SA, Africa construction Aveng's achilles heel
Construction|Engineering|Gold|Africa|Aveng|Environment|Eskom|Genrec|Grinaker|PROJECT|Projects|Roads|Africa|Australia|South Africa|Zambia|Mining|Steel|Steel Supply|Fabrication|Infrastructure|Iron Ore|Iron-ore|Kobus Verster|Power|Roger Jardine|Australasia
© Reuse this
The South African and African construction and engineering division should shoulder a substantial part of the blame for construction group Aveng’s 64% drop in operating profit to R535-million for the financial year ended June 30.
Group revenue was up 19% compared with the previous financial year, to R41-billion.
The local construction division reported a 4% increase in revenue to R9.9-billion, but the flipside of the coin was a R733-million loss for the period, down 265% from the R443-million profit reported in the 2011 financial year.
Aveng financial director Kobus Verster said on Wednesday that this loss could be attributed to “cost overruns and time delays” of around R200-million on a Free State roads project, two Sasol projects and a batching plant project, in Zambia. Margins in the region were also under pressure, with the absence of any big projects completed in 2012 also to blame.
Included in the loss was also a provision for a settlement in the Competition Commission investigation into collusion in the construction industry, and the poor performance of DSE Steel Fabrication. The latter was linked to Eskom’s power programme, with Aveng pursuing a claim against Murray & Roberts company Genrec regarding steel supply to the Medupi and Kusile power station projects.
Aveng CEO Roger Jardine added to this list by saying that the construction company Grinaker-LTA, which formed part of this division, had also been the subject of restructuring spend, as well as holding costs to retain skills in case of increased public sector spend in South Africa.
The restructuring of Grinaker-LTA had shrunk the company by around 150 people, with Aveng’s payroll almost 5 000 people smaller than during the construction boom in 2008.
Overheads at the company were also cut by 20%, and stronger risk management implemented on smaller projects.
“The restructuring has been quite painful, but it is done,” said Jardine. “In the year ahead we look to a substantial improvement in the performance of Grinaker-LTA.”
He added that Grinaker-LTA currently had little public sector work to keep it busy.
Only 3.6% of Aveng’s current two-year order book of R46.9-billion (up from R37-billion a year ago) would play out in the South African public sector, down from 13.3% in 2009. He said this could change as “government’s infrastructure roll-out gained momentum”, but added that this “won’t happen overnight”.
Jardine only expected to see more public sector projects find their way to local construction companies’ order books in 18 months’ time.
He warned that this prolonged investment trajectory had an impact on “employment generation” and “employment retention” at Aveng.
While the South Africa public sector could secure just under 4% of the Aveng order book, Australasia and the Pacific, as a region, had a 57% share. In fact, markets outside the rand-currency sphere made up 74% of the Aveng order book.
Australia was showing signs of cooling down, though, noted Jardine, with a slowing Chinese economy impacting on mining and infrastructure projects in the country.
“You have to keep a close watch if you operate in the commodities space as we do.”
He noted that Aveng was “hedging” against a global slowdown by operating in different currencies and different commodities.
The outlook for iron-ore was “questionable”, for example, said Jardine, while gold was “more positive” than other commodities.
Coupled to the commodities market, Jardine added that Aveng was also “bracing itself” for a softer steel environment “in the short to medium term”, with little or no price increases on the horizon.
Asked why Aveng still managed to show a profit while some competing local construction companies were pushed into the red in the past financial year, Jardine speculated that this could be attributed to the fact that companies which historically had big contracts leading up to the 2010 FIFA World Cup did not replace those with “small and intermediate projects”.
Edited by: Creamer Media Reporter
© Reuse this
Comment Guidelines (150 word limit)
Other Construction Materials News
Construction company Group Five says its strategy is strongly focused on expansion in Africa, with selected projects in Russia and Northern America also possibly on the horizon. Outgoing CEO Mike Upton says the South African construction industry saw what appears to...
NEELS VAN NIEKERK
The yearly visit to Australia ensures effective exposure to a wider client audience
South African steel fabrication companies wishing to continue successfully doing business in the Australian mining industry need to maintain regular contact with their clients, says marketing consortium for the South African structural steel construction industry the...
Light steel frame building is growing every year, particularly in multi-storey office and commercial buildings
Steel consumption by the light steel frame building (LSFB) industry has grown to 25 000 t a year, mostly in the form of high strength galvanised steel sheets. This growth was spurred by double digit annual growth rates over the past five years, says Southern African...
Industrialisation remains a major part of the South African developmental agenda and an important vehicle towards achieving the Department of Trade and Industry’s (DTI’s) target of creating 100 black industrialists in the next five years, Trade and Industry...
The construction of a new innovation hub in the heart of the Dube TradePort, in Durban, was set to kick off in March 2016, as Dube TradePort Corporation sealed a R160-million lease agreement with Eureka Capital. Eureka Capital planned to develop a seven-storey 21 500...
South Africa will become the first African country to host the Organisation for Economic Cooperation and Development’s (OECD’s) Steel Committee Conference when the committee’s seventy-seventh session takes place in Cape Town between December 11 and 12. The...
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
JSE-listed real estate investment trust (REIT) Rebosis Property Fund achieved a distribution growth of 8.1% to 99.45c per linked unit in the financial year ended August 31, despite volatile market conditions.
The MOM incubator was designed to help babies in developing nations who were dying in conflict-struck nations or who do not receive hospital care
A low-cost, inflatable incubator won this year’s international James Dyson design award, which aims to encourage and inspire the next generation of design engineers.
The World Bank released its ‘Doing Business 2015: Going Beyond Efficiency’ report last month and ranked South Africa 43 out of 189 global economies for its ease of doing business, with Singapore topping the rankings.
Air Products South Africa officially launched its R300-million Eastern Cape air- separation unit (ASU), at its new manufacturing facility in the Coega Industrial Development Zone (IDZ), earlier this month. It is the second facility that Air Products launched in South...
BMW South Africa (SA) has signed a power purchasing agreement with energy company Bio2Watt. The offtake partnership will bring renewable energy to the carmaker’s Rosslyn plant, north of Pretoria.