ZERO TOL­ER­ANCE

Finweek English Edition - - Companies & Markets -

CONSTRUCTION COM­PANY Aveng’s zero tol­er­ance ap­proach to un­eth­i­cal be­hav­iour is get­ting some of its se­nior em­ploy­ees into hot wa­ter af­ter South Africa’s com­pe­ti­tion au­thor­i­ties un­cov­ered col­lu­sive be­hav­iour within the group. It was found that In­fraset – Aveng’s con­crete pipes and cul­verts man­u­fac­tur­ing busi­ness – was party to price-fix­ing and mar­ket al­lo­ca­tion.

As a re­sult, Aveng has agreed to pay a fine of R46,3m – 8% of In­fraset’s turnover in 2008, less the paving prod­ucts turnover – in three equal an­nual pay­ments. That’s sub­ject to con­fir­ma­tion by the Com­pe­ti­tion Tri­bunal. Aveng also agreed to sus­pend two ex­ec­u­tives and place a third on spe­cial leave.

One an­a­lyst says even though the in­dus­try will come in­creas­ingly un­der the spot­light the fine wouldn’t dam­age Aveng’s rep­u­ta­tion if it co-op­er­ates. “Action has been taken and it won’t have a ma­jor im­pact on in­vestors.”

Since Aveng’s at­trib­ut­able earn­ings at its 2008 year-end was R2,3bn the fine is im­ma­te­rial. But the news still hit its share price, mak­ing it un­der­per­form the JSE’s in­dus­tri­als in­dex by 5%. How­ever, in­vestors shouldn’t have been sur­prised by the news fol­low­ing Aveng’s an­nounce­ment in Septem­ber 2008 that three busi­nesses – In­fraset, Tri­dent Steel and Steeledale – were un­der in­ves­ti­ga­tion. Ex­perts say the mar­ket should have al­ready fac­tored risks of penalty pay­ments into Aveng’s share price.

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