Construction boosts Group Five income

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15 Feb 2013

Johannesburg Stock Exchange listed company Group Five says construction continued to be the largest cluster in the group contributing 75.5 percent to group revenue (H1 F2012: 73.9 percent).

Johannesburg Stock Exchange listed company Group Five says construction continued to be the largest cluster in the group contributing 75.5 percent to group revenue (H1 F2012: 73.9 percent).

In the presentation of the Group’s Interim Results for the six months ended 31 December 2012, Mike Upton, chief executive officer, says construction revenue increased by 18.5 percent from R3.3 billion to R3.9 billion.

Core operating profit increased by 24.9 percent from R111.3 million to R139.1 million and the overall construction core operating profit margin percentage was 3.6 percent (H1 F2012: 3.4 percent).

He says over-border work contributed 37 percent (H1 F2012: 29 percent) to construction revenues.

“Construction performance was impacted somewhat by end-of contract close out losses in the Middle East.

“The group purposefully continued to carry costs related to its investment in future opportunities and capacity building in local and new over-border transport and real estate Private Public Partnerships (PPP), as well as geographic expansion,” he explains.

Upton points out that the private building sector remains extremely weak, although the group has seen an increase in the volume of work coming to the South African market.

“Operating margins have not worsened, but remain thin.”

He explains that building and housing managed to partially mitigate this impact through the contribution of selected public sector building contracts, an improvement in the housing business, as well as improved execution and supply chain savings.

“However, as guided in November 2012, this was not sufficient to prevent a decrease in operating margins,” he says.

Building and housing revenue increased by 16.4 percent from R1.3 billion (80 percent local) to R1.5 billion (91 percent local).

The segment reported a 9.2 percent decrease in core operating profit from the prior comparable period, from R33.4 million to R30.3 million resulting in the overall core operating margin percentage decreasing from 2.6 percent to 2.0 percent.

Mike Upton, Group Five chief executive officer says the group continues to progress its strategy of disinvestment from the traditional residential sector in favour of securing A-grade commercial and retail property development positions.

He says the secured one-year order book stands at R3.9 billion (100 percent local) (F2012: R2.8 billion and 94 percent local) and the total secured order-book stands at R5.3 billion (100 percent local) (F2012: R3.6 billion and 95 percent local).

According to Upton, Government’s promised new infrastructure spend programme has not yet materialised.

However, there has been progress on some of the delayed public sector building PPPs, with new projects under consideration, he says.

The coastal region performed well, although margins were constrained.

“In the short term the building business will be under pressure while markets are further developed and while new awards against tenders under adjudication are awaited.”

Upton says the housing business has seen a recent marked improvement in domestic mining and affordable and RDP housing work load.

On property developments, Upton says the group continues to progress its strategy of disinvestment from the traditional residential sector in favour of securing A-grade commercial and retail property development positions.

Some new projects started in South Africa and some progress was seen in West Africa in line with the group’s African strategy.

“Based on the group’s positioning in the key infrastructure growth sectors of power, mining, oil and gas, water and transport and in the concessions and PPP market for specific projects, underpinned by the group’s strong cash position, management expects a further recovery in group activity levels.”

He adds that this should support continued improvement in the group’s trading performance from the second half of F2013. – Denise Mhlanga

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