Group Five forced to dip into reserves
The construction's company's $410m contract to build a power plant in Kpone, Ghana, has been hit by more delays
Further delays to the company’s power plant project in Ghana have prompted Group Five to dip into cash reserves held in Europe and to forecast a wider loss for the six months ending December 2017.
The expected completion date of Group Five’s $410m contract to build a 350-megawatt power plant in Kpone, Ghana, was pushed out once more as new delays arose, the group said on Tuesday.
Commissioning would likely happen at the end of February 2018, instead of December 2017, while performance testing and reliability runs would potentially take place in March.
To fund the Kpone contract to completion, the group needed to redeploy about €20m (R301.28m) from its investments and concessions business in Europe to the project.
Group Five said it faced penalties of up to $62.5m for the delays, but was contesting this on the grounds that delays were caused by changes to Ghanaian law. It was also pursuing contractual claims against subcontractors.
Partly because of the additional costs to complete the project, Group Five expected to report a 33.8% higher headline loss per share of 415c for the six months to end-December.
This was also the result of downward earnings pressure from the construction cluster.
The unit was grappling with “a general unwind in the South African construction order book, only partially offset by a pleasing improvement in the rest of Africa construction order book”.
In housing as well as engineering, procurement and construction, client delays and shifts in project timings were reducing workloads, while lower revenue from the downsized South African roads and civil engineering business would also weigh on earnings.
In July, institutional investor Allan Gray led a change in Group Five’s management, instructing the new team to sell or close unprofitable businesses.
Group Five said last month it would sell its stake in a non-core steel pipe manufacturing business.
It said on Tuesday its construction business “will eventually consist of a buildings and housing business, despite the reduction of work anticipated in first-half 2018, where the group has a proven track record, and a small, nimble civil engineering business in SA”.
Group Five’s share price was unchanged at R11.10 on Tuesday