Construction group looks to steady build of infrastructure

Releasing its interim results for the six months to December 2009, The Aveng Group  reported declining revenue – down 5% compared to the six months to December 2008 – and a reduced operating profit – down 29%, but strong cash holdings – up 23% – and a two-year order book increased by 8% to R32.7 billion since June 2009.

Commenting on the results, Roger Jardine, CEO of the leading infrastructure development group, said, “Our construction and engineering businesses delivered a satisfactory result in a tough market characterised by a strong local currency, a slowdown in domestic infrastructure spend and the anticipated tightening of margins in Australia. Lower demand and lower steel prices have, however, kept our steel businesses under pressure. Nevertheless, a combination of strong cash flow and a solid balance sheet position the group to benefit from potential opportunities in this tight credit cycle.”

Jardine added, “We have demonstrated our flexibility and ability to work on large projects with the delivery of two significant infrastructure developments on two continents in the same week. We presented the 2010 FIFA World Cup showpiece, Soccer City, to the City of Johannesburg on 3 March, and just two days later handed over the Sentosa Bridge, a 380m bridge linking Sentosa Island and Singapore.

{xtypo_quote}Both these projects highlight our commitment to safety with the achievement of 1.5 million fatality-free hours on the Soccer City contract and 715 000 lost-time-injury-free hours on the Sentosa Bridge.{/xtypo_quote}

The group has been able to increase its cash holdings through various initiatives, including tighter working capital management and stricter cost control, and remains net cash positive. It is, consequently, well positioned to take advantage of market opportunities, given the current restricted credit environment.

The results highlighted that the Construction and Engineering segment remains the stalwart of The Aveng Group. This segment comprises Grinaker-LTA and Engineering & Projects Company (E&PC)  operating in South Africa and Africa, as well as McConnell Dowell  in Australasia and the Pacific Rim. McConnell Dowell was responsible for just over half of the segment’s revenue and, going forward, is likely to benefit from large-scale public infrastructure investment.

The South African businesses reported a rise in operating margin following management’s internal initiatives and strategic alignment at Grinaker-LTA, which saw the company maintain revenue in an environment where contracts were delayed and building activity lacklustre.

The group expects conditions in the industry to remain tight over the rest of the year, despite signs of the world slowly emerging from the economic crisis. Commenting on the prospective pipeline from the South African government’s R846-billion budget for infrastructure development, Jardine said, “The rollout of this infrastructure plan will stimulate the economy and create employment, as we have seen with the various World Cup projects. The awarding of public sector contracts will boost the industry as well. We look forward to the implementation of this plan and we intend competing rigorously for these projects. We are pleased that the group’s two-year order book has increased, despite the slowdown in domestic infrastructure projects being implemented.”

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