Severe losses relating to Group Five’s large gas and oil-fired power project in Ghana caused headline earnings per share for the six months to December 2017 to plummet 151%.
The JSE-listed construction and engineering group also says delayed contracts and contracts not materialising due to tough market conditions and the cost of retrenchments had also played a part.
Analysts were not available to comment on the losses, which follow years of dismal results that had diminished market interest in the country’s ailing construction sector.
The group’s core operating loss jumped from an interim loss of R333.6m in 2016 to a loss of R727.3m in the latest half-year period. The latter was affected by losses of R649m realised on the $420m Kpone contract, which the company signed up for in late 2014.
Group Five CEO Themba Mosai told Business Day they were “very difficult results”. He said the losses were higher than expected, owing to Kpone.
Design delays and the late arrival of procured items on the Kpone site after a change in Ghanaian law during the contract period were two main factors affecting the original completion date of September 2017.
The assessment of an independent expert now forecasts the final completion date for the power station as June 2018. This would add undisclosed costs.
Group Five’s total operating margin fell to -15.5% in the period from -5.8% in the matching period in 2016.
But the company’s manufacturing cluster delivered “a pleasing performance” in a tough trading environment, Mosai said, while the investments and concessions business delivered a “solid ” performance as a result of its European operations.
Mosai said from now on, the group’s investments and concessions business would be the one to drive profitability.
It would focus on Europe and sub-Saharan Africa.
Group Five is in the process of disposing of its manufacturing assets that provide about 10% of revenue but up to 30% of profits. To this end, Mosai has overseen group restructuring since he took the reins in May 2017 after a stint as interim CEO.
This came after widespread board and management departures amid animosity about the direction of the company.
“We expected this period to remain very difficult. The large drag on results from our Kpone contract was very unfortunate and we have taken firm action in terms of ensuring continued senior team focus to drive this contract to completion,” he said.
Mosai said the group implemented “significant rationalisation and restructuring” and closed unsustainable businesses “after assessing these against the availability and reliability of market demand and available internal core competency and skills”.
Group Five also had to cut costs in order to match the reduced business size.