Group Five widens restructuring
SOUTH African builder Group Five is to sell its manufacturing arm and exit some construction businesses as part of a further restructuring to address a slump in its home market.
South Africa’s construction industry has slowed sharply since the 2010 Fifa World Cup, with few major infrastructure projects awarded and those that have been approved at risk of being curtailed by fiscal strains.
As a result, construction firms such as Group Five, Aveng, Basil Read and Murray and Roberts are exiting non-core and loss-making construction businesses as they try to adjust to changing market conditions.
“All clusters and businesses have been reviewed and evaluated against certain criteria to determine their alignment with the group’s revised strategy,” Group Five group chief executive Themba Mosai said.
“Those businesses that have a high probability of meeting or exceeding the group’s targeted return on capital will be retained.”
The group said it was evaluating multiple expressions of interest for its manufacturing business, which makes building materials, and would sell it because it was a non-core operation.
The latest restructuring comes after Group Five said in May that it had cut jobs and split up its loss-making engineering and construction division.
That was followed by a board overhaul in July.
In construction, Group Five said it would migrate to smaller, streamlined businesses, focusing only on those that have competitive advantages in target client groups.
South Africa’s scope to invest in infrastructure has been curbed by weak public finances due to sluggish economic growth, revenue shortfalls and costly bailouts of state-owned companies.
Group Five, citing expected further downgrades of South Africa’s credit rating, which would push up government borrowing costs again, and the government’s slow and low infrastructure spending, said its traditional construction businesses were finding it challenging to secure sufficient levels of revenue to remain profitable.
“The group has concluded that it will exit construction businesses, which the group does not see the potential to turn around on a sustainable basis and which are not core to the revised strategy,” the company said.
These businesses would either be sold or closed, reducing the group’s overheads, it said.
Competitor Murray and Roberts sold its infrastructure and building business last year as part of an ongoing drive to focus on the natural resources sector. – Reuters