Mauritius News

Aveng makes inroads on large contracts in Mozambique and Mauritius

AVENG GROUP INTERIM RESULTS TO DECEMBER 2012: Performance underpinned by a well balanced portfolio, geographical diversity and multi-disciplinary capabilities

Revenue up 30%.

  • Operating profit improved by 56%.
  • Diluted Headline earnings increased by 44%.
  • Solid balance sheet, although net cash down 16% to R3.3bn.
  • Two year order book strong at R40bn.
  • Profitability affected by labour disruption in South Africa, particularly at Aveng Grinaker-LTA.

Commenting on the results, the Aveng Group CEO, Roger Jardine said:

“The group’s performance for the first six months of the year reflects the modest recovery in the global economy and the subdued operating environment in the construction and engineering segments. Despite challenging market conditions, Aveng continues to unlock value for its shareholders by remaining focused on its long term strategy of diversifying revenue in key growth markets.

We are particularly pleased that some of the large African infrastructure projects outside of South Africa are now reaching implementation stage. We have made inroads on large contracts in Mozambique and Mauritius.  Despite labour disruptions in the local mining industry, Aveng Mining posted a good performance off the back of strong mining activity across the continent. This offset depressed results from the Aveng Manufacturing and Processing operating group, which were impacted by difficult economic conditions and a highly competitive trading environment.

It is encouraging that, despite delayed timing in contract renewals, the order book remains strong at R40 billion and it continues to grow as reflected in the 6% increase as at 28 February 2013.

High levels of activity within McConnell Dowell and an improved performance by Aveng Mining have made significant contributions to the 30% increase in revenue of R25 billion. However, the labour disruption experienced in South Africa during the year, drove the R150 million loss in revenue at Aveng Grinaker-LTA.”

Commenting on the industrial action and impact on the local economy Jardine said   “Since the middle of last year, our company and many others across the mining, construction and transport industries have been negatively impacted by a series of un- procedural and sometimes violent strikes. While I acknowledge the right of employees to strike as part of the collective bargaining process, or when their rights are violated, the levels of violence and disregard for established dispute resolution processes is self-defeating and cannot be justified. This is even more concerning when we consider that this is happening at a time when South Africa’s economy has stagnated for a number of years and fewer new job opportunities are being created. Unlawful or violent industrial action can only worsen the situation.”

“Our country faces a serious challenge of growing unemployment in general, and youth unemployment in particular, which could contribute to social instability if left unchecked. The time has come for all social partners to put the country first and stabilise our labour relations environment so we can create a climate conducive to investment, economic growth and employment creation,” added Jardine.

Commenting on the Competition Commission investigation into the historical anti-competitive practices in the South African construction industry, Jardine said: “The Aveng Group has proactively engaged and cooperated with the Competition Commission.  The matter has not been finalised, and Aveng’s view remains that the investigation must be completed as soon as possible in order for the industry to move forward. As the settlement process has not been concluded, the provision for a potential penalty we announced in September 2012 remains unchanged.”

“The current Aveng Board and Management have taken rigorous action to root out historical anti-competitive conduct. The Group launched many initiatives and provided channels for employees and former employees to come forward and make a full disclosure regarding any unlawful conduct. This information was shared with the appropriate authorities.”

Group outlook for the short to medium term

Given the slow rollout of infrastructure spend in South Africa and a weaker Australian economy, public sector infrastructure spend in both countries is expected to remain subdued in the coming year. Notwithstanding this, Aveng will be participating in the R827 billion infrastructure projects budgeted for over the next five years in South Africa, while in Australia we expect social infrastructure spending to  increase as resource spend decreases.

The Manufacturing and Processing operating business will benefit from steel price increases and restocking of inventories with effect from the beginning of the year. However, this may be offset by the impact of the instability in domestic steel mills on supply and sales volumes.

Historically, Aveng Moolmans has been highly successful in Africa. Aveng Manufacturing and Mining operating segments are also well placed to participate in growth opportunities in the rest of Africa, where opportunities are more encouraging. More specifically, in Mozambique, Aveng is currently constructing a plant to manufacture concrete pipes and sleepers.

Aveng Grinaker-LTA was recently awarded two separate contracts with a combined value of approximately R1.6 billion for the construction of Eskom’s Majuba Rail Link, and another in Mozambique for the Nacala Section 2 Rail Project on behalf of the Vale/CFM Concession Company. In Mauritius. Aveng has recently been awarded preferred bidder status for the construction of a ring road. We anticipate that these achievements will drive the growth of the African business at Aveng Grinaker – LTA.

Aveng will continue to focus on the energy market as a key growth area, having won bids for two projects in the second round of the Renewable Energy Independent Power Procurement Programme.

“Our diversified revenue and geographical footprint strategy is paying off; and we are continually recognised for our expertise. We are making good progress in the rest of Africa. In addition to Mozambique and Mauritius, we are also considering opportunities in Ghana. The Group will continue to focus on project execution and to reduce the financial impact of challenging contracts,” Jardine concluded.

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