Construction group Aveng saw a 4.85% drop in its share price by mid-afternoon on Monday to R3.14 on the back of a massive net loss of R6.7 billion for the year ended June 30.
The group’s results announcement was delayed by a month and only released after it reached agreement with the major banks funding it to maintain and extend its current credit facilities.
The group’s share price has lost more than 53% of its value over the last six months.
Aveng CEO Kobus Verster resigned on Friday and executive chair Eric Diack has taken the helm until a new CEO is appointed in the first half of next year.
This comes only a month after former independent non-executive chairman Mohamed Seedat stepped down to make room for Diack as executive chair. At the time, the group said Verster had its full support.
One of Aveng’s long-standing headaches, the local construction and engineering subsidiary Aveng Grinaker-LTA is also without a permanent leader after the recent resignation of its managing director Chris Botha. Diack said the position should be filled during the first quarter of next year.
The results reflect non-cash impairments and write-downs of uncertified revenue of R5.9 billion.
Diack said: “During the first half of the year, arbitration rulings for the Kenmare Resources and Mokolo Water Augmentation contracts resulted in awards well below our expectation. This, together with a highly litigious environment, precipitated a review of long-outstanding uncertified revenue.”
To add insult to injury, the dispute on the Queensland Curtis Liquefied Natural Gas (QCLNG) pipeline project, which Aveng’s Australian business McConnell Dowell executed with a joint venture partner, was finalised. It resulted in an award of AUD50.5 million (R508 million), which was considerably lower than the AUD285 million the group expected.
Diack said: “The board decided to write-down a non-cash amount of R5.1 billion in uncertified revenue (R2.4bn of which relates to the QCLNG award) and various other impairments which have resulted in de-risking of our balance sheet. The change of approach has resulted in six major commercial settlements and arbitration awards being concluded, resulting in positive cash inflows and further reducing uncertainty.”
Aveng Grinaker-LTA did not return to profitability as the group expected. It suffered an adverse settlement on the Mokolo Crocodile project and gave a poor performance on some roads projects. Diack said while he is no engineer, road projects are the easier civil projects to execute and therefore the poor performance on these projects was very disappointing.
During 2017 the group has retrenched 1 400 staff members. By December 2016 the headcount stood at 15 500, this is about half the 33 000 Aveng employees in 2014. In the year ended June 30 2014 the group recorded R53 billion in revenue, down to R23.4 billion in the reporting period.
Overhead cost was reduced by R500 million in the reporting period.
Other interventions so far include the “reset” of McConnell Dowell which now has new leadership, a new operating model and strengthened technical and operational capabilities as well as improved project and business governance.
Diack said the group has learnt many lessons during the McConnell Dowell intervention that can be applied during the rigorous review of the rest of the business.
He does not expect further significant retrenchments in the current financial year.
Diack said the review “will include the development of a sustainable capital and funding model, which will address the future funding of McConnell Dowell and the group’s convertible bond which matures in July 2019. The review will be completed by November 30, after which I will communicate its outcomes.”
The group has identified non-core assets for disposal and the proceeds will be used to reduce debt or to relieve pressure on liquidity.
Diack said that after a difficult year, the prospects for the group are more positive. Its two-year order book stood at R29.9 billion at year-end, which is an 8% increase from December 2016. In rand terms the McConnell Dowell order book increased by 3%, Aveng Mining by 29% and that of Aveng Grinaker-LTA by 2%.
The geographical split is 51% Australasia and Asia (December 2016: 53%), 41% South Africa (December 2016: 41%) and 8% other (December 2016: 6%).
The embedded gross margin is 8.3%, up from 7.3% at half-year.
Diack said: “It is not business as usual. We need to execute to plan, which we haven’t for the past few years.”
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