Challenges at Group Five to keep operating profitably in harsh market

image
JOHANNESBURG – Listed Group Five reports that it remains challenging to operate profitably in the South African construction environment because of the prevailing harsh market conditions despite the group’s cost reduction initiatives.

Group Five reported in April this year, when it released its interim financial results, that it had embarked on a drastic restructuring and reorganisation that had resulted in the retrenchment of 420 senior employees in an aggressive overhead reduction exercise.

But the group added yesterday that “further interventions” were being implemented as required.

It said that its rest of Africa construction business had now been sustainably restructured.

Group Five reported that its investment and concession cluster had secured the early works contract for the Department of Rural Development and Land Affairs’ public private partnership (PPP) after several years of delays.

It said the early works contract would be executed by the group’s construction cluster.

“The awarding of the enabling works represents significant progress towards closing this PPP project and the department’s commitment to finalise this by the end of 2018.

“The PPP project encompasses the design, construct, finance and operation of office accommodation for the department for the 25-year concession period,” it said.

Group Five said the structural interventions outlined in its interim results were progressing as planned and in line with this, it continued with significant cost-cutting initiatives.

To this end, a relevant efficiency intervention committed to in April was to move to more cost effective offices.

The group said that its South African construction operations had been relocated to Spartan in owner-occupied premises, while its rest of Africa construction operations were now located in Boksburg and using an existing rental agreement.

The corporate office and investment and concessions operations had been relocated to offices in Sunninghill, which were managed by listed Attacq.

Its previous corporate head office in the Waterfall Business Estate was also managed by Attacq.

Group Five added that it continued to evaluate alternative funding options to recapitalise it, including a possible equity raise to settle the R650million bridge funding deal for 12 months concluded with a consortium of local banks.

It also reported a further delay in the completion of the $410m independent gas- and oil-fired combined-cycle power plant contract in Kpone in Ghana, where the group was exposed to possible delay penalties of up to $62.4m (R854.91m). It reported in April that it expected to complete the Kpone contract last month.

However, Group Five said yesterday that some commissioning delays had extended the completion date to the end of this month, but stressed the additional cost to complete the contract was not material.

“Even against any further potential delays, the gross maximum delay penalty exposure remains capped at $62.5m.

“This amount does not reflect the counter, or other, claims the group is legally entitled to. Against these possible penalties, the group continues to progress its own contractual claims,” it said.

Commenting on its manufacturing cluster, the group said that following the successful completion of the R80m sales of Group Five Pipe, it was focusing on the sale of the remaining of the manufacturing cluster.

“Progress is being made in line with the disposal plan,” it said.

Shares in Group Five closed unchanged on the JSE yesterday at R1.34.

– BUSINESS REPORT 

Source: iol.co.za