Aveng Group chairman Angus Band has told shareholders the Johannesburg-listed infrastructure firm continues to experience “adverse” market conditions, notably in the construction and steel sectors.

He says the group’s potential order pipeline remains stable at R111bn, but that tenders are taking “much longer” to be awarded and that contract terms are increasingly “onerous”.

“In South Africa, the envisaged R844bn public sector infrastructure spend has not yet translated into increased tender activity in the local market,” Mr Band said in a business update on Thursday.

This had become a regular refrain among large construction and engineering companies in the country, which had wallowed in red ink since the end of the Soccer World Cup in 2010.

In September, the group said only 3.6% of its total order book now derived from the South African public sector, down from 10.5% in 2010.

At the time it reported headline earnings per share in the year to June had plunged 58%, with operating profit plummeting 64%.

It said this was a result of about a 30% drop in public sector spend in South Africa since 2008.

The group had seen the bulk of its operations migrate to foreign markets in recent years, especially the Australasia region.

It had said 74% of its two-year order book now came from outside South Africa, compared with 65% in 2010.

It had business units in Australia that served the resources, building, rail, civil, electrical, marine, pipelines and fabrication markets in the region.

Earlier this year, it said markets in Australasia and in Africa showed strong growth, and it was expanding operations in these geographies.

But on Thursday Mr Band told shareholders the construction market in Australasia had slowed “substantially” in the first quarter, with a sharp decline in tender activity.

This meant a revival of its home market in South Africa had become even more critical to the group’s continued survival.

“The slowdown in Australia is the main problem as most of the group’s order book is outside South Africa,” said Imara SP Reid analyst Sibonginkosi Nyanga on Thursday.

“Because Aveng has large exposure to the resources industry, it is at the mercy of the slowing Chinese economy and one would expect the order book to follow Chinese growth,” he said.

He said Imara had pinned its short-to medium-term hopes for Aveng on the mining and Australasian businesses, because the contribution of SA’s construction market had waned.

He also said Imara remained concerned about further losses associated with Aveng’s Queensland Curtis liquid natural gas and Hay Point coal terminal contracts in Australia, and the slowdown in some aspects of the Australian economy.

Mr Nyanga said “bureaucratic inefficiencies” in SA were the major contributing factor to the low expenditure levels by local government.

The new president of the South African Federation of Civil Engineering Contractors, Norman Milne, says the state’s R844bn budget for infrastructure over three years has already been allocated.

Capital expenditure includes Eskom’s Medupi and Kusile power stations and the Ingula pumped storage scheme straddling the Free State and KwaZulu-Natal.

But much of the spend was for boilers for the new power stations or locomotives for Transnet, and not for civil engineering projects.

http://www.bdlive.co.za/business/industrials/2012/11/08/aveng-chairman-tells-of-tough-times