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Group Five interim loss to grow by hundreds of millions

Secures R650 million bridging finance.
The construction group's share price has taken a beating in the last year, having lost nearly 60% of its value. Picture: Moneyweb

Construction group Group Five announced after market close on the eve of the Easter weekend that its interim loss for the six months ended December 31 is expected to increase by R371 million compared to previous guidance.

In December, Group Five indicated that its loss per share at December 31 could amount to 409c, compared to 302c a year before. Headline loss per share was expected to be 415c, compared to 310c a year before.

On Thursday night the group however announced that the loss per share could increase to 773c and headline loss per share to 779c.

This follows after Group Five received an independent assessment of the time and cost to completion and an assessment of its claims relating to the $410 million Kpone independent gas- and oil-fired combined cycle gas power plant contract in Ghana.

Group Five was contracted to do the design, engineering, procurement, construction, commissioning and testing of the 350 megawatt facility in the municipality of Kpone in Ghana.

The project was due to be completed in September last year, but the independent professional expert Group Five appointed found that it would only be completed in June this year.

Group Five also announced that it would release its interim results on April 12, almost two months after it was originally scheduled. The group has since fallen foul of the JSE listing requirements in terms of which listed companies have three months after the end of a reporting period to release its results.

This deadline expired at the end of March, but the JSE earlier explained that it would first warn Group Five and only suspend trading in its shares if it fails to publish the interim results by the end of April.

The increased loss is due to additional resources allocated to the problematic Kpone project, the cost of keeping specialists, technical advisors and employees on site for longer and the cost of accelerating the the completion of the project. Added to that are unexpected costs due to conditions outside of its control that Group Five said it would claim against.

The group said it has secured bridging finance of R650 million from a funding consortium, which will satisfy its cash requirements as the Kpone project and depressed local construction market as well as further head office rationalisation puts pressure on liquidity.

In a December trading update, Group Five estimated that the resolution of the contract claims, through which it could recover some of its costs, could take up to 18 months.

It then said design delays, together with the late arrival of procured items on site following a change in Ghanaian law during the Kpone contract, were two key factors which impacted the original contractual completion date of September 13, 2017.

The project was then 97% complete with only commissioning left, which it said was nearing completion. Further delay however occurred due to:

  • “Ongoing unknown marine conditions and poor weather on the seawater intake section of the Kpone contract;
  • Further late delivery of key components to site;
  • Late delivery and problematic and faulty equipment from the main equipment sub-contractors; 
  • Ongoing design challenges, which include inaccurate and late design submissions from the engineering sub-contractor and inadequate fire system design, which necessitated a major rework by the group.”

Group Five’s share price closed on Thursday at R8.50. It has lost 59.38% of its value in the past year and 29.78% in the past 30 days.

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