AEG 201602230001A
Reviewed interim condensed consolidated financial statements for the six months ended 31 December 2015
Aveng Group
Company registration number: 1944/018119/06
Share codes: JSE: AEG ISIN: ZAE 000111829
Reviewed interim condensed consolidated financial statements for the six months ended 31 December 2015
Salient features - financial performance
For the six months ended 31 December 2015:
- Revenue
R18,0 billion
Decrease of 25% from R23,9�billion at December 2014
- Net operating earnings
R52 million
Decrease of 87% from R413�million at December 2014
- Gain on property transaction
R577 million
- Earnings for the period attributable to equity holders of the parent
R230 million
Decrease of 36% from R358 million at December 2014
- Headline loss
R231 million
Decrease from R138�million earnings at December 2014
- Operating free cash flow
R295 million outflow
December 2014: R220 million inflow
- Capital expenditure
R171 million
December 2014: R583 million
- Earnings per share
57,8 cents
Decrease of 35% from 89,3 cents at�December�2014
- Headline loss per share
58,0 cents
Decrease from 34,5 cents earnings at December�2014
Net operating earnings / (loss) - segmental analysis
H1 H1 June
2016 2015 Change 2015
Rm Rm % Rm
South Africa and rest of Africa (125) (229) 45 (697)
Aveng Grinaker-LTA (48) (297) 84 (587)
Aveng Engineering (83) (28) >(100) (291)
Other 6 96 (94) 181
Australasia and Asia 8 183 (96) 112
Total Construction and Engineering (117) (46) >(100) (585)
Mining 198 241 (18) 413
Manufacturing and Processing (48) 79 >(100) 54
Aveng Steel (146) (65) >(100) (174)
Aveng Manufacturing 98 144 (32) 228
Other and Eliminations 19 139 (86) (170)
Total 52 413 (87) (288)
Interim condensed statement of financial position
as at 31 December 2015
31 December 31 December 30 June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
ASSETS
Non-current assets
Goodwill arising on consolidation 342 351 342
Intangible assets 332 298 339
Property, plant and equipment 5 450 5 825 5 626
Equity-accounted investments 136 263 151
Infrastructure investments 9 877 633 778
Deferred taxation 1 829 1 383 1 580
Derivative instruments 15 8 6
Amounts due from contract customers 10 1 174 3 192 900
10 155 11 953 9 722
Current assets
Inventories 2 400 3 056 2 529
Derivative instruments 106 46 35
Amounts due from contract customers 10 9 068 6 906 9 394
Trade and other receivables 2 005 2 433 2 424
Cash and bank balances 3 452 4 256 2 856
17 031 16 697 17 238
Non-current assets held-for-sale 8 7 607 559
TOTAL ASSETS 27 193 29 257 27 519
EQUITY AND LIABILITIES
Equity
Share capital and share premium 2 009 2 001 2 023
Other reserves* 2 031 1 186 1 162
Retained earnings* 10 020 10 608 9 790
Equity attributable to equity-holders of parent 14 060 13 795 12 975
Non-controlling interest 11 14 23
TOTAL EQUITY 14 071 13 809 12 998
LIABILITIES
Non-current liabilities
Deferred taxation 434 234 221
Borrowings and other liabilities 13 1 901 2 158 2 037
Employee-related payables 474 126 468
Trade and other payables 11 - 297 -
2 809 2 815 2 726
Current liabilities
Amounts due to contract customers 10 1 792 2 353 2 562
Borrowings and other liabilities 13 1 220 416 426
Payables other than contract-related - 98 102
Employee-related payables 548 1 081 648
Derivative instruments - 3 2
Trade and other payables 11 6 566 8 416 7 961
Taxation payable 187 266 94
10 313 12 633 11 795
TOTAL LIABILITIES 13 122 15 448 14 521
TOTAL EQUITY AND LIABILITIES 27 193 29 257 27 519
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations
adopted, changes in accounting policies and other reclassifications.
Interim condensed statement of comprehensive earnings
for the six months ended 31 December 2015
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2015 2014 2015
(Reviewed) (Reviewed) Change (Audited)
Notes Rm Rm % Rm
Revenue 17 998 23 864 (25) 43 930
Cost of sales (16 711) (22 304) 25 (41 566)
Gross earnings 1 287 1 560 (18) 2 364
Other earnings 214 319 (33) 471
Operating expenses 14 (1 392) (1 496) 7 (3 063)
(Loss) / earnings from equity-accounted investments (57) 30 >(100) (60)
Net operating earnings / (loss) 52 413 (87) (288)
Impairment of property, plant, equipment and
intangible assets (23) (246) 91 (330)
Impairment of goodwill arising on consolidation - (291) 100 (291)
Profit on sale of subsidiary - 777 (100) 777
Gain on property transaction 6 577 - >100 -
Earnings / (loss) before financing transactions 606 653 (7) (132)
Finance earnings 105 72 46 177
Convertible bond interest and gains (111) (59) (88) (167)
Other finance expenses (150) (179) 16 (316)
Earnings / (loss) before taxation 450 487 (8) (438)
Taxation 15 (218) (125) (74) (80)
Earnings / (loss) for the period 232 362 (36) (518)
Other comprehensive earnings to be reclassified to earnings
in subsequent period (net of taxation):
Exchange differences on translating foreign operations 985 (366) >100 (372)
Other comprehensive loss released from equity-accounted
investments - 28 >(100) 28
Other comprehensive earnings / (loss) for the period (net
of taxation) 985 (338) >100 (344)
Total comprehensive earnings / (loss) for the period 1 217 24 >100 (862)
Total comprehensive earnings / (loss) for the period
attributable to:
Equity-holders of the parent 1 223 20 >100 (804)
Non-controlling interest (6) 4 >(100) (58)
1 217 24 >100 (862)
Earnings / (loss) for the period attributable to:
Equity-holders of the parent 230 358 (36) (460)
Non-controlling interest 2 4 (50) (58)
232 362 (36) (518)
Other comprehensive earnings / (loss) for the period (net
of taxation)
Equity-holders of the parent 993 (338) >100 (344)
Non-controlling interest (8) - >(100) -
985 (338) >100 (344)
Results per share (cents)
Earnings - basic 57,8 89,3 (35) (114,8)
Earnings - diluted 57,2 89,0 (36) (114,4)
Headline (loss) / earnings - basic (58,0) 34,5 >(100) (144,3)
Headline (loss) / earnings - diluted (57,5) 34,4 >(100) (143,8)
Number of shares (millions)
In issue 416,7 416,7 - 416,7
Weighted average 398,0 400,6 (0,6) 400,6
Diluted weighted average 402,1 402,1 - 402,1
EBITDA for the Group, being net operating earnings before interest, tax, depreciation and amortisation is R496 million
(December 2014: R928 million; June 2015: R662 million).
Interim condensed statement of changes in equity
for the six months ended 31 December 2015
Total Foreign Equity-
share currency Available- accounted
capital trans- for-sale invest-
Share Share and lation fair value ments
capital premium premium reserve reserve* reserve
Rm Rm Rm Rm Rm Rm
Six months ended 31 December 2014 (Reviewed)
Opening balance as previously reported 20 1 988 2 008 1 129 93 (28)
Adoption of IFRS 9 accounting standard - - - - (93) -
Balance at 1 July 2014 as restated 20 1 988 2 008 1 129 - (28)
Earnings for the period - - - - - -
Other comprehensive loss for the period (net of taxation) - - - (366) - 28
Total comprehensive earnings for the period - - - (366) - 28
Movement in treasury shares - (7) (7) - - -
Equity-settled share-based payment charge - - - - - -
Transfer of convertible bond option to convertible bond equity reserve - - - - - -
Deferred transaction costs allocated to convertible bond equity reserve - - - - - -
Foreign currency translation movement - - - - - -
Dividends paid - - - - - -
Total contributions and distributions recognised - (7) (7) - - -
Balance at 31 December 2014 20 1 981 2 001 763 - -
Year ended 30 June 2015 (Audited)
Balance at 1 July 2014 as restated 20 1 988 2 008 1 129 - (28)
Loss for the period - - - - - -
Other comprehensive loss for the period (net of taxation) - - - (372) - 28
Total comprehensive loss for the period - - - (372) - 28
Movement in treasury shares - 15 15 - - -
Equity-settled share-based payment charge - - - - - -
Transfer of convertible bond option to convertible bond equity reserve - - - - - -
Deferred transaction costs allocated to convertible bond equity reserve - - - - - -
Increase in equity investment - - - - - -
Foreign currency translation movement - - - - - -
Dividends paid - - - - - -
Total contribution and distributions recognised - 15 15 - - -
Balance at 30 June 2015 20 2 003 2 023 757 - -
Equity- Total attri-
settled Conver- butable
share- tible to equity-
based bond Total holders Non-
payment equity other Retained of the controlling Total
reserve reserve reserves* earnings* parent interest equity
Rm Rm Rm Rm Rm Rm Rm
Six months ended 31 December 2014 (Reviewed)
Opening balance as previously reported 26 - 1 220 10 157 13 385 11 13 396
Adoption of IFRS 9 accounting standard - - (93) 93 - - -
Balance at 1 July 2014 as restated 26 - 1 127 10 250 13 385 11 13 396
Earnings for the period - - - 358 358 4 362
Other comprehensive loss for the period (net of taxation) - - (338) - (338) - (338)
Total comprehensive earnings for the period - - (338) 358 20 4 24
Movement in treasury shares - - - - (7) - (7)
Equity-settled share-based payment charge 7 - 7 - 7 - 7
Transfer of convertible bond option to convertible bond
equity reserve - 402 402 - 402 - 402
Deferred transaction costs allocated to convertible bond
equity reserve - (12) (12) - (12) - (12)
Foreign currency translation movement - - - - - 1 1
Dividends paid - - - - - (2) (2)
Total contributions and distributions recognised 7 390 397 - 390 (1) 389
Balance at 31 December 2014 33 390 1 186 10 608 13 795 14 13 809
Year ended 30 June 2015 (Audited)
Balance at 1 July 2014 as restated 26 - 1 127 10 250 13 385 11 13 396
Loss for the period - - - (460) (460) (58) (518)
Other comprehensive loss for the period (net of taxation) - - (344) - (344) - (344)
Total comprehensive loss for the period - - (344) (460) (804) (58) (862)
Movement in treasury shares - - - - 15 - 15
Equity-settled share-based payment charge (11) - (11) - (11) - (11)
Transfer of convertible bond option to convertible bond
equity reserve - 402 402 - 402 - 402
Deferred transaction costs allocated to convertible bond
equity reserve - (12) (12) - (12) - (12)
Increase in equity investment - - - - - 76 76
Foreign currency translation movement - - - - - 1 1
Dividends paid - - - - - (7) (7)
Total contribution and distributions recognised (11) 390 379 - 394 70 464
Balance at 30 June 2015 15 390 1 162 9 790 12 975 23 12 998
Interim condensed statement of changes in equity continued
for the six months ended 31 December 2015
Equity-
Total Foreign Equity- settled
share currency Available- accounted share-
capital trans- for-sale invest- based
Share Share and lation fair value ments payment
capital premium premium reserve reserve* reserve reserve
Rm Rm Rm Rm Rm Rm Rm
Six months ended 31 December 2015 (Reviewed)
Balance at 1 July 2015 20 2 003 2 023 757 - - 15
Earnings for the period - - - - - - -
Other comprehensive earnings for the period (net of taxation) - - - 993 - - -
Total comprehensive earnings for the period - - - 993 - - -
Purchase of treasury shares - (23) (23) - - - -
Equity-settled share-based payment release - 9 9 - - - (9)
Equity-settled share-based payment charge - - - - - - 7
Recognition of deferred tax on convertible bond - - - - - - -
Decrease in equity investment - - - - - - -
Total contribution and distributions recognised - (14) (14) - - - (2)
Balance at 31 December 2015 20 1 989 2 009 1 750 - - 13
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations adopted, changes in accounting
policies and other reclassifications.
Total attri-
Conver- butable
tible to equity-
bond Total holders Non-
equity other Retained of the controlling Total
reserve reserves* earnings* parent interest equity
Rm Rm Rm Rm Rm Rm
Six months ended 31 December 2015 (Reviewed)
Balance at 1 July 2015 390 1 162 9 790 12 975 23 12 998
Earnings for the period - - 230 230 2 232
Other comprehensive earnings for the period (net of taxation) - 993 - 993 (8) 985
Total comprehensive earnings for the period - 993 230 1 223 (6) 1 217
Purchase of treasury shares - - - (23) - (23)
Equity-settled share-based payment release - (9) - - - -
Equity-settled share-based payment charge - 7 - 7 - 7
Recognition of deferred tax on convertible bond (122) (122) - (122) - (122)
Decrease in equity investment - - - - (6) (6)
Total contribution and distributions recognised (122) (124) - (138) (6) (144)
Balance at 31 December 2015 268 2 031 10 020 14 060 11 14 071
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations adopted, changes in accounting
policies and other reclassifications.
Interim condensed statement of cash flows
for the six months ended 31 December 2015
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Note Rm Rm Rm
Operating activities
Cash retained from operations 660 589 (92)
Depreciation 429 501 929
Amortisation 15 14 21
Non-cash and other movements 16 (194) (418) (457)
Cash generated by operations 910 686 401
Changes in working capital
Decrease / (increase) in inventories 162 (279) 201
Decrease in amounts due from contract customers 52 743 547
Decrease in trade and other receivables 424 362 357
Increase in derivative instruments (82) (103) (101)
Decrease in amounts due to contract customers (770) (252) (43)
Decrease in trade and other payables (338) (1 204) (1 953)
QCLNG repayment (1 072) - -
Decrease in payables other than contract-related (102) (102) (102)
Decrease in employee-related payables (96) (187) (258)
Total changes in working capital (1 822) (1 022) (1 352)
Cash utilised by operating activities (912) (336) (951)
Finance expenses paid (209) (176) (361)
Finance earnings received 102 72 174
Taxation paid (233) (134) (397)
Cash outflow from operating activities (1 252) (574) (1 535)
Investing activities
- expansion (75) (101) (175)
- replacement (89) (456) (649)
Proceeds on disposal of property, plant and equipment 45 242 245
Proceeds on disposal of investment property - 97 97
Acquisition of intangible assets (7) (26) (52)
Proceeds from property transaction 1 127 - -
Loans advanced to equity-accounted investments net
of dividends received (40) (88) (68)
Proceeds on disposal of equity-accounted investments - - 5
Net loans advanced to infrastructure investment companies (7) (165) (208)
Acquisition of subsidiary (net of cash acquired) - (23) (23)
Net proceeds on disposal of subsidiary - 1 314 1 314
Dividend earnings 3 - 22
Cash inflow from investing activities 957 794 508
Operating free cash (outflow) / inflow (295) 220 (1 027)
Shares repurchased (23) (7) (7)
Loans (repaid) / advanced by non-controlling interest (6) - 76
Dividends paid - (2) (7)
Proceeds from convertible bonds issued - 1 947 1 947
Net proceeds from / (repayment of) borrowings 606 (1 900) (2 066)
Net increase in cash and bank balances before foreign
exchange movements 282 258 (1 084)
Foreign exchange movements on cash and bank balances 314 (138) (196)
Cash and bank balances at the beginning of the�period 2 856 4 136 4 136
Total cash and bank balances at the end of the period 3 452 4 256 2 856
Borrowings excluding bank overdrafts 3 121 2 574 2 463
Net cash position 331 1 682 393
Notes to the interim condensed consolidated financial statements
for the six months ended 31 December 2015
1. CORPORATE INFORMATION
The reviewed interim condensed consolidated financial statements (the �interim results�) of Aveng Limited
(the �Company�) and its subsidiaries (the �Group�) for the six months ended 31 December 2015 were
authorised for issue in accordance with a resolution of the directors on 19 February 2016.
Nature of business
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
environments and as a result the revenue is not seasonal in nature, but is influenced by the nature and
execution of the contracts currently in progress.
2. BASIS OF PREPARATION AND ACCOUNTING POLICY
The interim results have been prepared on a historical basis except for certain financial instruments
that are measured at fair value.
These interim results are presented in South African Rand (�ZAR�) and all values are rounded to the nearest
million (�Rm�) except when otherwise indicated. The interim results are prepared in accordance with IAS 34 -
Interim Financial Statements and the Listings Requirements of the Johannesburg Stock Exchange. The accounting
policies adopted are consistent with those of the Group�s audited consolidated financial statements as at
30 June 2015, except as disclosed in note 3: New accounting standards and interpretations adopted, changes
in accounting policies and other reclassifications.
The interim results have been prepared by Clare Giletti under the supervision of Group Finance Director,
Adrian Macartney.
The reviewed interim condensed consolidated financial statements for the six month period ended
31�December 2015, set out on pages 2 to 36, have been reviewed by the Company�s external auditors Ernst &
Young Inc., in accordance with International Standard on Review Engagements ISRE 2410 Review of Interim
Financial Information Performed by the Independent Auditors of the Entity. The unmodified review opinion is
available on request from the Company Secretary at the Company�s registered office.
Assessment of significance or materiality of amounts disclosed in these interim results
The Group presents amounts in these interim results in accordance with International Financial Reporting
Standards (�IFRS�). Only amounts that have a relevant and material impact on the interim results have been
separately disclosed. The assessment of significant or material amounts is determined by taking into account
the qualitative and quantitative factors attached to each transaction or balance that is assessed.
3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED, CHANGES IN ACCOUNTING POLICIES AND OTHER RECLASSIFICATIONS
The impact of early adopting IFRS 9 has been analysed by the Group as part of the 30 June 2015 year end
results, the significant movement for six months ended 31 December 2015 has been analysed below.
Balance as Early
previously adoption Restated
reported of IFRS 9 balance
Rm Rm Rm
Statement of financial position as at
31 December 2014
EQUITY AND LIABILITIES
Equity
Other reserves 1 279 (93) 1 186
Retained earnings 10 515 93 10 608
4. SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES
The preparation of the interim condensed consolidated financial statements requires management to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
Impairment of cash generating units
Where indicators existed the Group assessed the recoverable amount (higher of its fair value less cost
to dispose and its value-in-use) of the relevant cash generating units. The value-in-use was used as
the Group expects to recover the economic benefits through operational use.
The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model,
the expected future cash inflows and the growth rates used for extrapolation and terminal value
purposes. The following assumptions were used in the calculation:
1. The Group weighted average cost of capital (�WACC�) was adjusted to take into account the risk
specific to each cash generating unit; and
2. Non-cash settled intercompany balances were excluded from the calculation of the Net Asset Value
(�NAV�).
The above resulted in the value-in-use (recoverable amount) being higher than the NAV and as a result no
impairment was recognised in the statement of comprehensive earnings.
5. CHANGE IN ESTIMATE
The Group reassessed the tax deductibility of the unwinding of the convertible bond equity option, through
the effective interest rate and as a result deferred tax remeasurement of R122�million has been raised
through equity as required for compound instruments.
6. GAIN ON PROPERTY TRANSACTION
Loss of control of a subsidiary
Effective from 1 September 2015, Dimopoint Property Limited (�Dimopoint�) (a wholly owned subsidiary of Aveng),
issued additional shares to the Collins Property Group. Prior to the issue of�shares, Dimopoint held a portion
of the properties held-for-sale at 30 June 2015, (refer to note 8: Non-current assets held-for-sale). The
issue of the additional shares resulted in Aveng�s interest�being diluted thereby resulting in a loss of
control of Dimopoint, with Aveng retaining a 30% non-controlling interest. A profit of R150 million resulted
from the loss of control of Dimopoint. The remaining 30% investment in Dimopoint is treated as a joint venture
as Aveng retains joint control of Dimopoint and is measured at fair value in terms of IFRS 9 in accordance
with the IAS�28.18 (Investment in Associates and Joint Ventures) Venture Capital Organisation exemption.
Profit on sale of properties
Following the loss of control in Dimopoint, the remaining held-for-sale properties were sold to Dimopoint
for a profit of R427 million.
December
2015
Reviewed
Rm
Held-for-sale asset 612
Transaction costs 5
Gain on property transaction 577
Profit on loss of control 150
Profit on sale of properties 427
Total proceeds 1 194
Retention of a non-controlling interest in Dimopoint (67)
Cash proceeds on sale of properties 1 127
7. SEGMENTAL REPORT
The Group has determined four reportable segments that are largely organised and managed separately
according to the nature of products and services provided.
These segments are components of the Group:
- that engage in business activities from which they earn revenues and incur expenses; and
- have operating results that are regularly reviewed by the Group�s chief operating decision-makers to
make decisions about resources to be allocated to the segments and in assessment of their performance.
The Group�s reportable segments are categorised as follows:
1. Construction and Engineering
1.1 Construction and Engineering: South Africa and rest of Africa
This reportable segment includes: Aveng Grinaker-LTA, Aveng Engineering and Aveng Capital Partners (�ACP�).
Aveng Engineering is being discontinued, with the remaining portions of Water and Operate & Maintain
merging with the Mechanical and Electrical business unit within Aveng Grinaker-LTA.
Revenues from this segment include the supply of expertise in a number of market sectors: power, mining,
infrastructure, commercial, retail, industrial, Oil and Gas.
1.2 Construction and Engineering: Australasia and Asia
This segment comprises McConnell Dowell.
This segment specialises in the construction and maintenance of tunnels and pipelines, railway
infrastructure maintenance and construction, marine and mechanical engineering, industrial building
projects, Oil and Gas construction and mining and mineral construction.
2. Mining
This segment comprises Aveng Moolmans and Aveng Shafts & Underground in one operating group.
Revenues from this segment are derived from mining related activities.
3. Manufacturing and Processing
This segment comprises Aveng Manufacturing and Aveng Steel.
The revenues from this segment comprise the supply of products, services and solutions to the mining,
construction, Oil and Gas, water, power and rail sectors across the Group�s value chain locally and
internationally.
4. Other and Eliminations
This segment comprises corporate services, corporate held investments, including properties and
consolidation eliminations.
Construction and
Engineering:
Segment report December 2015 South Africa Manufac- Other
(Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets 1 - 15 145 171 332
Property, plant and equipment 466 865 2 326 1 324 469 5 450
Equity-accounted investments 109 58 4 - (35) 136
Infrastructure investments 712 86 - - 79 877
Deferred taxation 1 801 735 294 (140) (861) 1 829
Derivative instruments 15 18 - 49 39 121
Amounts due from contract customers 1 450 7 649 1 208 537 (602) 10 242
Inventories 13 7 243 2 137 - 2 400
Trade and other receivables 345 200 235 1 096 129 2 005
Cash and bank balances 524 1 840 493 889 (294) 3 452
Assets held-for-sale - - - - 7 7
Total assets 5 436 11 558 4 818 6 047 (666) 27 193
Liabilities
Deferred taxation 287 105 200 (86) (72) 434
Borrowings and other liabilities - 939 486 6 1 690 3 121
Employee-related payables 163 497 233 84 45 1 022
Trade and other payables 948 2 951 738 1 795 134 6 566
Amounts due to contract customers 496 980 194 122 - 1 792
Taxation payable 24 (46) 107 25 77 187
Total liabilities 1 918 5 426 1 958 1 946 1 874 13 122
Construction and
Engineering:
Segment report December 2014 South Africa Manufac- Other
(Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Assets
Goodwill arising on consolidation - 100 - 251 - 351
Intangible assets 3 - - 149 146 298
Property, plant and equipment 600 891 2 663 1 356 315 5 825
Equity-accounted investments 208 51 4 - - 263
Infrastructure investments 572 61 - - - 633
Deferred taxation 776 348 370 86 (197) 1 383
Derivative instruments - 25 - 13 16 54
Amounts due from contract customers 2 048 6 957 1 058 419 (384) 10 098
Inventories 73 7 326 2 650 - 3 056
Trade and other receivables 606 232 116 1 363 116 2 433
Cash and bank balances 270 2 983 399 922 (318) 4 256
Non-current assets held-for-sale - - - - 607 607
Total assets 5 156 11 655 4 936 7 209 301 29 257
Liabilities
Deferred taxation 14 - 189 5 26 234
Borrowings and other liabilities - 279 661 6 1 628 2 574
Payables other than contract-related 98 - - - - 98
Employee-related payables 175 585 198 50 199 1 207
Derivative instruments - - - - 3 3
Trade and other payables 1 149 4 384 714 2 465 1 8 713
Amounts due to contract customers 631 1 367 260 94 1 2 353
Taxation payable 49 85 28 33 71 266
Total liabilities 2 116 6 700 2 050 2 653 1 929 15 448
Construction and
Engineering:
Segment report June 2015 South Africa Manufac- Other
(Audited) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets 2 - 8 152 177 339
Property, plant and equipment 494 799 2 506 1 326 501 5 626
Equity-accounted investments 131 56 4 - (40) 151
Infrastructure investments 706 72 - - - 778
Deferred taxation 1 463 617 195 (154) (541) 1 580
Derivative instruments - 15 - 9 17 41
Amounts due from contract customers 2 256 6 895 1 253 472 (582) 10 294
Inventories 31 7 225 2 266 - 2 529
Trade and other receivables 469 186 91 1 463 215 2 424
Cash and bank balances 215 2 350 266 271 (246) 2 856
Non-current assets held-for-sale - - - - 559 559
Total assets 5 767 11 097 4 548 5 815 292 27 519
Liabilities
Deferred taxation 99 72 182 (54) (78) 221
Borrowings and other liabilities - 250 557 5 1 651 2 463
Payables other than contract-related 102 - - - - 102
Employee-related payables 211 446 273 122 64 1 116
Derivative instruments - - - 2 - 2
Trade and other payables 1 382 3 928 701 1 757 193 7 961
Amounts due to contract customers 614 1 588 272 88 - 2 562
Taxation payable 31 11 42 16 (6) 94
Total liabilities 2 439 6 295 2 027 1 936 1 824 14 521
Construction and
Engineering:
South Africa Manufac- Other
Six months ended December 2015 (Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Gross revenue 3 857 7 048 2 968 4 396 (271) 17 998
Cost of sales (3 656) (6 543) (2 658) (4 182) 328 (16 711)
Gross earnings 201 505 310 214 57 1 287
Other earnings 27 36 17 96 38 214
Operating expenses (330) (498) (129) (358) (77) (1 392)
(Loss) / earnings from equity-accounted
investments (23) (35) - - 1 (57)
Net operating (loss) / earnings (125) 8 198 (48) 19 52
Impairment of property, plant, equipment
and intangible assets - - (23) - - (23)
Gain on property transaction - - - 7 570 577
(Loss) / earnings before financing
transactions (125) 8 175 (41) 589 606
Net finance earnings�/ (expenses) 21 (29) (6) (7) (135) (156)
(Loss) / earnings before taxation (104) (21) 169 (48) 454 450
Taxation 96 (21) (81) 30 (242) (218)
(Loss) / earnings for the period (8) (42) 88 (18) 212 232
Capital expenditure 19 41 26 69 16 171
Depreciation (38) (112) (207) (67) (5) (429)
Amortisation - - - (6) (9) (15)
Earnings before interest, taxation,
depreciation and amortisation (�EBITDA�) (87) 120 405 25 33 496
Construction and
Engineering:
South Africa Manufac- Other
Six months ended December 2014 (Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Gross revenue 4 294 11 804 2 974 5 253 (461) 23 864
Cost of sales (4 350) (11 041) (2 592) (4 891) 570 (22 304)
Gross (loss) / earnings (56) 763 382 362 109 1 560
Other earnings 126 47 1 91 54 319
Operating expenses (326) (618) (142) (374) (36) (1 496)
Earnings / (loss) from equity-accounted
investments 27 (9) - - 12 30
Net operating (loss) / earnings (229) 183 241 79 139 413
Impairment of property, plant, equipment
and intangible assets (152) (33) (29) (32) - (246)
Impairment of goodwill arising on
consolidation - (291) - - - (291)
Profit on sale of subsidiary - 777 - - - 777
(Loss) / earnings before financing
transactions (381) 636 212 47 139 653
Net finance earnings�/ (expenses) 18 (31) (23) (16) (114) (166)
(Loss) / earnings before taxation (363) 605 189 31 25 487
Taxation (7) (92) (12) 12 (26) (125)
(Loss) / earnings for the period (370) 513 177 43 (1) 362
Capital expenditure 51 194 191 119 28 583
Depreciation (63) (148) (202) (82) (6) (501)
Amortisation (4) - - (5) (5) (14)
Earnings before interest, taxation,
depreciation and amortisation (�EBITDA�) (162) 331 443 166 150 928
Construction and
Engineering:
South Africa Manufac- Other
Year ended June 2015 (Audited) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Gross revenue 8 355 20 912 5 956 9 928 (1 221) 43 930
Cost of sales (8 491) (19 678) (5 258) (9 243) 1 104 (41 566)
Gross (loss) / earnings (136) 1 234 698 685 (117) 2 364
Other earnings 226 45 1 164 35 471
Operating expenses (736) (1 152) (286) (795) (94) (3 063)
(Loss) / earnings from equity-accounted
investments (51) (15) - - 6 (60)
Net operating (loss) /earnings (697) 112 413 54 (170) (288)
Impairment of property, plant, equipment
and intangible assets (209) (44) (32) (32) (13) (330)
Impairment of goodwill arising on
consolidation - (291) - - - (291)
Profit on sale of subsidiary - 777 - - - 777
(Loss) / earnings before financing
transactions (906) 554 381 22 (183) (132)
Net finance earnings/(expenses) 15 (36) (42) (25) (218) (306)
(Loss) / earnings before taxation (891) 518 339 (3) (401) (438)
Taxation 111 (14) (194) (7) 24 (80)
(Loss) / earnings for the period (780) 504 145 (10) (377) (518)
Capital expenditure 96 262 257 180 81 876
Depreciation (91) (286) (418) (119) (15) (929)
Amortisation (5) - - (12) (4) (21)
Earnings before interest, taxation,
depreciation and amortisation (�EBITDA�) (601) 398 831 185 (151) 662
The Group operates in five principal geographical areas:
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
December December June December December June
2015 2014 2015 2015 2014 2015
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Revenue Rm Rm Rm % % %
South Africa 9 609 10 036 19 628 53,4 42,0 44,7
Rest of Africa including Mauritius 1 046 1 733 2 908 5,8 7,3 6,6
Australasia and Asia 4 866 10 060 15 880 27,0 42,1 36,1
Southeast Asia 2 191 1 778 5 115 12,2 7,5 11,7
Middle East and other regions 286 257 399 1,6 1,1 0,9
17 998 23 864 43 930 100,0 100,0 100,0
Segment assets
South Africa 13 358 14 651 14 048 49,1 50,1 51,1
Rest of Africa including Mauritius 2 210 2 158 1 625 8,1 7,4 5,9
Australasia and Asia 9 106 10 559 9 383 33,5 36,1 34,1
Southeast Asia 2 230 1 399 2 154 8,2 4,8 7,8
Middle East and other regions 289 490 309 1,1 1,6 1,1
27 193 29 257 27 519 100,0 100,0 100,0
8. NON-CURRENT ASSETS HELD-FOR-SALE
The majority of non-current asset held-for-sale were sold on 1 September 2015 to Imbali Props�21 Proprietary Limited, a member
of the Collins Property Group for R1,1 billion cash. The Group retained a 30% interest in Dimopoint, a special purpose
vehicle created for the purpose of holding the non-core properties. There are two properties remaining in non-current assets
held-for-sale that were not part of the sale. These properties are anticipated to be sold to external�parties.
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Non-current assets held-for-sale
Land and buildings 7 607 559
Movement during the period
Opening balance 559 607 607
Transferred from property, plant and equipment 45 - 75
Environmental provision relating to property 15 - -
Transferred to property, plant and equipment - - (123)
Sold (612) - -
7 607 559
9. INFRASTRUCTURE INVESTMENTS
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
South African infrastructure investments
Financial investments at fair value through profit or loss 791 573 706
Other infrastructure investments
Financial investments at fair value through profit or loss 86 60 72
Total infrastructure investments 877 633 778
South African infrastructure investments
Opening balance 706 - -
Reclassification of equity investments from equity-accounted investments (5) 3 3
Reclassification of shareholder loans from equity-accounted investments 4 168 168
Recycling of equity-accounted earnings from other comprehensive earnings - 28 28
Reclassification from financial investments - 126 126
Fair value remeasurement through comprehensive earnings 12 83 173
Non-controlling interest in Dimopoint 67 - -
Loans advanced 49 169 208
Loan repayment (42) (4) -
791 573 706
Balance at the end of the year comprises:
Blue Falcon 140 Trading Proprietary Limited 251 160 217
Dimopoint Proprietary Limited 79 - -
Imvelo Company Proprietary Limited 48 45 40
N3 Toll Concessions Proprietary Limited 128 126 128
Windfall 59 Properties Proprietary Limited 286 242 321
JSG Proprietary Limited (1) - -
791 573 706
Other infrastructure investments
Opening balance 72 - -
Reclassification from financial investments - 64 64
Foreign currency translation movement 14 (4) (4)
Fair value remeasurement through comprehensive earnings - - 12
86 60 72
10. AMOUNTS DUE FROM / (TO) CONTRACT CUSTOMERS
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Uncertified claims and variations (underclaims)**1 6 547 5 788 5 157
Contract contingencies** (343) (257) (253)
Progress billings received (including overclaims)2 (1 342) (1 728) (1 921)
Uncertified claims and variations less progress billings received 4 862 3 803 2 983
Contract receivables3 3 807 4 420 5 147
Provision for contract receivables * (46) *
Retention receivables4 231 193 243
8 900 8 370 8 373
Amounts received in advance5 (450) (625) (641)
Net amounts due from contract customers 8 450 7 745 7 732
Disclosed on the statement of financial position as follows:
Uncertified claims and variations** 6 547 5 788 5 157
Contract contingencies (343) (257) (253)
Contract and retention receivables 4 038 4 613 5 390
Provision for contract receivables * (46) *
Amounts due from contract customers 10 242 10 098 10 294
Progress billings received (1 342) (1 728) (1 921)
Amounts received in advance (450) (625) (641)
Amounts due to contract customers (1 792) (2 353) (2 562)
Net amounts due from contract customers 8 450 7 745 7 732
* Amounts less than R1 million.
** Provisions have been netted off against uncertified claims and variations.
1 Includes revenue not yet certified - recognised based on percentage of completion / measurement and agreed variations,
less provisions and deferred contract costs.
2 Progress billings are amounts billed for work performed above revenue recognised.
3 Amounts invoiced still due from customers.
4 Retentions are amounts invoiced but not paid until the conditions specified in the contract are fulfilled or until
defects have been rectified.
5 Advances are amounts received from the customer before the related work is performed.
Provision
Uncertified Contract for
claims and contin- Contract contract Retention
variations** gencies** receivables receivables receivables Total
Rm Rm Rm Rm Rm Rm
December 2015 (Reviewed)
Non-current assets 1 174 - - - - 1 174
Current assets 5 373 (343) 3 807 * 231 9 068
6 547 (343) 3 807 * 231 10 242
December 2014 (Reviewed)
Non-current assets 3 192 - - - - 3 192
Current assets 2 596 (257) 4 420 (46) 193 6 906
5 788 (257) 4 420 (46) 193 10 098
June 2015 (Audited)
Non-current assets 900 - - - - 900
Current assets 4 257 (253) 5 147 * 243 9 394
5 157 (253) 5 147 * 243 10 294
* Amounts less than R1 million.
** Provisions have been netted off against uncertified claims and variations.
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
11. TRADE AND OTHER PAYABLES
Trade payables 2 686 2 878 2 859
Subcontractors 462 392 425
Accrued expenses 2 734 3 220 3 180
Income received in advance 111 1 096 1 072
Promissory notes 573 830 425
6 566 8 416 7 961
TRADE AND OTHER PAYABLES
- non-current portion - 297 -
Trade and other payables comprise amounts owing to suppliers for goods and services supplied in the normal course of business.
Promissory notes issued by the Group bear interest between a range of 8,30% and 8,59% per annum. Terms vary in accordance with
contracts of supply and service but are generally settled on 30 to 90 day terms.
Included in income received in advance is an advance payment received relating to the Perth Airport contract of AUD10 million
(R111 million). The AUD112,5 million (R1,1 billion) QCLNG advance payment was repaid on 29�October�2015.
12. FOREIGN EXCHANGE MOVEMENTS
Material foreign exchange movements have been disclosed in terms of IAS 1. With the deterioration of the Rand
against foreign currencies, the translated results of McConnell Dowell, the Australian operating group of Aveng,
had the biggest foreign currency impact. Only the accounts relating to McConnell Dowell that have been significantly
impacted have been disclosed below.
Amounts due
from / (to) Trade and
contract other
customers payables
Rm Rm
Balance as at 30 June 2015 (Audited) 7 732 7 961
Movement in ordinary course of business (336) (1 885)
Foreign exchange movement at McConnell Dowell 1 054 490
Balance as at 31 December 2015 (Reviewed) 8 450 6 566
13. BORROWINGS AND OTHER LIABILITIES
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
13.1 Borrowings held at amortised cost
Interest-bearing borrowings comprise:
Payment profile
- within one year 1 220 416 426
- between two to five years 1 901 2 158 2 037
3 121 2 574 2 463
Interest rate structure
Fixed and variable (interest rates)
Fixed - long term 1 730 1 866 1 814
Fixed - short term 923 156 162
Variable - long term 171 325 222
Variable - short term 297 227 265
3 121 2 574 2 463
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Description Terms Rate of interest Rm Rm Rm
Convertible bond Interest coupon is payable
of R2 billion bi-annually until July 2019 Coupon of 7,25% 1 690 1 616 1 651
Finance sale and leaseback Monthly instalment ending Fixed interest rate of
amounting to AUD9 million* in June 2018 5,15% to 6,08% 97 80 91
Short-term facility
of AUD10 million Repayable in May 2016 Bank bill swap rate plus 1,65% 111 95 94
Short-term facility
of AUD60�million*** Repayable in May 2016 Bank bill swap rate plus 2,20% 669 - -
Hire purchase agreement Monthly instalment ending
denominated in AUD million* in September 2017 Fixed interest rate of 6,81% 60 103 65
Hire purchase agreement Quarterly instalments
denominated in USD* ending in June 2017 Fixed rate ranging 4,58% to 4,65% 233 316 253
Hire purchase agreement Monthly instalment ending
denominated in�ZAR* in November 2017 South African prime less 2,00% 60 80 74
Hire purchase agreement Monthly instalment ending
denominated in�ZAR* in March 2017 South African prime less 1,70% 126 185 148
Hire purchase agreement Monthly instalment ending
denominated in ZAR* in May 2018 Fixed interest rate of 9,70% 59 87 69
* These borrowings and other liabilities are finance leases and are included in the analysis of the payable finance lease liability.
*** Backed by a bank guarantee.
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Description Terms Rate of interest Rm Rm Rm
Finance lease
facilities Monthly instalment ending
denominated in ZAR* in March 2017 South African prime 13 8 13
Interest-bearing
borrowings 3 118 2 570 2 458
Interest outstanding on
interest-bearing borrowings** 3 4 5
Total interest-bearing
borrowings 3 121 2 574 2 463
* These borrowings and other liabilities are finance leases and are included in the analysis of the payable finance lease liability.
** Interest outstanding in the current year relates to finance leases.
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Finance lease liabilities are payable as follows:
Minimum lease payments due
- within one year 397 365 369
- within two to five years 300 583 411
Less: future finance charges (46) (85) (62)
Present value of minimum lease payments 651 863 718
The Australasia and Asia operating segment entered into a finance sale and leaseback arrangement in the 2012 financial year
and in the 2015 financial year entered into an asset-based finance arrangement.
The arrangement, amounting to AUD9 million (R97 million) (December 2014: (R80 million); June�2015: (R91 million)) has been
secured by plant and equipment with a net carrying amount of R70 million (December 2014: R80 million; June 2015:�R60�million).
The arrangement amounting to AUD5 million (R60 million) (December 2014: R103 million; June�2015: (R65 million)) has been
secured by assets with a net carrying amount of R58 million (December 2014: (R103 million); June 2015: (R49 million)).
The Mining operating segment entered into various asset-based finance lease arrangements to purchase operating equipment
denominated both in USD and ZAR. These arrangements are secured by the assets for which the funding was provided and are
repayable in monthly and quarterly instalments with the final repayment to be made in May 2018. Equipment with a net
carrying amount of R495 million (December 2014: R687 million; June 2015: R613 million) has been pledged as security for
the facility.
The Mining and Manufacturing and Processing operating segments entered into various vehicle lease arrangements.
Equipment with the net carrying amount of R7 million (December 2014: R4 million; June 2015:�R10�million) has been
pledged as security.
14. OPERATING EXPENSES
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Operating lease charges - premises 56 49 88
Operating lease charges - plant and equipment 5 5 9
Depreciation of property, plant and equipment 14 20 47
Amortisation of intangible assets 15 14 21
Share-based payment expense 5 (6) (20)
Employee costs 840 977 1 895
Employee benefits 12 26 65
Computer costs 53 50 105
Consulting fees 48 40 119
Other 344 321 734
1 392 1 496 3 063
15. TAXATION
Taxation expense
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Current taxation expense 326 138 340
Deferred taxation charge (108) (13) (260)
218 125 80
Reconciliation of the taxation expense
Reconciliation between applicable taxation rate and
effective taxation rate
Effective taxation rate on earnings 48,4% 25,7% (18,3)%
Exempt income and capital items 16,9% 25,5% (10,4)%
Deferred taxation asset not recognised (46,9)% (20,4)% 62,9%
Dividend withholding tax (34,5)% - -
Movement in foreign exchange differences 51,5% 7,4% (34,9)%
Prior year adjustment (4,9)% (1,8)% (11,7)%
Effects of other jurisdictions and other (2,5)% (8,4)% 6,0%
Disallowable expenditure - - 34,4%
28,0% 28,0% 28,0%
South African income taxation is calculated at 28% (December 2014: 28%; June 2015: 28%) of the taxable income for the year.
Taxation in other jurisdictions is calculated at rates prevailing in the relevant jurisdictions.
Deferred taxation asset
The Group�s results include a number of legal statutory entities within a number of taxation jurisdictions. The recoverability
of deferred taxation assets was assessed in respect of each individual legal entity. Deferred tax assets have been recognised
on unused taxation losses where management has concluded that there will be sufficient future taxable income against which
deferred tax assets raised as at 31 December 2015 may be utilised. No deferred tax asset has been recognised for statutory
entities where recoverability of such assets within the next five years is uncertain. In assessing the recoverability of the
deferred tax asset, management has taken into account forecasts that were prepared for the financial years 2016 to 2020.
16. NON-CASH AND OTHER MOVEMENTS
December December June
2015 2014 2015
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Earnings from disposal of property, plant and equipment (13) (18) (61)
Impairment of goodwill, property, plant, equipment and
intangible assets 23 537 628
Profit on disposal of subsidiary - (777) (777)
Gain on property transaction before transaction costs (582) - -
Fair value adjustment (12) (104) (196)
Movements in foreign currency translation 383 (63) (62)
Movement in equity-settled share-based payment reserve 7 7 11
(194) (418) (457)
17. CONTINGENT LIABILITIES
Contingent liabilities at the reporting date, not otherwise provided for in the consolidated financial statements,
arise from performance bonds and guarantees issued in:
South Africa and rest of Africa
Guarantees and bonds (ZARm) 3 716 3 735 3 721
Parent company guarantees (ZARm) 964 2 851 898
4 680 6 586 4 619
Australasia
Guarantees and bonds (AUDm) 498 623 647
Parent company guarantees (AUDm) 409 4 764 1 215
907 5 387 1 862
Contract performance guarantees issued by the parent company on behalf of its group companies are calculated
based on the probability of draw down.
Claims and legal disputes in the ordinary course of business
The Group is, from time to time, involved in various claims and legal proceedings arising in the ordinary
course of business. The Board does not believe that adverse decisions in any pending proceedings or claims against
the Group will have a material adverse effect on the financial condition or future operations of the Group.
Provision is made for all liabilities which are expected to materialise and contingent liabilities are disclosed
when the outflows are possible.
18. HEADLINE EARNINGS
Six months ended Six months ended Year ended
31 December 2015 31 December 2014 30 June 2015
(Reviewed) (Reviewed) (Audited)
Gross of Net of Gross of Net of Gross of Net of
taxation taxation taxation taxation taxation taxation
Rm Rm Rm Rm Rm Rm
Determination of headline earnings:
Earnings for the period attributable
to equity-holders of�parent 230 358 (460)
Impairment of goodwill - - 291 291 291 291
Impairment of property, plant and equipment 23 17 213 182 273 252
Impairment of intangible assets - - 33 33 57 57
Earnings on sale of property, plant and equipment (585) (478) (5) (4) 6 4
Profit on sale of subsidiary - - (777) (713) (777) (713)
Fair value adjustment on investment property - - (11) (9) (11) (9)
Headline (loss) / earnings (231) 138 (578)
19. FAIR VALUE OF ASSETS AND LIABILITIES
The Group measures the following financial instruments at fair value:
- Infrastructure investments; and
- Forward exchange contracts
The Infrastructure investments comprises of the following:
- N3 Toll Concession (RF) Proprietary Limited;
- Windfall 59 Properties Proprietary Limited;
- Blue Falcon 140 Trading Proprietary Limited;
- Imvelo Concession Company Proprietary Limited;
- GoldlinQ Holdings; and
- Dimopoint Proprietary Limited
Except for Dimopoint, which was a new addition, the methodology, valuation parameters and assumptions for all other Infrastructure
investments have remained unchanged since 30 June 2015. For more detail refer to the 30 June 2015 consolidated financial statements
available on the Group�s website.
The Group has reassessed the fair value of these Infrastructure investments as at 31 December 2015 and except for Dimopoint, where
a R12 million fair value adjustment was calculated, no significant fair value movement was determined for the other investments.
(i) Dimopoint
Methodology
The value of the Group�s share in Dimopoint was determined on the basis of the underlying long-term contractual rental streams.
The fair value was determined based on the most appropriate methodology applicable to the underlying investment property portfolio.
Methodologies include the market comparable approach that reflects recent transaction prices for similar properties and discounted
cash flows. The valuation takes into consideration the selling price escalations per year, rental income escalation per year and
risk-adjusted discount rates.
Valuation parameters and assumptions
The following parameters and assumptions were considered in arriving at the valuation:
- In estimating the fair value of the properties, the highest and best use of the properties is taken into account;
- Free cash flows based on the underlying long-term contractual rentals streams; and
- Market comparable yields applicable to the underlying investment property portfolio.
(ii) Foreign exchange contracts (FEC) liabilities
Valuation methodology
Fair value of FECs is determined using mark-to-market rates. Market prices are based on actively traded similar contracts and
is obtained from the financial institution with which the contracts are held.
The Group�s fair value hierarchy of the carrying amounts of assets and liabilities comprises Infrastructure investments and
forward exchange contracts. For the current period, the carrying amounts of these assets and liabilities equal its fair value.
The valuation of the Infrastructure investments is based on unobservable inputs and is therefore a Level 3, while FECs are
valued using observable inputs (Level 2).
The Group uses Level 2 valuation techniques to measure foreign exchange contract and Level�3 valuation techniques to measure
Infrastructure investments. Valuation techniques used are appropriate in the circumstances and for which sufficient data was
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
There were no transfers between the different levels during the six month period.
Total gains and losses included in the statement of comprehensive earnings attributable to changes in unrealised gains or losses
There have been no gains and losses recognised attributable to changes in unrealised gains or losses during the period.
Sensitivity analysis: Financial assets valuations, using unobservable inputs
The following table shows the sensitivity of significant unobservable inputs used in measuring the fair value
of Infrastructure investments:
Reasonably
possible
changes to
Significant significant Potential effect recorded
unobservable unobservable directly in profit and loss
input inputs Increase Decrease
% % Rm Rm
Infrastructure investments
Risk-adjusted discount rate:
- N3 Toll Concession 18,0 0,5 (8) 8
- Windfall 59 Proprietary Limited 20,0 0,5 (8) 8
- Blue Falcon 140 Trading Proprietary Limited 20,0 0,5 (8) 8
- Imvelo Concession Company Proprietary Limited 21,0 0,5 (1) 1
- Dimopoint Proprietary Limited 15,0 0,5 (6) 6
Internal rate of return:
- GoldlinQ Holdings Proprietary Limited 10,0 0,5 (2) 2
The estimated fair value would increase / (decrease) if:
- the risk-adjusted discount rate was lower / (higher)
- the internal rate of return was lower / (higher)
20. EVENTS AFTER THE REPORTING PERIOD
The directors are not aware of any significant matter or circumstance arising after the reporting period up to the
date of this report.
COMMENTARY
OVERVIEW
Salient features
- Strong improvement in the safety performance
- Revenue declined by 25% to R18,0 billion (2014: R23,9 billion)
- Headline loss of R231 million (2014: Headline earnings of R138 million)
- Property transaction concluded in September 2015 of R1,1 billion offset by the settlement of the QCLNG advance
of R1,1 billion
- Aveng Grinaker-LTA advances towards break-even with strong cash generation of R277 million in the six months
- Continuous focused restructuring is yielding results, most notably relating to Aveng Grinaker-LTA and Aveng Mining
- Net cash of R331 million compared to R393�million in June 2015
- Board�s strategic review outcomes:
- Aveng Steel divestment
- Aveng Capital Partners monetisation
- Aveng Grinaker-LTA empowerment
Aveng Limited (�Aveng�, the �Group�) reported a headline loss of R231 million or a headline loss per share of 58,0 cents
for the six months ended 31 December 2015, relative to a headline profit of R138 million or 34,5 cents per share for
the comparative period, and a headline loss of R716 million for the preceding six months (second half of 2015 financial
year). The Group�s�revenue declined by 25% to R18,0�billion (2014: R23,9 billion) in line with management�s
expectations, notably in McConnell Dowell and Aveng Grinaker-LTA. Net�operating earnings decreased by 87% to R52 million.
The Group generated basic earnings of R230�million (December 2014: R358 million). The continued global economic
slowdown and consequent weak demand for infrastructure projects, a generally weak local trading environment for steel
and cost pressures in the mining sector were key contributors to the financial loss. This was partially mitigated by the
substantially improved performance in Aveng Grinaker-LTA, the solid underlying results from Aveng Mining and Aveng
Manufacturing, albeit at lower volumes, as well as successful cost saving initiatives. The conclusion of the property
transaction contributed R577 million to basic earnings.
The interim results have been reviewed by the Company�s external auditors, Ernst & Young Inc. and the unmodified
review conclusion is available for inspection at the Company�s registered office.
Safety
Safety remains a core value of Aveng and is integral to the way the Group conducts its business. The Group remains
fully committed to driving its safety vision �Home without harm, Everyone, Everyday�.
In the period the All Injury Frequency Rate (�AIFR�) improved by 20% to 2,8 from 3,5. This indicator includes all
types of injuries and principally indicates broad personal injury trends. Aveng continues to see strong year-on-year
improvement in safety performance as well as an increase in the reporting of high risk, near-miss incidents as a leading
indicator in its safety strategy. It is anticipated that reporting thresholds for total injuries will continue to improve
across operations.
Our Board and management are concerned with current levels of road traffic safety and believe a renewed emphasis is
required across our South African operations. We work on various public road projects where our people are exposed to the
poor road safety behaviour on public roads and have noted a resultant increase in road traffic instances and near-misses
attributable to poor road safety by road users. We will be engaging with relevant roads agencies and law enforcement
authorities to improve the situations through closer collaboration.
STRATEGY
Aveng continues to execute its strategy in three distinct phases. The initial �recover and stabilise� phase is well
advanced as evidenced by the continued improved performance at Aveng Grinaker-LTA, the overall fixed cost reduction across
the Group, improved liquidity and cash generation in South Africa and improved project execution through improved risk
management. While McConnell Dowell made good progress in finalising various large projects, financial performance
remains disappointing and is receiving ongoing attention. The first phase of the strategy has been executed by a management
team that is now stable, with no unexpected changes within key positions and the attraction of new talent into the Group.
The next phase of our strategy �position for growth� will require us to further strengthen our businesses in our key
domestic markets of South Africa and Australia, to optimise our portfolio through improved capital allocation and to
enhance our strategy into the rest of Africa. This will position Aveng for the medium term phase to �generate growth and
enhance profitability and cash flow�. To achieve this we will leverage our client and industry delivery model, using our
platforms in South Africa and Australia to access the key growth markets of Africa and Southeast Asia.
Despite the progress made in the implementation of this strategy and noticeable improvements in project performance
and cost reductions, the Group is faced with continued weak markets. Management continues to evaluate and execute
additional steps that are required to respond to these market conditions to ensure optimal performance and cash preservation.
The Board is cognisant of Aveng�s poor share price performance, particularly relative to the sector and in addition to
a sharp focus on operational performance, has undertaken a strategic review of the business in order to accelerate the
unlocking of value to shareholders.
Details around the activities undertaken during the period are as follows:
- Aveng Grinaker-LTA turnaround
The improved performance by Aveng Grinaker-LTA in a number of areas is evidence of the operational turnaround.
Loss-making contracts have been closed out, including the Grootegeluk project, while the Mokolo Pipeline is well into the
final stages of remote operations commissioning. The ratio of projects executed at or better than tender margin has
substantially improved. This ratio will continue to be closely monitored. Whilst not at optimal levels, the achieved margin
has significantly improved. The overhead reduction programme was completed during the period under review resulting in a
lower overall cost base but incurring once-off restructuring costs during the period. Current market expectations imply that
further cost reductions will be required albeit at lower levels. Strong cash generation in the period has been
supplemented by the resolution of various claims and receivables most notably, in the power sector. This was brought about
by a stable management team and considerable improvements in the core skills base.
Aveng Engineering, now under the management of Aveng Grinaker-LTA, was restructured during the period. Loss-making
contracts have been completed with the exception of one remaining water project that is currently in the commissioning
phase. Aveng has retained both the Water and the broader Operate and Maintain businesses, both of which are now managed as
part of the Mechanical and Electrical business unit. The retention of these businesses is supported by both the expected
water infrastructure improvements projects that should be announced in the future and the competitive advantage that Aveng
is secured in this market by virtue of its hard-won experience and breadth of products and services offered.
- Liquidity
The Group ended the first half of the year with net cash of R331 million, following the repayment of the QCLNG
advance, the successful conclusion of the property transaction, strong operational cash generation from all South African
operations offset by a AUD74 million cash utilisation by McConnell Dowell. During the period several cash consumptive
projects were completed and combined with the net cash position and available facilities, the Board believes that the Group
is well placed to manage through what is likely to remain a difficult medium term trading environment. The Group had free
liquidity headroom of R2,5 billion at 31 December 2015.
- Claims
Following the repayment of the advance payment linked to the QCLNG project, the arbitration process has now moved to
the hearing stage with the first round of hearings completed in December 2015. The second round of hearings will take
place during February and March 2016 and Aveng has been advised to expect the findings during September/October 2016.
The claims relating to the GCRT project were lodged during the period. However, the process remains protracted with
conclusion anticipated in late 2017. Excluding these two projects the Group�s uncertified claims position is R1.3 billion.
Good commercial and technical progress has been achieved on the Chuquicamata contract in Chile with a commercial
settlement being reached for outstanding claims during the period. The project is progressing well and the relationship
with the client is satisfactory.
Total Amounts Due From Contract Customers have reduced by R1,3 billion, excluding foreign exchange movements, due to
an intensified focus on claims settlements in all business units combined with continuous collection of receivables.
Strategic review and cautionary announcement
Following the previously announced strategic refocus initiated by the Board for the Steel operating group, amongst
other actions, Aveng has received various non-binding offers from numerous parties, to acquire or partner with Aveng, for
both the entire operating group and/ or for certain of its individual business units. Confidential discussions are
ongoing though there can be no certainty that these discussions will result in any transactions. Accordingly, shareholders
in Aveng should exercise caution when trading in their securities. Aveng will make further announcements, if and when
appropriate. It is important to note that the disinvestment decision is based on longer-term strategic objectives. In the
near term, the outlook for the steel business is improving and given our liquidity position, we are comfortable that any
disposal will therefore only occur at an acceptable value.
The turnaround process of Aveng Grinaker-LTA has reached a stage where consideration can be given to position the
business for future growth in terms of Aveng�s existing strategy. The transformation of the construction and engineering
sector in South Africa received increased focus over the past year. In order to remain relevant to a transforming South
African economy, the Board has concluded that it is a business imperative to introduce a B-BBEE partner or partners who
will hold a significant equity interest in the business. Advisors have been appointed to assist Aveng in this process and
stakeholders will be updated as this transaction progresses.
Consistent with the strategy of recycling the capital invested within the portfolio of Aveng Capital Partners once the
underlying projects have reached an appropriate level of maturity, the Board has approved the monetisation of the
existing portfolio. Assets currently under management will be disposed of in the market or seeded into a fund. An
independently obtained valuation indicates substantial cash value to be realised through such transactions.
The Board is of the view that executing these transactions will aid an improved return on invested capital in the
medium term. Combined with the existing robust liquidity position, this will provide the Group with greater flexibility
and optionality in its capital allocation.
MARKET REVIEW
Aveng operates mainly in the South African, SADC, Australasian and Southeast Asian markets. These markets remain weak
but opportunities still exist specifically in the South African building sector and in New Zealand and Southeast Asia.
The Australian market has remained subdued with tender conversion rates not meeting expectations. Continued declines
in heavy industrial infrastructure investment in Australia will continue to negatively impact the results of McConnell
Dowell. The softening of commodity prices has negatively impacted the Group�s resource and energy clients. McConnell
Dowell is therefore actively pursuing cross-border opportunities in the social and transport infrastructure market in
New Zealand and Southeast Asia.
The South African building industry is fairly strong in residential building and selective commercial building
opportunities in the municipal, commercial and industrial markets. However, opportunities in the Civils and Mechanical and
Electrical businesses remain constrained with ongoing delays in the public sector infrastructure roll out and the depressed
resources sector.
The continuing demand for concrete products in the construction sector and rail products and services, albeit at lower
levels, remains favourable for Aveng Manufacturing.
The mining industry in South Africa is expected to remain under considerable pressure in the medium term, which has
resulted in numerous mining contract cancellations, scope reductions and requests for margin discounts. Careful
consideration has been given to new mining opportunities and the extension of the business� international footprint.
Further details will be announced once additional progress is made.
The South African domestic steel market was adversely impacted by lower priced imports, poor domestic demand and
excess capacity in international markets. However, volumes have stabilised in more recent months and some recovery has been
noted. These latest developments, including those supportive of the South Africa upstream steel industry, are reassuring
of Board�s position that the disposal of Aveng Steel must be at an acceptable value
FINANCIAL PERFORMANCE
Statement of comprehensive earnings
Revenue decreased by 25% to R18,0 billion against the comparative period�s R23,9 billion. This is largely attributed
to the continued weak demand for infrastructure in our key markets of South Africa and Australia, which was partially
offset by opportunities in Southeast Asia and New Zealand. Four of the key sectors namely, mining, Oil & Gas, steel
and publicly funded infrastructure projects in South Africa remained subdued. Gross margin for the Group improved to
7,2% compared to 6,5% in the comparative period.
Net operating earnings decreased by 87% to R52 million, from R413 million in 2014, as a result of:
- Reduced earnings at McConnell Dowell, due to lower activity levels, combined with a disappointingly low margin
performance within Australian Operations;
- Severe weakness in steel demand and pricing, resulting in an operating loss at Aveng Steel;
- Lower margins due to commodity price pressure in the mining business;
- The inclusion of four months of results of the Electrix business in the prior period; and
- Lower fair value gains in Aveng Capital Partners due to most renewable energy projects reaching market maturity
in the prior period.
This was partially mitigated by:
- A substantially improved performance at Aveng Grinaker-LTA;
- Solid underlying results from Aveng Mining and Aveng Manufacturing, albeit at lower volumes; and
- Decreased operating expenses.
EBITDA decreased by 46% to R496 million from R928 million in 2014.
Gain on property transaction of R577 million relates to the sale and leaseback of the majority of the Group�s property
portfolio.
An impairment charge of R23 million was recognised against abandoned plant and equipment in the Mining segment.
Net finance charges of R156 million decreased by 6% in relation to the comparative period, as a result of larger
average cash balances, offset by lower convertible bond costs in the comparative period (R52 million).
The taxation expense amounts to R218 million compared to R125 million for December 2014. This represents an effective
tax rate of 48,4%, versus 25,7% in the comparative period. This is mainly attributable to withholding tax of
R103 million payable on profit expatriated from Guinea following the completion of a project.
Headline earnings decreased to a loss of R231�million from an earnings of R138 million. Items excluded from the
calculation of headline earnings include impairment charges and the gains on the property transaction.
Earnings per share of 57,8 cents (2014:�89,3�cents) decreased by 35,3% and headline loss per share (�HEPS loss�)
of 58,0�cents reduced compared to HEPS of 34,5�cents in the comparative period.
Statement of financial position
The Group reduced its capital expenditure to R171 million (2014: R583 million): applying R89�million
(2014: R456 million) to replace and R82 million (2014: R101 million) to expand property, plant and equipment
and intangibles.
The majority of the amount was spent as follows:
- R41 million at McConnell Dowell, relating to specific contracts; and
- R63 million at Aveng Manufacturing to increase the capacity and optimise efficiencies in its factories.
The reduced capital expenditure is in line with the Group�s current requirements.
Equity-accounted investments decreased by 10% compared to 30 June 2015. This was primarily due to additional losses on
the Gouda renewable energy project.
Infrastructure investments of R877 million increased by R99 million compared to 30�June�2015, after recognising the
Group�s 30% investment in the property portfolio.
Amounts due from contract customers (non-current and current), remained relatively flat at R10,2 billion when compared
to December 2014 and June 2015. There was an underlying decrease in this balance of R1,3 billion which was offset by
R1,2 billion of foreign exchange translation movement. Operationally the receivables at McConnell Dowell decreased in line
with contracting revenue and settlements, while uncertified claims, variations and receivables decreased at Aveng
Grinaker-LTA as a result of various settlements specifically in the power sector.
Amounts due to contract customers decreased by 24% to R1,8 billion against the comparative period and decreased by
30% compared to R2,6 billion at 30 June 2015, as a result of the utilisation of advance payments at McConnell Dowell.
Inventories decreased by 22% to R2,4 billion against the comparative period and decreased by 5% compared to
30 June 2015 as a result of inventory management to align to the current market demand.
Trade and other receivables of R2,0 billion decreased by 18% against the comparative period and decreased by 17%
compared to 30�June 2015 due to improved collections at Aveng Manufacturing and Aveng Steel, combined with lower
revenue at Aveng Steel.
Borrowings and other liabilities of R3,1 billion increased by R658 million against the comparative period due to a
AUD60 million facility drawn to repay a portion of the QCLNG�advance.
Trade and other payables decreased by R1,4�billion or 18% to R 6,6 billion against 30�June 2015. Excluding the foreign
exchange impact, the underlying reduction of R1,9 billion was primarily due to the repayment of the QCLNG advance
payment of AUD112,5 million as well as lower activity levels at McConnell Dowell and Aveng Steel.
Operating free cash flow for the period amounted to a R295 million outflow after including:
- The repayment of the AUD112,5 million on the QCLNG contract;
- Offset by R1,1 billion proceeds on the disposal of the properties portfolio;
- Significant cash outflows for McConnell Dowell associated with the utilisation of advance payments, the completion
of large projects such as Perth Airport and additional remedial work on the GCRT contract;
- Strong cash generation in all South African operations most notably at Aveng Steel and Aveng Grinaker-LTA;
- Net capital expenditure of R126 million; and
- The final payment of R102 million to the Competition Commission.
Cash and bank balances increased to R3,5�billion (June 2015: R2,9 billion), resulting in a net cash position of
R331 million (June 2015: R393 million). The foreign currency revaluation amounted to R314 million.
OPERATING REVIEW
Construction and Engineering: Australasia and Asia
This operating segment comprises Australian Operations, Overseas Operations, Pipelines, Tunnels and Built Environs.
Revenue decreased by 40% to AUD726 million (2014: AUD1,2 billion) or R7,0 billion (2014: R11,8 billion). This is
reflective of the completion of multi-year pipeline and infrastructure contracts, and the sale of Electrix in the prior
financial year. Net operating earnings decreased from R183 million to R8 million due to the weaker Australian construction
market and a disappointing performance from Australian Operations, partially offset by a solid performance in Overseas
Operations and Pipelines. The results were negatively impacted by costs associated with additional tender expenses for
significant EPC contracts that were not secured in a fiercely competitive Australian market.
As was expected, cash flow was negative during the period, and will continue to be negative for the next six months
due to additional utilisation of advance payments, coupled with a slow uptake of new work. Cash�flow should be impacted
positively by the resolution of claims.
Australian Operations
Australian Operations reported a decrease in revenue of 58% to R2,5 billion (AUD255 million) compared to R6 billion
(AUD516 million) in 2014, mainly due to the completion of large projects in the prior year and the continued weakness
in the Australian market. The Australian market is challenging and competition for larger projects is very aggressive,
resulting in tender costs incurred on contracts not won negatively impacting the operating margin. Earnings for the
period ended December 2015 are considerably lower than the comparable period due to lower levels of new work won in
the last 18 months.
Remedial work and demobilisation actions associated with the GCRT contract are substantially complete with close-out
awarded and achieved on 23 December 2015. Given the technical and legal complexities, it is expected that the commercial
negotiations will be protracted, and thus the final outcome remains uncertain and a material risk to the Group. The
process of finalising and resolving claims continues to receive considerable attention.
During the period Built Environs completed the expansion on Perth Airport Terminal 1, the terminal was operational in
November 2015 and has been successfully handed over to the client.
In response to ongoing declines in available work and a challenging outlook for the Australian construction and
engineering market, steps were taken in the prior period to reduce costs by 20%. Given an expectation that market conditions
are likely to persist in the near term, McConnell Dowell will continue to review its overheads.
Overseas Operations
Overseas Operations comprise our operations in Singapore, Malaysia, Thailand, Indonesia, Philippines, Hong Kong, the
Middle East, and New Zealand. Due to excellent project execution, performance was strong despite challenging market
conditions. Revenue increased by 37% to R2,5 billion (AUD257�million) with good margins above 8,5% and positive cash flow.
Pipelines
The Pipelines business unit reported a decrease�in revenue of 26% to R886 million (AUD90�million) from R1,2 billion
(AUD119�million) in 2014, as a result of the completion of large pipeline projects in the prior year. With limited
opportunities in the Oil & Gas sector, the recent win of the Northern Gas Pipeline and ongoing work for APLNG are
pleasing results.
Tunnels
Revenue declined by 14% to R800 million (AUD81 million) from R900 million (AUD95�million). The Land Transit Authority
contracts in Singapore are nearing completion and both have been a technical success, with the project opening on
schedule in December. The Waterview project, the largest infrastructure development ever undertaken in New Zealand, is on
schedule for completion in late 2016. Earnings declined as a result of large tender costs of AUD3 million on major projects
that were not awarded to the business unit.
Construction and Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA, Aveng Engineering and Aveng Capital Partners. Aveng Engineering
has been discontinued with the remaining portions of Water and Operate & Maintain merging with Mechanical and Electrical
within Aveng Grinaker-LTA.
Revenue decreased by 9% to R3,9 billion (December 2014: R4,3 billion) primarily due to lower civil engineering and
mechanical and electrical work.
Net operating losses for the segment decreased by 45% to R125 million (2014: R229 million) due to a substantial
turnaround from Aveng Grinaker-LTA, with a small loss of R48 million against R299 million in the comparable period.
Civil Engineering
Revenue decreased by 25% to R1,2 billion (December 2014: R1,6 billion) reflecting lower activity in the Civil
Infrastructure business. The operating profit increased to R33 million compared to the operating loss of R195 million
incurred in 2014.
Significant progress was made on improving the margin on specific contracts in the power programme, specifically
relating to Medupi. Cost�reduction will continue proactively as the short term outlook is constrained. The Majuba contract
is well into the final stages of construction, with large sections handed over to�Aveng Rail. Various commercial matters,
including claims and variations, remain outstanding and are being negotiated.
Mechanical and Electrical
Revenue decreased by 13% to R835 million (December 2014: R954 million) due to lower activity in the industrial and Oil
& Gas sectors combined with project delays and cancellations in mining. Higher revenues were achieved on the Kusile BOP
project compared to the six months ended 31 December 2014, as a result of the acceleration measures taken in order to
meet the power utility�s client milestone dates. The operating margin was negatively affected by losses incurred in
closing out the Sasol MT7 project and the ongoing Alstom power programme partnership. The operating loss marginally
decreased to R29 million (December 2014: R32 million).
Buildings & Coastal
Revenue increased by 25% to R1,5 billion (December 2014: R1,2 billion) with the net operating earnings reflecting a
significant improvement to R65 million, from a loss of R5�million. The improvement in revenue is due to the growing order
book, the ramp-up on the Mall of the South project, that was successfully handed over in September 2015 and peak
production to complete the Sasol Corporate Head Office superstructure, which is well on track. Projects on the Ekurhuleni
municipal infrastructure programme are progressing well. Cost reduction initiatives and greater operational efficiencies
were realised during the period. The short term outlook for Building is positive with the order book having grown
significantly by 67% in the second quarter, and an attractive pipeline of further projects in the short term.
The activity level in the Coastal operations is on target with major contracts, Dr Pixley Ka Isaka Seme Memorial
hospital in KwaZulu-Natal, extensions to the Cape Town International Convention Centre and Aspen Pharmacare�s manufacturing
facilities in Port Elizabeth, all in progress. There has been significant progress made in the Western Cape Education
Department�s infrastructure programme management contract, with the first project completed and handed over and a pipeline
of new work in planning phases.
Aveng Engineering
Aveng Engineering revenue decreased by 69% to R149 million (December 2014: R477 million) largely due to the completion
of the construction works on the water and power plants and the move to commissioning and operations. The Gouda wind
farm final construction has been completed along with technical hand-over. Final operational hand-over is anticipated at
the end of March 2016. The construction of the eMalahleni project has now been completed and commissioning is underway.
Additional costs and liquidated damages on these two contracts impacted the operating earnings negatively, resulting in
a net operating loss of R83 million.
The focus remains on leveraging the significant advantage held within the Aveng Water business in acid mine drainage
and desalination technology. The South African mining and municipal water sectors offer various attractive opportunities
for growth. The remaining portion of Aveng Engineering will merge with Mechanical and Electrical, which will lead to
efficiencies.
Aveng Capital Partners
Aveng Capital Partners is responsible for managing the Group�s investments in South African toll roads, real estate
and renewable energy concessions.
Net operating earnings decreased by 94% against the comparative period to R6 million (2014: R97 million) primarily due
to the majority of the renewable energy investments achieving marketable maturity in the prior period.
Mining
This operating segment comprises the merged business of Aveng Moolmans and Aveng Mining Shafts & Underground.
The segment reported consistent revenue of R3,0 billion against the comparative period. Net operating earnings
decreased by 18% to R198�million (2014: R241 million). The operating margin declined to 7% (2014: 8%) largely as a result
of discounts awarded to clients on various contracts. Existing mining contracts are under cost pressure from clients
operating in a difficult commodities environment. The Mining operating group is working closely with clients to assist in
reducing overall mining costs and to regain some of the margins lost due to discounts through various productivity
improvement and cost efficiency initiatives.
The mining industry continues to be under extreme pressure which is affecting the contracts in hand and the
opportunities being presented. This impact is likely to be evident in the remaining six months of this financial year.
The Mining team will pursue opportunities to revise and better balance the geographic and commodity mix in its client
portfolio in order to strengthen its order book and improve shareholder returns. Details will be announced once further
progress is made. Given usual project lead times, Aveng does not expect this to materially change in the next 12 to 18�months.
Aveng Moolmans
The revenue of Aveng Moolmans remained flat at R2,2 billion. The pressures being experienced by clients due to the
downturn in the commodity cycle will most likely be evident during the next six months, as a number of clients have
indicated that there will be reduced production volumes, particularly on the Tshipi � Ntle, Nkomati Nickel and Sishen
contracts. This will place strain on the order book going forward. However, opportunities are being pursued to mitigate
this impact.
Despite the current market conditions Aveng Moolmans continued to record good results, strong performances were
achieved on other domestic and international mining contracts. Contract extensions were granted at Klipbankfontein and
Sadiola.
Aveng Mining Shafts & Underground
The revenue of Aveng Mining Shafts & Underground increased by 11% to R811 million (2014: R730 million) due to
development work that was commenced on the new Black Rock contract. In addition, although the Styldrift and Eland contracts
were cancelled, revenue was generated prior to the contract cancellations.
In comparison to the prior period, Shafts and Underground has reduced its net operating loss. This is largely
attributable to cost saving initiatives as a result of the merger of the Aveng Mining business units and improved discipline
in commercial processes. The general downturn in the mining industry has resulted in a more selective approach to bidding
for new work in order to strengthen the quality of the business unit�s earnings, and mitigate the risk by securing longer
term contracts. Shafts & Underground finalised claims on the Chuquicamata contract with the cash being received in
December 2015. The Platreef Platinum Mine and Black Rock contracts continue to progress to plan and the Kalagadi contract
was completed during the period. Good progress was made on the Bakubang project and commercial discussions continue on the
resolution of claims.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
Revenue decreased by 17% to R4,4 billion (2014: R5,3 billion). Net operating earnings decreased significantly to a
loss of R48 million (2014: R79 million profit). Aveng Steel was negatively impacted by weak demand, reduced international
steel prices, increased competition from cheaper imports and significant restructuring costs to re-align the fixed cost
base. Despite lower gross profit margins, the operating segment contributed strongly to positive cash flows.
Aveng Manufacturing
This operating group consists of Aveng Automation & Control Solutions (ACS), Aveng Dynamic Fluid Control (DFC),
Aveng Duraset, Aveng Infraset and Aveng Rail.
Revenue decreased by 11% to R1,6 billion (2014: R1,8 billion). Net operating earnings decreased by 31% to R99 million
(2014: R144�million). Despite tough market conditions, the operating group continues to perform well although the impact
from the slowdown in the mining sector and lower sleeper volumes have negatively impacted its financial performance.
Aveng ACS - Aveng Control Solutions performed well despite lower activity in the traditional Oil & Gas market.
Revenue, has increased by 7% to R237 million (2014: R222�million), which is due to the timing of current projects relative
to last year, as well as diversification into non-traditional markets.
Aveng DFC - revenue has increased by 9% to�R246 million (2014: R225 million), mainly due to growth in the US and
Australian markets. Local volume demand was lower and subsequently negatively impacted profitability.
Aveng Duraset - revenue decreased by 1% to�R263 million (2014: R265 million) driven by lower demand from the local
mining sector.
Aveng Infraset - revenue decreased by 37% to�R464 million (2014: R734 million) due to large sleeper supplies in the
prior period, both locally and across border. The decline in the international commodity prices has resulted in a slowdown
in the international sleeper revenue and general rail construction projects. Construction products continue to enjoy
solid demand locally and are performing as expected.
Aveng Rail - revenue increased by 10% to R437 million (2014: R396 million), mainly due to Majuba, Rosmead and Black
Rock construction projects.
Despite the challenging environment, the outlook for Aveng Manufacturing is encouraging. Transport infrastructure
remains a key growth market. Although mining in South Africa is expected to remain subdued, this is mitigated by mining
in the rest of Africa, Russia and South�America; which could drive demand for many of the product lines.
Building on the cash flow discipline introduced some time ago, the Manufacturing operating group remains cash
generative.
Aveng Steel
This operating group consists of Aveng Trident Steel, Aveng Steeledale and Aveng Steel Fabrication.
Revenue decreased by 18% to R2,8 billion (2014: R3,4 billion), severely impacted by reduced international steel prices
and lower local demand. Profitability declined to a loss of R147 million compared to a loss of R65 million in the prior
period, in line with revenue and was further impacted by restructuring costs. Cost savings were driven by improved
efficiencies across the operating group and continue to be realised. Despite poor trading conditions, the operating group
was a significant contributor to positive cash flow. This was achieved through the reduction in working capital, most
notably reduced inventory. It is expected that the market conditions will be positively impacted by the implementation of
custom duties and anti-dumping duties in the second half of the financial year.
Other and Eliminations
Included in Other and Eliminations is the Group�s Corporate Office and Properties. In September 2015 the Group began
paying operating lease payments to the property venture, Dimopoint for the use of the properties sold in the sale and
lease back transaction.
Two-year order book
The Group�s two-year order book amounts to R29,3 billion at 31 December 2015, remaining relatively flat on the
R28,9 billion reported at 30�June 2015.
The focus remains on securing quality work at targeted margins. While the Group has adopted a portfolio approach
within the respective disciplines at McConnell Dowell and Aveng Grinaker-LTA, current market conditions resulted in
a move towards lower margin disciplines. This is particularly notable in South Africa with a strong swing towards
building work. While the Aveng model seeks to optimise the balance across the core disciplines to achieve targeted
margins and diversify revenue streams, this remains challenging in current conditions.
Over the last six months, the Mining operating group�s order book has decreased by 20% from R7,9 billion to
R6,3 billion as a result of contract cancellations and a reduction in the scope of work, while the Construction and
Engineering: Australia and Asia operating group�s order book increased by 8% in Australian Dollar terms from
AUD1,2 billion to AUD1,3 billion (R11,6 billion to R14,1 billion). Construction and Engineering: South Africa and
rest of Africa�s order book increased by 5% from R7,3 billion in June to R7,7 billion in December.
Recent significant project awards include the 129 Rivonia development in Sandton (situated on the site of the previous
Village Walk), the first phase of the Leonardo Towers in Sandton and the Hilton Hotel in Swaziland. In Australia
and Asia, recent awards include the Waitaki Bridges Replacement and O-Bahn City Access projects, the Northern Gas
Pipeline in Northern Territory, Christchurch in New Zealand, the Barangaroo Ferry in New South Wales and the
Rapid SCC project in Malaysia. Mining contracts were also extended at Kolomela (Klipbankfontein) and Sadiola.
The geographic split of the order book at 31�December 2015 was 51% Australasia and Asia (June 2015:40%),
43% South Africa (June 2015: 56%) and 6% Other (June 2015: 4%).
OUTLOOK AND PROSPECTS
Aveng is expecting the market to remain subdued in the short to medium term with limited evidence of large
infrastructure contracts. There are attractive opportunities in Australia, New Zealand and Southeast Asia in particular.
Our key markets are expected to remain tough and management will continue to take the necessary actions to manage the
business within the constraints of the current economy.
Aveng will continue to focus on cash generation, cost efficiencies and preserving the balance sheet for the remainder
of the financial year. In addition, notable attention will be given to the strategic initiatives described above, the
disinvestment from Steel, the monetisation of Aveng Capital Partners and the empowerment of Aveng Grinaker-LTA.
DIRECTORS
Mr Sean Flanagan was appointed as an independent non-executive director of the Aveng Board with effect from
1 November 2015.
DISCLAIMER
The financial information on which any outlook statements are based has not been reviewed or reported on by the
external auditors. These forward looking statements are based on management�s current belief and expectations and are
subject to uncertainty and changes in circumstances. The forward looking statements involve risks that may affect the
Groups operations, markets, products, services and prices.
By order of the Board
M Seedat
Chairman
HJ Verster
Chief executive officer
23 February 2016
CORPORATE INFORMATION
Directors
MI Seedat*# (Chairman)
EK Diack*#
HJ Verster (Chief Executive Director)
AWB Band*#
PJ Erasmus*#
S Flanagan*#
MA Hermanus*#
P Hourquebie*#
MJ Kilbride*#
AH Macartney (Group Finance Director)
JJA Mashaba (Group Executive Director)
T Mokgosi-Mwantembe*#
KW Mzondeki*#
PK Ward*#
(*non-executive)(#independent)
Company Secretary
Michelle Nana
Business address and registered office
Aveng Park
1 Jurgens Street, Jet Park Boksburg, 1469
South Africa
Telephone +27 (0) 11 779 2800
Telefax +27 (0) 11 784 5030
Auditors
Ernst & Young Inc.
Registration number: 2005/002308/21
102 Rivonia Road
Sandton, Johannesburg, 2194
Private Bag X14
Northlands, 2116
South Africa
Telephone +27 (0) 11 772 3000
Telefax +27 (0) 11 772 4000
Principal bankers
Absa Bank Limited
Australia and New Zealand Banking Group Limited
Barclays Bank plc
Commonwealth Bank of Australia Limited
FirstRand Bank Limited
HSBC Bank plc
Investec Bank Limited
Nedbank Limited
Standard Chartered Bank plc
The Standard Bank of South Africa Limited
Corporate legal advisers
Baker & McKenzie
Cliffe Dekker Hofmeyr
Norton Rose Fulbright
Webber Wentzel
Sponsor
J.P. Morgan Equities South Africa Proprietary�Limited
Registration number: 1995/011815/07
1 Fricker Road, cnr Hurlingham Road
Illovo, 2196
South Africa
Telephone +27 (0) 11 537 0300
Telefax +27 (0) 11 507 0351/2/3
Registrars
Computershare Investor Services Proprietary�Limited
Registration number: 2004/003647/07
70 Marshall Street, Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
South Africa
Telephone +27 (0) 11 370 5000
Telefax +27 (0) 11 688 5200
Website
https://protect-za.mimecast.com/s/6185Bks7N5NXtb
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