Loss-making road contracts, rand pummel Aveng

Posted On Thursday, 16 September 2004 02:00 Published by Commercial Property News
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Construction group reports dismal results

Aveng Grinaker LTABSA's largest construction group, Aveng, reported dismal results yesterday, citing the strong rand and big losses on three roads contracts in Africa as being among the reasons for income before tax crashing 75% to R173,3m.

Aveng CE Carl Grim described the past year as the most difficult in the company's five-year history.

The bulk of the problems occurred in Grinaker-LTA, the largest division in the group. It has undergone a major shakeup with about 2500 jobs being slashed during the period in an attempt to make it competitive at R7 to the dollar.

Grinaker-LTA was also withdrawing from problem areas including Africa and the Middle East and focusing instead on SA. But the market for large capital projects remained slow in SA.

Good performances by most of Aveng's other divisions, including big growth in steel and cement sales and profits, failed to compensate for construction woes.

Aveng's headline earnings fell 52,4% to 56,5c a share, and revenue dropped 11,4% to R11,7bn. In dollar terms revenue rose 16%, but headline earnings remained substantially down at 37%.

Murray & Roberts, SA's secondlargest construction group, last month also cited the strong rand and problematic contracts for a 19% drop in earnings after tax in the year to June.

The strong rand has reduced foreign earnings and put large South African capital projects on hold.

"When your private customer base is in the mining and energy sectors and they are highly dependent on the randdollar exchange rate, they don't invest and we don't get work, and it spirals," said Grim yesterday.

Grim also suggested that the group took on more work than it could handle.

Thinly spread resources and the effect of the rand's appreciation led to major losses on three roads contracts in Africa. This cost Aveng between R90m and R100m, Grim said. The losses on the three contracts accounted for a large part of a 67% fall in operating income.

The group's Australian operation, McConnell Dowell, posted a small loss at A 1,9m, but Grim said it was well positioned in that market, which held "enormous" potential.

Aveng concluded its first major empowerment deal in the period, with a consortium led by Tiso Group taking a 25% stake each in Aveng subsidiaries Grinaker-LTA and Trident Steel. Grim said the challenge now was to extract value out of the deal.

Yesterday's results were in line with expectations. Aveng warned earlier this year that earnings would be halved.

Analysts expected an improvement, albeit small, in the group's performance in the new financial year.

An analyst who declined to be named said the three loss-making roads contracts were now closed. And he pointed out that Aveng had taken R80m out of its cost base through overhead reductions.

Grim would not venture a forecast yesterday on earnings for the new financial year, but expected tough conditions to continue for the first half. The second half of the financial year looked more promising . Aveng more than halved last year's dividend of 30c to 14c this year.

Last modified on Friday, 21 June 2013 22:35

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