Group Five falls on lower fore­cast

The Star Early Edition - - BUSINESS REPORT - Roy Cokayne

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.

Eric Ve­mer, the chief ex­ec­u­tive des­ig­nate, says that the company’s se­cured con­tract­ing or­der book has de­clined.

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