Group Five will focus on its Developments & Investments (D&I) and Operations & Maintenance (O&M) businesses going forward, with a “de-emphasis” on the Construction and Engineer, Procure and Construct (EPC) businesses.

This “de-emphasis” did not mean Group Five was walking away from construction, said Group CEO Themba Mosai as he announced the company’s annual results in Johannesburg on Tuesday.

“De-emphasis is maybe a strong word. It is more of a focus on D&I and O&M – on developments, investments and concessions. What we have done is to increase the barriers to projects in the construction space. Where we previously accepted projects with a 5% margin, we have increased that.”

Mosai said Group Five was still seeking to sell a significant percentage of its South Africa construction business to an empowered shareholder, as per the Voluntary Rebuilding Programme (VRP) signed with government, but only once the construction business has been stabilised.

“We may fold the Rest of Africa Construction business into this deal. We don’t know how the cookie crumbles yet.”

The VRP agreement was signed between government and seven large construction companies last year, following the companies admitting in settlement agreements with the Competition Commission to engaging in collusion and price fixing.

Group Five’s D&I and O&M businesses will include Intertoll Europe and Africa and G5 Properties, and will focus on four infrastructure pillars, namely roads, water, power and real estate.

This means Group Five will become a significantly smaller company than it was a few years ago.

An effort to right-size the company and to improve liquidity had seen Group Five shed 1 000 jobs year-on-year, of which 600 jobs were permanent positions, noted Group Five CFO Cristina Teixeira.

Total headcount has been reduced to about 7 300 people. More retrenchments are expected. In 2010, Group Five employed almost 12 500 people.

The company had also, in recent months, suffered a blow to its reputation and brand, which had a direct impact on costs – most notably an increase in the cost of doing business, acknowledged Teixeira.

Group Five on Tuesday reported a 26.2% decline in revenue to R7.34-billion for the year ended June 20, compared with R9.95-billion in the prior year.

The operating loss widened to R1.43-billion, almost double the previous financial year’s R718-million.

The main reasons for the significant loss included delayed contracts or contracts not materialising as a result of tough market conditions, as well as the cost of retrenchments, said Mosai.

The company’s biggest headache, however, remains the Kpone energy project, with losses on this large contract in Ghana continuing to drag down the whole group.

For the 2018 financial year the loss on Kpone amounted to R1.3-billion.

To put this in perspective, when Group Five secured this project in 2014, it was valued at R4-billion.

A new date of completion has been set for the end of October.

With a number of negatives weighing heavily on Group Five, cashflow remains an issue, with the board approving a partial disposal of its investment in service concessions assets in Eastern Europe, held through the group’s joint venture investment with Aberdeen in Intertoll Capital Partners.

Group Five expects to reduce its current 50% investment to 10%.

The proceeds from this disposal will be used to settle the company’s short-term bridge funding.

Group Five’s total secured Construction and EPC contracting order book stood at R6.4-billion at the end of June, down from R8.7-billion at the same time in 2017, and R11.2-billion in 2016.

In addition, the group has R4.8-billion in secured operations and maintenance contracts, compared with R5.8-billion in 2017 and R6.1-billion in 2016.

Teixeira Resigns
Teixeira on October 1 resigned from her position as Group Five CFO.

She will depart the group on December 15.

Mosai on Tuesday thanked the highly respected Teixeira for “her invaluable contribution and dedication during her 16 years at Group Five, which included eight years on the board.

“Cristina has been instrumental in managing the group through extremely volatile conditions over the years, with this past year being particularly challenging.

“She spearheaded the procurement of the bridge finance facility during the first half of the year under very trying circumstances”.