Group Five warns of large earnings drop, says market conditions to blame

                                                                    Group Five on Tuesday warned of a significant change in fortunes for the JSE-listed construction company.

The group told shareholders that, for the year ended June 30, it expected fully diluted headline earnings a share to be between 45% and 55% lower – reaching 253c a share to 309c a share – compared with the 561c a share recorded in the 2010 financial year.

Headline earnings a share were to be between 45% and 55% lower.

Fully diluted earnings a share were expected to be between 195% and 205% lower – reaching a loss of between 243c a share and 269c a share – compared with the 256c a share in the 2010 financial year.

Earnings a share were to be between 190% and 200% lower than the 280c a share achieved in the previous financial year.

Group Five said in a statement that the slowdown within the construction and construction material sectors in the last two years was largely to blame for the sharp drop in earnings.

“This had negatively impacted performance in the current year as the group still benefited in the 2010 financial year from the majority of large public sector contracts awarded ahead of the World Cup.”

The company said an impairment of its long-term assets held by the construction materials cluster had been recorded, owing to the severity of the materials market deterioration, as well as weaker market forecasts.

This impairment remained the material difference between earnings a share and headline earnings a share.

In addition, in the second half of the financial year under review, the group had incurred a number of once-off costs which had affected headline earnings a share negatively.

These costs include planned restructuring and rationalisation costs within the construction materials cluster, as well as holding costs in the Middle East following the market downturn.

However, with the exception of the Middle East, Group Five said its largest segment, construction, had been holding up well, based on “good contract execution” and the benefit of a number of longer term and some African contracts, secured previously.

That said, though, the company noted that the South African construction and engineering market had seen further contract-award delays and limited work flow into an industry it described as already carrying “significant over-capacity”.

“The tender work that is taking place is heavily contested by large and small contractors with extremely aggressive pricing. Emphasis on a larger geographical footprint for more of the group’s business units and achieving early wins in the re-emergence of the mining and energy markets in Africa remains the strategy to reduce the reliance on weak domestic markets.”

Short-term conditions were worse than expected, added Group Five.

This weakness was expected to continue for longer, with a slow rate of a broader market recovery materialising from the second half of the 2012 financial year.

Group Five’s audited results for the year ended June 30 were expected to be released on August 15.