Johannesburg - Labour disruptions, particularly at the Medupi power station and Mokolo water augmentation project in Limpopo, made a R350 million dent in the profitability of listed construction and engineering group Aveng in the year to June.
This had resulted in the group making a R500m provision for undisclosed loss-making projects, but it intends to pursue claims against the project clients.
Kobus Verster, Aveng’s acting chief executive and chief financial officer, said yesterday that R270m of the R350m impact on the group’s profitability related to South African construction subsidiary Grinaker LTA, with the additional amount split equally between its manufacturing, mining and Trident Steel businesses.
Verster declined to provide details about the projects involved but confirmed that much of the impact was around Lephalale.
Both its Medupi power station project for Eskom and the Mokolo water augmentation project for the Trans-Caledon Tunnel Authority are located near Lephalale.
Verster also declined to specify the projects to which the R500m provision related, stressing the group needed to protect its commercial position.
“Typically, when we make a provision, that is not the end of the line and we will pursue recoveries as far as possible – and that also accounts for the labour [disruption].
“Once we start discussing individual projects in open forums, we put ourselves at a disadvantaged position in terms of pursuing our rights with specific clients,” he said.
Verster added that Eskom was obviously fully aware of the labour disruption at Medupi. Aveng would try to recover as much as possible within the contractual framework that existed.
The performance of the Australian and Pacific construction segment was affected by adverse weather conditions at the Queensland Curtis liquefed natural gas (QCLNG) export pipeline project and risks still remained.
But Aveng had a good relationship with the client and was following its contractual process to recover claims.
Verster said Aveng was more optimistic about the recovery of its claims on this project because it was now 85 percent complete. That put the group in a position to get agreement with the client on final numbers “that should reflect something that is fair to us”.
He said the QCLNG project would be completed by the end of this calendar year.
Angus Band, Aveng’s chairman, said the year to June had been “a very disappointing one” for the group.
Band said there was a solid performance by the group’s Australian construction businesses and a good performance by the group’s mining business but “a very poor result” from the South African construction business.
Grinaker LTA’s loss increased to R914m from the loss of R760m in the previous year on a 2.3 percent increase in revenue to R7.7 billion.
This contributed to Aveng’s headline earnings a share decreasing by 3 percent to R1.246 in the year to June from R1.281 in the previous year.
Group revenue rose 27 percent to R51.7bn from R40.9bn.
Net operating earnings improved by 7 percent to R656m from R613m.
The losses at Grinaker LTA and adverse cash flow, largely because of the working capital outflow at the QCLNG project, resulted in the board deciding against declaring a dividend.
However, Band said the order book still remained “pretty robust”. He expressed confidence that there was sufficient work to replenish it.
Band stressed that Aveng had not suffered because of the quantity of work it had but rather the effectiveness of the execution these projects.
Aveng shares lost 2.9 percent to close at R28.40 yesterday. - Business Report