JSE-listed construction and engineering group Aveng reports that it is extremely unlikely the group will deregister from the JSE in the short term.
However, Aveng CEO Sean Flanagan said on Monday they “will revisit that over time” as the group’s order book presence outside South Africa changes from what it is in South Africa.
Flanagan said Aveng’s work in hand had grown 41% to R26.8 billion at end-June 2020 from R19 billion at the end of the previous financial year.
He added that 77% of the current work in hand is in McConnell Dowell, Australian subsidiary, and 82% of it is outside of South Africa.
Flanagan said Aveng anticipates that McConnell Dowell will be in a position to announce Au$1 billion of new work between now and the end of December, while fellow subsidiary Moolmans will announce several billion rand in new work.
“We will update the market as those contracts fall into place,” he said.
Read: Aveng secures Au$1bn in contracts this year (May 2020)
Flanagan added that cash at end-June of R1.3 billion is predominantly in McConnell Dowell where it is needed for working capital requirements and to support their covenants and bonding requirements across the region.
McConnell Dowell is a specialist infrastructure contractor offering engineering and construction solutions to the infrastructure, building and resource sectors across Australia, New Zealand and the Pacific, and Southeast Asia.
McConnell Dowell and open-pit mining business Moolmans are Aveng’s core businesses following the restructuring of the group in 2017, which among other disposals, led to the sale of its construction and engineering South Africa and rest of Africa business, including Grinaker-LTA.
Flanagan admitted that Aveng has very little exposure now to the South African construction industry following the disposal of Grinaker-LTA and as the group completes the disposals of its manufacturing businesses.
The restructuring strategy announced in 2017 involved the planned disposal of 14 non-core businesses and a future focus on McConnell Dowell and Moolmans.
Flanagan said on Monday the disposal process was unfortunately disrupted as a consequence of the Covid-19 lockdown but the group has now resuscitated this process.
He said significant progress continues to be made on the disposal of the non-core assets, with Trident Steel, Aveng Manufacturing Automation & Control Solutions and Infraset remaining to be sold.
Aveng last week announced a further restructuring and recapitalisation of the group.
Flanagan said this will significantly enhance Aveng’s ability to meet its business plans as the group goes forward with a sustainable capital structure.
“We have an ambition to get to a sustainable operating profit of R1 billion per annum with a restructured balance sheet and an acceptable debt structure, which will allow us to deliver value to our shareholders going forward,” he said.
The restructuring and recapitalisation involves Aveng’s largest shareholder – Highbridge Capital Management in New York, currently with about 19.9% of the group’s equity – fully underwriting the introduction of a minimum of R300 million of new capital by way of a rights issue at 1.5 cents and a reduction of Aveng’s South African lender debt and overdraft facilities from R2.1 billion to R1.1 billion.
‘Commitment and support’
“This agreement to recapitalise Aveng demonstrates the commitment and support that we have from our largest shareholders and our South African lender group to both the strategy that the board has approved and the execution that is conducted by the management team,” said Flanagan.
Aveng group finance director Adrian Macartney said the group has not at this point in time finalised the actual sizing of the rights issue.
“Depending on our conversations with other shareholders and demands, we may consider upsizing that rights issue.
“Any such upsizing will add to the overall liquidity improvement of the group,” he said.
Flanagan said the second half of Aveng’s 2020 financial year was significantly impacted by Covid-19.
He said that while group revenues were not quite double the half-year as a consequence of Covid-19, there was also reduced revenue compared to Aveng’s 2019 financial year not just because of Covid-19 but also the disposal of Grinaker-LTA and some of the group’s manufacturing businesses and the reshaping that was done in Trident Steel.
Flanagan said that from an operating profit of R14 million at half-year, the group has reported a loss of R532 million for the full year.
However, this is a decrease from the R1.1 billion operating loss reported in June 2019.
Aveng’s headline loss per share improved to 4.9 cents from 9.7 cents.
Aveng took a decision during the pandemic lockdowns to settle two long standing claims to bolster the liquidity in McConnell Dowell by Au$42.5 million, which resulted in a R225 million or Au$19.5m non-cash impairment in the 2020 financial year.
Flanagan added that Covid-19 had a R380 million impact on Aveng’s 2020 financial results, which was primarily across the South African businesses as the country went into lockdown.
“If we net those off that loss, we would have been in a position for the full year to report an operating profit R73 million net of Covid-19,” he said.
Shares in Aveng remained unchanged on Monday to close at 2 cents.