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Material issues

Material issues

Following the material issues determination process outlined previously, involving enterprise risk management, stakeholder engagement and business environment analysis, Aveng’s material issues in order of prioritisation are presented in the table below:

Material issue

Context

Timing of expected impact on Aveng

1
Management of working capital and liquidity  
  • Operational underperformance in certain areas and weak financial performance relative to industry peers may negatively affect the Group’s reputation and ability to secure quality work.
  • Increasing size of major projects and complexity of commercial terms may increase risk.
  • Exposure to refinancing and liquidity risk has the potential to impact credit ratings and ability to raise cost-effective borrowings.
2
Quality of execution of projects  
  • Limited availability of experienced management weakens project execution and risk and commercial management on major projects, resulting in ineffective execution of strategy in certain parts of the business.
  • Inadequate project execution systems or non-adherence to systems and processes resulting in unexpected substantial loss provisions on a number of contracts.
  • Limited sharing of knowledge and learning from mistakes contributes to areas of weakness in operational performance.
  • Poor health and safety performance weakens productivity and may attract regulatory sanction.
3
Macro-economic environment  
  • Subdued outlook in South Africa due to delays in infrastructure and mining investment. Rail, water infrastructure and renewable energy markets offer better prospects.
  • Sub-Saharan African growth prospects remain strong, particularly in the transport (rail, road and ports), power, oil and gas and mining markets.
  • Australian growth prospects remain positive, despite the slowdown in mining, with significant potential in oil and gas and infrastructure.
  • Asia and Middle East markets represent significant growth potential, with infrastructure investment continuing to fuel growth in Southeast Asia.
  • Exposure to economic impacts across different geographies (foreign exchange and commodity price fluctuations, regulatory and political environments).
    
4
Securing quality work  
  • Increased size and complexity of major infrastructure projects results in higher levels of risk being transferred to contractors, particularly in economic downturns when competitive pressures increase.
  • Entry of international contractors in African market has increased competition.
  • Need for significant local content (labour and fabrication) in all markets complicates entry and execution.
  • Uncertainty about cost base complicates pricing of projects.
  • Poor health and safety performance may negatively impact prospects for future work.
  • Vigilance required when exposed to questionable business practices.
  
5
Transformation in South Africa  
  • Application of new B-BBEE Codes may impact the Group’s transformation rating.
  • Significant investment required to develop empowered supply chain in South Africa.
  • Educational and construction experiential demographics do not adequately fulfil the Group’s skills and experience requirements.
  • Similar localisation pressures in geographic locations other than South Africa.
  
6
Labour instability and costs  
  • Current unstable domestic labour market provides a substantial risk.
  • Violent nature and extended duration of strikes compound their impact.
  • Labour disruption impacts contractors indirectly even if own labour force is not on strike.
  
7
Stakeholder relationships and ethical business practices  
  • A number of problem contracts experienced in South Africa and Australia during the past two years have resulted in protracted commercial negotiations with clients.
  • Construction sector remains exposed to the potential of ongoing punitive actions for historic anti-competitive practices.

Short term: 0 – 2 years   Medium term: 2 – 5 years   Long term: 5 – 10 years