AEG 201608100015A
Trading statement, transaction announcements and renewal of cautionary
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
("Aveng", "the Company" or “the Group”)
TRADING STATEMENT, TRANSACTION ANNOUNCEMENTS AND RENEWAL OF CAUTIONARY
Salient features
- A trading statement indicating a full year headline loss being between 45% and 55% better, and the
basic loss in earnings between 75% and 85% better than the comparative period.
- Agreements signed for the following significant transactions:
o sale of Aveng Capital Partner’s equity interests in four major infrastructure investments for R860
million cash; and the
o sale of a 70% interest in the Group’s steel reinforcing and mesh business for approximately
R252m of which between R93 million and R123 million will be in cash and the remainder paid on a
deferred basis.
Trading statement announcement
In accordance with section 3.4 (b) of the JSE Listings Requirements, shareholders are advised that the
headline loss per share (“HEPS loss”) for the 12 months ended 30 June 2016 will be between 45% and 55%
better than the comparative period. The HEPS loss will be between (65)cps and (79)cps, compared to
(144.3)cps in 2015, while the headline loss for the year will be between (R260) million and (R318) million,
compared to (R578) million in 2015.
The basic loss per share (“EPS loss”) will be between 75% and 85% better than the comparative period. The
EPS loss will be between (17)cps and (29)cps, compared to (114.8)cps in 2015, with basic loss in earnings of
between (R69) million and (R115) million for the year, compared to (R460) million in 2015.
This result is a material improvement on the prior year and is underpinned by:
- an improved financial performance from Aveng Grinaker-LTA on completion of loss-making and
non-contributing contracts, an improvement in the ratio of contracts operating at tendered margins,
strong performance in the building business, the resolution of some major commercial claims and a
further reduction in fixed operating expenses
- realisation of cost savings initiatives previously implemented throughout the Group
- improved financial performance from Aveng Steel in the second half of the year
- fair value gains on the infrastructure investments
though partially offset by:
- restructuring expenses incurred to further right-size the Group’s overhead structure in response to
market conditions
- underperformance on certain contracts in McConnell Dowell
- additional expenses on a problematic water contract in Aveng Water
- contract cancellations and activity reductions in Aveng Mining
- continuing difficult trading conditions in most of the markets in which the Group operates.
The basic loss for the year includes the profit on sale of the South African property portfolio of R577 million
in the first half of the year, partially offset by the impairment of certain steel assets recognised in the second
half of the year.
Aveng Capital Partners’ infrastructure investments
Further to the Group’s half year results announcement on SENS on 23 February 2016, the monetisation of
the four major infrastructure investments has been largely concluded. A wholly-owned subsidiary of Aveng,
Aveng Africa (Pty) Ltd, has concluded a binding agreement with Royal Bafokeng Holdings (Pty) Ltd, for the
sale of its entire interest in the investments as detailed in the terms below.
Conditions precedent to the disposal transaction include the waiver of the pre-emptive rights by current
shareholders, and compliance, regulatory and lender approvals. Shareholder approval is required for this
transaction by virtue of its quantum.
Aveng Steeledale
Further to the renewal of the cautionary announcement on 4 July 2016 regarding the divestiture from the
Group’s steel assets, shareholders are advised that a wholly-owned subsidiary of Aveng, Aveng Africa
(Pty) Ltd, has reached an agreement with Kutana Steel (Pty) Ltd (Kutana) whereby Kutana will acquire a
70% interest in the Steeledale business for approximately R252 million, with between R93 million and R123
million payable in cash and the remainder payable on a deferred basis. Aveng Africa will have the option to
divest from the remaining 30% shareholding in the Steeledale business at any time after three years.
The Kutana group of companies is a black women-owned investment group. Thoko Mokgosi-Mwantembe is
the CEO of the Kutana group of companies. Ms Mokgosi-Mwantembe is an independent non-executive
director of Aveng Limited and other major South African listed companies. The sale to an affiliate of a
director is deemed to be a sale to a related party and hence shareholder approval is required to complete
this transaction. Refer to the transaction details provided below.
The proceeds from these transactions will be used to primarily strengthen the balance sheet of the Group
to support Aveng’s move to the next phase of its strategy, namely, positioning for growth.
Aveng Grinaker-LTA
Further to the Group’s half year results announcement on SENS on 23 February 2016, the empowerment
of Aveng Grinaker-LTA through the introduction of a B-BEEE partner is progressing well and shareholders
will be updated in due course.
Aveng Trident Steel and Aveng Steel Fabrication
Further to the renewal of the cautionary announcement on 4 July 2016 regarding the divestiture from the
Group’s steel assets, an update on the status of this transaction will be provided at the results presentation
on 23 August 2016.
Cautionary
Aveng is still in negotiations in relation to (i) the sale of its Aveng Trident Steel and Aveng Steel Fabrication
business units, and (ii) the introduction of a B-BBEE partner to Aveng Grinaker-LTA, accordingly
shareholders are advised to continue to exercise caution when dealing in Aveng Limited securities until a
further announcement is published. Further information, including the pro forma financial effects of the
proposed ACP and Steeledale transactions, together with a detailed timetable pertaining to these proposed
transactions, will be published in due course.
Reporting
The above information has not been reviewed nor reported on by Aveng's independent external auditors.
The Group’s results for the twelve month period ending 30 June 2016 will be released on SENS on 23
August 2016 when the Group will be updating the market on its business in a presentation in Johannesburg
on the same day and in Cape Town on 25 August 2016. The presentation will be available for all
stakeholders on the Group’s website, www.aveng.co.za.
Forward looking statements
This announcement includes forward-looking statements that reflect the current views or expectations of
the Board with respect to future events and financial and operational performance. All statements, other
than statements of historical fact are, or may be deemed to be, forward-looking statements, including,
without limitation, those concerning: the Group's strategy; the economic outlook for the industry; use of the
proceeds of any rights offer; and the Group's liquidity and capital resources and expenditure.
These forward-looking statements speak only as of the date of this announcement and are not based on
historical facts, but rather reflect the Group's current expectations concerning future results and events. The
Group undertakes no obligation to update publicly or release any revisions to these forward looking
statements to reflect events or circumstances after the date of this announcement.
TRANSACTIONS DETAILS REGARDING THE PROPOSED SALE OF AVENG AFRICA (PTY) LTD’S
EQUITY INTERESTS AND LOANS, TO ROYAL BAFOKENG HOLDINGS (PTY) LTD
1. Introduction
Shareholders are advised that Aveng, via a wholly owned subsidiary Aveng (Africa) (Pty) Ltd
(“Aveng”), has entered a Share Sale Agreement (SSA) with Royal Bafokeng Holdings (Pty) Ltd
(RBH) in terms of which RBH acquires the Equity Interests and Loans, as detailed below, for a cash
consideration of R860 million (Purchase Price) (the Proposed ACP Transaction):
1.1 the equity interests, which are managed by Aveng Capital Partners (ACP), comprise the
following:
1.1.1 Blue Falcon 140 Trading (RF) (Pty) Ltd (Blue Falcon), a project company that owns
the 138MW Gouda wind farm in the Western Cape. The project reached commercial
operations in August 2015. Aveng’s investment comprises a 29% interest and a
shareholder loan in Blue Falcon;
1.1.2 Imvelo Concession Company (RF) (Pty) Ltd (Imvelo), a project company that
entered a 27-year concession agreement for the design, building, operation and
maintenance of the Department of Environmental Affairs campus in Pretoria. The
concession is in its fourth year of operation. Aveng’s investment comprises a 30%
interest and a shareholder loan in Imvelo;
1.1.3 N3 Toll Concessions (Pty) Ltd (N3TC) is a project company that entered a 30-year
concession agreement with the South African National Roads Agency (SOC) Ltd
(Sanral) in 1999. Aveng, through a wholly owned subsidiary, currently holds a
10.92% interest in N3TC;
1.1.4 Windfall 59 Properties (RF) (Pty) Ltd (Windfall), a project company that owns the
74MW Sishen Solar Photovoltaic Plant located in the Northern Cape. The project
reached commercial operation in December 2014. Aveng’s investment comprises a
29% interest and a shareholder loan in Windfall;
(collectively the Equity Interests).
1.2 In addition to the Equity Interests, Aveng shall sell to RBH, loans advanced to certain
shareholders of Blue Falcon and Windfall (Aveng Loans).
1.3 Depending on the outcome of the pre-emptive process in 2 below, Aveng may, at its election
decide to sell some, as opposed to all, of the Equity Interests and/or Aveng Loans.
1.4 The proceeds from the Proposed ACP Transaction will be used primarily to strengthen the
balance sheet of the Group to support Aveng’s move to the next phase of its strategy,
namely, positioning for growth.
2. Pre-emptive process
2.1 The other shareholders in Blue Falcon, Windfall, N3TC and Imvelo (Project Companies)
have pre-emptive rights to acquire the Equity Interests in the Project Companies. Pursuant
to the pre-emptive rights, Aveng has provided the shareholders of each Project Company
with the terms of the RBH binding offer applicable to the sale of the relevant Equity Interest
and has requested that such shareholders waive their pre-emptive rights. Aveng has
received waivers from some but not all the shareholders who have pre-emptive rights in
respect of the relevant Equity Interests. The Group is expecting correspondence from the
remaining shareholders on whether they intend exercising their pre-emptive rights by no
later than the final pre-emptive period expiry date, being 28 September 2016.
2.2 The Proposed ACP Transaction with RBH is subject to the conditions precedent set out in 5
below, notably:
- Aveng obtaining pre-emptive waivers from all the other shareholders of Blue Falcon and
Windfall; or
- if such waivers are not granted, the Blue Falcon and Windfall shareholders not
exercising their pre-emptive rights successfully on or before 28 September 2016, being
the date on which the final pre-emptive period expires.
2.3 Should the above conditions not be fulfilled, the SSA shall terminate and the sale of the
Equity Interests will proceed via the pre-emptive process and/or with other interested buyers.
3. Overview of RBH
3.1 RBH is a community based investment company and is the primary investment vehicle of the
Royal Bafokeng Nation, a community of approximately 150 000 Setswana-speaking people
with substantial minerals-rich land holdings in South Africa’s North West Province.
3.2 The Royal Bafokeng Development Trust is the sole shareholder of RBH, whose investment
activities are aimed at generating the income required for the funding of sustainable projects
that will benefit the Bafokeng community.
3.3 RBH has assets spread across the mining, financial services, infrastructure, oil and gas
services, and property sectors. As at 31 December 2015, RBH’s net asset value was R25
billion.
4. Rationale for the Proposed ACP Transaction
4.1 The ACP investment strategy includes the monetisation of those assets comprising its
portfolio once the underlying projects reach commercial operations, thereby enhancing their
marketability and value upon exit.
4.2 Four project investments in the ACP Infrastructure portfolio, namely, Blue Falcon, Windfall,
Imvelo and N3TC are now fully operational and therefore, in line with ACP’s strategy,
suitable for monetisation.
5. Conditions Precedent to the Proposed ACP Transaction
5.1 The Proposed ACP Transaction will be subject to, among others, the following conditions
precedent (Conditions Precedent):
5.1.1 to the extent required, Aveng shall obtain all the relevant consents or approvals in
terms of the Companies Act and the JSE Listings Requirements required for entering
and implementing the SSA;
5.1.2 Aveng shall deliver to RBH a copy of the waiver of the pre-emptive rights or shall
confirm in writing that the pre-emptive rights process was followed but not exercised
in terms of the relevant Shareholders’ Agreements;
5.1.3 RBH shall enter and sign a deed of adherence to the relevant Shareholders’
Agreements of the respective Project Companies pursuant to the SSA; and
5.1.4 the project finance conditions precedent embedded in the various transaction
documents as entered into by each of the Project Companies with various
stakeholders for purposes of implementing their respective projects, shall have been
fulfilled or waived.
5.2 The Effective Date of the Proposed ACP Transaction will be the fifth business day
immediately following the date on which the Conditions Precedent are fulfilled. It is
anticipated that this date will be no later than 31 October 2016.
6. Circular
The transaction is a Category 1 transaction in terms of JSE Listings Requirements and therefore
shareholder approval is required for the Proposed ACP Transaction. Accordingly, a circular
containing the notice of meeting will be sent to Aveng shareholders in due course.
TRANSACTION DETAILS REGARDING THE PROPOSED DISPOSAL BY AVENG AFRICA (PTY) LTD
OF ITS STEEL REINFORCING AND MESH BUSINESS CONDUCTED BY AVENG STEELEDALE, TO
THE KUTANA GROUP OF COMPANIES
1. Introduction and rationale for the Proposed Steeledale Transaction
1.1 As set out in the cautionary announcement of 23 February 2016, Aveng Limited has received
various non-binding offers from numerous parties to acquire from, or partner with the Group for
either (i) the entire steel operating group (Aveng Steel); or (ii) certain individual business units
thereof, being Aveng Trident Steel, Aveng Steeledale and Aveng Steel Fabrication. These three
business units are held by Aveng Africa (Pty) Ltd (Aveng Africa), a wholly owned subsidiary of
Aveng Limited.
1.2 One of the business units of Aveng Steel for which offers were received was the steel reinforcing
and mesh business unit (the Steeledale Business).
1.3 Shareholders are advised that Aveng Africa has reached agreement with a subsidiary in the
Kutana group of companies, Kutana Steel (Pty) Ltd (Kutana), a black women-owned entity,
whereby Kutana will acquire a 70% shareholding in the Steeledale Business on or about 1
November 2016 (the Effective Date) following the fulfilment of certain conditions precedent as
described in 5 below (the Proposed Steeledale Transaction).
1.4 The Proposed Steeledale Transaction shall be implemented as follows:
a) Steeledale (Pty) Ltd (Steeledale) will be incorporated, and the issued share capital of
Steeledale shall be subscribed for at a nominal value and held as follows:
- Kutana holding a 70% interest; and
- Aveng Africa holding a 30% interest.
b) on the Effective Date, in terms of a sale of business agreement, Aveng Africa shall sell the
Steeledale Business to Steeledale as a going concern on loan account (Aveng Loan
Account) for an amount which shall be determined in accordance with the formula as set out
in 3 below, and which shall be settled as detailed in 4 below (Sale of Business
Agreement).
1.5 The Proposed Steeledale Transaction will (i) create a black women-owned and led entrant into the
South African steel reinforcing and mesh market; and (ii) through the concomitant improvement
achieved in the Broad-Based Black Economic Empowerment Scorecard, ensures that it aligns with
Government’s transformation agenda.
1.6 Aveng Africa has the option, at its election, to divest of its remaining 30% shareholding in the
Steeledale Business at any time from the third anniversary of the Effective Date.
1.7 The transaction structure as detailed above allows for (i) the maximum value extraction at the time
of the disposal of the initial 70% interest; and (ii) maximising the opportunity for further value
extraction at the time of sale of Aveng Africa’s remaining 30% interest.
1.8 Existing management of the Steeledale Business will remain with the business in order to ensure
the necessary operational continuity.
1.9 Entering into the abovementioned transaction with Kutana will amount to a related party
transaction, for the purposes of the JSE Listings Requirements. In terms of Section 10.4 of the
JSE Listings Requirements, where a listed company enters a transaction with an affiliate of a
director (Related Party), for a value which exceeds 5% of the listed company’s market
capitalisation, certain requirements must be fulfilled before completing the transaction, including
but not limited to:
a) obtaining approval from the shareholders of the listed company; and
b) the board of directors confirming that the proposed acquisition is fair insofar as the
shareholders of the listed company are concerned and that the board has been so advised
by an opinion from an independent professional expert acceptable to the JSE.
2. Overview of Kutana
2.1 The Kutana group of companies is a black women-owned investment group.
2.2 Kutana has successfully structured, raised funding through its strong banking/funding experience
and relationships, and concluded numerous mergers and acquisitions since incorporation.
2.3 Thoko Mokgosi-Mwantembe is the CEO of the Kutana group of companies. Ms. Mokgosi-
Mwantembe is an independent non-executive director of Aveng Limited and other major South
African listed companies.
3. Sale Price
3.1 The Sale Price payable by Steeledale to Aveng Africa for the Steeledale Business shall be
calculated in accordance with the following formula:
SP = a + b + c - d + e + f
where
SP = sale price:
a= carrying amount of the plant and equipment, and the equity investments in the Namibia
and Lesotho businesses in the accounting records of Aveng Africa in relation to the
Steeledale Business as at the Effective Date;
b= carrying amount of the inventory in the accounting records of Aveng Africa in relation to
the Steeledale Business as at the Effective Date;
c= carrying amount of the trade and other receivables in the accounting records of Aveng
Africa in relation to the Steeledale Business as at the Effective Date;
d= carrying amount of the trade and other payables in the accounting records of Aveng
Africa in relation to the Steeledale Business as at the Effective Date; and
e= cash and cash equivalents necessary to ensure sufficient liquidity within the Steeledale
Business as determined at the Effective Date; and
f= the sum of ZAR 1, being the value attributable to the Goodwill and the Intellectual
Property.
3.2 The Sale Price shall be calculated as at the Effective Date of the Sale of Business Agreement
which shall be the first day of the next calendar month, following the fulfilment of the last of the
conditions precedent. As set out in 1.3 above, this is expected be on or about 1 November 2016.
3.3 Should the Effective Date of the Proposed Steeledale Transaction be 1 November 2016, the Sale
Price as per the formula in 3.1 above is estimated to be R302 million. This would equate to a
present value amount of R252 million taking cognisance of the discounting effect of the time value
necessary to repay the Aveng Loan Account, as set out in 4 below. Irrespective of the formula
above, the Sales Price shall not exceed a maximum of R330 million (Sale Price Cap), being a
present value amount of R263 million.
4. Payment
Discharge of the Sale Price as embodied in Aveng Loan Account will be structured as follows:
a) an amount of between R50 million and R80 million paid on the Effective Date; and
b) the remaining amount settled as follows:
- R43 million within 12 months of the Effective Date; and
- the residual amount being paid from the free cash flows generated by
Steeledale.
5. Conditions Precedent to the Proposed Steeledale Transaction
5.1 The Proposed Steeledale Transaction will be subject to customary terms and conditions including
the fulfilment of certain conditions precedent, that on or before 31 October 2016:
(a) the necessary shareholder approval by the Aveng Limited's shareholders in terms of the JSE
Listings Requirements is obtained;
(b) the necessary written third party consents in relation to the transfer of any material contracts
from Aveng Africa to Steeledale are obtained;
(c) the sale and all agreements and transactions contemplated in the Proposed Steeledale
Transaction (to the extent necessary) have been unconditionally approved by the
Competition authorities;
(d) finalisation of a right of first refusal agreement between Steeledale and Aveng Africa in terms
of which Steeledale will have right of first refusal to supply Aveng Africa at market related
prices; and
(e) finalisation of the necessary funding agreements to be entered into between Steeledale and
the funders.
6. Use of Proceeds
The proceeds from the Proposed Steeledale Transaction will be used to primarily strengthen the
balance sheet of the Group to support Aveng’s move to the next phase of its strategy, namely,
positioning for growth.
7. Independent Professional Expert’s Report
Deloitte & Touche has been appointed to express an opinion on the fairness of the terms and
conditions of the Proposed Steeledale Transaction. The report will additionally opine on the Sale
Price Cap, providing assurance that the mechanism does not prejudice value realised by
shareholders.
8. Circular
A circular in respect of the Proposed Steeledale Transaction will be sent to the shareholders of
Aveng Limited in due course.
Independent JSE Sponsor
J.P. Morgan Equities South Africa (Pty) Ltd
Advisors to Aveng Limited for the Proposed ACP Transaction
Legal Advisors
Bowman Gilfillan
Advisors to Aveng Limited for the Proposed Steeledale Transaction
Financial Advisors
Absa Bank Limited
Legal Advisors
Baker & McKenzie
Due Diligence Advisors
KPMG
Tax Advisors
Cliff Dekker
Independent Professional Expert
Deloitte & Touche
By Order of the Board
10 August 2016
Jet Park
Sorita van Tonder
Aveng Communication Manager
Tel: 011 779 2800
Mobile: +27 72-372-9854
Email: soritavt@aveng.co.za
Date: 10/08/2016 10:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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