Group Five CEO Eric Vemer
Photo by: Duane Daws
Group Five on Monday announced a 5% increase in revenue, to R7.26-billion, for the six months ended December 31, compared with the same period in 2014, with operating profit up 41%, to R289-million.
Speaking at the results announcement in Johannesburg, CEO Eric Vemer attributed the improvement to the “excellent performance” from Group Five’s Investment and Concessions business, while the Engineering and Construction business continued “to disappoint” in a “very challenging South African environment”.
The Manufacturing business also struggled “in difficult markets”.
All in all, the South African market was tougher than the group anticipated six months ago, noted Vemer.
Sizeable projects were scarce in the highly competitive, low-margin civil engineering market, while mining and industrial markets were set to remain weak.
The South African construction sector was in dire need of the large project rollout promised in the National Development Plan, said Vemer.
In the building and housing market there was increased competition from a number of medium-sized competitors, while rising interest rates would impact on the market.
Manufacturing faced flat to shrinking markets, substantial margin pressure and strong import competition.
Group Five’s Investment and Concessions business, however, provided the company with quite a solid buffer against the gloom of the local market. The business benefited from a number of toll road projects in Africa and Europe, with two new long-term European projects secured in Hungary and Northern Ireland.
Core operating profit at the unit improved from R104-million to R227-million.
The Engineering and Construction business saw a 14% drop in core operating profit, to R60-million. Within this business the only loss-maker was the civil engineering unit, which was R17-million in the red.
Vemer was positive that this unit would reach break-even point in the second half of the financial year.
Group Five’s Manufacturing business recorded a 33% drop in core operating profit, to R28-million.
Within this business, Group Five’s steel pipe operation faced strain, with its plant on care and maintenance as it had an “almost zero order book”, said Vemer.
This had meant job cuts at this operation, with the civil engineering unit continuing to face the same fate.
Group Five had cut 2 500 jobs in its civils unit since January last year, with most of these contract employees. The number also included permanent staff, and staff at the unit's head office.
Further retrenchments were expected this year.
Group Five’s order books perhaps best tell the story of the dual markets the company currently faced.
The group’s secured operations and maintenance order book increased from R4.7-billion on June 30 last year, to R5.8-billion at the end of 2015.
However, the company’s contracting order book had declined from R14.1-billion to R11.8-billion.
The order book pressure is the highest in the civils and projects businesses, said Vemer.
He added that Group Five expected order book growth in the remainder of the financial year to be low to negative.