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AEG
AEG
AEG - Aveng Limited - Unaudited Interim Results For The Six Months Ended
31 December 2007
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
THE AVENG GROUP
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
- OPERATING PROFIT +53%
- HEADLINE EARNINGS PER SHARE +48%
- CASH GENERATED R2 BILLION
- TWO-YEAR ORDER BOOK R22 BILLION
Consolidated balance sheet
31 December 31 December 30 June
Rm 2007 2006 2007
ASSETS
Non-current assets
Property, plant and 2 713 2 268 2 533
equipment
Goodwill and trademarks 780 760 780
Investment in associates, 158 539 173
joint ventures and other
Deferred taxation 245 280 477
Current assets
Inventories 1 513 1 556 1 719
Trade and other receivables 3 415 2 637 3 941
Cash and cash equivalents 10 668 2 004 9 886
Total assets 19 492 10 044 19 509
EQUITY AND LIABILITIES
Ordinary shareholders` 11 230 3 900 10 983
funds
Minority interests 8 5 5
Non-current liabilities
Interest bearing borrowings 1 119 1 242 1 128
Deferred taxation 91 92 291
Current liabilities
Trade and other payables 6 518 4 450 6 422
Interest-bearing borrowings 325 271 476
Taxation payable 201 84 204
Total equity and 19 492 10 044 19 509
liabilities
Net debt to equity ratio (82) (13) (75)
(%)
Net asset value per 2 837 985 2 773
ordinary share (cents)
Statement of changes in equity
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2007 2006 2007
Share capital and share 949 949 949
premium
Equity portion of compound 140 140 140
instrument
Balance at beginning of the 140 140
period
Convertible bond conversion 140
Non-distributable reserves (261) (281) (225)
Balance at beginning of the (225) (357) (357)
period
Foreign currency (36) 76 135
translation
Other (3)
Retained income 10 402 3 092 10 119
Balance at beginning of the 10 119 2 789 2 789
period
Profit for the period 633 451 7 483
Dividends paid (331) (148) (148)
Return of equity and other (19) (5)
Attributable to equity 11 230 3 900 10 983
holders of the parent
Minority 8 5 5
Balance at beginning of the 5 4 4
period
Profit for the period 3 1 2
Foreign currency (1)
translation
Shareholders` funds at the 11 238 3 905 10 988
end of the period
Consolidated cash flow statement
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2007 2006 2007
Operating activities
Cash retained from 676 463 7 441
operations
Depreciation 317 196 459
Non-cash items (13) 53 (6 240)
Cash generated by 980 712 1 660
operations
Income from investments 398 41 241
Decrease in working capital 828 522 1 026
Cash generated by operating 2 206 1 275 2 927
activities
Interest paid (44) (85) (155)
Taxation paid (370) (217) (378)
Cash available from 1 792 973 2 394
operating activities
Dividends paid (331) (148) (148)
Cash available from 1 461 825 2 246
operating activities
Investing activities
Fixed assets purchased - (352) (235) (435)
expansion
- replacement (219) (177) (557)
Proceeds on disposal - 45 53 93
fixed assets
- investments 13
Investments in associate 23 158 6 956
companies
Cash retained from (503) (201) 6 070
investing activities
Financing activities
Capital reduction scheme (19)
Long-term borrowings repaid (43) (50) (150)
(62) (50) (150)
Net increase in cash and 896 574 8 166
cash equivalents
Cash and cash equivalents 9 480 1 247 1 247
at beginning of year
Foreign currency 3 67
translation reserve
movement
Cash and cash equivalents 10 379 1 821 9 480
at end of period
Cash and cash equivalents 10 668 2 004 9 886
as per balance sheet
Overdrafts disclosed under (289) (183) (406)
short-term borrowings
Cash and cash equivalents 10 379 1 821 9 480
at end of period
Consolidated income statement
Six months Six months Year
ended ended Per- ended
31 December 31 December centage 30 June
Rm 2007 2006 change 2007
Revenue 13 695 10 631 29 22 093
Operating profit, 1 027 659 56 1 754
before depreciation
Depreciation (317) (196) (459)
Operating profit 710 463 53 1 295
Amortisation of
goodwill and
intangibles
Non-trading items (34) 6 146
Operating profit 676 463 46 7 441
after non-trading
items
Share of profits and 12 225 426
losses from
associates and joint
ventures
Income from 398 41 241
investments
Operating income 1 086 729 49 8 108
Interest paid 44 85 155
Profit before 1 042 644 62 7 953
taxation
Taxation 406 192 468
Profit for the 636 452 41 7 485
period
Attributable to:
Equity holders of 633 451 7 483
Aveng Limited
Minorities 3 1 2
Profit for the 636 452 41 7 485
period
Determination of
headline earnings
Profit attributable 633 451 7 483
to Aveng equity
holders
Non-trading item 34
Surplus on disposal
of properties
and equipment (5)
Disposal of (6 141)
investments
loss/(surplus)
Headline earnings 667 451 48 1 337
EARNINGS PER SHARE
(CENTS)
Earnings 162,6 115,9 40 1 922,5
Headline 171,4 115,9 48 343,5
Diluted earnings 137,0 105,3 30 1 567,1
Diluted headline 144,1 105,3 37 289,6
NUMBER OF SHARES
(MILLIONS)
In issue 395,8 396,1 396,1
Weighted average 389,2 389,2 389,2
Diluted weighted 482,8 454,7 6 481,1
average
DIVIDEND PER SHARE Nil Nil 85,0
(CENTS)
Capital expenditure
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2007 2006 2007
Expansion 352 235 435
Maintenance 219 177 557
571 412 992
Commitments for future
capital expenditure:
Contracted 124 104 134
Authorised, but not 697 19 139
contracted for
821 123 273
Significant contingent liabilities
Included in contingent liabilities are the following:
Aquarius Platinum (South Africa) Limited has issued a summons for R963 million
against Moolmans, an Operating Group of Aveng (Africa) Limited, for alleged
misrepresentation. Attorneys are currently of the opinion that there is no
financial exposure to Moolmans. The entire R963 million has however been
disclosed as a contingent liability.
Grinaker LTA Building, a division of Aveng (Africa) Limited, entered into a
contract in 2001 to build 100 houses in Gabon. The houses were duly built by
means of finance provided by a local financial institution which is now seeking
restitution in the amount of Euro15,5 million (R142 million), due to an alleged
default by the government of Gabon. Proceedings are in progress.
Segmental analysis
BUSINESS SEGMENTATION Revenue
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2007 2006 2007
Construction - South 5 597 4 287 9 532
Africa and Africa
- Australasia and 4 219 2 821 5 782
Pacific
Steel and Allied 3 879 3 523 6 779
13 695 10 631 22 093
Operating profit
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
Rm Restated
Construction - South 152 33 175
Africa and Africa
- Australasia and 240 114 327
Pacific
Steel and Allied 318 316 793
710 463 1 295
Notes
Accounting policies
The interim financial statements have been prepared in accordance with IAS 34
Interim Financial Statements and the listing requirements of the JSE Limited.
The accounting policies adopted are consistent with those of the previous year.
The external auditors have not reviewed the financial results for the half-year
ended 31 December 2007.
Post-balance sheet events
Subsequent to the interim reporting date, the company entered into a scheme of
arrangement in terms of section 311 of the Companies Act, which resulted in the
acquisition by Aveng and by Richtrau, a wholly owned subsidiary of Aveng, of a
pro rata portion of each shareholders` shares, comprising approximately 12,3% of
the then issued share capital of Aveng at a price of R61,58 on the operative
date of 25 February 2008. A total of 55 360 362 shares were repurchased.
Holders of R808 million of the R1 billion outstanding 6,125% Guaranteed
Convertible Bonds due 2012 served notice and converted the principal amount of
each bond into ordinary shares in the ordinary share capital of the company at a
conversion price of R14,88 per share on 22 February 2007. Pursuant to the
conversion notices, Aveng has allotted and issued 54 301 071 ordinary shares to
the relevant bondholders in fulfilling its obligations in respect of the bonds
resulting in a net reduction of 1 059 291 in the number of shares in issue.
COMMENTARY
Financial review
The directors are pleased to report on another excellent trading period during
which market conditions in both our Construction and Steel & Allied clusters
have been exceptionally buoyant. Revenue was up by 29% to R13,7 billion and
operating profit increased by 53% to R710 million with the operating margin
improving from 4,4% to 5,2%. Headline earnings per share grew by 48% to 171
cents per share. The after tax interest income on the Holcim proceeds amounted
to R240 million which compared to the equity accounted earnings of R217 million
in the prior period.
Cash generated by operating activities grew by 73% to R2,2 billion. The group`s
continued capacity expansion programme to meet ongoing market demand resulted in
an investment in new capacity of R352 million and replacement capacity of R219
million. Aveng`s net cash position was R9 billion at December 2007 compared to
R8 billion in June 2007.
At the end of February 2008 the group returned approximately R3,5 billion to
shareholders through the purchase of 55 million shares. Holders of R808 million
of the R1 billion convertible bonds converted their holdings into Aveng shares,
increasing the shares in issue by 54 million.
An additional 26 million Aveng shares have been included in the diluted weighted
number of shares to meet Aveng`s potential obligation to the BEE grouping
invested in Aveng (Africa) and Trident Steel. These shares were not included in
the diluted weighted number of shares at 31 December 2006.
Construction
Construction revenue continued to show strong growth, increasing by 38% to R9,8
billion, with operating margins up to 4,0% compared to 2,1% in the prior
corresponding period.
The South African Engineering and Construction cluster, including Grinaker-LTA
(construction), Moolmans (opencast mining) and E+PC, (engineering), increased
revenue by 31% to R5,6 billion. Grinaker-LTA`s recovery plan was effective in
lifting operating margins to 2,7% from 0,8% in the prior period.
The stadium construction programme is generally running well with the Orlando
Stadium and Soccer City ahead of schedule. Although the Nelson Mandela Stadium
in Port Elizabeth has challenges that are beyond our direct control, we are
confident that everything is being done by all concerned to ensure that the
revised construction programme will be met. Moolmans has successfully
renegotiated some of its low margin contracts in Africa and has been successful
in winning work locally.
The Australasia and Pacific cluster continued to benefit from high levels of
infrastructure investment by both the public and private sectors with revenue
increasing by 50% to R4,2 billion for the six-month period. Operating profit
more than doubled to R240 million, as the operating profit margin grew to 5,7%
from 4,0% compared to December 2006.
Steel & Allied
The Steel & Allied cluster, consisting of Trident Steel, Aveng Manufacturing and
the Aveng corporate office, increased revenue by 10% to R3,9 billion while
operating profit showed marginal growth to R318 million. While Aveng
Manufacturing maintained its operating margins, Trident Steel`s revenue and
margins were negatively affected by the two industry strikes and steel price
reductions. Margins are expected to normalise over the balance of this financial
period.
Prospects
Both Grinaker-LTA and McConnell Dowell were successful in winning a number of
new contracts, lifting their two year order books to around R11 billion each.
The group`s construction order book of R22 billion is 16% up on last year and is
145% of the 2007 construction revenue. This growth is within the group`s target
range which seeks to optimally balance winning current contracts while retaining
capacity to participate in future opportunities where there will be strong
demand for our skills.
The current global boom in commodities which has been recently boosted by the
coal shortages experienced by Eskom in South Africa will provide significant
opportunities for Moolmans.
Steel & Allied remain well positioned to continue to benefit from the buoyant
trading conditions.
In the medium term Aveng has positioned itself to participate in Eskom`s
capacity expansion programme through the recently concluded alliance with AREVA,
the French nuclear company responsible for building
the Koeberg nuclear plant. In addition our extensive experience in the
construction of coal power plants both here and in Australia should position the
group to participate meaningfully in Eskom`s coal-based power station projects.
While skills are scarce and expensive our in-house training programmes and
selective external recruitment, both locally and through leveraging contacts in
our international construction business, has enabled us to mitigate the impact
of this challenge on the group.
Although the recent power cuts have had some negative secondary impacts on the
business these have been mitigated by the absence of electrically intensive
construction projects and by mobile generating capacity. In addition over the
past few years, both Aveng Manufacturing and Trident Steel have invested in
emergency power generating capacity.
The second half`s performance will be impacted by the loss of interest resulting
from the repayment to shareholders of
R3,5 billion a portion of the proceeds of the Holcim disposal.
The accelerating recovery in the performance of Aveng`s construction interests
together with a sustained contribution from Steel & Allied will ensure that the
group remains on track to meet its medium term objective of an 8% operating
profit margin.
Dividend
It is group policy to consider paying a single annual dividend after the 30 June
year-end.
For and on behalf of the board
AWB Band C Grim DR Gammie
Chairman Chief executive Director - Finance
10 March 2008
Sponsor - JP Morgan Equities
Directors: AWB Band* (Chairman), C Grim (Chief Executive),
DR Gammie, JR Hersov*, RL Hogben*, JJA Mashaba,VZ Mntambo*,
DG Robinson (Australian), MJD Ruck*, RB Savage*, NL Sowazi*,
BP Steele*, PK Ward* (*non- executive)
Company secretary: GJ Baxter Registrars: Computershare Investor Services (Pty)
Limited (Registration number 2004/003647/07),
70 Marshall Street, Johannesburg, 2001. PO Box 61051, Marshalltown, 2107.
Telephone (011) 379 5000 Telefax (011) 688 7717
Aveng Limited: Registration number 1944/018119/06
Share code: AEG ISIN code: ZAE000111829
Registered office: 204 Rivonia Road, Morningside, Sandton, 2057
www.aveng.co.za
Date: 10/03/2008 06:59:49 Produced by the JSE SENS Department.
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