| Wed 11 Mar 2009, 7:05 | | AEG - Aveng - Unaudited interim results for the six months ended 31 December |
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AEG
AEG
AEG - Aveng - Unaudited interim results for the six months ended 31 December
2008
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
("Aveng" or "the Group")
THE AVENG GROUP
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
30% INCREASE IN GROUP REVENUE TO R17,8 BILLION
36% INCREASE IN OPERATING PROFIT BEFORE NON-TRADING ITEMS TO R967 MILLION
43% INCREASE IN HEADLINE EARNINGS PER SHARE TO 244,4 CENTS
STRONG BALANCE SHEET WITH NET CASH OF R6,1 BILLION
TWO YEAR ORDER BOOK UP 13,2% TO R29,2 BILLION
COMMENTARY
FINANCIAL REVIEW
All operating groups in Aveng showed solid revenue growth during the six months
under review, supporting a 30% growth in Group revenue to R17,8 billion from
R13,7 billion for the comparable period. Operating profit before non-trading
items continued its upward trend, increasing by 36% to R967 million with the
operating margin improving from 5,2% to 5,4%.
The Group earned net income from investments of R416 million, compared to R354
million in the prior period as high interest rates persisted and after the some
R4,0 billion was returned to shareholders which reflects the strong operating
cash flow during the period.
Diluted headline earnings per share amounted to 222,1 cents, reflecting a growth
of 54% from 144,1 in 2007 while diluted earnings per share improved by 62% from
137,0 cents to 222,3 cents.
Cash generated by operations rose by 41% to R1,4 billion, in line with the
improved operating performance of the Group. The closing net cash of R6,1
billion, declined from R9,2 billion as at June 2008, primarily as a result of:
- Total capital expenditure amounting to R1,8 billion, of which R694 million
related to maintenance capital expenditure on existing equipment. The remainder
was incurred to increase capacity to deliver on secured contracts, the majority
of which related to Moolmans and McConnell Dowell.
- The acquisitions of Built Environs Group (Australia) by McConnell Dowell and
Keyplan (Pty) Limited by E+PC being finalised during the period, for an initial
payment of R443 million. Further payments will be dependent on profit
performance.
- The Group repurchasing approximately 8 million Aveng shares for a total
consideration of R415 million, which have been cancelled.
- The payment of a special dividend amounting to 145 cents per share, in
addition to ordinary dividend number 9 of 145 cents per share, in October 2008
which totalled R1,1 billion.
The fully diluted number of shares includes 35,5 million Aveng shares to meet
the Group`s potential obligation to the BEE grouping in Aveng (Africa) and
Trident Steel.
BUSINESS ENVIRONMENT
While the tightening global economic environment has affected Aveng`s target
markets, the Group`s diversified capability across the construction and
engineering sector has muted the effects of slower demand. The impact on public
sector infrastructure spending in the geographies in which Aveng operates has so
far been limited, although projects related to mining and commodities have come
under pressure, in particular, junior mining houses have been particularly
affected by declining commodity prices. In Australia and the Asia pacific
region, greenfields infrastructure projects in the downstream oil and
petrochemical sectors are also under pressure.
The South African government recently renewed its commitment to upgrading all
aspects of the national infrastructure, increasing its three-year investment
budget to R787 billion.
Similarly in Australia, the government allocated R518 billion to infrastructure
investments including funds for road, rail and ports in October 2008. Aveng
continues to benefit from the backlog in infrastructure projects, including coal
fired power stations, roads and dams.
In spite of deteriorating market conditions over the review period, the Group
has won several contracts, most notably:
- McConnell Dowell was awarded a R2,7 billion project from BHP Billiton Iron Ore
Pty Ltd for the Rapid Growth Project 5 Marine Works contract, which is a
staged development valued in excess of R4,0 billion.
- McConnell Dowell was engaged to deliver the design and construction contract
for a new woodchip loader and the berth at Corio Quay for Geelong Port Pty
Ltd in Victoria Australia, valued at R1,6 billion.
- McConnell Dowell, as part of a consortium, won a contract from South Australia
Water to design and construct the Adelaide desalination plant. The Company`s
share is valued at R3 billion.
- Grinaker-LTA was awarded the civil works for the new mine at Sishen Iron Ore
for Kumba Iron Ore valued at more than R200 million.
- Grinaker-LTA won a contract valued at R145 million for the road rehabilitation
works on the N3 between Umgeni River and Nottingham Road.
- Moolmans, the Group`s opencast mining contracting operation, concluded six new
long term contracts, valued at R11,4 billion for a period of up to five years.
- E+PC won an eight year operations contract at the sulphuric acid plant which
it built for Paladin Energy Ltd in Malawi.
The decline in global steel prices has been much steeper than expected, ranging
from 30% to 35% on different products. Demand for steel has slowed from the high
levels experienced in the first half of the calendar year, especially in the
motor industry.
OPERATIONAL REVIEW
The Construction and Engineering division comprising Grinaker-LTA, E+PC and
McConnell Dowell, lifted revenue by 30% to R11,5 billion. Operating profit
increased by 64% to R497 million. This represents an operating margin of 4,3%,
up from 3,4% in the comparable period while the operating margin of the South
African and African Construction and Engineering division more than doubled.
Grinaker-LTA continued to improve its performance with a solid contribution from
the Building, Roads & Earthworks and Civil Engineering business units. However,
the Mining and Mechanical and Electrical business units were affected by a
downturn in spending in the mining and petrochemical sectors. Grinaker-LTA has
resolved the majority of its legacy contracts and continuous improvement
programmes have been heightened to ensure efficiencies to weather the current
market conditions.
E+PC delivered strong organic growth as it benefited from its increased resource
pool. In addition, the Keyplan acquisition which became effective in the latter
part of 2008 made a positive contribution to overall performance. The operating
group successfully commissioned the Tarkwa project in Ghana and won several new
contracts despite a general delay in the roll out of new work in its target
market. The integration of Keyplan was completed during the period, facilitating
E+PC`s entry into the growing environmental services market.
McConnell Dowell, which represents the Group`s construction and engineering
interests in Australasia and the Pacific region, showed resilience to the
tougher operating environment. Revenue increased by 48% to R6,3 billion, while
operating profit rose by 44% from R241 million to R346 million as the operating
group continued to gear up for delivery on its order book. Despite a tightening
market resulting from the global slowdown, which caused some contracts to be
postponed, the order book has continued to grow.
Opencast Mining, comprising Moolmans, delivered revenue of R1,3 billion,
representing 26% growth, while its operating profit rose by 84% to R103 million.
The operating profitability in opencast mining advanced to 8,0% from 5,5%. This
operating group concluded several new long term contracts and continues to
pursue new opportunities.
The Manufacturing and Processing division, consisting of Trident Steel and Aveng
Manufacturing, delivered revenue growth of 29% to almost R5,0 billion. Operating
profit increased by 17% to R515 million from R440 million in the prior period.
The impact of the decline in steel prices only became material in the second
quarter of the half year although volumes were under pressure during the full
period. Consequently the operating margin declined to 10,4% compared to 11,5% in
the comparable period last year.
Trident Steel lifted revenue by 26% to R2,8 billion, driven by higher steel
prices when compared to the prior period. Volumes were under pressure as
fabrication demand and motor vehicles sales, both locally and for the export
market, were lower. Stock levels became excessive but have now been reduced to a
normal level. Good progress was made with equipment upgrades and improvements to
maximise internal efficiencies and Trident Steel is participating in the supply
of steel to the Medupi Power Station over the next three years. Trading
conditions are expected to be challenging in the second half.
Aveng Manufacturing maintained its strong growth track record, with revenue
growing by 37% to R2,2 billion supported by a strong performance from Duraset
and Lennings Rail Services. Duraset retained market share and reported excellent
results, despite slower demand in the mining sector. The business unit focused
on diversifying its export product lines and concluded an attractive export
contract. Although Steeledale delivered strong revenue growth, profitability was
negatively affected by the declining steel price, long lead times and the
marking to market of the cost differential on a shipment of imported steel,
ordered in the last quarter of the previous financial year when steel was in
short supply. Lennings Rail Services` plate laying construction and machine
performance service lines performed well. The business unit continued to pursue
opportunities to diversify its private sector client base while delivering on
its core contracts. Infraset focused on controlling production efficiencies and
overhead costs to counter the ongoing impact of the downturn in residential
property.
SAFETY
Safety is a crucial strategic intent for the Group and the Group`s safety focus
will be further enhanced with the appointments of a SHE Manager at Group level
as well as a Moolmans Operating Group SHE Manager.
Safety achievements across the Group include:
- Grinaker-LTA completed approximately 30 million manhours from July 2008 to
December 2008 without a fatality.
- Moolmans completed 3,4 million manhours over a period of 24 months without a
single injury at the Siguiri Mine in Guinea.
The Group`s disabling frequency rate (DIFR) decreased by 10% (DIFR 12 months
progressive) from 0,64 (June 2008) to 0,57 (December 2008).
Regrettably during the period under review, a total of four fatalities were
reported across the Group.
A determined safety drive by The Aveng Group over the next few months includes
engaging the services of an international safety expert to advise on a world-
class safety programme to ensure that the Group`s safety mission "Home Without
Harm, Everyone Everyday" is realised.
POST-BALANCE SHEET EVENTS
Aveng announced on 13 February 2009 that it had entered into a consent agreement
with the Competition Commission to settle a complaint arising from an
investigation into anticompetitive practices in relation to concrete products,
which form part of a range of products manufactured by Infraset. Decisive
disciplinary procedures have been instituted within this business unit.
Confirmation of the agreement by the Competition Tribunal was obtained on 25
February 2009. In terms of the agreement, Aveng (Africa), a subsidiary of Aveng,
agreed to pay an administrative penalty in the amount of R46,3 million. This
amount, which has been provided for, will be paid to the Commission in three
equal annual instalments. In addition, Aveng (Africa) will develop and implement
a formal compliance programme as prescribed by the Competition Commission in
terms of the consent agreement.
Aveng`s Board of Directors is committed to good corporate practices, has a zero
tolerance policy towards unethical behaviour and will continue to act swiftly to
deal with any breaches of its Code of Business Conduct and the Competition Act.
PROSPECTS
The confirmed two-year order book of R29,2 billion, which represents an increase
of 13,2% from the June 2008 level of R25,8 billion, demonstrates that Aveng
continued to secure new projects in spite of a tightening market. Grinaker-LTA
and McConnell Dowell closed the period with two-year work on hand amounting to
R9,4 billion and R12,6 billion respectively, compared to R9,5 billion and R11,5
billion as at June 2008. Moolmans` two-year order book of R6,1 billion has
increased by 42% from R4,3 billion as at June 2008 as it secured several
substantial opencast mining projects during the six months. The Group maintained
its momentum with regard to training, recruiting and retaining its pool of
artisans, technicians and engineers to deliver on these opportunities.
Looking forward, the existing order book should ensure that the Construction and
Engineering segment as well as the Opencast Mining operations will continue to
achieve operating results, at least, in line with current levels of performance.
The Manufacturing and Processing business units are, however, facing a very
different market when compared to the same time last year when steel was in
short supply, driven by high demand, and steel prices were rising sharply. The
second half of this financial year will see a reversal of this trend with lower
steel prices and a weaker market. Consequently, the operating performance of
both Trident Steel and Steeledale will be under pressure. In addition, interest
received will be lower, in line with lower cash balances. As a result, the Group
does not expect headline earnings for the second half of the 2008 financial year
to be matched this year. Against the backdrop of the slower economic outlook and
the ongoing effects of the global liquidity squeeze, the Group`s conservative
approach to conducting business and its strong balance sheet, ensure that it is
well positioned to weather the current adverse markets.
DIVIDEND
It is Group policy to consider paying a single annual dividend after the 30 June
year-end.
By order of the board
AWB Band WR Jardine DR Gammie
(Chairman) (Chief Executive Officer) (Director: Finance)
Sandton
10 March 2009
CONSOLIDATED BALANCE SHEET
31 December 31 December 30 June
Rm 2008 2007 2008
ASSETS
Non-current assets
Property, plant and equipment 4 660 2 713 3 513
Goodwill and trademarks 1 049 780 823
Investment in associates, joint 145 146 97
ventures and other
Available for sale investments 12 12 12
Deferred taxation 466 245 680
Current assets
Inventories 2 572 1 513 2 047
Trade and other receivables 4 642 3 415 5 346
Cash and cash equivalents 6 577 10 668 9 491
Total assets 20 123 19 492 22 009
EQUITY AND LIABILITIES
Ordinary shareholders` funds 9 799 11 230 10 517
Minority interests 88 8 13
Non-current liabilities
Interest-bearing borrowings 206 1 119 243
Deferred taxation 122 91 324
Current liabilities
Trade and other payables 9 369 6 518 9 772
Interest-bearing borrowings 261 325 360
Taxation payable 278 201 780
Total equity and liabilities 20 123 19 492 22 009
Net debt to equity ratio (%) (62) (82) (84)
Net asset value per ordinary 2 505 2 837 2 639
share (cents)
CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2008 2007 2008
Operating activities
Cash retained from operations 966 676 2 436
Depreciation 458 317 653
Non-cash items (43) (13) (20)
Cash generated by operations 1 381 980 3 069
Income from investments 462 398 946
(Increase)/decrease in working (14) 828 1 618
capital
Cash generated by operating 1 829 2 206 5 633
activities
Interest paid (46) (44) (80)
Taxation paid (936) (370) (584)
Cash available from operating 847 1 792 4 969
activities
Dividends paid (1 138) (331) (331)
Cash available from operating (291) 1 461 4 638
activities
Investing activities
Fixed assets purchased - (1 097) (352) (924)
expansion
- replacement (694) (219) (865)
Proceeds on disposal - fixed 136 45 293
assets
Acquisition of business (443)
Investments in associate (6) 23 83
companies
Cash retained from investing (2 104) (503) (1 413)
activities
Financing activities
Capital reduction scheme (415) (19) (3 611)
Long-term borrowings repaid (44) (43) (67)
(459) (62) (3 678)
Net (decrease)/increase in cash (2 854) 896 (453)
and cash equivalents
Cash and cash equivalents at 9 206 9 480 9 480
beginning of year
Foreign currency translation 23 3 179
reserve movement
Cash and cash equivalents at end 6 375 10 379 9 206
of period
Cash and cash equivalents as per 6 577 10 668 9 491
balance sheet
Overdrafts disclosed under short- (202) (289) (285)
term borrowings
Cash and cash equivalents at end 6 375 10 379 9 206
of period
CAPITAL EXPENDITURE
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2008 2007 2008
Expansion 1 097 352 924
Maintenance 694 219 865
1 791 571 1 789
Commitments for future capital
expenditure:
Contracted 104 124 869
Authorised, but not contracted 182 697 346
for
286 821 1 215
CONTINGENT LIABILITIES
Significant contingent liabilities are noted below:
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. Proceedings are in progress.
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 (R206 million), due to an alleged
default by the government of Gabon. Proceedings are in progress.
CONSOLIDATED INCOME STATEMENT
Six months Six months Year
ended ended ended
31 December 31 December Percentage 30 June
Rm 2008 2007 change 2008
Revenue 17 753 13 695 30 29 622
Operating profit, 1 425 1 027 39 3 077
before depreciation
Depreciation 458 317 653
Operating profit before 967 710 36 2 424
non-trading items
Non-trading items (1) (34) 12
Net operating profit 966 676 43 2 436
Share of profits and 9 12 18
losses from associates
and joint ventures
Income from investments 462 398 946
Operating income 1 437 1 086 32 3 400
Interest paid 46 44 80
Profit before taxation 1 391 1 042 33 3 320
Taxation 435 406 1 011
Profit for the period 956 636 50 2 309
Attributable to:
Equity holders of Aveng 952 633 2 302
Limited
Minorities 4 3 7
Profit for the period 956 636 50 2 309
Determination of
headline earnings
Profit attributable to 952 633 2 302
Aveng equity holders
Non-trading item (1) 34
Surplus on disposal of
properties
and equipment (1)
Disposal of investment (11)
loss/(surplus)
Headline earnings 951 667 43 2 290
EARNINGS PER SHARE
(CENTS)
Earnings 244,5 162,6 50 594,2
Earnings - diluted 222,3 137,0 62 538,3
Headline 244,4 171,4 43 591,4
Headline - diluted 222,1 144,1 54 535,7
NUMBER OF SHARES
(MILLIONS)
In issue 391,1 395,8 398,5
Weighted average 389,1 389,2 387,3
Diluted weighted 429,5 482,8 428,2
average
DIVIDEND PER SHARE 290,0
(CENTS)
SEGMENTAL ANALYSIS
BUSINESS SEGMENTATION Revenue
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2008 2007 2008
Construction and Engineering
South Africa and Africa 5 217 4 609 9 259
Australasia and Pacific 6 263 4 219 9 458
Total Construction and 11 480 8 828 18 717
Engineering
Opencast mining 1 290 1 026 2 397
Manufacturing and Processing 4 935 3 830 8 503
Administration 48 11 5
17 753 13 695 29 622
Net operating profit
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2008 2007 2008
Construction and Engineering
South Africa and Africa 151 62 318
Australasia and Pacific 346 241 646
Total Construction and 497 303 964
Engineering
Opencast mining 103 56 190
Manufacturing and Processing 515 440 1 409
Administration (149) (123) (127)
966 676 2 436
STATEMENT OF CHANGES IN EQUITY
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Rm 2008 2007 2008
Share capital and share premium 1 926 949 1 916
Balance at beginning of the 1 916 949 949
period
Convertible bond conversion 11 965
Return of equity (1) (3)
Treasury Share movements 5
Equity portion of compound 10 140 11
instrument
Balance at beginning of the 11 140 140
period
Convertible bond conversion (1) (129)
Non-distributable reserves (7) (261) 120
Balance at beginning of the 120 (225) (225)
period
Foreign currency translation (127) (36) 334
Other 11
Retained income 7 870 10 402 8 470
Balance at beginning of the 8 470 10 119 10 119
period
Profit for the period 952 633 2 302
Dividends paid (1 138) (331) (331)
Return of equity and other (414) (19) (3 620)
Attributable to equity holders 9 799 11 230 10 517
of the parent
Minority 88 8 13
Balance at beginning of the 13 5 6
period
Profit for the period 4 3 7
Acquisition during year 71
Foreign currency translation
Shareholders` funds at the end 9 887 11 238 10 530
of the period
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 Ltd. 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 2008.
POST-BALANCE SHEET EVENTS
The consent agreement reached with the Competition Commission as announced on 13
February 2009 was approved by the Competition Tribunal on 25 February 2009.
REGISTRARS: Computershare Investor Services (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: ZAE000111829
REGISTERED OFFICE: 204 Rivonia Road, Morningside, 2057
DIRECTORS: AWB Band* (Chairman), WR Jardine (Chief Executive Officer),
DR Gammie, RL Hogben*, JJA Mashaba, VZ Mntambo*, DG Robinson (Australian), MJD
Ruck*, NL Sowazi*, PK Ward* (*Non-executive)
COMPANY SECRETARY: GJ Baxter
www.aveng.co.za
Date: 11/03/2009 07:05:02 Produced by the JSE SENS Department.
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