Despite a tight budget perhaps inhibiting infrastructure spend, there remained numerous avenues for government to assist the South African construction industry, said Aveng CEO Kobus Verster on Tuesday.
For example, there was no need to delay the next round of renewable-energy projects, which had all been “well funded” in the past. Tackling the policy uncertainty around the mining industry, thereby stimulating investment, would also have a positive knock-on effect on a number of downstream industries, such as the construction industry, he said, speaking at a media round table at the company’s results briefing in Johannesburg.
It was also possible to roll out a number of public-private partnerships.
Van Zyl noted that weak steel, mining and construction markets all contributed to Aveng reporting a headline loss of R231-million for the six months ended December 31, compared with a headline profit of R138-million for comparative period in 2014.
The conclusion of a South African property transaction contributed R577-million to basic earnings.
The group’s revenue decreased by 25% to R18-billion.
The good news was that Grinaker-LTA had shrunk its losses to R48-million, down from a R299-million loss, R280-million loss and R197-million loss over the previous three six-month periods.
Verster said lossmaking contracts at Grinaker-LTA had been closed out, overheads reduced and the ratio of projects executed at tender margin improved.
He regarded the almost perennial lossmaking unit as a “much more predictable, lower-risk” business following its restructuring.
Restructuring at Aveng had seen employment at the group drop from 25 000 people to 20 000 people since July 1, with 1 000 of the jobs lost permanent positions.
“We are a substantially smaller civil business than we used to be. Others in the South African industry have done the same,” said Verster.
As government had experienced increased budget pressure, construction groups had adjusted to the lighter workload, unable to sustain a large payroll for too long.
Despite improvements in project performance and cost reductions, Aveng was faced with continued weak markets and a poor share price, said Verster.
This had prompted a strategic review of the business, which would see, among other actions, Aveng divesting from its steel business.
Aveng had received a number of nonbinding offers from various parties to acquire or partner with Aveng, for both the entire steel operating group and for certain of its business units.
Further announcements would be made if and when appropriate, said Verster.
In the near term, the outlook for the steel business was improving, with Aveng comfortable that any disposal would only happen at an acceptable price, he added.
Aveng’s strategic review of its business would also focus on introducing an empowerment partner/s to Grinaker-LTA.
Mining, Construction, Australia Weak
Revenue at Aveng’s Australasia and Asia Construction and Engineering business decreased by 40% to A$726-million. This number reflected the lack of new work in the Australian market over the last 18 months, the completion of a number of contracts and the sale of Electrix in the previous financial year.
Overseas operations in Singapore, Malaysia, Thailand, Indonesia, Philippines, Hong Kong, the Middle East and New Zealand showed a 37% increase in revenue to R2.5-billion (A$257-million).
More than 50% of the business unit’s revenue was generated outside Australia.
Operating profit at the business was A$1-million, down from a A$19-million profit in the comparable period.
Verster expected the Australian market to remain weak.
The South Africa and Rest of Africa Construction and Engineering business experienced a 10% decline in revenue, owing largely to lower civil engineering, mechanical and electrical work.
However, the net operating loss of R125-million was 45% lower than the comparable period, due to a substantial turnaround at Aveng Grinaker-LTA.
Aveng Engineering showed a R83-million loss owing to retrenchment costs and remedial costs on water treatment contracts.
Verster expected the local market to remain subdued in the short to medium term, owing to overcapacity in the industry and a limited number of large infrastructure projects.
The buoyant building market, however, could remain positive for another two to three years.
“We have been largely unsuccessful in the rest of Africa due to the competitiveness in the market,” noted Verster.
The Mining business reported flat revenue of R3-billion, while net operating profit decreased by 18% to R198-million, owing largely to discounts awarded to clients in a negative commodities environment.
Verster said the outlook for mining remained negative in the medium term.
The Manufacturing and Processing business recorded a R48-million loss, with revenue decreasing by 17% to R4.4-billion.
In particular, Aveng Steel was punished by weak demand, reduced steel prices, increased competition from cheaper imports and restructuring costs.
Aveng’s total two-year order book of R29.3-billion, as at December 31, remained relatively flat compared with the previous period.
Looking ahead, Verster believed the trading environment would “remain tough”.