Johannesburg — ALTHOUGH construction group Aveng has posted a 29% drop in operating profit to R686m for the six months to December due to tough trading conditions, it is in a strong financial position with R3bn in free cash it wants to use to acquire companies in the power and water industries.

CEO Roger Jardine said yesterday the group would also use its strong balance sheet to position itself to bid for large infrastructure projects worldwide. "The aim is to also strengthen our offerings in sectors we already operate in. There are a number of opportunities for us both locally and in the rest of Africa," Jardine said.

But he warned this year would still be tough due to volatile steel prices and a slow economic recovery. Jardine said the construction industry was hoping for a fast roll- out of the state's R846bn infrastructure programme, which had seen some delays last year.

Aveng's six months results performance to the end of December reflected a tough operating environment with most construction companies taking a beating in the recession last year.

The group reported a 5% reduction in revenue to R16,8bn from R17,8bn, mainly as a result of the decline in the manufacturing and processing segment, which reported a 31% decrease in revenue having come off historically high steel prices and volumes in the comparable period.

Headline earnings per share slipped to 163,4c from 244,4c, while earnings per share dropped to 164,1c from 244,5c.

The number of shares in issue had remained constant at 396-million since June.

But the good news for the group was that its two-year order book rose 8% to R32,7bn.

Through various initiatives, including tighter working capital management and stricter cost control, the group saw free cash increase 33% to R3bn.

Jardine said this was achieved after funding capital expenditure of R568m.

Financial director Simon Scott said: "Despite a decline in revenues, we have been able to create additional value for our shareholders, with net asset value per share increasing 10% to R27,65."

Construction and engineering delivered a satisfactory result in a tough market characterised by a strong local currency, a slowdown in domestic infrastructure spend and expected tightening of margins in Australia.

Jardine said lower demand and lower steel prices had kept the steel businesses under pressure. "Nevertheless, a combination of strong cash flow and a solid balance sheet position the group to benefit from potential opportunities in this tight credit cycle".