The share price of construction firm Aveng fell by 11.44% on Monday afternoon as its announced that it expected its headline earnings a share and earnings a share for the year ended June 30 to be 10% lower than the 128.1c a share and 134.9c a share recorded in the 2012 financial year.

This was on the back of the group’s deteriorating performance in the second half of the year, which was primarily owing to much higher losses from its South African subsidiary Aveng Grinaker-LTA.

It was expected that Aveng Grinaker-LTA would post a significantly higher loss during the year under review, compared with the comparative period’s loss position, as revenue from the African operations was well below expectations.

Following the introduction of new management at Aveng Grinaker-LTA, a thorough project review was conducted, including the use of external resources, which resulted in a revision of the cost to completion estimates of a number of projects and, consequently, the necessity to provide for these losses.

Former Aveng Mining MD Brian Wilmot assumed the position of MD of Aveng Construction Africa on June 1. The new management team, strengthened by additional commercial, technical and project management capacity, will focus on improving the overall operating performance within Aveng Grinaker-LTA.

This resulted in material margin compression, despite initiatives to reduce overheads during the financial year and was compounded by the results of the review conducted on major contracts, which resulted in loss provisions being raised on a number of projects.

Aveng indicated that the impact of labour disruptions, the recoverability of which remained uncertain, had also impacted on the completion dates and profitability of some projects.

The South African and African construction and engineering business’ order book increased by 13% to R7.5-billion, reflecting the award of some significant projects during the past six months, including the Nacala rail project in Tete, Mozambique, and the Majuba rail line for State utility Eskom.

The unit was also working on the financial close of the $929-million Mauritius road decongestion project.

Meanwhile, results from the group’s other operations were broadly in line with expectations.

Aveng’s construction and engineering business in the Australasia and Pacific region showed substantial improvement in revenue and earnings, with a particularly strong earnings performance in the second half of the financial year.

The segment’s order book decreased by 3% to R24-billion as at June 30, compared with R24.7-billion as at December 31, as a result of large projects coming to an end.

The underlying performance of the group’s wholly owned subsidiary McConnell Dowell remained strong, despite the impact of contract provisions on the overall financial performance. Good progress had been made with the resolution of commercial issues on previously reported problematic contracts.

The commercial issues regarding the Hay Point Berth project, in Queensland, had been resolved, with the client and McConnell Dowell committing to work on a collaborative basis with the engineering, procurement and construction management contractor to complete the works.

The Queensland Curtis liquefied natural gas project was expected to be completed by the end of this year, despite commercial issues that were still apparent, and would continue to remain a material financial risk.

McConnell Dowell continued to engage with the client on these matters.

The group’s mining segment continued its strong performance and was expected to deliver improved revenue and earnings, despite a loss provision being raised as a result of a client being placed in business rescue and the subsequent costs of the termination, by mutual consent, of a contract in Zambia.

The performance of the manufacturing and processing segment, which included Aveng Trident Steel, decreased year-on-year, mainly owing to the depressed domestic infrastructure market, labour disruptions and steel supply and price volatility. 

The Aveng Steeledale and Aveng Duraset businesses were the main contributors to the weak performance of Aveng Manufacturing. Aveng Steeledale’s performance was negatively impacted by labour disruptions, weak demand from the construction industry and inventory write-downs. The slow-down and labour disruptions in the platinum and gold mining industries had a negative impact on Aveng Duraset. 

Enhanced revenue growth, internal efficiency improvements and a continued focus on opportunities within Mozambique and Australia have led to improved profitability for all other business units within Aveng Manufacturing. 

Aveng Concessions, together with its consortium partners, was identified as the preferred bidder in the Mauritius road decongestion project.

The working capital requirements of McConnell Dowell and Aveng Grinaker-LTA, combined with the losses incurred in Aveng Grinaker-LTA have had an adverse impact on the group’s net cash position for the financial year.

The group’s two-year order book decreased by 6% to R37.4-billion at the end of June, from R39.7-billion at the end of December. This was primarily owing to a 28% reduction in the Aveng Mining order book, following the termination of a mining contract in Zambia and the run-off of still-to-be extended mining contracts, which come up for renewal in 2014.

Aveng noted that the successful renewal of these long-term contracts would result in the normalisation of its order book.

The company's share price on the JSE closed the day at R26.70, down 11.44% on Friday's close of R30.15 a share.