Aveng operating profit takes a hit

Johannesburg - South African construction group Aveng on Wednesday reported a 33% decline in diluted headline earnings per share to 147.7 cents for the six months ended December 2009 from 222.1 cents a year ago.

The group's revenue was down 5% to R16.8bn, primarily as a result of the decline in the Manufacturing and Processing segment, which reported a 31% decrease in revenue having come off historically high steel prices and volumes in the comparative period.

Operating profit declined 29% to R686m, while operating profit before depreciation and amortisation was 14% lower at R1.2bn.

The group said the results reflect the tight operating conditions which prevailed during the period.

Results from the Manufacturing and Processing segment were disappointing but in line with industry trends as the economic slowdown and the global steel price volatility has had a severe impact on these sectors, it said.

The Opencast Mining segment showed continued strong revenue growth while the Construction and Engineering segment delivered a marginal increase of 3%.

The strong operating profit growth delivered by Construction and Engineering: South Africa and Africa as well as Opencast Mining was dampened by the Manufacturing and Processing and the Construction and Engineering: Australasia and Pacific segments' results which declined by 86% and 22% respectively.

Moolmans and McConnell Dowell's results were affected by the relative strength of the rand and the Australian dollar against other currencies, leading to an adverse effect of R77m on translation of foreign earnings at an operating profit level.

The Manufacturing and Processing segment's results were negatively impacted by the sharp reduction in steel prices as well as reduced demand.

Looking ahead Aveng said although trading conditions in the infrastructure sector are expected to remain tight for the remainder of the calendar year, there are signs that the impacts of the economic crisis are starting to work their way out of the system.

Although it is encouraging that the South African government reconfirmed its three year rolling infrastructure budget of R84bn in the recent budget, the rate of public sector contract awards continues to be very slow and needs to be accelerated to provide real impetus to the sector. Activity levels in the mining sector remain low, however there are indications that demand is improving, it said.

In Australasia and the Pacific Rim, the short to medium term outlook is more positive although industry margins are declining. In Australia, construction spend is underpinned by large-scale public infrastructure investments and will be partially driven by a recovery in resource related infrastructure and government investments in transport and utilities.

Market conditions in New Zealand and Hong Kong are also improving with increased transport and utility spend in the public sector. There appears to be a growing pipeline of opportunities in the Gulf Region.

Aveng's confirmed two year order book has increased to R32.7bn from R31.9bn in September 2009. Grinaker-LTA has two year's work on hand amounting to R9.9bn, McConnell Dowell's two year order book totals to R15.1bn and Moolmans' two year order book is R7bn. In addition, the Group has identified its total project opportunity pipeline based on projects being targeted which remains at approximately R102bn, it said.

The price of steel is expected to be more stable in the second half of the financial year, but the rate of recovery in demand is slow, it added.

Based on the current market outlook, revenue for the second half of the financial year is expected to improve marginally compared to the first six months, Aveng said.

"The Aveng Group remains well positioned to take advantage of opportunities as they arise and is continually identifying growth initiatives which match its strategic objectives of strengthening its portfolio by extending its positioning within the value chain, both domestically and regionally," it concluded.

- I-Net Bridge