Infrastructure and resources group Aveng, which is at the tail-end of a far-reaching restructuring exercise that has already resulted in disposals collectively valued at R1-billion, reports that its two remaining core businesses – Moolmans and McConnell Dowell – are both operating profitably and are poised for top- and bottom-line growth.
Moolmans, which undertakes contract mining activities in southern, central and west Africa, returned to profitability in the interim period to the end of December, reporting an operating profit of R117-million. The result represents a sharp turnaround from the R166-million loss reported in the corresponding period of the 2018 financial year.
Aveng’s Australian contractor McConnell Dowell, which operates in Australasia and South East Asia, reported its fifth consecutive operating profit, meanwhile, delivering a R59-million operating profit during the period, despite a marginal fall in revenue to R4.6-billion, from R4.8-billion in the corresponding prior period.
The performance of the two remaining core businesses was insufficient, however, to return Aveng to profitability as a whole. The JSE-listed group reported a headline loss of R205-million in the six months to December 31, 2019, compared with a loss of R703-million for the corresponding period in the prior financial year.
CEO Sean Flanagan reports that, with the disposal programme nearing completion, the group is prioritising ongoing improvements in the operating performance of its remaining core businesses, which are both now led by revamped executive teams.
The noncore disposal programme was initiated in late 2017 as part of a larger financial and corporate restructuring, undertaken against the backdrop of serious questions over the group’s going-concern status.
Financial stability was only restored through a combination of shareholder and lender support, including a R493-million rights issue and the granting of a R400-million bridging loan from a consortium of banks.
In parallel, Aveng has implemented a noncore disposal programme that is currently slightly lagging the initial implementation schedule, but which executive chairperson Eric Diack believes will be all but wrapped up by the end of June.
The disposal of Infraset remains subject to the fulfilment of certain conditions, while negotiations for the disposal of Trident Steel and Automation and Control Systems are ongoing, Diack reports.
Ahead of the disposal programme, Aveng consisted of five operating divisions and 24 business units. To date, disposals have been concluded or agreed for the majority of the noncore businesses and Aveng is still expecting to secure proceeds of more than R1.5-billion from the restructuring, with R750-million having already been paid.
With the sale, in 2019, of contractor Grinakar-LTA to the Laula Consortium for R70-million, Aveng has exited the South African building and civil engineering market, with only a few legacy contracts outstanding.
One of these is the Leonardo high-rise development in Sandton, where the developer has terminated the contract and called the R87-million performance bond. Aveng has accepted the termination but has indicated that it intends to recover its damages resulting from the termination. It has also established a project management office to oversee the conclusion of all other legacy contracts.
The group’s withdrawal for the South Africa construction market is reflected in the fact that only 28% of its R17.9-billion two-year order book is associated with contracts in South Africa, with a large component of McConnell Dowell’s backlog associated with the strengthening Australian construction market. In fact, 41% of McConnell Dowell’s R12.8-billion two-year order book is derived from contracts awarded in Australia.
Flanagan says that, while Aveng still has some way to go before it is “out of the woods”, there are signs that its remaining core businesses are starting to perform and that the outlook for both is positive.
The market has adopted a cautious stance, though, with the Aveng share trading at only two cents, 50% below its 52-week high of four cents a share.