JOHANNESBURG - Aveng chief executive Kobus Verster has resigned with immediate effect as the listed construction and engineering group embarks on another strategic review to address ongoing substantial financial losses by the group.
The group yesterday reported a net loss in the year to June of R6.7 billion and headline loss of R6.4bn following noncash impairments and write-downs on long-outstanding uncertified revenue of R5.9bn.
Excluding non-recurring write-downs and charges, the headline loss amounted to R630m.
Arbitration rulings that were well below the group’s expectations led to a review of long outstanding uncertified revenue and the write-downs to derisk the group’s balance sheet.
Aveng reported a headline loss a share of 1 625.3c compared to 75.2c in the previous year.
Eric Diack, currently executive chairman of the group, has assumed Verster's duties until a new chief executive was appointed.
Diack said the group’s operating performance was unacceptable, which had led to the operational intervention.
He said the strategic review, in conjunction with independent consultants, would address the optimal business portfolio, identify noncore assets and create a sustainable balance sheet to create an optimal group capital structure, sustainable funding model of McConnell Dowell, address the R2bn convertible bond due for repayment in July 2019 and the need to lower group interest charges.
Diack said fixed overhead expenses had been reduced by 18% or R503m in the year, with 1 400 people retrenched.
“Our order books are reasonably good so we are hoping there are not going to be any major retrenchments during the year,” he said.
Adrian Macartney, the group financial director, added that Aveng’s reported revenue was about R53bn in 2014 and it was today about half of that with the group staffing dropped from about 33 000 then to 15 500 now.
Diack said Aveng had been vigorously cutting costs but the market “keeps disappearing and falling in front of us”.
“It’s a very tough space. There is no infrastructure spend in South Africa at the moment. Apart from roads, there is nothing of size,” he said.
Diack said there was not any intention at this stage to exit the South African construction market as Murray & Roberts (M&R) had but added: “Who know what comes out of the strategic review."
Aveng last year reported that it had agreed to sell a 51% stake in its South African construction business Grinaker-LTA to Kutana Construction for R756m as part of a strategy to create opportunities for emerging black contracts in line with the Voluntary Rebuilding Programme (VRP) agreement reached with the government.
Diack said the effective date of that transaction was supposed to be October 1, all the final approvals received and Kutana would have to be part of the decisions taken about Grinaker-LTA during the group strategic review
Macartney said the transaction was an earn-out type deal and if they could improve the earnings, it improved the price.
He said the performance of Grinaker-LTA was therefore ultimately in the interest of both Kutana and Aveng.
Aveng’s two-year order book grew by 8% to R29.9bn from R27.2bn in December.
Diack said the markets serviced by McConnell Dowell in Australia were expected to offer growth opportunities over the medium term but the outlook for the domestic infrastructure market remained subdued with limited visibility of large slarge-scalets.
He said the immediate priority for the group would be the completion of the strategic and operational reviews, with the improvement of liquidity headroom remaining a key focus in the immediate term.