Aveng expects drop in earnings‚ in subdued sector

Infrastructure projects such as road repairs are being hamstrung by the slow progress of major government contracts for civil engineering work in South Africa. Image: Vottle

Because of the impairment of goodwill intangible assets of both Aveng Grinaker-LTA and the water business of Aveng Engineering‚ the company said it expected a basic loss per share of between 99.6c and 112.4c in the period‚ compared with earnings per share of 124.6c last year.

SA's largest construction and engineering group said the impairment was non-cash in nature and was excluded from headline earnings per share.

But it said SA's construction and manufacturing sectors remained under pressure because of slow infrastructure-related spend and lower mining activity resulting from weaker commodity prices‚ the damaging platinum mining strike and a subdued domestic steelsector.

It also said the Australian construction market was experiencing a slowdown in mining-related infrastructure spending‚ although there were still opportunities in transport and general infrastructure.

However‚ Aveng also said it anticipated a substantial improvement in net operating earnings before the effect of impairment of goodwill intangible assets.

Construction industry still battling

The company said it was in a closed period and was not able to provide more detail than that issued in a stock exchange announcement. It said the full group results would be published in August.

The South African Federation of Civil Engineering Contractors (Safcec) said that conditions in the South African construction industry had come under greater pressure in the first quarter of this year‚ following a contraction of 10% in real terms last year.

Safcec said that nominal turnover had reduced by 12% quarter-on-quarter‚ but because of a particularly weak first quarter last year‚ turnover had increased 18% year-on-year in real terms.

However‚ Safcec said this was offset by a notable deterioration in other indicators‚ which showed a growing dissatisfaction among civil contracting firms regarding the outlook for the industry.

Safcec also said the weakened economy - caused by the strike in the mining industry and a contraction in the manufacturing sector - had raised fears that the government would not be able to deliver on its projected infrastructure programmes.

"Considering the fact that the increases in allocations over the next three years were already below construction cost inflationary expectations‚ this could have serious implications for the civil construction industry‚" it said.

Meanwhile‚ the Steel and Engineering Industries Federation of SA this week said that the decline in the Kagiso purchasing managers index for last month represented a further strong deterioration in business confidence in South Africa.