Survival now name of the game
Group Five construction firm in dire straits with its finances not so good
A lack of spending on large-scale projects by state entities decimated its order book
To survive, construction icon Group Five has had to shift its focus away from what has been its bread and butter for years, building roads and infrastructure, according to chief executive Themba Mosai.
The group will now instead focus on specialist businesses such as toll management and commercial property investment, Mosai said on the sidelines of the release of financial results for the year to June 2018.
Group Five has been involved in the construction of many landmark structures including Cape Town’s Green Point Stadium, upgrading King Shaka International Airport, the Nelson Mandela Children’s Hospital and Durban International Convention Centre,
Formed and listed 44 years ago from the amalgamation of five companies, Group Five collapsed after the 2010 Soccer World Cup. A lack of spending on large-scale infrastructure projects by state entities decimated its order book.
Its share price, down nearly 90% over the past 12 months, continues to trade near levels last seen in 1993.
Group Five already has a presence in toll management and commercial property investment. Its Intertoll business develops, invests in and operates toll motorways through regional businesses in SA, Zimbabwe, Poland and Hungary.
The company is working on expanding its existing concessions portfolio to include other sectors, such as public buildings and power concessions.
In addition, its subsidiary G5 Properties develops housing, offices and shopping centres.
However, these businesses have done little so far to stem the bleeding.
Group Five reported a 26.2% drop in revenue to R7.3bn from R9.9bn for the year to June. The operating loss ballooned to R1.4bn from R718m, leading Mosai to describe the results as “extremely disappointing”.
The company’s order book shrank to R11.2bn from R14.5bn a year ago. In 2016, the order book stood at R17.3bn.
No dividend was declared. In 2017, the company’s board agreed to pay a dividend of 14c per share.
Group Five is not the only construction group under pressure due to the government’s lacklustre spending on infrastructure. Peers such as Aveng, Murray & Roberts, Esor and Basil Read are also struggling.
Esor’s construction subsidiary and Basil Read entered business rescue in the past four months. This allows for practitioners to devise plans to keep the companies afloat so that creditors are better rewarded than if the companies were to be liquidated.
Mosai said Group Five had closed some unprofitable businesses in its local construction unit and had retrenched 602 permanent staff during the reporting period.
He said that continued delays in its “engineer, procure and construct” cluster had had severe effects on the company’s performance, with more retrenchments to come in the coming months.
The company was struggling to complete a power-station development called Kpone in Ghana, which racked up losses of R1.3bn, said Mosai.
“As outlined to the market, we expected the second half to remain very difficult. However, delivering another set of extremely poor results is very disappointing for management.
“Although we have taken firm action in the group and on contracts, especially on our Kpone contract, the losses worsened significantly,” he said.
But he was optimistic that the company would return to profitability eventually. Some business units’ profit margins had improved, such as manufacturing, which went up 5.4%, and investments and concessions, up 24.1% in the reporting period.
The share price had its biggest jump in nearly two weeks, rising 14.74% to R1.09, giving it a market capitalisation of R122.4m, compared with a peak of R6.4bn in June 2007.
The board announced the resignation of CFO Cristina Teixeira after 16 years’ service.
“Cristina has been instrumental in managing the group through extremely volatile conditions over the years, with this past year being particularly challenging,” Group Five said.