Group Five upbeat on profit as rand boosts tolling business

Weak rand goes to construction firm Group Five’s rescue with the company signalling a likely return to profit in the year ahead.

In a voluntary market update issued earlier this week, Group Five said its investment and concessions cluster had outdone the company’s forecasts and would offset weak trading conditions in the engineering and construction markets. Its investment and concessions cluster houses the company’s motor tolling transport business, known as Intertoll, which invests in and operates toll motorways in SA, Zimbabwe and Europe.

Although it makes a marginal contribution to group revenue, it generates 68% of Group Five’s operating profit.

“It is pleasing to note that the beneficial contribution of the group’s annuity-type businesses of investment and concessions and manufacturing has mitigated the effects of current continued weakness in the South African construction and engineering market,” Group Five said in a statement.

The stronger-than-expected performance of this cluster was driven by increasing traffic numbers of heavy and light vehicles, mainly in Europe.

The division was further boosted by improved fair value gains on service concessions and the rand’s 23% decline against the euro during the period under review, the company said.

In the year to June, Group Five’s operating profit declined 43% to R333m, while headline earnings per share nearly halved. The conditions that drove profits lower were little changed as the government continued to drag its feet in getting major infrastructure projects off the ground.

“Low volumes of work flow in an industry already impacted by overcapacity … has placed pressure on the replenishment of the group’s contracting order book,” the company said.

Group Five is planning to expand the investment and concession divisions reach in eastern Europe to counter flat revenues in SA. Intertoll has operations in Poland and Hungary and is tendering for contracts in Turkey valued at $3bn, Group Five said in its annual report.

The tolling business is also part of a prequalified consortium in Russia with a construction pipeline, through a private public partnership.