Carl Grim, the CEO of construction group Aveng, will retire with peace of mind. In addition to leaving the group in a relatively healthy financial position, Grim now earns kudos for delivering on black economic empowerment (BEE).
Aveng claims the first position in the 2008 Top Empowerment Companies (TEC) rankings within the basic industries sector of the JSE with a total BEE score of 65,59%. That takes the construction group to 20th position in the overall rankings. It's quite an impressive record for an entity located in a sector that has an image of being conservative. The basic industries sector of the JSE is dominated by construction firms that include giants such as Murray & Roberts, Group Five and WBHO.
For Grim, who according to the group is set to retire before the end of this year, this will provide some relief. Not so long ago, Aveng found itself in a potentially damaging situation. This is after its cement manufacturing partner, Swiss-based group Holcim, decided to sell 85% of its interest in Holcim SA to BEE group AfriSam. The Swiss group held 54% of Holcim SA while Aveng held 46%.
Aveng, which deserved a pre-emptive right on that stake, was left with a problem in its hands. The group could have fought to exercise its pre-emptive right and in the process earn for itself the unenviable title of being antitransformation. But it chose to walk away by disposing of its 46% stake in Holcim SA to AfriSam. Even that was at first interpreted as sour grapes.
With time, Aveng has been absolved. Its decision to exit Holcim SA has actually benefited the BEE course. Aveng has facilitated the creation of the largest black-owned and controlled entity in the infrastructure development sector.
This transaction has also boosted - by default - Aveng's effective black ownership. With the Holcim stake gone, Aveng's 2005 BEE deal with a consortium called Qakazana is represented in more than 80% of the group's activities. Led by BEE group Tiso, the Qakazana consortium acquired 25% of Aveng Africa in 2005. The assets include construction and building firm Grinaker-LTA, engineering operation EPC, opencast mining firm Moolmans and Trident Steel.
On top of Tiso, Qakazana features Aveng Community Investment Trust, Tiso Aveng Women's Trust and Aveng (employee) Empowerment Trust. That combination has earned the group maximum plus three bonus points under ownership on the broad-based BEE scorecard. The bonus points were born out of the participation of new entrants and designated BEE groups in the Aveng transaction, says Empowerdex researcher Steven Hawes.
"We have always given the concept of empowerment top priority in the business," says Grim. "We have declared empowerment a key performance area in our management lines. It is important to note that we do it in a way that does not jeopardise our business. Ours is not empowerment at all costs."
Though delivering on the empowerment front, Aveng has maintained its position as the second-largest construction group in the country with revenue clocking R22bn last year.
The group was bundled out of the former investment holdings conglomerate Anglo Vaal Industries (AVI) in 1998 and was listed as a separate entity in 1999.
Under the leadership of Grim, the group declared an ambitious expansion programme. It immersed itself in daring corporate activity including the acquisition of competitor LTA, which was merged with Grinaker in 2000. The LTA transaction came with offshore exposure in the form of a significant stake in Australian-based construction operation McConnell Dowell. As can be expected with major acquisitions, Aveng did struggle for some time to bed down its acquisitions, which compromised profit margins.
But backed by a buoyant construction market, the group has made significant margin gains as reflected in its 2007 figures. Bar the windfall from the sale of its 46% stake in Holcim, problem areas and particularly the construction division are showing improvement. Headline earnings went up 122% to 343,5c.
"Aveng has historically been proactive in its approach to broad-based BEE and accordingly finds the SA operations well placed with regard to their BEE credentials," says the group in its latest annual report.
The group added that, if one considers the various elements of the scorecard, commencing with ownership, the BEE deal finalised in 2005 is a broad-based arrangement. With relevant contributions from the Aveng Group, the arrangement more than addresses both the economic interest and voting rights requirements.
Aveng is, however, challenged when it comes to the management and employment equity of the BEE scorecard. It managed to score 2,4 out of a possible 10 points in management. The group operates in an area that requires highly technical skills, which are in short supply within the black section of the SA population.
Though significant progress has been made in employment equity and management, the level of black people, and especially black women, at all levels in the organisation is below target, says the group. This will continue to receive focus and attention by the board, it says.
Given that weakness, the entire country has launched a campaign to boost the skills required by companies such as Aveng. The firms themselves have set up extensive training programmes to meet this challenge. That explains the skills development score produced by Aveng in the 2008 TEC data - it scored 7,17 out of 15. Last year Aveng awarded a total of 161 bursaries to full-time students enrolled in construction-related fields of study.
"Skills development in the group has been the strong suit of the operations historically and is generally well aligned with the needs of the sector as defined in the scorecard," says the group. "Skills development is the key to future sustainability and accordingly will receive a greater focus in the period ahead."
Aveng has set itself the target to be a 100% BEE contributor in all its SA operating groups by 2010.
