Aveng outlines new business plan, posts H1 loss

27th February 2018

By: Anine Kilian

Contributing Editor Online

     

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JSE-listed Aveng, which posted a headline loss of R335-million for the half-year ended December 31, on Tuesday outlined details of the outcome of its strategic review, which involved a very “thorough and robust interrogation” of all parts of the business.

The review was aimed at identifying the businesses and assets that are core to the group and which support its overall long-term strategy, determining the most appropriate operating structure, as well as identifying a sustainable future capital and funding model.

Chairperson and acting CEO Eric Diack said the review has highlighted that the Aveng business has reached a critical juncture and that decisive action is now required to create a sustainable future.

“We have started the implementation of a comprehensive strategic change plan, which aims to focus the business on being an international infrastructure and resources group operating in selected fast-growing markets, and capitalising on its considerable knowledge and experience in these markets,” he said.

The six-pillar plan is focused on simplifying, reshaping, growing, disposing of certain assets, deleveraging and unblocking shareholder value within the business.

“The plan will reduce complexity by optimising the group’s portfolio and focusing on growing core operations with the group’s strong management teams and unique value offerings in infrastructure companies McConnell Dowell and Moolmans,” he said.

He added that the outcomes of the strategic review have reaffirmed management’s intention to ensure that both Aveng Trident Steel and Aveng Grinaker-LTA are acquired by new shareholders that are better positioned to compete successfully in the South African marketplace.

A further outcome of the strategic review is the decision to exit the Aveng manufacturing businesses, which will position these individual businesses to compete more effectively.

These disposals will reduce the group’s overall exposure to bonding and guarantee lines and will result in lower working capital requirements for the group.

“Aveng will continue to enhance the efficiency and profitability of these operations before their disposal to ensure that maximum value is achieved,” Diack commented.

He pointed out that the current debt levels within the group were unsustainable and needed to be deleveraged, stating that the convertible bond creates significant constraints on the group’s capital structure and is a hindrance to unlock value for shareholders.

“This deleveraging, including the settlement of the convertible bond, will be funded through improved operational cash flow, proceeds from the disposal of noncore assets and an appropriate capital market transaction,” he said.

Touching on the group’s financial performance, Diack said the company’s basic loss a share during the period was 87.4c, compared with a 98.8c loss a share in the comparative period.

Revenue increased by 13% to R16.1-billion, driven by strong operational performance at McConnell Dowell, which achieved 35% year-on-year growth in revenue.

“Despite the challenging operating environment, Moolmans’ revenue grew by 24%, while Aveng Grinaker-LTA’s revenue remained flat. The difficult economic landscape continued to have an adverse impact on revenue growth for the Aveng manufacturing and processing operating group. The gross margin for the group improved to 7% from 6.7% in the comparable period,” he said.

OUTLOOK
The markets serviced by McConnell Dowell are expected to continue to offer growth opportunities with the continued roll-out of large and medium-sized projects in the major Australian cities, Diack said.
 
“In South East Asia, opportunities exist in infrastructure in Singapore, Malaysia, Thailand, Indonesia and the Philippines. Government investment in large-scale transport and water projects will fuel growth in the New Zealand market,” he added.
 
He further noted that the outlook for the infrastructure market in South Africa remained subdued, with limited visibility on large-scale projects. However, recent changes in the political environment have led to improved sentiment in South Africa.
 
“There are opportunities to increase exports for the manufacturing operations.”
 
He also pointed out that the improved contract mining environment and some notable contract wins place the Moolmans operating group in a strong position to pursue its longer-term growth strategy in selected international markets.
 
Further, he said the focus would remain on optimisation efforts in Aveng Steel to deliver a break-even result in the current depressed market conditions, which are expected to persist.
 
“Our immediate priority will be the implementation of the strategic plan, with noncore assets identified and a disposal process under way. We have also begun work on a potential capital market transaction and further details will be provided at the appropriate time.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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