Group Five falls on lower forecast
SHARES in Group Five dropped by more than 17 percent yesterday to close at R28.91 after the listed construction and engineering group reported that its profits for the six months to December would be more than 20 percent lower than in the previous corresponding period.
The group’s shares closed at R35 on Friday. It was Group Five’s biggest decline in 14 years.
It reported earnings a share of 200c and headline earnings a share of 204c in the six months to December last year.
Group Five attributed the slump in profits to a weaker performance by its civil engineering and construction segments and a restructuring and rationalisation process.
It said the restructuring and rationalisation process was necessary because of a lack of awards in the current period and the group’s focus on not pursuing high levels of revenue with current low market related margins.
The group said the restructuring and rationalisation process had added costs to the current financial year, which had diluted its previous guidance on its margin range.
It said retrenchment costs would be incurred in both the first and second half of its 2015 financial year.
Group Five expects to publish its interim financial results on February 11.
Eric Vemer, the chief executive designate of the group, said the secured contracting order book had declined to R10.76 billion in September from R12.5bn in June and R14bn in December last year.
Vemer said the group’s order book was indicative that markets were tight and there was not much new work coming through, adding the order intake on the civils side had been particularly low.
Meanwhile, the group yesterday reported that it was expanding its geographic reach and had opened an office for its Intertoll tolling business in Russia and was considering projects in one or two states in the US.
Vemer said its successful Intertoll business in Eastern Europe had been driven by its Polish and Hungarian businesses, but there was a programme of significant investment in private roads in Russia.
He said the catalyst for the roads programme in Russia was their hosting of the 2018 Fifa World Cup and Intertoll had opened an office in Moscow this year and it was participating in a number of key road projects.
“We have bid previously with partners in Russia and so the turf is familiar to us and we are now going through the process of pre-qualification on the roads projects coming in Russia,” he said.
Vemer said the group’s Russian company was held through a Dutch holding entity. He stressed that it complied with the EU sanction stipulations against Russia and was operating to the right governance principles.
He said elsewhere in Eastern Europe, there was a particular project in Bosnia and Herzegovina and a few projects in Slovakia that it was targeting.
“We have bid in these mar- kets and won projects previously in these markets. We are comfortable to extend our geographic reach into these regions and see that delivering a good opportunity for new projects within the next two to three years,” he said.
Vemer said they were also investigating entering the North American market but only for the Intertoll business.
“We see our geographic expansion in Africa and Eastern Europe and for Intertoll possibly in one or two of the states in North America,” he said.
Vemer said Intertoll’s entry into the US market had been prompted by a substantial roads development investment programme in the US and approaches by its partners in Europe for Intertoll to possibly bring in the operating expertise and special purpose vehicle expertise in the development of these projects.