Aveng hit by steel prices

Johannesburg - Construction and civil engineering group Aveng (AEG) advised on Tuesday that the company anticipates that for the twelve months to 30 June 2009 headline earnings per share will be 20% to 25% lower than the corresponding twelve month period ended June 30 2008.

HEPS for the previous 12 months were 591.4 cents.

Earnings per share for the year ended June will be between 15% and 20% lower than the corresponding period (594.2 cents).

Aveng said the loss of investment income arising from the special dividend, return of cash to shareholders and the share repurchase programme totalling R4.6bn has had a material negative impact on headline earnings per share and earnings per share.

It said the earnings from the manufacturing and processing segment have come under significant pressure in the second half of the financial year mainly due to:

• The worldwide economic downturn and its impact on steel prices and volumes across most sectors
• Steel volumes in Trident Steel are down 26% on 2008, with demand in the automotive sector falling by 35%. This, together with the decline in steel prices of between 30% and 35% has resulted in the profitability levels of Trident being substantially below that achieved in 2008.
• The Steeledale and Infraset business units of Aveng Manufacturing, have also come under significant earnings pressure due to the decline in steel prices and demand for Steeledale products, as well as due to decreasing demand for consumer related paving and landscape products within Infraset.

"Although the Construction and Engineering businesses and Opencast Mining operations will record an improvement in the operating results achieved in 2008, the decline in global steel prices and slower demand for steel will result in a reduction in the operating margin of the group compared to 30 June 2008. The operating margin of the South African Construction and Engineering segment will, however, show a continued improvement," Aveng said.

Order book impacted

"The group's confirmed two-year order book of R32bn represents a 9.6% increase since 31 December 2008, demonstrating that Aveng has continued to secure new projects in a tight market. Although the order book has been impacted by project cancellations and delays resulting from the economic downturn and in particular the decline of commodity prices, the value of projects cancelled has, at R4.2bn, remained unchanged since February 2009," the group stated.

It said project cancellations and the economic climate in general have resulted in 450 retrenchments to date, which is 1.4% of the workforce.

"Going forward, the group has a number of significant awards that are awaiting adjudication and several major prospects that are currently being priced both locally and in the markets in which McConnell Dowell is active.

"The group's strong balance sheet and conservative approach to conducting business ensures that it is well positioned to weather current adverse market conditions," Aveng added.

The results for the year ending 30 June 2009 are expected to be released on Wednesday September 9 2009.

- I-Net Bridge