Aveng braces for loss a share after R830m goodwill write-offs
AVENG has raised impairments totalling R830 million in two of its businesses and advised shareholders it expected a loss a share of between 99.6c and R1.124 for the year to June, compared with earnings of R1.246 a share a year earlier.
The listed construction and engineering group also gave notice yesterday of its intention to address a deterioration in its cash position.
Aveng said it would dispose of non-core assets, including properties, with the objective of raising at least R2.5 billion. It was also actively pursuing capital market funding alternatives that did not currently include a rights issue to diversify its funding sources and reduce reliance on bank debt.
Aveng attributed the deterioration in its cash position over the past two years to financial performance and increased unsettled claims, largely on the Queensland Curtis liquefied natural gas export pipeline and loss-making Gold Coast rapid transit projects in Australia.
The group’s gross debt position was expected to be about R2.9bn at the end of June compared with R2.5bn at half-year stage, while it anticipated a net cash position of about R1.3bn compared with net cash of R2.4bn at the end of 2013.
It said the impairments at Grinaker-LTA and Aveng Water would affect earnings a share, but headline earnings a share would be unaffected.
Headline earnings a share, excluding the impairment of goodwill intangible assets, would decline by 10 percent or less to between R1.121 and R1.246 in the year to June compared with R1.246 in the previous year.
Aveng’s board had decided to fully impair the goodwill and related intangible assets in Aveng Grinaker-LTA following financial losses in the 2012 to 2014 financial years, and prolonged weakness within the local infrastructure environment with limited evidence of near-term market improvement.
The goodwill and related intangible assets associated with Grinaker-LTA was first recognised in 2001 when Grinaker merged with LTA, with a carrying amount of R756m.
The group said the stabilisation and recovery process implemented at Grinaker-LTA continued to gain traction and it remained well placed to achieve a break-even position during the next financial year in line with previous guidance.
Aveng’s board has also decided to fully impair the goodwill and intangible assets of R74m in the water business of Aveng Engineering because of the lower-than-anticipated commercial uptake of its water treatment technology, largely because of a depressed mining sector.
It said the local construction and manufacturing markets remained challenging because of slow infrastructure-related expenditure, the impact of lower mining activity resulting from weaker commodity prices, industry labour disruptions and generally subdued manufacturing and steel sectors.
However, it said the building and rail-related infrastructure environment in the Southern African Development Community region offered good opportunities for the group.
The Australia construction market still offered good opportunities despite a slowdown in mining-related expenditure.
Aveng’s two-year order book increased by 8 percent to R38.8bn at the end of March from R36.7bn at the end of last year. The order book for construction and engineering in the Australasia and Pacific region increased by 9 percent to R22.2bn, Aveng Mining’s order book grew by 13 percent to R8bn and the order book for contracting business within Aveng Manufacturing rose by 39 percent to R900m. But the construction and engineering order book for South Africa and rest of Africa declined by 10 percent to R7.7bn.
Aveng said the group had made substantial progress in addressing the operational underperformance in certain areas. Its board had a clear plan to improve liquidity over the short term and was addressing the overall fixed cost base of the group.
Annual results are due to be released on August 26. The stock fell 4.26 percent to R22.50.