companies & markets

Group Five aims to mend trust

Tuesday, 13 Aug 2013

The trust between the construction industry and the government needed to be mended before the governmentís next infrastructure expenditure programme was rolled out, Group Five chief executive Mike Upton said yesterday.

Upton said there was great anger, particularly among black business, about the anti-competitive practices that took place in the industry.

He said Group Five once again expressed its deep regret for the behaviour found in its business and the industry, adding that there were a lot of opportunities to "make good out of this bad outcome", and it had suggested the creation of a fund to develop new contractors.

But Upton stressed that it was an open question whether there was enough appetite for this now or whether there would be more retribution for the industry.

"In terms of awards being made, business has continued. We have had awards from government organisations, from municipalities. But the next big government infrastructure spend hasnít happened yet. There is going to have to be a discussion about how that happens and the industry must be ready for that," he said.

Uptonís comments follow the recent settlement agreements reached between the Competition Commission and 15 construction firms, including seven listed companies, who agreed to pay penalties collectively totalling R1.46 billion for bid-rigging and collusive tendering.

Group Five disclosed 25 rigged projects and was granted conditional leniency for all of them, but was implicated in four alleged infringements that it had not disclosed.

Upton said these four instances had not been unearthed by Group Five during its internal investigations and it did not have evidence of collusive involvement in any of these matters. It therefore could not agree to the penalties and "chose not to settle hastily", but continued to engage positively with the commission.

Upton confirmed that the group would like to settle these outstanding matters "on a reasonable basis" because it would like to get involved with "mending the industry".

He said Group Five had raised a provision for any penalty imposed by the commission, but the provision amount was not disclosed.

He added that there was also a risk of civil claims across the industry, but Group Five did not have any information about any particular claims and did not have a basis for provision for these at this point in time.

Despite tough market conditions and low margins in the local construction market, Group Five yesterday reported a strong financial performance in the year to June, with fully diluted headline earnings a share from continuing operations rising 88 percent to R3.33 compared with a year earlier.

Increased activity in all the groupís businesses resulted in group revenue from continuing operations rising by 27 percent to R11.1bn.

Operating profit from continuing operations increased by 68 percent to R556 million and the operating margin, including the Competition Commission penalty provision, improved to 5 percent from 3.8 percent. The groupís contracting order book grew 5 percent year on year to R14.2bn.

A dividend of 67c a share was declared, 86 percent higher than the previous yearís 36c.

Upton said, based on its positioning in the key infrastructure growth sectors and underpinned by its strong cash position, Group Fiveís management cautiously expected a further recovery in activity levels.

This should support a continued improvement in trading performance in the 2014 financial year, with modest increases in margin and earnings expected, he said.

The groupís shares fell 1.25 percent to close at R39.50.

Credits: Roy Cokayne/Business Report