BEE Construction News Report

Group Five in no big rush for BEE

Group Five will consider bringing in additional black economic empowerment (BEE) shareholders once the listed construction and engineering group has got back the shares from the unwinding of its transaction with the iLima Consortium. In line with the unwinding of the transaction, Group Five successfully applied to the high court in September last year for an order compelling the return of iLima's shares.

But Mike Upton, Group Five's chief executive, said yesterday that the court process relating to the unwinding of the transaction had to be concluded before the shares could be returned. He said iLima had appealed against the judgment, and the matter had not yet been heard yet. The iLima Consortium had a 9.2 percent shareholding in Group Five, which has a R172 million exposure to the consortium. This comprises R118m in current assets and a R54m contingent liability related to contract guarantees.

However, the asset and contingent liability, if incurred, will be set off against the return of the group's shares once they are received. Upton stressed Group Five's empowerment rating would be unaffected by the unwinding of the transaction and it would remain one of only two listed construction companies with a level three BEE rating, even without the iLima Consortium's shareholding. It previously entered into other BEE transactions involving the Mvelaphanda Group and it has BEE management and staff schemes. Upton said the group would have to "weigh up" whether it wanted to bring in additional BEE partners once it received the shares from the iLima Consortium. The group would try to attain the next BEE rating level "in time".

Despite a tough year and impairments in its construction materials business, Group Five yesterday posted a 10 percent growth in fully diluted headline earnings a share to R5.61 in the year to June. Impairments of property, plant and equipment in its construction materials business totalled R326m. Revenue declined 6 percent to R11.3bn, largely because of a reduction in domestic construction materials volumes and in African resources markets. Operating profit before fair value adjustments and impairment adjustments increased by 10 percent to R877m and the group operating profit margin improved to 7.7 percent from 6.6 percent. A final dividend of 74c a share was declared, increasing the total dividend for the year by 5 percent to R1.37 a share.

Upton said it was a robust result despite the markets in which the group operated experiencing increased volatility and uncertainty, mainly because of the global financial stresses and a hiatus in South African public sector spending. He said the year ahead could be slow but the group's pipeline of opportunities supported a generally positive outlook. The group's one-year construction order book was worth R7.1bn at end June compared with R8.6bn a year earlier. Group Five closed 2.6 percent lower at R34.64 yesterday.

Extracted from a report by Roy Cokayne