Group Five sells two noncore manufacturing firms
The sale of Everite and Sky Sands will ease the struggling construction group's liquidity woes
Group Five has sold its manufacturing assets, Everite and Sky Sands, to a consortium comprising of private equity companies Trinitas Private Equity and Agile Capital for R480m, the struggling construction firm says.
The sale is part of the company’s restructuring and disposal of noncore assets, including those in the better-performing manufacturing cluster. In the 2018 financial year, only the investment and concessions, and the manufacturing clusters generated free cash flow.
In its 2018 annual report, Group Five —which reported a R1.3bn net loss in the 2018 financial year — singled out the conclusion of the manufacturing assets among its priorities in 2019.
In the report, Group Five CEO Themba Mosai said the company’s new strategy also entailed “decreased focus” on engineering procurement and construction and the turnkey project solutions.
The transaction, which sent Group Five’s shares up 40% to 35c, is part of the company’s review of its strategy and structure in order to stem its under performance.
“This process included the strategic re-positioning of the group in its chosen markets and an assessment of all the clusters and businesses, which resulted in a narrower focus on core businesses which will provide growth and improve margins and returns,” it said.
The company said it regarded itself as an enabler for the development of infrastructure in its chosen markets. “This requires a shift in emphasis from the group’s traditional construction-related bias towards infrastructure development and investment opportunities, which necessitated the rationalisation of some of its businesses.”
It said while the construction cluster was one of the stronger performers in the group, it did not fit in the revised strategy, which has the development and investments, and operations and maintenance as its core businesses. The manufacturing cluster contributed 15.1% to Group Five’s revenue in 2018.
Afrifocus Securities equity analyst Tinashe Kambadza on Thursday said Group Five’s decision to sell some of its assets did not come as a surprise, given the company’s precarious liquidity position. “Priority for them is to settle their debt, even if that means selling crown jewels. They are cash-strapped. They have no choice,” Kambadza said.
He was uncertain about the company’s long-term prospects post the restructuring. “We must wait and see what will be left after the disposal of noncore assets,” Kambadza said.
Everite, which operates out of a large factory in Klipriver, south of Johannesburg, was one of the pioneers of steel-framed structures and wall sections in SA. Sky Sands mines and sells about 1-million tons of plaster and washed silica sand a year.
Group Five said the transaction did not include its other manufacturing assets — Barnes Reinforcing Industries, the reinforcing steel business. It said there was an in-principle transaction that its shares in Barnes would be sold to its joint venture partner, the Barnes family. The sale was on course to be completed in the second half of 2019.
Trinitas describes itself as a diversified specialist private equity fund with a mandate to partner with management teams to make equity investments in mid-market companies in Southern Africa. The mid-market sector is made up of companies with enterprise values of R100m to R1bn.
Agile Capital is a black-owned equity which invests in diverse sectors. In October 2018 the company said it had about R750m available for investments in new opportunities.