year of solid earnings
growth, while delivering improving value to its shareholders.
On behalf of the board
MP Buthelezi MR Upton
Chairperson Chief Executive
Officer
15 February 2008
Board of Directors: MP Buthelezi* (Chairperson), MR Upton (Chief Executive
Officer), L Chalker*+, KK Mpinga*, SG Morris*, MSV Gantsho*, WV Mavimbela*
*(Non-executive director) +(British) (DRC)
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Ltd, 70
Marshall Street Johannesburg 2001
Date: 18/02/2008 08:00:01 Supplied by www.sharenet.co.za
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