Losses on projects in Australia and by local subsidiary Grinaker-LTA as well as labour disruptions dented the performance of listed construction and engineering group Aveng in the year to June.
Chief executive Kobus Verster said yesterday that labour disruptions cost the group about R180 million in the year, with R97m attributable to its local construction business, but this was less than the R350m cost in the previous year.
Aveng raised impairments totalling R831m at Grinaker-LTA, which reported losses in the past few years although it reduced its net operating loss to R566m in the year to June from R968m the previous year, and Aveng Water.
Verster said the losses at Grinaker-LTA resulted largely from legacy contracts that were being executed at low or zero gross margins, labour disruptions and high overheads, which continued to adversely affect the overall performance of the group.
Uncertified claims and variations increased by 62 percent to R6.7 billion from R4.2bn the previous year. These largely related to the Queensland Curtis liquefied natural gas export pipeline and loss-making Gold Coast rapid transit projects in Australia.
The group also has commercial issues with the significant contract it was awarded in Chile to sink a 975m shaft at Codelco’s Chuquicamata copper mine. However, Verster was hopeful of resolving this “on a balanced basis”.
He said the group’s liquidity position had deteriorated because of the large amount of cash absorbed by underclaims in the past few years, and losses in Grinaker-LTA.
To strengthen the group’s balance sheet, reduce the absolute level of debt and improve the mix and tenure of debt, Verster said Aveng had successfully completed a R2bn convertible bond issue in July and started a process to raise R2.5bn from the disposal of group properties and an unidentified non-core asset.
Verster said a confidential due diligence process was taking place with potential buyers for the non-core asset.
He said the group had substantial properties countrywide in Grinaker-LTA and at its manufacturing sites, the bulk of which would be sold.
Higher finance charges resulted in Aveng yesterday reporting a 10 percent decrease in headline earnings a share to R1.125 in the year to June from R1.246 in the previous year.
Revenue rose by 2 percent to R52.95bn from R51.7bn.
Operating earnings increased by 20 percent to R784m from R656m.
However, Verster said operating earnings still represented a poor margin performance of only 1.5 percent.
The net cash position deteriorated by 46 percent to R1.27bn from R2.36bn, but group cash and bank balances increased by 6 percent to R4.1bn from R3.9bn.
A dividend was not declared.
Aveng’s two-year order book grew by 11 percent to R40.9bn from R36.7bn at the end of 2013.
Verster said he was relatively pleased with the progress made in the stabilisation and recovery of underperforming areas in the business but the overall performance was overshadowed by losses on the Gold Coast project in Australia and at Aveng Grinaker-LTA.
“We continue to implement actions that will see Aveng well positioned to benefit from improved operating conditions. “
The shares rose 2.23 percent to close at R23.82 yesterday.