AEG 201209050001A
Audited group results for the twelve months ended 30 June 2012
AVENG LIMITED
Incorporated in the Republic of South Africa
Registration number 1944/018119/06
Share code: AEG
ISIN code: ZAE000111829
Audited group results for the twelve months ended 30 June 2012
Revenue
R41 billion
up 19% on June 2011
Headline earnings
R495 million
decrease of 58% on June 2011
Order book
R47 billion
increase of 27% on June 2011
Dividends per share (cents)
60 cents
decrease of 58% on June 2011
R3,9 billion net cash on hand at year end (2011: R5,4 billion)
Consolidated statement of financial position
at 30 June 2012 2011
Audited Audited
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 6 664 6 021
Goodwill and other intangibles 1 549 1 481
Investments 251 223
Deferred tax 1 373 1 019
9 837 8 744
Current assets
Inventories 2 467 2 066
Trade and other receivables 10 442 8 132
Cash and cash equivalents 5 203 5 611
18 112 15 809
TOTAL ASSETS 27 949 24 553
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to ordinary shareholders of Aveng Limited 12 902 12 918
Non-controlling interests 10 (3)
Total equity 12 912 12 915
Non-current liabilities
Borrowings 748 48
Deferred tax 674 832
1 422 880
Current liabilities
Trade and other payables 12 850 10 348
Borrowings 523 246
Taxation payable 242 164
13 615 10 758
TOTAL EQUITY AND LIABILITIES 27 949 24 553
Consolidated statement of comprehensive income
for the year ended 30 June 2012 2011
Audited Audited %
Rm Rm change
Revenue 40 885 34 324 19
Operating profit before depreciation and amortisation 2 020 2 615
Depreciation 1 479 1 101
Amortisation of intangibles 37 24
Operating profit before non-trading items 504 1 490 (66)
Non-trading items 31 (14)
Operating profit 535 1 476 (64)
Share of profits and losses from associates and joint ventures 41 (7)
Income from investments 226 347
Operating income 802 1 816
Finance cost 76 59
Profit before taxation 726 1 757
Taxation 203 584
Profit for the year 523 1 173 (55)
Other comprehensive income for the year
Exchange differences on translation of foreign operations 472 209
Total comprehensive income for the year 995 1 382
Profit for the year attributable to:
Equity holders of Aveng Limited 521 1 177
Non-controlling interests 2 (4)
Profit for the year 523 1 173
Total comprehensive income attributable to:
Equity holders of Aveng Limited 992 1 386
Non-controlling interests 3 (4)
995 1 382
Determination of headline earnings
Profit attributable to equity holders of Aveng Limited 521 1 177
Non-trading items net of taxation (26) 14
Headline earnings 495 1 191 (58)
EARNINGS PER SHARE (cents)
Earnings 134,9 302,9 (55)
Headline earnings 128,1 306,4 (58)
Diluted earnings 126,2 283,3 (55)
Diluted headline earnings 119,8 286,6 (58)
DIVIDEND PER SHARE (cents) 60 145,0 (58)
Consolidated statement of cash flows
for the year ended 30 June 2012 2011
Audited Audited
Rm Rm
Cash retained from operating activities
Cash retained from operations 535 1 476
Depreciation and amortisation 1 516 1 125
Non-cash items 172 (171)
Cash generated by operations 2 223 2 430
Income from investments 226 347
(Increase) in working capital (799) (1 873)
Cash generated by operating activities 1 650 904
Finance cost (76) (59)
Taxation paid (567) (455)
Cash available from operating activities 1 007 390
Dividend paid (561) (565)
446 (175)
Investing activities
Property, plant and equipment purchased - expansion (1 220) (1 141)
- replacement (867) (678)
Investment in associate companies 30 15
Proceeds on disposal of property, plant and equipment 149 89
Purchase of subsidiaries (285)
(1 908) (2 000)
Operating free cash utilised before foreign exchange rate impact (1 462) (2 175)
Foreign exchange rate impact 515 315
Operating free cash utilised (947) (1 860)
Financing activities with equity holders
Shares repurchased (449) (117)
Increase in shares by minorities in subsidiary company 10
Movement in net cash position (net cash outflow) (1 386) (1 977)
Financing activities with debt holders
Long-term borrowings raised 869 47
Long-term borrowings (repaid) (23) (300)
Net decrease in cash and cash equivalents (540) (2 230)
Cash and cash equivalents at beginning of year 5 400 7 631
Cash and cash equivalents at end of year 4 860 5 400
Segmental information
for the years ended 30 June 2012 2011
Audited Audited
Rm % Rm %
Operational segmentation
Revenue
Construction and Engineering South Africa and Africa 9 934 24 9 575 28
Construction and Engineering Australasia and Pacific 17 123 42 13 281 39
Open cut mining 4 677 11 3 656 11
Manufacturing and Processing 9 147 23 7 807 22
Administration 4 5
40 885 100 34 324 100
Operating profit
Construction and Engineering South Africa and Africa (733) (137) 443 30
Construction and Engineering Australasia and Pacific 360 67 291 20
Open cut mining 478 89 413 27
Manufacturing and Processing 585 109 321 22
Administration (155) (29) 8
535 100 1 476 100
Assets
Construction and Engineering South Africa and Africa 4 972 25 4 130* 23
Construction and Engineering Australasia and Pacific 5 610 29 4 531 26
Open cut mining 3 647 19 3 036 17
Manufacturing and Processing 5 280 27 5 740 32
Administration 65 263* 2
19 574 100 17 700 100
*Restated
Current liabilities
Construction and Engineering South Africa and Africa 2 923 23 2 771 27
Construction and Engineering Australasia and Pacific 5 961 47 4 446 44
Open cut mining 1 604 12 1 075 10
Manufacturing and Processing 1 407 11 1 487 14
Administration 955 7 569 5
12 850 100 10 348 100
Capital expenditure
Construction and Engineering South Africa and Africa 329 16 232 13
Construction and Engineering Australasia and Pacific 611 29 473 26
Open cut mining 934 45 711 39
Manufacturing and Processing 198 9 438 24
Administration 15 1 (35) (2)
2 087 100 1 819 100
Depreciation
Construction and Engineering South Africa and Africa 180 12 170 15
Construction and Engineering Australasia and Pacific 618 41 320 30
Open cut mining 526 36 468 42
Manufacturing and Processing 127 9 123 11
Administration 28 2 20 2
1 479 100 1 101 100
Geographical segmentation
Revenue
Republic of South Africa 18 485 45 17 503 51
Rest of Africa and Mauritius 4 971 12 3 415 10
Australasia and Pacific islands 14 738 37 10 656 31
South East Asia 2 581 6 2 680 8
Middle East and other 88 69
South America 22
40 885 100 34 323 100
Asset
Republic of South Africa 10 412 53 10 833 61
Rest of Africa and Mauritius 3 485 18 2 294 13
Australasia and Pacific islands 4 748 24 3 537 20
South East Asia 891 5 1 013 6
Middle East and other 38 23
19 574 100 17 700 100
Capital expenditure
Republic of South Africa 976 47 967 53
Rest of Africa and Mauritius 499 24 378 21
Australasia and Pacific islands 565 27 452 25
South East Asia 46 2 22 1
Middle East and other 1
2 087 100 1 819 100
Consolidated statement of changes in equity
Attributable to equity holders of Aveng Limited
Non-distributable reserves
Foreign Other non-
Share Share currency distributable Retained
capital premium translation reserves income Total
Rm Rm Rm Rm Rm Rm
Balance at 1 July 2010 20 1 981 (145) 69 10 291 12 216
Profit for the year 1 177 1 177
Other comprehensive income/(loss) 207 2 209
Total comprehensive income 207 2 1 177 1 386
Dividends paid (565) (565)
Acquisition of non-controlling interest
Share repurchase programme * (117) (117)
Transfers 2 (2)
Balance at 30 June 2011 20 1 864 62 73 10 901 12 920
Profit for the year 521 521
Other comprehensive income/(loss) 484 (12) 472
Total comprehensive income 484 (12) 521 993
Dividends paid (561) (561)
Shares issued * 327 327
Share repurchase programme (1) (448) (449)
Movement in treasury shares * (327) (327)
Transfers (4) 4
Balance at 30 June 2012 19 1 416 546 57 10 865 12 902
*Amounts less than R1 million.
Attributable to equity holders of Aveng Limited
Non-
controlling Total
interest equity
Rm Rm
Balance at 1 July 2010 5 12 221
Profit for the year (4) 1 173
Other comprehensive income/(loss) 209
Total comprehensive income (4) 1 382
Dividends paid * (565)
Acquisition of non-controlling interest (4) (4)
Share repurchase programme (117)
Transfers
Balance at 30 June 2011 (3) 12 917
Profit for the year 2 523
Other comprehensive income/(loss) 1 473
Total comprehensive income 3 996
Dividends paid * (561)
Shares issued 10 337
Share repurchase programme (449)
Movement in treasury shares (327)
Transfers
Balance at 30 June 2012 10 12 912
*Amounts less than R1 million.
Other Group information
for the year ended 30 June 2012 2011
Audited Audited
Rm Rm
Non-trading items:
Profit on disposal of land and buildings * 1
Impairment of investment (15)
Profit on sale of investment in subsidiary 31
Profit/(Loss) on non-trading items 31 (14)
Number of shares (millions)
In issue 390 393
Weighted average 386 389
Diluted weighted average 413 416
Goodwill and other intangibles
At beginning of year 1 481 1 086
Acquired 36 382
Amortisation of intangibles (37) (24)
Foreign exchange movements 69 38
Total goodwill and other intangibles 1 549 1 481
NOTES
Accounting policies
These results have been compiled in accordance with IAS 34 (Interim
financial reporting).
The presentation of these results also conform to the Listings
Requirements of the JSE Limited and the South African Companies Act,
2008.
The accounting policies used in the preparation of the results are
consistent in all material respects with the prior year.
New, revised and adopted standards effective for the current year,
have had no impact on the financial position and the financial results.
The results have been audited by Ernst & Young Inc. and the unqualified
audit opinion is available on request from the company secretary at the
Company's registered office.
The Group's 2012 integrated report will be available by the end of
September 2012.
The preparation of the financial statements requires management to make judgments, estimates and
assumptions that affect the reported amountsin the financial statements. Management continually
evaluates its judgments and estimates in relation to assets, liabilities, contingentliabilities,
revenue and expenses. Management bases its judgments and estimates on historical experience and on
other various factors,including expectations of future events that may have an impact on the Group.
All judgments, estimates and assumptions made are believedto be reasonable based on the most current
set of circumstances available to management, the result of which form the basis of the carrying
values of assets and liabilities that are not readily apparent from other sources.
Revisions to estimates are recognised in the period inwhich the estimate is revised.
Contracting revenue and profit/loss recognition
Given the complexity of many of the contracts undertaken by the Group, the knowledge
and experience of the Group's project managers,engineers, and executive management is
used in assessing the financial risks pertained to individual projects and the associated
judgments and estimates employed. Cost and revenue estimates and judgments are reviewed
and updated monthly, and more frequently as determined by events orcircumstances. When it
is probable that total contract costs will exceed total contract revenue, the expected loss
is recognised immediately as an expense.
Material changes in one or more of these judgments and/or estimates, whilst not anticipated,
would affect the profitability of individual contracts and the Group's overall results. The
impact of a change in judgments or estimates has and will be influenced by the size and
complexity of individual contracts within the portfolio at any point in time.
Preparation of financial statements
These condensed consolidated financial statements have been prepared under the supervision
of HJ Verster, Financial Director.
OVERVIEW
Safety
The Aveng Group's safety vision, Home Without Harm, Everyone Everyday' remains integral to the
manner in which the business operates. On a positive note, the Recordable Injury Frequency
Rate (RIFR) declined by a further 3% to 1,19 by 30 June 2012 against 1,22 for the comparative
period ended 30 June 2011 ("the comparative period").
In spite of the improving trend the Group regrettably suffered twelve fatalities, six of whom
were subcontractors. Three of the fatalities occurred as a result of accidents in company vehicles
on public roads. The Aveng Group Board and Management extend their sincere condolences to the
families of our deceased colleagues.
Aveng is giving greater attention to improving the management and control of high consequence
activities including subcontractor and transport safety management.
Operational overview
The impact of the ongoing economic downturn in the South African construction and engineering
sector, was compounded by execution problems on a number of key projects in the construction
and engineering operations in both South Africa and Australia.
Although McConnell Dowell was able to offset the impact of two problematic contracts by means of
good performance on other contracts, this was not the case in South Africa where the Construction
and Engineering: South Africa segment incurred substantial losses which were attributable to:
- losses and loss provisions on the previously reported DSE steel fabrication contract;
- losses on a number of other contracts within the South African construction segment;
- the cost of restructuring the business;
- the cost of maintaining skills and related capacity in anticipation of improved market conditions; and
- provision for a potential Competition Commission fast-track settlement.
With the exception of the South African construction segment all the other operations improved their
operating profit contributions. Revenue growth and profitability of Construction and Engineering:
Australasia and Pacific improved substantially in the current financial year, with a strong performance
from its offshore construction and electrical businesses and the Open cut mining and Manufacturing and
Processing generated a much improved result.
Encouraging progress was made on previously reported problem contracts in both the Australasian and
South African construction businesses butfurther additional provisions to de-risk some new loss making
construction contracts were considered necessary.
Strategic interventions implemented in recent years to reposition and strengthen many of our operations,
including McConnell Dowell, the manufacturing and processing operations and the mining business, have
resulted in sustainable improvements in their operational performances.
Aveng Grinaker-LTA has undergone a significant and particularly challenging restructuring process during
the year to address systemic problemsthat have impeded its performance. Critical measures have been
implemented to rationalise the business and strengthen its multi-disciplinary offering to position it for
growth. The investments in new growth areas such as renewable energy and water are also starting to look
positive.
The Group's two year order book grew by 2% from R46,0 billion at 31 December 2011 to R47,0 billion at
30 June 2012. This increase emanates primarily from the Group's South African mining and construction
business. The Australian order book decreased by 2% from R30,6 billion to R29,9 billion.In Australian
dollar terms the order book decreased by 3% to AU$3,6 billion.
On a year on year basis, the Group's order book has grown by 27% from R37 billion in June 2011 to the
current R47,0 billion. This includes a 58% growth in orders secured by the Group's Australian based
operations. In Australian dollar terms, the Australian based order book has grown by 20% from AU$3,0
billion to AU$3,6 billion.
FINANCIAL REVIEW
Financial performance
Revenue for the year increased by 19% to R40,9 billion from R34,3 billion in 2011. Other than for Aveng
E+PC and Aveng Grinaker-LTA, all other divisions realised solid real growth in their top-line performances.
Substantial losses in the Construction and Engineering: South Africa segment (consisting of Aveng
Grinaker-LTA, Aveng E+PC and Aveng Water) were the primary contributors to the 64% fall in operating profit
from R1,476 million to R535 million, representing a decline in operating margin from 4,3% to 1,3%.
The effective tax rate of the Group declined from 33% to 28% in the comparative period largely due to
foreign rate tax differentials.
Headline earnings declined by 58% to R495 million (2011: R1,191 million), amounting to a headline
earnings per share of 128,1 cents (2011: 306,4 cents).
Financial position and cash flow
In the first phase of optimising the capital structure of the business, external funding of R657 million
was introduced into the Aveng Moolmans business during June 2012, which in turn allowed for its partial
repayment of Group funding by 30 June 2012. Given the corporate reorganisation resulting in the formal
creation of Aveng Mining, bringing together Aveng Moolmans and Aveng Grinaker-LTA's Underground Mining
unit from July 2012, further capital optimisation opportunities will be sought for this new business
segment.
In May 2012 the Group continued with its share repurchase programme acquiring 11,75 million shares for a
total consideration of R449 million.
The operating free cash utilised before the impact of foreign exchange was an outflow of R1,462 million
against an outflow of R2,175 million in the comparative period. The current year's outflow was
characterised primarily by:
- an increase in the net working capital investment of R799 million (2011: R1,873 million outflow) due to
increases in trade payables and receivables throughout the business as well as higher inventory levels
within the Manufacturing and Processing segments given the slower market conditions;
- financing cost of R76 million (2011: R59 million);
- taxation paid of R567 million (2011: R455 million);
- dividends paid of R561 million (2011: R565 million);
- capital investment of R2,087 million (2011: R1,819 million) primarily relating to:
- new and existing contracts in the mining business (Tshipi Borwa open pit manganese mine in the Northern Cape,
the Kansanshi Copper Mine and the Chimiwungo open pit in north western Zambia, as well as the extension and
increase volume of the contract for
- construction camps and related equipment for numerous new contracts within the Australasian and Pacific
construction business;
- capacity maintenance and expansion in the Manufacturing and Processing segment; and
- capacity maintenance in Aveng-Grinaker-LTA; and
- share repurchases of R449 million (2011: R117 million).
The net cash position of R3,931 million at 30 June 2012 (2011: R5,317 million) continues to anchor a strong
balance sheet, which, with a conservative liquidity management policy, positions the Group to withstand the
present difficult economic conditions, whilst serving as a sound staging platform for future growth.
OPERATIONAL REVIEW
Construction and Engineering :South Africa and Africa
This business segment comprises Aveng Grinaker LTA Building, Civil Engineering, Earthworks Engineering,
Mechanical & Electrical, Underground Mining, Aveng Water and Aveng E+PC divisions.
Revenue for this segment increased by 4% from R9,6 billion to R9,9 billion. The segment however reported
a substantial net operating loss for the period of R733 million (2011: R443 million profit).
Aveng Grinaker-LTA's revenue grew by 4% to R9,2 billion, in spite of difficult market conditions, but the
business reported a substantial netoperating loss of R763 million, which includes a provision for a potential
Competition Commission fast-track settlement, and a loss in the DSE steel fabrication sub-contract for the
Medupi and Kusile power stations (as described more completely in the divisional review which follows).
Furthermore, the disappointing divisional performance also reflects the impact of project delays and
cancellations, severe margin erosion, smallerproject execution challenges against which a further loss
provision was required, the cost of maintaining skills and related capacity in anticipationof improved market
conditions, and the cost of restructuring the business.
In overview, the performance of Aveng Grinaker-LTA's divisions may be summarised as follows:
- The Building division increased its revenue by 21% to R2,6 billion, but the net operating margin declined as
a result of margin erosion and cost of maintaining skills and related capacity associated with work that did
not materialise.
- The Civil Engineering division, amidst a competitive market with limited new opportunities, was negatively
impacted by the suspension in July 2011 of a significant civils contract for the KCM Konkola CRO plant in Zambia.
Underperformance on two mining projects also contributed to an unchanged revenue of R1,5 billion. The risk to the
Aveng Group posed by the Medupi civils contractwas largely alleviated during the year by a renegotiation of the
completion programme. The contract was approximately 65% complete at year end and is on schedule to meet Eskom's
revised deadline. Medupi will be the largest dry-cooled coal fired power station in the world.
- The Earthworks division was affected by the suspension of phase 2 of the Government Freeway Improvement
Programme and on-going uncertainty in the mining sector, which contributed to a 19% decline in revenue to R1,0
billion. The operating unit sought to mitigate these impacts by diversifying into the water infrastructure and
asphalt products sectors.
The Mechanical and Electrical division increased revenue by 5% to R2,2 billion but profitability was severely
impacted by difficulties experienced in the sub-contract to deliver fabricated steel to Medupi and Kusile. The
division has negotiated a new contract with the ultimate client, Hitachi, to supply a specified quantity of steel
directly, and submitted a claim for losses incurred on the initial sub-contract with Genrec. Additional loss
provisions have taken place in the current year relating to this matter. A second project in alliance with
Alstom to install mechanical and electrical equipment at Kusile was awarded during the year.
- The Underground Mining division maintained its revenue and operating margins at R2 billion and 5% respectively,
and won new shaft-sinking and mine access and development projects in Chile and South Africa. This operation has
been combined with Aveng Moolmans with effect from 1 July 2012 to form Aveng Mining.
- The revenue of Aveng E+PC declined to R390 million, while Aveng Water increased its revenue by 37% to R328 million
in spite of a competitive environment with limited work opportunities and delays or downscaling of the scope of
many projects that were awarded. Higher levels of activity in coal mining and the award of preferred bidder status
on two renewable energy contracts bode well for Aveng E+PC in 2013, while existing operate and manage contracts
provide a base load of work for Aveng Water as it pursues growth in the domestic and Australian acid mine drainage
markets.
Construction and Engineering: Australasia and Pacific
This business segment comprises McConnell Dowell construction, tunnelling, electrical and pipeline division in
Australia, South East Asia, New Zealand and the Pacific Islands and the Middle East.
McConnell Dowell's revenue grew by 29% to R17,1 billion and operating profit also improved substantially,
supported by a strong Australian dollar, which averaged R8,01 compared to R6,95 in the prior year, and solid
performances by the offshore construction and electrical businesses. Although good progress has been made in
resolving previously reported problematic contracts, this business segment was impacted by significant provisions
that were raised against project execution challenges at the Queensland Curtis LNG (QCLNG) large diameter export
pipeline project and the Hay Point Berth project.
In overview, the performance of the divisions may be summarised as follows:
- The Australian Construction division maintained steady growth, reporting revenue of R7,9 billion in a project
environment that continued to be driven by investment in general domestic infrastructure as well as infrastructure
for the mining and oil and gas markets. The Adelaide Desalination Plant, the largest of its type inthe world, which
was initially delayed by geotechnical and weather challenges, reached an important milestone in October 2011 with the
successful commissioning ofthe first of two 50 gigalitre plants. Since then the pump station and transfer pipeline
have been distributing drinking quality water to water storage facilities in South Australia and the project is on
schedule to achieve full capacity of 100 gigalitres of desalinated water per annum in December 2012.
The Adelaide Desalination and Komo Airfield projects which were identified as problem contracts in June 2011, have
both made good progress and contributed positively to earnings in 2012. The Pinkenba malting facility in Queensland
was successfully completed during the year.
The Hay Point Berth project in Queensland experienced delays as a result of design changes, start-up delays and
difficult ground conditions. Although the project is at an early stage, these delays increase its risk profile.
McConnell Dowell is working with the client to mitigate the delays with an accelerated work programme.
- The Overseas Construction division continued to perform well in competitive markets, with ongoing growth in
South East Asia and the Middle East contributing to revenue growth of 65% to R3,7 billion. The operation was
awarded a jetty design and construct contract for Vale SA in Malaysia and strengthened its position in New Zealand
with the award of major new contracts in the Christchurch rebuild programme and the transport and power
infrastructure sectors.
- The Pipelines division reported revenue of R2,8 billion. Work on a number of significant contracts on coal seam
methane projects secured in Queensland in the previous financial year gained momentum during the year, but profits
were impacted by slower than expected initial progress on the QCLNG project. Good progress was achieved in the welding,
trenching and pipe lowering productivities during the second half of the year and the project was 55% complete at
year-end and on schedule to achieve full completion by September 2013. The project, which is being undertaken with a
joint venture partner, involves detailed design and construction work for a 540 kilometer 42 inch underground gas
pipeline network that will transport coal seam gas from QGC's gas fields in the Surat Basin of Southern Queensland
to a LNG export facility at Curtis Island near Gladstone.
- The Tunnelling division reported a decline in revenue to R1,0 billion and lower profits due to a shortage of new
work secured in 2011 and the late start of projects secured in 2012. The award of major projects in New Zealand is
expected to have a positive impact on revenue and profits in 2013.
- The Electrical division achieved significant growth across all of its key business sectors in Australia and New
Zealand, increasing revenue by 36% to R1,9 billion. The business renewed maintenance contracts with most of its
long-term customers in the electrical sector and has continued to diversify successfully into the gas maintenance
sector as gas-related infrastructure investment continues to grow.
Aveng Moolmans
Aveng Moolmans delivered a strong financial performance with revenue growing by 28% to R4,7 billion in a generally
busy environment, and the operating margin improved from 8,9% to 10,2%, with the Marikana settlement stripped out
of the 2011 results. The key factors that contributed to this performance were a steady workload, no significantly
underperforming contracts, and improved utilisation rates and efficiencies, all supported by dedicated people. In
the South African market, Aveng Moolmans secured a new contract on the Tshipi Borwa open pit manganese mine in the
Northern Cape in November 2011. In Africa, the business was awarded a contract at the Kansanshi Copper Mine and
commenced work on the Chimiwungo open pit for the Lumwana Mining Company (Barrick) in north western Zambia.
Manufacturing and Processing
This business segment comprises Aveng Manufacturing and Aveng Trident Steel.
Aveng Manufacturing and Processing performed strongly in a generally depressed market, reporting revenue growth of
17% to R9,1 billion and an improvement in operating profit of R585 million (2011: R321 million) as all operating
units, with the exception of Infraset, delivered growth in revenue and profit. A number of factors contributed to
the improved performance, including the Competition Commission settlement in 2011 and a significant contribution
from Dynamic Fluid Control (DFC) which was acquired in 2011 and is reporting its first full year as part of the
Aveng Group, and considerable cost reduction and efficiency gains from the ongoing operational improvement programme.
In a challenging market characterised by unreliable supply from domestic steel mills in the first half of the financial
year and a slowdown in public sector demand in the second half, Aveng Trident Steel was able to increase revenue by
12% to R5,7 billion, due largely to increasing demand from the automotive industry and an 11% increase in average steel
prices.
The strong focus on operational efficiencies, together with the benefits of improved stock optimisation and a broader
product offering helped to offset the impacts on the profit margin of ongoing competition in the market.
Administration
The operating loss of R155 million within the administrative segment for 2012 is comprised of a non-reoccurring exchange
profit of R50 million in the 2011 financial year, new business activities and a reversal of provisions in respect of
employee share incentives.
Awarding of preferred bidder status for wind and solar renewable energy projects
The Aveng Group has positioned itself for opportunities in the power and energy sector and has been awarded preferred bidder
status on wind and solar renewable energy projects in the second round of the South African Government's renewable energy
procurement programme. Aveng E+PC commenced work late in the year on front-end engineering and preparation for the start-up
of the two projects once they reach financial close, expected by February 2013.
COMPETITION COMMISSION
While the Aveng Board supports and has co-operated with the Competition Commission ("the Commission") in its investigation
into historic anti-competitive practices in the South African construction industry, the impact has been disruptive and
divisive and Aveng seeks a rapid closure to the Commission's fast-track investigation process.
Aveng is in discussions with the Competition Commission and has submitted a settlement offer for which a provision has been
raised.
The Group is of the view that it is now time to move forward, but in doing so it is hopeful that Government will assist the
role-players in developing a sustainable future for the industry.
The Aveng Group remains committed to conduct business ethically.
OUTLOOK AND PROSPECTS
The Aveng Group anticipates that the investment by the public sector in South Africa will remain under pressure over the
medium term given the continued uncertainty within the global economic environment. Private sector growth, which is primarily
driven by the demand for commodities and energy, will continue to be impacted by the level and resilience of growth from China.
The Australian infrastructure market which has continued to remain strong in the global economic slowdown now appears to be
losing some momentum. Despite the cautious construction outlook, with our strong two year order book, improved operational
performance and project execution, the Group is confident of an improved contribution from its construction businesses.
Indications are that the global steel industry will remain under pressure with no significant improvement in prices anticipated
in 2013 and will continue to present challenges for our Manufacturing and Processing segment. This segment will pursue growth in
new markets, a wider product range and geographical expansions with a specific focus on significant opportunities in the local
and African rail infrastructure and mining sectors. Underlying the strategy will be an ongoing focus on driving efficiencies,
reduction in costs and providing value added products and services to our customers.
Aveng Mining, which consists of the merger of the Group's Open cut mining operations, shaft-sinking capabilities, underground
development and contract mining, is well placed to participate in the continued growth in mining activities on the African
continent. This division will continue to benefit from long-term relationships with clients, a diversified commodity and
geographical mix and continued focus on operational efficiencies.
The Aveng Group has a well balanced portfolio, geographical diversity and multi-disciplinary capability across the
infrastructure value chain.
The Group will continue to focus on project execution and to reduce the financial impact of challenging contracts. Special
attention will be given to improve the overall performance of the local construction segment, the QCLNG Export Pipeline and
Hay Point Berth projects.
DIVIDEND DECLARATION
The Board has revised the group's dividend practice from a payout ratio of 25% to 30% of headline earnings applicable for the
2013 financial year. Although not all shareholders are equally affected, a higher dividend payout ratio for 2012 is deemed
appropriate in order to compensate the affected shareholders for the change in South African dividend tax regime on adoption
of the revised payout ratio.
Notwithstanding the foregoing and in consideration of the group's current level of profitability, cash requirements and order
book prospects, the Board has declared a final gross dividend of 60 cents per share in respect of the financial year ended 30 June
2012. This constitutes a dividend payment ratio of 47% of the group's headline earnings per share for the period, which is
consistent with the payout ratio for 2011.
The salient dates for the payment of the dividend are as follows:
Last date to trade cum dividend Friday, 5 October 2012
Commence trading ex-dividend Monday, 8 October 2012
Record date Friday, 12 October 2012
Payment date Monday, 15 October 2012
Share certificates may not be dematerialised or rematerialised between Monday, 8 October and Friday, 12 October 2012, both dates inclusive
The dividend will be payable in South African Rand on Monday, 15 October 2012.
This is a dividend as defined in the Income Tax Act, 1962. Dividends will be paid net of dividends tax to be withheld and
paid to the South African Revenue Service on behalf of affected shareholders. Such tax must be withheld unless beneficial
owners of the dividend have provided the necessary documentary proof to the Company's regulated intermediary (Computershare
Investor Services) that they are exempt therefrom, or entitled to a reduced rate as a result of a double taxation agreement
between South Africa and the country of tax domicile of such owner. The withholding tax, if applicable at the standard rate
of 15%, will result in a net cash dividend per share of 51 cents. No STC credits were utilised when determining the net
dividend.
The Company's income tax number is 9756252715.
The Company has issued share capital of 389 838 097 ordinary shares in issue on 30 June 2012, of which 375 233 118 shares
are in issue in public hands.
By order of the Board
AWB Band WR Jardine HJ Verster
(Chairman) (Chief Executive) (Financial Director)
3 September 2012
DIRECTORS
AWB Band* (Chairman), WR Jardine (Chief Executive Officer), HJ Verster (Financial Director), JJA Mashaba, SD Pell,
DG Robinson (Australian), P Erasmus*#, MA Hermanus*#, MJ Kilbride*#, RL Hogben*#, TM Mokgosi-Mwantembe*#, MJD Ruck*#,
MI Seedat*#, NL Sowazi*, PK Ward*# (*non-executive) (#independent)
COMPANY SECRETARY
M Nana
REGISTERED OFFICE
204 Rivonia Road, Morningside, Sandton, 2057
REGISTRARS
Computershare Investor Services (Pty) Limited
(Registration number 2000/006082/06)
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
www.aveng.co.za
Sponsor: J.P. Morgan Equities Limited
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