Aveng sets its sights on expanding in Sadc

Building, infrastructure and mining group Aveng says it is forging ahead with plans to diversify the Moolmans mining business in a bid to reduce its exposure to SA and manganese, with the group eyeing opportunities in the Southern African Development Community (Sadc).

Moolmans operates exclusively in SA, where continued challenges relating to road and rail infrastructure, ports, electricity and logistics continue to affect Aveng clients’ operational plans.

Most of its commodity exposure is in manganese (82%) and iron ore (10%), and the group hopes to diversify through mining additional commodities.

Speaking to Business Day on Tuesday, incoming CEO Scott Cummins said the concentration Aveng had in SA and manganese was a “strategic issue” that the group was addressing through the diversification proposition.

“We are in the early stages now, identifying certain areas where we could go that might have the right sort of prospects,” he said. “The key is having a portfolio that is less concentrated than it is now.”

INTERIM RESULTS

Cummins said over the next few months the group would be considering country risk profile, client risk and currency risk in making a final decision about Moolmans’ expansion beyond SA.

In its interim results to end-December — in which the company debuted its new reporting currency, the Australian dollar — Aveng said prospective projects within Sadc have been identified, with further opportunities at existing projects.

Moolmans has a history of operating across multiple jurisdictions, particularly in Sadc and West Africa. The company said it would use this experience to diversify operations.

Group financial director Adrian Macartney outlined the complexities of operating in numerous jurisdictions, saying environments and conditions changed all the time, which was risky.

But he said the greater danger lay in concentration in one area, pointing out the structural challenges of operating in SA.

IRON ORE

“We are looking at Namibia ... [and] Botswana,” Macartney said. “We look at client, commodity, currency and climate because sometimes you want to be as north and south of the equator as possible so you’ve got different seasons. We do like the bulks; you have lots of volume and they work well for us.”

However, he flagged that iron ore was a difficult operating space in SA due to rail and port capacity challenges.

“It’s a combination ... of factors that we’ve got to consider,” said Macartney, adding that gold, which Moolmans previously mined in West Africa, was also a prospect.

The group’s results for the six months to end-December revealed a return to profitability. Aveng took a knock from the Batangas liquefied natural gas project, which caused losses of A$104m (R1.2bn) in the previous comparative period.

The group’s operating earnings more than doubled to A$15.5m from A$7.8m.

Work in hand totalled A$3.6bn, while cash on hand rose to A$250m from A$190m at the year-end in June.

The group has undergone numerous strategic changes in recent years, having exited all its noncore businesses to focus on its profitable Moolmans and McConnell Dowell divisions while settling legacy debt.

More recently, it has introduced new leadership while electing to change its reporting currency from the rand to the Australian dollar, citing that it now earns 91% of its revenue from outside SA.

“We are now a leaner and more agile organisation,” said Cummins, who will begin his tenure on March 1, adding that the group was on a pathway to meet its target margins.

SPREAD WORK

The company reported that hyper-escalation of costs had eroded margins on key projects entered into during the period, but said management was focused on restoring margins on these projects.

The group has set a 3% earnings before interest, taxes, depreciation, and amortisation (ebitda) target margin combined across the whole group, saying it was looking to spread its work across various contract types, including alliance model projects in Australia that offer protection in terms of cost reimbursement.

“As an absolute priority, the mission is to increase the margin percentage of the consolidated Aveng group,” he said, “driven by operational performance [and] steady, consistent, continuous improvement in profit, cash generation and safety in all areas of business is what we will be doing. We will seek margin, not revenue.”

Aveng said new contracts were performing strongly and cost escalation pressure had eased, providing the opportunity for overall margin improvement.

THE CONCENTRATION AVENG HAD IN SA AND MANGANESE WAS A ‘STRATEGIC ISSUE’ THAT THE GROUP WAS ADDRESSING

As the group enters a new phase of its strategic journey — with management shifting to Australia but governance and control remaining in SA — management emphasised that Aveng remained an SA company as it planned to retain its JSE listing.

“We have made it known for some time now that we are looking at other capital markets. Australia would be a natural home for the group and the majority of its assets. We will continue to explore that,” Macartney said.

“But ... we have no immediate plans to list in Australia, either as a dual listing or secondary listing into Australia or a primary with a dual listing into SA.”