JOHANNESBURG, November 7 – South African civil engineering giant Group Five on Tuesday said it was quitting its non-performing construction businesses because it does not see the potential for them to turn around.
Engineering, procurement, and construction clusters reported a 25.1 percent operating loss, from R8.8 billion to R11,8 billion, for the financial year ended 30 June 2017, with 57 percent of this revenue derived from contracts in South Africa.
The local market continues to face significant headwinds, with minimal large-scale infrastructure projects being awarded and the prospect of infrastructure projects curtailed in light of political uncertainty, ratings downgrades, low business confidence and fiscal strain.
Against these conditions, Group Five said its traditional construction businesses were finding it challenging to secure sufficient levels of revenue to remain profitable.
The group said it decided to pursue a strategy of migration to smaller, streamlined construction businesses, focusing only on those businesses which have competitive advantages in target client groups.
Group Five said that it will only retain viable construction businesses if they can show real areas of opportunity, proven capabilities and capacity, compelling investor value propositions, and potential to provide shareholder returns exceeding the group’s cost of capital.
Otherwise, these businesses will either be sold or closed once the requisite legal and internal consultation and closure procedures have been followed.
This comes as Group Five announced that it has re-evaluated the group’s strategy and structure to address under-performance and the achievement of acceptable returns in a rapidly-changing and challenging market landscape.
Group Five said that this process included the strategic re-positioning of the group in its chosen markets and an assessment of all the group’s clusters and businesses resulting in a narrower focus on core businesses which will provide growth and improving margins and returns.
The group’s manufacturing cluster, which contributed 10 percent to group revenue for the year to June 2017, remains a strong performer within the group and contributes solid earnings and cash flow. However, it is regarded as a non-core operation and, in light of the group’s revised strategy, will be disposed of in due course.
– African News Agency (ANA)