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Mar 04, 2010

Group Five seeks more work abroad, in private sector

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Group Five CEO Mike Upton discusses the company's prospects (04/03/10) Cameraperson: Nicholas Boyd; editing: Darlene Creamer
Africa|South Africa|Energy Sectors|Mining|Transport|Mike Upton|Ricoh R10 Digital Camera|Middle East
africa|south-africa|energy-sectors|mining|transport-industry-term|mike-upton|ricoh-r10-digital-camera|middle-east
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Group Five was seeking a return to a “nice mix of public and private work such as before the super-boom”, said CEO Mike Upton on Thursday as he announced the company’s results for the six months ended December 31.

He was also in favour of procuring more work abroad.

Upton said this was driven by the fact that there had been a slowdown in the South African public infrastructure sector, punctuated by a 12-month hiatus in public utility contract awards.

He said several factors conspired to make this hiatus happen, including last year’s election, a new administration taking office, an erosion of the tax base, a global recession, an inherent lack of capacity in government departments to execute projects, as well as the fact that parastatals had to raise their own debt financing in a difficult market.

This all meant that the public sector was “not such as big theme” for Group Five as 12 or 18 months ago, said Upton.

Instead, the group was focusing on growth opportunities in the Middle East, and in Africa’s mining and energy sectors, including South Africa’s burgeoning private power sector.

However, Upton added that the South African government’s water, power and transport sectors were still big spenders.

He noted that the company’s civil engineering order book constituted 61% local business by the end of August 2009, but that it had now shifted to 48% by February this year.

Also, by February, around 62% of Group Five’s full order book was local public sector work, down from 80% in August 2009. Cross-border work was at 25% of order book, which Upton wanted closer to 40%.

The group’s order book was at R10,5-billion in February, down from R11,5-billion in August.

When considering a pipeline of possible projects across all sectors, Upton said the group could secure around R36-billion of work in a multiyear pipeline valued at R116-billion, which would translate into a base-load of work at R10-billion a year.

Group Five recorded a 4% drop in revenue to R5,7-billion for the six months ended December 31 compared with the same period in the previous financial year.

Operating profit was up 6% to R399-million, fully diluted headline earnings a share increased by 8%, with operating margin up from 6,3% to 7%.

Upton believed it was possible for the group to protect its margin through tackling larger multidisciplinary projects requiring design and project management capabilities, further cost savings, a further reduction in loss-making projects, and greater international exposure, as international projects carried higher margins than local projects.

Edited by: Creamer Media Reporter
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