| Thu 3 Nov 2011, 10:19 | | AEG - Aveng Limited - Business Update |
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AEG
AEG
AEG - Aveng Limited - Business Update
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
("Aveng Group". "Aveng" or "Group")
BUSINESS UPDATE: AVENG GROUP CHAIRMAN ANGUS BAND`S STATEMENT TO SHAREHOLDERS
AT THE AGM HELD ON 3 NOVEMBER 2011
Against a backdrop of global economic uncertainty and slower than anticipated
domestic economic recovery, the South African construction sector remains
challenging for the Aveng Group. However, other sectors and geographies in
which the Aveng Group is active are showing growth and resilience which will
benefit both Aveng Moolmans and McConnell Dowell.
The Group`s potential order pipeline remains stable at R110 billion. Its two
year order book has increased by 18% since 30 June 2011 from R37 billion to
R43.5 billion as of 30 September 2011. Approximately 85% of the order book is
from the private sector and 73% is in respect of projects outside of South
Africa.
Construction and engineering South Africa
The South African economic environment continues to be impacted by ongoing
delays in contract awards, particularly in the public sector. The Aveng board
is encouraged by Finance Minister Pravin Gordhan`s medium-term budget
strategy statement on 25 October 2011 which highlighted a shift in government
spend from consumption-driven expenditure towards a greater investment in
economic infrastructure and welcomes the programmes aimed at addressing
project management capacity in government. Public sector infrastructure
spend is currently estimated at R233 billion, or 7.8% of GDP, with
government`s infrastructure plans for the next three years increasing to R802
billion. The Aveng board endorses the Minister`s comments that this
substantial investment programme "should provide considerable opportunity for
local construction and manufacturing development and job creation."
Aveng Grinaker-LTA (Including Aveng E-PC Aveng Water)
Private sector work currently comprises approximately 81% of Aveng Grinaker-
LTA`s order book which was R9.1bn at 30 September 2011 compared to R10.2bn at
30 June 2011. The unit`s two year order book indicates that approximately 10%
of work over this period will be generated by its international operations.
More recent contract awards include;
- The Mokolo Crocodile water augmentation project near Lephalele
- The Boardwalk Casino in Port Elizabeth
- The Bridge City railway line project in Durban
Unresolved claims in the steel fabrication contracts for Medupi and Kusile
power plants continue to affect both profitability and liquidity. Progress
has been made in resolving these issues positively.
McConnell Dowell
The Australasian markets continue to provide good growth opportunities,
currently underpinned by the Mining and Oil & Gas sectors. McConnell
Dowell`s offshore operations are performing well within the constraints of
highly competitive international market conditions. As reported previously,
three large projects, namely the Adelaide desalination plant, the Komo
airport and the QCLNG export pipeline are experiencing difficulty with a
number of commercial issues which remain unresolved. These currently pose a
material risk in respect of completion and project cost overruns. A
significant proportion of management effort is being dedicated to these
projects, so as to ensure effective and timely project execution and risk
mitigation.
During the quarter McConnell Dowell was awarded several new contracts and the
order book has grown substantially to R26bn which compares to R19Bn at 30
June 2011.
These include
- An alliance agreement with other parties for the rehabilitation of
earthquake-damaged infrastructure in Christchurch, New Zealand
- The construction contract for the Hume Dam in Albury-Wodonga for the New
South Wales State Water Corporation
- The Waterview tunnel project in New Zealand
- AP LNG Pipeline in Queensland
- Vale Load-out facility in Malaysia
Aveng Moolmans
Aveng Moolmans has continued to secure new contracts in southern and central
Africa of which the largest is the five-year Tshipi Borwa Manganese Mine
project in the Northern Cape, South Africa. The current order book of R7.2bn
is marginally down on 30 June 2011 (R7.3bn) which is a reflection of the
normal contract renewal and replacement cycle within the business.
On-going demand for commodities, supported by the weaker Rand, is expected to
support the continued viability of South African commodity producers.
Manufacturing and processing
Demand within Aveng Manufacturing and Aveng Trident Steel continues to
improve and these operations are trading in line with expectations. Steel
pricing has stabilised over the quarter resulting in less volatility in gross
margins. Sales volumes grew substantially for the quarter, following the
initial impact of the July 2011 strike action. Production and supply
constraints of local steel producers continue to impact steel availability.
Imports have been increased to service customer demand until local steel
supply has normalised. The rail construction and rail products business
experienced lower demand during the quarter but the anticipated award of
international rail and related work should impact positively in the short to
medium term.
BEE Transaction
In accordance with the notice to shareholders, which details the proposed
terms in respect of the extension of the existing agreement with the Qakazana
broad-based black economic empowerment consortium to 2014, shareholders have
been requested to vote at the special general meeting on the 3rd November
2011 on the proposed extension of this agreement.
The Aveng Group is pleased with the success of the initial empowerment
arrangement, which will realise in excess of R900 million for its empowerment
stakeholders, its employees and community investment projects. On the
assumption that the scheme is approved by shareholders an additional 8 586
097 ordinary shares will be issued by the company on Friday 4 November 2011
in part discharge of its obligation to the empowerment consortium. The total
number of shares in issue following this allotment will be 401 588 097 at a
par value of 5 cents each. The authorised share capital of the Group remains
unaltered at 882 034 263 shares of 5 cents each.
Competition Commission
Shareholders will recall that on 1 February 2011 the Competition Commission
published details of a "Fast Track Settlement Process" whereby construction
companies were encouraged to fully disclose any collusive conduct. Aveng
submitted comprehensive applications to the Commission on 15 April 2011 in
terms of this process. Settlement negotiations are still in process and it
remains premature to speculate on the quantum of any possible settlement.
On 9 September 2008 Aveng advised by means of a SENS announcement that it had
become aware of a broad and ongoing investigation into the steel industry
whereby Aveng Trident Steel had been cited in the Commission`s complaint
initiation statement. Shareholders are advised that in respect of this
matter, the Commission has confirmed its ongoing investigation into this
sector.
The company will keep shareholders informed of developments in respect of
these matters.
Outlook
Difficult market conditions are anticipated to extend well into the 2012
calendar year in South Africa. The Aveng Group`s diversified product offering
and relatively large geographical footprint in higher growth markets in
Australia and Asia, as well as the expectation of a boost in infrastructure
spending by the South African government, results in the group being positive
on the medium term outlook for construction and related infrastructure
development.
Sandton
03 November 2011
Sponsor:
J.P. Morgan Equities Limited
Date: 03/11/2011 10:19:01 Produced by the JSE SENS Department.
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