Aveng order book hit hard in downturn
13% decline in Australia and Asia construction
AVENG, the listed construction and engineering group, reported that operating conditions in South Africa and other markets in sub-Saharan Africa, Australasia and southeast Asia remained difficult because of the continued global economic downturn and associated intense competition.
Aveng’s chairman Mahomed Seedat said the group recently experienced improved tender activity levels in mining, Australia, New Zealand and south-east Asia as new opportunities came to market.
However, Seedat told a general meeting of shareholders on Friday that the group’s twoyear order book decreased by 5 percent from R28.1 billion at end June to R26.6bn at end September. Seedat said the order book for the Australia and Asia construction and engineering operating segment fell 13 percent in Australian dollar terms from A$1.5bn (R15.9bn) in June to A$1.3bn in September, while the mining order book declined by 9 percent to R4.5bn.
However, the order book for the South Africa and rest of Africa construction and engineering operating segment rose from June by 13 percent to R7.4bn in September, he said.
Aveng Grinaker LTA has established a solid base for profitable growth.
Seedat said the return to reasonable profitability and reversal of the negative working capital and cash flow cycle in the Australasia and Asia construction and engineering segment was progressing but at a slower pace than anticipated.
He said Aveng GrinakerLTA, which forms part of the South Africa and rest of Africa construction and engineering segment, had established a solid base for profitable growth, led by a stable and disciplined management team.
“The planned return to profitability is on track, while even greater attention will be given to driving the transformation following approval of the Kutana transaction,” he said.
Transformation
This relates to Aveng this month reporting that Aveng Grinaker-LTA had agreed to sell an initial 45 percent economic interest in the company to black woman-owned investment group Kutana Construction for a maximum of R756m effective from February 1.
The transaction is linked to the agreement announced this month that seven listed construction companies have agreed to collectively contribute R1.25bn over 12 years to a socio-economic development fund and for each of the signatories to the agreement to undertake further transformation initiatives.
These initiatives include two options: for the companies to become fully transformed with at least 40 percent equity in the hands of black South Africans or committing to mentor up to three emerging black-owned enterprises to enable them to sustain a cumulative annual revenue of at least 25 percent of the mentor companies’ annual revenue by 2023.
The agreement followed negotiations between the SA Forum of Civil Engineering Contractors and government after 15 construction companies concluded settlement agreements with the Competition Commission in 2013 to pay penalties totalling R1.46bn for collusion and bid-rigging.
Seedat added that political and financial uncertainty, together with low commodity prices, continued to result in very competitive market conditions with subdued activity in the civil and mechanical and electrical markets, but Aveng Grinaker-LTA Civil Engineering had been able to replenish its order book through the award of several contracts.
He said conditions were expected to remain challenging in mining and lower activity levels to continue in the short term despite improvement in the mining space.
Seedat said Aveng’s manufacturing and processing segment continued to be impacted by the lack of rail construction projects in the Southern African Development Community and the curtailment of rail maintenance work.
Aveng shares eased 0.71 percent on Friday to close at R7.