Aveng’s Australian subsidiary McConnell Dowell has won contracts to the value of Au$1 billion since end-December.
This is not the only good news for the troubled infrastructure and resources group, as it has also settled two long-standing outstanding claims that will release Au$41.5 million in cash to the group in the short term.
It said on Thursday the contracts awarded to McConnell Dowell, which operates in the engineering and construction sector across Australia, New Zealand and Pacific Islands and South East Asia, represents growth of 47% since December 31, 2019.
The group added that in addition to the secured orders, McConnell Dowell has in excess of Au$1.2 billion of tenders that are currently under evaluation, pending contract award.
“The pipeline of new work is further supported by Au$930 million worth of projects which are currently in preferred status or Early Client Involvement (ECI) contracts.
“Tender volumes are expected to increase further over the coming months, particularly in support of stimulus packages as economies enter a post lockdown period,” it said.
An analyst, who did not want to be named, said it is obviously positive news that McConnell Dowell has secured these contracts but at the end of the day, what is the risk in those contracts and what margin has it priced into them?
“That is the million-dollar question, but you would rather have them than not have them.
“Aveng has got two operations now. Moolmans is pretty marginal and McConnell Dowell is either going to save their bacon or put them in [under].
“You assume they have priced the work correctly and are capable of doing it,” he said.
Aveng said the contract awards it has secured are with government customers and span all geographic regions and include:
- Jurong Regional Line package 108 (J108) for Singapore’s Land Transport Authority.
- Palembang City Sewerage project in Java in Indonesia.
- New Bang Pha Pump station in Thailand for Thai Oil.
- The Cherry St, Old Geelong Rd, Werribee St and Cranborne Line Upgrade (CLU) packages for
Victoria’s Level Crossing Removal Project in Melbourne in Australia.
- South Australian Water Frameworks package for SA Water.
- HMAS Coonawarra Marine Works project in Darwin in Australia for Laing O’Rourke, as managing
contractor for Department of Defence.
- Early works award for the Warkworth to Snells water pipeline on the North Island of New Zealand
for WaterCare NZ.
- Mangere TARP mechanical maintenance works program for WaterCare NZ.
Aveng said there have not been any project cancellations within the McConnell Dowell portfolio and government clients have remained supportive during the Covid-19 pandemic lockdown period.
Michael Canterbury, group executive: strategy and investor relations at Aveng, said the two long outstanding claims that have been settled were the Gold Coast Rapid Transit projects in Australia and Chevron’s Wheatstone liquefied natural gas (LNG) project in Western Australia.
The settlement of these awards resulted in Aveng passing a non-cash impairment of Au$19 million.
“The impairment arises as the amount recovered on settlement was less than the carrying value,” said Canterbury.
“It was decided to accept the lower value in order to realise cash in the current environment rather than incurring ongoing uncertainty and cost,” he said.
Aveng said that in reaching the decision to settle these matters, the board has been mindful of the current uncertainties facing the business and the market in general and has taken this decision with a view to enhancing the resilience of the underlying business by improving available liquidity.
It said these settlements will assist this objective by releasing Au$41.5 million in cash in the short term, reducing ongoing legal costs, removing litigation uncertainty and allowing management to focus on the growth objectives of McConnell Dowell.
“The resolution of these legacy claims is a significant achievement at a critical time and will be cash flow enhancing. The proceeds of the claims will be used to strengthen the group’s liquidity position,” it said.
The analyst said disputed claims by construction companies just end up making lawyers rich and believes Aveng has probably taken the right view despite the big write-off.
“From a cash flow perspective it’s probably the right thing to do,” he said.
Aveng said its open-pit mining business Moolmans ceased all contracts in South Africa in line with the Level 5 lockdown but has recommenced full operations at the majority of its open-cut mining contracts since the move to Level 4.
It said Moolmans Lefa gold mining contract in Guinea has continued to operate in this period.
Aveng said the lockdown and related loss of revenue across all businesses in South Africa has negatively impacted a liquidity position that was already under pressure, adding that liquidity and cash flow management in the South African market remains a key risk to the group.
However, Aveng said its management continues to monitor the liquidity position and engage constructively with its key stakeholders, including clients, suppliers, insurers, banks and investors, during this period and will continue to do so during the remaining period of the lockdown “to find ways to protect Aveng, ensure its ongoing sustainability and alleviate the burden on our people and other stakeholders”.
“Due to the complex and extremely fluid nature of the current environment, it is not possible to provide an accurate assessment of the impact on the group’s financial performance at this stage,” it said.
Shares in Aveng remained unchanged on Thursday at R0.02.