Construction slowdown hits Group Five

Posted On Thursday, 07 July 2011 02:00 Published by Commercial Property News
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Construction group Group Five revealed on Tuesday that fully diluted headline earnings per share for the full year ended 30 June 2011 are expected to be between 45% and 55% lower (253c per share to 309c per share) compared to the 561c per share in F2010

Mike Upton Group FiveIn a trading update, the group said that the slowdown within the construction sector in the last two years following the global market crisis had worsened trading conditions in the construction and materials markets in which Group Five operated.

"This has negatively impacted performance in the current year as the group still benefited in the 2010 financial year from the majority of large public sector contracts awarded ahead of the World Cup. In the interim, to mitigate this environment to some extent, the group has successfully re-entered targeted African markets where it has an established track record,"  the group stated.

As a result, headline earnings per share (HEPS) are also expected to be between 45% and 55% lower (277c per share to 338c per share) compared to the 614c per share in F2010, while fully diluted earnings per share (FDEPS) will be between 195% and 205% lower (loss of 243c per share to loss of 269c per share) compared to the 256c per share in F2010

Earnings per share (EPS) will be between 190% and 200% lower (loss of 252 cents per share to loss of 280c per share) compared to the EPS of 280c per share in F2010.

"As outlined in the interim results, an impairment of the group's long-term assets held by the Construction Materials cluster was recorded due to the severity of the materials market deterioration and weaker forecasts. This impairment remains the material difference between earnings and headline earnings.

"In addition, in the second half of the financial year under review, the group incurred a number of once-off costs which negatively affected headline earnings. These costs are operational in nature and when combined, they had an effect on the full year's results, these costs include:

 - Planned restructuring and rationalisation costs within the Construction Materials cluster, as outlined in the Group's interim results

 - Holding costs in the Middle East following the market downturn,   including:

 - Resources focused specifically on regional business development and the successful progressive commercial and financial close of legacy contracts in Dubai.

 - The time discounting effect of reflecting the present value of the unchanged certified debt on one of the Group's previously reported cancelled contracts. We have received cash flow in line with the signed payment plan agreed with our client.

 - Costs for corrective action that was successfully implemented on a Jordanian pipeline contract.

 - Steel supply loss on one, near complete, joint venture contract in manufacturing."

Save for the abovementioned costs and the effects of worsened trading conditions in manufacturing, the group said that the rest of its businesses had performed in line with guidance issued at the last reporting period.

"In spite of sluggish domestic concessions and PPP activities and the economic pressures in Europe, Investments and Concessions remained stable as new tolling contracts came on line in Eastern Europe and South Africa.

"Manufacturing and Construction Materials suffered from a combination of declining volumes, delayed contract awards, a strong rand and pricing pressures. Encouragingly, there have been early signs of price and volume stability returning to the Construction Materials market in the last few months.

"With the exception of the Middle East, as discussed above, the Group's largest segment, Construction, held up well, based on good contract execution and the benefit of a number of longer term and some African contracts that were strategically secured in previous periods," Group Five said.

It added that the South African construction and engineering market had seen further contract award delays and limited work flow into an industry that was already carrying significant over-capacity. The tender work that was taking place was heavily contested by large and small contractors with extremely aggressive pricing.

"Emphasis on a larger geographical footprint for more of the Group's business units and achieving early wins in the re-emergence of the mining and energy markets in Africa remains the strategy to reduce the reliance on weak domestic markets.

"The construction industry in the Group's targeted geographies and sectors has solid medium and long term prospects, but in the short term, conditions are worse than envisaged. This weakness is expected to extend for longer, with a slow rate of a broader market recovery materialising from the second half of F2012 which will inform trading performance for F2013," the group added.

The Group's audited results for the full year ended 30th June 2011 will be released on SENS on 15thAugust 2011, when the Group will be updating the market on its business at a presentation in Johannesburg on the same day, and in Cape Town on 16th August 2011.

Publisher: I-Net Bridge
Source: I-Net Bridge

Last modified on Thursday, 27 June 2013 23:52

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