A weaker-than-expected performance by construction major Group Five’s engineering and construction division has been offset by an improved performance by its investments and concessions cluster, with underlying projects continuing to deliver strong operating results, the company said on Tuesday.

Noting that the South African construction and engineering market had experienced further delays in contract awards and low volumes of work flow in an industry already impacted by over-capacity, it added that this had
placed pressure on the replenishment of the group’s contracting order book.

Although the construction industry in the group’s targeted geographies and sectors had solid medium- and long-term prospects, short-term conditions were remaining weaker for longer than expected.

“In the first half of this financial year, the group incurred retrenchment and rationalisation costs. This follows additional interventions not originally planned
but which have been necessitated due to further market weakness.

“These factors have negatively affected performance, specifically within the civil engineering segment,” it stated.

Conversely, increasing heavy and light vehicle traffic numbers were enhancing project cash flows in Group Five’s investments and concessions division, which
drove investment performance.

This had led to improved overall financial performance from the European operations.

Its trading performance had been further boosted by improved fair value gains on service concessions as a result of improved project cash flows, reduced project risk premium and the depreciation of the rand against the Euro.

Development profits and gains made on the value of Group Five’s Properties’ project portfolio had also driven up the business’ performance.

“It is pleasing to note that the beneficial contribution of the group’s annuity-type businesses of investment and concessions and manufacturing has mitigated the effects of current continued weakness in the South African construction and engineering market,” the company said.

Tendering activity in the mining and oil and gas sectors was, meanwhile, subdued, which had placed the projects business division under continued pressure.

Although bidding activity in the power sector remained buoyant, revenue and profit for this work was cyclical by nature owing to the length of time taken to achieve contract awards.

The group’s contract loss ratio had improved over the last year, but had not yet reached optimal levels.

“The group is making steady progress in its sector-led African expansion strategy, which leverages off established bases in West, Southern and East Africa, with a particular focus on the energy, transport and real estate markets,” Group Five noted.

Despite suffering declining volumes in the fibre-cement business and a lack of contract awards in the steel pipe water sector, the manufacturing division had performed in line with forecasts.

A continued focus on cost-efficiencies and diversification into a broader range of traded goods had assisted in negating the pressure from decreasing volumes in the South African market.

Group Five would release its interim results on February 15.