JSE-listed Aveng has elected to change its reporting currency from the rand to the Australian dollar, citing that it now earns 91% of its revenue from outside SA.
Though SA companies, such as WBHO and Murray & Roberts, have had tough luck when investing in Australia, Aveng seems to be resisting the trend.
Aveng’s Australian subsidiary McConnell Dowell — which specialises in rail, marine and other infrastructure construction — has seen growth momentum supported by healthy market conditions in the Australian infrastructure sector, coupled with public sector infrastructure investments from all levels of government.
“The board of directors bases its performance evaluation and many investment decisions on Australian dollar financial information, being the predominant transactional currency of the group,” Aveng said in a statement.
“The board believes that Australian dollar financial reporting provides more relevant presentation of the group’s financial position, funding and treasury functions, financial performance and its cash flows.”
One Australian dollar equals R12.36, according to the currency exchange rate. The shift away from the rand as a reporting currency comes as Aveng flagged that earnings for the six months to end-December were expected to surge by as much as three quarters.
Headline earnings per share (HEPS) from continuing operations, which excludes the Trident Steel business that was sold in the second half of the 2023 financial year, was expected to improve by 65.4%-75% to as much as 106.8c, or as much 9.1c in Australian currency, Aveng said.
Revenue was expected to increase by 45%, thanks to improved operating earnings at both McConnell Dowell and Moolmans, it said.
The market welcomed the announcements as the shares of the construction, engineering and mining group had their best day in nearly two months on Thursday. Aveng rose 15% on the day of the announcement, its biggest jump since December 29. The share closed 9.15% higher on Friday at R7.75.
The Trident sale in 2023 marked the end of a five-year journey during which Aveng reconfigured its portfolio by selling noncore assets to reduce its debt, which was as high as R3.3bn in 2018.
Aveng has since simplified and recapitalised, to focus exclusively on its two cash-generative core businesses.
McConnell Dowell is a engineering, construction and maintenance contractor operating in the building, infrastructure and resources sectors in Australia, New Zealand, the Pacific Islands, Southeast Asia and the Middle East; and Moolmans is its mining arm in SA.
By the group’s year-end to June, McConnell Dowell had secured 100% of its planned revenue for 2024 after it was awarded work within its specialist disciplines, including R38bn (A$3.2bn) in new work and grew work in hand by 40% to R44.2bn (A$3.5bn).
The business is touted to continue on its upward trajectory buoyed by the Australian and New Zealand operations.
In the buoyant Australian market, Aveng has alluded to the emergence of an investment shift from transport to social infrastructure which it is likely to tap into, adding that the energy transition and water security markets were also gaining momentum. Additionally, signs of easing in recent hyper-cost escalation were encouraging.
McConnell Dowell did, however, take a blow that resulted in losses on the Batangas LNG terminal project in the Philippines which affected the group’s financial performance in 2023.
While sustainability and plans to remedy the setbacks have been put in place, the company continues to face economic headwinds in Southeast Asia including intense competition which increases complexity for contractors as the region addresses its infrastructure backlogs.
Aveng operations span multiple geographies including Australia, New Zealand and Pacific Islands, Singapore, Philippines, Indonesia, Malaysia and SA.
Though the local mining industry that Moolmans operates in is mineral-rich and benefits from higher commodity prices, Aveng has warned that these advantages continue to be undermined by higher operating and investment costs, supply chain bottlenecks and adverse weather conditions.
SA threats
Unreliable power supply and dysfunctional state-owned rail transport from mines to ports reduced the industry’s exports during 2023 and threatened future outputs, with negative consequences for the industry, the fiscus and socioeconomic growth, Aveng cautioned.
The company, which has a market capitalisation of R902m on the JSE, said that despite the reporting currency changing to Australian dollars, the currencies of the primary economic environments where its underlying businesses operate would remain the same. This means that foreign exchange exposures would be unaffected by the change, albeit that the effects of such exposures would be presented in Australian dollars.
Aveng said it would provide summarised, restated Australian dollar financial information for the six months ended December 31 2022 and restated financial information for the year ended June 30 2023 in compliance with International Financial Reporting Standards to assist investors in understanding the change.
In March, Scott Cummins, CEO of McConnell Dowell, will replace Sean Flanagan at the helm of Aveng.
Results for the six months to end-December are expected on Tuesday.
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