Group Five bleeds further from Kpone

GROUP Five, which is exposed to possible delay penalties of up to $62.4 million (R740.235m) on its $410m independent gasand oil-fired combined-cycle power plant contract in Kpone in Ghana, has entered into an agreement to obtain up to R650m in short-term bridge financing.

The JSE-listed construction and engineering group also expects to report in the six months to December a loss of R371m higher than initially advised in its trading update released in December last year.

Group Five said on Thursday it expected to report a headline loss a share of 779 cents for this reporting period, which represented a 151 percent increase in the 310c headline loss a share for the previous corresponding period.

The group indicated in December that it expected to report a headline loss a share of about 415c for the six months to December, a 33.8 percent increase in the headline loss a share on the prior period.

At the same time, the group warned that delays in the completion of the Kpone contract were expected to contribute to a significant widening in the year-on-year interim loss.

The financial woes of Group Five follow listed construction group Basil Read last week reporting a net loss of R1 billion in the year to December, from R53.65m in the previous year.

Group Five said the reasons for the increased loss included additional resources allocated to the Kpone contract to ensure focused execution and the cost of specialists, technical advisers and employees, who would be on site longer because of the delay in finalising the contract.

It also included additional costs to ensure acceleration of the contract completion to its earliest possible completion date and unexpected costs, incurred outside of the group’s control, against which the group would be claiming recovery, it said.

Group Five added it had received an independent assessment of the time and cost to completion of the Kpone contract and an assessment of claims from its appointed independent professional expert.

This assessment had been applied in determining the group’s interim financial results, and, based on this analysis, a final completion date of June this year had been agreed for the Kpone contract.

Group Five said possible delay penalties on the Kpone contract were capped at $62.5m, assuming the group was responsible for a six-month delay in the completion of the contract, and therefore represented the gross maximum penalty exposure possible.

However, Group Five said this penalty was a gross amount and “does not reflect the counter, and other, claims the group is legally entitled to”.

“Against these possible penalties, the group continues to progress its own contractual claims,” it said.

Group Five did not indicate the total value of its contractual claims on this project.

It said the Kpone contract, together with the pressure in the South African construction market and the further rationalisation of overheads in the construction businesses and the corporate office, continued to place pressure on the group’s free cash resources.

Group Five said that it had signed and executed a term sheet with a funding consortium that set out the terms and conditions on which the funding consortium, subject to the fulfilment of conditions precedent, was willing to provide up to R650m of short-term bridge financing.

Group Five said this would be sufficient to satisfy the group’s cash requirements on a sustainable basis.

Group Five expects to publish its interim financial results on April 12.

Shares in Group Five fell 3.66 percent on Thursday to close at R7.90.