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AEG
AEG
AEG - Aveng Limited - Unaudited group results for the 6 months ended 31
December 2010
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
("Aveng" or "the Company")
Aveng Group
Leaders in infrastructure development
UNAUDITED GROUP RESULTS FOR THE 6 MONTHS ENDED 31 DECEMBER 2010
KEY FIGURES
- REVENUE: R16.9bn
Stable at R16.9bn
- OPERATING PROFIT: R513m
Decreased by 25%
- HEADLINE EARNINGS: R416m
Declined by 35%
- NET CASH: R5.3bn
Down from R7.5bn (30 June 2010)
- ORDER BOOK: R30.7bn
Marginal decrease from R31.1bn at end June 2010
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2010
31 December 31 December 30 June
2010 2009 2010
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 5 563 5 114 5 146
Goodwill and other 1 436 1 103 1 085
intangibles
Investment in associates and 97 128 117
joint ventures
Available-for-sale 125 12 94
investments
Deferred tax 461 446 982
7 682 6 803 7 424
Current assets
Inventories 1 877 1 732 2 027
Trade and other receivables 6 345 4 931 6 863
Taxation receivable 53 30 -
Cash and cash equivalents 6 146 8 499 7 828
14 421 15 192 16 718
TOTAL ASSETS 22 103 21 995 24 142
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to 11 895 10 949 12 215
ordinary shareholders of
Aveng Limited
Non-controlling interests 5 6 5
11 900 10 955 12 220
Non-current liabilities
Interest-bearing borrowings 2 92 28
Deferred tax 188 133 655
190 225 683
Current liabilities
Trade and other payables 9 323 10 094 10 720
Interest-bearing borrowings 690 721 339
Taxation payable - - 180
10 013 10 815 11 239
TOTAL EQUITY AND LIABILITIES 22 103 21 995 24 142
Net debt to equity ratio (%) (46) (70) (61)
Net asset value per ordinary 3 017 2 765 3 085
share (cents)
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 December 2010
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Unaudited Unaudited % Audited
Rm Rm change Rm
Revenue 16 892 16 832 0 33 981
Operating profit 1 053 1 219 (14) 3 171
before depreciation
and amortisation
Depreciation 531 527 1 063
Amortisation of 9 8 17
intangibles
Operating profit 513 684 (25) 2 091
before non-trading
items
Non-trading items * 2 (13)
Operating profit 513 686 (25) 2 078
Share of profits and 7 22 61
losses from
associates and joint
ventures
Income from 197 242 472
investments
Operating income 717 950 (25) 2 611
Finance cost 20 12 17
Profit before 697 938 (26) 2 594
taxation
Taxation 281 301 722
Profit for the period 416 637 (35) 1 872
Other comprehensive
(loss)/income for the
period
Exchange differences (97) 9 44
on translation of
foreign operations
Total comprehensive 319 646 (51) 1 916
income for the period
Profit attributable
to:
Equity holders of 416 640 1 873
Aveng Limited
Non-controlling * (3) (1)
interests
Profit for the period 416 637 (35) 1 872
Total comprehensive
income attributable
to:
Equity holders of 319 649 1 917
Aveng Limited
Non-controlling * (3) (1)
interests
Total comprehensive 319 646 (51) 1 916
income for the period
Determination of
headline earnings
Profit for the year 416 640 1 873
attributable to
equity holders of
Aveng Limited
Non-trading items net * 13
of taxation
Surplus on disposal (2)
of property, plant
and equipment
Headline earnings 416 638 (35) 1 886
*Amounts less than R1 million
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 December 2010
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Unaudited Unaudited Audited
Rm Rm Rm
Operating activities
Cash retained from operations 513 686 2 078
Depreciation and amortisation 540 535 1 079
Non-cash items (146) (55) 41
Cash generated by operations 907 1 166 3 198
Income from investments 197 242 472
(Increase)/decrease in working (805) 582 (1 026)
capital
Cash generated by operating 299 1 990 2 644
activities
Finance cost (20) (12) (17)
Taxation paid (440) (605) (834)
Cash available from operating (161) 1 373 1 793
activities
Dividends paid (565) (577) (579)
Net cash flows (utilised (726) 796 1 214
in)/from operating activities
Investing activities
Property, plant and equipment (206) (94) (926)
purchased - expansion
- replacement (728) (474) (253)
Proceeds on disposal of 43 13 62
property, plant and equipment
Purchase of subsidiaries (285) - (23)
Purchase of other investments (31) - (82)
Investments in associate 14 (6) 47
companies
Net cash flows utilised in (1 193) (561) (1 175)
investing activities
Financing activities
Long-term borrowings repaid (159) (112) (90)
Share repurchase (74) - -
Net cash flows utilised in (233) (112) (90)
financing activities
Net (decrease)/increase in (2 152) 123 (51)
cash and cash equivalents
Cash and cash equivalents at 7 631 7 601 7 601
beginning of year
Foreign currency translation 106 109 81
reserve movement
Cash and cash equivalents at 5 585 7 833 7 631
end of period
Cash and cash equivalents as 6 146 8 499 7 828
per balance sheet
Overdrafts disclosed under (561) (666) (197)
short-term borrowings
Cash and cash equivalents at 5 585 7 833 7 631
end of period
SHARE INFORMATION
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 % 2010
Rm Rm change Rm
EARNINGS PER SHARE
(CENTS)
Earnings 107.0 164.1 (35) 480.3
Earnings - diluted 98.3 148.3 (34) 441.3
Headline 106.8 163.4 (35) 483.6
Headline - diluted 98.2 147.7 (34) 444.4
NUMBER OF SHARES
(MILLIONS)
In issue 394.3 396.0 396.0
Weighted average 388.8 390.0 390.0
Diluted weighted 423.2 431.3 424.4
average
DIVIDEND PER SHARE Nil Nil 145.0
(CENTS)
CAPITAL EXPENDITURE
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Rm Rm Rm
Expansion 206 94 926
Maintenance 728 474 253
934 568 1 179
Commitments for future
capital expenditure:
Contracted 40 36 525
Authorised, but not 63 12 541
contracted for
103 48 1 066
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Foreign
capital and currency Other non-
for the six months ended share translation distributable
31 December 2009 premium reserve reserve
(Unaudited) Rm Rm Rm
Balance at 1 July 2009 2 001 (188) 62
Profit for the year
Other comprehensive
income/(loss)
- Foreign currency 8 1
translation
Total comprehensive income - 8 1
Dividends paid
Balance at 31 December 2 001 (180) 63
2009
for the year ended 30 June
2010 (Audited)
Balance at 1 July 2009 2 001 (188) 62
Profit for the year
Other comprehensive
income/(loss)
- Foreign currency 43 1
translation
Total comprehensive income - 43 1
Dividends paid
Movement in treasury *
shares
Acquisition during the
year
Transfers 5
Balance at 30 June 2010 2 001 (145) 68
for the six months ended
31 December 2010
(Unaudited)
Balance at 1 July 2010 2 001 (145) 68
Profit for the year
Other comprehensive
income/(loss)
- Foreign currency (97) *
translation
Total comprehensive income - (97) *
Dividends paid
Share repurchase (74)
Balance at 31 December 1 927 (242) 68
2010
*Amounts less than R1 million
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Non-
for the six months ended Retained controlling Total
31 December 2009 income Total interests equity
(Unaudited) Rm Rm Rm Rm
Balance at 1 July 2009 8 990 10 865 21 10 886
Profit for the year 640 640 (3) 637
Other comprehensive
income/(loss)
- Foreign currency 9 9
translation
Total comprehensive income 640 649 (3) 646
Dividends paid (565) (565) (12) (577)
Balance at 31 December 9 065 10 949 6 10 955
2009
for the year ended 30 June
2010 (Audited)
Balance at 1 July 2009 8 990 10 865 21 10 886
Profit for the year 1 873 1 873 (1) 1 872
Other comprehensive
income/(loss)
- Foreign currency 44 44
translation
Total comprehensive income 1 873 1 917 (1) 1 916
Dividends paid (567) (567) (13) (580)
Movement in treasury * *
shares
Acquisition during the - (2) (2)
year
Transfers (5) - -
Balance at 30 June 2010 10 291 12 215 5 12 220
for the six months ended
31 December 2010
(Unaudited)
Balance at 1 July 2010 10 291 12 215 5 12 220
Profit for the year 416 416 * 416
Other comprehensive
income/(loss)
- Foreign currency (97) (97)
translation
Total comprehensive income 416 319 * 319
Dividends paid (565) (565) * (565)
Share repurchase (74) (74)
Balance at 31 December 10 142 11 895 5 11 900
2010
*Amounts less than R1 million
SEGMENTAL ANALYSIS
BUSINESS SEGMENTATION Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Unaudited Unaudited Audited
Revenue Rm Rm Rm
Construction and Engineering
South Africa and Africa 4 993 5 398 10 782
Australasia and Pacific 6 419 6 453 12 981
Total Construction and 11 412 11 851 23 763
Engineering
Opencast mining 1 788 1 559 3 261
Manufacturing and 3 690 3 403 6 937
Processing
Administration 2 19 20
16 892 16 832 33 981
Operating profit
Construction and
Engineering
South Africa and Africa 253 249 673
Australasia and Pacific 133 269 595
Total Construction and 386 518 1 268
Engineering
Opencast mining 208 139 365
Manufacturing and (24) 122 458
Processing
Administration (57) (93) (13)
513 686 2 078
NOTES
1. Corporate information
The interim consolidated financial statements of the Group for the six months
ended 31 December 2010 were authorised for issue in accordance with a
resolution of the directors on 9 March 2011.
Aveng Limited is a limited company incorporated and domiciled in the Republic
of South Africa whose shares are publicly traded.
2. Basis of preparation and accounting policies
Basis of preparation
The interim consolidated financial statements for the six months ended 31
December 2010 have been prepared in accordance with IAS 34 Interim Financial
Reporting.
The interim condensed consolidated financial statements do not include all the
information and disclosures required in the annual financial statements, and
should be read in conjunction with the Group`s annual financial statements as
at 30 June 2010.
Significant accounting policies
The interim financial statements have been prepared in accordance with IAS 34
Interim Financial Statements and the Listings Requirements of the JSE Limited.
The accounting policies adopted are consistent with those of the previous
year, except for the adoption of IFRS 2 Share-based Payment: Group Cash-
settled Share-based Payment Transactions, IFRIC 19 Extinguishing Financial
Liabilities with Equity Instruments, Improvements to IFRSs (April 2009) and
Improvements to IFRSs (May 2010). In addition, the Group has prospectively
changed its accounting policy with regards to borrowing costs. Borrowing costs
incurred in respect of qualifying assets will in future be capitalised to the
asset. All other borrowing costs will still be expensed. The external auditors
have not reviewed the financial results for the half-year ended 31 December
2010.
3.Segment Information
Revenue and expenses are attributed directly to the segments to which they
relate. Segment assets include all operating assets used by a segment, and
consist principally of property, plant and equipment, as well as current
assets. Segment liabilities include all operating liabilities and consist
principally of trade and other payables. These assets and liabilities are all
directly attributable to the segments.
Management monitors the operating results of its business units separately for
the purpose of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on operating profit or loss
which in certain respects is measured differently from the operating profit or
loss in the consolidated financial statements.
Transfer prices between operating segments are on an arm`s length basis in a
manner similar to transactions with third parties.
4.Impairments
The carrying amounts of assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such
indication exists, or when annual impairment testing of an asset is required,
the recoverable amount is estimated as the higher of the fair value less cost
to sell and the value in use.
In determining fair value less costs to sell, an appropriate valuation model
is used. In assessing value in use, the expected future cash flows are
discounted to the present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset. An impairment loss is recognised whenever the carrying amount
exceeds the recoverable amount. Impairment losses and reversal of impairment
losses are separately disclosed in the profit or loss, above the income before
tax subtotal.
For an asset that does not generate cash inflows that are largely independent
of those from other assets, the recoverable amount is determined for the cash
generating unit to which the asset belongs. An impairment loss is recognised
whenever the carrying amount of the cash generating unit exceeds its
recoverable amount.
A previously recognised impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount, however, not to an
amount higher than the carrying amount that would have been determined (net of
depreciation) had no impairment loss been recognised in prior years.
Goodwill impairment losses are not reversed.
5. Income tax
The major components of income tax expense in the interim consolidated
statement of comprehensive income are:
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Rm Rm Rm
Current income tax
Current income tax charge 207 233 673
Deferred tax
Relating to origination and 74 68 49
reversal of temporary
differences
Income tax expense 281 301 722
6. Property, plant and equipment
During the six months ended 31 December 2010, the Group acquired assets with a
cost of R933.6 million (December 2009: R568.3 million) not including property
and equipment acquired through a business combination.
7. Cash and cash equivalents
For the purpose of the interim consolidated statement of cash flows, cash and
cash equivalents are comprised of the following:
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Rm Rm Rm
Deposits and cash 6 146 8 499 7 828
Bank overdraft (561) (666) (197)
5 585 7 833 7 631
8. Related party transactions
During the year the company and its subsidiaries, in the ordinary course of
business, entered into various sale and purchase transactions with associates
and joint ventures. Those transactions occurred under terms that are no less
favourable than those arranged with third parties.
There were no related party transactions with directors or entities in which
the directors have a material interest.
OVERVIEW
The Group remains fully committed to achieving fatality free operations and
continues to focus on improving safety culture so that "Home Without Harm,
Everyone Everyday" becomes a way of life for everyone in the workplace. In
spite of a drive to lift safety
standards, Aveng regrets to report that there were six fatalities during the
period under review; three were Group employees and three were employed by a
subcontractor. The LTIFR rate was 0.29 which compared to 0.26 for the 2010
financial year.
The business environment for the six months to 31 December 2010 remained
challenging. However the Aveng Group`s broad exposure across the construction
and engineering value chain, combined with its geographic diversification
limited the impact of this difficult market on profitability. The Group`s
strong balance sheet and conservative approach to financial reporting are an
advantage in these adverse trading conditions.
The South African Government`s announcement of R808 billion to be spent on
infrastructure projects in the medium term is encouraging for the industry.
Aveng`s South African construction order book has increasingly become more
dependent on private sector projects, which have been relatively stable. More
intense competition across all sectors has impacted on margins. Against this
backdrop, it is pleasing that the Construction and Engineering: South Africa
and Africa segment has reported marginally higher profits albeit from a lower
revenue base.
The market in Australasia, the Pacific and South East Asia is stronger, with
good order potential particularly in mining and natural gas. The Construction
and Engineering: Australasia and Pacific segment delivered stable revenue
although tough competition continued to put pressure on industry margins.
Profit in the first half was negatively impacted mainly by the general
tightening industry margins and two difficult projects. The
December 2010 Australia floods has delayed projects across the value chain,
which may impact on profit recognition, in the second half of the year.
Although the full impact of the floods is still being assessed, McConnell
Dowell incurred no major damage and some reconstruction opportunities could
arise in the short term. In the domestic Manufacturing and Processing sector,
steel volumes showed ongoing signs of recovery although in the absence of
significant new infrastructure projects, volume increases in construction will
be muted. This sector was affected by several steel price decreases in the
first quarter of the financial year. Since the beginning of 2011, local steel
prices have increased and support a more positive outlook for the second half
of the year.
Strong commodity pricing as well as an increasing appetite for contract
mining, especially in Africa supported the Opencast Mining segment.
FINANCIAL REVIEW
Operating profit before depreciation and amortisation declined by 14% to R1.05
billion (2010: R1.2 billion). In the Construction and Engineering: South
Africa and Africa segment, operating profit improved by 2%. The operating
profit of Construction and Engineering: Australasia and Pacific declined by
51% mainly due to losses on two major projects and a highly competitive
market. The Opencast Mining segment showed a 13% decline in operating profit
prior to the inclusion of the R87 million (net of VAT) proceeds
in respect of the settlement of the Marikana (Aquarius Platinum) dispute. The
operating profit of the Manufacturing and Processing segment was adversely
effected by the difficult market and lower prevailing steel prices and
declined by 31% compared to the
corresponding period last year, excluding the impact of the Competition
Commission settlement. As a result of the Steeledale settlement agreement with
the Competition Commission of R129 million, as announced on SENS on 1 March
2011, this segment recorded an operating loss of R24 million.
In line with lower net cash balances and prevailing interest rates, net income
from investments declined to R177 million (2010: R230 million).
The Group`s cash flow from operating activities was affected by the tighter
operating environment resulting in the cash generated by operations declining
by 22% to R907 million (2010: R1.2 billion). In addition, the group
experienced a cash outflow of
R805 million in respect of working capital and reported a net cash position of
R5.3 billion (30 June 2010: R7.5 billion). Major cash outflows since June 2010
include payments to shareholders consisting of a R574 million dividend and R74
million in respect of on market share repurchases. Capital expenditure and
acquisitions amounted to R934 million. Unencumbered cash at the end of
December 2010 amounted to R1.4 billion (30 June 2010: R3.4 billion)
Headline earnings declined by 35% to R416 million (2010: R638 million).
Accordingly, the Group reported a commensurate change in headline earnings per
share to 106.8 cents (2010: 163.4 cents). The number of shares in issue was
reduced to 394.3 million (2010: 396.0 million) as a result of the share
repurchase programme.
OPERATIONAL REVIEW
Construction and Engineering
The revenue of the Construction and Engineering segment (comprising Grinaker-
LTA, E+PC and McConnell Dowell) declined by 4% to R11.4 billion (2010: R11.9
billion). The Construction and Engineering: South Africa and Africa segment
operating margin
improved to 5.2% (2010: 4.6%). This was however, diluted by a weaker
performance from Construction and Engineering: Australasia and Pacific. The
operating profit of this segment declined by 50% from the comparative period,
resulting in a 25% reduction in
the operating profit of the Construction and Engineering segment to R386
million (2010: R518 million).
The tightening of the South African market in the first half of the year
proved even more challenging than anticipated. Grinaker-LTA reported an 8%
decline in revenue to R5.0 billion (2010: R5.4 billion). Strong revenue growth
from Underground Mining and
Mechanical & Electrical was offset by lower activity levels in Building, Civil
Engineering and Earthworks & Engineering. Revenue from the final accounting on
some of the large infrastructure projects completed towards the end of the
previous financial year benefited Grinaker-LTA, resulting in operating profit
being marginally up in spite of the revenue decline. In summary, the divisions
within Grinaker-LTA performed as follows:
- Building continued to be negatively impacted by lower activity with tenders
being awarded at low or even zero margin. Good execution on all contracts
ensured continued profitability.
- Civil Engineering focused heavily on delivery of key projects, including
works on the Medupi and Kusile power stations.
- Earthworks Engineering maintained its profit base and made good progress on
two substantial projects in Namibia.
- Mining translated positive industry fundamentals into solid, profitable
revenue growth.
- Mechanical & Electrical continued to perform to plan with all divisions
contributing to its strong performance.
Good progress was made by Grinaker-LTA on historical problem contracts, most
of which are expected to be resolved by the end of the current financial year.
In particular, proceedings in respect of the dispute in Gabon were concluded
in favour of Grinaker-LTA.
E+PC`s revenue was under pressure for the period, mainly due to the slow pace
of project awards. Despite this, the business showed a significant improvement
in operating profit through focused resource utilisation. Activity levels in
the industrial water sector are pleasing and E+PC started engineering the
second phase of the eMalahleni Water Treatment Plant, which it operates on
behalf of the client. The operating group completed a second water treatment
plant, the Optimum Coal Water Reclamation Plant in June
2010, which it also operates on behalf of the client. E+PC is currently
negotiating the award of three mobile water treatment plants. E+PC`s
Operations division continues to grow in line with expectations although
delays in mine commissioning have constrained revenue. New projects awarded
during the year include a contract from Kenmare Resources to expand the Moma
heavy sands project in Mozambique.
McConnell Dowell showed a 1% decline in revenue to R6.4 billion (2010: R6.5
billion). Revenue growth for the half year period was hampered by the strength
of the Australian dollar against currencies in the territories where it
operates and delays in the award of major projects. McConnell Dowell posted a
51% reduction in operating profit to R133 million (2010: R269 million),
largely attributable to challenges encountered on two highly technical
projects. This was exacerbated by the lower prevailing project margins
resulting from competitive markets. In the Pipelines business unit,
commencement of work on a substantial transmission pipeline network in the
first phase of the Queensland Curtis LNG (QCLNG) project was delayed due to
regulatory approvals and heavy unseasonal rains. However, prospects for the
pipelines business unit are positive.
McConnell Dowell`s strong performance on its offshore construction projects,
particularly in Singapore, Middle East, Indonesia and New Zealand supported
the division`s profitability. Electrix continues to outperform.
Widespread flooding in Australia, which started in December 2010, only
impacted the final weeks of the six months under review. While no major damage
occurred, accessing projects proved difficult, with this anticipated to impact
on performance in the second half of the financial year.
Opencast Mining
Moolmans showed a 9% increase in revenue, excluding the positive impact of the
Marikana settlement, operating profit decreased by 13% on the same basis.
Moolmans continued its growth trajectory, with revenues increasing by 9% to
R1.7 billion (2010: R1.6 billion) despite the impact of the stronger Rand on
foreign denominated revenue streams. This excludes the positive impact of the
R87 million settlement in
respect of the Marikana (Aquarius Platinum) dispute. Excluding this once off
receipt, the operating group delivered a 13% decrease in operating profit from
R139.4 million in 2010 to R121 million largely as a result of the stronger
Rand.
The operating group is deriving benefits from its capital investment
programme, with existing contracts having performed well, meeting all
production and contractual obligations with an improved performance on its
more challenging contracts in South
Africa. Unseasonal heavy rains in South Africa and Zambia impacted operations
in December 2010. New contracts awarded during the first half of the year
include an initial three-year contract at the Geita Gold Mine in Tanzania for
AngloGold Ashanti, which also
marks the return of Moolmans to the region.
Manufacturing and Processing
The Manufacturing and Processing segment (comprising Trident Steel and Aveng
Manufacturing) delivered an 8% increase in revenue to R3.7 billion (2010: R3.4
billion) supported by relatively stable steel volumes. Steel product prices
were subjected to several decreases during the period. This together with more
competitive markets and after the settlement agreement in relation to the
Steeledale matter led the operating group to a reported operating loss of R24
million (2010: operating profit of R122 million).
Aveng Manufacturing showed a 3% decline in revenue to R1.4 billion. Excluding
the impact of the settlement, its contribution to Group operating profit was
marginal. Lennings Rail Services delivered a good performance, underpinned by
strong revenue
growth with the extension of several rail maintenance contracts. It also won
two rail yard contracts in Mozambique, which will start contributing in the
second half of the financial year. Infraset performed well with muted activity
in the infrastructure and building segments partially offset by stronger
demand for Infraset`s suite of concrete rail products.
Duraset continued to operate in a highly competitive market and was also
impacted by the steel price decreases. Although it supplied similar volumes on
a year on year basis, Steeledale`s performance was impacted by the impact of
lower steel prices on gross profit margins and on inventory values. Steeledale
has rationalised a number of manufacturing facilities and the Aveng Group is
conducting an in-depth review of Steeledale and considering options to
reposition these assets to achieve the required returns going forward. The
acquisition of DFC, which manufactures valves for the water and mining sector,
was effective from 1 November 2010 and performed in line with expectations.
Sales volumes of Trident Steel increased by 24%, leading to a 16% improvement
in revenue to R2.3 billion (2010: R2.0 billion). Although the operating profit
improved by 62% compared to the comparable period, its performance did not
meet expectations.
Steel price reductions in August and September 2010 led to a 5% decrease in
the average price for the period under review. In the second quarter, monthly
volumes recovered to similar levels as those last seen in 2008 and Trident
Steel operated at full
capacity. The operating profit of Trident Steel, was dampened by heightened
competition and lower steel prices.
STRATEGY REVIEW
The Aveng Group continues to reinforce its leadership position within the
infrastructure value chain in South Africa and consolidate its position as a
first tier player in Australia.
Multiple brands across business units and geographies have been streamlined
under a new Aveng brand which became effective on 25 February 2011 and was
implemented to create uniformity and better leverage synergies across the
Group.
The Aveng Group continues to focus on value creation throughout the
infrastructure value chain. This includes expansion into water, power and
concessions in the short to medium term. Having significantly advanced its
expertise in water treatment, the Group
has launched a new division called Aveng Water to focus on the opportunities
within the water treatment arena.
All operations continued to focus on efficiency initiatives and cost
management programmes, particularly in the area of procurement. Aside from
group-wide programmes managed by the corporate office, each operating group
has implemented measures to
manage overheads without compromising operational capability.
A R1.0 billion share repurchase programme was approved by shareholders at the
Annual General Meeting in October 2010. Commencing in October 1 740 018 shares
were repurchased at an average price of R42.26 and subsequently cancelled. The
pace of
repurchases was constrained by low trading volumes and a stronger share price
during the period. Aveng will continue to responsibly review this programme
which is aimed at enhancing shareholder value over the long term.
COMPETITION MATTERS
Further to the Competition Commission`s announcement on 1 February 2011
regarding its investigation into anti-competitive practices in the
construction sector, and its invitation to firms to engage in settlement of
contraventions of the Competition Act, Aveng has again confirmed its
commitment to working with the Competition Commission. In addition to the
numerous initiatives already put in place to uncover unlawful practices
throughout the Group, new measures have been implemented to identify any other
anticompetitive practices. Aveng has applied for corporate leniency for a
number of transgressions, and will co-operate with the Commission in its fast
track settlement process. However, until the conclusion of negotiations with
the Commission, it is difficult to quantify any penalty that may be payable.
On 2 March 2011, the Competition Commission referred its investigation in the
pilings market to the Competition Tribunal. While one of the respondents in
this referral is Grinaker-LTA, through its geotechnical services division GEL,
no relief is sought against the company as it was granted conditional immunity
by the Competition Commission in 2009.
Further to the SENS announcement of 1 March 2011, Aveng (Africa) Limited has
entered into a settlement agreement with the Competition Commission to settle
the two complaints against Steeledale. Both complaints involved historical
anti-competitive
conduct. Aveng (Africa) Limited has agreed to pay an administrative penalty in
the amount of R128.9 million, which represents 8% of Steeledale`s annual
turnover for the financial year ending 30 June 2008. The settlement is in full
and final settlement of all alleged contraventions of the Competition Act by
Steeledale that are the subject of the Commission`s investigations and
referrals in terms of both complaints.
BOARD OF DIRECTORS
Having served three terms, Mr Vincent Mntambo retired from the Board with
effect from 22 October 2010. The Board thanks Mr Mntambo for his contribution
to Group matters during his tenure.
Ms Thoko Mokgosi-Mwantembe was appointed as an independent non-executive
director with effect from 13 December 2010.
OUTLOOK AND PROSPECTS
The two-year construction order book of the Aveng Group amounted to R32
billion at 31 January 2011, a marginal increase from R31.1 billion at the end
of June 2010. The identified total project pipeline based on projects being
targeted has remained constant at approximately R100 billion.
Grinaker-LTA has a two-year order book of R9 billion (31 January 2011), a
decrease of 7% since June 2010. This indicates that revenue pressure will
persist in the second half of the year.
McConnell Dowell`s two year order book increased by 16% to R15.6 billion (31
January 2011) in line with the buoyant, albeit highly competitive, market in
its target geographies and should support a better second half. The outlook
for the Manufacturing and
Processing segment is more positive as a result of successive steel price
increases since the beginning of 2011. While landscaping and building activity
remains muted, local and international demand for cementitious products in the
rail sector is increasing.
Although Moolman`s order book has declined by 7% to R6.5 billion (31 January
2011 the outlook for the second half remains positive but may be impacted by
exchange rate fluctuations. It has a strong track record across Africa and is
well positioned to benefit from increased mining activities on the back of
improved commodity prices as well as increasing recognition of the benefits of
contract mining on the continent.
The Group anticipates that the challenging domestic construction market will
continue to limit overall revenue growth, although this will be partially
mitigated by the diversity of its operations. Since the beginning of 2011,
local steel prices have increased to support a more positive outlook for the
second half of the year in the manufacturing and processing part of our
business. We are confident that we will continue to deliver improved returns
to our shareholders over the medium term.
By order of the Board
AWB Band WR Jardine HJ Verster
(Chairman) (Chief Executive) (Financial Director)
14 March 2011
DISCLAIMER
This commentary contains forward-looking statements about the company`s
operations and financial conditions. They are based on Aveng Limited`s best
estimates and information at the time of writing. They are nonetheless subject
to significant uncertainties and contingencies many of which are beyond the
control of the company. Unanticipated events will occur and actual future
events may differ materially from current expectations due to new business
opportunities, changes in priorities by the company or its joint ventures as
well as other factors. Any of these factors may materially affect the
company`s future business activities and its ongoing financial results.
DIRECTORS
AWB Band* (Chairman), WR Jardine (Chief Executive Officer),
HJ Verster (Financial Director), JJA Mashaba, DG Robinson (Australian), MA
Hermanus*, RL Hogben*, TM Mokgosi-Mwantembe*,
MJD Ruck*, KC Rumble*, NL Sowazi*, PK Ward* (*non-executive)
COMPANY SECRETARY
K Robinson
AVENG LIMITED
Incorporated in the Republic of South Africa
Registration number 1944/018119/06
Share code: AEG
ISIN code: ZAE000111829
REGISTERED OFFICE
204 Rivonia Road, Morningside, Sandton, 2057
REGISTRARS
Computershare Investor Services Limited
(Registration number 2000/006082/06))
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
www.aveng.co.za
Sponsor:
J.P. Morgan Equities Limited
Date: 14/03/2011 07:05:10 Produced by the JSE SENS Department.
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