GROUP Five, the diversified infrastructure conglomerate, said on Friday that action taken to close out legacy and non-value-generating aspects of its operations had "severely" affected this year's results.

However, in a trading update it also said the tough medicine provided a good foundation for better performance in the new financial year, which began this month.

It said fully diluted headline earnings per share would be 60%-70% lower at 93c-124c per share.

"The results are weak, but equally, of course, we have done a clean-up," CEO Mike Upton said.

The group said its results, due on August 13, had been adversely affected by the final close-out of loss-making contracts in the Middle East.

Its results had also been hit by operating losses, restructuring costs and impairments in the discontinued construction materials segment, impairment of its Indian contract claim, and the closure of its troubled steelmaking facility.

However, it said its investment and concessions unit, manufacturing division and major construction segment were trading in line with expectations, and its balance sheet remained sound.

Mr Upton said the group's main focus would be on South Africa's proposed multitrillion-rand infrastructure spend, as well as other African markets.

The group remained under cautionary while disposing of businesses in its construction materials cluster.

The cluster, which contributed about 5% of group revenues, had seen a dramatic drop in turnover in recent years. "Between 2007 and 2008 we . had a 70% reduction of volumes in the materials business," Mr Upton said.

He said Group Five was conducting multiple transactions for assets in this cluster, having closed some deals.

"It was a surprise for the market," Michael Canterbury, an analyst at Sanlam Investment Management, said of Group Five's trading update on Friday.

He said it had been a difficult time for the company in poor construction markets. "The Middle East has been the biggest challenge, along with construction materials."

Mr Canterbury also said management continued to face challenges, having pointed to only a moderate recovery in the new financial year.

allixm@bdfm.co.za