AEG 201303150002A
Unaudited Interim Group results for the six months ended 31 December 2012
AVENG LIMITED
(Aveng, the company, the Group or Aveng Group)
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
Unaudited Interim Group results
for the six months ended 31 December 2012
Revenue
R25 billion
Increase of 30% from comparative period (1)
Operating profit
R518 million
Increase of 56% from comparative period (1)
Headline earnings
R392 million
Increase of 43% from comparative period (1)
Headline earnings per share
104,5 cents
Increase of 48% from comparative period (1)
Net asset value per share
R33,91
increase of 4,5% from June 2012 (2)
Two Year Order book
R39,7 billion
decrease of 15,3% from June 2012(2)
(1) From the six month period ending 31 December 2011 (1 July 2011 31 December 2011)
(2) From the period ended 30 June 2012.
Interim condensed consolidated statement of financial position
31 December 31 December 30 June
2012 2011 2012
(Unaudited) (Unaudited) (Audited)
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 6 822 6 252 6 664
Goodwill and other intangibles 1 553 1 530 1 549
Equity-accounted investments 91 110 108
Available-for-sale investments 147 149 143
Deferred tax assets 1 011 445 1 373
9 624 8 486 9 837
Current assets
Inventories 2 625 2 550 2 467
Trade and other receivables 11 116 9 515 10 442
Cash and bank balances 5 263 5 260 5 202
19 004 17 325 18 111
TOTAL ASSETS 28 628 25 811 27 948
EQUITY AND LIABILITIES
Capital and reserves
Share capital and share premium 1 435 1 883 1 435
Foreign currency translation reserve 710 577 546
Insurance and other reserves 57 72 57
Distributable reserves 11 017 10 613 10 864
Non-controlling interests 13 (6) 10
13 232 13 139 12 912
Non-current liabilities
Borrowings 1 289 53 748
Deferred tax liabilities 255 163 674
1 544 216 1 422
Current liabilities
Trade and other payables 10 982 10 476 10 648
Provisions 2 040 1 461 2 201
Borrowings 161 41 180
Bank overdrafts 508 368 343
Taxation payable 161 110 242
13 852 12 456 13 614
TOTAL EQUITY AND LIABILITIES 28 628 25 811 27 948
Net cash position to equity ratio (%) (25) (37) (30)
Net asset value per ordinary share (cents) 3 391 3 273 3 310
Interim condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2012 2011 2012
(Unaudited) (Unaudited) % (Audited)
Rm Rm change Rm
Revenue 24 987 19 149 30 40 886
Operating profit before depreciation and amortisation 1 202 1 066 13 2 020
Depreciation 668 719 1 479
Amortisation of intangibles 18 15 37
Operating profit 516 332 55 504
Other gains and losses 2 * 31
Operating profit after other gains and losses 518 332 56 535
Share of profits and losses from equity-accounted investments (16) 15 41
Income from available-for-sale investments 42 40 37
Operating income 544 387 41 613
Finance income 66 93 189
Finance and transaction costs 54 28 76
Profit before taxation 556 452 23 726
Taxation 159 182 203
Profit for the period 397 270 47 523
Other comprehensive income for the period
Exchange differences on translation of foreign operations 164 515 484
Fair value movement * * (11)
Total comprehensive income for the period 561 785 (29) 996
Profit attributable to:
Equity holders of Aveng Limited 394 274 521
Non-controlling interests 3 (4) 2
Profit for the period 397 270 47 523
Total comprehensive income attributable to:
Equity holders of Aveng Limited 561 789 994
Non-controlling interests * (4) 2
Total comprehensive income for the period 561 785 (29) 996
Determination of headline earnings
Profit for the year attributable to equity holders of Aveng Limited 394 274 521
Adjusted for (net of tax)
Profit on sale of property, plant and equipment (2) * *
Profit on sale with change in ownership holding in subsidiary (26)
Headline earnings 392 274 43 495
*Amounts are less than R1 million.
Interim condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2012 2011 2012
(Unaudited) (Unaudited) (Audited)
Rm Rm Rm
Cash retained from operating activities
Cash retained from operations 518 332 535
Depreciation 668 719 1 479
Amortisation 18 15 37
Non-cash and other movements (210) (147) 173
Cash generated by operations 994 919 2 224
Changes in working capital
Increase in inventories (160) (543) (398)
(Increase)/decrease in receivables (687) 340 1 769
Increase/(decrease) in payables 349 (483) (2 170)
Cash generated by operating activities 496 233 1 425
Finance income 59 93 189
Finance and transaction costs paid (57) (28) (76)
Taxation paid (302) (284) (567)
Cash inflow from operating activities 196 14 971
Investing activities
Property, plant and equipment purchased expansion (222) (204) (1 220)
replacement (560) (640) (867)
Changes in equity-accounted and available-for-sale
investments (2) 26 30
Proceeds on disposal of property, plant and equipment 25 46 149
Purchase of subsidiaries (18)
Disposal/(acquisition) of other investments (18)
Dividends received 42 40 37
Cash outflow from investing activities (717) (768) (1 871)
Operating free cash outflow (521) (754) (900)
Financing activities with equity holders
Shares repurchased (449)
Increase in shares by non-controlling interests in
subsidiary company 10
Dividends paid (241) (561) (561)
Financing activities with debt holders
Long-term borrowings raised 523 11 845
Net decrease in cash and cash equivalents before foreign
exchange movements on cash (239) (1 304) (1 055)
Foreign exchange movements on cash 135 796 514
Cash and cash equivalents at beginning of year 4 859 5 400 5 400
Cash and cash equivalents at end of year 4 755 4 892 4 859
Borrowings, excluding Bank overdrafts (1 450) (94) (928)
Net cash position 3 305 4 798 3 931
Interim condensed consolidated statement of changes in equity
Share Foreign Insurance
capital currency and Dis- Non-
and share translation other tributable contolling Total
premium reserve reserves reserves Total interests equity
Rm Rm Rm Rm Rm Rm Rm
Six months ended 31 December 2011 (Unaudited)
Balance at 1 July 2011 1 883 62 72 10 900 12 917 (2) 12 915
Profit for the year 274 274 (4) 270
Other comprehensive income
Foreign currency translation 515 515 515
Fair value movement * * *
Total comprehensive income 515 * 274 789 (4) 785
Dividends paid (561) (561) * (561)
Balance at 31 December 2011 1 883 577 72 10 613 13 145 (6) 13 139
Year ended 30 June 2012 (Audited)
Balance at 1 July 2011 1 883 62 72 10 900 12 917 (2) 12 915
Profit for the year 521 521 2 523
Other comprehensive income/(loss)
Foreign currency translation 484 484 * 484
Fair value movement (11) (11) (11)
Total comprehensive income 484 (11) 521 994 2 996
Dividends paid (561) (561) * (561)
Shares issued 327 327 10 337
Share repurchased programme (448) (448) (448)
Movement in treasury shares (327) (327) (327)
Transfers (4) 4
Balance at 30 June 2012 1 435 546 57 10 864 12 902 10 12 912
Six months ended 31 December 2012 (Unaudited)
Balance at 1 July 2012 1 435 546 57 10 864 12 902 10 12 912
Profit for the year 394 394 3 397
Other comprehensive income
Foreign currency translation 164 164 * 164
Fair value movement * * *
Total comprehensive income 164 * 394 558 3 561
Dividends paid (241) (241) * (241)
Balance at 31 December 2012 1 435 710 57 11 017 13 219 13 13 232
*Amounts are less than R1 million.
Other information
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2012 2011 2012
Rm Rm Rm
Capital expenditure
Expansion 222 204 1 220
Replacement 560 640 867
782 844 2 087
Commitments for future capital expenditure:
Contracted 242 362 269
Authorised, but not contracted for 181 69 474
423 431 743
Earnings per share (cents)
Earnings 105,0 70,8 134,9
Earnings Diluted 98,0 67,6 126,1
Headline 104,5 70,6 128,1
Headline Diluted 97,5 67,5 119,8
Number of shares (millions)
In issue 389,8 401,6 389,8
Weighted average 375,2 387,0 386,0
Diluted weighted average 402,1 405,2 412,8
Dividend per share (cents) Nil Nil 60,0
Notes to the interim condensed consolidated financial statements
1. Corporate information
The interim condensed consolidated financial statements of the Group for the six months ended
31 December 2012 (interim results) were authorised for issue in accordance with a resolution
of the directors on 13 March 2012.
Aveng Limited is a limited liability company incorporated and domiciled in the Republic of South
Africa whose shares are publicly traded. The Group operates in the construction, engineering and
mining environment and as a result the revenue is not seasonal in nature but is influenced by
the nature of the contracts that are currently in progress.
Refer to commentary for a more detailed report on the performance of the different operating units
within the Group.
2. Statement of compliance
The interim results have been prepared in accordance with International Financial Reporting Standards
(IFRS) of the International Accounting Standards Board (IASB), the SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the
Financial Reporting Standards Council, requirements of the South African Companies Act, 2008 as amended,
and the Listings Requirements of the JSE Stock Exchange South Africa.
3. Basis of preparation and accounting policies
The interim results have been prepared on the historical cost basis, except for certain financial
instruments, which includes listed investments, that are fairly valued by marking to market. The accounting
policies used in the preparation of the interim results are in accordance with IFRS and are consistent
in all material respects with those used in the Groups audited annual financial statements as at 30
June 2012.
The interim results comply with IAS 34 Interim Financial Reporting and do not include all the information
and disclosures required in the annual financial statements, and should be read in conjunction with the
Groups audited annual financial statements as at 30 June 2012.
The interim results have been prepared under the supervision of the Chief Financial Officer, Mr HJ Verster.
The Group has adopted the following new and revised Standards and Interpretations (issued by the
International Financial Reporting Interpretation Committee) of the IASB that became effective before or
on 1 July 2012:
Standard Subject
IAS 1 Presentation of Other Comprehensive Income (Improvement)
IAS 12 Income Taxes Deferred Tax, Recovery of Underlying Assets (Amendment)
The adoption of these improvements and amendments did not have a material effect on the Groups
interim results.
In addition the following Standards and Interpretations have been issued but are not yet effective.
The effective date refers to periods beginning on or after, unless otherwise indicated:
Standard Subject Effective date
IFRS 9 Financial instruments: Classification and Measurement 1 January 2015
IFRS 10 Consolidated Financial Statements 1 January 2013
IFRS 11 Joint Arrangements 1 January 2013
IFRS 12 Disclosure of Interest in Other Entities 1 January 2013
IFRS 13 Fair Value Measurement 1 January 2013
IAS 1 Presentation of Financial Statements (Amendment) 1 January 2013
IAS 16 Property, Plant and Equipment (Improvement) 1 January 2013
IAS 19 Employee Benefits (Amendment) 1 January 2013
IAS 27 Separate Financial Statements (as revised in 2011) 1 January 2013
IAS 28 Investment in Associate and Joint Ventures (as revised in 2011) 1 January 2013
IAS 32 Financial Instruments: Presentation (Improvement) 1 January 2014
IAS 34 Interim Financial Reporting (Improvement) 1 January 2013
The Group does not intend early adopting any of the above Standards and Interpretations.
4. Segment information
The Group has determined five reportable segments that are largely organised and managed separately
according to the nature of products and services provided. These include the following operating
segments: Construction and Engineering: South Africa and rest of Africa; Construction and Engineering:
Australasia and Pacific; Mining; Manufacturing and Processsing; and Administration.
These operating segments are components of the Group:
a) that engage in business activities from which they earn revenues and incur expenses; and
b) whose operating results are regularly reviewed by the Groups chief operating decision makers
to make decisions about resources to be allocated to the segments and assess their performance.
Operating segments have consistently adopted the consolidated basis of accounting and there are no
differences in measurement applied.
The Group measures the performance of its operating segments through a measure of segment profit or
loss which is referred to as Operating Profit.
5. Income tax
The major components of income tax expense in the interim condensed consolidated statement of
comprehensive income are:
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2012 2011 2012
Rm Rm Rm
Current income tax
Current income tax charge 216 173 582
Secondary Tax on Companies 57 57
Deferred tax
Relating to origination and reversal of temporary differences (57) (48) (442)
Capital gains tax 4
Tax charge related to equity-accounted investments 2
Income tax expense 159 182 203
6. Property, plant and equipment
During the six months ended 31 December 2012, the Group acquired assets at a cost of R782 million
(December 2011: R844 million).
7. Cash and cash equivalents
For the purpose of the interim condensed consolidated statement of cash flows, cash and cash
equivalents are comprised of the following:
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2012 2011 2012
Rm Rm Rm
Cash and bank balances 5 263 5 260 5 202
Bank overdrafts (508) (368) (343)
4 755 4 892 4 859
8. Contingent liabilities Competition Commission
Beyond the Performance Bonds and Guarantees as well as Other Contract claims the major contingent
liability relate to the Competition Commission. As previously reported the Aveng board supports
and has cooperated with the Competition Commission in its investigation into historic anti-competitive
practices in the South African construction industry in terms of the fast-track settlement process.
The Aveng Group has submitted a settlement offer to the Competition Commission and feedback is
awaited. There has been no subsequent increase in the provision raised as at 30 June 2012.
9. Related party transactions
During the year the Company and its subsidiaries, in the ordinary course of business, entered into
various sale and purchase transactions with equity-accounted investments. There has been no
significant changes to the nature of related party transactions since 30 June 2012.
There were no related party transactions with directors or entities in which the directors have
a material interest.
10. Dividend policy
There has been no changes to the dividend policy of the Group since 30 June 2012.
11. Events after reporting date
The directors are not aware of any matters or circumstances arising after the period ended 31
December 2012, not otherwise dealt with in the Group's interim results, which could have a
material effect on the financial statements.
Segmental analysis
Business segmentation Six months Six months Year
ended ended ended
31 December 31 December 30 June
2012 2011 2012
(Unaudited) (Unaudited) (Audited)
Rm Rm Rm
Revenue
Construction and Engineering
South Africa and rest of Africa (1) 3 973 4 080 7 931
Australasia and Pacific 12 761 7 641 17 122
Total Construction and Engineering 16 734 11 721 25 053
Mining2 3 793 3 138 6 680
Manufacturing and Processing 4 458 4 290 9 148
Administration 2 * 5
24 987 19 149 40 886
Operating profit
Construction and Engineering
South Africa and rest of Africa1 (39) (123) (757)
Australasia and Pacific 195 128 360
Total Construction and Engineering 156 5 (397)
Mining (2) 390 296 579
Manufacturing and Processing 86 277 585
Administration (114) (246) (232)
518 332 535
*Amount is less than R1 million.
(1) Aveng Shafts and Underground Mining has been reclassified from Construction and Engineering:
South Africa and rest of Africa to Mining for periods ending June 2012 and December 2011.
(2) Includes Aveng Shafts and Underground Mining from 1 July 2012.
COMMENTARY
OVERVIEW
Despite difficult trading conditions in the South African and Australian construction and
engineering markets, the Group improved its operating performance with operating profit
increasing by 56% to R518 million after absorbing costs from the labour disruptions that
were prevalent in the second quarter of some R120 million. In addition to mitigating key
risks from challenging contracts in Australia, other McConnell Dowell (MacDow) projects
delivered strong results. The performance of Aveng Grinaker-LTA also improved inspite of
the impact of labour disruptions while Aveng Mining generated a strong performance.
Whilst the Groups order book declined by 15% to R39.7 billion between June and December
2012, mainly as a result of the softening infrastructure market in Australia, the order
book nevertheless remains strong. Generally, projects are taking much longer to conclude,
are more expensive and are more resource intensive. The decline comes off a high base as
in the comparative six months period ended 31 December 2011 (the comparative period or
2011), the order book grew by 24%. Aveng Grinaker-LTAs order book also declined during
the period but since January 2013, a number of significant new projects have been won. This
includes work at Nacala Section 2 Rail Project in Tete, Mozambique for Vale and the Majuba
Rail Link for Eskom Holdings. MacDow has also been awarded a number of significant projects
since the 8 November 2012 business update, such as the Airport Terminal for Perth Airport
and the Ocean Keys Shopping Centre for AMP in Perth.
The Group is pleased to announce that Aveng Concessions, together with its consortium
partners, has been identified as the preferred bidder in the Mauritius Road Decongestion
Project. Aveng Grinaker-LTA has a significant interest in the design and construct
subcontract.
Safety
The Groups safety vision, Home Without Harm, Everyone Everyday remains integral to the
manner in which the Group conducts business. Avengs six month All Injury Frequency Rate
(AIFR) remained stable at 4.7 against the performance reported at 30 June 2012.
However, the Group regrettably suffered three fatalities during the period, two of whom
were subcontractors. The Aveng Board and Management extends their sincere condolences to
the families of their deceased colleagues.
The Group is focusing attention on improving the management and control of high consequence
activities in particular subcontractors and transport.
OPERATING ENVIRONMENT
The South African construction and engineering market remained subdued, with limited
infrastructure spend taking place in the local market. However, it was pleasing that some
of the large infrastructure projects in Africa have now reached implementation stage.
The South African Governments renewable energy programme aimed to create 3 725 MW of
renewable energy to ensure the continued uninterrupted supply of electricity in the country,
has provided a considerable market opportunity for the local construction and engineering
sector. The Group is involved in the programme as a sponsor, developer, investor,
engineering, procurement and construction contractor, and operator. Together with its
investment partners, Aveng was awarded preferred bidder status for a wind farm project and
a solar photovoltaic facility in the second bid window of the programme during 2012. Both
projects are expected to reach financial close in April 2013 and construction work should
commence shortly thereafter.
Mining activities in Africa within the Groups focus area remains strong, while the Groups
Manufacturing and Processing operating segment is experiencing lower demand in a highly
competitive trading environment.
The Australian economy, although sound, has experienced a period of consolidation. The
construction and engineering operating environment in Australasia and the Pacific is slowing,
with large mining and gas projects unlikely to continue at the same pace and scale as
experienced over the last few years. Good road and rail opportunities do exist, though
generally government spending in the region is constraining the development of the
opportunities.
FINANCIAL PERFORMANCE
Revenue increased by 30% to R24 987 million compared to R19 149 million in the comparative
period, mainly due to the high levels of activity within MacDow and Aveng Mining.
Operating profit improved by 56% to R518 million (2011: R332 million) due to:
* improved profitability by MacDow, despite additional risk provisioning for the Queensland
Curtis Liquid Natural Gas Pipeline (QCLNG) and Hay Point Berth (Hay Point) projects;
* an improved, albeit still a loss-making, performance by Aveng Grinaker-LTA;
* a substantial improvement in the operating performance of Aveng Mining; and
* an enhancement of the Rand-denominated performance due to the weakening of the currency
against the US and Australian Dollar for non-Rand functional foreign operations.
These positive contributions were partially offset by a material decline in the Manufacturing
and Processing operating segment which was affected by slower demand, marginally lower steel
prices and steel supply constraints.
The operating profit was also adversely affected by R120 million in the second quarter of the
half year by the impact of the labour disruptions in the mining and transport sectors as well
as at the Medupi power station site, with Aveng Grinaker-LTA being the worst affected. The
Medupi disruptions have not yet been resolved and will have some additional impact in the
second half of the financial year. Claims will be lodged for the cost of the labour disruptions.
Headline earnings for the period increased by 43% to R392 million (2011: R274 million) due
to the following:
* the higher operating profit as described above; and
* the effective tax rate realised was lower due to the substitution of Secondary Tax on
Companies with Dividend Withholding Tax, combined with a shift in the geographical profit
mix for the period.
The increase was partly offset by:
* lower equity-accounted income due to weaker performances out of the Aveng Grinaker-LTAs
Mauritian investment and MacDows Middle East investments; and
* lower net interest income received when compared to the comparative period due to lower
average cash balances.
Undiluted and diluted headline earnings per share increased by 48% and 44% respectively
against the comparative period, benefitting from the share buy-back programme undertaken
in the previous financial year.
Operating Free Cash Flow amounted to an outflow of R521 million for the period (2011:
outflow of R754 million) reflecting:
* higher inventory levels within the Manufacturing and Processing operating segment to
compensate for supply disruptions, especially from domestic steel suppliers;
* greater receivables due to the higher level of activity and unsettled claims within
MacDow; and
* capital expenditure by Aveng Mining, Aveng Manufacturing and MacDow of R782 million.
Consequently, the Groups net cash position has declined by R626 million on the 30
June 2012 position of R3 931 million to R3 305 million.
The following key initiatives drove the capital expenditure for the period:
* equipment in support of Aveng Moolmans Northern Cape activities following contract
extensions particularly at Sishen;
* Aveng Manufacturings construction of a concrete pipe, culverts and sleeper factory in
Tete Mozambique, in order to take advantage of the infrastructural development
opportunities in the region. This includes Malawi, South-Eastern Zambia and Northern
Zimbabwe. Investments were also made in South Africa for machinery supporting train
rail construction; and
* plant and equipment replacement at MacDow in support of its revenue growth.
OPERATING REVIEW
The Construction and Engineering operating segments generated revenue growth of 43% to R16 734
million primarily driven by the major contracts in MacDow. Operating profit was R156 million,
which has been adversely effected by the provisioning made on the QCLNG and Hay Point projects
and the impact of labour disruptions on Aveng Grinaker-LTA as well as interruptions at Medupi.
Construction and Engineering: Australasia and Pacific
This operating segment comprises MacDow Construction, Tunneling, Electrical and Pipeline
business units.
Revenue increased by 67% (in Rand terms) to R12 761 million (49% increase to AUD1 459 million)
against the comparative period, being reflective of the strong work on hand position entering
the financial year and the high level of activity on a number of large projects particularly
on the QCLNG, Australia Pacific Liquid Natural Gas Pipeline (APLNG), and Hay Point projects.
There has been a marginal slow-down in the South East Asia business resulting from the tough
competitive environments in those markets.
Performance in Rand terms was supported by a strong Australian Dollar, which averaged R8.80
compared to R7.85 in the comparative period.
Underlying operating profitability has been pleasing for the business increasing by 52%, despite
continued uncertainty on the QCLNG and Hay Point projects impacting profit recognition within the
Australia operations. The QCLNG project however will remain a material risk to both profit and
cash flow through to completion later in the 2013 calendar year.
Performance of the divisions may be summarised as follows:
The Australian Construction business unit maintained strong growth, reporting revenue growth of
67% over the comparative period from R3 473 million to R5 801 million.
The Adelaide Desalination Plant, the largest of its type in the world, which was initially delayed
by geotechnical and weather challenges, achieved full capacity of 100 gigaliters of desalinated
water per annum. The plant was officially handed over to the client, South Australian Water, in
December 2012. The commercial issues have been finalised with the client. The desalination plant
has been short-listed for the Global Water Intelligence Desalination Plant award of 2013 as one
of the most technically accomplished plants.
The Hay Point project in Queensland has been affected by significant changes to scope, difficult
ground conditions and inclement weather. MacDow is working with the client to mitigate the delays
with an accelerated work programme and to resolve the commercial position to eliminate further
downside exposure on this project, which is expected to be resolved shortly.
The Komo Airfield project which entails the construction of approximately 3 km of runway and apron
areas in a very remote and challenging environment has been subject to further construction delays
following a landslide on the southern end of the runway, these events are not expected to have an
adverse impact. MacDow expects to successfully complete this challenging project in the second half
of the 2013 calendar year.
Work has progressed well on FMG Berth 4 in the Pilbara and the FMG Rail project in a joint venture
partnership with the Lennings Rail Services business unit within Aveng Manufacturing. The Seaford
Rail overpass was completed on time, while good progress continued to be made on the Gold Coast
Light Rail Public Private Partnership (PPP) project.
Built Environs successfully completed the Single Leap 2 Defence Housing PPP project and Walkerville
Marketplace.
Overseas Construction performed well, with New Zealand, the Pacific Islands and the Middle East
recording revenue growth, while South East Asias revenue has slowed which is reflective of the
competitive markets. Overall, the business unit experienced revenue growth of 10% to R1 802 million
however this was mainly the fact that a number of large contracts are only in the early stages of
completion. The business operates in New Zealand, the Pacific Islands, Singapore, Indonesia,
Thailand, Philippines, Malaysia, Hong Kong, UAE, Qatar, and Saudi Arabia. Significant projects
include the Te Mihi Geothermal Power Station and Christchurch Rehabilitation Projects in New Zealand,
the Vale Jetty in Malaysia, and the Donggi Liquid Natural Gas Terminal in Indonesia.
The Pipelines business unit reported a 179% increase in revenue to R3 584 million for the period.
Work on a number of significant contracts on coal seam methane projects secured in Queensland in
the previous financial year is in progress.
Work on the APLNG and Gladstone Liquid Natural Gas Pipeline (GLNG) projects has progressed well;
the projects are on schedule, just over a third complete and achieving acceptable overall
performance.
However, overall profitability continues to be impacted by the QCLNG project which is now 80%
complete. Further risk provisions have been taken on the project, which is being undertaken with
a joint venture partner and involves detailed design and construction work for a 540 km 42 inch
underground gas pipeline network. The recent extreme weather events in Queensland will extend the
programme beyond the current 31 August 2013 schedule which represents additional commercial risks
for which provision has been made.
The Electrical business unit achieved significant growth across all of its key business sectors
in Australia and New Zealand increasing revenue by 43% to R1 218 million for the period. This
business unit continued to win long-term maintenance contracts whilst diversifying its business
into other utilities such as gas network maintenance.
The Tunneling business unit is currently performing below revenue expectations, which is a
reflection of the current shortage of work. Revenue declined by 16% to R431 million on the
comparative period, due primarily to the absence of new work secured during the 2012 financial
year. This division is currently executing the Waterview Project in New Zealand, the Beauty World
Mass Rapid Transit Station in Singapore which is 80% complete and the Cable Tunnels in Abu Dhabi.
Order book
Major contracts awarded since the 8 November 2012 business update, with a cumulative value of
R4 713 million include:
* Apron Replacement at Melbourne Airport for Australia Pacific Airport Corporation;
* Riverbank Pedestrian Bridge for the Department of Planning Transport and Infrastructure in
South Australia;
* Supermarket for the Coles Group in Western Australia;
* Ocean Keys Shopping Centre for AMP in Perth;
* Qatar Pot Relining Works for Qatar Aluminum;
* Bakan Gold Development for PT Resources;
* Airport Terminal for Perth Airport;
* Mt Gambier Hospital for the Department of Planning Transport and Infrastructure;
* Waitaki River Bridge Replacement in New Zealand;
* Kiribati Roads Rehabilitation Project for the Government of Kiribati; and
* Powercor Network Services Program to undertake the Armour Rod and Vibration Damper Retrofit
Program across the Powercor electricity network.
Construction and Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA, Aveng Water and Aveng E+PC business units. The
Aveng Shafts and Underground Mining activities of the Group, previously reported under this operating
segment, are now reported under the Mining operating segment. Comparatives have been restated.
Revenue for the operating segment declined by 3% to R3 973 million from R4 080 million in the
comparative period. The operating segment reported an operating loss of R39 million (2011: R123 million)
after absorbing the impact of labour disruptions.
Aveng Grinaker-LTA
Revenue declined by 2% to R3 648 million from R3 713 million. Operating profit remained marginally
negative for the period, though an improvement against the comparative periods result.
This business generated a loss due to the following:
* slower realisation of the restructuring benefits;
* work performed on Medupi without recognising any margin;
* the impact of the labour disruptions; and
* the cost of retaining skills and related capacity in anticipation of improved market conditions.
Aveng Grinaker-LTA is of the view that it should be compensated for the significant costs associated
with the labour disruptions relating to the Medupi power station. The disruptions started in the
latter part of the period, but escalated into the 2013 calendar year. Together with its joint venture
partners, the Group intends to robustly protect its rights in this matter.
The Construction business unit, which now includes the Building, Civils and Earthworks, and Mechanical
and Electrical businesses, reported a decrease in revenue of 4% to R2 979 million. The operating loss
declined compared to the comparative period and was attributable to the partial realisation of benefits
from the internal restructuring process which only impacted the last quarter. In addition, the Coastal
division performed well, benefitting from the integration of the building operations with the civil
operations. Certain higher margin large contracts were awarded during the period and should have a
positive impact on results, however, the impact is primarily expected to be felt for the new financial
year.
The Specialised business unit, comprising Rand Roads, Ground Engineering (GEL), Karenna, Automotive and
Control Systems (ACS), Facades and DSE structural steel fabrication (DSE), continued to under-perform
relative to expectations. Rand Roads largely performs most of its work with the Construction business
unit, which is generally at lower margins. DSEs productivity and utilisation levels remain below capacity
whilst the labour disruptions at Medupi delayed the delivery of DSEs contract work to the site. The steel
contract concluded directly with Hitachi for structural work is progressing very well and is unrelated to
the pipe welding difficulties recently reported in the national press. The contractual claims against Genrec
relating to the DSE steel fabrication contract for Medupi continue to be pursued through legal and
contractual channels.
Order book
Aveng Concessions together with its consortium partners has been identified as the preferred bidder in the
Mauritius Road Decongestion Project. Aveng Grinaker-LTA is a joint venture partner in the design and
construct subcontract that will have a material and positive impact on Aveng Grinaker-LTAs
order book. This PPP encompasses design, construction, financing,operation and maintenance.
Major contracts awarded since the 8 November 2012 business update, with a combined contract value of
R2 960 million, include:
* Majuba Rail Link for Eskom Holdings;
* Nacala Section 2 Rail Project in Tete, Mozambique for Vale;
* construction of an extension to the Rehau Polymer Facility for the Nelson Mandela Bay Logistics Park for
the Coega Development Corporation;
* construction and electrification of a 20 km new railway line for the Kalagadi Resources manganese mine;
* Vodacom Data Centre for Coffey Projects; and
* Sandton City Atrium Repositioning for Liberty Group Properties.
Aveng E+PC and Aveng Water
The tapering off of work on large contracts in the current year and delays in the start of new contracts
adversely impacted the first six months of the financial year. The extension of certain existing contracts
served to partially offset the impact of the delays.
Both Aveng E+PC and Aveng Water experienced a shortage of work, and were thus adversely affected by the
cost of retaining skills and related capacity in anticipation of improved market conditions. Revenue
decreased by 11% to R325 million in relation to the comparative period. Aveng Waters HiPro Water Recovery
Process serves to strengthen the Groups offering to the mine water treatment market but projects are very slow
in being developed.
Mining
This operating segment with effect from 1 July 2012 comprises Aveng Moolmans and Aveng Shafts and Underground
Mining business units, collectively known as Aveng Mining.
On a comparable basis, revenue for this operating segment increased by 21% to R3 793 million driven by strong
growth from Aveng Moolmans.
Aveng Moolmans revenue growth is attributable to growth in West Africa and South Africa, as well as
extensions to existing contracts at Smaldeel, Kansanshi and additional work at Sishen. A heightened focus on
operating efficiencies as well as the completion of some lower margin projects has driven the improved results
within Aveng Moolmans. The depreciation in the Rand/US Dollar exchange rate from an average R7.54 in the
comparative period to R8.48 enhanced Aveng Moolmans operating profit.
The performance of the Aveng Shafts and Underground Mining business unit was hampered by project commencement
delays on three new contracts and the impact of the labour disruptions, which all contributed to margin
slippage.
Operating profit grew by 32% to R390 million with the improved efficiencies and new business offsetting the
impact of labour disruptions in the mining industry.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Trident Steel.
Segmental revenue increased by 4% from R4 290 million in the comparative period to R4 458 million, with
operating profit of R86 million (2011: R277 million), reflecting a very difficult trading environment.
Revenue growth of 15% by Aveng Manufacturing over the comparative period was largely attributable to
additional Australian rail construction revenue as well as an increase in infrastructure products, which was
at an all-time low during the prior year. Aveng Manufacturings business units with high exposure to the
mining industry, namely DFC and Duraset, were notably affected by the labour disruptions that impacted the
platinum and gold mines in particular. Lennings Rail Services experienced a far greater percentage of lower
margin maintenance contracts than planned and the impact of the holding cost associated with the pursuit of
growth prospects. DFC was adversely impacted by the mine sector disruptions and lower demand by its platinum
mining clients. Viewed as a capital investment by clients, demand for DFCs products was subject to the
current growth constraints in the mining sector. Sales volumes for Steeledale increased materially by 35%.
However, higher inventory levels entering the current financial year and price decreases in the first
quarter of the year, culminated in lower profitability for this unit.
Revenue performance by Aveng Trident Steel was consistent with the comparative period. Contributing factors
to its lack of growth include a marginal reduction in sales volume of 3%, due to lower industry demand, though
mitigated by a more favourable sales mixture. Similar to the Steeledale, given the high inventory levels and
the aforementioned price decreases in the first quarter of the financial year, the adverse impact on
profitability was significant. Periodic supply interruptions from domestic steel mills necessitated the need to
increase inventory levels. The impact of the labour disruptions in the transport sector also adversely affected
the performance of the business.
Administration
The administrative operating expense of R114 million is in respect of the costs associated with the Groups
central administrative function. The comparative expense of R246 million included a non-recurring unrealised
foreign exchange loss on the translation of inter-group loans for the period of R99 million.
ORDER BOOK
The Groups two year order book decreased by 15% from R46.9 billion at 30 June 2012 to R39.7 billion at 31
December 2012. This decrease emanated primarily from the operating segment, Construction and Engineering:
Australasia and Pacific. This operating segments order book decreased by 17% from R29.9 billion to R24.7
billion. In Australian dollar terms the order book decreased by 22% from AUD3.6 billion in June 2012 to
AUD2.8 billion at 31 December 2012.
The lower order book reflected the softening infrastructure market as well as the timing of securing new
work. The expectation is that some large projects are likely to be secured in the first half of the 2013
calendar year.
At 31 December 2012, the order book for the operating segment, Construction and Engineering: South Africa
and rest of Africa had declined by 14% from R7.2 billion at 30 June 2012 to R6.5 billion at 31 December 2012.
The start of the 2013 calendar year has seen a notable improvement in the health of the order book with the
winning of a number of significant new contracts.
Following further project awards since the start of the new calendar year (January 2013), the Groups current
two year order book improved by 5% to R41.7 billion from the R39.7 billion at 31 December 2012
COMPETITION COMMISSION
Aveng has proactively engaged and cooperated with the Competition Commission in its investigation into
historic anti-competitive practices in the South African construction industry. The matter has not been
finalised and Avengs view remains that the investigation must be completed as soon as possible in order
for the industry to move forward.
As the settlement process has not been concluded the provision for a potential penalty, which was
announced by Aveng in its SENS announcement of September 2012, remains unchanged at this time.
OUTLOOK AND PROSPECTS
The Group anticipates that public sector infrastructure spend in South Africa will remain somewhat muted
in the coming year due to the slow rollout of infrastructure spend. However, positive signs of progress are
evident in Governments support for the National Development Plan and the Draft Infrastructure Development
Bill.
Growth in other key African markets is a priority. Infrastructure development in Africa remains an important
focus area for the Group, specifically targeting opportunities in Mauritius and Mozambique. As this strategy
gains traction the mix of projects will shift to higher margin work, resulting in further improvement in the
performance of Aveng Grinaker-LTA.
Although the Australian economy is expected to weaken in the transition from the peak of the mining boom to
growth in non-mining sectors which will impact negatively on infrastructure spend, MacDow is tendering on
a number of large PPP opportunities and social infrastructure.
Following further project awards since the start of the new calendar year (February 2013), the Groups
current two year order book improved by 6% to R42.0 billion from the R39.7 billion at 31 December 2012.
The Manufacturing and Processing operating segment has seen some positive steel price increases since
the beginning of the year and restocking of inventories. The Aveng Manufacturing business unit continues
to pursue growth opportunities in the rest of Africa, particularly in Mozambique, where Aveng is constructing
a plant for the manufacture of concrete pipes and sleepers.
The Mining operating segment continues to be well placed to participate in the growth of the African mining
industry as well as seeking shaft sinking projects in other regions.
Following the operating profit impact of R120 million in the period due to labour disruptions and given the
continued disruptions specifically affecting the Medupi project, earnings may be impacted in the second half
of the 2013 financial year.
Having won bids for two projects in the second round of the Renewable Energy Independent Power Procurement
Programme as an Engineering, Procure and Construct, and concessions player, Aveng continues to focus on the
Renewable Energy market and is planning to bid for additional projects in subsequent rounds. Further wind and
solar projects are being developed for future bid windows to ensure that the Group continues to play a
significant role in the renewable energy value chain over the medium to longer term.
The Group has a well balanced portfolio, geographical diversity and multi-disciplinary capabilities across
the infrastructure value chain. It will continue to focus on project delivery and to reduce the financial
impact of challenging contracts to improve its operational performance.
By order of the Board
AWB Band WR Jardine HJ Verster
(Chairman) (Chief Executive Officer) (Financial Director)
15 March 2013
DIRECTORS
AWB Band*# (Chairman), PJ Erasmus*#, MA Hermanus*#, RL Hogben*#,
WR Jardine (Chief Executive Officer), MJ Kilbride*#,
JJA Mashaba (Group Human Resources Director), TM Mokgosi-Mwantembe*#,
DG Robinson^, MJD Ruck*#, MI Seedat*#, NL Sowazi*,
HJ Verster (Financial Director), PK Ward*#.
(*non-executive) (#independent) (^Australian)
Registered office
204 Rivonia Road, Morningside, Sandton, 2057
PO Box 6062, Rivonia, 2128, South Africa
Telephone +27 11 779 2800
Telefax +27 11 784 5030
Registrars
Computershare Investor Services (Pty) Limited
(Registration number 2004/003647/07)
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107, South Africa
Telephone +27 11 370 5000
Telefax +27 11 370 5560
Company Secretary
Michelle Nana
DISCLAIMER
Certain Statements in this release that are neither reported financial results nor other
historical information, are forward looking statements, including but not limited to, statements
that are predictions of or indicate future earnings, savings, synergies, events, trends, plans
or objectives about the Companys operations and financial conditions. They are based on Aveng
Limiteds best estimates and information at the time of writing. They are nonetheless subject to
significant uncertainties and contingencies many of which are beyond the control of the Company.
Unanticipated events will occur and actual future events may differ materially from current
expectations due to new business opportunities, changes in priorities by the Company or its joint
ventures as well as other factors. Any of these factors may materially affect the Companys future
business activities and its ongoing results. Undue reliance should not be placed on such statements
because, by their nature, they are subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results and company plans and objectives to differ
materially from those expressed or implied in the forward looking statements (or past results).
This document is printed on Power Matt paper which is of a certified recyclable grade,
contains no chlorine or acid chemicals and is harvested using accredited forestry techniques.
www.aveng.co.za
Safety is paramount, never to be compromised in the pursuit of any objective
Date: 15/03/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS. |