UNDER PRESSURE
Retrenchments and loss-making contract in Eastern Cape dents Group Five’s earnings
GROUP Five retrenched 2 600 employees in its financial year to June, resulting in the workforce in its civil engineering cluster now being almost half of what it was a year ago.
The group said 232 of these retrenchments were permanent employees with the rest limited-duration contract jobs.
The cuts followed a loss of R224 million on a power plant contract in the Eastern Cape.
This resulted in the core operating profit of the company’s engineering and construction segment plunging by 88 percent to R44m in the year to June and its revenue sliding by 12 percent to R11.87bn.
Costly cuts
Group Five financial director Cristina Teixeira said yesterday that the retrenchments cost the group R38m.
Teixeira said excluding the retrenchment costs and the R106m contribution of the construction and engineering segment to the total loss of R224m on the Eastern Cape contract, the underlying profit margin of this segment was 1.8 percent, which showed it “was still under strain”.
The loss on this contract also dented the performance of Group Five’s projects business segment, which underperformed due to the R117m loss it incurred on this contract.
The impact of the loss-making Eastern Cape contract dragged down the overall financial performance of Group Five in the year to June.
Fully diluted headline earnings a share slumped by 49 percent to 204c. Revenue declined by 10 percent to R13.9bn.
Operating profit dropped by 43 percent to R366.5m.
Group Five chief executive Eric Vemer said yesterday this was certainly not a set of results the group was proud of.
“If the tide was going out, let this be the low tide and this is as much as you will see that the tide has gone out,” he said.
Vemer said the highlight in the financial performance for the year was the investment and concessions team, which generated solid and improved results that were principally driven by the performance of their concessions operations in eastern Europe.
The total dividend a share for the year was 45 percent lower at 55c.
The total order book increased 10 percent to R18.8bn.
Tribunal
Teixeira said two of the four Competition Commission cases pending against the group had been dropped during the financial year because of insufficient evidence obtained by the commission to prove anticompetitive behaviour.
These are for the New Sendzimir cold rolling mill tender and the Tamboti tender for the construction of housing units at Simbithi Estates.
The commission has referred to the Competition Tribunal the two remaining cases against Group Five related to collusive tendering with Wilson Bayly Holmes-Ovcon, Murray & Roberts, Stefanutti Stocks and Basil Read for the construction of the 2010 World Cup stadiums and a tender for the rehabilitation of the national road near Senekal in the Free State.
Teixeira said the group was waiting to hear from the Competition Tribunal about its next steps and had looked at the provision required for those two contracts but had left the provision unchanged.
Danilo Pagani, an analyst at Imara SP Reid, said the downscaling of Group Five’s construction and engineering operation was in response to an oversupply problem in that market because the construction and infrastructure growth that was expected in the country had not materialised.
Pagani expected the local construction and infrastructure market to remain the same in the short term, with margins to remain under competitive pressure and constrained.
Group Five shares rose 3.57 percent yesterday to close at R21.75.