Aug 13, 2012
Group Five exits Middle East, targets Africa as it records R230m lossBack
Johannesburg|Tshwane|Eskom|Renewable Energy|Africa|India|South Africa|Transport|Eric Vemer|Mike Upton|Middle East
© Reuse this
It was a year that saw the company attempt to wrap up legacy projects in the Middle East and India, as well as close down a loss-making construction materials division.
When balancing out profit from continuing operations at R223-million and loss from discontinued operations, such as construction materials, at R453-million, the JSE-listed construction group reported a net loss of R230-million for the year, following on from a loss of R159-million in the 2011 financial year.
Recording revenue of R8.78-billion for the year, Group Five’s operating margin dropped from 6.9% in the 2011 financial year, to 3.8% in 2012.
The civil engineering business, part of the construction division, took a heavy beating, at a –1.1% margin. However, should the troubled Middle East projects be stripped from this business’ results, the margin was 5.6%, said Upton, “well in line” with the group’s target of between 4% and 6%.
“The underlying business in South Africa and Africa is very healthy.”
Looking at civil engineering prospects in South Africa, Upton said despite tough conditions remaining, there existed the possibility of improvement. He said tender activity had picked up, but that “pricing was still tight”.
Africa had seen strong growth in the resources and transport sectors, added Upton. The group had also secured 13 new mining construction contracts on the continent in the 2012 financial year, with one power plant contract in progress, and one to start in the 2013 financial year.
Upton believed there was a strong market for the building and operating of assets in Africa, especially in the transport market.
He added that Group Five had pretty much wrapped up work on the Middle East for the foreseeable future, with one active contract remaining.
“We want to drive our Africa plan,” he noted, not only for civils, but also for the rest of the group.
Around 57% of Group Five’s current R4.4-billion civil engineering order book was outside South Africa, with 99% of this in Africa, said Upton.
In the building and housing business, 5% of projects were outside South Africa, with the projects business, also part of the construction division, at 63% over-border activity, with Upton aiming to take this to 75%.
Group Five’s one-year construction order book was at R8.39-billion at the end of the 2012 financial year, which was 117% of its 2012 revenue.
Total order book was at R11.3-billion, with 62% of this in South Africa, and the remaining work spread across Africa. Around 23% of the order book was in the real estate sector, and 24% in the transport market.
At 38% of total order book cross-border, up from 30% in June 2011, the aim was to reach 40% soon, said Upton.
A new category of order book for Group Five, presented on Monday, was a multiyear operations and maintenance order book, which stood at R4.85-billion for the year ended June 30.
Upton said the group expected to increase this annuity type revenue stream through the addition of power and service accommodation projects.
When considering the 2013 financial year, Upton expected an improved performance from the company.
Group Five currently employed some 10 400 people, down from a peak of 14 000 during the construction boom four years ago.
Patience Required For Renewable Energy, PPP Projects
South Africa’s R100-billion Renewable Energy Independent Power Producer Programme (REIPPP), as well as government’s public-private partnership (PPP) drive, was not delivering results quite as quickly as one would hope, indicated Group Five on Monday.
There were still “some frustrations” on South Africa’s PPP and REIPPP projects, especially in terms of the time it was taking, but Group Five was “not negative” said Upton.
Through the REIPPP, the Department of Energy aimed to procure 3 725 MW of capacity, which could be introduced into South Africa’s power generation mix between 2014 and 2016.
The department said in July that the schedule and capacity allocation for the third bid window under the REIPPP would be confirmed soon, despite the delay to finalise the 28 window-one projects.
Upton told Engineering News Online that the REIPPP process appeared to be bogged down by its complex nature, requiring the input of a multitude of stakeholders, such as the Department of Energy, Eskom, Treasury and many others.
Each project was also unique in terms of technology, structure and funding, added Upton.
“We were told that the first project would be signed in late August.”
The PPP process was facing a similar complexity delay, noted head of Group Five’s investments and concessions division, Eric Vemer.
Group Five was the preferred bidder to provide serviced head quarters to the City of Tshwane and the Department of Rural Development and Land Reform (DRDLR).
“We have to align the interests of a number of parties,” noted Vemer.
While the parties were “best aligned” on the DRDLR project, achieving the same on the City of Tshwane project was proving a difficult task, he added.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines
Recent Research Reports
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 Report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
Projects in Progress - Second Edition (PDF Report)
Creamer Media’s second Projects in Progress supplement considers some of the major project developments under way, including high-profile energy and transport projects, as well as a few of the lower-profile public and private developments. What remains apparent is...
Water 2013: A review of South Africa’s water sector (PDF Report)
Creamer Media’s Water 2013 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Canadian Mining Roundup for June 2013 (PDF Report)
The June 2013 roundup includes details of the development of TSX-V-listed Aldridge Minerals’ flagship Yenipazar polymetallic project, in Turkey; the Canadian Nuclear Safety Commission’s renewal of Cameco’s uranium mining licence pertaining to the Cigar Lake...
This Week's Magazine
Mitsubishi Motors South Africa (MMSA) has introduced a 4x2 derivative of its Pajero Sport sports-utility vehicle (SUV), which will give it access to a substantial slice of the full-size SUV market, where it will compete with the likes of the Ford Everest, Chevrolet...
South African Energy Minister Ben Martins has affirmed that the government wants the country to be globally competitive in the nuclear sector. "Our responsibility has always been ... to ensure that, in nuclear energy, South Africa can compete with the rest of the...
Mercedes-Benz South Africa (MBSA) president and CEO Dr Martin Zimmermann describes the new S-Class as “a special place to be”, with the car creating a sense of “wellness” once you are seated inside the German brand’s flagship model. It is difficult to argue...
Water scarcity and water-quality issues are broadly recognised and understood in most political, business and civil organisations in South Africa, but solving water issues will require wide and continuous action in catchments and municipalities by organisations and...
Work is well under way on the R212-million Imvutshane dam, 30 km north-west of Stanger, in KwaZulu-Natal, which is a key link in supplying people in rural Maphumulo with a reliable source of safe drinking water.