Group Five to shed 250 jobs as SA civils market cools

11th February 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Construction and engineering company Group Five planned to shed 250 jobs in its civil engineering division this financial year, said CEO Eric Vemer on Wednesday.

The restructuring would come at a retrenchment cost of more than R25-million.

Vemer spoke at Group Five’s financial results briefing for the six months ended December 31, held in Johannesburg.

The restructuring came as Group Five had to align the size of its civil engineering division to its outlook on the domestic market, noted Vemer.

He said the South African civil engineering market remained subdued, with the tender market highly competitive, punctuated by a lack of large contract awards.

He noted that the company’s local order book was weak, and that it wanted to secure more work, but that the expectation of doing so was low.

Vemer believed a turnaround was feasible should government make a firm commitment to investment based on the National Development Plan, which was “a well thought out plan”, able to “drive a multiplier effect down to our industry”.

The poor performance at Group Five’s civil engineering division largely led to what Vemer on Wednesday called “a very disappointing set of results” for the JSE-listed firm.

Group Five reported a 12% drop in revenue, to R6.9-billion, for the six months ended December 31, compared with the same period in the previous financial year. Net profit was down 33%, to R146-million.

The engineering and construction business, which made up the bulk of Group Five’s revenue, and which included the civil engineering division, saw revenue drop by 14%, to R6-billion, and core operating profit by 66%, to R70-million.

The civil engineering division reported a R44-million loss, with the energy, projects and building and housing divisions all in the black.

Vemer said the decline at the civil engineering division was due largely to losses on a particular contract in the energy sector, as well as restructuring costs.

Group Five’s investments and concessions business reported a 6% increase in revenue for the six months, and a 17% increase in core operating profit.

The manufacturing business saw a 3% drop in revenue, but a 1% gain in core operating profit.

Group Five’s contracting order book stood at R13.3-billion at the end of last year, down from the R14-billion reported at the end of 2013.

Forty-three per cent of the work at the end of 2014 was over-border, and 57% in South Africa.

This is a significant jump in cross-border work for the group. At the end of 2013, 82% of the company’s order book was in the domestic market.

Vemer said Group Five would continue its geographic expansion into the rest of Africa, with dedicated resources deployed to grow the group’s presence on the continent in especially the power, transport and oil and gas sectors.

The company had recently added the three-year, R4.6-billion Kpone project, in Ghana, to its order book.

The company was responsible for the engineering, procurement and construction of a 350 MW combined cycle power plant, similar, but bigger, to what it had completed for Sasol in 2010.

The project would add 10% to Ghana’s power grid capacity.

Group Five had been active in Ghana for more than 15 years.

Vemer expected continued pressure on Group Five for the rest of the financial year. However, he was positive that the company would improve its performance in the 2016 financial year, as restructuring the civil engineering division would have been completed, aided by a more balanced, healthier blend of contracts.

 

Edited by Creamer Media Reporter

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