Aveng boss relinquishes the reins as group records substantial losses
AVENG CHIEF executive Kobus Verster has resigned with immediate effect as the listed construction and engineering group embarks on another strategic review to address ongoing substantial financial losses by the group.
The group yesterday reported a net loss in the year to June of R6.7 billion and headline loss of R6.4bn following non-cash impairments and write-downs on long-outstanding uncertified revenue of R5.9bn.
Excluding non-recurring write-downs and charges, the headline loss amounted to R630m.
Arbitration rulings that were well below the group’s expectations led to a review of long outstanding uncertified revenue and the write-downs to derisk the group’s balance sheet.
Aveng reported a headline loss a share of 1 625.3 cents compared with 75.2c in the previous year.
Eric Diack, currently executive chairperson of the group, has assumed Verster’s duties until a new chief executive is appointed.
Diack said the group’s operating performance was unacceptable, which had led to the operational intervention.
He said the strategic review, in conjunction with independent consultants, would address the optimal business portfolio, identify non-core assets and create a sustainable balance sheet to create an optimal group capital structure, sustainable funding model of McConnell Dowell, address the R2bn convertible bond due for repayment in July 2019, and the need to lower group interest charges.
Diack said fixed overhead expenses had been reduced by 18 percent or R503m in the year, with 1 400 people retrenched.
“Our order books are reasonably good, so we are hoping that there are not going to be any major retrenchments during the year,” he said.
Adrian Macartney, the group financial director, added that Aveng’s reported revenue was about R53bn in 2014 and it was today about half of that with the group staffing dropped from about 33 000 to 15 500.
Diack said Aveng had been vigorously cutting costs, however, the market “keeps disappearing and falling in front of us”.
“It’s a very tough space. There is no infrastructure spend in South Africa. Apart from roads, there is nothing of size,” he said.
Diack said there was no intention at this stage to exit the South African construction market as Murray & Roberts had, but added: “Who knows what comes out of the strategic review?”
Aveng last year reported that it had agreed to sell a 51 percent stake in its South African construction business GrinakerLTA to Kutana Construction for R756m as part of a strategy to create opportunities for emerging black contracts in line with the Voluntary Rebuilding Programme agreement reached with the government.
Diack said the effective date of that transaction was supposed to be October 1, with all the final approvals received and Kutana would have to be part of the decisions taken about Grinaker-LTA during the group strategic review.
Macartney said that the transaction was an earn-out type deal and if they could improve the earnings, it improved the price.
He said the performance of Grinaker-LTA was therefore ultimately in the interest of both Kutana and Aveng.
Aveng’s two-year order book has grown by 8 percent to R29.9bn from R27.2bn in December.
Diack said the markets serviced by McConnell Dowell in Australia were expected to offer growth opportunities over the medium term, but the outlook for the domestic infrastructure market remained subdued.
He said the immediate priority would be the completion of the strategic and operational reviews, with the improvement of liquidity headroom remaining a key focus in the immediate term.
Aveng shares fell 5.45 percent yesterday to close at R3.12.