Sunday, January 25, 2009

Construction contracts lost

THE global credit crisis and reduced oil prices in the Middle East are taking their toll on South African construction companies, with Murray & Roberts and Group Five announcing cancellations of contracts.

With dismal global economic news pointing to deteriorating energy demand and keeping oil prices under pressure, the Middle East is now forced to slash or cancel ambitious infrastructure projects, affecting construction companies’ bottom lines.

Dubai has announced a review of its own infrastructure capital project programme as a result of the worsening economic crisis.

Group Five said yesterday Dubai authorities had terminated a R3,3bn contract and had suspended one for R654m.

However, the group said other contracts to the value of R563m in Dubai, Abu Dhabi and Jordan were not affected.

“Such suspension and termination action is catered for in the contracts, such that the contractor has recovery rights and will be fully compensated for its costs incurred, with a reasonable margin,” it said.

Group Five said it remained committed to the Middle East and continued to review its prospects in light of these developments and against the ongoing opportunities that existed in the region’s economies that had energy resources and industrialisation strategies that suited its capabilities.

The group said that its African and eastern European operations remained buoyant and it expected a strong improvement in earnings for the full year.

Group Five said yesterday it expected headline earnings per share to be 45%-55% higher for the six months to the end of last month, compared with the previous half.

On Tuesday Murray & Roberts said one of its contracts in the Middle East had been scrapped.

The group said it would close out its position in terms of the contract and it was not expected there would be any material effect on the financial results for the year to June.

Source: Business Day, 22/01/2009