Group Five continues to evaluate alternative funding options
In the interest of keeping shareholders abreast of progress made with Group Five’s rationalisation, restructure and recapitalisation interventions, the Group hereby provides a general update. The Group will continue to issue further communication on its turnaround progress at appropriate intervals.
Following receipt of bridge finance, as communicated to the market, the Group continues to evaluate alternative funding options to recapitalise the Group, including a possible equity raise, and settle this debt. Good progress has been made in this regard by the Group along with its advisors and there is ongoing dialogue with the lending banking group. Shareholders will be kept informed of developments.
Rationalisation and restructure interventions
The structural interventions, outlined in the Group’s 2018 interim results, are progressing as planned. In line with this, the Group continues with significant cost-cutting initiatives. To this end, a relevant efficiency intervention, as committed to in April 2018, was to move into more cost-effective offices. The Group’s South African construction operations have been relocated to Spartan in owner-occupied premises. The Group’s Rest of Africa construction operations are now located in Boksburg, utilising an existing rental agreement, and the corporate office and Investments & Concessions operations have relocated to Sunninghill. The Sunninghill offices are managed by Attacq, continuing the Group’s established working relationship with the firm. Group Five has signed a three-year lease for the Sunninghill property with a three- year option to renew. The registered office of the Group has therefore changed to 2 Eglin Road, Sunninghill, 2191, whilst the Group’s correspondence address remains unchanged.
On Wednesday 27th June 2018 the Group attended a hearing with the Competition Commission (“the Commission”) after receiving conditional leniency from the Commission relating to disclosures made to the Commission by the Group in 2009. The contracts to which these activities related were executed between 2004 and 2008 and formed the basis of the Group’s submission to the Commission in terms of possible transgressions. These disclosures allowed the Commission to launch its investigation into collusive behaviour in the sector. This hearing, coupled with the conditional immunity already granted to Group Five, allows it to progress to finalising its leniency process with the Commission. The Group is pleased to be progressing towards closure on these matters which relate to activities of more than a decade ago. In relation to the two remaining projects under review by the Commission, Group Five is hopeful that these matters can be resolved speedily on reasonable and equitable terms to the Group.
Following the successful completion of the R80 million sale of Group Five Pipe, the Group is focusing on the sale of the remainder of the Manufacturing cluster. Progress is being made in line with the disposal plan.
Investments & Concessions
Very pleasingly, this cluster secured the early works contract for the Department of Rural Development and Land Affairs’ public private partnership (“PPP”) after several years of delays. The early works contract will be executed by the Group’s Construction cluster. The awarding of the enabling works represents significant progress towards closing this PPP project and the Department’s commitment to finalise this by the end of 2018. The PPP project encompasses the Design, Construct, Finance and Operation of office accommodation for the Department for a 25-year concession period.
Engineering, Procure and Construct
The progress to complete the independent gas- and oil-fired combined cycle power plant EPC contract in Kpone, Ghana continues. As reported at the Group’s 2018 interim results, a completion date of June 2018 was expected. Some commissioning delays have extended the completion date to end July 2018, but the additional cost to complete the contract is not material. Even against any further potential delays, the gross maximum delay penalty exposure remains capped at US$62,5 million. This amount does not reflect the counter, or other, claims the Group is legally entitled to. Against these possible penalties, the Group continues to progress its own contractual claims.
The restructuring interventions, which include closure of businesses, rationalisation and standardisation of overheads and retrenchments, are progressing as planned. Even against the cost reductions communicated at the Group’s 2018 interim results, it remains challenging to operate profitably in the South African construction environment due the prevailing harsh market environment. As committed to at 2018 interim results time, further interventions are being implemented as required. The Rest of Africa business has now been sustainably restructured.