Aveng’s earnings could fall on road cutbacks

south african construction firm aveng warned yesterday its earnings could fall by as much as half – sending its shares spiralling – after clients cancelled road contracts because of a strong rand.

aveng, which warned at the start of last month that it expected half-year earnings to be 10% to 30% down on the same period a year ago, said it was cutting back on road projects outside south africa as a result.

a steady stream of south african firms have reported a drop in earnings and halted projects after the rand's gains of nearly 30% against the dollar last year.

yesterday, aveng said profit for the half and full year could be 50% lower than a year earlier.

aveng's revised profit warning sent its shares sliding almost 10% to 795 cents at one point – equalling a 12-month low hit last march. they were at 808 cents by 1248 gmt – 8,2% down on the day in a flat broad market.

"the reason for the trading update was the loss of three road contracts in southern africa," aveng chief executive carl grim told reuters. "the decision has been made to limit our exposure to this sort of contract outside south africa".

grim said he did not know how many jobs would go at the road and earthworks division of the business affected, aveng's grinaker-lta unit, but said the cutbacks would be ‘substantial’.

the unit's staff numbers were difficult to gauge since it employed a high number of contract workers, he said, adding that the rest of aveng group was performing in line with expectations.

grinaker-lta, a wholly-owned subsidiary of aveng, is a construction and engineering group that focuses on infrastructure, mining and engineering in developing countries.

aveng's interim results are expected to be released on march 8 and the final results for the year on september 13.