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GROUP FIVE LIMITED - Audited group results for the year ended 30 June 2012 and withdrawal of cautionary announcement

Release Date: 13/08/2012 08:00
Code(s): GRF     PDF:  
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Audited group results for the year ended 30 June 2012 and withdrawal of cautionary announcement

Group Five Limited

Audited Group Results for the year ended 30 June 2012
and withdrawal of cautionary announcement

(Incorporated in the Republic of South Africa)
(Registration number 1969/000032/06)
Share code: GRF ISIN: ZAE 000027405
(“Group Five” or “the company”)

Condensed consolidated income statement
for the year ended 30 June 2012
                                                                   AUDITED
                                                                           Restated
 R’000                                                           2012          2011
 Revenue – continuing operations                             8 783 378    8 772 765
 Operating profit before fair value adjustments                263 881      556 714
 Fair value adjustments relating to investment
 in service concessions                                         56 652       33 160
 Fair value adjustments relating to investment
 properties – net                                               10 865        2 419
 Fair value adjustment relating to investment in property
 developments                                                        –       13 265
 Operating profit                                              331 398      605 558
 Share of profit of associates                                   1 163          820
 Finance cost                                                  (79 487)     (66 595)
 Finance income                                                 75 687      103 555
 Profit before taxation                                        328 761      643 338
 Taxation                                                     (106 032)    (208 777)
 Profit after taxation from continuing operations              222 729      434 561
 Loss for the year from discontinued operations               (452 841)    (593 605)
 Loss for the year                                            (230 112)    (159 044)
 Allocated as follows:
 Equity shareholders of Group Five Limited                    (278 405)    (218 107)
 Non-controlling interest                                       48 293       59 063
                                                              (230 112)    (159 044)
 Loss per share – [Rand]                                         (2,88)       (2,27)
 Fully diluted loss per share – [Rand]                           (2,88)       (2,27)
 Earnings per share from continuing operations – [Rand]           1,81         3,91
 Fully diluted earnings per share from
 continuing operations – [Rand]                                   1,80         3,71

Determination of headline earnings
for the year ended 30 June 2012
                                                                    AUDITED
                                                                          Restated
 R’000                                                            2012          2011
 Attributable loss                                            (278 405)     (218 107)
 Adjusted for (net of tax)                                     389 982       531 695
 – Loss on disposal of property, plant and equipment             3 675           832
 – (Profit)/loss on disposal of subsidiary                         (36)          574
 – Net profit on fair value adjustments
   on investment property                                       (7 720)       (3 252)
 – Impairment of property, plant and equipment                       –       521 621
 – Impairment of non-current assets classified
   as held for sale                                            394 063        11 920

 Headline earnings                                             111 577       313 588

Condensed consolidated statement
of comprehensive income
for the year ended 30 June 2012
                                                                    AUDITED
 R’000                                                            2012            2011
 Loss for the year                                            (230 112)       (159 044)
 Other comprehensive income
 Exchange difference on translating foreign operations*         68 411         (45 948)
 Other comprehensive income/(loss) for the year                 68 411         (45 948)
 Total comprehensive loss for the year                        (161 701)       (204 992)
 Other comprehensive income/(loss) attributable to:
 Equity shareholders of Group Five Limited                    (209 994)       (264 055)
 Non-controlling interest                                       48 293          59 063
                                                              (161 701)       (204 992)

* With no resultant tax impact

Condensed consolidated statement of financial position
as at 30 June 2012

                                                                   AUDITED
 R’000                                                            2012          2011
 ASSETS
 Non-current assets
 Property, plant and equipment and investment property         893 392     1 430 457
 Investments – service concessions                             296 635       253 100
 Investments – property developments                             8 716         8 691
 Other non-current assets                                      351 243       227 745
                                                             1 549 986     1 919 993
 Current assets
 Other current assets                                        3 498 030     3 562 973
 Bank balances and cash                                      2 268 226     2 234 779
                                                             5 766 256     5 797 752
 Non-current assets classified as held for sale                272 928        53 233
 Total assets                                                7 589 170     7 770 978
 EQUITY AND LIABILITIES
 Capital and reserves
 Equity attributable to equity holders                       1 808 736     2 148 130
 Non-controlling interest                                       67 968       117 565
                                                             1 876 704     2 265 695
 Non-current liabilities
 Interest bearing borrowings                                   613 464       232 203
 Other non-current liabilities                                 113 126        87 326
                                                               726 590       319 529
 Current liabilities
 Other current liabilities                                   4 807 515     5 185 754
                                                             4 807 515     5 185 754
 Liabilities associated with non-current assets
 classified as held for sale                                   178 361             –
 Total liabilities                                           5 712 466     5 505 283
 Total equity and liabilities                                7 589 170     7 770 978

Condensed consolidated statement of cash flow
for the year ended 30 June 2012
                                                                          AUDITED
                                                                                  Restated
 R’000                                                                 2012           2011
 Cash from operations before working capital changes                424 692        769 979
 Working capital changes                                            154 460     (1 240 003)
 Cash generated/(utilised) from operations                          579 152       (470 024)
 Finance (cost)/income – net                                         (1 514)        32 106
 Taxation and dividends paid                                       (148 469)      (375 756)
 Cash utilised in operating activities (discontinued operations)    (18 290)       (25 240)
 Net cash generated by/(utilised in) operating activities           410 879       (838 914)
 Property, plant and equipment and investment property – net       (200 295)       (53 360)
 Investments – net                                                  (11 653)       117 517
 Cash generated from investing activities
 (discontinued operations)                                           19 184          4 560
 Net cash (utilised in)/generated by investing activities          (192 764)        68 717
 Cash utilised in financing activities (continued operations)      (225 284)       (47 313)
 Cash utilised in financing activities (discontinued operations)    (44 882)       (45 496)
 Net cash utilised in financing activities                         (270 166)       (92 809)
 Effects of exchange rates on cash and cash equivalents              76 205         (8 032)
 Net increase/(decrease) in cash and cash equivalents                24 154       (871 038)
 Cash and cash equivalents at beginning of year                   2 234 779      3 105 817
 Cash and cash equivalents at end of year                         2 258 933      2 234 779
 Included in cash and cash equivalents per the statement
 of financial position                                            2 268 226      2 234 779
 Included in non-current assets classified as held for sale          (9 293)             –
                                                                  2 258 933        211 557

Capital expenditure and depreciation
for the year ended 30 June 2012
                                                                          AUDITED
 R’000                                                                 2012            2011
 • Capital expenditure for the year                                 338 922         150 352
 • Capital expenditure committed or authorised for the next year    393 590         203 745
 • Depreciation for the year                                        165 356         211 557

Condensed consolidated segmental analysis
for the year ended 30 June 2012

                                                                    AUDITED
                                                        %                    Restated
 R’000                                              change         2012          2011
 REVENUE
 Investments and Concessions                            17      647 739       554 659
  Infrastructure Concessions                            19      619 915       522 870
  Property Developments                                (12)      27 824        31 789
 Manufacturing                                          18    1 024 329       867 523
 Construction                                           (3)   7 111 310     7 350 583
  Building and Housing                                  (4)   2 065 972     2 143 004
  Civil Engineering                                    (16)   2 997 747     3 548 361
  Engineering                                           23    2 047 591     1 659 218

 Total revenue                                           –    8 783 378     8 772 765

                                         2012                         AUDITED
                                         core           %                    Restated
 R’000                               margin %       change        2012           2011
 OPERATING PROFIT
 Investments and Concessions             23.7           39     153 795        110 774
  Infrastructure Concessions             23.2           36     143 708        105 641
  Property Developments                  36.3           97      10 087          5 133
 Manufacturing                            4.5           82      46 490         25 547
 Construction                             1.7          (74)    121 315        471 536
  Building and Housing                    2.5          (61)     52 133        134 506
  Civil Engineering                      (1.3)        (116)    (37 541)       227 723
  Engineering                             5.2           (2)    106 723        109 307

 Total core operating profit              3.7          (47)    321 600        607 857
 Adjustments for non-operational items
 Pension fund valuation surplus/(deficit)                       15 790         (2 000)
 Impairment of investment in associates                         (1 399)          (299)
 Remeasurement of employment obligation                         (4 593)             –
 Operating profit per income statement                         331 398        605 558

Condensed consolidated statement of changes in equity
for the year ended 30 June 2012
                                                                           AUDITED
 R’000                                                                  2012             2011
 Balance at 1 July                                                  2 265 695       2 561 412
 Net loss for the year                                               (230 112)       (159 044)
 Other comprehensive profit/(loss) for the year                        68 411         (45 948)
 Share options expense                                                 29 093          46 836
 Cancellation of shares                                              (117 945)              –
 Distribution to non-controlling interest                             (97 890)        (16 553)
 Dividends paid                                                       (40 548)       (121 008)
 Balance at 30 June                                                 1 876 704       2 265 695

Statistics
as at 30 June 2012
                                                                             AUDITED
                                                                                     Restated
                                                                         2012            2011
 Number of ordinary shares                                          96 600 761     96 004 779
 – Shares in issue                                                 110 645 521    121 477 858
 – Less: Shares held by share trusts                               (14 044 760)   (25 473 079)
 Weighted average shares (‘000s)                                        96 545         96 114
 Fully diluted weighted average shares (‘000s)                          96 946        101 137
 Loss per share – R                                                      (2,88)         (2,27)
 Headline earnings per share – R                                          1,16           3,26
 Fully diluted loss per share – R                                        (2,88)         (2,27)
 Fully diluted headline earnings per share – R                            1,15           3,10
 Earnings per share from continuing operations – R                        1,81           3,91
 Headline earnings per share from continuing operations – R               1,78           3,89
 Fully diluted earnings per share from continuing operations – R          1,80           3,71
 Fully diluted headline earnings per share
 from continuing operations – R                                           1,77           3,69
 Dividend cover (based on earnings per share)                                –              –
 Dividends per share (cents)                                              36,0           72,0
 – Interim                                                                22,0           52,0
 – Final                                                                  14,0           20,0
 Net asset value per share – R                                           18,72          22,38
 Net debt to equity ratio                                                    –              –
 Current ratio                                                             1.2            1.1

Estimates and contingencies
The group makes estimates and judgements 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 judgements 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 R4 310 million as at 30 June 2012 (2011: R4 537 million).

Dividend declaration
On 3 August 2012, the directors declared a gross dividend of 14.0 cents per ordinary share (14.0
cents per ordinary share net of dividend withholding tax and STC credits) (2011: 20 cents). This
brings the total dividend for the year to 36 cents (2011: 72 cents).

The dividend has been declared from income reserves.

In terms of the new Dividends Tax effective 1 April 2012, the following additional information is
disclosed:

• The dividend is subject to dividend withholding tax at 15%. In determining dividend withholding
  tax, STC credits must be taken into account.
• The STC credits utilised per share amounts to 14 cents per share.
• There is no tax payable which results in a net dividend of 14 cents per share to shareholders
  who are not exempt from dividends withholding tax.
• The amount of shares in issue at the date of this declaration is 110 645 521 (96 600 761 exclusive
  of treasury shares) and the company’s tax reference number is 9625/077/71/5.

To comply with the requirements of STRATE, the relevant details are:
 Event                                                      Date
 Last day to trade (cum-dividend)                           Thursday, 20 September 2012
 Shares to commence trading (ex-dividend)                   Friday, 21 September 2012
 Record date (date shareholders recorded in books)          Friday, 28 September 2012
 Payment date                                               Monday, 1 October 2012

No share certificates may be dematerialised or rematerialised between Friday, 21 September
2012 and Friday, 28 September 2012, both dates inclusive.

Basis of preparation
These consolidated condensed annual financial statements for the year ended 30 June 2012
have been prepared in accordance with the framework concepts, the recognition and
measurement criteria of International Financial Reporting, Standards (“IFRS”) and the
information required by International Accounting Standard 34: Interim Financial Reporting as
issued by the International Accounting Standards Board (“IASB”), the JSE Listings Requirements
and the requirements of the Companies Act of 2008, as amended. The consolidated condensed
annual financial statements should be read in conjunction with the annual financial statements
for the year ended 30 June 2012 as available on the company’s website which have been
prepared in accordance with International Financial Reporting Standards (IFRS).

The significant accounting policies and methods of computation are consistent in all material
respects with those applied in the previous period.

These results have been audited by the independent accounting firm, PricewaterhouseCoopers
Inc. Their unmodified audit report is available for inspection at the group’s registered office.

Commentary

Introduction
Against ongoing tough markets, the group continued to implement the conservative approach
adopted last year in terms of both the quality of the order book secured and its philosophy
towards cash preservation to fund activity which will support future profit growth.

It is thus encouraging to see an improvement in the Construction order book, with a good cash
position supporting this strategy. However, the overall group performance and earnings during
the period was impacted by a number of factors.

These include:

•   Delayed Construction revenue due to contract delays and client scope changes
•   Pre-disposal operating losses and further impairments of Construction Materials’ assets
•   Contract losses (including close out costs) and holding costs from the Middle East
•   Impairments of claims due from previously discontinued operations in India

Financial performance
Headline earnings per share (HEPS) decreased by 64.4% and fully diluted HEPS (FDHEPS) by 62.9%.

Earnings per share (EPS) and fully diluted EPS (FDEPS) was a loss of 288 cents per share. The
material difference between earnings and headline earnings was mainly due to an impairment
charge on assets reflected as non-current assets classified as held for sale on the group’s
statement of financial position, relating to:

• The Construction Materials businesses being disposed of
• A contract claim on a previously discontinued concessions business in India

Group revenue from continuing operations remained flat at R8,8 billion due to a reduction in
activity levels within the buildings, housing and civil infrastructure markets, client-driven contract
delays.

The losses stemming from the Middle East constitute the single largest reason for the material
reduction in operating profit by 45.3% from R605,6 million to R331,4 million.

Included within operating profit is a surplus on the group’s pension fund of R15,8 million (2011:
deficit of R2,0 million) as a result of an actuarial valuation assessment. The actuarial gain arose
during the year mainly due to the actual investment return of 10.8% exceeding the expected
investment return of 9.6%.

Fair value net upward adjustments of R67,5 million (2011: R48,8 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 costs of R3,8 million were recorded for the year
compared to net finance income of R37,0 million in the prior year as a result of a reduction in
average cash and cash equivalents year on year.

The effective tax rate of 32% (2011: 32%) was higher than the South African statutory tax rate of
28%. This was mainly due to a conservative approach adopted to the raising of deferred taxation
assets, which was partially offset by liabilities in jurisdictions with lower taxation rates.

Financial position
It is pleasing to note that the group’s statement of financial position continues to be sound,
with a nil net gearing ratio and bank and cash balances of R2,3 billion as at 30 June 2012 (F2011:
R2,2 billion).

The statement of financial position reflects the transfer of the Construction Materials cluster to
non-current assets classified as held for sale.

An impairment of non-current assets classified as held for sale of R394,1 million net of tax, was
charged against income at June 2012. R340,8 million of this relates to Construction Materials
and R53,3 million relates to the amount carried from contract claims on a terminated Indian toll
road contract.

Cash flow
The group generated R424,7 million cash from operations before working capital changes. In
addition, it generated R154,5 million cash from working capital changes, resulting in a net cash
inflow from operations of R410,9 million after settlement of taxation liabilities of R107,9 million.
After a net investment of R200 million in plant and equipment and net repayment of liabilities of
R146 million, the group generated an increase in cash of R24 million.
The JSE Limited granted a listing to the group in respect of two senior unsecured notes, issued
under the groups R1 billion Domestic Medium Term Note Programme, in April 2012, totalling
R500 million with a repayment date of R220 million in April 2015 and R280 million in April 2017.
The primary application of these funds is intended to finance equity investments in Power and
Transport concessions and Real Estate opportunities. The groups GFC 02 bond of R550 million
matured in February 2012 and was settled.

Dividends
The group has previously disclosed that the company has adopted an approximate four times
basic earnings per share dividend cover policy. 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.

An impairment of the carrying value of non-current assets classified as held by sale of R394,1
million, discussed above, is the main difference between the reported earnings loss per share
and headline earnings per share for the year. As a result the board of directors have approved
a final dividend based on a cover of four times on an adjusted earnings per share of 14,0 cents.
The total dividend for the year is 36 cents per share (2011: 72 cents).

Business combinations
There were no business combinations during the current financial year.

During the year, based on the group’s operational and strategic focus, as well as the poor outlook
for the construction market in the South Gauteng region, the board of directors of the group
resolved to dispose of the businesses that constitute the Construction Materials cluster. The
construction materials market in Gauteng, where the group’s Construction Materials businesses
are located, has remained heavily over-supplied with insufficient work being available to quarry
owners who need to move quality materials at heavily discounted prices. Competitors with the
benefit of an integrated offering through the value chain of cement, aggregates and ready-mix
concrete and others with mobile crushing operations that locate from opportunity to opportunity
have survived this extended downturn better than fixed quarry businesses.

The group is therefore required to account for the Construction Materials operating cluster as
a discontinued operation and transfer its net assets to non-current assets classified as held for
sale. Accounting practice requires comparative numbers to be restated to reflect the effect of
the discontinued operations on prior periods. The current year’s headline earnings and earnings
therefore include operating losses from Construction Materials of R52,8 million net of taxation
(2011: losses of R54,8 million).

The group disposed of two businesses within this cluster prior to year end.

It is acknowledged that there has been significant destruction in shareholder value in the group’s
venture into this market.

Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcements of which the last was renewed on
22 June 2012. The group announces that offers have been received and the related negotiations
are either at an advanced stage or concluded for each of the businesses that constitute the
Construction Materials cluster. Disclosure is provided above on the resultant impairments to
the carrying value of assets within this segment.

Due to the nature of these disposals being to individual purchasers of these businesses, the
consideration in respect of each business will fall below the categorisation thresholds of the JSE
Limited Listings Requirements and accordingly, shareholders are advised that caution is no
longer required when trading in the company’s shares.

Shareholding
The group announced in June 2009 that its BBBEE ownership transaction with the iLima
Consortium portion of the iLima Mvela Transaction would unwind and that this would entail the
return of the shares held by the iLima Consortium to the group. 11 015 959 Group Five shares
held by iLima was returned to Group Five and cancelled in the current year. The capital of the
group has been reduced.

The unwinding of the BBBEE transaction with iLima Consortium is a disappointment to Group
Five as the group remains committed to the advancement of broad-based black economic
empowerment. The group has excluded the iLima shareholding from its current BBBEE
scorecard and confirms that its scorecard has not been adversely affected. The group’s BBBEE
status is currently a level 2.

In prior years, it has also been reported that the group entered into a formal enterprise
development arrangement with iLima. The iLima Group is the majority shareholder of the iLima
Consortium. The total capital amount outstanding on loans due by iLima Group (Pty) Ltd to the
group as at 30 June 2011 amounted to R118 million. The total indirect financial assistance
provided to iLima, in the form of bonds and guarantees, which remain in issue, amounts to
R54 million (2011: R54 million). The direct financial assistance, reflected as a current asset at
30 June 2011, was set off against the return of the group’s shares by iLima, as described above.
The indirect financial assistance remains reflected as a contingent liability until the guarantees
are either returned or cancelled. The favourable close out of these outstanding guarantees
remains a focus area for the group’s commercial and legal team as a call on these guarantees
would affect both cash and earnings for the group. There is no probable exposure on these
contingent liabilities and hence no provision for these can be raised.

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. The group co-operated with the Commission for the
last few 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 is
able to advise that it has continued to sign additional conditional leniency agreements with The
Commission without penalty as it progresses its investigations. The group does not deem a
provision for penalties and fines to be required and has subsequently not raised a provision in
these reported results.

Operational overview
Group
For comparative purposes, we provide both the group’s total operating margins as well as the core
operating margins per segmental report which is net of non-core/headline transactions such as
pension fund surpluses and deficits and profit/loss on sale or impairment of subsidiaries. We refer
to the latter margin as the core operating margin, and as it reflects the underlying operating
performance. Both margins exclude the impairment of non-current assets and the restatement of
Construction Materials to discontinued operations but includes the fair value upward and
downward adjustments on Investments and Concessions, as these are within the control of the
cluster.

The group’s operating margins are reflected below.
                                                                            Year ended
                                                                                        Audited
                                                                       Audited         Restated
                                                                          2012             2011
 Revenue (R’000)                                                     8 783 379        8 772 765
 Total operating margin %                                                  3.8              6.9
 Core operating margin %                                                   3.7              6.9

Investments and Concessions
                                                                            Year ended
                                                                                        Audited
 (including Infrastructure Concessions                                 Audited         Restated
 and Property Developments)                                               2012             2011
 Revenue (R’000)                                                       647 739          554 659
 Total operating margin %                                                 23.7             19.5
 Core operating margin %                                                  23.7             20.0

Infrastructure Concessions
This segment demonstrated a strong performance despite the continued effects of the deep
recession across the European region and the absence of new concessions awards in South Africa.
Revenue, which consists primarily of fees for the operation and maintenance of toll roads,
increased by 19% from R522,9 million to R619,9 million. The core operating profit margin increased
from 20.2% to 23.2%, with core operating profit of R143,7 million (2011: R105,6 million). This core
operating profit includes net upward fair value adjustments of R56,6 million (2011: R33,1 million).

In spite of South African policy uncertainty and delays in awards in domestic concessions and
PPP activities and the economic pressures in Europe, Infrastructure Concessions performed
ahead of expectations as new tolling and operations contracts came on line in Eastern Europe.

Going forward, the timing of awards in the South African public sector buildings and healthcare
PPPs, renewable energy IPPs and transport concession markets remains uncertain in light of
current delays and unconvincing government policy and commitment. The outcome of the
government’s deliberations on the resolution of the Gauteng Freeway Tolling impasse, the
dispute over the N1-N2 Winelands concession and the work being done by the Presidential
Infrastructure Coordinating Commission will be crucial in providing more clarity to the
construction sector and job creation. African concession opportunities are set to remain
attractive, with further new projects under development in transport projects and power.

Property Developments
Property Developments returned to profitability in line with the group’s stated expectations. The
group continues to progress its strategy of disinvestment from the traditional residential sector
in favour of securing A-grade commercial and retail property development positions in targeted
geographies.

Therefore, as expected, Property Developments’ revenue decreased by 12% from R31,8 million
in F2011 to R27,8 million. The business recorded a core operating profit for the year of R10,1
million (2011: R5,1 million). This core operating profit includes net upward fair value adjustments
of R10,9 million (2011: R15,7 million).

Manufacturing
                                                                            Year ended
                                                                                         Audited
                                                                       Audited          Restated
                                                                          2012              2011
 Revenue (R’000)                                                     1 024 329           867 523
 Total operating margin %                                                  4.2               2.9
 Core operating margin %                                                   4.5               2.9

Manufacturing consists of the fibre cement building products business, Everite, as well as BRI
and Group Five Pipe.

Manufacturing contributed 11.7% (2011: 9.9%) to group revenue.
Manufacturing produced pleasing results in a market where both private and public sector
conditions continue to be weak. The results also included the closure costs of the steel
fabrication business incurred in the first half of the year.

Revenue increased 18% from R867 million in 2011 to R1 024 million. The reported core operating
profit for the year was R46,5 million. This was 82% higher than the prior year of R25,5 million,
resulting in a core operating margin of 4.5% (2011: 2.9%).

An increase in volumes traded in Everite and BRI during the reporting period lifted the
Manufacturing performance from the last reported results. The Fibre Cement business
achieved their returns through product range and export and local market extension, whilst
continuing to improve production efficiencies. The modular housing systems business Advanced
Building Technologies (ABT), created within Everite, is making an increasing contribution. Group
Five Pipe remains tied to large water transport project demand. This business unit has long
term prospects, but in the short term continues to experience some loading unpredictability due
to uncertain tender award timescales.

Construction
During the year the Construction cluster comprised 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
                                                                                      Audited
                                                                     Audited         Restated
                                                                        2012             2011
 Revenue (R’000)                                                   7 111 310        7 350 583
 Total operating margin %                                                1.9              6.4
 Core operating margin %                                                 1.7              6.4

Construction continued to be the largest cluster in the group. It contributed 81.0% of group
revenue in the year under review (2011: 83.8%).

Construction revenue decreased by 3% from R7,4 billion to R7,1 billion and core operating profit
decreased by 74% from R471 million to R121 million due to short term events in the second half
of the year. These are discussed in the segmental review. The overall Construction core
operating profit margin percentage was 1.7% (2011: 6.4%). Over-border work contributed 26%
(2011: 27%) to Construction revenues.

Construction performance was impacted by delayed revenue due to postponements in domestic
contract awards and customer-initiated scope change delays, as well as holding costs and
contract close out losses in the Middle East.
In addition, the group purposefully continued to carry costs related to its investment in future
opportunities and capacity building in renewable power, nuclear readiness, postponed local and
new over-border PPPs, as well as oil and gas and geographic expansion. The benefits of these
initiatives were not expected to be realised before F2013.

Building and Housing
                                                                            Year ended
                                                                                        Audited
                                                                       Audited         Restated
                                                                          2012             2011
 Revenue (R’000)                                                     2 065 972        2 143 004
 Total operating margin %                                                  2.8              6.3
 Core operating margin %                                                   2.5              6.3

In spite of the private building sector remaining extremely weak, Building and Housing managed
to partially mitigate this impact through the contribution of some public sector contracts, as well
as a focus on over-border opportunities, improved execution and supply chain savings.

Building and Housing revenue remained flat at R2,1 billion (79% local) (2011: 70% local). The
segment reported a 61% decrease in core operating profit from the prior year, from R134,5 million
to R52,1 million. This resulted in the overall core operating margin percentage decreasing from
6.3% to 2.5%.

During the period, the private sector property market for buildings remained weak and
overtraded, with inherently low margins and unattractive cash flows. This has been coupled with
the slowdown in government’s promised infrastructure spend and the lack of awards of certain
PPP concession projects, including large public buildings, healthcare and correctional services.
The group has been declared the preferred bidder on some of these projects. The coastal region
performed well, although margins were constrained.

The Building and Housing segment established an over-border capability in new markets, which
will mitigate some domestic market decline. In the short term the Building business will be
under pressure while markets are further developed and while new awards against tenders
under adjudication are awaited. The Housing business has, however, seen a recent marked
improvement in domestic mining and affordable and RDP housing work load.

The secured one-year Building and Housing order book stands at R2,8 billion (94% local) ((2011:
R2,1 billion (88% local)).

The total secured Building and Housing order book stands at R3,6 billion (95% local) ((2011:
R3,1 billion (75% local).
Civil Engineering
                                                                             Year ended
                                                                                         Audited
                                                                        Audited         Restated
                                                                           2012             2011
 Revenue (R’000)                                                      2 997 747        3 548 361
 Total operating margin %                                                  (1.1)             6.4
 Core operating margin %                                                   (1.3)             6.4

Civil Engineering includes the group’s civil engineering activities in South Africa, the rest of
Africa and the Middle East.

Civil Engineering reported a 16% decrease in revenue from R3,5 billion (85% local) to R3,0 billion
(83% local), while core operations reported a loss of R37,5 million for the year (2011: R227,7
million profit).

The Civil Engineering result has been impacted by revenue and margin shifting out in time due
to late contract awards and hence delayed starting times, as well as scope changes on several
large South African contracts.

The underlying South African and African Civil Engineering business delivered well on contracts
executed in the period.

Unfortunately the good underlying performance was severely impacted by the losses reported from
the Middle East relating to downward carrying value adjustments and additional provisions raised
resulting from the de-risking action taken in preparation for final commercial close out of long
standing legacy and loss-making contracts in the United Arab Emirates (UAE). Additional losses
were incurred in the rectification of a pipeline contract in Jordan. This has now been completed.
Costs for commercial resources deployed in Dubai continue until the contractual and commercial
finalisation and cash collection of these completed, as well as terminated, contracts are finalised.

Although tendering activity is high and increasing, both locally and in Africa, with awards
currently infrequent, the order book has shown some signs of recovery in favour of African
expansion. The business is proactively mitigating domestic market conditions by progressively
rebuilding its African order book in geographies in which the group has prior operating
experience and where growth opportunities are stronger.

The secured one-year Civil Engineering order book stands R3,3 billion (43% local) ((2011: R2,5
billion (57% local)).

The total secured Civil Engineering order book stands at R4,4 billion (43% local) ((2011: R3,7
billion (58% local)).
Engineering
                                                                              Year ended
                                                                                          Audited
                                                                         Audited         Restated
                                                                            2012             2011
 Revenue (R’000)                                                       2 047 591        1 659 218
 Total operating margin %                                                    5.4              6.6
 Core operating margin %                                                     5.2              6.6

The Engineering cluster is the group’s engineering, plant building and industrial services
segment and incorporates the Projects business and the Engineering and Construction (E+C)
business.

Engineering is experiencing a recovery in enquiry levels from the sub-Saharan African mining
and energy markets, which resulted in new contract awards during the period under review.
This trend is expected to continue in various mineral categories, technologies and geographies.
This augurs well for a sustained recovery ahead, albeit lumpy in nature.

During the year, revenue increased by 23% from R1,7 billion (52% local) to R2,0 billion (56%
local). Core operating profit decreased marginally by 2.4% from R109,3 million to R106,7 million.
The core operating profit margin percentage decreased to 5.2% (2011: 6.6%).

Although the underlying contract margins are still good, they reflect increased competition. The
margin for the period was also impacted by the high costs incurred in bidding for the many
renewable energy projects against the renewable energy programmes and building capacity in
nuclear. The margin retraction on higher revenues is temporary and should improve over the
next 12 months. The E+C business has bid with a number of the power plant developers who
have pre-qualified under the renewable energy independent power programme (REIPP) and
expect to be awarded several EPC contracts, should the programme run as indicated by
government.

The secured one-year Engineering order book stands R2,2 billion (43% local) ((2011: R1,4 billion
(75% local)).

The total secured Engineering order book stands at R3,3 billion (50% local) ((2011: R2,0 billion
(83% local)).

Prospects
The group’s total secured Construction order book stands at R11,3 billion (30 June 2011: R8,8 billion
and December 2011: R10,3 billion).

The Construction one-year order book stands at R8,3 billion (30 June 2011: R5,9 billion and
December 2011: R6,4 billion).
The value of the group’s target opportunity pipeline stands at R148 billion, up from R134 billion
in June 2011 and R144 billion in December 2011, with activity in all its markets

The Investments and Concessions cluster is delivering annuity business growth, with groupwide
opportunities in active infrastructure sectors in increasing geographies. Manufacturing has
been refocused and its performance is improving on higher sales volumes to a broadening
number of markets. The disposal of the lossmaking Construction Materials cluster will relieve
the cash drain from this part of the group and improve returns once completed.

Based on the group’s positioning in the key infrastructure growth sectors of power, mining, oil
and gas, water and transport and in the concessions and PPP market for specific projects, as
well as the progress made in terms of improving the group’s internal efficiencies, management
expect a slow recovery in group activity levels.

This should support an improvement in the group’s trading performance from F2013.

Board changes
During the financial year the following non-executive directors were appointed.

• 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.

On behalf of the board

P Buthelezi            MR Upton
Chairperson            Chief Executive Officer

3 August 2012

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

Sponsor: Nedbank Capital



Please visit our website: www.groupfive.co.za

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