Aveng has warned shareholders it expects to swing into a loss for the year ended June 30 2023, citing problems in Southeast Asia, primarily from the Batangas liquefied natural gas (BLNG) terminal project.
The setback comes as the Johannesburg-based construction, engineering and mining group was finally making headway after its restructuring path to exit all its noncore businesses to focus on its two cash-generative core businesses: McConnell Dowell and Moolmans, its mining arm in SA.
McConnell Dowell was contracted by FGEN LNG Corporation in 2020 to construct the BLNG project in the Philippines, but after a string of delays Aveng’s client called in more than R500m in project guarantees in April.
In an operational update on Friday, the R963m JSE-listed Aveng said the ripple effects of that guarantee call-in would be seen in the annual results to be released in August.
The company said that in stark contrast to the earnings per share of 106c and headline earnings of 252c reported for the previous matching period, it expects to report an earnings loss per share and a headline loss per share for the year ended June 30, but did not give figures.
It said Moolmans expects to record an operating loss of R105m for the 2023 financial year, while McConnell Dowell is expected to report an operating loss of R820m (A$65m) for the year.
The losses come despite the group’s Australian and New Zealand and Pacific business units under McConnell Dowell’s expected to report operating earnings higher than those of the prior year.
“This improved performance is overshadowed by the losses in Southeast Asia, primarily from the BLNG terminal project,” said Aveng. The project is expected to report a total operational loss of R1.3bn (A$114m) after providing for costs to date and costs to complete.
Debt cut
Nonetheless, Aveng said it had slashed the McConnell Dowell debt of R529m arising from the BLNG project guarantee down by R251m, with the balance converted to term debt that is projected to be settled over the next 12 months.
“Our bankers and guarantee providers remain supportive of McConnell Dowell, providing guarantee facilities over current projected growth requirements,” Aveng said. “Overall progress supports completion and handing over the facility for operation later this calendar year.”
Aveng said that after the disappointing outcome of the BLNG project, McConnell Dowell had over the last quarter developed a comprehensive programme for its completion in consultation with the client, FGEN and the client’s owner’s representative.
The company also reported having received payment for certifications that were previously overdue on the contract so it was upbeat about McConnell Dowell continuing to work with FGEN to seek the best outcome, which includes minimising the time and cost to complete the project, and resolving remaining claims.
“Lessons learnt from the BLNG project have been applied to improve tender evaluations, project execution and ongoing risk management of projects,” the group said.
Meanwhile, CEO Sean Flanagan has assumed the role of executive chair of Moolmans as the company starts its search for a new MD for the mining services segment after Jerome Govender tendered his resignation to pursue opportunities outside the group.
After an R900m investment in new heavy mining equipment — touted to improve operational performance — the firm said the majority of the Moolman’s equipment was now on site and is either in deployment or awaiting commissioning.
The final delivery of equipment is expected by September 2023.
Aveng said it benefited in the last quarter from the staggered delivery profile of new heavy mining equipment and further delivery delays experienced from Original Equipment Manufacturer suppliers, however, the improvement was not sufficient to fully mitigate the losses incurred in the first nine months of financial year 2023.
But not all was doom and gloom in the year, as Moolmans secured a one-year extension on the Sishen contract valued at R900m during the second half of the year and negotiations with the client are ongoing to consider a new five-year contract, it said.
Moolmans reported work in hand of R8bn at the close of the financial year while McConnell Dowell tallied A$3,5bn of work in hand having secured numerous infrastructure contracts.
Aveng's share price was 4.89% lower at R7.58 at the close on Friday, having shed more than 50% since the beginning of the year.
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