Construction company Group Five has welcomed the decision of the Competition Commission to refer a collusive tendering case to the Competition Tribunal in respect of the construction of 2010 FIFA World Cup stadiums, with outgoing CEO Mike Upton arguing that the move should offer it an opportunity to “address and clarify” a long outstanding matter.

Nevertheless, the JSE-listed group had set aside a financial provision for a possible fine, without disclosing the size of that provision.

Upton said the referral “was anticipated” after consensus could not be reached between it and the commission on the allegations, notwithstanding “lengthy discussions”. But he also felt the formal process, which was initiated by the commission on November 12, was probably the best route to bring “certainty to shareholders, employees and stakeholders”.

The commission said the stadiums matter had been referred against WBHO Construction, Group Five Construction, Stefanutti Stocks and Basil Read, with Murray & Roberts having been granted leniency.

“We actually advised [the commission] that we thought it might be best if this matter was referred – because then there would be a process where there’s discovery both sides, in terms of evidence, and there is a properly regulated engagement,” Upton explained. “So we actually welcome this. [This matter] has to have closure and we are quite happy to play our role in that discovery process and assessment of what really happened.”

The tribunal was expected to set a date for the case to be heard and could impose a maximum administrative penalty of 10% of the respective turnovers of the companies involved, should they be found guilty of having allocated tenders among themselves and agreeing on profit margins.

Group Five was the first construction company to approach the commission for leniency after an internal 2008/9 investigation unearthed several contraventions of the Competition Act.

Its approach led to the so-called ‘Fast Track Settlement Process’ in 2011, which subsequently resulted in 15 firms reaching settlement agreements with the commission and collectively paying fines of R1.46-billion.

However, Group Five had also been aware that there was a risk that it had not uncovered all of its contraventions and had, thus, made a provision for a possible fine, despite having received leniency for the matters reported.

WEAK SA MARKET

Upton said processes were also under way in parallel in an effort to mend relations with government and to reinforce the importance of the role of the domestic construction industry delivering on the country’s infrastructure programmes.

Group Five was concerned, however, about a markedly weaker civil infrastructure environment, where there had been “very few awards of significance” in the past number of months, despite a higher tender load.

As a result of a weaker performance, the company warned that earnings for the six months ending December 31, 2014, would be more than 20% lower than those achieved in the the comparative interim period to December 31, 2013.

Incoming CEO Eric Vemer indicated that the weakness of the South African market was not yet fully reflected in its order book, where local orders comprised 81% of the total secure contracting order book.

But he pointed out that the backlog had shrunk from R17.1-billion at the end of June to R15.2-billion at the end of September and did not yet reflect the non-South African replenishment efforts, or some major new over-border projects. These developments would change the composition of the order book to reflect a more even balance between domestic and non-South African orders.

For instance, Group Five expected to add the R4-billion Kpone gas-turbine contract, in Ghana, to its backlog in the not-too-distant-future, which could raise West Africa's order-book contribution to 25%. The company had signed the engineering, procurement and construction contract and was expecting to receive a notice to proceed in the first half of its 2015 financial year.

“We will then be looking at about 50% [of our order book being from] South Africa and 50% outside of South Africa and also quite an even blend between our key sectors,” Vemer explained. The company had structured itself to focus on South African and African prospects in the mining, industrial, power oil and gas, water, real estate and transport sectors.

In addition, its Intertoll subsidiary was aiming to expand it Eastern European presence to Turkey, the Balkans and Russia, with a new office having been established in Moscow.

Intertoll plans to pursue roads concession opportunities arising as a result of Russia winning the bid to host the 2018 FIFA World Cup and is showing particular interest in the Moscow–Saint Petersburg toll motorway project. It was also considering prospects in certain US states, where toll projects are being pursued as part of a roads infrastructure modernisation drive.