State delays, strikes cause loss for Aveng

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Roy Cokayne

Infrastructure expenditure delays and labour disruptions in South Africa as well as projects executed at low- or zero-profit margins hurt the financial performance of listed construction and engineering group Aveng in the six months to December.

The direct costs of labour disruptions on net operating earnings totalled R140 million compared with R115m in the previous corresponding period.

The bulk of the labour disruption costs were incurred by Grinaker LTA (R96m) with Aveng’s manufacturing and processing operating segment accounting for R44m of the loss, largely because of depressed volumes caused by labour disruptions in the automotive and component manufacturing sectors.

Aveng yesterday reported headline earnings a share of 82.1c in the second half of last year, 21 percent down from the previous corresponding period, with higher finance costs also contributing to this decline.

Revenue rose by 11 percent to R27.6 billion, but net operating earnings declined by 8 percent to R503m, largely because of losses at Grinaker LTA and the cancellation of a contract in Zambia.

Kobus Verster, Aveng’s chief executive, said the South African construction environment remained challenging, with both labour disruptions and delays in infrastructure-related expenditure.

Aveng’s segment for construction and engineering in South Africa and the rest of Africa increased revenue by 11 percent to R4.2bn but reported a net operating loss of R334m compared with the R70m loss in the corresponding period last year.

Verster said although the operating loss was still large, it was a significant improvement on the R826m loss reported in the previous period.

He said the loss was largely attributable to current projects executed at low or zero margins, including the Mokolo Crocodile pipeline project and Eskom-related work.

Other large projects, such as the Nacala rail contract in Mozambique and the Majuba rail project, were at early stages and also not yet producing the appropriate margin.

Verster said there was a shift in the Australian construction market from mining-related infrastructure to opportunities in the transport, marine, oil and gas sectors.

McConnell Dowell was awarded contracts in Australia worth A$400m (R3.8bn) last month, including the Melbourne port project.

However, claims related to major contracts in Australia, including the Queensland Curtis Liquefied Natural Gas (QCLNG) pipeline and Gold Coast Rapid Transit projects, remained unresolved.

Verster said the short- and medium-term profitability of these projects would depend on the successful resolution of these claims.

He said the first ruling in the arbitration process went against the QCLNG joint venture but leave to appeal against this ruling had been requested.

There was a strong performance by Aveng manufacturing, which increased revenue by 6 percent to R5.3bn and net operating earnings by 113 percent to R162m.

Aveng’s mining revenue decreased by 9 percent to R3.5bn and net operating income fell by 24 percent to R295m.

The order book was marginally lower at R36.7bn compared with R37.7bn in June.

“The past six months have been characterised by consolidation and repositioning of the Aveng group. We nevertheless still have a way to go to drive delivery of the full potential of our diverse business,” he said.

Aveng shares fell 2.24 percent to close at R21.80 yesterday.


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