Aveng CFO Adrian Macartney explains the workings behind Moolmans’ turnaround path

Adrian says Aveng’s strengthened balance sheet has enabled Moolmans to embark on a renewal plan.

JSE-listed construction and engineering group Aveng has reported a significant increase in group operating earnings to R280 million in the six months to December 2020 from R14 million in the prior period, with McConnell Dowell, Moolmans, Trident Steel and Manufacturing all profitable.

This was announced in a recent voluntary pre-close trading update, with Aveng saying that its open-pit mining business Moolmans continues on its turnaround path and has shown consistent operational and financial improvement over the last 24 months, while its Australian-based specialist infrastructure subsidiary McConnell Dowell is expected to deliver a strong full-year profit, “with second half profits exceeding the first half”.

CFO Adrian Macartney confirmed in media reports that the group’s strengthened balance sheet had allowed Moolmans to embark on a heavy mining equipment renewal plan designed to enhance its offering during the current strong phase in the commodity cycle.

Moolmans grew its operating earnings by 12.8 percent to R132 million from R117 million and has work in hand of R6.5-billion. Adrian said that revenues were likely to remain stable into the 2022 financial year, as it moved to replace tapering contracts with new ones in southern Africa and west Africa and to negotiate new five-year deals with existing clients.

“We will be very focused over the next 30 months on reducing debt to zero,” he said. “Our debt level was unsustainable and we have dealt with it decisively.”

The current commodity boom offers good prospects, despite the challenges posed by Covid-19.

McConnell Dowell grew its operating earnings in the reporting period by 136 percent and recorded its highest six-months revenue in five years. It is expected to deliver a strong full-year profit, with second-half profits exceeding the first half while revenue for the full year is expected to be more than 30 percent higher than the prior year.

Aveng said although Moolmans' revenue for the second half of the financial year is likely to remain flat compared to the prior period, EBIT for the period is expected to be in line with first half results.

It said the first half included certain end-of-contract profits and cash flows that were not repeated but it is expected that Moolmans’ operating free cash flow for the year will remain positive for the full year and reflect an increase compared to the 2020 financial year.

Major contract awards secured by Moolmans year-to-date include a R1.3 billion opencast mining services contract at Seriti's Klipspruit mine and a R1.5 billion opencast mining services contract at Vedanta's Gamsberg mine.

Aveng executed a successful rights offer and balance sheet restructure in March 2021, which reduced group debt from R2.1 billion to R1.1 billion and significantly deleveraged the group.

The remaining debt owing to local lenders was renegotiated as part of the balance sheet restructure transaction and is repayable over a three-year term at more favourable rates, and a further R100 million was raised from the follow-on rights offer concluded on 4 June.

Trident Steel, which is deemed non-core and is earmarked for disposal, recorded increased profitability at end-December 2020 following a strategic shift to focus the business unit as a steel services centre, primarily serving the automotive sector.

Aveng said Trident Steel's performance in the first half of the year continued through the second half because of increased demand from original equipment manufacturers (OEMs).