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‘New-look Aveng will be profitable’

Revenue up R7.1bn, non-core assets to be sold.

The disposal of embattled construction group Aveng’s non-core assets, including local civil engineering subsidiary Grinaker-LTA, should be completed by June next year, acting CEO Eric Diack and CFO Adrian Macartney told Moneyweb on Tuesday.

That would pave the way for the remaining core group to once again record a profit, they said.

The pair were speaking after the release of Aveng’s financial results for the year ended June 30.

The results were released after market close. The group’s share price ended the day unchanged at 4c. A year ago it was valued at R3.30.

Aveng reported R30.5 billion in revenue, up from R23.4 billion in the previous financial year. The operating loss narrowed from R5.2 billion in the previous year to R401 million and the headline loss per share improved to 311.6c per share from 1 197c in June 2017.

The non-core assets were impaired by R2.3 billion following a strategic review. Macartney said the group is confident that it will be able to sell the businesses, which includes the manufacturing businesses, as going concerns and at fair value.

He said there is considerable interest in parts of Grinaker-LTA and that the group is prepared to sell the different Grinaker-LTA business units separately.

After the disposals Aveng will consist of the opencast mining business Moolmans and the Australian infrastructure business McConnell Dowell, which also operates in South East Asia and New Zealand. McConnell, which currently operates in a buoyant market, will then contribute about two thirds of revenue.

The reporting period was extremely busy, Diack said. Amid a lot of market speculation, the leadership just put their heads down and dug into the huge job of salvaging Aveng.

He said they built a solid platform in terms of the balance sheet. The group did a rights issue of R493 million and completed the early redemption of its R2 billion convertible bond. It renegotiated bank debt and extended it to 2020, and improved net debt/equity to 40%. An overall net cash position was achieved and liquidity improved and stabilised.

Clear focus

What is now left, added Diack, is to complete the disposals, improve the operational performance and unlock value from the core businesses.

McConnell Dowell restructured its balance sheet and settled 20 of 24 identified legacy claims in line with expectations. The others are on track for resolution. Its leadership team has been strengthened and project performance has improved. The group said in a statement that McConnell Dowell’s specialist technical capabilities in marine, pipeline, tunnelling, rail construction, mechanical works and fabrication, together with its long-established brand, make it an attractive contracting partner.

“The markets serviced by McConnell Dowell offer significant opportunities but remain intensely competitive,” reads the statement. “In conjunction with the improved operating model, McConnell Dowell has undertaken an in-depth review of all its markets and will target opportunities that are in line with its acknowledged areas of specialisation and in which the company has a history of successful execution.”

While Moolmans is a leader in the local opencast mining market, the South African mining sector has been under significant pressure.

The group said Moolmans has underperformed for the year, primarily due to poor contract performance in the second half.

Good progress has however been made with a turnaround intervention, and there is immediate and urgent focus on improving contract performance, renegotiating contract terms and, where necessary, exiting contracts.

“With the loss-making contracts eliminated, the difficulties experienced by the mining business in the 2018 financial year are not expected to recur and a gradual recovery is expected throughout the following year,” Aveng stated.

Aveng’s two-year order book amounted to R17.9 billion at year-end, down 28% from the R25.1 billion at the end of December 2017. This is largely as a result of a large drop in McConnell Dowell’s order book. According to Aveng the quality of the order book is however higher, and there is more confidence that the company will deliver projects at the margins at which it tendered.

Moolmans’ order book at June 30 declined by 21% to R5.3 billion from R6.7 billion in December 2017. “While the market remains competitive, there are several opportunities being pursued by Moolmans and the mining business will be enhancing its business development focus and processes,” the group said.

Aveng Grinaker-LTA’s order book decreased by 24% from December 31, 2017.

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