Construction World

Group Five’s results for the year to 30 June 2017 were materially below expectations, with an operating loss compared to a profit in the prior year.

The main reasons for the loss were:

R159,1 million

The recognition of the group’s financial socio-economic contribution of the Voluntary Rebuild Programme (VRP) with the government of South Africa.

R244 million

The commercial close out and final settlement of the long-outstanding Transnet

New Multi Product Pipeline (NMPP) contracts.

R40,5 million

Additional restructuring costs.

R470 million

A reduction in profitability from the underlying

Engineering & Construction segments against guidance.

 

The group’s Manufacturing cluster delivered a strong result in markets that further contracted. Although the Investments & Concessions cluster continued to perform well on the back of a solid performance by the European operations, the cluster’s results were impacted by an unexpected claim at Intertoll Africa as a result of an undetected overpayment to the group over several years by a key client based on an error from the client’s consulting engineer.

The CEO Themba Mosai, who was appointed as the permanent CEO in May, said: “We are conscious that our financial performance has been weak. As a group we have not executed fast and efficiently enough on our strategy against deteriorating market conditions.

It is important that the group is structured to respond more effectively to the changing market dynamics.

“We have implemented cost-cutting initiatives for the last few years, but with the continued market decline we had to make a number of additional difficult decisions this year. We implemented the restructuring of the group started last year to create an efficient organisation in response to the market. This, unfortunately, resulted in further retrenchments.

“Since my appointment, I have concentrated on the three key issues of execution, people and processes. We have reduced the size of our group and de-layered our operations to become leaner and faster, with a strong emphasis on transparency in all our major risk areas. This allows us to move resources to where it is most needed as the markets dictate. New real-time site systems will also allow us to become aware of issues earlier in the process.”

Looking forward, Mosai said: “It is vital to implement actions that will unlock value from our assets and improve returns to shareholders. Our restructured operations and continued improvement of the execution of our contracts will result in more focused businesses with appropriate resources and cost bases relevant to the regions and service offerings provided. The board and management will also review the most optimal structure for the group going forward to ensure we enhance shareholder value.

“We are clear on our deliverables. In the coming year, we will concentrate on turning this group around from the crises of the year to a more stable footing that will allow us to create sustained growth.”

The group’s total secured Engineering & Construction contracting order book stands at R8,7 billion (December 2016: R9,6 billion, June 2016: R11,2 billion). In addition, the group has R5,8 billion in secured operations and maintenance contracts (December 2016: R6,1 billion, June 2016: R6,1 billion). The overall group reported order book at June 2017 therefore stands at R14,5 billion (December 2016: R15,7 billion, June 2016: R17,3 billion).

The value of the group’s target opportunity pipeline stands at R151 billion, with R84 billion of this pipeline currently in tender and pre-tender stage. This is slightly lower than the R193 billion pipeline and R97 billion tender and pre-tender pipeline reported in December 2016 due to a refinement of target contracts. The pipeline indicates ongoing strong demand in power and transport, with continued activity in real estate and an improving mining and industrial sector.

 

Contact Construction World

Title: Editor
Name: Wilhelm du Plessis
Email: constr@crown.co.za
Phone: +27 11 622-4770
Fax: +27 11 615-6108

Title: Advertising Manager
Name: Erna Oosthuizen
Email: ernao@crown.co.za
Phone: +27 11 622-4770
Fax: +27 11 615-6108

 
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