Group Five profit drops 43%
Group Five’s profitability plummeted in the year to June as its engineering and construction cluster underperformed.
|||Johannesburg - Group Five’s profitability plummeted in the year to June as its engineering and construction cluster underperformed, with internal issues in its civil engineering segment being the leading cause of the underperformance.
In its results commentary issued on Monday, the construction group says revenue dropped 10 percent to R19.3 billion, leading to an operating profit slump of 43 percent to R366.5 million. As a result, its fully diluted headline earnings per share declined 49 percent to 204 cents per share, and earnings per share dropped 45 percent to 222 cents per share.
These declines are despite its total order book gaining 10 percent to R18.8 billion.
Group Five explains its disappointing results were because of further material losses incurred on a contract in the Eastern Cape that impacted both the civil engineering and projects segments.
This contract, which was previously flagged as “problematic”, has been the subject of remedial interventions, which the listed company says “substantially curtailed further material losses on the civil engineering segment scope.
However, Group Five adds the full impact on costs to completion of the projects segment scope could only be fully quantified in the second half of the financial year. It notes it has placed additional “senior and highly experienced employees” on the contract tto make sure the deal is wrapped up by the end of the 2016 first half.
Among other factors that weighed on Group Five’s results were the retrenchment and holding costs linked to its right sizing its civil engineering segment, it said.
Group Five said in February it aimed to retrench about 250 of its employees and incur retrenchment costs of about R25 million in the year to June.
The company also battled weak performance in its energy segment, which was caused by a delay of new contract start-ups and lower revenues and finalisation costs at completion of certain contracts, which impacted the first half of the year
Group Five says it has taken action, including measures to increase the operating team’s responsibility, accountability and consequences for poor delivery.
“Whilst a weak South African market exacerbated the poor performance, management acknowledge that a large part of the under-delivery was due to internal execution issues, specifically in the civil engineering segment.
“Management has acted promptly in restructuring and rightsizing this segment. The business is now more competitively placed to secure a reasonable share of available work, as well as being sized appropriately to the anticipated future market demand,” it says.
These actions will flow positively from next year, it adds.
Despite the challenges, Group Five says its balance sheet is sound, as it has a nil net gearing ratio and increased the bank and cash balance to R3.4 billion from R2.9 billion a year ago. It generated R425.1 million in cash from operations before working capital, this is down from last year’s R902.7 million.
Group Five declared a dividend of 25c a share, taking the total dividend to 55c, down from last year’s 100c.
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