GROUP FIVE LIMITED - General update

Release Date: 02/07/2018 14:26
Code(s): GRF
 
Wrap Text
General update

Group Five Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1969/000032/06)
Share code: GRF ISIN: ZAE000027405
("Group Five” or “the Company” or “the Group”)

GENERAL UPDATE

Introduction

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.

Recapitalisation options

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.

Competition Commission

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.

Operational update

Manufacturing

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.

Construction

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.

02 July 2018
Sponsor
Nedbank Corporate and Investment Banking

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