| Mon 10 Sep 2007, 7:00 | | AEG - Aveng - Audited group results for the year e |
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AEG
AEG
AEG - Aveng - Audited group results for the year ended 30 June 2007
THE AVENG GROUP
Registration number 1944/018119/06.
Share code: AEG
ISIN code: ZAE000018081
AUDITED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2007
- Revenue: up 38% to R22 billion
- Operating margin: 5,9%
- Cash generated: R2,9 billion
- Two year order book: up 70% to R19 billion
- Headline earnings: R1,3 billion
- HEPS: up 122%
- Dividend : up 124% to 85 cents
- Share repurchase: R3,5 billion
CONSOLIDATED BALANCE SHEET
as at 30 June 2007
2007 2006
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 2 533 2 083
Goodwill and trademarks 780 761
Investments 173 471
Deferred tax 477 344
3 963 3 659
Current assets
Inventories 1 719 1 374
Trade and other receivables 3 941 3 464
Cash and cash equivalents 9 886 1 585
15 546 6 423
TOTAL ASSETS 19 509 10 082
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` funds 10 983 3 521
Minority interests 6 4
Total shareholders` funds 10 989 3 525
Non-current liabilities
Interest-bearing borrowings 1 128 1 252
Deferred tax 291 131
1 419 1 383
Current liabilities
Trade and other payables 6 421 4 573
Interest-bearing borrowings 476 467
Taxation payable 204 134
7 101 5 174
TOTAL EQUITY AND LIABILITIES 19 509 10 082
CASH FLOW STATEMENT
for the year ended 30 June 2007
2007 2006
Rm Rm
Cash retained from operating
activities
Cash retained from operations 7 441 613
Depreciation 459 338
Non-cash and other items (6 240) 156
Cash generated by operations 1 660 1 107
Income from investments 241 88
Decrease in working capital 1 026 379
Cash generated by operating 2 927 1 574
activities
Interest paid (155) (162)
Taxation paid (378) (207)
Cash available from operating 2 394 1 205
activities
Dividend paid (148) (90)
2 246 1 115
Investing activities
Fixed assets purchased - expansion (435) (406)
- replacement (556) (355)
Disposal of investments in associate 6 956 341
companies
Proceeds on disposal of - fixed 93 205
assets
- Investments 12 10
6 070 (205)
Financing activities
Long-term borrowings - repaid (150) (225)
Net increase in cash and cash 8 166 685
equivalents
Cash and cash equivalents at 1 246 554
beginning of year
Foreign currency translation reserve 67 7
movement
Cash and cash equivalents at 1 313 561
beginning of year - restated
Cash and cash equivalents at end of 9 479 1 246
year
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2007
2007 2006 %
Rm Rm change
Revenue 22 093 16 054 38
Operating profit before depreciation 1 754 966
Depreciation 459 338
Operating profit before non-trading 1 295 628 106
items
Non-trading items 6 146 (15)
Operating profit 7 441 613 1 114
Share of profits and losses from 426 249
associates and joint ventures
Income from investments 241 88
Operating income 8 108 950 753
Interest paid 155 162
Profit before taxation 7 953 788 909
Taxation 468 198
Profit for the period 7 485 590 1 169
Attributable to:
Equity holders of Aveng Limited 7 483 588
Minorities 2 2
Profit for the period 7 485 590
Determination of headline earnings
Profit attributable to equity 7 483 588
holders of Aveng
Net adjustment for non-trading items (6 146) 15
Headline earnings 1 337 603 122
EARNINGS PER SHARE (Cents)
Earnings 1 922,5 151,0 1 173
Headline 343,5 154,9 122
Diluted earnings 1 567,1 141,5 1,108
Diluted headline earnings 289,6 144,9 100
DIVIDEND PER SHARE (Cents) 85,0 38,0 (100)
SEGMENTAL INFORMATION
for the year ended 30 June 2007
2007 2006
Rm % Rm %
Revenue
Construction - South Africa and 9 533 43 7 498 47
Africa
Construction - Australasia and 5 782 26 2 956 18
Pacific
Steel & Allied 6 778 31 5 600 35
22 093 100 16 054 100
Operating profit
Construction - South Africa and 175 2 (125) (20)
Africa
Construction - Australasia and 327 4 68 11
Pacific
Steel & Allied 793 11 670 109
Non-trading items: Holcim 7 441 100 613 100
Assets
Construction - South Africa and 3 577 40 3 227 42
Africa
Construction - Australasia and 1 409 16 983 13
Pacific
Steel & Allied 3 987 44 3 472 45
8 973 100 7 682 100
Geographical revenue
South Africa 13 209 60 2 715 17
Africa and elsewhere 3 102 14 2 956 18
Australasia and Pacific 5 782 26 10 383 65
22 093 100 16 054 100
Holcim (South Africa) (Pty) Limited
- (100%)
2007* 2006
Rm Rm
Revenue 5 106 4 535
Operating income 1 580 1 156
Assets 2 678 2 127
Liabilities 747 625
Capital expenditure 352 388
Depreciation 121 112
Net debt to equity ratio - 34
* At disposal date of 31 May 2007
Note: The financial information above relates to Holcim (South Africa)
(Proprietary) Limited (100%) and not the equity-accounted entity Altur (Pty)
Limited. During the year under review, Aveng Limited disposed of its 45,65%
stake in Holcim (South Africa) through Altur (Pty) Limited.
NOTES
Accounting policies
These results have been compiled in accordance with International Financial
Reporting Standards.
The presentation of these results also conform to the Listing Requirements of
the JSE Limited and Schedule 4 of the South African Companies Act. The
accounting policies used in the preparation of the results are consistent in all
material respects with those adopted in the annual financial statements for the
year ended 30 June 2007.
The results have been audited by Ernst & Young Inc. and the unqualified audit
opinion is available on request from the company secretary at the company`s
registered office.
The group`s annual financial report will be available by the end of September
2007.
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2007
Attributable to equity holders of the parent
Equity
portion
of
Share Share compound
capital premium instrument
Rm Rm Rm
Balance at 1 July 2005 20 930
Profit for the year
Dividends paid
Equity-accounted reserve movements
Foreign currency translation
Convertible bond conversion 140
Transfers
Balance at 30 June 2006 20 930 140
Profit for the year
Dividends paid
Revaluation reserve
Equity-accounted reserve movements
Foreign currency translation
Transfers
Balance at 30 June 2007 20 930 140
Attributable to equity holders of the parent
Non-distributable reserves
Equity- Other non-
accounted Foreign distributable
investments currency reserves
translation
Rm Rm Rm
Balance at 1 July 2005 (27) (410) 32
Profit for the year
Dividends paid
Equity-accounted reserve movements 15
Foreign currency translation 18
Convertible bond conversion
Transfers 15
Balance at 30 June 2006 (12) (392) 47
Profit for the year
Dividends paid
Revaluation reserve (20)
Equity-accounted reserve movements 12
Foreign currency translation 135
Transfers 5
Balance at 30 June 2007 (257) 32
Attributable to equity holders of the parent
Retained Total Mminority Total
income interest equity
income
Rm Rm Rm Rm
Balance at 1 July 2005 2 305 2 850 9 2 859
Profit for the year 588 588 2 590
Dividends paid (90) (90) (90)
Equity-accounted reserve 15 15
movements
Foreign currency translation 18 (7) 11
Convertible bond conversion 140 140
Transfers (15)
Balance at 30 June 2006 2 788 3 521 4 3 525
Profit for the year 7 483 7 483 2 7 485
Dividends paid (148) (148) (148)
Revaluation reserve (20) (20)
Equity-accounted reserve 12 12
movements
Foreign currency translation 135 135
Transfers (5)
Balance at 30 June 2007 10 118 10 983 6 10 989
"Aveng - a leading engineering, construction, services and processing group,
providing solutions across the value chain in selected mining, energy,
transportation and heavy infrastructure markets"
DIVIDEND DECLARATION 2007
Dividend No 8 of 85 cents per share, being the total dividend in respect of the
financial year ended 30 June 2007 (2006: 38,0 cents per share) has been declared
payable to shareholders recorded in the share register at close of business on
Friday, 19 October 2007.
The salient dates are:
Last date to trade shares cum Friday, 12 October 2007
dividend
Shares trade ex dividend on Monday, 15 October 2007
Record date to receive dividend Friday, 19 October 2007
Payment date Friday, 26 October 2007
No dematerialisation or rematerialisation of shares may take place for the
period from 15 October 2007 to 19 October 2007, both days inclusive.
On Friday, 26 October 2007, the dividend will be electronically transferred to
the bank accounts of all certificated shareholders unless this has not been
requested by or is not available to them. If electronic funds transfer is not
applicable, cheques dated
26 October 2007 will be posted on or about that date. Transfers will be made to
the dematerialised shareholder accounts at their CSDP or broker on 26 October
2007.
By order of the board
Richard Savage Carl Grim Dennis Gammie
(Chairman) (Chief Executive) (Director: Finance)
7 September 2007
COMMENTARY
FINANCIAL REVIEW
Revenue at R22,1 billion reflects a 38% increase on the previous year as the
group benefited from the continued boom in all areas of the domestic and
international construction markets with strong demand filtering through to the
Steel and Allied businesses. Exceptional revenue growth from McConnell Dowell,
resulted in a more geographically balanced construction revenue split for the
group.
Operating profit before non-trading items increased by 106% to R1,3 billion.
This excludes any contribution from Holcim which has been equity accounted to 31
May 2007, the effective date of disposal. The operating profit margin before
non-
trading items (EBIT margin) improved from 3,9% to 5,9%, which is at the upper
end of the group`s short term target range of between 4,5% and 6,0%.
Income from associates and joint ventures, net of tax, amounted to R426 million
with the majority of the income relating to Holcim (South Africa).
The effective tax rate was 33,9%, excluding non-trading items and income from
associates and joint ventures. The difference between the effective tax rate and
the South African corporate tax rate was brought about mainly by the group`s
foreign operations and withholding taxes on revenue in territories where the
average tax rates range from 37% to 40%.
Headline earnings per share increased by 122% to 343,5 cents.
The diluted weighted average number of shares includes 65,5 million shares, to
allow for the conversion of the bond into equity. An additional 26,4 million
Aveng shares have been included in the diluted weighted number of shares to meet
Aveng`s potential obligations to the BEE grouping invested in Grinaker-LTA and
Trident Steel based on Aveng`s share price of R49,95 at 30 June 2007.
The group received net interest of R74 million, compared to net interest paid of
R82 million in the previous year. This was due to higher average cash balances
over the period and one month`s interest on the Holcim proceeds. The group`s
fixed long-term borrowings decreased by R124 million to R1 128 million at June
2007.
The focus on capacity building across the Aveng Group is illustrated by the
expansion capital expenditure of R435 million (2006: R406 million) and
replacement capital expenditure of R556 million (2006: R355 million). Total
gross capital expenditure was R991 million with a net outflow of cash on capital
expenditure amounting to R898 million compared to R555 million in 2006.
Cash generated by operating activities, excluding the cash received from the
sale of Holcim, increased to R2,9 billion (2006: R1,6 billion). The focus on
improving efficiencies across operating groups and business units resulted in
working capital reducing from a negative R379 million in 2006 to a negative R1,0
billion at 30 June 2007. Net working capital days decreased from a negative 6
days to a negative 28 days, and cash flow earnings per share increased to 739
cents from 397 cents in the prior year.
The Aveng Group`s 46% stake in Holcim (South Africa) (Pty) Limited was sold for
R6,8 billion in cash and R641 million in STC credits. The transaction
facilitated significant black economic empowerment in the cement industry while
simultaneously ensuring that Aveng shareholders were equitably rewarded. Holcim
continues to be an important cement, concrete and aggregate supplier to Aveng.
OPERATIONAL REVIEW
SAFETY
The group`s disabling frequency rate (DIFR) - lost time due to injuries per 200
000 manhours worked - was 0,67 (2006: 0,65) against our short-term target of
0,5. McConnell Dowell recorded an excellent DIFR of 0,19 (2006: 0,41). Group
companies receivednumerous safety and related accolades during the course of the
year.
Engineering and Construction: South Africa and Africa
The cluster, comprising Grinaker-LTA (Construction), Moolmans (Opencast Mining)
and E+PC (Engineering) continued its recovery with revenue increasing by 27% to
R9,5 billion. The cluster which contributes 43% of group revenue, reported
operating profit of R175 million compared to a comparable prior period loss of
R5 million, excluding the provision for Marikana.
Grinaker-LTA delivered a 31% growth in revenue to R7,4 billion, making up 33% of
the Aveng Group. The company continued to trade its way out of low-margin legacy
work and has been successful in filling its order book with more profitable
projects. Roads and Earthworks, the biggest contributor to underperformance in
the past, is under new management and has repatriated its plant and people
resources to South Africa following the completion of the final two major road
projects in Africa. The business unit has broken even at the EBIT level for the
first time in many years. The Mechanical and Electrical business unit, while
always profitable, has not performed up it its potential in recent years.
Locally, Mechanical and Electrical mining and energy clients have been very
active while Nigeria moved into profit. The Building, Civil Engineering, Mining
Contracting and RPP business units delivered good results and have even better
future prospects. The legal processes dealing with problematic legacy issues
such as Ruwais, Gabon, Angola and the African road contracts continue to grind
away. We believe that downside risk has been adequately provided for.
Grinaker-LTA generated R629 million in operating cash flow during the 2007 year,
a remarkable change from the past and leaving little doubt that the business has
turned and that profitability is on an upward path.
Moolmans grew revenue by 18% to R1,8 billion and is making good progress towards
returning to historic profitability levels. It has successfully exited Golden
Pride, Tanzania, following the completion of that contract and has won a five-
year opencast mining contract from African Copper at its Dukwe mine in Botswana.
The Marikana claim against Aquarius Platinum is proceeding well, albeit very
slowly.
E+PC, the Engineering and Project management company, returned a revenue of R287
million for the year and has continued to deliver good margins. E+PC is
reviewing some interesting strategic options within selected mining, energy and
industrial clients that should allow it to bulk up and contribute more
significantly to the group in the future.
Engineering and Construction: Australasia and Pacific
McConnell Dowell passed the AU$1 billion revenue milestone, showing a revenue
growth of 95% to R5,8 billion with its contribution to group revenue increasing
from 18% in 2006 to 26% this year. Operating profit increased to R327 million
(2006: R67 million), lifting operating margins to 5,7%, an Australian industry
top quartile result (2006:2,3%). Exceptionally strong market demand as well as a
particular emphasis on project risk management contributed to this. All of the
cluster`s geographies showed growth and all business units increased
profitability. McConnell Dowell remains on a strong profitability growth path,
with legacy contracts settled or fully provided.
Demand is driven by general public sector infrastructure expenditure, including
transportation, electricity, defence and, especially the government`s drive to
secure long-term water supplies due to the severe drought. An insatiable
appetite for commodities is driving the mining sector, resulting in the
associated infrastructure investment. The backlog for committed projects in
Australia suggests annual expenditure of AU$55 billion per year through to 2011.
The Asian market continues to be stable, supported by good economic growth led
largely by China and India. The Singapore market has been buoyant where group
companies have been particularly active building jetties and other oil-related
infrastructure.
STEEL AND ALLIED
This cluster consisting of Trident Steel, Aveng Manufacturing and the Aveng
Group corporate office continued to benefit from heightened activity levels in
the infrastructure market, delivering a solid performance. Trident Steel grew
revenue by 18% to R4,6 billion and the Aveng Manufacturing company by 19% to
R2,5 billion. Growing economies of scale and a drive to boost internal
efficiencies continued to benefit Steel and Allied which reported an increase of
18% in operating profit to R790 million with slightly reduced operating margins.
During the past year, Trident Steel conducted a review of each operation to
identify areas where capacity could be upgraded or geared up and made several
well-considered investments to enable it to capitalise on anticipated market
growth. These include a cut-to-length line commissioned at the Roodekop complex,
a slitting line catering for the automotive industry at Port Elizabeth, a large
circular sawing line for the cutting division and an upgrade of the delivery
fleet. Trident Sterling is in the process of acquiring a state-of-the art tube
mill to add to current capacity. To be able to cope with its higher throughput,
the company is also adding to warehousing and cranage capacity.
Aveng Manufacturing made capital investments, amounting to R126 million,
including a roof tile plant which will expand the Infraset business and new
automated equipment to further entrench its position as the industry`s lowest-
cost producer.
As is usual, the prices of steel for the manufacturing and automotive industries
were influenced by international demand and pricing. During the year, mill price
increases were numerous and varied significantly between product groups. Prices
appeared to have peaked, with a post-year-end decrease of 8% being experienced
on all flat product lines. The public sector investment programme, as well as
the high levels of activity in the private sector, is creating strong demand for
the rebar and mesh products in Steeledale as well as the piping, paving and
landscaping products in Infraset. Investment by the mining sector has boosted
demand for Duraset`s products. While Lennings Rail still has considerable
capacity, recent initiatives within Transnet will generate more work in the year
ahead.
SHARE REPURCHASE
The aggregate amount of capital to be returned to shareholders is a function of
the current organic and acquisitive growth prospects as well as the balance
sheet capacity of Aveng. Given the current buoyancy of the markets in which
Aveng operates, a number of such growth prospects are currently under evaluation
and, to the extent that these prospects progress beyond the current assessment
stage, the board will inform shareholders.
The board is however confident that, irrespective of the outcome of the
aforementioned prospects, R3.5 billion of capital can be returned to
shareholders in the short term and, should the assessment of current prospects
not result in significant incremental capital requirements, it is anticipated
that as much as R5.0 billion of capital would, in aggregate, be returned to
shareholders.
PROSPECTS
The order book, based on confirmed projects to be executed in the next two
years, increased by 69% to R19,2 billion compared to R11,3 billion at the end of
2006.
Grinaker-LTA`s order book amounts to R8,2 billion, with R4,1 billion relating to
Building and Property Development and R3,6 billion to its Civil Engineering,
Roads and Earthworks and Mining Contracting activities, and the balance to the
Mechanical and Electrical business. Considerable opportunities have been
identified in the South African power sector which will be selectively pursued
given our industry leading experience, most recently in Australia, in this
sector.
Moolmans` work on hand amounts to R2,8 billion and E+PC`s order book of R250
million is increasingly focused on the engineering of metallurgical plants.
McConnell Dowell`s order book of R7,9 billion confirms our confidence in the
continued growth of this company. Their Mechanical and Pipelines order book has
increased by 71% to R2,4 billion, while Civils, Marine and Tunnelling increased
by 52% to R4,7 billion, with the balance relating to the Electrix activities.
The significant cash generated by Grinaker-LTA in the past year, confirms that
the business will be improving profitability in the year ahead. The three point
plan aimed at accelerating Grinaker-LTA`s operating margin growth, and around
which most management activity is being focused, is people, operational
efficiency and business development.
With all operating groups projected to perform well in the year ahead, the group
is pursuing new opportunities for further growth. In the short term our strategy
is to deepen our footprint in the chosen areas of operation, enabling the
operating companies to provide a more comprehensive service across the value
chain to the clients. We will seek to build our strategic presence in the
Australasian market to fully benefit from the positive long-term prognosis for
the Eastern time zone region.
Group EBIT margins have moved to the top end of our short-term target range and
are set to show further growth in the year ahead, moving Aveng towards its
medium-term target of 8%.
"With all operations now trading profitably, and group operating margins at the
top end of the short-term target range, the twofold task for the year ahead is
to continue to move margins up towards the group`s medium-term target of 8% and
to identify significant strategic growth opportunities"
www.aveng.co.za
DIRECTORS: R B Savage* (Chairman), A W B Band* (Deputy Chairman), C Grim (Chief
Executive), D R Gammie, L Gcabashe*, J R Hersov*, R L Hogben*, V Z Mntambo*, D G
Robinson (Australian), M?J?D?Ruck*, N L Sowazi*, B P Steele*, P K Ward* (*Non-
executive) COMPANY SECRETARY: G?J?Baxter
REGISTRARS: Computershare Investor Services 2004 (Pty) Limited. (Registration
number 2004/003647/07). 70 Marshall Street, Johannesburg, 2001.
PO Box 61051, Marshalltown, 2107 Telephone (011) 370-5000. Telefax (011)
688-
7717
AVENG LIMITED: Registration number 1944/018119/06. Share code: AEG ISIN
code: ZAE000018081. REGISTERED OFFICE: Block B, 204 Rivonia Road, Morningside,
2057
10 September 2007
Sponsor: J.P.Morgan Equities Limited
Date: 10/09/2007 07:00:02 Produced by the JSE SENS Department.
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