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GRF - Group Five Limited - Audited group results for the year ended 30 June 2010

Release Date: 10/08/2010 08:00
Code(s): GRF
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GRF - Group Five Limited - Audited group results for the year ended 30 June 2010 GROUP FIVE LIMITED (Incorporated in the Republic of South Africa) (Registration number 1969/000032/06) Share code: GRF ISIN: ZAE000027405 ("Group Five" or "the group") Audited group results for the year ended 30 June 2010 371 Rivonia Boulevard, Rivonia / PO Box 3951, Rivonia 2128, South Africa Tel: +27 11 806 0111, 0860 55 55 56 /Fax: +27 11 803 5829 Revenue (R`000) down 06% Jun 10 11 337 588 Jun 09 12 090 236 Operating profit before fair value adjustments and impairment adjustments (R`000) up10% Jun 10 876 896 Jun 09 797 182 Cash and cash equivalents (R`m) up 327 m Jun 10 3 105 817 Jun 09 2 778 424 Earnings per share (cents) down 48% Jun 10 280 Jun 09 544 Fully diluted headline earnings per share (cents) up10% Jun 10 561 Jun 09 508 Consolidated condensed income statement for the year ended 30 June 2010 (R`000) Audited 2010 2009 Revenue 11 337 588 12 090 236 Operating profit before fair value adjustments and 876 895 797 182 impairment adjustments Fair value adjustment relating to Investments in service concessions 13 532 15 718 Impairment of property, plant and equipment (325 569) - Operating profit 564 858 812 900 Share of profit/(loss) from associates 1 347 (69) Finance income 143 303 137 173 Finance costs (115 432) (167 993) Profit before taxation 594 076 782 011 Taxation (258 297) (224 567) Profit after taxation from continuing operations 335 779 557 444 Loss for the year from discontinued operations (22 102) (22 890) Profit for the year 313 677 534 554 Allocated as follows: Equity shareholders of Group Five Limited 267 377 514 733 Non controlling interest 46 300 19 821 313 677 534 554
Earnings per share R 2,80 5,44 Fully diluted earnings per share R 2,56 4,86 Determination of headline earnings for the year ended 30 June 2010 (R`000) Audited 2010 2009 Attributable profit 267 377 514 733 Adjusted for (net of tax) 318 534 22 909 (Profit)/loss on sale of property plant and equipment (267) 19 and investment property Loss on disposal of subsidiary 3 567 - Impairment of property, plant and equipment 293 132 - Losses on disposal of discontinued operations 22 102 22 890 Headline earnings 585 911 537 642
Consolidated statement of comprehensive income for the year ended 30 June 2010 (R`000) Audited 2010 2009
Profit for the year 313 677 534 554 Other comprehensive income for the year net of tax Exchange differences on translating foreign operations (68 889) (78 006) Total comprehensive income for the year 244 788 456 548 Total comprehensive income for the year attributable to Equity shareholders of Group Five Limited 198 488 436 727 Non-controlling interest 46 300 19 821 Total comprehensive income for the year 244 788 456 548 Consolidated statement of cash flow for the year ended 30 June 2010 (R`000) Audited 2010 2009 Cash flow from operating activities Profit before working capital changes 1 132 993 1 124 512 Working capital changes 58 001 685 293 Cash generated from operations 1 190 994 1 809 805 Finance income/(costs) - net 27 871 (30 820) Taxation and dividends paid (284 241) (222 194) Net cash generated by operating activities 934 624 1 556 791 Property, plant and equipment and investment property (124 739) (213 018) (net) Investments (net) (46 901) (191 906) Net cash utilised in investing activities (171 640) (404 924) Net cash utilised in financing activities (398 601) (219 051) Effects of exchange rates on cash and cash equivalents (36 990) (10 306) Net cash generated by discontinued operations - 31 700 Net increase in cash and cash equivalents 327 393 954 210 Consolidated condensed statement of financial position as at 30 June 2010 (R`000) Audited 2010 2009 ASSETS Non-current assets Property, plant and equipment and investment property 2 106 573 2 444 837 Goodwill 24 859 24 859 Investments - service concessions 224 311 186 482 Investments - property developments 128 691 120 000 Other non-current assets 173 918 63 364 2 658 352 2 839 542 Current assets Other current assets 4 096 899 4 654 112 Bank balances and cash 3 129 990 2 798 046 7 226 889 7 452 158 Non-current assets classified as held for sale 65 153 81 170 Total assets 9 950 394 10 372 870 EQUITY AND LIABILITIES Capital and reserves Equity attributable to equity holders of the parent 2 486 357 2 373 477 Non-controlling interest 75 055 34 366 2 561 412 2 407 843 Non-current liabilities Interest bearing borrowings 843 244 897 867 Other non-current liabilities 64 945 62 069 908 189 959 936 Current liabilities Other current liabilities 6 456 620 6 985 469 Bank overdrafts 24 173 19 622 6 480 793 7 005 091 Total liabilities 7 388 982 7 965 027 Total equity and liabilities 9 950 394 10 372 870 Consolidated condensed segmental analysis for the year ended 30 June 2010 (R`000) % Audited change 2010 2009 Revenue Investments and Concessions (6) 591 871 626 795 Infrastructure Concessions 6 557 227 527 938 Property Developments (65) 34 644 98 857 Manufacturing 6 866 221 816 132 Construction Materials (27) 491 860 671 317 Construction (6) 9 387 9 975 636 992 Building and Housing 10 3 186 2 899 142 773 Civil Engineering 2 4 713 4 633 487 259 Engineering Projects (39) 1 488 2 442 007 960 Total revenue (6) 11 337 12 090 588 236 2010
Operating profit Margin % Investments and Concessions 12.8 8 75 928 82 570 Infrastructure Concessions 15.1 5 83 974 80 234 Property Developments (23.2) 444 (8 046) 2 336 Manufacturing 9.5 (5) 82 300 86 887 Construction Materials 3.6 (69) 17 624 56 261 Construction 6.9 11 649 967 582 933 Building and Housing 6.9 52 220 022 144 314 Civil Engineering 6.2 27 290 001 229 123 Engineering Projects 9.4 (33) 139 944 209 496 Total core operating profit 7.3 2 825 819 808 651 Adjustment for non-operational transactions Pension fund valuation surplus 55 161 (11 469) Loss on sale of subsidiary (4 085) - Reported operating profit before fair value and impairment adjustments 876 895 797 182 Consolidated condensed statement of changes in equity for the year ended 30 June 2010 (R`000) Audited 2010 2009
Balance at 1 July 2 407 843 2 023 181 Net profit for the year 313 677 534 554 Other comprehensive income for the year (68 889) (78 006) Share options expense 43 002 41 916 Distribution to non-controlling interest (5 611) (1 972) Dividends paid (128 610) (111 830) Balance at 30 June 2 561 412 2 407 843
Statistics as at 30 June 2010 Audited 2010 2009
Number of ordinary shares 95 335 170 94 614 042 Shares in issue 120 911 817 120 093 047 Less: Shares held by share trusts (25 576 647) (25 479 005) Weighted average shares (`000s) 95 378 94 670 Fully diluted weighted average shares (`000s) 104 376 105 804 Earnings per share - R 2,80 5,44 Headline earnings per share - R 6,14 5,68 Fully diluted earnings per share - R 2,56 4,86 Fully diluted headline earnings per share - R 5,61 5,08 Dividend cover (based on earnings per share) 2,0 4,2 Dividends per share (cents) 137,0 130,0 Interim 63,0 58,0 Final 74,0 72,0 Net asset value per share - R 26,08 25,09 Net debt to equity ratio - - Current ratio 1,1 1,1 Capital expenditure and depreciation as at 30 June 2010 (R`000) Audited 2010 2009 Capital expenditure for the year 210 026 429 511 Capital expenditure committed or authorised for 209 577 139 561 the next year Depreciation for the year 245 235 258 370 Estimates and contingencies The group makes estimates and judgments concerning the future, particularly with regards 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 R5 062 million as at 30 June 2010 (2009: R6 268 million). Dividend declaration The directors have declared a final dividend number 65 of 74 cents per ordinary share (2009: 72 cents) payable to shareholders. To comply with the requirements of Strate the relevant details are: Event Date Last day to trade (cum-dividend) Thursday, 23 September 2010 Shares to commence trading (ex-dividend) Monday, 27 September 2010 Record date (date shareholders recorded in books) Friday, 1 October 2010 Payment date Monday, 4 October 2010
No share certificates may be dematerialised or rematerialised between Monday, 27 September 2010, and Friday, 1 October 2010,
both dates inclusive. Basis of preparation These consolidated condensed financial statements for the year ended 30 June 2010 have been prepared in accordance with IAS 34, Interim Financial Reporting and in the manner required by the Companies Act of South Africa. The consolidated condensed financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2010 which have been prepared in accordance with International Financial Reporting Standards (IFRS). The accounting policies are consistent with those used in the prior year. These results have been audited by PricewaterhouseCoopers Inc., Registered Auditors. Their unqualified audit opinion is available for inspection at the company`s registered office. Commentary Financial overview In the context of current economic conditions, the group is pleased to announce another year of robust performance. The results can be attributed to the group`s geographic diversity and its strong positioning in key public sector and resources markets. The group`s contracts for the South African public works programmes in transport, power, and infrastructure associated with the 2010 Soccer World Cup contributed strongly, as well as African resources and energy contracts and Eastern European concessions. Financial performance Headline earnings per share increased by 8% from R5,68 to R6,14 and fully diluted headline earnings per share increased by 10% from R5,08 to R5,61. The group`s earnings per share of R2,80 was 48% lower than that of the prior year of R5,44 per share, directly as a result of the Construction Materials impairment adjustment discussed below. Group revenue decreased by 6% from R12,1 billion to R11,3 billion. This decrease was mainly due to a reduction in domestic construction materials volumes and in African resources markets. Operating profit before fair value adjustments and impairment adjustments increased by 10% from R797 million to R877 million. Included within operating profit is a surplus on the group`s pension fund of R55,2 million (2009: deficit of R11,5 million). The group operating profit margin is 7.7% (2009: 6.6%), This strong result is attributable to the exceptional results from the Construction cluster, which compensated for the decline in the Construction Materials market and the slowdown in African mining and South African private real estate. Fair value net upward adjustments of R13,5 million (2009: R15,7 million) were recorded during the year, relating to the group`s interests in Eastern European service concessions. In line with expectations, net finance income of R27,9 million was recorded for the year compared to finance costs of R30,8 million in the prior year. This was assisted by decreases in interest rates, as well as an increase in cash and cash equivalents. The effective tax rate of 43% was higher than the South African statutory tax rate of 28%, mainly due to the effect of the limited taxation deduction on the Construction Materials impairment adjustment and secondary tax on companies paid. The group operates in tax jurisdictions with differing taxation rates. The taxation benefits arising from areas with lower taxation rates have somewhat been largely offset by those countries with higher rates. Financial position Practice requires that the carrying values of non-current assets owned by the group, including property, plant and equipment and goodwill, are reviewed on an annual basis. The weakened market conditions applicable to the Construction Materials cluster therefore resulted in detailed impairment tests being conducted. As there is currently uncertainty around the timing of the recovery of construction materials markets, and a delay in contract roll out and awards in the public sector, management adopted a prudent consideration of the carrying value of these assets and processed an impairment of R326 million. Furthermore, during the year, an amount of R22,1 million (2008: R22,9 million) was charged to the income statement, mainly as a result of a prudent treatment on the amount due from contract claims on a terminated Indian toll road contract, carried as a discontinued operation. Cash flow The group generated R327 million in net cash with R1,2 billion cash from operations during the year under review. The improvement was as a result of continued generation of cash profits as well as a focus on maintaining working capital levels. The year under review saw in increase in advance payments of R128 million while excess billings decreased by R756 million in line with expectations, as large contracts progressed to completion. Dividends The group`s adopted dividend policy is approximately four times basic earnings per share dividend cover. In recognition of the group`s headline performance, and the non-cash nature of the Construction Materials impairment adjustment, the board has approved a final dividend based on a cover of approximately four times earnings per share before recording of impairment adjustments and pension fund surplus of R5,50. The final dividend of 74 cents per share (2009: 72 cents) brings the total dividend for the year to 137 cents per share (2009: 130 cents), an increase for the year of 5%. Business combinations There were no business combinations during the current financial year. Operational overview Group For comparative purposes, we provide both the group`s reported operating margins and those net of the non-core/headline transactions of profit/loss on sale of assets, pension fund surpluses and deficits, fair value adjustments, and profit/loss on sale of investment properties. We refer to this as the core operating margin, as it reflects the underlying operating performance. Both margins exclude the impairment on long-term assets adjustment. The group`s operating margins are reflected below. Year ended Year ended
30 June 2010 30 June 2009 Revenue - (R`000) 11 337 588 12 090 236 Reported Operating Margin % 7.7 6.6 Core Operating Margin % 7.3 6.7 Notes: Reported operating margin % is defined as operating profit before fair value adjustments and impairment adjustments as a % of revenue. Core operating margin % is defined as reported operating margin % adjusted for the non-core transactions listed above. Investments and Concessions Year ended Year ended 30 June 2010 30 June 2009
Revenue (R`000) 591 871 626 795 Reported Operating Margin % 12.7 13.1 Core Operating Margin % 12.8 13.2 Investments and Concessions consists of Infrastructure Concessions and Property Developments. This cluster contributed 5.2% (2009: 5.2%) to group revenue. Infrastructure Concessions This segment demonstrated an expected and consistent performance, with growth in both revenue and profit, despite the effects of the deep recession across the Eastern Europe region. Intertoll Europe achieved the successful completion of the M6 Phase III equipment supply contract, with operations commencing during the year. Intertoll Africa was awarded 12-month contract extensions on some of its South African tolling contracts. Revenue, which consists primarily of fees for the operation and maintenance of toll roads, increased by 6% from R527,9 million to R557,2 million. The core operating profit margin remained largely unchanged at 15.1% (2009: 15.2%), with reported operating profit increasing by 7.5% to R85,6 million (2009: R79,6 million). The cluster also recorded fair value adjustments of R13,5 million (2009: R15,7 million) as described above. Property Developments Although Property Developments did not generate positive returns during this financial year, its performance was in line with expectations, as the group progressed its strategy of disinvestment from the residential sector in favour of securing A-grade commercial and retail property development positions in South Africa. Therefore, as expected, Property Developments` revenue decreased by 65% from R98,9 million in F2009 to R34,6 million. The business incurred a reported operating loss for the year of R10,7 million (2009: profit of R2,3 million). No fair value adjustments on investment properties have been reported this year or in the prior year. The group anticipates a return to stronger results post F2011. Manufacturing Year ended Year ended 30 June 2010 30 June 2009 Revenue - (R`000) 866 221 816 132 Reported Operating Margin % 10.0 10.5 Core Operating Margin % 9.5 10.6 Manufacturing contributed 7.6% (2009: 6.8%) to group revenue. The cluster produced resilient results in a market where both private and public sector conditions remained weak. The Fibre Cement business unit achieved reasonable returns by establishing alternative income streams, whilst removing costs within the traditional business model. The group continued to build the Structural Steel business unit under new leadership in a market of volatile input costs and high levels of pricing pressure, as supply exceeded demand. Group Five Pipe benefited from increasing demand for bulk water transport systems. Revenue increased by 6.1% from R816,1 million to R866,2 million. The reported operating profit repeated the prior year`s delivery of R86,8 million (2009: R86,0 million) although the overall core operating profit margin percentage decreased to 9.5% (2009: 10.6%). Construction Materials Year ended
30 June 2010 30 June 2009 Revenue (R`000) 491 860 671 317 Reported Operating Margin % 4.1 8.3 Core Operating Margin % 3.6 8.4 Construction Materials contributed 4.3% (2009: 5.6%) to group revenue. This cluster experienced a particularly tough trading year, with volumes and prices depressed by the slow roll out of public infrastructure and current recessionary pressures in the residential property market. Reported operating profit decreased by 64% to R20,2 million (2009: R55,8 million) and the overall core operating profit margin decreased to 3.6% (2009: 8.4%). Against continued difficult markets, the cluster was re-engineered and right- sized to survive the downturn and to create improved returns as the market recovers. Structural, management and operational changes were implemented and a detailed market validation and asset verification and valuation exercise undertaken. Process costs have been reduced and efficiencies gained to limit the margin impact from depressed volumes and prices. A gradual recovery is expected over the next 12 - 18 months. Construction Construction comprises the business segments of Building and Housing, Civil Engineering and Engineering Projects. Year ended Year ended
30 June 2010 30 June 2009 Revenue - (R`000) 9 387 636 9 975 992 Reported Operating Margin % 7.4 5.7 Core Operating Margin % 6.9 5.8 Construction contributed 82.8% of group revenue in the year under review (2009: 82.5%). Construction revenue decreased by 6% from R9,9 billion to R9,4 billion and reported operating profit increased by 21% from R573 million to R695 million. This resulted in an overall core operating profit margin percentage of 6.9% (2009: 5.8%). Building and housing Year ended Year ended
30 June 2010 30 June 2009 Revenue (R`000) 3 186 142 2 899 773 Reported Operating Margin % 7.4 4.9 Core Operating Margin % 6.9 5.0 Building and Housing achieved substantial growth, with revenue increasing from R2,9 billion (98% local) to R3,2 billion (94% local). The segment reported a 68% increase in reported operating profit over that of the prior year, with operating profit increasing from R141,0 million to R236,6 million, resulting in the overall core operating margin percentage increasing from 5.0% to 6.9%. The strong results were achieved due to the timeous and very successful completion of large contracts, such as the Moses Mabhida Soccer Stadium and the King Shaka International Airport, as well as the timeous securing of new over- border contracts and domestic contracts in public buildings and the educational and healthcare sectors. During the year, the private sector property market remained weak, which was coupled with the slowdown in government`s promised infrastructure spend and delays in awards of certain PPP projects. A slow recovery over the next 12 - 18months is expected. The secured one-year order book stands at R2,6 billion (78% local) (2009: R3,5 billion and 90% local) and secured work at R3,5 billion (77% local) (2009: R4,6 billion (81% local). Civil Engineering Year ended Year ended 30 June 2010 30 June 2009
Revenue - (R`000) 4 713 487 4 633 259 Reported Operating Margin % 6.6 4.9 Core Operating Margin % 6.2 4.9 Civil Engineering did well to maintain revenue levels considering the sizeable revenue base. Revenue increased by 1.7% from R4,6 billion (60% local) to R4,7 billion (83% local), while reported operating profit increased pleasingly by 38% to R310,7 million from R225,7 million. This resulted in a core operating profit margin percentage increase to 6.2% (2009: 4.9%). A large order book, relatively strong demand for South African primary infrastructure (and good delivery supported the results. In the Middle East, the group has been prudent in its treatment of the cancelled contracts that continue to progress to resolution. Civil`s secured one-year order book stands at R3,0 billion (85% local), compared to R4,2 billion (86% local) as at 30 June 2009. The full order book is at R3,8 billion (80% local) (2009: R5,9 billion (61% local)). This is the largest order book of our construction businesses. Based on the group`s tender pipeline, it expects material contract opportunities to realise over the next 12 to 18 months, both in terms of its target geographies and sectors. The group therefore remains cautiously optimistic about future prospects. Engineering Projects Year ended Year ended 30 June 2010 30 June 2009 Revenue - (R`000) 1 488 007 2 442 960 Reported Operating Margin % 9.9 8.5 Core Operating Margin % 9.4 8.6 Engineering Projects encountered a more difficult year, with many contracts in Africa and the Middle East postponed and delayed due to the financial constraints following the economic downturn. Revenue therefore decreased by 39.1% from R2,4 billion (12% local) to R1,5 billion (50% local) and reported operating profit decreased by 29% from R206,7 million to R147,7 million. However, the core operating profit margin percentage improved to 9.4% (2009: 8.6%). During the second half of F2010, a recovery in enquiry levels from the sub- Saharan African mining markets was experienced, which resulted in some contract awards. This trend is expected to continue in certain minerals categories. There was also a significant progression in the South African power, energy and mining markets over the past six months, which augurs well for a recovery. The secured one-year order book stands at R1,4 billion (51% local) as compared to 30 June 2009 which reported R921 million secured work (49% local). The full secured order book stands at R1,9 billion (64% local) (2009: R1,1 billion (43% local). Prospects The group continues to be strategically well positioned in active market sectors, as detailed above. The Construction one-year order book as at 30 June 2010 stands at R7,1 billion (2009: R8,6 billion). The group`s total secured Construction order book stands at R9,2 billion (2009: R11,6 billion). The value of the group`s target pipeline as at 30 June 2010 stood at R119 billion, up from R115 billion in February 2010, with activity in all its markets. The South African government`s public works programme - specifically in the areas of power generation, transport, water and housing - has the potential to create growth opportunities within the South African construction sector. The African outlook for private sector fixed investment and primary infrastructure has started to improve, but spending is likely to only come through slowly during the 2011 calendar year, with more certainty emerging from 2012. In the Middle East, the group has moved into new territories outside of Dubai. These markets provide technically attractive opportunities aligned to the group`s capabilities in infrastructure contracts related to industrial works, power, transport and water. Group Five continues to grow its expertise and capacity in areas where it has developed a multi-disciplinary delivery capability, namely power, transport and water, mining and large infrastructure works, with a geographic expansionary stance. In the year ahead, growth could well be slow. However, the group`s current order book and its pipeline of opportunities support a generally positive outlook. Board changes During the year under review, the following changes were made to the Board of Directors as Non-executive directors: Dr MSV Gantsho resigned from the Board on 14 January 2010 Mr Z Mtshotshisa resigned from the Board on 3 May 2010 Acknowledgments The group wishes to recognise the hard work and commitment of its employees, without whom these results would not have been achieved. On behalf of the board P Buthelezi MR Upton Chairperson Chief Executive Officer 5 August 2010 Board of Directors: P Buthelezi* (Chairperson), MR Upton (CEO), CMF Teixeira (CFO), LE Bakoro*, L Chalker*+, Dr JL Job*, SG Morris*, KK Mpinga* *(Non-executive director) +(British) (DRC) Transfer Secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001 Please visit our website: www.groupfive.co.za Sponsor Nedbank Capital Date: 10/08/2010 08:00:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. 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