Infrastructure and services group Aveng's share price fell as much as 10% on Tuesday morning as the market reacted to news that reclassification of its Trident Steel subsidiary as a continuing operation helped prompt a plunge in earnings.
In early trade Aveng was trading 7% lower at R19.25, having earlier reached R18.57. The share price has fallen just more than a quarter since February 14, when it flagged the reclassification in a trading update.
Aveng reported after market close on Monday that its headline earnings dropped to R17m, or 14c per share in its half-year to end-December from earnings of R109m, or 226c previously.
The group had concluded that it cannot reasonably assume to sell its noncore Trident Steel business within the next 12 months, requiring its classification as a continuing business.
The reclassification required recognition of prior periods depreciation and amortisation of R155m offset partially by a reversal of previously recognised impairments of R103m. This resulted in a net charge of R52m in the current period, compared with a fair-value gain of R415m previously.
Aveng CEO Sean Flanagan said the confusion about the technical accounting issues clouded what is otherwise a satisfactory half-year result.
“We could have closed the deal on Trident already, but at a significant discount to the value of that business,” he told Business Day.
“That business is growing. Every six months it outperforms its budgets and we cannot sell that business at a significant discount. We will get slaughtered by shareholders, the banks, the press and analysts.”
Trident Steel continued to outperform its budget, increasing revenue by R28m in the period while ebitda rose to R115m from R107m in the prior matching period.
Once the disposal of Trident is completed “this group will be very close to debt-free,” said Flanagan, without giving a price for the business.
Aveng plans to cut debt by about R350m in the next six months. As part of that strategy, Aveng said it is strongly committed to disposing of the asset which requires large volumes of working capital.
“We think we are better suited to having our business focused on the contracting model which we understand rather than a more trading-type business that requires significant investment in working capital,” said group CFO Adrian Macartney.
Aveng also reaffirmed that it is looking for a secondary stock exchange listing in a bid to raise equity, possibly on the Singapore or Australian stock exchanges.
Macartney said the company would be analysing the depth of liquidity of the markets, ease of doing business, tax regimes, the propensity of investors who participate in those markets to be attracted to a contract mining and construction company operating across Africa, South East Asia and Australia in deciding which stock exchange to seek a secondary listing.
Once one of SA’s largest construction companies, Aveng is among a few left standing after an industry slump led to the collapse of peers including Group Five and Basil Read.
Aveng now focuses on Moolmans, which provides services such as shaft sinking and bulk earth-moving, and is one of Africa’s largest open-cut mining contractors. Its other core business is Australasian engineering, construction and maintenance contractor McConnell Dowell, which generates two-thirds of group revenue.
By the JSE’s close, Aveng’s share price had recovered somewhat, ending the day just 3.33% lower at R20.01.
With Michelle Gumede
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