Aveng shares dip to lowest since 2004

Slump by more than 16.11%

SHARES in construction group Aveng fell to their lowest level in almost 11 years yesterday after the company forecast a halving in profit.

Aveng shares on the JSE slumped by more than 16.11 percent yesterday to close at R7.55, the stock’s lowest level since August 2004.

The shares fell after the listed construction and engineering group reported its headline earnings a share for the year to June were expected to be at least 50 percent lower than the 112.5c in the previous year.

This translates to maximum headline earnings a share of 56.3c for the year.

In a trading update, Aveng said the group’s operating earnings had been adversely impacted by the challenging economic conditions in the domestic and foreign markets, labour disruptions in the mining and steel sectors and higher than expected costs to complete certain contracts.

Market conditions

This was compounded by the decrease in global steel prices and the contraction in local demand at Aveng Steel, the slower-than-anticipated turnaround to profitability at Aveng Grinaker-LTA and the deterioration of market conditions in Australia that had negatively impacted the order book of McConnell Dowell, it said.

Aveng said the group’s order book had shrunk by 10 percent since December, primarily driven by a contraction in the infrastructure market in Australia, the completion of major projects in Australia and to a lesser extent in the South African and African construction and engineering segment.

The two-year order book was at R32.5 billion in December.

Aveng said it had responded to these conditions by entering into a series of actions to reduce costs, close out contracts and improve operational efficiencies.

Aveng said it had conducted a comprehensive evaluation of the group’s forecast results to June and its short-term business plan had been completed.

The group was considered to be adequately funded at this time and there was no current need for additional capital, it said.

Grinaker-LTA reported a loss of R298 million in the six months to December.

Turning to Australia, Aveng said McConnell Dowell had entered into a settlement agreement on the Hay Point Berth contract to reduce future uncertainty and de-risk the historical contractual exposure, resulting in an adverse impact on operating earnings in the current period.

Aveng said McConnell Dowell would continue to pursue its legal rights in terms of the Queensland Curtis Liquefied Natural Gas contract and had made progress with the advancement of outstanding issues on the Gold Coast Rapid Transit contract.

Quinton Ivan, a portfolio manager at Coronation, said Aveng’s trading update was, as expected, very weak given the weak economic conditions in South Africa and Australia, the group’s key markets.

However, he said there were a few positives in the trading update.

Ivan said the big concern was the massive pressure placed on Aveng’s balance sheet by the massive problematic contracts the group had had to endure over the last couple of years.

He said long overruns and massive outflows from working capital required to complete problematic contracts had adversely impacted on Aveng’s solvency and liquidity position.

Aveng’s annual financial results are expected to be published on August 18.