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Aveng announces R830m of impairments for 2014 FY

2nd July 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Following financial losses at Aveng Grinaker-LTA for the financial years 2012 through 2014, allied to prolonged weakness within the local infrastructure environment and the limited evidence of near-term market improvement, construction major Aveng will fully impair the goodwill and related intangible assets associated with this business, with a carrying amount of R756-million.

In addition, as a result of lower-than-expected commercial uptake of Aveng Water’s water treatment technology, particularly owing to a depressed mining sector, the board would also fully impair its goodwill and related intangible assets valued at R74-million.

The group said in a trading update on Wednesday that the impairment would affect the earnings per share of the group, while the headline earnings per share (HEPS) would remain unaffected.   

HEPS and adjusted earnings per share for the 12 months ended June 30 were expected to be between 0% and 10% lower than the prior year, at 112.1c and 124.6c respectively. 

In addition, the group expected to post a loss a share of between 99.6c and 112.4c for the year, which was noncash and excluded from HEPS.

AFRICAN PERFORMANCE
Focusing on Aveng’s African businesses, the group said Aveng Grinaker-LTA remained well placed to achieve a break-even position during the 2015 financial year, in line with previous guidance. 

“Although the second half of the financial year’s performance has improved compared to the first half of the year, the impact of the tough external environment and continued labour disruptions in this and related sectors, together with the challenges experienced on some of the legacy contracts, will result in a still-significant operating loss for Aveng Grinaker-LTA in the 2014 financial year,” it noted.

Reflecting the delayed start of infrastructure projects in South Africa, Aveng Grinaker-LTA’s two-year order book declined by 9% to R6.6-billion over the three months to March 31.

Aveng’s African mining division, meanwhile, continued to benefit from a diversified client, commodities and country portfolio and, notwithstanding the nonrenewal of contracts in Guinea, Ghana and Tanzania, Aveng Moolmans continued to deliver strong financial results, though down on the comparative year-ago period.

The group said a large percentage of the recent work lost in Africa had been replaced by new contracts in South Africa, which were at various stages of commissioning and, consequently, the impact would only be fully felt in the 2015 financial year. 

Aveng Mining Shafts & Underground was expected to deliver a better performance in the second half of the financial year, as some of its projects had progressed to the steady-state shaft-sinking phase. 

Aveng Mining’s order book increased by 13% over the period to R8-billion, owing to new contracts in South Africa in both the opencut, shafts and underground environment.

Further, the group’s manufacturing and processing business had a “strong” year, with the Infraset and Lennings Rail Services businesses performing well and taking advantage of transport-related opportunities in both sub-Saharan Africa and South Africa. 

In contrast, following on from the poor first half of the 2014 financial year, Aveng Trident Steel’s second-half performance was constrained by weak demand, the inability to pass on price increases, increased competition and lower demand from the automotive industry.

The recovery in Aveng Steeledale and Aveng Steel Fabrication continued to proceed well. 

GROUP OVERVIEW
Reflecting on its overall operational performance, Aveng said the local construction and manufacturing markets remained challenging owing to slow State infrastructure-related spend, the impact of lower mining activity resulting from weaker commodity prices, industry labour disruptions and a generally subdued manufacturing and steel sector.

In contrast, the building- and rail-related infrastructure environment in the Southern African Development Community region offered “good” opportunities for the group.

Further afield, the Australian construction market was experiencing a slowdown in mining-related infrastructure spend, although Aveng believed it still offered good opportunities, particularly in transport and general infrastructure. 

“Notwithstanding these challenges, there has been an uptick in operating group performance, with previously reported underperforming businesses and contracts expected to report a marked improvement,” it stated.

While Aveng said it expected a “substantial” improvement in net operating earnings, before the impact of the impairment of goodwill intangible assets, it expected an increase in interest and taxation expenses would adversely impact headline earnings.

This came as the overall financial performance of the group was adversely affected by the Gold Coast Rapid Transit project, in Australia.

This project was disclosed as a risk during the interim reporting period and had continued to deteriorate during the second half of the 2014 financial year.

Meanwhile, the stabilisation and recovery process at Aveng Grinaker-LTA was beginning to yield results, while the manufacturing and processing operating segment was expected to report improved results compared with the prior year, mainly owing to a strong performance from the nonmining-related businesses.

Further, the opencut mining business continued to generate strong margins on lower revenue, owing to a reduction in mining activities in the rest of Africa. 

‘CLEAR PLAN’
Aveng reported that it had made “substantial” progress in dealing with operational underperformance in certain areas of the group.

“Despite a difficult economic environment, notably domestically, the performance of Aveng Grinaker-LTA and certain steel businesses has improved, supporting continuing strong performances by mining, manufacturing and the majority of the McConnell Dowell business,” it said.

It added that the board had a “clear plan” to improve liquidity over the short term and was addressing the overall fixed cost base of the group.

While addressing the claims recoveries, Aveng would continue to focus on improving its operational performance, with a specific focus on returns and cash generation. 

Aveng expected to release its financial results for the year on August 26.

The group’s share price on the JSE fell to R22.61 a share by 16:15 on Wednesday, down 3.79% on Tuesday’s close of R23.50.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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