Construction group Aveng expects headline earnings and headline earnings per share (HEPS) to decline by at least 45% in relation to the comparative period’s R307-million and 82.1c a share respectively, translating into headline earnings of R169-million and HEPS of 45.2c for the six months ending December 31.

Headline earnings and HEPS excluded the anticipated R713-million after-taxation profit on the sale of electrical engineering, construction and maintenance services provider Electrix to VINCI Energies through a share sales transaction, resulting in a net cash inflow of R1.4-billion.

Following this transaction, Aveng has withdrawn a cautionary announcement to shareholders in relation to dealing in the company’s shares.

Commenting further on its expected financial performance for the period, Aveng noted that the challenging economic conditions in the group’s key markets, steel sector labour disruptions and the extended impact of legacy contracts in South Africa were expected to impact adversely on the operating earnings.

Most notably, the legacy contracts affecting the performance of the construction and engineering division included the Mokolo Crocodile pipeline contract, where higher-than-expected costs associated with lower productivity had resulted in an extended close-out of the contract.

“This was not anticipated after the earlier weather-related damages. The construction activity is largely complete and commissioning has started, with hand-over to the client scheduled for February 2015,” the company reported.

Moreover, increased costs and penalties associated with remedial action to address the under-performance of a water asset related to a recent water purification contract were also expected to dent earnings.

Headline earnings would likely be further negatively affected by a substantially higher net finance expense owing to the lower net cash position, increased commitment fees in support of the group’s liquidity position and a higher effective interest rate applied to the convertible bond.  

“Notwithstanding the above challenges, subsidiaries McConnell Dowell, Aveng Moolmans and Aveng Manufacturing are performing within expectations. The order book update and the large commercial claims position remains unchanged from the report to shareholders in the business update on November 4,” Aveng outlined.

The group expected to release its interim results for the six months ended December 31 on February 17, 2015.