Aveng tries to do things differently
The construction group wants to develop agile new operating model
Aveng has completed a strategic review involving “a very thorough and robust interrogation of all parts of the business” as it tries to turn its fortunes around.
The construction group said on Tuesday this came as its valuation was at a “significant discount” to the sum-of-the-parts valuation.
The review’s finalisation coincides with the interim period ended December 2017 and points to a slimming down and restructuring of the company around its Moolmans mining business and the McConnell Dowell civil engineering operations that service Australasia.
This includes selling off noncore assets to create “a sustainable capital and funding model”.
The company, which built Sasol’s new multibillion-rand Sandton headquarters, reported a headline loss of R335m in the interim period to December 2017 from a loss of R391m in the six months to December 2016, even as revenue jumped 13% to R16bn. But net operating earnings rose from a loss of R164m in December 2016 to a profit of R94m.
“The increase was driven by strong operational performance at McConnell Dowell, where revenue grew by an impressive 35%,” Eric Diack, executive chairman and acting CEO of Aveng, said on Tuesday, adding that the review of operations was supported by the board. It had highlighted that Aveng had reached a “critical juncture” with “decisive action” needed.
In the latest period, 20 of 24 disputed contracts were settled, with net debt reduced to R555m from R937m in December 2016. However, the group says its debt levels are unsustainable. Gross debt of R3bn comes mainly from previous operating losses.
“We have started the implementation of a comprehensive strategic change plan [to focus on becoming] an international infrastructure and resources group operating in selected fast-growing markets. We need to develop a new and agile operating model,” Diack said.
The Moolmans mining business grew revenue 24% in difficult conditions, reporting a R104m operating profit. But revenue at the struggling Aveng Grinaker-LTA civils subsidiary remained flat. The business reported a much increased loss of R212m, from a loss of R62m in the period a year earlier.
The group had also halted the sale of an indirect 51% stake in Aveng Grinaker-LTA to an empowerment group after the latter had failed to fund an upfront payment of R20m.
Aveng said SA’s difficult economic space continued to have a negative effect on revenue growth for its manufacturing and processing operations, even as gross margin for the group improved to 7% from 6.7%.
Henry van de Wall, a member of the Association of South African Quantity Surveyors, said lower priced building projects could be putting clients at risk. He said the local built environment and construction industry was still in a slump and competition for projects was fierce.