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GRF - Group Five Limited - Audited results for the year ended 30 June 2011
GROUP FIVE LIMITED
(Registration number: 1969/000032/06)
(Incorporated in the Republic of South Africa)
Share Code: GRF ISIN Code: ZAE000027405
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2011
CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2011
Audited
(R`000) 2011 2010
Revenue 9 206 998 11 337 588
Operating profit before fair value 498 828 876 895
adjustments and impairment adjustments
Fair value adjustment relating to 48 844 13 532
investments in service concessions,
property developments and investment
properties - net
Impairment of property, plant and (550 540) (325 569)
equipment
Operating (loss)/profit (2 868) 564 858
Share of profit from associates 820 1 347
Finance income 96 060 143 303
Finance costs (77 699) (115 432)
Profit before taxation 16 313 594 076
Taxation (158 143) (258 297)
(Loss)/profit after taxation from (141 830) 335 779
continuing operations
Loss for the year from discontinued (17 214) (22 102)
operations
(Loss)/profit for the year (159 044) 313 677
Allocated as follows:
Equity shareholders of Group Five (218 107) 267 377
Limited
Non-controlling interest 59 063 46 300
(159 044) 313 677
(Loss)/earnings per share R (2,27) 2,80
Fully diluted (loss)/earnings (2,27) 2,56
per share R
DETERMINATION OF HEADLINE EARNINGS FOR THE YEAR ENDED 30 JUNE 2011
Audited
(R`000) 2011 2010
Attributable (loss)/profit (218 107) 267 377
Adjusted for (net of tax) 536 989 318 534
- Loss/(profit) on sale of property, 832 (267)
plant and equipment and investment
property
- Loss on disposal of subsidiary 574 3 567
- Impairment of property, plant and 521 621 293 132
equipment
- Net profit on fair value adjustment (3 252) -
on investment property
- Losses on disposal of discontinued 17 214 22 102
operations
Headline earnings 318 882 585 911
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
30 JUNE 2011
Audited
(R`000) 2011 2010
(Loss)/profit for the year (159 044) 313 677
Other comprehensive income for the year
net of tax
Exchange differences on translating (45 948) (68 889)
foreign operations
Total comprehensive income for the year (204 992) 244 788
Total comprehensive income for the year
attributable to
Equity shareholders of Group Five (264 055) 198 488
Limited
Non-controlling interest 59 063 46 300
Total comprehensive income for the year (204 992) 244 788
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE
2011
Audited
(R`000) 2011 2010
ASSETS
Non-current assets
- Property, plant and equipment and 1 430 457 2 106 573
investment property
- Goodwill - 24 859
- Investments - service concessions 253 100 224 311
- Investments - property developments 8 691 128 691
- Other non-current assets 227 745 173 918
1 919 993 2 658 352
Current assets
- Other current assets 3 562 973 4 096 899
- Bank balances and cash 2 234 779 3 129 990
5 797 752 7 226 889
Non-current assets classified as held 53 233 65 153
for sale
Total assets 7 770 978 9 950 394
EQUITY AND LIABILITIES
Capital and reserves
- Equity attributable to equity 2 148 130 2 486 357
holders of the parent
- Non-controlling interest 117 565 75 055
2 265 695 2 561 412
Non-current liabilities
- Interest bearing borrowings 232 203 843 244
- Other non-current liabilities 87 326 64 945
319 529 908 189
Current liabilities
- Other current liabilities 5 185 754 6 456 620
- Bank overdrafts - 24 173
5 185 754 6 480 793
Total liabilities 5 505 283 7 388 982
Total equity and liabilities 7 770 978 9 950 394
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30
JUNE 2011
Audited
(R`000) 2011 2010
Cash flow from operating activities
Profit before working capital changes 756 256 1 132 993
Working capital changes (1 237 775) 58 001
Cash (utilised)/generated from (481 519) 1 190 994
operations
Finance income - net 18 361 27 871
Taxation and dividends paid (375 756) (284 241)
Net cash (utilised)/generated by (838 914) 934 624
operating activities
Property, plant and equipment and (48 800) (124 739)
investment property (net)
Investments (net) 117 517 (43 749)
Net cash generated by/(utilised in) 68 717 (168 488)
investing activities
Net cash utilised in financing (92 809) (401 753)
activities
Effects of exchange rates on cash and (8 032) (36 990)
cash equivalents
Net cash generated by discontinued - -
operations
Net (decrease)/increase in cash and (871 038) 327 393
cash equivalents
CAPITAL EXPENDITURE AND DEPRECIATION AS AT 30 JUNE 2011
Audited
(R`000) 2011 2010
- Capital expenditure for the year 150 352 210 026
- Capital expenditure committed or 203 745 209 577
authorised for the next year
- Depreciation for the year 211 557 245 235
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 JUNE
2011
Audited
(R`000) % 2011 2010
change
Revenue
Investments and (6) 554 659 591 871
Concessions
- Infrastructure (6) 522 870 557 227
Concessions
- Property Developments (8) 31 789 34 644
Manufacturing - 867 523 866 221
Construction Materials (12) 434 233 491 860
Construction (22) 7 350 583 9 387 636
- Building and Housing (33) 2 143 004 3 186 142
- Civil Engineering (25) 3 548 361 4 713 487
- Engineering 12 1 659 218 1 488 007
Total revenue (19) 9 206 998 11 337 588
%
(R`000) 2011 change
Core
margin
%
OPERATING PROFIT
Investments and 11.3 (18) 62 624 75 928
Concessions
- Infrastructure 14.0 (13) 73 176 83 974
Concessions
- Property Developments (33.2) (31) (10 552) (8 046)
Manufacturing 3.0 (68) 26 342 82 300
Construction Materials (15.7) (487) (68 157) 17 624
Construction 6.5 (26) 480 318 649 967
- Building and Housing 6.4 (38) 136 900 220 022
- Civil Engineering 6.5 (20) 231 904 290 001
- Engineering 6.7 (20) 111 514 139 944
Total core operating 5.4 (39) 501 127 825 819
profit
Adjustment for non-
operational
transactions
Pension fund valuation (2 000) 55 161
(deficit)/surplus
Loss on sale of (299) (4 085)
subsidiary
Total operating profit 498 828 876 895
before fair value and
impairment adjustments
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30
JUNE 2011
Audited
(R`000) 2011 2010
Balance at 1 July 2 561 412 2 407 843
Net (loss)/profit for the year (159 044) 313 677
Other comprehensive loss for the year (45 948) (68 889)
Share options expense 46 836 43 002
Distribution to non-controlling (16 553) (5 611)
interest
Dividends paid (121 008) (128 610)
Balance at 30 June 2 265 695 2 561 412
STATISTICS AS AT 30 JUNE 2011
Audited
2011 2010
Number of ordinary shares 96 004 779 95 335 170
- Shares in issue 121 477 858 120 911 817
- Less: Shares held by share trusts (25 473 079) (25 576 647)
Weighted average shares (`000s) 96 114 95 378
Fully diluted weighted average shares 101 137 104 376
(`000s)
(Loss)/earnings per share - R (2,27) 2,80
Headline earnings per share - R 3,32 6,14
Fully diluted (loss)/earnings (2,27) 2,56
per share - R
Fully diluted headline earnings 3,15 5,61
per share - R
Dividend cover (based on earnings - 2,0
per share)
Dividends per share (cents) 72,0 137,0
- Interim 52,0 63,0
- Final 20,0 74,0
Net asset value per share - R 22,38 26,08
Net debt to equity ratio - -
Current ratio 1.1 1.1
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 R4 537 million as at 30 June 2011 (2010:
R5 062 million).
DIVIDEND DECLARATION
The directors have declared a final dividend number 66 of 20 cents per
ordinary share (2010: 74 cents) payable to shareholders.
To comply with the requirements of Strate the relevant details are:
Event Date
Last day to trade (cum-dividend) Friday, 23 September 2011
Shares to commence trading (ex-Monday, 26 September 2011
dividend)
Record date (date shareholders Friday, 30 September 2011
recorded in books)
Payment date Monday, 3 October 2011
No share certificates may be Monday, 26 September 2011 and
dematerialised or rematerialised Friday, 30 September 2011,
between both dates inclusive.
BASIS OF PREPARATION
These consolidated condensed financial statements for the year ended 30
June 2011 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
2011 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 unmodified audit report is available for inspection at the company`s
registered office.
COMMENTARY
Financial overview
In the period under review, the construction and engineering activity in
the markets in which the group operates remained depressed. These
conditions were further exacerbated by the unpredictable delays in some
public infrastructure expenditure in South Africa and domestic over-
capacity in the industry which was built up in the years preceding the 2010
infrastructure super-cycle.
Against these difficult markets, the group took a strategic decision to, as
far as possible, avoid securing a low margin construction order book with
cash negative returns. The group instead searched for better quality work
outside of South Africa, focusing on growing the concessions business and
cutting rather than carrying costs.
Whilst the group`s Construction and Concessions businesses performed well
in light of these tough market conditions, further adverse cyclical and
fundamental changes in the Construction Materials markets, particularly in
the aggregates and ready-mix markets, occurred. This resulted in the group
taking a much more conservative view of the prospects for this cluster. We
therefore processed a second impairment against the carrying value of the
non-current assets of the construction materials business in December 2010,
as outlined below and as previously reported.
The Manufacturing segment was also adversely affected through this severe
down-cycle with volume and pricing pressure degrading revenue and margins.
Financial performance
Headline earnings per share (HEPS) decreased by 45.9% and fully diluted
HEPS (FDHEPS) by 43.9%. Due to an impairment charge on property, plant and
equipment and goodwill within the Construction Materials business, earnings
per share (EPS) and fully diluted EPS (FDEPS) was a loss of 227 cents per
share.
Group revenue decreased by 18.8% from R11,3 billion to R9,2 billion
due to a reduction in activity levels within the buildings, housing and
civil infrastructure markets, client-driven contract delays and the group`s
decision not to chase volumes at the expense of margin. These conditions,
combined with increasing price competition, resulted in operating profit
before fair value adjustments and impairment adjustments decreasing by
43.1% from R877 million to R499 million.
Included within operating profit is a deficit on the group`s pension fund
of R2,0 million (2010: surplus of R55,2 million).
The group operating profit margin was 5.4% (2010: 7.7%). The decrease is
attributable to the decline in the Construction Materials market and the
weak performance by the Manufacturing business, somewhat offset by the
sound results within tough market conditions from the heavy construction
cluster and infrastructure concessions businesses.
Fair value net upward adjustments of R48,8 million (2010: R13,5
million) relating to the group`s interests in Eastern European road
transport concessions, as well as the group`s investments in property
developments and investment properties, positively affected the group`s
results in the period under review.
In line with expectations, group net finance income of R18,4 million
was recorded for the year compared to net finance income of R27,9 million
in the prior year. This was assisted by stabilised interest rates, but
negatively affected by the reduction in cash and cash equivalents, which
were mainly realised in the first half of the financial year.
The effective tax rate of 33% (2010: 34%) on profit before the construction
materials impairment adjustment was higher than the South African statutory
tax rate of 28%, mainly due to secondary tax on companies paid, liabilities
in jurisdictions with higher taxation rates and a conservative approach
adopted to the raising of deferred taxation assets.
Financial position
The group balance sheet continues to be sound, with a nil net gearing ratio
as at 30 June 2011.
Practice requires that the carrying values of non-current assets owned by
the group, including property, plant and equipment and goodwill, are
reviewed for impairment on an annual basis or when there is such an
indication. 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 cautious approach
when considering the carrying value of these assets and therefore processed
an impairment of R325,6 million in the 2010 financial year and a further
R550,5 million in the first half of 2011. The impairment tests performed at
year end indicated that a further impairment was not required.
Furthermore, during the year, an amount of R17,2 million (2010: R22,1
million) was charged to the income statement, mainly as a result of the
prudent treatment of the amount due from contract claims on a terminated
Indian toll road contract carried as a discontinued operation.
Cash flow
The group generated R756,3 million cash from operations before working
capital changes. However, in line with expectations, working capital
absorption of R1,2 billion (2010: R58 million generated) resulted in a net
cash outflow of R871 million in the period of which the majority (R706
million), occurred in the first half of the financial year. As expected,
the finalisation of the large local infrastructure contracts saw the
unwinding of advance payments and the settlement of creditor final
accounts. Pleasingly, working capital outflows reflect the settlement of
trade and other payables only, whereas working capital continues to improve
in all other areas of trade and other receivables and the management of
inventory levels.
Dividends
The group`s adopted dividend policy is approximately four times basic
earnings per share dividend cover. This policy is subject to review on a
semi-annual basis, prior to dividend declaration, as distributions will be
influenced by business growth, acquisition activity or movements in
earnings as a result of fair value accounting adjustments. In recognition
of the non-cash nature of the Construction Materials impairment adjustment,
the board has approved a dividend based on a cover of four times earnings
per share of R2,89 before recording of impairment adjustments, non-cash
fair value adjustments and pension fund deficits. A final dividend of 20
cents per share (2010: 74 cents) has thus been declared. This brings the
total dividend for the year to 72 cents per share (2010: 137 cents). The
dividend policy therefore remains unchanged and is based on the medium term
business outlook and the availability of liquid resources.
Business combinations
There were no business combinations during the current financial year.
Shareholding
Further to the group`s previous statement regarding the unwinding of the
iLima Consortium (iLima) shareholding, the courts have awarded in Group
Five`s favour and instructed the return of the group`s shares by iLima.
This process is currently being delayed due to the liquidation of iLima. As
previously reported, the unwinding will have no material bearing on the
group`s results. The group has excluded the iLima shareholding from its
current broad-based black economic (BBBEE) scorecard and confirms that its
scorecard has not been adversely affected. The group`s BBBEE status is
currently a market-leading Level 2.
Industry matters
As announced on SENS on 1 February 2011, the group adopted a proactive
stance in respect of the ongoing investigation by the Competition
Commission into alleged anti-competitive behaviour within the construction
industry. In 2008, the group took the lead and initiated an invasive
internal investigation of its own. The group co-operated with the
Commission for the last two years in the interest of determining if it had
any exposure and to take advantage of the Commission`s leniency programme
to limit the risk of any penalties and/or fines. The group believes it has
no such exposure, although this cannot be guaranteed until the completion
of The Commission`s investigation. The group is able to advise that it has
recently signed a conditional leniency agreement with The Commission
without penalty pending conclusion of the industry investigation. The board
of Group Five once again confirms its support for the Commission`s process
and its commitment to assist the Commission in its objective to rid the
sector of anti-competitive behaviour.
OPERATIONAL OVERVIEW
Group
For comparative purposes, we provide both the group`s total operating
margins as well as the operating margins per segmental report net of non-
core/headline transactions of pension fund surpluses and deficits, fair
value adjustments and profit/loss on sale or impairment of subsidiaries. We
refer to the latter margin as the core operating margin, as it reflects the
underlying operating performance. Both margins exclude the impairment on
non-current assets adjustment.
The group`s operating margins are reflected below.
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 9 206 998 11 337 588
Total operating margin % 5.4 7.7
Core operating margin % 5.4 7.3
Notes:
Total operating margin % is defined as operating profit before
fair value adjustments and impairment adjustments as a % of
revenue.
Core operating margin % is defined as total operating margin %
adjusted for the non-core transactions listed above.
Introduction
The South African private sectors in which the group`s Construction
businesses operate, namely mining, industry, oil and gas, power and real
estate, remained weak. Whilst some of the government-owned enterprises,
namely SANRAL, Transnet and Eskom, continued to provide some workload, the
timing of resumption in general government infrastructure spending has been
and will remain a key factor for the domestic South African construction
industry.
Although there is a planned capital investment in excess of a trillion Rand
in public infrastructure spend and over R60 billion identified in the PPP
and concessions market for large public buildings and roads, as well as
power developments, only a few significant awards have been made in the
last five consecutive halves. `The group has therefore adapted its strategy
to focus on a more balanced portfolio of public and private domestic
markets, with a resumed emphasis on expanding international order books.
In this regard, there has been an increase in group activity in the African
power, energy and mining sectors in gold, copper, zinc, uranium and coal in
an increasing number of carefully selected countries.
In the Middle East, the group continued to actively pursue new
infrastructure and industrial opportunities in new territories outside of
the weak UAE market, although new contract awards are unlikely to be
secured during before H2 F2012. The resolution of the commercial closure of
the two previously reported terminated contracts in Dubai is proceeding in
an orderly fashion. Contract values have been agreed, with cash flow on one
having been received in accordance with the agreement, whilst cash flow on
the second is under negotiation.
In Eastern Europe new road transport concession projects have become less
popular with certain new governments, but the increase in traffic on
existing toll routes and the opening of recently-completed new routes will
provide a solid and sustainable business from which further opportunities
will be accessed in open road and truck tolling in Eastern Europe.
Investments and Concessions
(including Infrastructure Concessions Year ended
and Property Developments)
30 June 2011 30 June 2010
Revenue (R`000) 554 659 591 871
Total operating margin % 10.9 12.7
Core operating margin % 11.3 12.8
Investments and Concessions consists of Infrastructure Concessions and
Property Developments. This cluster contributed 6.0% (2010: 5.2%) to group
revenue.
Infrastructure Concessions
This segment demonstrated a consistent performance despite the continued
effects of the deep recession across the European region.
Revenue, which consists primarily of fees for the operation and maintenance
of toll roads, decreased by 6% from R557,2 million to R522,9 million.
Despite this the core operating profit margin decreased only slightly to
14.0% (2010: 15.1%), with core operating profit of R73,2 million (2010:
R84,0 million). The segment also recorded fair value adjustments of R33,2
million (2010: R13,5 million) as described above.
Going forward, Eastern European and African concession opportunities are
set to remain attractive, with further new projects under development in
toll roads and power. The timing of awards in the South African buildings
PPP market, and renewable energy (REFIT) projects, however, remains
uncertain.
Property Developments
Property Developments performed in line with our stated expectations and
did not generate positive returns during this financial year. The group
continues to progress 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 8% from
R34,6 million in F2010 to R31,8 million. The business incurred a core
operating loss for the year of R10,6 million (2010: R8,0 million). The
cluster also recorded fair value adjustments of R15,7 million (2010: nil)
as described above.
The Property Developments strategy is on track and the group anticipates a
return to stronger results post F2012, in line with previous expectations.
Manufacturing
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 867 523 866 221
Total operating margin % 3.0 10.0
Core operating margin % 3.0 9.5
Manufacturing consists of the fibre cement building products business,
Everite, as well as steel fabrication businesses. Manufacturing contributed
9.4% (2010: 7.6%) to group revenue.
The cluster produced disappointing results in a market where both private
and public sector conditions weakened substantially.
Revenue remained unchanged at R867,5 million (2010: R866,2
million). The reported core operating profit for the year was R26,3 million
which was materially lower than the prior year of R R82,3 million,
resulting in a core operating margin of 3.0% (2010: 9.5%).
The Fibre Cement business achieved reasonable returns by establishing
alternative income streams, whilst removing costs within the traditional
business model. In the period under review, further progress was made in
developing the group`s Advanced Building Technologies (ABT) product
offering into the housing and building market which is set to become a
significant source of off-take volumes for Everite.
Group Five Pipe benefited from increasing - although erratic - demand for
bulk water transport systems, whilst the Structural Steel business unit
suffered from low volumes, increasing steel prices and excessive costs and
write downs within the Steel businesses.
Construction Materials
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 434 233 491 860
Total operating margin % (15.7) 4.1
Core operating margin % (15.7) 3.6
Construction Materials comprises aggregates, readymix concrete and mining
crushing services. Construction Materials contributed 4.7% (2010: 4.3%)
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. In spite
of aggressive cost reduction and process improvement measures taken, this
cluster had to deal with the worst downturn for decades in the aggregates
and readymix market in Gauteng, its area of operation. The asphalt, mobile
crushing, sand and mining crushing services operations have not been as
materially affected.
The segment reported a core operating loss of R68,2 million against a core
operating profit of R17,6 million in F2010. In the first half of the
current financial year the cluster produced a core loss of R33,4 million.
Restructuring costs were incurred predominantly in the second half.
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 were reduced and efficiencies gained to limit the
margin impact from depressed volumes and prices. A gradual recovery is
expected over the next 12 to 18 months.
Construction
Construction comprises the business segments of Building and Housing, Civil
Engineering and Engineering. Engineering incorporates the businesses of
Projects and Engineering and Construction (E+C).
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 7 350 583 9 387 636
Total operating margin % 6.5 7.4
Core operating margin % 6.5 6.9
Construction continued to be the largest cluster in the group. It
contributed 79.9% of group revenue in the year under review (2010:
82.8%).
Construction revenue decreased by 22% from R9,4 billion to R7,4
billion and core operating profit decreased by 26% from R650 million to
R480 million. However, the group is pleased to be able to report only a
slight decline in core operating profit margin as a result of good contract
execution and avoiding low-margin contracts wherever possible. The overall
Construction core operating profit margin percentage was 6.5% (2010: 6.9%).
Building and Housing
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 2 143 004 3 186 142
Total operating margin % 6.4 7.4
Core operating margin % 6.4 6.9
In spite of the private building sector remaining extremely weak, Building
and Housing managed to partially mitigate this impact through the
contribution from some public sector contracts, as well as a focus on over-
border opportunities, improved execution and supply chain savings.
Building and Housing revenue decreased from R3,2 billion (94% local)
to R2,1 billion (70% local). The segment reported a 38% decrease in core
operating profit from the prior year, with core operating profit decreasing
from R220,0 million to R136,9 million. This resulted in the overall
core operating margin percentage decreasing from 6.9% to 6.4%. The
operating margin in this segment held up due to the completion of large
contracts, as well as the timeous and successful focus on securing new over-
border and domestic contracts in public buildings and the educational and
private healthcare sectors.
During the year, the private sector property market remained weak, which
was exacerbated by the slowdown in government`s promised infrastructure
spend and delays in awards of certain public private partnership (PPP)
projects. A recovery over the next 12 to 18 months is expected.
The secured one-year order book stands at R2,1 billion (88% local) (2010:
R2,6 billion and 78% local) and secured work at R3,1 billion (75%
local) (2010: R3,5 billion (77% local)).
Civil Engineering
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 3 548 361 4 713 487
Total operating margin % 6.5 6.6
Core operating margin % 6.5 6.2
Civil Engineering includes the group`s civil engineering activities in
South Africa, the rest of Africa and the Middle East.
Civil Engineering reported a 25% decrease in revenue from R4,7
billion (83% local) to R3,5 billion (85% local), while core operating
profit decreased by 20% to R231,9 million from R290,0 million.
However, the group is pleased to report an improvement in core operating
margin from 6.2% in the prior year to 6.5%.
This was due to successful execution and effective commercial management of
large contracts in both the public and private sector despite additional
once-off costs incurred in the rectification of a pipeline contract in
Jordan. Although tendering activity is high and increasing, awards are
currently infrequent.
In the Middle East, the group continues to be conservative in its treatment
of the cancelled contracts which are progressing slowly to resolution, with
cash already received by the group. Geographical expansion in the Middle
East is progressing with due cognisance of the risk imposed by the recent
political unrest in the region.
Civil Engineering`s secured one-year order book stands at R2,5
billion (57% local), compared to R3,0 billion (85% local) as at 30 June
2010. The full order book is at R3,7 billion (58% local) (2010: R3,8
billion (80% local)). This is the largest order book of our Construction
businesses.
Based on the group`s tender opportunity pipeline, it expects meaningful
contract awards to realise over the next 12 to 18 months, both in terms of
its target geographies as well as its targeted sectors of mining,
industrial, power, oil and gas, water and environment, transport and real
estate. The group therefore remains cautiously optimistic about future
prospects.
Engineering
Year ended
30 June 2011 30 June 2010
Revenue (R`000) 1 659 218 1 488 007
Total operating margin % 6.7 9.9
Core operating margin % 6.7 9.4
The Engineering cluster incorporates the Projects business and the newly-
constituted Engineering and Construction (E+C) business.
Conversely to the rest of Construction, Engineering experienced a recovery
in its markets. Revenue increased by 12% from R1,5 billion (50%
local) to R1,7 billion (52% local). The increase in the South African
content of the revenue resulted in a core operating profit decrease of 20%
from R139,9 million to R111,5 million. The core operating profit
margin percentage decreased to 6.7% (2010: 9.4%).
A recovery in enquiry levels from the sub-Saharan African mining and energy
markets is underway, which resulted in recent new contract awards. This
trend is expected to continue in certain mineral categories. There was also
a significant progression in the South African power, oil and gas and
mining markets over the last six months, which augurs well for a sustained
recovery ahead, albeit lumpy in nature.
The secured one-year order book remained at R1,4 billion, with 75% being
local compared to 30 June 2010 when 51% was local. The full secured order
book stands at R2,0 billion (83% local) (2010: R1,9 billion (64%
local)).
PROSPECTS
The group`s core business of Construction continues to be strategically
well positioned in active market sectors, as detailed above. The
Construction one-year order book as at 30 June 2011 stands at R5,9
billion (2010: R7,1 billion). The group`s total secured Construction order
book stands at R8,8 billion (2010: R9,2 billion).
The Construction Materials business has been restructured and sized to suit
current market activity. With new management in place and signs of a
tentative recovery coming through, the group`s guidance of a return to
operating profit over the next 12 to 18 months appears reasonable.
Manufacturing is expected to recover over the next 12 months as volumes in
Everite have stabilised based on increases in exports, social housing
demand and demand improvements from retailers. The steel businesses are
likely to experience more pressure in the short term. Investments and
Concessions is well positioned for growth. The Power sector looks likely to
pick up with the call for tenders for renewable energy plants under the
government`s REFIT programme. The PPP process through treasury seems to be
moving closer to making long awaited awards, the N1/N2 toll road award is
expected during calendar 2011 and the African appetite for concessions-
driven infrastructure is gaining momentum.
The value of the group`s longer term target opportunity pipeline as at 30
June 2011 stood at R134 billion, up from R104 billion in February 2011,
with activity in all its chosen sectors. The short term prospects arising
from the pipeline amount to R23 billion.
On a group level, the South African government`s public works programme has
the potential to create growth opportunities within the South African
construction sector. However, the lack of certain timing will further
plague the domestic construction sector`s ability to plan and forecast and
hence employment levels continue to decline. Against this, the group will
continue to grow its expertise and capacity in sectors where it has
developed multi-disciplinary delivery capability, namely power generation,
energy, transport, water, housing, mining and large public infrastructure
works. The group`s geographic diversification will continue, with active
trading in 22 countries in the period under review with developing business
in 7 new countries.
Certain African markets offer good prospects, with the outlook for private
sector fixed investment and primary infrastructure starting to improve.
Spending is however only likely to come through during the 2012 calendar
year and at a slow pace, with more certainty emerging from calendar 2013
onwards. 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 and
industrial contracts. However, it will take some time to secure contracts.
The group`s strategic focus, its specialist skills, its current order book
and its pipeline of opportunities support a positive medium and long term
outlook, although short term earnings are likely to remain under pressure.
Board changes
Subsequent to the year-end the following changes were made to the board of
directors as non-executive directors:
- Mr OA Mabandla was appointed to the board on 1 August 2011
- Mr DDS Robertson was appointed to the board on 1 August 2011
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
Chairperson
MR Upton
Chief Executive Officer
5 August 2011
Board of directors: P Buthelezi* (Chairperson), MR Upton (CEO), CMF
Teixeira (CFO), LE Bakoro*, L Chalker*+, Dr JL Job*, OA Mabandla*,
SG Morris*, KK Mpinga*, DDS Robertson*+
*(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
Date: 15/08/2011 08:00:01 Supplied by www.sharenet.co.za
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