Aveng not ready for fine
Faulty contracts hurt revenue
AVENG, the construction and engineering group, has not raised any provision for possible fines related to contraventions of the Competition Act and believes it is premature to speculate on the quantum of any possible settlement with the Competition Commission.
Roger Jardine, Aveng’s chief executive, said yesterday that subsidiary Aveng Africa had submitted a full application to the commission in terms of a fast-track settlement process and was assisting the commission in detailing all anticompetitive conduct of which Aveng Africa had knowledge.
The fast-track process relates to collusion and bidrigging offences in the construction sector. Last year the commission confirmed all of South Africa’s major listed construction firms had been implicated in anticompetitive practices during its investigation into 65 bid-rigging cases in the sector involving more than 70 projects valued at R29 billion.
Aveng had heard that the commission wanted to resolve all the construction sector matters in the first half of this year and stressed that competition matters affecting the group would be resolved this year.
But Jardine declined to say if there were any unresolved competition issues involving Aveng that were outside of the fast-track settlement process.
“Our matters are mainly related to the construction sector and… are in the commission’s hands. We can’t comment on this until we know what the state of play is,” he said.
Problematic contracts in Aveng’s construction and engineering business locally and in Australia hurt the group’s performance in the six months to December, contributing to a 34 percent fall in headline earnings a share to 70.6c from the previous corresponding period.
Group revenue increased by 13 percent to R19.1bn.
The open-cut mining, manufacturing and processing and Australian and Pacific construction and engineering business segments all recorded solid revenue growth, while the performance of the local construction unit was in line with the previous period.
But the problematic contracts resulted in a 35 percent fall in operating profit to R332m and a deterioration in the operating margin to 1.7 percent from 3 percent. Unresolved claims within the mechanical and electrical unit at the Medupi and Kusile power station projects dented profitability and liquidity of local construction.
Aveng was aware of the reported settlement between Genrec, a Murray & Roberts subsidiary and main subcontractor, and the main contractor and would pursue its entitlements against Genrec through all contractual and legal remedies available.
Jardine did not mention the value of the unresolved claims.
The performance of the Australian and Pacific construction segment was affected by site access delays and adverse weather conditions at the QCLNG export pipeline project and a further delay in the completion of the Adelaide desalination project.
These problems led to the QCLNG project not reaching planned output and Mcconnell Dowell making provision for the costs at the project during the six months. But the project was only 35 percent complete and posed a material risk.
There was an additional loss provision on the Adelaide desalination project expected to be largely completed by July.
The group’s confirmed twoyear order book grew by 49 percent to R45.9bn.
Jardine said economic conditions would be subdued in the local infrastructure market for the next 18 months and Aveng was leveraging its strong balance sheet to enter new markets, with 77 percent of the group’s two-year order book coming from offshore operations.
The Australia and Pacific infrastructure market would remain strong on continued infrastructure investment in the mining, oil and gas sectors, while the manufacturing and processing segment was well placed for the anticipated rise in mining activity and rail infrastructure spend.
Aveng shares added 2.53 percent to R38.12 yesterday.