Media releases

Group Five reports year-end results to June 2012

• Total secured Construction order book increased by 28% to R11,3 billion  (30 June 2011: R8,8 billion and December 2011: R10,3 billion)
• The over-border portion increased to 38% (F2011: 30%)
• 43% of the contracts in the order book are multi-disciplinary, indicating the further progression of more business segments working together to offer a seamless client offering
• The group's Infrastructure Concessions and operations and maintenance services secured order book stands at R4,8 billion
• For the first time, the group reported its secured concessions and operations and maintenance services order book to illustrate the strategy at work in terms of the concessions, construction and services business model derived from Investments and Concessions and the operations and maintenance services work in Engineering and Construction.
• This indicated the group's growing long term annuity revenue base
• The group's statement of financial position continues to be sound
• Nil net gearing ratio
• Bank and cash balances of R2,3 billion (F2011: R2,2 billion)

The group's 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 (the cluster is currently being sold)
• Contract losses (including close out costs) and holding costs from the Middle East
• Impairments of claims due from previously discontinued operations in India

Commenting on the results, Group Five CEO Mike Upton, said:

"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 preserving cash to fund activity which will support future profit growth. We are therefore very pleased with the improvement in the Construction order book, with a good cash position supporting this strategy. We are also encouraged by the continued increase in the over-border and multi-disciplinary portion of our order book.

"Although all the underlying businesses performed well with margins in line with market guidance and our order book and balance sheet improved, we took firm actions during the year to deal with a number of legacy issues that have undermined our performance. These included commercially closing out and settling problem contracts, removing lazy assets and dealing with the Construction Materials business segment through its sale. The disposal of this loss-making cluster will relieve the cash drain on the group and improve returns once completed.

"Although these actions set a good base that will assist in improving future returns, they had a significant impact on this set of results. During the year the group's operations and support structures also underwent change and we took out overhead costs in the group without losing capacity.

Looking ahead, Upton said:

"Against the actions taken, we expect margins and earnings to improve in the coming year. Our Construction order book has improved and the client and sector mix is more balanced.  Our concessions and services order book gives us a good line of sight on annuity income. 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. We are experiencing activity in all our markets, with the emphasis on over-border growth aligned to resources and basic infrastructure.

"The Investments and Concessions cluster is delivering annuity business growth, with group-wide 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.

"Based on the good underlying performance of all its continuing businesses and 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 an improvement in the group's trading performance from F2013."

FINANCIAL OVERVIEW

As per the cautionary announcement of 27 January 2012, the board of directors of Group Five resolved to dispose of the businesses that constitute the Construction Materials cluster. The group is therefore required to account for the Construction Materials operating cluster as a discontinued operation and Non-Current Assets classified as Held for Sale. Accounting practice requires the comparatives reported to be restated to reflect the effect of the discontinued operations on those periods. The results and commentary below are thus presented using the restated values for comparable periods.

• Group revenue from continuing operations remained flat at R8,8 billion
• This was due to a reduction in activity levels within the buildings, housing and civil infrastructure markets and client-driven contract delays
• 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
• Operating profit decreased by 45.3% from R605,6 million to R331,4 million
• The losses from the Middle East constitute the single largest reason for the material reduction
• 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
• 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
• The total group operating margin* was 3.8% (2011: 6.9%) and the core operating margin* was 3.7% (2011: 6.9%)

*We provide both the group's total operating margins and the core operating margins (which is net of non -core/headline transactions such as pension fund surpluses and deficits and profit/loss on sale or impairment of subsidiaries). Both margins exclude the impairment of non-current assets and the results from operations from Construction Materials as these are reflected as discontinued operations, but include the fair value upward and downward adjustments on Investments and Concessions, as these are within the control of the cluster.

• 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 (F2011: R2,2 billion)
• 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 group's adopted dividend policy is approximately four times basic earnings per share dividend cover. In line with this policy, a dividend for this period, based on an adjusted earnings per share of 14.0 cents per ordinary share (14.0 cents per ordinary share net of dividend withholding tax and STC credits) was declared (2011: 20 cents). This brings the total dividend for the year to 36 cents (2011: 72 cents)

OPERATIONAL OVERVIEW

INVESTMENTS AND CONCESSIONS

  Investments and Concessions consists of Infrastructure Concessions and Property Developments. This cluster contributed.7.4% to group revenue (2011: 6.3%).

Infrastructure Concessions

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.

• 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)

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.

• 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

  Manufacturing consists of building products business, Everite, as well as BRI and Group Five Pipe. Manufacturing contributed 11.7% to group revenue (2011: 9.9%).

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%)

CONSTRUCTION

Construction comprises the business segments of Building and Housing, Civil Engineering and Engineering. 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 include delayed revenue due to postponements in South African 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
• Over-border work contributed 26% (2011: 27%) to Construction revenues
• The overall Construction core operating profit margin percentage was 1.7% (2011: 6.4%)

Building and Housing

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%
• 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

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

The Civil Engineering result was 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.

• 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 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

The Engineering cluster is the group's engineering and plant building segment and incorporates the Projects business and the Engineering & 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%)
• 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))

Issued by:

HG Strategic Communications                                     011 465 0484

Heidi Geldenhuys                                                              083 325 8924

Enquiries:

Mike Upton, CEO                                                                011 806 0246

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