The momentum of decline in the South African construction environment has finally shown signs of slowing, says construction company Group Five CEO Eric Vemer.

Speaking at the company’s annual results presentation in Johannesburg on Monday, Vemer said the outlook for the market was by no means “rosy, but at least the decline has slowed”.

He said Group Five had noted a positive uptick in its order book during May and June, with June 30 the end of the financial year.

Despite initial signs of the domestic construction market stabilising, it was Group Five’s Engineering & Construction (E&C) business that tripped up the company’s otherwise solid financial results.

Vemer said E&C’s weak performance was further weighed down by a R365-million provision that had to be made for a problematic debtor in the civil engineering business.

He did not want to identify the debtor. He emphasised that Group Five was “pursuing its rights” to recover the debt.

Even without the provision, E&C’s civil engineering unit would have recorded a core operating loss of R16-million.

The four business units of E&C – building and housing, civil engineering, projects and energy – recorded a core operating loss of R237-million for the financial year, down from a R44-million profit in the previous financial year.

Group Five reported a 1% decline in revenue for the 2016 financial year compared with the previous year, to R13.8-billion. Operating profit increased by 97%, to R722-million.

The company’s secured contracting order book dropped from R14.1-billion to R11.2-billion. The secured operations and maintenance order book improved from R4.7-billion to R6.1-billion.

The JSE-listed company was buoyed by a record-breaking performance from its Investments & Concessions business, which saw a 288% jump in core operating profit, to R917-million.

This business, which operates a number of toll road projects in South Africa and abroad, was, in part, supported by the weak rand, said Vemer.

Group Five’s manufacturing business reported an 18% drop in core operating profit, to R56-million.

Within this business, Everite is set to launch a new range of locally made lightweight building materials, under the Hebel brand.

TRANSFORMATION
Group Five had trimmed down its employee numbers from 14 500 employees to 9 300 over the last 18 months, said Vemer, as the company adjusted to a stagnant marketplace.

This, however, has not been the only transformation focus, with Group Five actively targeting the improvement of gender and racial representation with the company.

“We operate within an industry that needs to change,” said Group Five CFO Cristina Teixeira.

Group Five has seen the representation of professional women and women in junior management improve from 11% to 18% from the 2012 financial year to the 2016 financial year, with representation at senior management level improving from 8% to 17%.

Procurement from black-women-owned businesses has increased by 44% over the same period.

African, Indian and Coloured representation has inched up from 30% in the 2015 financial year to 31% in the 2016 financial year; from 28% to 30% on senior management level, and from 30% to 32% on middle management level.

The group has also appointed its first female MD, Bridget Ledwaba, who is now the MD of Intertoll Africa.

Teixeira added that Group Five continued to engage with the Competition Commission on two outstanding matters relating to the commission’s investigation into collusion within the South Africa construction industry.

Group Five declined settling these cases with the commission in a fast-track process following the investigation, owing to what the company had noted earlier were “factual discrepancies and a lack of evidence”.

The matter has been referred to the tribunal, where it currently remains.

Teixeira said it was Group Five’s intent to resolve the matter, and that the company would maintain a “cooperative stance with the authorities to conclude the matter”.

The company also believes that the outcome of the matter is important, as it may set a legal precedent for the South African market on the whole.