CEO: Group Five delivering the goods and aggressively moving into Africa

Group Five posted a strong set of year end results today, citing a 26% increase in fully diluted headline earnings per share, with a 52% increase in earnings per share and a 49% increase in dividends. The results, are if anything, refreshing. The construction sector has had a trying time over the last few years, and a strong set of results are to be applauded in a climate that has not been easy to operate in. Alec Hogg was joined in studio by Group Five's CEO, Mike Upton to talk about the results and where Group Five is headed in future. One thing is for certain, its strategy is clear, and its leadership have no doubt about moving swiftly into Africa and continuing to deliver strong returns. – LF

ALEC HOGG: Group Five has posted a 26 percent improvement in its headline earnings per share. That's for the financial year to the end of June. The Chief Executive, Mike Upton is with us in the studio and he's handed me a copy of the annual report. Now, this is only six weeks, after the year-end, and Group Five can produce an annual report. Some companies take six months. It is quite a…it tells us a lot about, on the one hand, the organisation, the efficiency of the organisation but then, on the other hand, on the efficiency of your accounting function and your auditors, Mike.

MIKE UPTON: Both of those and thank you very much. It is quite a stretch, of course, but I think it is also a commitment that the whole organisation makes. It teaches us to write down what we've done and what we're going to do, quite quickly after the results, so I think it is a good sort of discipline to have. It takes a lot of late hours but it's done.

ALEC HOGG: And well done on that and, no doubt, when you've got good results like you have this year, it makes it a bit easier.

MIKE UPTON: It is always easier to have some reasonable results, I'd say, thank you.

ALEC HOGG: But I was looking through the first and second half and you did seem to slow down somewhat in the second half.

MIKE UPTON: We had a few issues to deal with in the second half, which were perhaps not quiet anticipated in the first half. One is that large project in the DRC, which unwound a little bit, in terms of our civil engineering business. That is now over and we can move on from there. That did actually, really undermine us a little bit, what otherwise would have been a very good H2 result. We had hoped that our civil engineering business would have been a four-percent business, in the second half but it was, actually a two-percent business, so that was, really what the underlying issues.

ALEC HOGG: Just explain that.

MIKE UPTON: We had hoped that our civil engineering business, in H2 were to come back to within the range, which we'd guided, which was a four-percent business.

ALEC HOGG: Four-percent profit margin.

MIKE UPTON: As, in a margin. It actually came in at two, so very mediocre results.

ALEC HOGG: Half of that.

MIKE UPTON: And some lessons learnt, as we say but we move on.

GUGULETHU MFUPHI:  Africa, no doubt seems as though it is a tough balance in the risks and the rewards there, because you do have future, plans in countries like Zimbabwe.

MIKE UPTON: Yes, we do. Africa has been very good for Group Five; we've made good money there. We make good margins there too but obviously, this was a little bit of a bridge too far for one of the businesses. It was a big project, a long way from home, so those are the lessons learnt but our outlook is that we need to grow more, African business. We are sitting in, sort of 18 or 19 different countries now, not all at the same time, and we've made good money and we have great ambitions for all of those actually.

ALEC HOGG: But it's interesting because the construction companies have had a mixed bag out of Africa. It is almost like the bank's lending money on their credit cards. You go in, do well, then have a disaster, withdraw, and go back in. What's the Group Five experience been?

MIKE UPTON: We've been, going back ten to 15 years, probably, we also had some bad experiences, but we stayed, where others came home. We've learnt how to work there. In our projects business, even our housing business, our buildings business, and our civil guys they all have done quite well, in Africa, mostly. I think the point also is that Africa is becoming a market for us, as opposed to a project opportunity, so we need to embed ourselves more, in those countries and that is also going to mitigate risk, if you are there all the time, as opposed to arriving and leaving. That's the point.

GUGULETHU MFUPHI:  Is it a business friendly environment?

MIKE UPTON: That is not one answer; it is a Continent of 53 countries, so you need to choose carefully. We have a fairly, robust risk environment actually, in terms of our process with the Board. There are some 'no-go' areas and there are some areas, which are actually easier to work in, even than at home, so we need to choose them carefully. That is their sovereign side; they need to look at the actual sort of project, itself. Who are the counter-parties? What's the logistics of the project, and all those sorts of things? So we do quite a thorough job, before we go anywhere.

ALEC HOGG: What about Nigeria? I ask this because the reports I got back from the Washington gathering of African countries, in America was that we, in South Africa, were very noticeable by our absence, whereas Nigeria were the stars at the show. Are you having much success there with this business friendly approach?

MIKE UPTON: We've been in Nigeria now, for about seven or eight years, at a project level, so we've done two power plants there and we've actually done a project management job for a real estate project, in Abuja. We see great opportunity in Nigeria. We take much more caution with Nigeria because it is a very robust environment. A lot less definite than, perhaps Ghana or other parts of Africa, so a more cautious approach to Nigeria, but it's a market you can't ignore, particularly for infrastructure. We need to find a way to be there, in terms of our risk environment as well.

GUGULETHU MFUPHI:  A market you can't ignore, Mike, thank you so much for joining us. Unfortunately, we have run out of time, but that was Mike Upton, Chief Executive of Group Five.