Group Five CEO Eric Vemer unexpectedly announced his resignation at the JSE-listed group’s interim results presentation and, days later, Themba Mosai was named interim CEO. Vemer took over from Mike Upton on December 1, 2014, and spent less than three years at the helm of the contractor. Mosai, meanwhile, has been at Group Five for almost 13 years and has been a member of the executive committee since 2014.
Speaking at the presentation of Group Five’s financial results for the six months ended December 31, in Johannesburg, Vemer noted that Group Five Engineering & Construction (E&C) executive director Willie Zeelie would also leave the company. His last day at the office would be March 31, with Mark Humphreys, current E&C COO, appointed the new head of the E&C business.
Vemer announced a “very challenging” set of numbers, with group revenue falling to R5.83-billion in the six months ended December 31, down from the R7.26-billion reported in the same period in 2015.
The group also reported an operating loss of R343-million, following a poor performance by the E&C business. The group reported a R289-million operating profit in the six months ended December 31, 2015.
The E&C business was impacted on by the group’s R255-million contribution in terms of the October 2016 settlement agreement reached with government – following a collusion investigation into the local construction sector – to a fund set up to accelerate transformation within the South African construction industry.
Although payment will occur over a 12-year period, the total liability has to be recorded in the current reporting period. This means that R152.7-million, reflecting the net present value of the liability, was charged in full against earnings in this reporting period.
The commercial close-out and final settlement of a dispute with Transnet on its new multiproducts pipeline (NMMP) negatively impacted on E&C’s operating profit by a further R244-million.
Vemer said Group Five elected to settle the matter, instead of pursuing it in what could have been a costly, protracted legal battle.
Apart from the impact of these two transactions, there was also a reduction in profitability of R172-million in the underlying E&C operations.
Vemer noted that a number of the members of senior management had faced sanctions over the performance of the projects and civil engineering divisions in the E&C business, owing to matters such as weak site supervision and project management.
Stripping out the effects of the NMMP deal and government’s settlement agreement with seven of South Africa’s listed construction groups, E&C’s building and housing division showed a R23-million profit, civil engineering a R49-million loss, projects a R106-million loss, and the energy division a R12-million profit.
Group Five’s Investments & Concessions business reported a 36% drop in core operating profit to R145-million for the six months under review. Manufacturing increased its core operating profit by 25% to R35-million in a “very challenging market”, said Vemer.
Looking ahead to the second half of the financial year, he noted the E&C’s civil engineering division was expected to show a loss similar to the first half. The projects division would still show a loss, but at an improved level on the numbers reported for the first half of the year.
Building and housing and energy would both remain profitable, said Vemer.
Group Five’s operations and maintenance order book totalled R6.05-billion as at December 31, 2016, flat compared with the six months to June 30, 2016.
The company’s secured contracting order book fell to R9.6-billion, down 15% on the R11.2-billion recorded on June 30, 2016.
As part of the settlement agreement reached with government, construction firms are also required to select either developing emerging contractors or to dispose of a minimum of 40% of their economic interest.
Group Five’s board had opted to conclude a black-economic-empowerment transaction, said Vemer.
The deadline for the completion of the transaction is 2018, following shareholder approval.