Pretoria – The government’s targeted rate of expenditure on infrastructure projects would not be met, Mike Upton, the chief executive of Group Five, said yesterday.
Projects would take place over a longer period of time, which would be better for the industry, Upton said at a presentation of the listed construction and engineering company’s annual results.
In regard to skills shortages, Upton said Group Five’s investment in training had almost doubled and its intake of students had tripled. It was repatriating South Africans and recruiting expatriates and 1 500 work permits from the home affairs department would “go through soon”.
In its annual report, released yesterday, the company said employment would be the real beneficiary of constraints in the construction industry.
“Employment in South Africa has already doubled to 110 000 and is likely to head to more than 150 000 if pipeline contracts are to be executed. This, in turn, has tremendous multiplier benefits throughout the economy,” it said.
However, high-level skills remained a challenge. South Africa had one engineer per 3 200 people compared with one in 150 in India and China, one in 300 in Europe and one in 400 in the US and Australia.
It warned that electricity generation was “a very real short-term constraint” that had the potential to “derail or postpone planned contracts”.
Group Five posted an almost 47 percent improvement in headline earnings a share to R2.83 in the year to June before accounting for the cost of its external black economic empowerment (BEE) transaction.
Group revenue increased by 31 percent to R7.7 billion, operating profit rose by almost 63 percent to R392 million and operating margins improved from 4.1 percent to 5.1 percent.
But cash generated from operations decreased from R601.3 million to R98.5 million.
Eric Vemer, the executive member for infrastructure concessions, said this was mainly due to the group’s changing business mix from building and housing to higher-margin civil engineering, which was more capital intensive, had different payment terms and had more own work compared with subcontractor work. Another factor was the group’s investment in manufacturing and construction materials.
The impact was regarded as a once-off switch and the short-term target was to be cash neutral in working capital.
Dividends increased by almost 29 percent to 72c.
Upton said the strong strategic and operational platform laid in previous years was reflected in the solid results.
“With our one-year order book at R4.8 billion and capacity of around R7.3 billion, the strong market provides significant scope to choose higher margin contracts,” he said.
Construction, the biggest contributor, lifted operating profit 65 percent to R236 million.
Group Five shares rose 10c to R57 yesterday. The construction sector fell 0.46 percent.