Group Five fights collusion rap

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BR Group 5  0522 Independent Newspapers Chief executive Mike Upton says Group Five is seeking a reasonable resolution. Photo: Simphiwe Mbokazi

Group Five is at loggerheads with the Competition Commission over the resolution or settlement of four outstanding cases that implicate the listed construction and engineering group in collusion.

Chief executive Mike Upton confirmed yesterday that Group Five did not agree with the commission that any offence or contravention of the Competition Act had occurred.

“Our investigation talks to perhaps a different version of what transpired.

“In the interests of shareholders, the group did not hastily settle as there was no reasonable basis for attributing liability to the group in respect of the implicated contracts.

“Settlement has not been concluded due to a lack of evidence and factual discrepancies which remain and which the group views as very serious given the reputational impact and potential for civil claims.”

But Upton said the group was hopeful of a negotiated outcome and had not reached a stage where the matter would have to be adjudicated by the Competition Tribunal.

He also stressed that Group Five was willing and remained committed to settlement on a reasonable basis should it be found to have contravened competition legislation on any of the four contracts.

The group raised a provision in its 2013 financial year against the risk of a penalty. The size of the provision has not been disclosed. But Upton said that based on an assessment by legal counsel, the settlement would be adequately covered.

Group Five disclosed 25 rigged projects during the commission’s fast-track settlement process and was granted conditional leniency for all of them. But it was implicated in four alleged infringements it had not disclosed, which are the subject of ongoing engagements with the commission.

The group achieved a solid financial performance in the year to June despite a tough operating environment and labour unrest in the domestic market.

Revenue from continuing operations rose by 39 percent year on year to R15.3 billion.

Operating profit increased by 22 percent to R646.85 million but the operating margin deteriorated to 4.2 percent from 4.8 percent. Fully diluted headline earnings a share grew by 26 percent to R4 from R3.18.

A dividend of R1 a share was declared, 49 percent higher than in the previous year.

The group’s overall order book declined by 9 percent to R17.1bn from R18.8bn at the end of December last year.

Upton attributed this to the “lumpy” nature of engineering, procurement and construction contracts and confirmed the group was in firm negotiations for a large over-border power contract, which would significantly increase its order book and geographic exposure.

He said the underlying performance of all its businesses was in line with expectations, with the exception of a slower-than-expected second-half recovery in civil engineering.

Upton said the South African market remained comparatively subdued with a slowdown in activities in some sectors in which the group traded, uncertainty about the timing of larger public sector contract awards, and turbulence around labour. He said labour activism had an impact on some sites but represented only 0.1 percent of man days worked and had a limited financial impact.

He added that African infrastructure remained a focus and a compelling medium- to long-term growth driver for the group but was accompanied with long project development periods for the larger contract awards. He said the outlook for the business in the short term was fair to good.

Group Five shares rose 0.32 percent to close at R40.70 on the JSE yesterday.



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