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

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