Aveng’s strong full-year performance positions it well for long-term growth

23rd August 2022 By: Tasneem Bulbulia - Senior Contributing Editor Online

JSE-listed Aveng says improved revenues, gross margins and operating earnings, combined with strong cash generation, were underpinned by a stronger capital base in the financial year ended June 30.

The construction and engineering group has completed its recovery and turnaround to profitability and management believes it is now in a position to focus on long-term growth prospects.

Aveng posted revenue of R26.2-billion and a second consecutive year of profitability, earnings before non-recurring items having increased by 7.5% year-on-year to R576-million.

Gross margin increased to 8.1% from the previous year, which the group says demonstrates sustained improvement in the quality of operational performance.

Work in hand grew by 22% to R30.8-billion, driven by subsidiary McConnell Dowell’s Australian growth engine.

Work in hand increased further to R40.7-billion post year-end, in July, as Aveng secured further new project awards, including the Bridgewater Bridge contract – Tasmania’s largest ever transport infrastructure project.

Aveng says cash generation was robust, with the group making further progress on its commitment to ensuring a stronger balance sheet.

External debt was reduced by R398-million to R481-million and the historic bond guarantee exposure fell by 37% to R350-million.

Proceeds of R143-million generated from the sale of noncore assets and the settlement of long-standing claims in Australia of R282-million improved liquidity and removed litigation cost and uncertainty, the group notes.

The largest remaining noncore asset, Trident Steel, in South Africa, delivered a strong performance for the period, with operating profits of R220-million.

The sale of Trident is at an advanced stage and management remains confident of closing this sale, with major shareholders supporting the sale, group CEO Sean Flanagan tells Engineering News.

Aveng points out that trading conditions remained difficult as operations experienced the aftermath of Covid-19, especially in Southeast Asia, where restrictions remained in place until April.

“Global supply chain disruptions, inflationary pressures and engineering skills shortages continue to impact many projects, while a host of challenges, including flooding, civil unrest in KwaZulu-Natal, a steel industry strike, power outages and the global shortage of semiconductors, disrupted South African operations.

“Our operations delivered sound, strategically-aligned performances in challenging conditions,” the group outlines.

“We implemented our strategy consistently in volatile and uncertain operating conditions. Our ability to remain profitable was supported by a resilient business model, committed people and management teams, stronger governance and risk management structures and processes and collaborative relationships with our clients and suppliers.

“The strategic commitment of our operations in Australia, New Zealand and the Pacific Islands, Southeast Asia and South Africa to find growth markets and make the most of those opportunities is reflected in the strong growth of our work in hand, the sustained improvement in the quality of our operational performance and our significant pipeline of future opportunities,” Flanagan says.

He notes that the group will be taking measures, together with Toyota South Africa Motors, to try and improve the infrastructure around the vehicle manufacturer's sites, to minimise the impact of future flooding.

Toyota's Prospecton plant, in Durban, is still ramping up output after heavy flooding in April.

Moolmans in South Africa continued to focus on the quality of its contracts and enhancing project execution during the year. It reported revenue of R3.3-billion on the back of project completions at four projects in South Africa and Guinea.

Continuous improvement in Moolmans’ operational performance is reflected in the progressive yearly increase in its gross margin from 5.4% in 2020 and 10.2% in 2021 to 12.2% in the financial year under review, which Aveng says is a strong indicator of the progress Moolmans has made in improving its internal efficiencies and project performance.

Aveng says it enters the 2023 financial year in a strong position.

Moolmans’ work in hand of R3.5-billion includes the post-year-end award of a new rehabilitation project at Klipspruit mine and represents 78% of its budgeted revenue for the year ahead.

Moolmans is a preferred bidder on projects valued at R11.4-billion. Moreover, the business has tenders worth R23.3-billion awaiting a decision and is preparing to submit tenders for contracts valued at R17.4-billion.

This considerable project pipeline includes existing and new customers in gold, copper, lithium and uranium projects in West and sub-Saharan Africa.

Moolmans’ performance is expected to remain steady as the operation focuses on continuous improvements in internal processes. Significant progress has been made with its fleet renewal strategy to improve on-site productivity and deliver enhanced value to customers during a positive stage in the commodity cycle.

Flanagan also highlights that importantly, Moolmans is undertaking considerable effort on its fleet renewal programme, and is in the process now of disposing of suboptimal equipment, and of acquiring new fleet for both new and existing contracts and plants jobs.

Meanwhile, Trident Steel’s revenue and operating earnings are expected to increase owing to increased volumes from original-equipment manufacturers and new component supply awards for new models and a higher global steel price.