Wednesday 24th February, 2016

The share price of construction company Aveng was up 0.36% to R2.76 by 16:50 on Tuesday, after the group announced a 25% drop in revenue to R18 billion and a R231 million headline loss for the six months ended December 31 2015 (H1 2014: R138 million earnings).

The share price dropped by 13% on February 19 after a trading statement warned the market of the expected loss. It was still down 15.38% over the past seven days and 82.76% over the past year.

The two-year order book is down from R32.5 billion in the comparative period to R29.3 billion, but has improved marginally since June. The quality of the order book has however improved, CEO Kobus Verster said.

As part of its strategic review, the company has decided to sell Aveng Steel and the portfolio of assets in Aveng Capital Partners, Verster said.

He said while Aveng Steel is a strong business with good assets, it does not meet the group's longer-term return objectives. He said: '(Aveng) Trident Steel is one of the best brands in the country' and the steel business has seen 'mind-boggling improvement' in the last two years. While impacted by the reduction in steel prices, the underlying business is strong, he said.

Aveng is in discussions with interested parties from within and outside the borders of South Africa, but will only sell at an appropriate price, he said.

Aveng Capital Partners, previously known as Aveng Concessions, is aimed at involvement in the early stage of development of projects. It gives Aveng the opportunity to do the construction and the group often takes an equity stake. When the project has been proven operationally, it divests, retaining the operations and maintenance work.

Verster said that stage (projects proven operational) has been reached in the current portfolio, which is on the balance sheet at a fair value of about R900 million. He said the assets that include N3 Toll Concession and Gouda Wind Farm, are attractive.

The proceeds of the sale of the steel business and Capital Partners portfolio will be preserved to bolster the balance sheet and see the group through what is expected to be a very difficult period ahead in the construction market.

Verster said the road to recovery and stability that Aveng embarked on two years ago, took longer to complete than expected, due to very difficult market conditions.

During the interim (H1) period, Aveng reduced its headcount from 25 000 to 20 000. About 1 000 of the affected employees were permanent employees. This cost the company R43 million in restructuring cost during the H1 period.

Verster said further cost savings had to be made, but could not indicate what the effect on staff numbers would be.

He said companies have adjusted to the decrease in major infrastructure projects in South Africa. They have become smaller, since they cannot keep the investment in people they used to. Verster said Aveng does not expect any growth in the South Africa construction market in the next year to 18 months.

Verster pointed out that there was real improvement in the company's performance over all segments except the steel business, compared with the previous period.

Struggling South African construction business Grinaker-LTA has turned the corner, it seems. It decreased its operating loss from R280 million from the comparative period, and R197 million in the previous period, to R48 million. Verster said the business is virtually at break-even now and legacy loss-making contracts have been completed.

The R48 million loss was the result of R18 million retrenchment costs, some non-contributing contracts still in progress and costs related to unsuccessful tenders in Africa, Verster said. He said the group did not achieve much success in winning bids in Africa, as the environment was extremely competitive.

Aveng Engineering recorded a loss of R83 million due to remedial costs on water treatment contracts, closeout and legal costs incurred and retrenchment costs.

Aveng's Construction and Engineering segment in Australasia and Asia returned to profitability after recording a R10 million operating loss in June. The order book has however shrunk by almost 40% compared with the first half of the previous financial year and continued this trend since June.

This follows as big contracts, including the Perth Airport and Gold Coast contracts were completed and the group was unable to replace them with new contracts.

More than 50% of the segment's revenue is now from outside Australia.

Verster said the poor performance of these operations is the result of weakness in the Australian construction market, expenses related to unsuccessful tenders and operational underperformance on some contracts.

Claims on the QCLNG and Gold Coast contracts are still in progress.

The operating profit of Aveng's Mining segment dropped by 17.8% to R198 million, but Verster said the effect of contract cancellations will only be seen in the second half. The order book is down by 20% due to cancellations, scope changes and limited opportunities in the current market.

The outlook on mining is negative in the short- to medium term. It is expected to make a smaller contribution and will incur further restructuring and cost cutting, Verster said.

In the manufacturing segment the steel business recorded a R147 million operating loss, up from R107 million in the previous half and R65 million in the comparative period. Verster nevertheless said the business is in good shape, controlling the things it can.

Verster said from a group perspective the market is expected to remain subdued in the short- to medium term. There are few large infrastructure projects available in South Africa, but attractive opportunities in Australia, New Zealand and Southeast Asia.

Aveng is now a smaller, but less risky business with overall better financial performance, he said.

Aveng Ltd. issued this content on 24 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 01 March 2016 12:48:05 UTC

Original Document: http://www.aveng.co.za/news-room/press-releases/aveng-sell-r900m-capital-partners-portfolio-steel-business