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Aveng pays dearly for labour disruptions

Direct cost to struggling Grinaker-LTA almost R100m.

Labour disruptions cost construction group Aveng (JSE:AEG) R140m in the six months to December 31 2013, up from R115m in first half of the previous financial year.

Aveng reported and 11% increase in revenue to R27.6 billion and a decrease in headline earnings per share of 21% to 82.1% for the period.

R96 million of the labour related cost sat in the embattled Grinaker-LTA, R44 million in the manufacturing and processing segment and R31 million in mining.

Grinaker-LTA reported an operating loss and Kobus Verster, newly appointed Aveng CEO said corrective measures at the company will take some time to show results.

The operating segment Construction and Engineering SA and the rest of Africa that includes Grinaker-LTA reported a net operating loss of R334 million, considerably down from a R826 million loss in the previous six months.

Apart from labour unrest, this was ascribed to lower margins and operational challenges on major contracts. This includes work on Eskom’s Medupi power station near Lephalale, where Grinaker-LTA is a joint venture partner in the civils contract.

Aveng said despite the labour disruptions “and challenges to gain access to work areas, focus continues on accelerating progress” on Medupi.

Aveng has two other major headaches, namely claims on the Queensland Curtis Liquefied Natural Gas (QCLNG) pipeline and facilities project and Gold Coast Rapid Transit (GCRT) project, both in Australia.

The QCLNG project has been completed in December 2013 and the GCRT project is on track for completion by June this year, but Aveng warns against the risk the claims on these projects pose.

It is together with its joint venture partner appealing the arbitration on the first part of the QCLNG claim that was awarded against them and is preparing its submission on the second part of the claim.

The claims on GCRT are described as “significant and complex.”

Aveng says these projects remain a material financial risk to both profit and cash flow until the work is done and the claims process concluded.

Looking forward Aveng will improve its project delivery, management said.

Grinaker-LTA will continue with its turn-around initiatives under the leadership of new management.

On the manufacturing side Aveng hopes to benefit from a new plant in Mozambique for the delivery of concrete sleepers, while Aveng Steel is expected to benefit from improves steel prices and sales volumes.

Aveng Moolmans, the opencast mining business, will manage its reduced activity and revenue and the Mining Shafts and Underground business will focus on increasing margins.

Aveng has a two-year order book of R36.7 billion with increased activity in South Africa and Africa and reduced activity in Australia.

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