Aveng moves into water purification

Tuesday 15th March, 2011

Aveng moves into water purification
BY SUMMIT TV, MARCH 15 2011, 00:00

Summit TV has spoken Roger Jardine from Construction group Aveng about the companies poor results - and why they're getting into water purification and processing.

That's after the company reported profits down 35% and forecasts flat revenues for the next six months.

"We've reported on two problematic highly technical projects in Australia and generally tough conditions and tight margins contributing to where we are. We've also seen in the numbers the Competition Commission fine," Jardine told Summit.

"We've seen the impact in the six months in McConnell Dowell's results was such that it almost cut their operating margin in half so that went from above 4% to above 2% so it was quite significant in the reporting period."

The company has also launched a water division.

"In the past year we treated between 60 and 80 megalitres of water for the private sector and we built a de-salination plant in Namibia and there's water reclamation for coal companies and in the Witwatersrand eastern basin. We envisage doubling that in the course of the next year and we would like to see the water business in the next 18 months at about R1billion," he said.

While Jardine refused to discuss many of the details of the new projects, he did say some are posing a challenge.

"In the nature of these projects things can go wrong from time to time. In Australia we have a very strong team and robust market but unfortunately in the past 12 months we have had some execution problems and we are focusing on that - but overall in terms of outlook the Australian and Pacific Rim is far more robust than South Africa were we are seeing a depressed infrastructure market."

He defended Aveng's apparent tendering for projects with zero margins.

"Pricing strategy in these times is a serious art - on the one hand you want to grow your order book and in January we are showing a R9billion order book in the SA market - but at the same time you don't want to put in prices that are so sub-optimal that when the market turns you've used up capacity on low margin business."

That's the balance we try for in our bidding strategy. We've lost contracts of hundreds of millions on a few hundred thousand rands so it's very tough out there," he said.

He warned on tough trading conditions going forward.

"Certainly for the next 12 to 18 months we are going to see current conditions persist. The inflexion point is government spending - our order book in SA is currently around 78% private sector with few public sector projects coming through - so the landscape has changed with fewer projects and more competitors. If one looks at the infrastructure that's envisaged the World Cup was quite small in comparison so we can return to an environment with the margins we've seen in the past few years."

Link to article: http://www.bdlive.co.za/articles/2011/03/15/aveng-moves-into-water-purification