Aveng shakes up Grinaker as income drops

Posted On Tuesday, 09 March 2004 02:00 Published by Commercial Property News
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Rand's gains take heavy toll on group

Grinaker LTASA's largest construction company Grinaker-LTA is undergoing a serious shake-up after parent group Aveng's pretax income plummeted 83% to R65,5m in the six months to December.

The group warned earlier that earnings would be halved as a result of the direct and indirect effect of the rand's gains on the construction sector.

Substantial losses on three roads contracts in the continent further dragged down earnings.

Aveng reported a 15% drop in revenue to R5,9bn in the period under review, compared to R6,9bn in the corresponding six months in 2002. Headline earnings fell 55% to 22c.

Two analysts said that the results were slightly worse than they had expected.

Aveng CE Carl Grim was unhappy with the results, but said that the group's construction activities had turned the corner and were now generating cash.

Grinaker-LTA has stopped taking on roads projects in the continent. The roads and earthworks division, which employed about 2000 people in Africa, would be down-scaled accordingly, they said. Grim said retrenched numbers had not yet been finalised.

Aveng would, nevertheless, persist with its strategy of seeking to earn half of its revenues in hard currencies.

"Our other African business remains in a healthy condition and we will continue to seek appropriate contracts outside of SA," he said.

Grinaker-LTA was also being restructured to become internationally competitive at an exchange rate of about R7 to the dollar, said Grim.

Joe Vibetti of Andisa Securities said that results from the restructuring would become visible only in about 12 months' time.

The last of the three most problematic roads contracts in the continent would be completed in September, although the results of these contracts would be included in Aveng's year-end figures in June.

"We, therefore, hope to start the new year with a clean slate," said Grim.

Vibetti said while the operating environment was tough, the losses on these contracts had to be laid at the company's door.

Construction activities were responsible for the bulk of the group's woes.

The construction division's operating income plummeted to about R7m from R143m in the corresponding period a year earlier.

Grinaker's order book had dropped 15% to R7,5bn. Grim said that, at 85%, this was comfortably within the targeted range of between 70% and 100% of group revenue.

Cement subsidiary Alpha, which has been rebranded Holcim by its majority shareholder, benefited from strong consumer driven demand for residential building on the back of lower interest rates.

Industry sales in the period under review were 6,6% above the prior period, said Grim.

The group's Australian construction company McConnell Dowell had performed better than the planned profit breakeven for the period and is getting stronger.

Aveng bought out minority shareholders in McConnell Dowell for R123m during the period.

With construction activities generating cash again, Grim expected the group's gearing to return to the targeted level of 35% in the next two to three years. Gearing had risen almost 8%-50% between June and December.

Aveng closed at R7,48 yesterday, down 0,27%.

Mar 09 2004 07:43:17:000AM Carli Lourens Business Day 1st Edition

Publisher: Business Day
Source: Business Day

Last modified on Friday, 21 June 2013 22:05

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