Aveng sees second consecutive year of profitability

FIFI PETERS: Construction group Aveng released its annual results today, August 23, 2022. Revenues were higher and, while profits grew, they grew at a much slower pace than in the previous financial year.

We have the CFO of Aveng, Adrian Macartney on the Market Update for more. Adrian, thanks so much for your time. Construction is such an important sector and industry, given that the economy’s fortunes are tied to how much work you’re doing, and how much work you’re not doing. What can you tell us about what it’s like out there on the ground in South Africa’s construction sector?

ADRIAN MACARTNEY: Good evening, Fifi. Thanks for giving us the opportunity. I think first and foremost, it’s important to understand that as Aveng as a group is not really exposed to the South African construction sector. Our construction is really in Australia and New Zealand, the South Pacific and Southeast Asia. That said, I think global issues such as price escalation and certainly the shortage of skilled staff – those are of course the impacts of the Ukraine war and the impact thereof on logistics. Those things all come to play generally across the globe.

FIFI PETERS: But what projects were you working on at Nkomati, Lefa and Klipspruit?

ADRIAN MACARTNEY: Sure. We are effectively mining contractors. Those are in our mining contracting business, Moolmans, We move a lot of earth, a lot of ore for a number of our clients. Nkomati unfortunately came to close when the mine owners, the JV partners there, could not reach conclusion on the future of that mine, and the mine was brought to a close.

Lefa is up in in Guinea and it’s a gold project. Again, we reached the end of our contract with them.

FIFI PETERS: How about infrastructure development? Are you guys playing in that space?

ADRIAN MACARTNEY: Not in South Africa, but certainly across Australia, New Zealand and Southeast Asia. We see a very strong Australian market, driven largely around social infrastructure. We saw some nice emerging improvement in New Zealand as they started coming out of Covid. Of course, Southeast Asia a little bit slower. We had travel restrictions until about April this year. So overall the world seems to be coming back into an infrastructure spend.

FIFI PETERS: So would you say that presently Aveng is largely no longer a South African company?

ADRIAN MACARTNEY: Well, about 25% of our revenues are South African. That would largely be in our business and our Trident Steel business, which of course we’re in the process of disposing. But going forward, we would be predominantly based, as I mentioned, in Australia and New Zealand, South Pacific and Southeast Asia.

FIFI PETERS: And you’re listing on the JSE going forward?

ADRIAN MACARTNEY: That is an issue that we’ve been considering for some time. We obviously are looking at all the options, but certainly we think that there needs to be a strong nexus between our capital markets that we operate on and the majority of our assets.

FIFI PETERS: It’s very similar to the route that one of your former competitors, perhaps even current competitor Murray & Roberts took in just divesting completely out of construction, raising a whole lot of questions as to who’s left to implement these big, these big projects. I’m wondering if later on in Aveng’s destiny or later down the track you are seeing an opportunity to make a comeback, just given all the deals we are hearing from government that are on the table right now.

ADRIAN MACARTNEY: Look, I think Fifi, we disposed of our Grinaker LTA business just short three years ago to a credible B-BBEE consortium and those guys are doing a good job of running that business. I don’t think from an Aveng perspective that we would bring our other brands in construction back into South Africa, but if there was a potential to work alongside them where they needed some of our other specialist skills, whether that be in marine or tunnelling or some of our infrastructure around roads and rails, I’m sure we would of course work with them. We have a very good relationship with that B-BBEE consortium.

FIFI PETERS: I’m so glad you’re on the show, Adrian. Clearly we have not spoken to you in a very long time. There are quite a number of changes that the business has gone through and [you have a new] focus right now. Just the steel business, though, that you’re trying to get off your books – what is taking it so long? What’s taking so long for that deal to be wrapped up?

ADRIAN MACARTNEY: Fifi, to be honest, the complexity around the transaction is that it’s a large business. It’s a large business, it’s been doing very, very well in the course of this last year, having won some new awards on the new Ford Ranger and Amarok we of course have had to do some investment into the business, and we’ll be doing some more investments into the working capital of that business in the coming probably six to nine months.

We have a credible buyer and we’ve been working with them for probably over the course of the last six months. We are dealing with some of the issues around a B-BBEE partner and how we would deal with the B-BBEE portion of the ownership of that business and, really importantly, that we keep the management team and the staff involved. We’ve been very proud of having successfully executed a number of B-BBEE deals as going concerns, and this one is no different. So we’re pretty close on that deal. We’re comfortable with who the buyers are, and we’re comfortable that they are the right folks for this business. We just need to iron out the B-BBEE element and we think we can bring that to a close in the coming weeks and months.

FIFI PETERS: Pipelines? What is in the pipeline, what’s in store for the year ahead?

ADRIAN MACARTNEY: For the ahead we think that we’re going to continue to see strong growth. We’ve got a very, very strong order book across Australia and New Zealand. We’ve got about 91% of our budgeted book already in hand, and we will continue to execute on that and continue to win work. We’ve got a very strong and robust economy in those areas and we continue to win work, Our Southeast Asian business we will continue to rebuild as we’ve emerged out of Covid probably a little bit later, and then we’ll execute Trident, as you’ve mentioned.

And of course then on Moolmans we are really quite excited about the opportunities that we’re pursuing, both in South Africa and outside of Africa, and renewing our fleet there. That will be a major focus for us  – the execution of our fleet-renewal strategy.

FIFI PETERS: What are those opportunities in South Africa?

ADRIAN MACARTNEY: In South Africa we’ve got some clients, existing clients, where we need to renew a contract. That could be Tshipi in the manganese sector; we’ve been working with them for some time and we are about to hopefully sign up a new contract for five years with them.

Then we have other clients who are similarly up for renewal.

And then finally we have some opportunities in the gold and platinum sector somewhere north of our borders.

FIFI PETERS: All right. So this commodities party, as it were, although fading a bit – the DJ putting the music down just a bit and not quite shutting it down – is working in your favour in the mining sector specifically.

ADRIAN MACARTNEY: It certainly is. I think, you know, Moolmans has got a very proud 60-year history. We’ve worked alongside our clients for a long time and we tend to renew our contracts and receive additions to them. So we are looking at building on those.

FIFI PETERS: All right. That’s really interesting. Adrian, thanks so much for updating us on the look and feel of Aveng right now, It’s completely different from that around five years ago, certainly 10 years ago. But that was Adrian Macartney, CF0 at Aveng.