Group Five expects to make a loss of R1.3 billion. Photo: Simphiwe Mbokazi/African News Agency (ANA)

PRETORIA – Group Five expects to make a loss of R1.3 billion in its 2018 financial on its $410 million independent gas- and oil-fired combined-cycle power-plant contract in Kpone, Ghana.

This contributed to the further group losses the listed construction and engineering group incurred in the second half of its financial year.

Group Five said yesterday that it incurred these further losses despite benefits being realised following the restructuring and the rationalisation programmes implemented in the financial year.

It said the main reasons for these further losses were additional losses on the Kpone contract; its construction business in South Africa continuing to be impacted by weak market conditions, with some contract awards not materialising or secured contracts materialising later than anticipated and impacting overhead recovery, and cost overruns on a few ongoing contracts; and South African engineering, procurement, construction (EPC) contracts trading behind forecast despite being profitable.

Group Five expects to report a headline loss a share of between 1 300c and 1 450c for the year to June, which represents an increased loss of between 52.4 percent and 70 percent on the 853c headline loss a share reported in the previous year.

Group Five attributed the additional losses recorded on the Kpone contract 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.

It added that while the claims may not yet meet the accounting recognition standards because they were 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 had considered the various claims and confirmed these claims had considerable merit.

Group Five said construction of the Kpone contract was complete and commissioning well advanced, with final completion expected by the end of next month.

It said the cash requirements to complete the contract had been considered within the group’s revised liquidity plans.

Group Five in May reported that it had received R650m in bridge finance. The group was exposed to possible delay penalties of up to a maximum of $62.4m on the Kpone contract.

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- BUSINESS REPORT