Group Five sees headline earnings lower than a year earlier

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Mike Upton, Group Five CEO Mike Upton, Group Five CEO

JSE-listed construction company, Group Five has posted headline earnings per share of R1.80 were 64.4% lower than a year earlier but expects earnings to improve within the next year.

Group Five’s main growth will be in Africa and the company will be moving away from operations in the Middle East, CEO Mike Upton said on Monday.

"We have some target markets, which would be in East and West Africa, more to do with mining contracts," he said.

"The Middle East is definitely for another time. We will be winding down operations in the Middle East, we have one contract there at the moment," Mr Upton told a conference call at the release of the company’s annual results on Monday.

"We see our focus on Africa and see opportunities in Eastern Europe."

Fully diluted headline earnings per share from continuing operations fell by 62.9% to R1.77 and diluted HEPS declined to R1.15 from R3.10 a year ago.

Factors affecting the results included delayed construction revenue; in the construction materials unit, operating losses prior to its sale, and further impairments of its assets; Middle East contract losses; and impairments of claims due from previously discontinued operations in India.

"Against ongoing tough markets‚ the group continued to implement the conservative approach adopted last year in terms of both the quality of the order book secured and its philosophy towards cash preservation to fund activity which will support future profit growth‚" Group Five said in a JSE announcement.

Revenue for the year increased to R8.78bn from the previous corresponding period’s R8.77bn‚ but operating profit declined to R331.4m from R605.6m, largely due to losses from the Middle East.

The total secured construction order book increased to R11.3bn from R8.8bn a year ago, with the over-border portion growing to 38%.

Some 43% of the contracts in the order book are multidisciplinary, indicating the further progression of more business segments working together.

The group’s infrastructure concessions and operations and maintenance services’ secured order book stands at R4.8bn.

"It is encouraging to see an improvement in the construction order book‚ with a good cash position supporting this strategy," the group said.

Group Five declared a gross dividend of 14c per ordinary share‚ which brings the total dividend for the year to 36c‚ from 72c last year.

Looking ahead, Mr Upton said that against the actions taken, Group Five expected margins and earnings to improve in the coming year.

"Our construction order book has improved, and the client and sector mix is more balanced. Our concessions and services order book gives us a good line of sight on annuity income," he said.

"The value of the group’s target opportunity pipeline stands at R148bn, up from R134bn in June 2011 and R144bn in December 2011. We are experiencing activity in all our markets, with the emphasis on over-border growth aligned to resources and basic infrastructure," he added.

"The investments and concessions cluster is delivering annuity business growth, with group-wide opportunities in active infrastructure sectors in increasing geographies.

"Manufacturing has been refocused and its performance is improving on higher sales volumes to a broadening number of markets.

"Based on the good underlying performance of all its continuing businesses and the group’s positioning in the key infrastructure growth sectors of power, mining, oil and gas, water and transport, and in the concessions and public-private partnership market for specific projects, as well as the progress made in terms of improving the group’s internal efficiencies, management expects an improvement in the group’s trading performance from full-year 2013," Mr Upton said.

Group Five shares traded flat on Monday at R22.85, while the construction sector fell 0.47%.

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