The strong rand continues to claim new victims, with SA's largest construction company, Aveng, warning yesterday that its profit will fall and analysts predicting that the other big construction companies will follow suit.

Aveng said it would report materially lower earnings for the six months to December, triggering a 5,5% drop in its share price. The share price of SA's secondlargest construction company, Murray & Roberts, lost 1,4%, and Group Five's fell 4,15%.

Construction companies are suffering a double whammy from the rand's gains the currency's appreciation slashes hard currency earnings, while the sector's largest South African clients, mainly in the mining industry, continue to delay and scale down projects.

Andisa Securities analyst Joe Vibetti and independent analyst Mark Ingham expected other major construction companies to issue profit warnings, signalling a bleak reporting period for the sector in the next month or two.

Construction companies calculate their currency translation gains or losses on the last day of each reporting period. Vibetti said the exchange rate on December 31 last year, the close of most construction companies' interim periods was R6,65 to the dollar. This compared with R8,56 on December 31 2002 an appreciation of almost 30%. Aveng generates about 35% of its earnings in hard currency.

Aveng CE Carl Grim said yesterday the direct and indirect effects of the strong rand were more or less equal. However, it was difficult to quantify the effect of delayed or downsized construction projects. He cited the recent announcement by SA's largest platinum miner, Anglo Platinum, that it was unlikely to maintain its ambitious production expansion programme, as an example of the slowdown in big construction projects.

Vibetti said government's expected increase in infrastructure spending was not happening quickly enough to relieve randrelated losses. Reduced interest rates had seen an increase in the small-scale building market, such as home extensions, but this work was being undertaken by small construction companies.

Ingham and Vibetti agreed, however, that the increase in demand in the small-scale building market would boost material suppliers, such as cement producer Alpha, in which Aveng has a 46% stake.

Ingham said Aveng's profit warning should be seen against the background of high growth in the corresponding period last year. His latest estimate was that Aveng's earnings a share for the full financial year would drop between 15% and 20%.

Aveng's share price closed at R8,51 on the JSE Securities Exchange SA yesterday.