An underperforming Grinaker-LTA and problem projects in Australia in the past financial year continued to take their toll on construction and engineering group Aveng.

The JSE-listed company in August reported its financial results for the year ended June 30, with revenue up 2%, to R53-billion, compared with the previous financial year. However, the group recorded a R376-million loss for the period, compared with R459-million profit in the previous financial year.

Aveng in July announced that it had raised impairments totalling R830-million at Grinaker-LTA and Aveng Water, which it said would impact on its 2014 earnings.

Aveng CEO Kobus Verster said in Johannesburg that the group had experienced significant losses on its Gold Coast Rapid Transit project, in Australia, which affected the group’s overall performance.

The problem contract had now largely been completed, with technical handover to the client in July. However, cash outflow associated with the contract was still expected in the early part of the 2015 financial year.

Completion costs on the project had significantly exceeded budget owing to complex design and scope amendments, while the project also suffered from the impact of delays and acceleration requirements.

With the project now completed, the process to resolve claims would be intensified, said Verster.

However, given the technical and legal complexities associated with the process, it was expected that the commercial negotiations around these claims would be protracted, with the final outcome a risk to the group’s medium-term earnings, said Verster. This was also the case with the Queensland Curtis Liquefied Natural Gas Pipeline (QCLNG) contract.

In December 2013, the QCLNG joint venture, of which Aveng is a member, was unsuccessful in the first part of its commercial claims arbitration, under a process of expedited arbitration.

Leave to appeal this outcome was unsuccessful.

The second arbitration case would be managed under Inter-national Chamber of Commerce rules instead of an expedited arbitration structure.

Claims were submitted on July 23, and the arbitration case was likely to be heard by the end of the 2015 financial year.

Although many efforts had been made to return Grinaker-LTA to profitability, the business remained a poor performer as it worked to complete a number of legacy projects at low margins, noted Verster.

This year, the business was also negatively impacted on by delays experienced on the Mokolo Crocodile Pipeline contract, as a result of excessive rain.

High staff turnover over the last few years had also eroded corporate memory.

Aveng’s South African and rest-of-Africa construction and engineering business, which housed Grinaker-LTA, reported a loss of R566-million for the 2014 financial year, down from a R968-million loss in 2013, and a R861-million loss in 2012.

Verster would not commit to a turnaround date for Grinaker-LTA, noting only that he expected the company to reduce its losses in the 2015 financial year.

“We still have a long way to go.”

The current domestic environment was also not in the company’s favour, as there was “no sign” of government’s promised infrastructure investment, while margins remained under pressure owing to a highly competitive construction environment.

Verster noted that labour disruptions in South Africa cost the group R180-million in the 2014 financial year, down from the R350-million recorded in the previous financial year.

Aveng had embarked on the sale of a number of its properties, as well as one, unnamed, noncore asset, which could secure the company R2.5-billion in funds, said Verster.

“We will try to conclude both processes in the next six to eight months.”

Verster said the disposals were aimed at reducing the company’s debt levels. While it had “adequate debt facilities”, Aveng wanted to be in a strong position to pursue all the company’s contract claims “to their natural conclusion”.

Aveng had R1.3-billion net cash on June 30, down from R2.4-billion at the end of the previous financial year.

Aveng’s Australasia and Asia construction and engineering business reported revenue of R28.2-billion for the year ended June 30, and R271-million in net operating earnings, down from R639-million in the previous financial year.

Aveng was working to diversify this unit beyond the Australian market into nonmining sectors.

Aveng’s South Africa and rest-of- Africa construction and engineering business reported R8.5-billion in revenue, and a R566-million loss, as noted earlier.

Aveng Mining saw a decline in revenue to R6.6-billion, down from R7.4-billion, as one contract was cancelled and three contracts were not renewed.

Net operating earnings were R529-million, down from R701-mil-lion in the previous financial year.

Aveng Manufacturing & Proces- sing kept revenue stable at R10.6-billion, with earnings, at R364-million, up from R235-million in the previous year.

Aveng’s two-year order book was up 11% on December 2013, at R40.9-billion. Australasia and Asia made up 59% of this order book and the private sector 64%.

Verster said Aveng’s focus in the short term would remain on the stabilisation and recovery of the company, with specific focus on underperforming contracts and businesses.