The bottom line is that we have to stop scoring own goals and execute profitable work,” says Aveng CFO and acting CEO Kobus Verster.

He notes that continued losses at Aveng’s South African construction business, Grinaker-LTA, are largely to blame for the negative performance of the construction and engineering group in the financial year ended June 30.

Revenue increased 27% from the previous financial year to reach R51.7-billion. Headline earnings were down 6% to R466-million, with headline earnings per share down 3% to 124.6c a share.

The year was “very disappointing”, says Aveng chairperson Angus Band, with solid performances from the Australian construction business, as well as the mining business, but “very poor results from the South African construction business”.

The Queensland Curtis liquid natural gas pipeline project, in Australia, also experienced significant problems.

Grinaker-LTA recorded a R790-million loss in the 2012 financial year, which included a R200-million provision for the Competition Commission investigation into collusion in the South African construction industry, notes Verster.

In 2013, the loss of business widened to R950-million.

Four months into his new job, Grinaker-LTA MD Brian Wilmot, who is a former Aveng Moolmans boss, says the Aveng construction business is dealing with a toxic mixture of margin pressure, large contract losses, high overheads and the R270-million impact of continued labour unrest, especially at the Medupi power station construction site.

He adds that the indirect impact of con-tinued strikes at construction sites is probably “considerably higher”, as a result of turmoil and low productivity before and after strikes.

Losses on major contracts amounted to R500-million. One of these contracts is the Mokolo Crocodile pipeline project, which suffered losses owing to insufficient project skills, pipe supply problems and labour unrest, notes Wilmot.

In order to turn Grinaker-LTA around, the company will have to focus on the execution of projects, while it will also strengthen management and delivery capability, he adds.

Wilmot says Grinaker-LTA is focused on filling “certain gaps left by high staff turnover”.

The business will also pursue profitable growth in Africa, especially in Mozambique, notes Verster.

Not all the solutions are in Aveng’s hands, however. Wilmot emphasises that there still existed overcapacity in the local construction industry, which places margins under pressure. There is also a lack of sizeable construction projects in South Africa.

Grinaker-LTA’s turnaround will probably take another year or two.

Verster believes the company’s performance will improve this financial year, but adds that Grinaker-LTA is “unlikely to be profitable”.

South Africa’s labour situation is also not set for a quick solution.

Aveng group human resources director Juba Mashaba says the Medupi power station project, in Limpopo, may as well serve as a case study in South African labour relations.

He says the area has “a lot of peculiarities”, with many people gaining their first-ever job experience in a formal work environment on the construction site.

Many of these people, largely not unionised, lack the knowledge of what the work environ-ment demands.

Mashaba says Aveng has teamed up with Eskom and other contractors to strengthen labour engagement on the construction site. He adds that it is also desirable for workers to sign up with a union, as this will provide Aveng with a visible partner it may engage with around labour relations.

Aveng reported a two-year order book of R37.4-billion as at June 30, down from the R39.7-billion in December 2012 and R46.9-billion in June 2012.

Verster says the focus is on delivering the “projects in the order book at acceptable margins”.

Band adds that the company is not suffering from a lack of work, but rather quality of execution. He believes there is sufficient work to replenish the order book. Around 73% of the order book is outside rand-based countries.

South Africa’s Competition Commission in June imposed a collective R1.46-billion in penalties on 15 companies in the industry for collusive tendering related to projects concluded between 2006 and 2011.

Aveng received a penalty of R306.6-million, which the group did not contest.

Band says Aveng has no outstanding matters with the Competition Commission and that it put in place processes to ensure ethical behaviour by all Aveng employees.

“We hope this draws a line under this very regrettable part of our history.”