South African construction giant Group Five will exit construction businesses that it does not believe can be turned around on a sustainable basis.
“[Businesses] which are not core to [our] revised strategy . . . will either be sold or closed,” the company said on Tuesday, adding that its manufacturing cluster, which contributed 10% to group revenue for the year to June 30, would also be disposed of, as it was considered noncore.
This decision stemmed from the “urgent need” to address the group’s underperforming
operations in a “rapidly-changing and challenging” market, which would ensure that the strategic positioning of all clusters and businesses was evaluated. The construction cluster reported an operating loss for the financial year ended June 30, with 57% of this revenue derived from contracts in South Africa.
“Once the requisite legal and internal consultation and closure procedures have been followed, we will be in a position to advise which businesses are affected,” Group Five stated.
In July, the company underwent a rigorous board shake-up, when it appointed eight new nonexecutive directors as part of a board overhaul following pressure from its largest shareholder Allan Gray.
This has also set a turnaround strategy at the embattled company into motion, following the declaration of a net loss of R840-million for the year to June 30, compared with a profit of R379-million in 2016.
However, Group Five said it would retain viable construction businesses if areas of opportunity are identified.
Noting that its investment and concessions (I&C) cluster would have a high probability of meeting or exceeding the group’s targeted return on capital, it would remain central to the group’s revised strategy of enabling the development of infrastructure.
Meanwhile, Group Five’s operations and maintenance (O&M) businesses within its investments cluster, along with the power O&M businesses, will be consolidated to form a separate cluster, while the board continues to assess expressions of interest received for its I&C assets and operations.
The group also intends to retain a small and dedicated team offering higher-margin turnkey project management, mainly in the rest of Africa. The target projects will be small to medium in size and of medium complexity, commensurate with the group’s technical abilities and its re-assessed risk-bearing capacity.
