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SA infrastructure market is in crisis, says Aveng

26 Feb 2019

PRETORIA – The South African infrastructure market was in crisis, says financially troubled listed construction and engineering group Aveng.

Eric Diack, the executive chairperson of Aveng, said yesterday that this reflected the marginal economic growth experienced in South Africa, which was exacerbated by “unprecedented and widespread threats of violence, community unrest and protest action on construction sites which employers (clients) seemingly expect contractors to accept as the new normal”.

The Aveng-Stabag Joint Venture (ASJV), in which Aveng wholly-owned Southern African construction and engineering business Grinaker-LTA was a 50 percent partner, terminated the SA National Roads Agency (Sanral) Mtentu Bridge contract last month following a force majeure event.

Aveng said the joint venture launched a pre-emptive urgent application in the North Gauteng High Court last week for an order preventing Sanral from making a call on the contract securities until the dispute between the parties regarding the termination of the contract had been finally determined.

The group said the ASJV had secured an interim undertaking from Sanral preventing a call on the contract securities pending judgment in the application.

It said the matter was argued in the high court last week but judgment had not yet been handed down.

Aveng said earlier this month that the ASJV had lawfully terminated the contract, adding the civil unrest, commotion, protests and threats of harm resulted in ASJV being denied access to the site and the ability to safely continue the execution of the Mtentu River Bridge project.

It stressed the decision to terminate had nothing to do with either of the ASJV members’ financial ability to perform their obligations in terms of the contract.

A net operating loss of R166 million in the six months to December, by Aveng’s open-pit mining business Moolmans, significantly dented Aveng’s financial performance in this reporting period.

Aveng Manufacturing’s margins were also negatively impacted by weak market conditions while Grinaker-LTA reported a loss of R162m, which stemmed from continued under-performance on major building projects, slippage on certain road contracts and an under-recovery of overhead costs due to a lack of new work. Moolmans reported a 20 percent decline in revenue to R2bn from R2.5bn.

Its financial results were heavily impacted by under-performance on two contracts and additional closure costs related to the early termination of the Karowe contract in November.

Diack said a turnaround plan to decisively address under-perfomance at Moolmans and optimise the overall performance of the business was reaching a conclusion.

Aveng yesterday reported a significant increase in its headline loss to R770m from R335m in December 2017. Revenue slumped by 17 percent to R13.4bn from R16.1bn. The net operating loss increased sharply to R484m from R94m.

Aveng rose 33.33 percent on Monday to close at 4 cents.

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