Interim Results 2008 (2008-03-10)
The Aveng Group demonstrated further improvements in its financial performance for the six months ended 31 december 2007, with a revenue increase of 29% to R13,7 billion and all operations showing growth. Operating profit increased by 46%, profit before tax by 62% and headline earnings by 48% to R667 million. The operating margin improved from 4,4% to 5,2% with cash flow from operations increasing by 73% to R2.2 billion, demonstrating the quality of earnings. Aveng's construction interests are now contributing more than half of group profits.
The Construction cluster reported a revenue increase of 38% to R9,8 billion as the group's margin acceleration plans and the programme to eliminate historically problem areas continues to take effect. "We are pleased to report that construction of the Soccer City Stadium in Johannesburg is ahead of schedule as well as the Orlando Stadium which is due to be handed over ahead of schedule next month," says Carl Grim, Chief Executive Officer of the Aveng Group.
The Australian Construction and Engineering business, McConnell Dowell Corporation continued to benefit from high levels of infrastructure investment in the Australasian and Pacific markets with revenue increasing by 50% to R4,2 billion during the six-month period. An increase in operating profit of 110% was reported and it is expected that this business will continue to perform very well in future.
The Steel and Allied division reported revenue growth of 10% to R3,9 billion and although demand from the automotive market has slowed, growth opportunities in mining and construction are ample. This division will continue to have stable margins going forward, positively impacted by steel price increases of between 30% and 40% since the beginning of 2008. Aveng Manufacturing finalised a construction chemicals distribution agreement with the Mapei Group, an Italian based world leader in its field. The operating group invested R65 million to upgrade capacity in line with market demand.
While the recently experienced electrical power cuts had some negative secondary impacts on the business, Aveng's diversified interests, broad geographic spread, and the absence of electrically intensive construction projects mitigated the effects. Most power demand can effectively be handled by mobile generating capacity.
"Aveng recently concluded an alliance with the AREVA group, the French nuclear company responsible for building the Koeberg nuclear plant," says Grim. "This agreement considerably enhances our capacity to participate meaningfully in Eskom's nuclear power plant generation projects. Our extensive experience in the construction of coal power plants both here and in Australia, will allow the group to participate actively in Eskom's traditional power projects."
Grim also states that although skills remain a challenge, extensive in-house training and external recruitment, by leveraging its international construction business, has helped Aveng to mitigate the impact of this challenge on the group.
"Our two-year order book at December 2007 has grown 16% over the past six months to R22,2 billion, and is now equally split between McConnell Dowell Corporation and Grinaker-LTA. The order book represents 145% of the 2007 construction revenue, within the growth target range that we believe permits effective execution, while leaving adequate capacity to pursue new opportunities," concludes Grim.
The second half's performance will be impacted by reduced interest earned as a result of the repayment to shareholders of a portion of the proceeds of the Holcim disposal. However, with cash flow margins increasing to 16,1% from 9,2% a year ago, the group remains on track to meet its medium term operating margin objective of 8%.
