Aveng feels the tough times
AVENG saw headline earnings per share plunge 58% in the six months to December as the construction and engineering sector feels pressure from a decline in mining investment.
AVENG saw revenues fall 14% as net operating earnings dropped 19% and headline earnings a share plunged 58% in the six months to December.
Along with many of its JSElisted peers the construction and engineering group is feeling pressure from a decline in mining investment and the poor rollout of government infrastructure in SA.
Regarding the mining segment the company said yesterday it was not able to compensate for the nonrenewal of three gold-mining contracts in Africa during the previous financial year. This was despite commencement of the Nkomati nickel mine contract in Mpumalanga and increased activity on existing contracts, it said. Construction and engineering in SA remained constrained due to the lack of large infrastructure investments. The segment was mainly sustained by construction activity on large private-sector building contracts and engineering work on two renewable energy contracts.
Among these projects the group was undertaking “a few” major roads projects for the South African National Roads Agency and working on Sasol’s new head office in Sandton. It was also involved in the Nacala road corridor in Zambia, Malawi and Mozambique, the Majuba rail project to supply Eskom with coal and a hospital in KwaZuluNatal and the expansion of the Cape Town convention centre.
The group’s two-year order book was flat at R32bn compared with December 2013 but Aveng’s net cash position improved to R1.7bn from R1.3bn in June last year.
Revenue from Aveng’s manufacturing segment was flat, as weak steel prices were further undermined by striking South African metalworkers. The segment did, however, benefit from strong demand for concrete rail products in Mozambique and Zambia. Meanwhile, rail services revenue was boosted by growth in rail construction and maintenance services in sub-Saharan Africa, including for the Kalagadi manganese mine in the Northern Cape and for Transnet.
But the group said labour disruptions and poor investment had negatively affected the mining, water and specialist construction products business units.
Aveng CEO Kobus Verster said yesterday there was a lack of growth in civils, power and mining infrastructure projects, but the group had substantially completed legacy contracts and was pursuing opportunities in Rwanda, Ethiopia and Tanzania.
There was also a drive to grow the group’s footprint in South East Asia and New Zealand where it had existing big projects.
Rubin Renecke, investment analysts at Kagiso Asset Management, said yesterday Aveng’s “weak results” were in line with guidance and were driven by falling revenue and operating profit in the Australian businesses and the mining division.
He also said contract losses at Grinaker LTA — Aveng’s multidisciplinary construction and engineering unit based in SA — continued to negatively affect the group.
“While the outlook for Aveng’s markets remains tough across the board, management have indicated that most of the large loss-making contracts are now coming to completion and all else being equal, this should be positive for the group going forward,” Mr Renecke said.
The sale of Electrix, Aveng’s former utility, resources and infrastructure contracting business in Australia and New Zealand, for about R1.4bn is part of plans to strengthen the group’s financial position while resolving contract claims and pursuing growth opportunities.
Mr Verster said timelines for claims on the Queensland Curtis Liquid Natural Gas project had been set, but it would be a “fairly protracted” process.