GROUP FIVE LIMITED - Trading Statement

Release Date: 29/08/2018 15:36
Code(s): GRF
 
Wrap Text
Trading Statement

Group Five Limited
(Incorporated in the Republic of South Africa)
(Registration number 1969/000032/06)
Share code: GRF ISIN: ZAE 000027405
("Group Five" or "the company" or "the group")

TRADING STATEMENT

Further to the General Update provided to shareholders on 2 July 2018, Group Five provides
this Trading Update ahead of the publication of its results for the year ended 30 June 2018.

Introduction

Despite benefits being realised following the restructuring and the rationalisation programmes
implemented in F2018, further losses were incurred in the second half.

The main reasons for this were:

   1. Additional losses on the independent gas- and oil-fired combined cycle power
      engineer, procure and construct (EPC) contract in Kpone, Ghana (Kpone), as
      discussed below.
   2. Construction: South Africa continuing to be impacted by weak market conditions with
      some contract awards not materialising or secured contracts materialising later than
      anticipated, thus impacting overhead recovery, and cost overruns on a few ongoing
      contracts.
   3. South African EPC contracts, although profitable, trading behind forecast.

In contrast, the Construction: Rest of Africa cluster delivered stronger results than in H1
F2018. As reported at the group’s interim results, this cluster had no loss-making contracts.

The Investments & Concessions cluster delivered a solid result. Intertoll Europe’s trading
results were pleasing despite a reduction in profit in H2 F2018 from a contract exited,
additional tender development costs and foreign exchange losses on repatriation of funds
during H2 F2018 compared to H1 F2018. The Properties business recorded an impairment of
an investment property in H2 F2018. The cluster’s H2 F2018 results were positively impacted
by a larger than forecasted upward fair value adjustment on service concessions following
enhanced project cash flows and the impact of foreign exchange rates at year end.

Manufacturing delivered a solid result in tough market conditions.

Group results were also assisted by the profit on the sale of Group Five Pipe, recorded in H2
F2018, which was disposed of for R80 million as well as a credit to earnings in H2 as a result
of the group’s pension fund surplus. The sale of the remainder of Manufacturing is progressing
in line with the planned timing of the disposal.

Trading statement

Based on the performances outlined above, Group Five advises shareholders that, for the
year ended 30 June 2018, it will report:
    - a loss per share between 1300 cents and 1450 cents (2017: loss per share of 829
        cents), representing an increase of between 56.8% to 74.9% in the loss per share;
        and
    - a headline loss per share between 1300 cents and 1450 cents (2017: loss per share
        of 853 cents) representing an increase of between 52.4% to 70.0% in the loss per
        share.

Update on Kpone

Construction is complete and the commissioning well advanced. Final completion of Kpone is
expected by the end of September 2018.

In H2 F2018 the client requested that the plant be completed and handed over to operate on
two fuels only and not the planned three fuels due to the unavailability of natural gas.

As stated above, additional losses were recorded in the second half. This results in an
expected loss on the contract for F2018 of approximately R1,3 billion.(H1 F2018: R649
million).

The additional losses recorded in H2 F2018 were due to further costs incurred to complete
the contract, the impact of foreign exchange rates, and a more stringent approach to the timing
of the recognition of certain substantial claims. Whilst the claims may not yet meet the
accounting recognition standards, as they are in the early stages of being determined through
the alternate dispute resolution procedures set out in the respective agreements, Legal
Counsel and Senior Legal Counsel, with experience in local and international dispute
resolution, have considered the various claims and confirmed that these claims have
considerable merit.

As indicated previously, notwithstanding any further potential delays to the project or to the
dispute resolution process, the gross maximum delay penalty exposure remains capped at
US$62,5million. The actual penalty, within the maximum of US$62,5million, will be
independently determined. This amount does not reflect the counter, or other, claims that
Group Five is legally entitled to and is pursuing. Against these possible penalties, the group
continues to progress its own contractual rights and entitlements through the alternative
dispute resolution procedures.

The cash requirements to complete the contract have been considered within the group’s
revised liquidity plans.

Bridge funding

As communicated to shareholders on 16 May 2018, the Group received R650 million in bridge
finance. The group continues to meet and maintain the financial covenants as required by the
bridge facility. The group continues to evaluate alternative funding options for recapitalisation
and the settlement of this debt.

Reporting

The above information has not been reviewed or reported on by the company’s auditors.
The group will confirm its results date, scheduled for September 2018, shortly.

29 August 2018
Sponsor
Nedbank Corporate and Investment Banking

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