Aveng tips Moolmans for recovery by year-end
The infrastructure and resources group stepped in to save the underperforming mining contractor
Infrastructure and resources group Aveng said on Wednesday subsidiary and mining contractor Moolmans was on course to return to profitability by year-end.
Moolman’s return to profitability will boost Aveng’s fortunes in the 2020 financial year because the contractor and engineering, construction and maintenance contractor McConnell Dowell make up Aveng’s core assets.
Aveng has disposed of a number of non-core assets including engineering supplier Aveng Duraset Alrode, Aveng Water and Grinaker-LTA mechanical and electrical business. The business has so far disposed of assets valued at R1.1bn.
The disposals are meant to reduce the company’s risk profile in a weak South African construction market.
Aveng, which reported a headline loss of R1.5bn in the year to end-June, on Wednesday said Moolmans had secured 92% of the budgeted revenues for the 2020 financial year. This has heightened optimism that the business would bounce back from the poor performance in the 2019 financial year.
The company attributed the disappointing results to underperformance on the Gamsberg and Khutala contracts in the Northern Cape and Mpumalanga, respectively.
The business has returned to profit during the first quarter and has met budget expectations. This provides a strong underpin to the expected return to profit for the full financial year.
It said additional closure costs incurred following the early termination of the Karowe contract in Botswana also hurt Moolmans.
The poor performance prompted Aveng to re-negotiate contracts, appoint Jerome Govender as managing director and obtained contract extensions.
Aveng on Wednesday said the intervention had yielded positive results. “The business has returned to profit during the first quarter and has met budget expectations. This provides a strong underpin to the expected return to profit for the full financial year,” Aveng said.
The company said its other subsidiary, McConnell Dowell had secured 90% of its budgeted revenue for the 2020 financial year after it was awarded four new projects since June worth R5.3bn.
McConnell Dowell’s two-year order book stood at A$1.45bn (about R14.5bn), with the company continuing to trade profitability and in line with management expectations, the company said.
Negotiations with potential buyers for the remaining non-core businesses, Aveng Trident and Aveng Automation and Control Solutions (ACS), were ongoing. It said it expected to finalise the disposal of all non-core businesses during the course of the current financial year.
Aveng, once SA’s largest construction firm, said proceeds from the sale of the non-core assets were expected to improve its balance sheet. “Liquidity and cash management remains an ongoing priority for the group,” it said.
Aveng’s share price was unchanged at 2c on Wednesday. The share has lost more than 99% of its value over the past three years, with the group battered by a depressed construction market in SA, where large projects are few and far between.
With Karl Gernetzkynjobenis@businesslive.co.za