AEG 201902250064A
Summarised reviewed interim condensed consolidated financial statements
for the six months ended 31 December 2018
AVENG GROUP
(Incorporated in the Republic of South Africa)
(Registration number 1944/018119/06)
Share codes JSE: AEG
ISIN: ZAE 000111829
("Aveng", "the Company" or "the Group")
Summarised reviewed interim condensed consolidated financial statements
for the six months ended 31 December 2018
Salient features - financial performance
for the period ended 31 December 2018
Revenue Net operating loss
R13,4 billion R484 million
Decrease from R16,1 billion at December 2017 Decrease from R94 million profit at December 2017
Losses attributable to equity holders of the parent Headline loss
R918 million R770 million
Increase from R347 million loss at December 2017 Increase from R335 million loss at December 2017
Operating free cash flow Two-year order book
R710 million outflow R19,5 billion
December 2017: R648 million inflow Increase from R17,9 billion June 2018
Loss per share Headline loss per share
7,2 cents 6,1 cents
Movement from 64,2 cents at December 2017 Movement from 62,2 cents loss per share at December 2017
Salient features - segmental analysis
Net operating earnings / (loss) - segmental analysis
HY HY June
2018 2017 Change 2018
Rm Rm % Rm
South Africa and rest of Africa (160) (212) 24 (367)
Aveng Grinaker-LTA (162) (196) 17 (350)
Aveng Capital Partners 2 (16) >100 (17)
Australasia and Asia 55 51 8 103
Total Construction and Engineering (105) (161) 35 (264)
Mining (166) 104 >(100) 11
Manufacturing and Processing (17) (70) 76 (167)
Aveng Steel 14 (13) >100 29
Aveng Manufacturing (31) (57) 46 (196)
Other and Eliminations (196) 221 >(100) 19
Net operating (loss) / earnings (484) 94 >(100) (401)
Loss attributable to equity-holders of the parent (918) (347) >(100) (3 523)
Headline loss (770) (335) >(100) (1 679)
Interim condensed consolidated statement of financial position
as at 31 December 2018
31 December 31 December 30 June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
ASSETS
Non-current assets
Goodwill arising on consolidation 100 342 100
Intangible assets 44 271 47
Property, plant and equipment 2 852 4 476 3 010
Equity-accounted investments 54 309 73
Infrastructure investments 142 264 142
Derivative instruments 2 - -
Deferred taxation 742 1 095 747
Amounts due from contract customers 10 472 631 661
4 408 7 388 4 780
Current assets
Inventories 190 2 141 255
Derivative instruments 9 - 3
Amounts due from contract customers 10 2 056 3 456 2 649
Trade and other receivables 264 1 619 180
Taxation receivable 25 58 39
Cash and bank balances 2 310 2 724 2 391
4 854 9 998 5 517
Assets Held for Sale 11 3 993 158 4 773
TOTAL ASSETS 13 255 17 544 15 070
EQUITY AND LIABILITIES
Equity
Stated capital 14 3 874 2 009 2 009
Other reserves 908 907 1 118
Retained earnings (1 445) 2 634 (542)
Equity attributable to equity-holders of parent 3 337 5 550 2 585
Non-controlling interest 9 8 9
Total equity 3 346 5 558 2 594
Liabilities
Non-current liabilities
Deferred taxation 111 399 49
Borrowings and other liabilities 12 1 743 1 969 2 688
Payables other than contract-related 109 118 125
Employee-related payables 260 295 248
Derivative instruments - 4 -
2 223 2 785 3 110
Current liabilities
Amounts due to contract customers 10 874 1 707 1 140
Borrowings and other liabilities 12 602 1 025 599
Payables other than contract-related 21 21 21
Employee-related payables 224 340 253
Derivative instruments - 43 -
Trade and other payables 2 511 5 780 2 958
Bank overdrafts - 285 315
4 232 9 201 5 286
Liabilities Held for Sale 11 3 454 - 4 080
TOTAL LIABILITIES 9 909 11 986 12 476
TOTAL EQUITY AND LIABILITIES 13 255 17 544 15 070
Interim condensed consolidated statement of comprehensive earnings
for the six months ended 31 December 2018
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2018 2017 2018
(Reviewed) (Reviewed) Change (Audited)
Notes Rm Rm % Rm
Revenue 15 13 367 16 111 (17) 30 580
Cost of sales (12 770) (14 987) 15 (28 782)
Gross earnings 597 1 124 (47) 1 798
Other earnings 58 36 61 106
Operating expenses (1 125) (1 060) (6) (2 292)
Loss from equity-accounted investments (14) (6) >(100) (13)
Operating (loss) / earnings (484) 94 >(100) (401)
Impairment loss on goodwill, intangible
assets and property, plant and equipment 9 (163) (21) >100 (1 298)
Impairment on equity-accounted investments - - - (195)
Profit on redemption of convertible bond 102 - 100 -
Fair value adjustments on properties and
disposal groups classified as Held for Sale - - - (807)
Profit on sale of property,
plant and equipment 15 7 >100 47
(Loss) / earnings before financing transactions (530) 80 >(100) (2 654)
Finance earnings 89 191 (53) 246
Interest on convertible bonds (63) (123) 49 (251)
Other finance expenses (281) (209) (34) (434)
Loss before taxation (785) (61) >(100) (3 093)
Taxation 16 (135) (285) 53 (426)
Loss for the period (920) (346) >(100) (3 519)
Loss from continuing operations (681) 33 >(100) (1 050)
Loss from discontinued operations 6 (239) (379) 37 (2 469)
Other comprehensive earnings
Other comprehensive earnings to be reclassified
to or loss in subsequent periods
(net of taxation):
Exchange differences on translating
foreign operations 57 (158) >(100) 48
Convertible Bond Reserve movement 20 - 100 -
Other comprehensive earnings / (loss) for the
period, net of taxation 77 (158) >(100) 48
Total comprehensive loss for the period (843) (504) (67) (3 471)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2018 2017 2018
(Reviewed) (Reviewed) Change (Audited)
Rm Rm % Rm
Total comprehensive loss for the period attributable to:
Equity-holders of the parent (841) (505) (67) (3 473)
Non-controlling interest (2) 1 >(100) 2
(843) (504) (67) (3 471)
Loss for the period attributable to:
Equity-holders of the parent (918) (347) >(100) (3 523)
Non-controlling interest (2) 1 >(100) 4
(920) (346) >(100) (3 519)
Other comprehensive earnings / (loss) for
the period, net of taxation
Equity-holders of the parent 75 (158) >(100) 50
Non-controlling interest 2 - >100 (2)
77 (158) >100 48
Results per share (cents)
From continuing and discontinued operations**
Loss - basic (7,2) (64,2) (88,8) (653,9)
Loss - diluted (7,2) (63,6) (88,7) (642,9)
From continuing operations
Loss - basic (5,3) 6,1 >(100) (195,6)
Loss - diluted (5,3) 6,1 >(100) (192,4)
From discontinued operations
Loss - basic (1,9) (70,3) 97,3 (458,3)
Loss - diluted (1,9) (69,7) 97,3 (450,6)
Number of shares (millions)*
In issue 19 394,5 416,7 416,7
Weighted average 12 676,3 538,8 538,8
Diluted weighted average 12 676,3 544,0 548,0
The continued and discontinued operations loss before interest, depreciation and amortisation for the Group,
being net operating loss before interest, tax, depreciation and amortisation is R109 million. The earnings
before interest, tax, depreciation and amortisation for June 2018: R293 million and December 2017 amounted
to R438 million.
* As discussed in note 14: Stated Capital, the Group undertook a rights offer on 4 July 2018, whereby the
total number of rights offer shares subscribed for and excess allocations applied for was 4 931 854 395
rights offer shares. Further to this, the Group redeemed an existing convertible bond on 25 September 2018
through a specific issue of ordinary shares amounting to 14 045 972 894 shares.
** The profit / (loss) - basic and profit / (loss) - diluted amounts for 31 December 2017 have been
retrospectively adjusted as per IAS 33 Earnings Per Share, paragraph 26, due to the rights offer
share issue.
Interim condensed consolidated statement of changes in equity
for the six months ended 31 December 2018
Equity- Total
settled Con- attribu-
Foreign share- vertible table
currency based bond Total to equity- Non-
Stated translation payment equity other Retained holders of controlling Total
capital reserve reserve reserve reserves earnings the parent interest equity
Rm Rm Rm Rm Rm Rm Rm Rm Rm
Six months ended
31 December 2017 (Reviewed)
Balance at 1 July 2017 2 009 761 31 268 1 060 2 981 6 050 8 6 058
(Loss) / earnings for the period - - - - - (347) (347) 1 (346)
Other comprehensive loss for
the period (net of taxation) - (158) - - (158) - (158) - (158)
Total comprehensive loss
for the period - (158) - - (158) (347) (505) 1 (504)
Equity-settled share-based
payment release - - 5 - 5 - 5 - 5
Dividends paid - - - - - - - (1) (1)
Total contributions and
distributions recognised - - 5 - 5 - 5 (1) 4
Balance at 31 December 2017 2 009 603 36 268 907 2 634 5 550 8 5 558
Year ended
30 June 2018 (Audited)
Year ended 30 June 2018 (Audited)
Balance at 1 July 2017 2 009 761 31 268 1 060 2 981 6 050 8 6 058
(Loss) / earnings for the period - - - - - (3 523) (3 523) 4 (3 519)
Other comprehensive earnings
for the period (net of taxation) - 50 - - 50 - 50 (2) 48
Total comprehensive
loss for the period - 50 - - 50 (3 523) (3 473) 2 (3 471)
Equity-settled share-based
payment charge - - 8 - 8 - 8 - 8
Dividends paid - - - - - - - (1) (1)
Total contributions and
distributions recognised - - 8 - 8 - 8 (1) 7
Balance at 30 June 2018 2 009 811 39 268 1 118 (542) 2 585 9 2 594
Six months ended
31 December 2018 (Reviewed)
Opening balance as
previously reported 2 009 811 39 268 1 118 (542) 2 585 9 2 594
Adoption of IFRS 9
accounting standard* - - - - - (6) (6) - (6)
Adoption of IFRS 15
accounting standard** - - - - - (267) (267) - (267)
Balance at 1 July 2018 2 009 811 39 268 1 118 (815) 2 312 9 2 321
Loss for the period - - - - - (918) (918) (2) (920)
Other comprehensive earnings
for the period
(net of taxation) - 57 - 20 77 - 77 - 77
Total comprehensive
loss for the period - 57 - 20 77 (918) (841) (2) (843)
Equity-settled share-based
payment release - - 1 - 1 - 1 - 1
Redemption of Convertible bond - - - (288) (288) 288 - - -
Foreign currency
translation movement - - - - - - - 2 2
Share Issue - Rights to
qualifying shareholders
(4 July 2018) 461 - - - - - 461 - 461
Share Issue - Early redemption
convertible bond
(25 September 2018) 1 404 - - - - - 1 404 - 1 404
Total contribution and
distributions recognised 1 865 - 1 (288) (287) 288 1 866 2 1 868
Balance at 31 December 2018 3 874 868 40 - 908 (1 445) 3 337 9 3 346
* The adoption of the expected credit loss model under IFRS 9 has impacted the retained earnings opening
balance by R6 million. Comparatives have been amended as detailed in note 2: Basis of preparation and changes
to the group accounting policies.
** The adoption of IFRS 15 has impacted the retained earnings opening balance by R267 million. At the end of
the prior reporting period, contract claims previously recognised under IAS 11 - Construction Contracts
could not be recognised under IFRS 15, as the transaction price could not be ascertained, to the extent
that it is highly probable that a significant reversal in the amount of cumulative revenue recognised
would not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Refer to the effect on disclosure in note 2: Basis of preparation and changes to the group accounting policies.
Interim condensed consolidated statement of cash flows
for the six months ended 31 December 2018
31 December 31 December 30 June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
Operating activities
Cash utilised from operations (519) 82 (2 648)
Non-cash and other movements 17 33 (34) 2 177
Cash utilised from operations after non-cash movements (486) 48 (471)
Depreciation 365 330 666
Amortisation 10 14 28
Cash (utilised) / generated by operations (111) 392 223
Changes in working capital:
Decrease / (increase) in inventories 65 (62) 1 847
Decrease in amounts due from contract customers 514 381 1 158
(Increase) / decrease in trade and other receivables (87) 222 1 660
(Decrease) / increase in amounts due to contract customers (266) 356 (211)
Decrease in trade and other payables (408) (136) (2 959)
(Increase) / decrease in derivative instruments (8) 32 (18)
(Decrease) / increase in payables other than contract-related (16) (21) (21)
Decrease in employee-related payables (17) (155) (340)
Decrease in working capital Held for Sale 66 - (526)
Total changes in working capital (157) 617 590
Cash (utilised) / generated by operating activities (268) 1 009 813
Finance expenses paid (276) (265) (532)
Finance earnings received 90 183 244
Taxation paid (35) (49) (95)
Cash (outflow) / inflow from operating activities (489) 878 430
Acquisition of property, plant and equipment - expansion (55) (37) (138)
Acquisition of property, plant and equipment - replacement (238) (299) (625)
Proceeds on disposal of property, plant and equipment 72 102 291
Acquisition of intangible assets - replacement (9) (14) (23)
Capital expenditure net of proceeds on disposal (230) (248) (495)
Loans repaid by equity-accounted investments
(net of dividends received) 6 13 18
Loans repaid by infrastructure investment companies - 1 6
Dividends received 3 4 7
Cash outflow from investing activities (221) (230) (464)
Operating free cash (outflow) / inflow (710) 648 (34)
Financing activities with
equity-holders
Proceeds from shares issued 1 866 - -
Dividends paid - (1) (1)
Financing activities with debt-holders
Redemption of convertible bond (2 030) - -
Net proceeds from / (repayment of) borrowings 1 090 (133) 134
Cash inflow / (outflow) from financing activities 926 (134) 133
Net increase in cash and bank balances before
foreign exchange movements 216 514 99
Foreign exchange movements on cash and bank balances 18 (71) (19)
Cash and bank balances at the beginning of the period 2 076 1 996 1 996
Total cash and bank balances at the end of the period 2 310 2 439 2 076
Borrowings excluding bank overdrafts 2 345 2 994 3 287
Net debt position (35) (555) (1 211)
Notes to the interim condensed consolidated financial statements
for the six months ended 31 December 2018
1. Corporate information
The reviewed interim condensed consolidated financial statements ("interim results") of Aveng Limited
(the "Company") and its subsidiaries (the "Group") for the six months ended 31 December 2018 were authorised
for issue in accordance with a resolution of the directors on 25 February 2019.
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.
Change in directorate
Ms Edinah Mandizha was appointed as Group Company Secretary effective from 13 September 2018.
Ms Kholeka Mzondeki resigned as the Group Lead Independent Non-executive Director effective 24 December 2018.
Ms May Hermanus was appointed as the Lead Independent Non-executive Director effective from 24 December 2018,
and was appointed to the Audit and Risk Committee effective 20 February 2019.
Mr Mike Kilbride was appointed as the Chairman of the Remuneration Committee effective 24 December 2018,
and was appointed as a member of the Social, Ethics and Transformation Committee effective 22 February 2019.
Mr Sean Flanagan was appointed as the Chief Executive Officer (CEO) with effect from 1 February 2019.
Mr Philip Hourquebie was appointed to the Safety, Health and Environment Committee effective 22 February 2019.
2. Basis of preparation and changes to the group accounting policies
The interim results have been prepared on a historical cost 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 ("IAS 34") and the Listings Requirements of the Johannesburg Stock Exchange.
The accounting policies adopted are consistent with those of the Group's audited financial statements as
at 30 June 2018, except for the new accounting standards and interpretations effective as of 1 January 2018.
The interim results have been prepared by Efstathios White CA(SA) under the supervision of the Group Chief
Financial Officer, Adrian Macartney CA(SA).
The interim results for the six-month period ended 31 December 2018, set out below, 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
("ISRE 2410"). The unmodified review opinion is available on request from the Company Secretary at the
Company's registered office.
Changes to the Group accounting policies
The Group adopted IFRS 15 Revenue from Contracts with Customers ("IFRS 15") (see 2.1) and IFRS 9 Financial
Instruments ("IFRS 9") (see 2.2) with effect from 1 July 2018. As required by IAS 34, the nature and effect
of these changes are disclosed below. A number of new standards are effective from 1 July 2018 but they do
not have a material effect on the Group's financial statements.
2.1 IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 using the modified retrospective approach (without practical expedients), with
the effect of initially applying this standard recognised at the date of initial application (i.e. 1 July 2018).
Accordingly, the information presented for 30 June 2018 has not been restated - i.e. it is presented, as
previously reported under IAS 18 Revenue ("IAS 18"), IAS 11 Construction Contracts ("IAS 11") and related
interpretations. The details and quantitative impact of the changes in the accounting policy are disclosed
in 2.3 Impact of adopting the new standards on the statement of financial position.
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is
recognised. It replaces IAS 18, IAS 11 and related interpretations.
Timing of revenue from exported goods
The Group sells certain products to the export market in Africa. The effect of this is revenue was previously
only recorded at a point in time when the goods were loaded onto the delivery vehicle; under IFRS 15 revenue
is recognised when the customer obtains control of the goods. Determining the timing of transfer of control
requires judgement. Where control is transferred on a later date, revenue on the transaction will only be
recorded when control has transferred and will result in a delay in revenue recognition.
Claims impact on transaction price
Various claims are submitted by the Group to their customers. Under IFRS 15 revenue from claims is required
to be accounted for as variable consideration and claims are included in revenue only when it is highly
probable that revenue will not be reversed in the future. In terms of IAS 11, claims were recognised when the
probable criteria was met. Revenue will only be recognised when the highly probable threshold has been met,
which is later than previous revenue recognition under IAS 11.
2.2 IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition
and Measurement ("IAS 39") for annual periods beginning on or after 1 January 2018, bringing together all three
aspects of the accounting for financial instruments: classification and measurement; hedge accounting; and
impairment of financial assets.
Classification and measurement
The Group had early adopted the IFRS 9 classification and measurement of financial instruments, and there are
no changes in classification and measurement in the current financial year.
Hedge accounting
The Group does not have any significant hedge accounting arrangements which are impacted by the adoption
of IFRS 9.
Impairment of financial assets
The Group has adopted the impairment component of IFRS 9 using the modified retrospective method with the
cumulative effect of initially applying this Standard recognised at the date of initial application
(i.e. 1 July 2018). Accordingly, the information presented in the 30 June 2018 financial statements has not
been restated - i.e. it is presented, as previously reported, under IAS 39.
The effect of adopting IFRS 9 on the carrying amount of financial assets as at 1 July 2018 relates solely to
the new impairment requirements, as detailed further below. For assets in the scope of the IFRS 9 impairment
model, impairment losses are generally expected to increase and become more volatile.
IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss ("ECL") model. The new
impairment model applies to financial assets measured at amortised cost, contract assets, and debt
instruments at Fair Value through other Comprehensive Earnings, but not to investments in equity
instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.
Under IFRS 9, loss allowances are measured on either the following bases:
- 12 Month ECLs: those are ECLs that result from possible default events within the 12 months after
the reporting date; and
- Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of
a financial instrument
The Group has elected to measure loss allowances for trade receivables and contract assets at an amount
equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly since initial
recognition and when estimating ECLs, the Group considers reasonable and supportable information that
is relevant and available without undue cost or effort. This includes both quantitative and qualitative
information and analysis, based on the Group's historical experience and information credit assessment
and including forward looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more
than 90 days past due. The Group considers this period to be the maximum contractual period over which
the Group is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present
value of all cash shortfalls (i.e. difference between the cash flows due to the entity in accordance
with the contract and cash flows that the Group expects to receive.)
ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assessed whether financial assets are credit-impaired. A financial
asset is credit-impaired when one or more events that have a detrimental impact on the estimated future
cash flows of the financial asset have occurred.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying
amount of the asset.
2.3 Impact of adopting the new standards on the statement of financial position
In summary, the following adjustments were made to the amounts recognised in the statement of financial
position at the date of initial application:
As reported
previously at IFRS 15 IFRS 9
Impact on assets 30 June Transition Transition Opening
and liabilities at 2018 Adjustments Adjustments Balance
1 July 2018 Rm Rm Rm Rm
Non-current assets
Deferred taxation (asset) 747 -* -* 747
Amounts due from contract customers 661 (190) - 471
Current assets
Amounts due from contract customers 2 649 (77) (2) 2 570
Trade and other receivables 180 - (4) 176
Total assets impact (267) (6)
Retained earnings (542) (267) (6) (815)
Total equity impact (267) (6)
* There will be no deferred tax impact as at 1 July 2018 due to the fact that the Group is in an assessed
loss position as at this date.
The Group has determined that the effect of the ECL on the loss per share at 31 December 2018 is immaterial.
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 summarised 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. Significant accounting judgements and estimates
The preparation of the interim results 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.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only
that period or in the period of the revision and future periods if the revision affects both current
and future periods.
3.1 Judgements and estimation assumptions
In the process of applying the Group's accounting policies, the Group has made judgements relating to
certain items recognised, which have the most significant effect on the amounts recognised in the
interim results. The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial period, are described
below. The Group based its assumptions and estimates on parameters available when the interim
results were prepared. Existing circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising beyond the control of the Group. Such
changes are reflected in the assumptions when they occur.
3.1.1 Deferred taxation
Deferred taxation assets are recognised for all unused taxation losses to the extent that it is
probable that taxable earnings will be available against which the losses can be utilised. Significant
management judgement is required to determine the amount of deferred taxation assets that can be
recognised, based upon the likely timing and level of future taxable earnings. If the deferred
taxation assets and the deferred taxation liability relate to income taxation in the same
jurisdiction, and the law allows net settlement, they have been offset in the statement of
financial position.
Refer to note 16: Taxation for further detail.
3.1.2 Impairment of property, plant and equipment, intangible assets and goodwill arising on consolidation
The Group assesses the recoverable amount of any goodwill arising on consolidation and indefinite
useful life intangible assets annually or when indicators of potential impairment are identified
as allocated to the cash-generating unit ("CGU") of the Group.
Impairment exists when the carrying amount of a CGU exceeds its recoverable amount, which is the
higher of its fair value less costs to dispose of and its value-in-use. The fair value less costs of
disposal calculation is based on available data (if applicable) from binding sales transactions,
conducted at arm's length, for similar assets or observable market prices less incremental costs
for disposing of the asset. The value-in-use calculation is based on a discounted cash flow model.
The cash flows are derived from future budgets and do not include restructuring activities that the
Group is not yet committed to or significant future investments that will enhance the asset's
performance of the CGU.
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. In accordance with the requirements of IFRS, the directors have considered the carrying
values of all the non-core businesses and assets at 31 December 2018, and are satisfied that no
impairments are required.
3.1.3 Loss-making and onerous contracts
In determining whether a contract is loss making or onerous, management applies their professional
judgement to assess the facts and circumstances specific to the relevant contract. The assessments
are performed on a contract-by-contract basis.
When it is probable that total contract costs will exceed total contract revenue, the expected loss
is recognised immediately as an expense. The following factors are taken into account: future
estimated revenues; the determination of the point in the progression toward complete satisfaction
of the performance obligations in the contract; the nature and relationship with the customer;
expected inflation; the terms of the contract and the Group's experience in that industry.
3.1.4 Revenue recognition
The Group uses the input method in determining the satisfaction of the performance obligation over
a period of time in accounting for its construction contracts.
Judgements made in the application of the accounting policies for contracting revenue and profit and
loss recognition include:
- the determination of the point in the progress toward complete satisfaction of the performance
obligation;
- estimation of total contract revenue and total contract costs;
- assessment of the amount the client will pay for contract variations; and
- estimation of project production rates and programme through to completion.
The construction contracts undertaken by the Group may require it to perform extra or change order work,
and this can result in negotiations over the extent to which the work is outside the scope of the original
contract or the price for the extra work.
Given the complexity of many of the contracts undertaken by the Group, the knowledge and experience
of the Group's project managers, engineers, and executive management is used in assessing the status
of negotiations with the customer, the reliability with which the estimated recoverable amounts can
be measured, the financial risks pertained to individual projects and the associated judgements and
estimates employed. Cost and revenue estimates and judgements are reviewed and updated monthly, and
more frequently as determined by events or circumstances.
In addition, many contracts specify the completions schedule requirements and allow for liquidated
damages to be charged in the event of failure to achieve that schedule; on these contracts, this could
result in the Group incurring liquidated damages.
Material changes in one or more of these judgements and / or estimates, whilst not anticipated, would
significantly affect the profitability of individual contracts and the Group's overall results. The
impact of a change in judgements and / or estimates has and will be influenced by the size and
complexity of individual contracts within the portfolio at any point in time.
4. New accounting standards not yet effective
Standard: IFRS 16 Leases
Effective date periods beginning on or after: 1 January 2019
IFRS 16 Leases replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether
an Arrangement contains a Lease, SIC 15 Operating Leases - Incentives and SIC 27 Evaluating the Substance
of Transactions Involving the Legal Form of a Lease.
The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is
permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises
a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. There are recognition exemptions for short-term
leases and leases of low-value items. Lessor accounting remains similar to the current standard -
i.e. lessors continue to classify leases as finance or operating leases.
The Group leases multiple assets such as buildings and motor vehicles, for example, as well as certain
low value assets and short-term leases and currently accounts for these as operating leases and also
leases multiple assets such as mining equipment, for example, and currently accounts for these as
finance leases.
Management is in the process of performing a detailed assessment of the impact of the standard on its
consolidated financial statements.
On application, the current operating lease assets will be capitalised and reflected as lease assets
(right-of-use assets) and lease liabilities on the statement of financial position. The previous
straight-lining effect associated with IAS 17 Leases accounting will be reversed, resulting in further
accounting impacts on the consolidated financial statements.
On application, the existing finance lease assets and liabilities will be remeasured in line with the
requirements of the standard, and reclassified and reflected as lease assets (right-of-use assets) and
lease liabilities on the consolidated statement of financial position.
The consolidated statement of cash flows will be affected with payments needing to be split between
repayments of the principal and interest amounts.
The consolidated financial statement disclosures will be updated in the year of adoption to ensure
compliance with IFRS 16 Leases requirements including the implication of adoption of the various
transition options.
Based on the outcomes of the detailed assessments referred to above, the Group will determine which
transition option to apply.
4. New accounting standards not yet effective continued
Standard: IFRS 16 Leases
Effective date periods beginning on or after: 1 January 2019
IFRS 16 requires lessees to account for all leases under a single Statement of Financial Position model
in a similar way to finance leases under IAS 17.
The largest impact to the Group under this standard will be related to the sale and operating leaseback
of properties implemented during the previous years. Mining equipment at Moolmans, as well as a number
of operating leases for equipment and vehicles. Assets and debt would increase while the expense related
to these properties would be shown as depreciation and added back for EBITDA. Finance expense relating
to the debt is expected to initially increase and subsequently decrease with the unwinding of the
debt profile.
The Group is in the process of identifying and assessing all operating leases, in conjunction with the
process for the two standards detailed above.
Early application is permitted, but not before an entity applies IFRS 15.
5. Going concern
In determining the appropriate basis of preparation of the interim results, the directors are required
to consider whether the Group can continue in operational existence for the foreseeable future.
Management updated a revised budget and business plan for the 2019 financial year and the following two
years in July 2018. The forecast is updated on a regular basis and the cash flow forecasts covering
a minimum period of 12 months from the date of these interim condensed consolidated financial statements
were reviewed. These forecasts have been prepared and reviewed by management to ensure that they have
been accurately compiled using appropriate assumptions. The budgets, plans and forecasts have, together
with the assumptions used, been interrogated and approved by the Board.
These forecasts and plans, being implemented by management, indicate that the Group will have sufficient
cash resources for the foreseeable future. In approving the operational liquidity forecasts, the Board
has considered the following information up to the date of approval of these interim condensed
consolidated financial statements.
Achieved during the interim period
- Successful R493 million rights issue concluded on 4 July 2018 available for working capital;
- Early redemption of the R2 billion convertible bond, including the successful raising of a new
R460 million debt instrument to facilitate the early settlement of R693 million of existing convertible
bonds at a 30% discount ahead of the early redemption. The remaining R1,4 billion bonds were settled
through the specific issue of ordinary shares at R0,10 per share on 25 September 2018; and
- Implementation of a revised Common Terms Agreement with the South African lending banks that includes
renewed facilities, additional funding of R400 million, extended funding terms to 2020.
Execution of plans
- Progressed on the non-core asset disposal plan, including the announced property disposals of R228 million,
the announced disposal of Aveng Rail of R133 million, Aveng Water of R95 million and Aveng Infraset for
R180 million (refer to note 19: Events after the reporting period and pending transactions). Other
disposals are at varying stages of execution;
- Updated budget and business plans for the period up to 30 June 2020 for the Group, incorporating the
benefits already realised and expected from actions taken, as well as future benefits from improved
liquidity to be achieved once non-core businesses have been disposed;
- Sensitivity testing of key inputs included in the operating and liquidity forecasts to ascertain the
effect of non-achievement of one or more of the key inputs (operational performance, non-core asset
disposal timing), including any effect on the ongoing compliance with covenant requirements in place
with the South African lending banks, Australian banks or other financing agreements within the
individual liquidity pools; and
- The South African short-term liquidity forecast management process continues to be executed and
monitored in all the South African operations with the help of external consultants.
For the period ended 31 December 2018, the Group reported a loss after tax of R920 million, inclusive of
R163 million of impairments. As a result of these losses and continued difficult trading conditions in
South Africa, the Group's available cash resources were negatively impacted. The Group continues to focus
on improving operational performance, reducing overhead and improving working capital efficiencies. To
this end, a number of Group initiatives have been concluded, implemented or are in progress.
The Group has cash (net of bank overdraft facilities) of R2,3 billion (30 June 2018: R2,1 billion) at
31 December 2018, of which R426 million (30 June 2018: R568 million) is held in joint arrangements.
Unutilised facilities amounted to R306 million (30 June 2018: R536 million).
The directors have considered all of the above, including detailed consideration of the current position
of all core and non-core businesses, all business plans and forecasts, including all available information,
and are therefore of the opinion that the going concern assumption is appropriate in the preparation of
the interim condensed consolidated financial statements, and that sufficient liquidity will be available
to support the ongoing operations of the Group.
Refer to note 19: Events after the reporting period and pending transactions, information included in the
detailed commentary, note 15: Revenue, and note 7: Segmental report which forms an integral part of the
going concern assessment.
6. Discontinued Operations
Identification and classification of discontinued operations
During the previous financial year, management embarked on an extensive strategic review to ensure the
Group's sustainable future. The review was completed in February 2018 following a thorough and robust
interrogation of all parts of the business. The review included the identification of business and assets
that are core to the Group and which support the overall long-term strategy, determining the most appropriate
operating structure and commending a sustainable future capital and funding model.
A comprehensive plan was developed and is being implemented by management to execute on the critical findings
of the strategic review. Some of the critical findings included the reshaping of the Group's operating
structure to a smaller and more focused group. The newly envisaged Group structure comprises McConnell
Dowell and Moolmans forming the core businesses of the Group with Aveng Grinaker-LTA, Aveng Manufacturing
and Aveng Trident Steel being deemed the non-core operating groups. As at 31 December 2018, management was
committed to a robust plan to exit and dispose of the identified non-core operating groups.
Aveng Grinaker-LTA, forming part of the Construction and Engineering: South Africa and rest of Africa
reportable segment (refer to note 7: Segmental report) and Aveng Manufacturing and Aveng Trident Steel,
both forming part of the Manufacturing and Processing reportable segment (refer to note 7: Segmental
report), have met the requirements in terms of IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations and have been presented as discontinued operations in the Group's statement of comprehensive
earnings.
The Group's intention to dispose of the non-core operating groups triggered an impairment assessment on
the underlying assets allocated to the identified cash-generating units of the operating groups - refer
to note 9: Impairment Loss.
The underlying assets and liabilities of the non-core operating groups were classified as Held for Sale
per the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations in separately
identifiable disposal groups - refer to note 11: Assets and liabilities classified as Held for Sale.
The loss from discontinued operations is analysed as follows:
31 December 31 December 30 June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Revenue 6 583 6 850 13 975
Cost of sales (6 366) (6 703) (13 659)
Gross earnings 217 147 316
Other earnings 60 28 113
Operating expenses (458) (457) (966)
Earnings from equity-accounted investments 4 - 3
Operating loss (177) (282) (534)
Impairment loss on goodwill, intangible assets
and property, plant and equipment - - (1 132)
Impairment loss on equity-accounted investments - - (7)
Fair value adjustments on properties and disposal
groups classified as Held for Sale - - (734)
Profit on sale of property, plant and equipment 15 5 12
Loss before financing transactions (162) (277) (2 395)
Net finance expenses (42) (35) (89)
Loss before taxation (204) (312) (2 484)
Taxation (35) (67) 15
Loss for the period (239) (379) (2 469)
Attributable to:
Equity-holders of the parent (239) (379) (2 469)
Items by nature
Capital expenditure 94 62 138
Depreciation - (69) (132)
Amortisation - (4) (8)
Loss before interest, taxation, depreciation
and amortisation (EBITDA) (177) (209) (394)
Results per share (cents)
Loss - basic (1,9) (70,3) (458,3)
Loss - diluted (1,9) (69,7) (450,6)
Net cash flows in relation to discontinued operations:
Cash outflow from operating activities (278) 149 (4)
Cash (outflow) / inflow from investing activities (50) (56) (93)
Cash inflow from financing activities (4) 28 17
7. Segmental report
The reportable segments of the Group are components:
- 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 the assessment of their
performance as required per IFRS 8 Operating Segments.
Prior to the outcome of the strategic review and management's implementation of a robust plan to
reshape and refocus the operating structure of the Group, the following five reportable segments were
presented which were largely organised and managed separately according to the nature of products and
services provided:
- Construction and Engineering: Australasia and Asia;
- Mining;
- Other and Eliminations;
- Construction and Engineering: South Africa and rest of Africa; and
- Manufacturing and Processing.
In line with the findings of the strategic review and as discussed in note 11: Assets and liabilities
classified as Held for Sale, the Construction and Engineering: South Africa and rest of Africa and
Manufacturing and Processing reportable segments are presented and disclosed as discontinued operations.
The Construction and Engineering: Australasia and Asia, Mining and Other and Eliminations reporting
segments are presented as continuing operations.
The reportable segments are presented per their classification as continuing and discontinued in the
disclosure of the segmental statement of comprehensive earnings and segmental statement of financial
position in this note.
Details on the reportable segments are as follows:
7.1 Continuing operations
7.1.1 Construction and Engineering: Australasia and Asia (continued operations)
This segment comprises McConnell Dowell and is divided into the following business units: Australia,
New Zealand and Pacific, Built Environs, Southeast Asia and Middle East.
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 & Gas construction and mining and mineral construction.
7.1.2 Mining
This segment comprises Moolmans and operates in the open cut and underground mining sectors.
Revenues from this segment are derived from mining-related activities
7.1.3 Other and Eliminations
This segment comprises corporate services, Africa construction, corporate held investments,
including properties and consolidation eliminations.
Included in the segment are several properties that are classified as Held for Sale - refer to
note 11: Assets and liabilities classified as Held for Sale. As these properties are separately
identifiable assets, the segment remains a continuing operation.
7.2 Discontinued operations
7.2.1 Construction and Engineering: South Africa and rest of Africa
This segment includes: Aveng Grinaker-LTA and Aveng Capital Partners ("ACP"). Aveng Grinaker-LTA
is divided into the following business units: Aveng Grinaker-LTA Building and Coastal, Aveng
Grinaker-LTA Civil Engineering (including Rand Roads and GEL), Aveng Grinaker-LTA Mechanical
& Electrical and Aveng Water.
Revenues from this segment include the supply of expertise in a number of market sectors: power,
mining, infrastructure, commercial, retail, industrial, Oil & Gas, real estate and renewable
concessions and investments.
7.2.2 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 & Gas, water, power and rail sectors across the Group's value chain locally and
internationally.
Aveng Manufacturing business units include Aveng Automation and Control Solutions ("ACS"),
Aveng Dynamic Fluid Control ("DFC"), Aveng Duraset, Aveng Infraset and Aveng Rail.
Aveng Trident Steel is the only business unit in Aveng Steel.
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: South Africa Manufacturing
Segment report Australasia Other and and rest of and
December 2018 and Asia Mining Eliminations Total Africa Processing Total
(Reviewed) Rm Rm Rm Rm Rm Rm Rm
Assets
Goodwill arising on
consolidation 100 - - 100 - - -
Intangible assets - 22 22 44 - - -
Property, plant and equipment 382 2 339 131 2 852 - - -
Equity-accounted investments 14 4 12 30 24 - 24
Infrastructure investments - - 142 142 - - -
Deferred taxation 647 72 (164) 555 137 50 187
Derivative instruments - 2 - 2 - 9 9
Amounts due from
contract customers 2 055 533 (60) 2 528 - - -
Inventories 5 185 - 190 - - -
Trade and other receivables 142 76 46 264 - - -
Taxation receivable 28 2 11 41 (20) 4 (16)
Cash and bank balances 1 238 115 (12) 1 341 329 640 969
Assets Held for Sale - - 224 224 782 2 987 3 769
Total assets 4 611 3 350 352 8 313 1 252 3 690 4 942
Liabilities
Deferred taxation 97 223 (290) 30 15 66 81
Borrowings and other
liabilities 191 184 1 970 2 345 - - -
Payables other than
contract related - - 130 130 - - -
Employee-related payables 314 84 86 484 - - -
Trade and other payables 1 576 479 428 2 483 24 4 28
Amounts due to
contract customers 739 135 - 874 - - -
Liabilities - - - - 1 029 2 425 3 454
Held for Sale
Total liabilities 2 917 1 105 2 324 6 346 1 068 2 495 3 563
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: South Africa Manufacturing
Segment report Australasia Other and and rest of and
December 2017 and Asia Mining Eliminations Total Africa Processing Total
(Reviewed) Rm Rm Rm Rm Rm Rm Rm
Assets
Goodwill arising on
consolidation 100 - 232 332 - 10 10
Intangible assets - 26 140 166 - 105 105
Property, plant and equipment 522 2 573 243 3 338 387 751 1 138
Equity-accounted investments 31 4 317 352 (42) (1) (43)
Infrastructure investments - - 142 142 122 - 122
Deferred taxation 609 48 365 1 022 60 13 73
Amounts due from
contract customers 3 020 700 (47) 3 673 379 35 414
Inventories 19 245 - 264 38 1 839 1 877
Trade and other receivables 195 102 102 399 98 1 122 1 220
Taxation receivable 8 27 24 59 (1) - (1)
Cash and bank balances 1 646 265 (122) 1 789 379 556 935
Assets Held for Sale - - 154 154 4 - 4
Total assets 6 150 3 990 1 550 11 690 1 424 4 430 5 854
Liabilities
Deferred taxation 82 251 (102) 231 55 113 168
Borrowings and other
liabilities 160 235 2 574 2 969 - 25 25
Payables other than
contract related - - 139 139 - - -
Employee-related payables 281 108 62 451 121 63 184
Derivative instruments - 8 - 8 - 39 39
Trade and other payables 2 663 644 204 3 511 779 1 490 2 269
Amounts due to
contract customers 1 166 89 - 1 255 450 2 452
Bank overdrafts - - 215 215 - 70 70
Total liabilities 4 352 1 335 3 092 8 779 1 405 1 802 3 207
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: South Africa Manufacturing
Segment report Australasia Other and and rest of and
June 2018 and Asia Mining Eliminations Total Africa Processing Total
(Audited) Rm Rm Rm Rm Rm Rm Rm
Assets
Goodwill arising on
consolidation 100 - - 100 - - -
Intangible assets - 24 23 47 - - -
Property, plant and equipment 409 2 598 3 3 010 - - -
Equity-accounted investments 31 1 16 48 25 - 25
Infrastructure investments - - 142 142 - - -
Deferred taxation 644 14 8 666 78 3 81
Derivative instruments - 3 - 3 - - -
Amounts due from
contract customers 2 838 518 (46) 3 310 - - -
Inventories 20 235 - 255 - - -
Trade and other receivables 58 66 56 180 - - -
Taxation receivable 20 7 2 29 1 9 10
Cash and bank balances 1 443 286 (336) 1 393 474 524 998
Assets Held for Sale 99 - 224 323 1 201 3 249 4 450
Total assets 5 662 3 752 92 9 506 1 779 3 785 5 564
Liabilities
Deferred taxation 90 264 (382) (28) 13 64 77
Borrowings and other
liabilities 204 200 2 883 3 287 - - -
Payables other than
contract-related - - 146 146 - - -
Employee-related payables 320 116 65 501 - - -
Trade and other payables 1 999 638 296 2 933 25 - 25
Amounts due to
contract customers 1 098 42 - 1 140 - - -
Bank overdrafts - - 315 315 - - -
Liabilities Held for Sale - - - - 1 605 2 475 4 080
Total liabilities 3 711 1 260 3 323 8 294 1 643 2 539 4 182
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: South Africa Manufacturing
Six months ended Australasia Other and and rest of and
December 2018 and Asia Mining Eliminations Total Africa Processing Total
(Reviewed) Rm Rm Rm Rm Rm Rm Rm
Revenue 4 818 2 035 (69) 6 784 2 705 3 878 6 583
Construction contract revenue 4 818 2 021 (41) 6 798 2 702 84 2 786
Sale of goods - 6 (27) (21) - 3 753 3 753
Other revenue - 8 (1) 7 3 (3) -
Transport revenue - - - - - 44 44
Cost of sales (4 330) (2 105) 31 (6 404) (2 708) (3 658) (6 366)
Gross earnings / (loss) 488 (70) (38) 380 (3) 220 217
Other earnings 3 (4) (1) (2) 9 51 60
Operating expenses (418) (92) (157) (667) (170) (288) (458)
Loss from equity-accounted
investments (18) - - (18) 4 - 4
Net operating 55 (166) (196) (307) (160) (17) (177)
earnings / (loss)
Impairment loss on property,
plant and equipment - (163) - (163) - - -
Profit on redemption of
convertible bond - - 102 102 - - -
Profit on sale of property,
plant and equipment - - - - 10 5 15
Earnings / (loss) before
financing transactions 55 (329) (94) (368) (150) (12) (162)
Net finance (expenses) (10) (18) (185) (213) (16) (26) (42)
Earnings / (loss) before taxation 45 (347) (279) (581) (166) (38) (204)
Taxation (12) 96 (184) (100) (28) (7) (35)
Earnings / (loss) for the period 33 (251) (463) (681) (194) (45) (239)
Capital expenditure 36 171 1 208 27 67 94
Depreciation (58) (306) (1) (365) - - -
Amortisation - (2) (8) (10) - - -
Earnings / (loss) before interest,
taxation, depreciation and
amortisation (EBITDA) 113 142 (187) 68 (160) (17) (177)
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: South Africa Manufacturing
Six months ended Australasia Other and and rest of and
December 2017 and Asia Mining Eliminations Total Africa Processing Total
(Reviewed) Rm Rm Rm Rm Rm Rm Rm
Revenue 6 566 2 478 217 9 261 3 228 3 622 6 850
Construction contract revenue 6 566 2 476 247 9 289 3 212 76 3 288
Sale of goods - - (30) (30) - 3 491 3 491
Other revenue - 2 - 2 16 4 20
Transport revenue - - - - - 51 51
Cost of sales (6 104) (2 259) 79 (8 284) (3 284) (3 419) (6 703)
Gross earnings / (loss) 462 219 296 977 (56) 203 147
Other earnings / (loss) 12 (9) 5 8 9 19 28
Operating expenses (421) (106) (76) (603) (165) (292) (457)
Loss from equity-accounted
investments (2) - (4) (6) - - -
Net operating
earnings / (loss) 51 104 221 376 (212) (70) (282)
Impairment loss with
derecognition of property,
plant and equipment, intangible
assets and non-current assets - - (21) (21) - - -
Held for Sale
Profit on sale of property,
plant and equipment - - 2 2 5 - 5
Earnings / (loss) before
financing transactions 51 104 202 357 (207) (70) (277)
Net finance
(expenses) / earnings (113) (31) 38 (106) 1 (36) (35)
(Loss) / earnings before taxation (62) 73 240 251 (206) (106) (312)
Taxation (15) (35) (168) (218) (99) 32 (67)
(Loss) / earnings for the period (77) 38 72 33 (305) (74) (379)
Capital expenditure 53 233 2 288 17 45 62
Depreciation (77) (179) (5) (261) (31) (38) (69)
Amortisation - (2) (8) (10) - (4) (4)
Earnings / (loss) before interest,
taxation, depreciation and
amortisation (EBITDA) 128 285 234 647 (181) (28) (209)
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: South Africa Manufacturing
Year ended Australasia Other and and rest of and
June 2018 and Asia Mining Eliminations Total Africa Processing Total
(Audited) Rm Rm Rm Rm Rm Rm Rm
Revenue 11 716 4 713 176 16 605 6 622 7 353 13 975
Construction contract revenue 10 544 4 691 224 15 459 6 600 165 6 765
Sale of goods - 7 (50) (43) - 7 079 7 079
Other revenue 1 172 15 2 1 189 22 21 43
Transport revenue - - - - - 88 88
Cost of sales (10 788) (4 452) 117 (15 123) (6 660) (6 999) (13 659)
Gross earnings / (loss) 928 261 293 1 482 (38) 354 316
Other earnings / (loss) 7 (23) 9 (7) 21 92 113
Operating expenses (827) (227) (272) (1 326) (353) (613) (966)
(Loss) / earnings from
equity-accounted investments (5) - (11) (16) 3 - 3
Net operating earnings / (loss) 103 11 19 133 (367) (167) (534)
Impairment loss with
derecognition of property,
plant and equipment, goodwill
and intangible assets - (55) (111) (166) (82) (1 050) (1 132)
Impairment loss on
equity-accounted investments - - (188) (188) (7) - (7)
Fair value adjustments on
properties and disposal groups
classified as - - (73) (73) - (734) (734)
Held for Sale
Profit on sale of property,
plant and equipment 32 - 3 35 11 1 12
Earnings / (loss) before
financing transactions 135 (44) (350) (259) (445) (1 950) (2 395)
Net finance expenses (220) (63) (67) (350) (12) (77) (89)
(Loss) / earnings before taxation (85) (107) (417) (609) (457) (2 027) (2 484)
Taxation (36) (116) (289) (441) (37) 52 15
Loss for the period (121) (223) (706) (1 050) (494) (1 975) (2 469)
Capital expenditure 136 507 5 648 49 89 138
Depreciation (132) (394) (8) (534) (62) (70) (132)
Amortisation - (4) (16) (20) - (8) (8)
Earnings / (loss) before interest,
taxation, depreciation and
amortisation (EBITDA) 235 409 43 687 (305) (89) (394)
The Group operates in six principal geographical areas:
Six Six Six Six
months months Year months months Year
ended ended ended ended ended ended
December December June December December June
2018 2017 2018 2018 2017 2018
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm % % %
Revenue
South Africa 7 955 8 409 16 754 59,5 52,2 54,8
Rest of Africa including Mauritius 520 1 031 1 910 3,9 6,4 6,2
Australia 2 723 3 962 6 817 20,4 24,6 22,3
New Zealand 967 951 1 734 7,2 5,9 5,7
Southeast Asia 1 130 1 182 2 602 8,5 7,3 8,5
Middle East and other regions 72 576 763 0,5 3,6 2,5
13 367 16 111 30 580 100 100 100
Segment assets
South Africa 8 758 10 742 9 349 66,1 61,2 62,0
Rest of Africa including Mauritius 694 1 308 1 071 5,2 7,5 7,1
Australia 3 613 3 055 2 148 27,3 17,4 14,3
New Zealand - 525 469 - 3,0 3,1
Southeast Asia - 1 732 1 833 - 9,9 12,2
Middle East and other regions 190 182 200 1,4 1,0 1,3
13 255 17 544 15 070 100 100 100
8. Headline Loss
December 2018 December 2017 June 2018
(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
loss
Loss for the period attributable
to equity holders of parent (918) (347) (3 523)
Impairment of goodwill - - - - 242 242
Impairment of property, plant
and equipment 163 163 6 6 888 661
Impairment of non-current assets
Held for Sale - - 15 12 - -
Impairment of intangible assets - - - - 168 168
Profit on sale of property,
plant and equipment (15) (15) (7) (6) (47) (34)
Fair value adjustment on properties and
disposal groups classified as - - - - 807 807
Held for Sale
Headline loss (770) (335) (1 679)
Diluted headline loss (770) (335) (1 679)
HEPS from continuing and
discontinued operations*
Headline loss per share (6,1) (62,2) (311,6)
- basic (cents)
Diluted loss per share (6,1) (61,6) (306,4)
- diluted (cents)
Issued shares 19 395 416,7 416,7
Weighted average shares 12 676 538,8 538,8
Diluted shares 12 676 544,0 548,0
* The headline loss - basic and headline loss - diluted amounts for 31 December 2017 have been retrospectively
adjusted as per IAS 33 Earnings Per Share, paragraph 26, due to the rights offer share issue.
9. Impairment
The Group performed its annual impairment test as at 30 June 2018, when circumstances indicated that
the carrying value of assets and cash-generating units ("CGUs") may be impaired. The test involved the
assessment of internal and external qualitative factors for each CGU that may constitute an indicator
of impairment. The test may be extended to individual assets in instances of obsolescence, physical
damage or material decline in the economic performance of the assets.
Cash-generating units of the Group
As detailed in the audited consolidated annual financial statements June 2018, the Board made the
decision that the operating groups of the following reportable segments no longer form part of the
overall long-term strategy of the Group:
- Construction and Engineering: South Africa and rest of Africa; and
- Manufacturing and Processing.
The intention of the Board to discontinue the operations of these reportable segments and the
subsequent classification of the underlying assets and liabilities as Held for Sale are indicators
of impairment - refer to note 11: Assets and liabilities classified as Held for Sale.
The following business units were deemed to be individual CGUs for which individual impairment
assessments were performed at 30 June 2018:
Construction and Engineering: South Africa and rest of Africa
Aveng Water;
Aveng Grinaker-LTA Building;
Aveng Grinaker-LTA Civil Engineering;
Aveng Grinaker-LTA GEL;
Aveng Grinaker-LTA Mechanical and Electrical; and
Aveng Grinaker-LTA Rand Roads.
Manufacturing and Processing
Aveng Trident Steel;
Aveng Automation and Control Solutions ("ACS");
Aveng Dynamic Fluid Control ("DFC");
Aveng Rail;
Aveng Duraset; and
Aveng Infraset.
As at 31 December 2018, the Group does not expect that the fair value less costs to dispose of CGUs
differ materially from the value determined at 30 June 2018. Therefore, it has been determined that
the fair value less costs to dispose exceeds the carrying amount, and no additional impairment is
required for any of these CGUs.
Other individual assets in scope of IAS 36 Impairments
The outcome of the strategic review included the intention to dispose of certain non-core properties.
The intention to dispose of these properties, triggered an impairment assessment prior to classification
as Held for Sale. These affected properties are accounted for in the Other and Eliminations reportable
segment.
Centralised software systems managed at corporate level are deemed corporate assets as defined by IAS 36
Impairment of assets. The components of the centralised systems attributable to the operating groups of the
above mentioned discontinued reportable segments were subject to an impairment assessment. The centralised
software systems are accounted for in the Other and Eliminations reportable segment.
An impairment assessment was performed on plant and equipment accounted for in Moolmans. Moolmans falls
under the Mining reportable segment.
As at 31 December 2018, the Group determined that there was an additional impairment of R163 million required
for Moolmans relating to these individual assets in the scope of IAS 36 Impairments.
As disclosed in the audited consolidated annual financial statements for the year ended 30 June 2018,
equity-accounted investments, impairment charges were recognised on the Group's investments in Oakleaf
Investment Holdings 86 Proprietary Limited, Steeledale Proprietary Limited and Specialised Road
Technologies Proprietary Limited.
10. Amounts due from / (to) contract customers
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Uncertified claims and variations (underclaims)**1 1 358 1 673 1 646
Contract contingencies (520) (536) (490)
Progress billings received (including overclaims)2 (1 011) (1 618) (1 404)
Uncertified claims and variations less progress billings received (173) (481) (248)
Contract receivables3 1 931 2 763 2 602
Provision for contract receivables (3) (2) (2)
Retention receivables4 54 189 208
1 809 2 469 2 560
Amounts received in advance5 (89) (89) (85)
1 720 2 380 2 475
Classified as Held for Sale - transferred (66) - (305)
out (net)
Net amounts due from contract customers (1 654) 2 380 2 170
Disclosed on the statement of financial position as follows:
Uncertified claims and variations**1 (1 358) 1 673 1 646
Contract contingencies (520) (536) (490)
Contract and retention receivables 1 985 2 952 2 810
Provision for contract receivables (3) (2) (2)
Classified as Held for Sale - transferred out (292) - (654)
Amounts due from contract customers 2 528 4 087 3 310
Progress billings received (1 011) (1 618) (1 404)
Amounts received in advance (89) (89) (85)
Classified as Held for Sale - transferred out 226 - 349
Amounts due to contract customers (874) (1 707) (1 140)
Net amounts due from contract customers 1 654 2 380 2 170
** Provisions have been netted off against uncertified claims and variations.
1 Includes revenue not yet certified - recognised over time / 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. These conditions are anticipated to be fulfilled within the
following 12 months.
5 Advances are amounts received from the customer before the related work is performed.
Included in amounts due from contract customers are non-current amounts of R472 million (2017: R631 million).
Amounts due from contract customers includes R779 million (December 2017: R919 million; June 2018:
R942 million) which is subject to protracted legal proceedings
Provision Classified as
Uncertified Contract for Held for Sale
claims and Contract and retention contract - transferred
variations contingencies receivables receivables out Total
Rm Rm Rm Rm Rm Rm
December 2018 (Reviewed)
Non-current assets 472 - - - - 472
Current assets 886 (520) 1 985 (3) (292) 2 056
1 358 (520) 1 985 (3) (292) 2 528
December 2017 (Reviewed)
Non-current assets 631 - - - - 631
Current assets 1 042 (536) 2 763 (2) 189 3 456
1 673 (536) 2 763 (2) 189 4 087
June 2018 (Audited)
Non-current assets 661 - - - - 661
Current assets 985 (490) 2 602 (2) 208 2 649
1 646 (490) 2 602 (2) 208 3 310
11. Assets and liabilities classified as held for sale
As disclosed in the 2018 audited consolidated financial statements, the outcome of the strategic
review lead to the Board's decision to exclude the following reportable segments from the Group's
long-term strategy:
- Construction and Engineering: South Africa and rest of Africa; and
- Manufacturing and Processing.
These non-core reporting segments are presented as separately identifiable disposal groups and are
disclosed as discontinued operations in the Group's interim condensed consolidated statement of
comprehensive earnings (refer to note 7: Segmental report). As the disposals are expected to occur
within the next 12 months; the assets and liabilities were classified as Held for Sale. The proceeds
from the disposals are expected to equal the net carrying amounts. As noted in note 9: Impairments,
no additional impairment was required as at 31 December 2018.
The assets and liabilities of the disposal groups were allocated to their cash-generating units
("CGUs") and subject to an impairment assessment prior to classification as Held for Sale. The
recoverable amounts of all CGUs were assessed as the fair value less cost of disposal (refer to
note 9: Impairments). The carrying amounts of some of the assets in relation to the Manufacturing
and Processing disposal group, exceed their fair value less cost of disposal after being classified
as Held for Sale. An adjustment was recognised to present these assets at their fair value less
cost of disposal in the prior year. No additional adjustment was required in the current year.
Individual properties accounted for under the Other and Eliminations reportable segment were
classified as Held for Sale during the current year. The carrying amounts of some of the properties
exceeded their fair values less cost of disposal prior to being classified as Held for Sale leading
to the recognition of impairment losses in the prior year (refer to the audited consolidated annual
financial statements for the year ended 30 June 2018). No additional adjustment was required in the
current year.
The process relating to the disposal of the Vanderbijlpark property has extended beyond 12 months
from classification as Held for Sale. A reassessment of the asset's fair value less cost of disposal
was performed at year end. An external valuation was performed on the property and a fair value
adjustment was recognised in the audited consolidated annual financial statements for the year
ended 30 June 2018 amounting to R73 million, in order to present and disclose the asset at its
fair value less cost of disposal. The extension of the property's classification as Held for Sale
beyond 12 months is supported by the disposal of the property, which was announced on 2 August 2018.
The Group expects that the transfer will be completed by 28 February 2019. The fair value of the
property was assessed as level 3 per the IFRS 13 Fair Value Measurement hierarchy.
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Assets Held for Sale 3 993 158 4 773
Liabilities Held for Sale (3 454) - (4 080)
539 158 693
Movement during the year
Opening balance 693 122 122
Movements in:
Non-current assets (95) 36 874
Current assets (686) - 3 850
Non-current liabilities 17 - (65)
Current liabilities 610 - (3 281)
Adjustment to fair value less cost of disposal* - - (807)
Net assets Held for Sale 539 158 693
* No impact on other comprehensive earnings in the current year.
As at 31 December 2018, the disposal groups and individual assets classified as Held for Sale were
stated at fair value less costs to dispose, and comprised the following:
Construction
and
Engineering:
South Africa
and the rest Manufacturing
of Africa and Processing
- Disposal - Disposal Properties Properties Properties
group group - Vanderbijlpark - Jet Park - Other Total
Rm Rm Rm Rm Rm Rm
31 December 2018
ASSETS
Non-current assets
Intangible assets - 51 - - - 51
Property, plant and equipment 287 110 43 128 53 621
Equity-accounted investments 32 - - - - 32
Infrastructure investments 125 - - - - 125
444 161 43 128 53 829
Current assets
Inventories 28 1 785 - - - 1 813
Amounts due from
contract customers 264 28 - - - 292
Trade and other receivables 46 1 013 - - - 1 059
338 2 826 - - - 3 164
TOTAL ASSETS 782 2 987 43 128 53 3 993
LIABILITIES
Non-current liabilities
Borrowings and other
liabilities - 9 - - - 9
Employee-related payables 35 4 - - - 39
35 13 - - - 48
Current liabilities
Amounts due to
contract customers 219 7 - - - 226
Borrowings and
other liabilities - 9 - - - 9
Employee-related payables 84 41 - - - 125
Trade and other payables 691 1 621 - - - 2 312
994 1 678 - - - 2 672
Provision for unallocated fair
value adjustments - 734 - - - 734
TOTAL LIABILITIES 1 029 2 425 - - - 3 454
Net assets Held for Sale (247) 562 43 128 53 539
As at 30 June 2018, the disposal groups and individual assets classified as Held for Sale were stated at
fair value less costs to dispose, and comprised the following:
Construction Construction
and and
Engineering: Engineering:
South Africa Australasia
and the rest Manufacturing and Asia
of Africa and Processing - Marine
- Disposal - Disposal Properties Properties Properties vessel
group group - Vanderbijlpark - Jet Park - Other Held for Sale Total
Rm Rm Rm Rm Rm Rm Rm
30 June 2018
ASSETS
Non-current assets
Intangible assets - 51 - - - - 51
Property, plant
and equipment 282 110 43 128 53 99 715
Equity-accounted
investments 32 - - - - - 32
Infrastructure
investments 125 - - - - - 125
439 161 43 128 53 99 923
Current assets
Inventories 44 1 746 - - - - 1 790
Derivative
instruments - 6 - - - - 6
Amounts due from
contract customers 618 36 - - - - 654
Trade and
other receivables 100 1 300 - - - - 1 400
762 3 088 - - - - 3 850
TOTAL ASSETS 1 201 3 249 43 128 53 99 4 773
LIABILITIES
Non-current
liabilities
Borrowings and
other liabilities - 12 - - - - 12
Employee-related
payables 46 7 - - - - 53
46 19 - - - - 65
Current liabilities
Amounts due to
contract customers 347 2 - - - - 349
Borrowings and
other liabilities - 10 - - - - 10
Employee-related
payables 100 59 - - - - 159
Trade and other
payables 1 112 1 651 - - - - 2 763
1 559 1 722 - - - - 3 281
Provision for unallocated
fair value adjustments - 734 - - - - 734
TOTAL LIABILITIES 1 605 2 475 - - - - 4 080
Net assets Held for Sale (404) 774 43 128 53 99 693
12. Borrowings and other liabilities
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Borrowings held at amortised cost comprises:
Interest-bearing borrowings comprise:
Payment profile
- within one year 602 1 025 599
- between two and five years 1 743 1 969 2 688
2 345 2 994 3 287
Interest rate structure
Fixed and variable (interest rates)
Fixed - long term 392 1 918 1 946
Fixed - short term 134 292 305
Variable - long term 1 351 51 742
Variable - short term 468 733 294
2 345 2 994 3 287
December December June
2018 2017 2018
Rate of (Reviewed) (Reviewed) (Audited)
Description Terms interest Rm Rm Rm
Convertible Early Coupon of - 1 874 1 929
bond of redemption 7,25%
R2 billion***** in September
2018
Revolving Repayable JIBAR plus - 700 700
credit in June 3,00% to
facility*** 2020 5,75%
Term loan Monthly Fixed interest 40 52 48
facility instalments rate of
denominated ending April 10,58%
in ZAR*** 2021
Finance lease Monthly Fixed interest 98 128 118
facility of instalments rate of 4,6%
AUD10 million* ending
November
2020
December December June
2018 2017 2018
Rate of (Reviewed) (Reviewed) (Audited)
Description Terms interest Rm Rm Rm
Hire purchase Monthly Fixed interest 43 32 24
agreements instalments of 1,35% to
amounting to ending 7%
AUD4 million* November
2023
Hire purchase Monthly South African 25 - 32
agreement instalments prime plus
denominated ending 3,00%
in ZAR* August
2020
Hire purchase Monthly South African 20 38 29
agreement instalments prime less
denominated ending in 1,70%
in ZAR* November
2019
Hire purchase Settled Fixed interest - 9 -
agreement May 2018 rate of 9,70%
denominated
in ZAR*
Finance lease Monthly South African 3 2 2
facility instalment prime
denominated ending
in ZAR* December
2018
Hire purchase Monthly Fixed interest 58 66 63
facility instalments ending rate of 6,68%
denominated August
in USD* 2021
Finance lease Monthly South African 17 19 19
facilities instalments prime
denominated ending in
in ZAR* August
2022
December December June
2018 2017 2018
Rate of (Reviewed) (Reviewed) (Audited)
Description Terms interest Rm Rm Rm
Hire purchase Monthly South African 15 23 18
agreement instalments prime plus
denominated ending in 0,50%
in ZAR* August
2020
Hire purchase Monthly Fixed interest 10 49 5
agreement instalments rate of
denominated ending in 12,50%
in ZAR* September
2019
Hire purchase Monthly Fixed interest 14 - -
agreement instalments rate of 10%
denominated ending in
in ZAR* September
2019
Super senior Repayable 1M JIBAR + 100 - 255
liquidity February 4,07%
facility#1*** 2019
Super senior Repayable 1M JIBAR + 200 - -
liquidity June 2019 4,21%
facility#2***
Short term Settled Fixed interest - - 62
facility of July 2018 rate of 4,63%
AUD6 million
Term facility*** Repayable 1M JIBAR + 858 - -
June 2020 5,02%
Revolving Repayable Fixed rate of 253 - -
credit facility*** September 13,986%
2020
December December June
2018 2017 2018
Rate of (Reviewed) (Reviewed) (Audited)
Description Terms interest Rm Rm Rm
Revolving Repayable 1M JIBAR + 550 - -
credit facility*** September 4,89%
2020
Working Repaid BBSY plus 49 - -
capital credit monthly 2,5%
facility**** as on a
revolving
facility basis
Interest-bearing borrowings 2 353 2 992 3 304
Interest outstanding on interest-bearing borrowings** 10 2 5
Classified as Held for Sale - transferred out (18) - (22)
Total interest-bearing borrowings 2 345 2 994 3 287
* These borrowings and other liabilities are finance leases.
** Interest outstanding in the current year relates to finance leases.
*** These loans are under a Common terms of agreement (CTA) with the different commercial banks.
**** Australian Bank Bill Swap Bid Rate.
***** Conversion of convertible bond.
In terms of the strategic review, the debt levels within the Group were considered to be unsustainable,
in particular the convertible bonds which created significant constraints on the Group's liquidity
position. The Group redeemed the existing convertible bond on 25 September 2018 through the execution
of the following:
- On 4 July 2018, the bondholders agreed to the capitalisation of interest on the bonds and voted to
accept the terms of the early bond redemption on 30 August 2018;
- On 17 September 2018, a specific buyback of R693 million of the existing convertible bonds at 70%
of the principal amount (a 30% discount) was completed;
- The buyback was funded by a new debt instrument of R460 million, the terms of which will rank pari
passu with the bank debt (excluding Super Senior Facilities) under the revised Common Terms Agreement.
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Finance lease liabilities are payable as follows:
Minimum lease payments due
- within one year 180 188 149
- in two to five years 144 210 191
Less: future finance charges (21) (30) (25)
Present value of minimum lease payments 303 368 315
The Australasia and Asia operating segment enters into asset based finance arrangements to fund the
acquisition of various items of plant and machinery.
The total asset-based finance facilities amounted to AUD14 million. The amount outstanding on these
facilities as at 31 December 2018 was AUD14 million and is equivalent to R142 million. These asset-based
arrangements were secured by plant and equipment with a net carrying amount of R69 million.
The Mining operating segment entered into various asset-based finance lease agreements 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 August 2021. The total amount outstanding on these facilities amounted to
R127 million. Equipment with a net carrying amount of R213 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 R18 million has been pledged as security.
13. Contingent liabilities and contingent assets
Contingent liabilities at the reporting date, not otherwise provided for in interim results, arise
from performance bonds and guarantees issued in:
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
South Africa and rest of Africa
Guarantees and bonds (ZARm) 1 942 2 679 2 155
Parent company guarantees (ZARm) 512 501 509
2 454 3 180 2 664
Australasia and Asia
Guarantees and bonds (AUDm) 282 321 287
Parent company guarantees (AUDm) 337 509 337
619 830 624
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
position 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 probable.
Contingent assets
On 2 August 2018, the Group announced the sale of the Jet Park property, as released on SENS.
Further to this, the Group announced that the purchase price payable was amended from R211,2 million,
net of commission to R185,7 million, with a possible top up of R26 million ("Top Up").
The Top Up will be payable if Aveng obtains the consent of the South African Civil Aviation Authority,
Air Traffic Navigation Services and / or any other relevant airport regulator, for the purchaser to
build on the Jet Park property in excess of 1 716 metres above sea level ("Consent"). The Group
expects that the Consent will be obtained prior to the date on which the purchaser commences clearing
the Jet Park property, following the termination of the lease, as per the sale and lease back agreement.
The Top Up is considered a contingent asset, and not recognised on the condensed consolidated statement
of financial position.
14. Stated Capital
December December
2018 2017
(Reviewed) (Reviewed)
Rm Rm
Authorised
180 882 034 263 ordinary shares
(2017: 882 034 263 ordinary shares) 9 044 44
Issued
Stated capital (19 369 644 387 ordinary shares)
(2017: 396 817 098 ordinary shares) 3 874 2 009
Stated capital 3 874 2 009
Treasury shares
Shares held by the Aveng Limited Share
Purchase Trust
- Number of shares 6 018 386 6 018 386
- Market value (Rm) * 12
Shares held by the Aveng Management Company
Proprietary Limited
- Number of shares 788 684 8 586 593
- Market value (Rm) * 17
Shares held in terms of equity-settled
share-based payment plan
- Number of shares 18 046 763 5 248 854
- Market value (Rm) * 10
* Less than R1 million.
Reconciliation of number of shares issued Number Number
of shares of shares
Opening balance 416 670 931 416 670 931
Share Issue - Rights to qualifying
shareholders (4 July 2018) 4 931 854 395 -
Share Issue - Early redemption of
convertible bond (25 September 2018) 14 045 972 894 -
Closing balance - shares of 5 cents each 19 394 498 220 416 670 931
Less: treasury shares (24 853 833) (19 853 833)
Number of shares in issue less treasury shares 19 369 644 387 396 817 098
14. Stated Capital continued
Rights offer to qualifying shareholders
The Group undertook a renounceable rights offer to raise up to R500 million, to qualifying
shareholders. The rights offer consisted of 5 000 000 000 rights offer shares in the ratio
of 1 199.98772 rights offer shares for every 100 Aveng ordinary shares held at the close of
trade on 15 June 2018 and at a price of R0,10 per rights offer share. The total number of rights
offer shares subscribed for and excess allocations applied for was 4 931 854 395 rights offer
shares, representing 98,6% of the rights offer. An aggregate amount of R493 million was raised.
The rights offer shares subscribed for were issued on 2 July 2018, with excess allocation shares
issued on 4 July 2018.
Early redemption of convertible bond
In terms of the strategic review, the debt levels within the Group were considered to be unsustainable,
in particular the convertible bonds which created significant constraints on the Group's liquidity
position. The Group redeemed the existing convertible bond on 25 September 2018 through the execution
of the following:
- On 4 July 2018, the bondholders agreed to the capitalisation of interest on the bonds and voted to
accept the terms of the early bond redemption on 30 August 2018;
- On 10 September 2018, the Group's shareholders passed the required resolutions giving effect to the
specific issue of shares at R0,10 per share, equivalent to the rights offer price, to settle the
convertible bonds;
- On 17 September 2018, a specific buyback of R693 million of the existing convertible bonds at 70% of
the principal amount (a 30% discount) was completed; and
- The remaining R1,4 billion bonds were settled through the specific issue of ordinary shares at
R0,10 per share on 25 September 2018.
15. Revenue
The Group's revenue is derived from contracts with customers. Revenue can be classified into the
following categories: Construction contracts, Sale of goods and Transport. The nature and effect
of initially applying IFRS 15 on the Group's interim financial statements are disclosed in note 2:
Basis of preparation and changes to the group accounting policies.
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: Other South Africa
Six months ended Australasia and and Manufacturing
31 December 2018 and Asia Mining Eliminations rest of Africa and Processing Total
(Reviewed) Rm Rm Rm Rm Rm Rm
Revenue
Construction
contract revenue 4 818 2 021 (41) 2 702 84 9 584
Sale of goods - 6 (27) - 3 753 3 732
Other revenue - 8 (1) 3 (3) 7
Transport revenue - - - - 44 44
4 818 2 035 (69) 2 705 3 878 13 367
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: Other South Africa
Six months ended Australasia and and Manufacturing
31 December 2017 and Asia Mining Eliminations rest of Africa and Processing Total
(Reviewed) Rm Rm Rm Rm Rm Rm
Revenue
Construction
contract revenue 6 566 2 476 247 3 212 76 12 577
Sale of goods - - (30) - 3 491 3 461
Other revenue - 2 - 16 4 22
Transport revenue - - - - 51 51
6 566 2 478 217 3 228 3 622 16 111
Continuing operations Discontinued operations
Construction
Construction and
and Engineering:
Engineering: Other South Africa
Year ended Australasia and and Manufacturing
30 June 2018 and Asia Mining Eliminations rest of Africa and Processing Total
(Audited)* Rm Rm Rm Rm Rm Rm
Revenue
Construction
contract revenue 10 544 4 691 224 6 600 165 22 224
Sale of goods - 7 (50) - 7 079 7 036
Other revenue 1 172 15 2 22 21 1 232
Transport revenue - - - 88 88
11 716 4 713 176 6 622 7 353 30 580
* Subsequent to the approval of the Aveng Group Annual Financial Statements ("AFS") for the year ended
30 June 2018, it came to the attention of the Group that the composition of the two disclosures included
within note 29: Revenue was incorrectly presented. The unintentional presentation misstatement ("UPM")
resulted in Construction contract revenue being understated by R1 172 million, with the corresponding
Other Revenue being overstated by the same amount.
The incorrect presentation is limited to the composition of the note only and is an unintentional
presentation misstatement in classification between types of revenue. The total of the note remains
unchanged, and there is no impact on any other financial information.
The table disclosed above shows the correct revenue after the correction of the UPM.
16. Taxation
Major components of the taxation expense
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Current taxation 24 46 150
Deferred taxation 111 239 276
135 285 426
South African income taxation is calculated at 28% (Dec 2017: 28%; June 2018: 28%) of the taxable income
for the interim period ended 31 December 2018. Taxation in other jurisdictions is calculated at rates
prevailing in the relevant jurisdictions.
The Group effective tax rate for the interim period ended 31 December 2018 is negative 17,1%
(December 2017: negative 467,2%; June 2018: negative 13,8%)
The main driver affecting the tax rate is the non-recognition of deferred tax assets.
Deferred taxation assets
The Group's results include a number of legal statutory entities within a number of taxation
jurisdictions. The recoverability of the deferred taxation assets was assessed in respect of
each individual legal entity.
Deferred taxation assets are recognised to the extent that the realisation of the related tax
benefit through future taxable profits is probable.
Specific focus was placed on Aveng Africa Proprietary Limited. A re-assessment of the utilisation
of tax losses was done as at 31 December 2018. The deferred tax asset was reduced by a further
R144 million.
The balance for the interim period includes the effect of applying an annualised effective tax
rate for the interim period ending 31 December 2018.
17. Non-cash and other movements
December December June
2018 2017 2018
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Earnings from disposal of property,
plant and equipment (22) (44) (129)
Impairment loss on goodwill, property,
plant and equipment and intangible assets 163 6 1 298
Impairment loss on equity-accounted investments 2 - 195
Fair value adjustment on properties and
disposal groups classified as Held for Sale - - 807
Unrealised foreign exchange losses on
borrowings and other liabilities - - 3
Write-off of inventory 5 - -
Profit on early redemption of convertible bond (102) - -
Deferred tax effect on convertible bond 20 - -
Impairment of non-current assets Held for Sale - 15 -
Movements in foreign currency translation (8) (16) (11)
Movement in equity-settled share-based
payment reserve 1 5 8
Other non-cash items (26) - 6
33 (34) 2 177
18. 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 comprise the following:
- Firefly Investments 238 Proprietary Limited ("Firefly");
- Imvelo Concession Company Proprietary Limited ("Imvelo"); and
- Dimopoint Proprietary Limited ("Dimopoint").
The methodology, valuation parameters and assumptions for infrastructure investments have remained
unchanged since 30 June 2018. For more detail, refer to the Aveng Group audited consolidated annual
financial statements 2018 available on the Group's website.
Fair value hierarchy
The table below shows the Group's fair value hierarchy and carrying amounts of assets and liabilities.
Valuation Valuation Valuation
reference to based on based on
observable observable unobservable
Carrying Fair prices inputs inputs
amounts value Level 1 Level 2 Level 3
Rm Rm Rm Rm Rm
31 December 2018 (Reviewed)
Assets and liabilities
recognised at fair value
Assets
Infrastructure investments 142 142 - - 142
Infrastructure investments
(Held for Sale) 125 125 - - 125
Forward exchange contracts (FECs) 11 11 - 11 -
Liabilities
Valuation Valuation Valuation
reference to based on based on
observable observable unobservable
Carrying Fair prices inputs inputs
amounts value Level 1 Level 2 Level 3
Rm Rm Rm Rm Rm
31 December 2017 (Reviewed)
Assets and liabilities
recognised at fair value
Assets
Infrastructure investments 264 264 - - 264
Infrastructure investments
(Held for Sale) 4 4 - - 4
Liabilities
Forward exchange contracts (FECs) 43 43 - 43 -
30 June 2018 (Audited)
Assets and liabilities
recognised at fair value
Assets
Infrastructure investments 142 142 - - 142
Infrastructure investments
(Held for Sale) 125 125 - - 125
Forward exchange contracts (FECs) 3 3 - 3 -
Forward exchange contracts
(FECs) (Held for Sale) 6 6 - 6 -
The Group uses Level 2 valuation techniques to measure foreign exchange contracts 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 period.
There have been no gains and losses recognised attributable to changes in unrealised gains or losses
during the year.
Reasonably
possible
changes to Potential effect recorded
Significant significant directly in profit and loss
unobservable unobservable Increase Decrease
input inputs Rm Rm
Infrastructure investments
Risk-adjusted discount rate:
- Dimopoint Proprietary Limited 15,0% 0,5% (10) 10
Classified as
Held for Sale
- Imvelo Concessions Company
Proprietary Limited 17,0% 0,5% (3) 3
- Firefly Investments 238
Proprietary Limited 14,1% 0,5% (2) 2
19. Events after the reporting period and pending transactions
The directors are not aware of any significant matter or circumstance arising after the reporting
date up to the date of this report except as stated below:
19.1 Sale of non-core businesses and assets
The strategic review identified the non-core assets to be sold to strengthen the financial position
of the Group, through the repayment of debt and improved liquidity.
19.1.1 Aveng Water
The Group announced on 18 January 2019 that it had entered into a binding cash settled transaction
with Cambrose 735 Proprietary Limited to sell Aveng Water. Aveng Water is made up of Aveng Water
Proprietary Limited and the Aveng Namibia Water business. The fully-funded net transaction
consideration is R95 million and will be settled in cash on a debt free basis. The sale is
subject to conditions precedent normal for a transaction of this nature.
19.1.2 Aveng Infraset ("Infraset")
The Group announced on 18 February 2019 that it had entered into a binding term sheet for the sale
of Aveng Infraset to the Colossal Africa Consortium. Infraset consists of the South African division and
the Aveng Infraset business of the foreign subsidiaries of Aveng Africa Proprietary Limited. The proposed
transaction will be structured on a cash and debt-free basis for a net transaction consideration of
R180 million to be settled in cash on effective date, and a further cash top up of R20 million payable
within two years (if certain conditions are met), both of which are fully funded. The sale is subject
to conditions precedent normal for a transaction of this nature.
19.2 Termination of Mtentu Bridge Contract
As announced on SENS on 4 February 2019, the Aveng-Strabag Joint Venture (ASJV) in which Grinaker-LTA
is a 50% partner, lawfully terminated the Mtentu Bridge contract on 30 January 2019 following an ongoing
Force Majeure event.
The ASJV launched a pre-emptive urgent application in the North Gauteng High Court for an order preventing
South African National Roads Agency Limited (SANRAL) from making a call on the contract securities until
the dispute between the parties regarding the termination of the Mtentu Bridge contract has been finally
determined. The ASJV has secured an interim undertaking from SANRAL preventing a call on the contract
securities pending judgment in the application. The matter was argued in the High Court on 20 February 2019
and as of 25 February 2019 judgment has not been handed down. Appropriate consideration has been given
to all potential outcomes.
Commentary
RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2018
SALIENT FEATURES
- Financial results
- Revenue decreased by 17% to R13,4 billion
- Net operating loss increased by more than 100% to R484 million
- Operating free cash flow - outflow of R710 million
- Core operational performance
- McConnell Dowell performance on track - new orders of AUD862 million (R8,6 billion) secured
- Poor operational performance by Moolmans
- Group-led turnaround intervention underway at Moolmans - implemented senior management changes
- Strategic diversification of order book continues - now 59% Australasia and Asia and 37% South Africa
- Non-core asset sales
- Non-core asset sales of R682 million reported
- Negotiations underway for majority of remaining non-core assets
- Raised new equity and reduced debt
- Liquidity and cash management remains a key focus
- Mtentu Bridge contract terminated
IDENTIFYING AND ADDRESSING THE CHALLENGES
In February 2018, following the completion of a strategic review, the Group embarked on a new focused strategy to be
an international infrastructure and resources group operating in selected markets and capitalising on its considerable
knowledge and experience. A strategic action plan was developed and is being implemented to create a robust and
sustainable organisation capable of achieving its strategic objectives. The strategic plan involves ensuring a sustainable
long-term capital structure, identifying core and non-core assets, improving the performance of the core assets and creating
liquidity by disposing of non-core assets. The longer term goal is to provide acceptable returns for the providers of
capital and a sustainable future for employees, customers, suppliers and other stakeholders.
The Group has achieved the following progress to date:
Improving performance of core businesses
McConnell Dowell and Moolmans were identified as core businesses.
McConnell Dowell
Improved project execution delivered profitability for the third consecutive reporting period, and as such, McConnell
Dowell remains on track to achieve its full financial potential and growth strategy. Following a review of its markets
and a more selective approach to opportunities aligned with its acknowledged areas of specialisation and in which it has
a proven history of successful execution, McConnell Dowell has improved the quantity and quality of its order book,
securing new work in all selected markets. The business is well positioned, with Early Client Involvement (ECI) status
opportunities, to capitalise on growth in its selected markets in Australia, New Zealand and Southeast Asia. McConnell
Dowell continues to make progress towards the resolution of outstanding historic claims.
Moolmans
Moolmans continued to experience operational difficulties on certain projects which significantly impacted its
financial performance during the period under review. A Group-led intervention announced at the start of the
2019 financial year identified the root causes of these difficulties and resulted in senior management changes.
A turnaround plan is underway. Following extensive engagement with the operational teams, management is confident
that they demonstrate the quality and commitment needed to deliver improvement on underperforming contracts.
Further, engagements are underway with clients on contract extensions and Moolmans is expected to capitalise
on opportunities to rebuild its order book.
Creating liquidity by selling non-core assets
Disposal of non-core businesses and other assets is a key component of the strategic action plan. The following
disposals amounting to R682 million have been reported:
- August 2018 - Vanderbijlpark and Jet Park properties for a total value of R228 million;
- October 2018 - Aveng Rail to 100% black-owned Mathupha Capital for R133 million;
- January 2019 - Aveng Water to Infinity Partners, a 100% black-owned company for R95 million;
- February 2019 - Aveng Infraset to the Colossal Africa Consortium, a 100% black-owned investment special
purpose vehicle for R180 million; and
- Smaller properties and investments for R46 million.
These disposals are subject to conditions precedent normally associated with transactions of this nature and are at
various stages of conclusion.
The process to dispose of the balance of non-core assets is at various stages, from expressions of interest to due
diligence. These include:
- Trident Steel;
- Grinaker-LTA - Building, Civil Engineering, Mechanical and Electrical, GEL and Rand Roads; and
- Aveng Manufacturing - ACS, DFC and Duraset.
We remain committed to selling the non-core businesses as going concerns and as such, the Group continues to drive
improved performance within these businesses to enable a sustainable future for their employees, customers and suppliers.
This will allow the Group to realise acceptable value for the businesses. The disposal of the majority of the non-core
assets by June 2019 is one of management's key targets.
Ensuring a sustainable long-term capital structure
Having raised new equity, Aveng went on to redeem its convertible bond, restructure its bank funding, secure
additional facilities and settle the first two debt repayments totalling R100 million. Management continues to focus on
progressive improvement in the quality of the Group's balance sheet to achieve a sustainable long-term capital structure.
The Group's gross debt-to-equity ratio improved from 127% at June 2018 to 70% at December 2018.
MARKET REVIEW
Construction across Australia, New Zealand and Asia Pacific remains on an upward trend, largely in line with annual
growth forecasts for the next three years. Strong opportunities in the building and infrastructure sectors are driven
mainly by population growth and urbanisation but are offset by political uncertainty in some areas.
Australia's construction industry has remained relatively strong and is expected to grow by about 3% for the next
three years. The growth will be mainly from major road and rail projects and the commercial building industry.
In New Zealand, the construction industry remains healthy with the pace of growth predicted to accelerate from
3% to 4% in 2019. The key growth drivers are government plans to develop transport networks and reliable electricity
infrastructure for New Zealand's growing population.
The emerging markets of Southeast Asia are expected to continue investing in privately backed infrastructure projects,
keeping growth at above 6% for the foreseeable future. But while the region offers significant opportunities due to
rapid urbanisation and burgeoning populations, the political uncertainty in some of its countries is tempering these
prospects.
The global mining industry remains cautiously optimistic, with mining companies looking to increase output and make
new investments in assets. In South Africa, improving sentiment bodes well for the extension of Moolmans' existing
contracts and its pursuit of new work to strengthen its order book.
The South African infrastructure market is in crisis, reflecting the marginal economic growth experienced in the
country. This is exacerbated by unprecedented and widespread threats of violence, community unrest and protest
action on construction sites which employers seemingly expect contractors to accept as the new normal.
FINANCIAL PERFORMANCE
Aveng reported a headline loss of R770 million (2017: R335 million loss) and a net loss of R920 million
(2017: R346 million loss).
Basic loss per share was 7,2 cents compared to a 64,2 cents loss per share (restated) in the comparative period
and headline loss per share was 6,1 cents (2017: 62,2 cents loss per share (restated)). The headline loss per
share for 31 December 2017 was retrospectively restated due to the bonus element associated with the rights offer.
Statement of comprehensive earnings
Revenue decreased by 17% to R13,4 billion (2017: R16,1 billion). The decrease was primarily attributable to lower
order books in the construction segments at the start of the financial year.
Net operating earnings decreased from a profit of R94 million in December 2017 to a loss of R484 million, due to:
- Moolmans' R166 million operating loss was mainly attributable to the underperformance of two contracts and
additional closure cost related to the early termination of the Karowe contract;
- Aveng Manufacturing's margins were negatively impacted as weak market conditions persist in most of the sectors
served by the manufacturing business units; and
- Grinaker-LTA's results were impacted by continued underperformance on major building projects, slippage on certain
road contracts and an underrecovery of overhead costs due to a lack of new work, resulting in a loss of R162 million.
These were partially offset by:
- Satisfactory operational performance at McConnell Dowell, supported by more consistent contract executions which
resulted in a net operating profit of R55 million compared to a R51 million profit in the comparative period; and
- Continuing improvement in performance at Trident Steel, due to ongoing growth in the South African automotive
market coupled with an 11% increase in steel prices since December 2017.
An impairment charge of R163 million was recognised against aged plant and equipment at Moolmans.
Net finance charges amounted to R255 million (2017: R141 million). Excluding the impact of the R118 million interest
portion of the Genrec claim received in the comparative period, net finance charges remained flat.
Statement of financial position
Capital expenditure was R302 million (2017: R350 million), of which R247 million (2017: R314 million) was for
replacement and the balance of R55 million (2017: R37 million) for expansion. The majority of the amount was spent
as follows:
- R36 million at McConnell Dowell, relating to specific projects across the various businesses;
- R171 million at Moolmans, primarily as a result of investment in existing fleet; and
- R67 million at Aveng Manufacturing and Processing.
Assets Held for Sale decreased by R780 million to R4,0 billion (June 2018: R4,8 billion) due to the movement in
the working capital associated with the non-core assets.
Liabilities Held for Sale decreased by R626 million to R3,5 billion (June 2018: R4,1 billion) due to the movement
in the working capital associated with the non-core assets.
Amounts due from contract customers (non-current and current) improved to R2,8 billion before Held for Sale
(June 2018: R4,0 billion) due to the unwinding of contracts and the transition adjustment of R267 million,
reflected in the opening balance of retained earnings on the adoption of IFRS 15 Revenue from Contracts
with Customers.
Deferred tax assets remained relatively flat after taking into account impairment and applying the annualised
effective tax rate for the interim period.
Stated capital increased to R3,9 billion (June 2018: R2,0 billion) as a result of the successful rights offer which
raised R493 million of new capital and the early redemption of the convertible bond which was settled through the
specific issue of shares of R1,4 billion.
Operating free cash flow for the period amounted to an outflow of R710 million and included:
- Cash outflow of R198 million in McConnell Dowell due to utilisation of advance payments received in June 2018;
- Cash outflow of R296 million at Grinaker-LTA due to poor operational performance on projects and working
capital requirements;
- Cash outflow of R145 million to Moolmans after net capital expenditure and underperformance;
- Cash outflow at Aveng Manufacturing of R38 million due to underperformance;
- Cash inflow of R179 million from Trident Steel due to improvements in working capital;
- Net capital expenditure of R230 million;
- Net finance charges of R186 million; and
- Taxation of R35 million.
Cash and bank balances (net of bank overdrafts) increased to R2,3 billion (June 2018: R2,1 billion) resulting in
a net debt position of R35 million, compared to R1,2 billion net debt at 30 June 2018.
OPERATING REVIEW
Safety
Safety remains a core value for Aveng and is integral to the way its operating groups conduct their business. Aveng
prioritises the wellbeing of its people, clients, communities and the environment in which it operates. The Group
remains committed to its safety vision of "Home Without Harm, Everyone, Everyday".
Regrettably, one fatality was recorded. A fatal incident occurred at Grinaker-LTA's N1 Ventersburg road project in
the Free State on 23 November 2018. The deceased, Mr Daniel Mathule, was a labour hire worker for a V-drain and kerb
sub-contractor. Mr Mathule succumbed to injuries he incurred when he was struck by a public motorcycle while crossing
the N1 highway. Aveng extends its sincere condolences and sympathy to the family and colleagues of the deceased. The
Group will continue with its unwavering commitment to safety and efforts within its control to avert such tragedies
in future. Efforts to address road safety risks include increasing safety controls on road crossing and enhancing
employee vigilance during work activities inside a road closure or in close proximity to public vehicles.
The total recordable injury frequency rate (TRIFR) for the reporting period was 0,77 which is an improvement on the
comparative period figure of 1,07 and is better than the Group improvement target of 0,82. This indicator is in line
with industry standards and includes fatalities, lost-time injuries, restricted workday cases and medical treatment
cases. The TRIFR is calculated using 200 000 man-hours as the baseline for its frequency rate. The TRIFR demonstrates
a positive downward trend and Aveng continues to show a longer-term improvement trend over the past three years.
Construction and Engineering: Australasia and Asia
This operating segment comprises four business units - Australia, New Zealand and Pacific, Southeast Asia and Built
Environs.
Revenue decreased by 24% to AUD479 million (2017: AUD628 million) due to a lower order book at the start of the
financial year. Considerable effort was made to address the order book and pleasingly, this resulted in several
significant contract awards, amounting to AUD862 million, across all selected markets. This represents an increase
of 50% in work in hand compared to June 2018.
McConnell Dowell's operating earnings of AUD5 million were maintained, reflecting improved performance from a number
of active contracts which mitigated the decline in revenue. There remains room for improved consistency of execution
across the project portfolio.
Australia
Revenue decreased by 41% to AUD219 million (2017: AUD372 million) due to a lower order book at the start of the
financial year. Net operating earnings were maintained, with strong contract progress and performance on the
Western Program Alliance, Swanson Dock East and Toll Holdings projects.
Southeast Asia
Revenue decreased by 3% to AUD110 million (2017: AUD113 million) as the business achieved major milestones with the
completion of the Tuas Road Bridges and other significant projects. Improved operating results were recorded as most
projects were executed at tender margins and completed projects were closed out. Efforts continue to mitigate risks
associated with the Tangguh LNG export jetty project.
New Zealand and Pacific Islands
Revenue increased by 3% to AUD94 million (2017: AUD91 million) as the business unit secured new projects, including the
Pukekohe Wastewater Treatment Plant. The award-winning Mangere BNR project was completed. However, operating earnings
were negatively impacted by the performance on the CSM2 project and a delay in the start of certain new projects.
Built Environs
Revenue decreased by 15% to AUD44 million (2017: AUD51 million) as key new project awards were delayed until the
second half of the year. Work on the West Franklin Apartments was successfully completed ahead of schedule.
Moolmans
Moolmans reported a decline in its revenue to R2 billion (2017: R2,5 billion). The financial results were heavily
impacted by underperformance on two contracts and additional closure costs related to the early termination of
the Karowe contract in November 2018. The Gamsberg contract was impacted by a number of factors, including abrasive
ground conditions. A detailed recovery plan is being implemented to return Gamsberg to profitability. The Khutala
contract continued to be impacted by inclement weather and low plant availability.
The operational underperformance, together with increased depreciation following an asset health review, resulted
in a net operating loss of R166 million (2017: R104 million profit) and a negative gross margin of 3,5% compared
to a positive 8,8% for the comparative period.
As part of the Group-led intervention initiated at the start of the financial year, a comprehensive review of
Moolmans' organisational structure and capability, cost structure and asset health is reaching a conclusion.
Enhanced performance monitoring and measurement against key performance indicators (KPIs) has been implemented.
A turnaround plan to urgently and decisively address underperformance identified during the review, and optimise the
overall performance of the business, includes the following remedial actions:
- Changes were made to the Moolmans senior management team and the appointment of a new managing director is imminent;
- An organisational design and cost structure review will be completed by June 2019;
- Following the asset health review, an impairment charge of R163 million was recognised on aged plant and equipment.
Further write-offs were recorded for inventory associated with this plant. Investment continues to be made primarily
in existing fleet;
- A recovery plan is being implemented at the Gamsberg site to improve operational and financial performance.
The recovery plan is monitored weekly against KPIs; and
- Performance improvement processes were implemented in all Moolmans contracts to enable each contract to achieve
planned operational and financial performance.
The Group's Executive Chairman and Chief Executive Officer visited the majority of Moolmans project sites and actively
engaged with clients and employees. They were encouraged by feedback from clients and the quality and commitment
demonstrated by the operational teams. This provides a sound foundation for the turnaround.
There is a strong focus on extending existing contracts. Moolmans is negotiating four long-term contract extensions
and one new two-year contract.
Construction and Engineering: South Africa and rest of Africa
This operating segment comprises Grinaker-LTA and Aveng Capital Partners.
Revenue decreased by 16% to R2,7 billion (2017: R3,2 billion). A net operating loss of R160 million
(2017: R212 million loss) was largely due to underperformance on certain Civil Engineering and Building projects.
Building and Coastal
Revenue decreased substantially to R1,3 billion (2017: R1,9 billion) and an operating loss of R84 million
(2017: R15 million loss) was reported. Losses were incurred on the Leonardo, 129 Rivonia and Coral Point
building projects and an improvement in the current results depends on the outcomes of commercial claims.
Legal fees were incurred to defend claims associated with the CTICC arbitration. The Dr Pixley Ka Isaka Seme
Memorial Hospital project in KwaZulu-Natal was sold to Enza Construction in November 2018. The Sandton building
projects are nearing completion and work is being actively pursued in new markets to replenish order books across
all building operations, particularly the Inland and KwaZulu-Natal regions. Industrial expansions and ongoing
education projects and refurbishments are providing the baseload of work for the Cape operations.
Civil Engineering
Revenue declined by 9% to R538 million (2017: R588 million), reflecting continued low activity in the public and
private markets. The business reported an operating loss of R76 million (2017: R233 million loss). Ongoing project
reviews have resulted in further provisions following end-of-site losses accounted for in the prior period. The
majority of road contracts were completed and the Ventersburg and Pampoennek projects will be completed during the
2019 calendar year. In a difficult market, the business has shifted away from road projects and is pursuing
profitable civil works.
As announced on SENS on 4 February 2019, the Aveng-Strabag Joint Venture (ASJV) in which Grinaker-LTA is
a 50% partner, lawfully terminated the Mtentu Bridge Contract on 30 January 2019 following an ongoing
Force Majeure event.
The ASJV launched a pre-emptive urgent application in the North Gauteng High Court for an order preventing South
African National Roads Agency Limited (SANRAL) from making a call on the contract securities until the dispute between
the parties regarding the termination of the Mtentu contract has been finally determined. The ASJV has secured an interim
undertaking from SANRAL preventing a call on the contract securities pending judgment in the application. The matter was
argued in the High Court on 20 February 2019 and as of 25 February 2019 judgment had not been handed down. Appropriate
consideration has been given to all potential outcomes.
Mechanical and Electrical
Revenue increased by 31% to R598 million (2017: R458 million) as a result of increased maintenance and refinery
shutdown work. However, an operating loss of R0,3 million (2017: R15 million profit) was reported mainly due to unresolved
commercial matters associated with the Majuba Coal Handling Facility project. The business is well positioned with a solid
order book in the petrochemical market and good opportunities for growth in the mining and related commodities markets.
Aveng Water
Revenue remained flat at R150 million and operational contracts reported a pleasing operating profit of R13 million
(2017: R13 million). The focus of Aveng Water is to leverage the significant advantage in desalination plants and acid
mine drainage technology, other water treatment processes and operational maintenance. The South African mining and
municipal water sectors offer attractive growth opportunities. Aveng announced the sale of the Aveng Water business
to Infinity Partners and is awaiting the fulfilment of the conditions precedent.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
Revenue increased by 7% to R3,9 billion (2017: R3,6 billion). A net operating loss of R17 million was reported
(2017: R70 million loss). The improved operating performance was attributable to a profitable performance at
Aveng Steel and a reduced loss at Aveng Manufacturing.
Aveng Manufacturing
This operating group consists of Aveng Automation and Control Solutions (ACS), Aveng Dynamic Fluid Control (DFC),
Aveng Duraset, Aveng Infraset and Aveng Rail.
Revenue remained flat at R1,1 billion (2017: R1,1 billion). The net operating loss narrowed to R31 million
(2017: R57 million loss) primarily as a result of IFRS 5: Non-Current Assets Held for Sale and Discontinued
Operations adjustments to depreciation and amortisation. Aveng Manufacturing continues to experience low levels
of activity in the infrastructure, mining and rail sectors. The oil & gas and chemical sectors have improved
since the previous year.
Aveng ACS: Revenue increased by 33% to R285 million (2017: R215 million) due to an increase in project activity in the
traditional oil & gas sector. The business continued to diversify into the power, paper and pulp sectors and remained
profitable.
Aveng DFC: Revenue increased by 1% to R230 million (2017: R228 million) as reasonable export performance offset low
levels of investment in water infrastructure and maintenance investment in South Africa.
Aveng Duraset: Revenue declined by 14% to R199 million (2017: R232 million) due to lower demand as a result of mine
closures, strikes and increased competition in the mining sector. Sales to Zimbabwe strengthened export markets.
Aveng Infraset: Revenue decreased by 22% to R288 million (2017: R370 million) as revenue related to infrastructure
products continued to decline, with low levels of demand for pipes, culverts, roof tiles and landscaping products.
Demand for railway sleepers improved relative to the previous year. Aveng announced the sale of Infraset to Colossal
Africa Consortium for R180 million and is awaiting fulfilment of conditions precedent to conclude the transaction.
Aveng Rail: Revenue increased by 11% to R84 million (2017: R76 million) mainly due to increased revenue from equipment
leasing. Two-year track maintenance contract awards are expected to contribute to a marginal performance improvement.
Aveng announced the sale of its Rail business to Mathupha Capital and is awaiting fulfilment of conditions precedent
to conclude the transaction.
Aveng Steel
This operating group consists of Trident Steel.
Trident Steel: A pleasing result was achieved by a strong management team. Revenue increased by 12% largely as a
result of higher selling prices per ton. This translated into higher margins. Operating profit of R14 million was
recorded compared to a loss of R13 million in the comparative period. The achievement of higher material margins,
operational cost savings and improved working capital management all contributed to the good performance.
TWO-YEAR ORDER BOOK
Aveng's two-year order book amounted to R19,5 billion at 31 December 2018, increasing by 9% from the R17,9 billion
reported at 30 June 2018.
The geographic split of the order book at 31 December 2018 was 59% Australasia and Asia (June 2018: 43%),
37% South Africa (June 2018: 51%) and 4% other (June 2018: 6%).
Core assets
The order book for the Group's core assets amounted to R15,6 billion at 31 December 2018, increasing by 20% since
30 June 2018.
McConnell Dowell's two-year order book was AUD1,14 billion (June 2018: AUD0,76 billion). This represents an increase
of 50%, and the business is well positioned to continue securing additional work in the near term as more than AUD1
billion worth of tenders have ECI status. Key projects won during the period include:
- Tuas Water Reclamation Project for the Public Utilities Board in Singapore;
- Jane Street and Mulgoa Road Infrastructure Upgrade for roads and maritime services;
- Auckland City Mission which saw the specialist building business expand into New Zealand; and
- Wynyard Edge Alliance in New Zealand to design and construct the infrastructure to support the iconic
36th America's Cup in 2021.
The Moolmans order book decreased by 24% or R1,3 billion, due largely to completion and termination of projects during
the previous year. Although current market conditions remain competitive, Moolmans is pursuing several near orders
which the Group expects to announce during the second half of the year. These will have a positive impact on Moolmans'
two-year order book.
Non-core assets
Grinaker-LTA's order book at 31 December 2018 decreased by 27% compared to June 2018. Subsequently, the Mtentu Bridge
contract was terminated on 30 January 2019.
OUTLOOK AND PROSPECTS
A positive outlook for McConnell Dowell is supported by growing markets that will sustain robust demand for new
infrastructure. The economies of Australia and New Zealand are expected to be strong and stable in 2019 and 2020
as a result of several large-scale infrastructure projects that are underway and strong demand in the road and
rail transport infrastructure sectors along the east coast of Australia, driven largely by higher levels of
public spending by the Australian government.
Against this background, McConnell Dowell will grow and diversify its order book in selected markets. The ECI status
ensures that McConnell Dowell is well positioned to secure additional work in the near term. The business continues
to focus on improving the consistency of its project execution.
Moolmans' immediate focus is on fully implementing the remedial actions of the Group-led turnaround intervention.
Moolmans is also focused on optimising and extending contracts in its current portfolio to restore planned operational
and financial performance.
Moolmans continues to pursue selected new opportunities in improving market conditions.
Grinaker-LTA has a limited order book and prospects for acquisition of new work in subdued operating conditions.
Businesses earmarked for disposal within the operating group continue to be right-sized to achieve the financial
objectives of potential new shareholders.
Based on a low GDP growth outlook for 2019, the manufacturing businesses are not forecast to grow significantly
in the second half of the financial year.
Trident Steel continues to focus on sales optimisation and efficiency improvements to strengthen profitability.
The business expects to benefit from sound prospects in the automotive market.
Management is focused on completing the majority of the non-core asset disposals by June 2019 and equipping the core
businesses to execute the Group's longer-term strategy.
Disclaimer
The financial information on which any outlook statements are based has not been reviewed or reported on by the
external auditor. 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 Group's operations, markets, products, services and prices.
By order of the Board
EK Diack SJ Flanagan AH Macartney
Executive Chairman Chief Executive Officer Chief Financial Officer
Date of release: 25 February 2019
CORPORATE INFORMATION
Directors
EK Diack (Executive Chairman)
SJ Flanagan (Group CEO)
MA Hermanus*# (Lead Independent Director)
PA Hourquebie*#
MJ Kilbride*#
AH Macartney (Group CFO)
*Non-executive #Independent
Company Secretary
Edinah Mandizha
Business address and registered office
Aveng Park
1 Jurgens Street, Jet Park
Boksburg, 1459
South Africa
Telephone +27 (0) 11 779 2800
Company registration number
1944/018119/06
Auditors
Ernst & Young Incorporated
Registration number: 2005/002308/21
102 Rivonia Road
Sandton, Johannesburg, 2196
Private Bag X14
Northlands, 2146
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
FirstRand Bank Limited
HSBC Bank plc
Investec Bank Limited
Nedbank Limited
The Standard Bank of South Africa Limited
United Overseas Bank Limited
Corporate legal advisers
Baker & McKenzie
Sponsor
UBS South Africa Proprietary Limited
Registration number: 1995/011140/07
64 Wierda Road East
Wierda Valley, Sandton 2196
PO Box 652863
Benmore, 2010
South Africa
Telephone +27 (0) 11 322 7000
Facsimile +27 (0) 11 322 7380
Registrars
Computershare Investor Services Proprietary Limited
Registration number: 2004/003647/07
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196, South Africa
PO Box 61051
Marshalltown, 2107
South Africa
Telephone +27 (0) 11 370 5000
Telefax +27 (0) 11 688 5200
Website
www.aveng.co.za
Date: 25/02/2019 05:07:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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