HEART OF THE PROB­LEM

The mess that is Group Five is the fault of poor man­age­ment, though dif­fi­cult in­dus­try con­di­tions and the dif­fer­ence in ap­proach to sell­ing as­sets be­tween the ex-board and share­hold­ers have es­ca­lated its cri­sis

Financial Mail - - COVER STORY / GROUP FIVE - Mark Al­lix and Rob Rose

Amid the drama of Group Five’s share­holder tus­sle, the is­sue of whether the 43-year-old firm can re­gain its place at the apex of the con­struc­tion pyra­mid was all but for­got­ten. Speak­ing at the share­hold­ers’ meet­ing, CEO Themba Mo­sai was can­did about Group Five’s woes, stem­ming from its ail­ing con­struc­tion and en­gi­neer­ing di­vi­sion.

“Our chal­lenges are not only due to the tough in­dus­try con­di­tions but some self­im­posed in­ef­fi­cien­cies, weak strat­egy im­ple­men­ta­tion and poor man­age­ment and lead­er­ship,” he said.

In part, this was due to a “cul­ture of im­punity and lack of emo­tional for­ti­tude to deal de­ci­sively and can­didly with is­sues”.

Mo­sai was speak­ing hours af­ter Group Five had warned share­hold­ers about an­other shock­ing set of re­sults. It said that for the full year to June, it ex­pected a head­line loss of at least R596m — far worse than the R338m profit it made the year be­fore. The stock took a beat­ing on the JSE, shed­ding R288m in value — down 13% in two days — as in­vestors ran for the hills.

Such a big loss was al­ways on the cards, af­ter the half-year fig­ures to

De­cem­ber saw it tum­ble to a R338m op­er­at­ing loss, from a R315m profit the year be­fore.

The en­gi­neer­ing and con­struc­tion di­vi­sion is the dunce in the group. At the half-year, it made an op­er­at­ing loss of

R518m. This was partly be­cause it had mis­priced con­tracts, but it also in­cluded ex­tra charges, like a R152.7m li­a­bil­ity to con­trib­ute to the in­dus­try’s R1.5bn vol­un­tary re­build pro­gramme, part of an agree­ment with govern­ment to al­lay com­pe­ti­tion au­thor­ity penal­ties and ac­cel­er­ate trans­for­ma­tion.

By con­trast, the in­ter­na­tional con­ces­sions busi­ness made a R145m profit on much lower rev­enues of just R564m.

This week’s share­holder clash has its roots in an ap­proach ear­lier this year by pri­vate eq­uity com­pany Ethos to buy Group Five’s most prof­itable arm — its con­ces­sions busi­ness, which runs toll op­er­a­tions in places like Poland, Hun­gary and Ire­land. For­mer CEO Eric Ve­mer sup­ported Ethos’s of­fer, but was forced to re­sign by the board.

But the board, led by chair Philisiwe Mthethwa, didn’t put the of­fer to share­hold­ers (ar­gu­ing it was never a bind­ing of­fer) — a move that ran­kled Al­lan Gray, lead­ing it to say it had “lost con­fi­dence in the board”. Mthethwa’s board be­lieved Al­lan Gray wanted Ethos’s of­fer, or an­other “un­bundling”, to go ahead, which is why it ac­cused the as­set man­ager of want­ing to “as­set-strip” Group Five, leav­ing it with the husk of its un­prof­itable build­ing arm.

But Al­lan Gray CIO Andrew Lap­ping de­nied it was push­ing for an un­bundling, say­ing this was “not about strat­egy” but about putting a “skilled and in­de­pen­dent board in place”.

In a let­ter sent to Group Five early in the process, Al­lan Gray said that if Group Five did sell as­sets in fu­ture, any such pro­ceeds should be paid to share­hold­ers, rather than in­vested in the com­pany.

While fix­ing the con­struc­tion busi­ness is a pri­or­ity, Group Five clearly has other wor­ries. For one thing, racial ten­sions hung omi­nously over the share­hold­ers meet­ing.

Mthethwa im­plied

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