| Wed 5 Sep 2001, 0:00 | | Aveng - Group Results For The Year Ended 30 June 2 |
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Aveng Limited
Registration number 1944/018119/06
Share code: AEG
ISIN code ZAE 000018081
- headline earnings per share up 25%
- operating income up 72%
- order book up to R8,2 billion
For more information visit www.aveng.co.za
Commentary
Financial review
The acquisition of LTA and the Baldwins automotive business boosted revenue
for the year to R10,3 billion, double that of the prior year, despite the
sale of Bearing Man and the change to equity accounting Alpha.
Headline earnings per share of 99 cents are 25% up on last year after taking
into account the shares bought back during June 2000. Operating income
increased by 72% and headline earnings by 18% compared to the prior year. In
line with Aveng's policy of a four times dividend cover, the board has
declared an annual dividend of 22,5 cents. As the annual dividend now
exceeds 22,2 cents per share, the convertible debentures will convert,
simplifying the group's share structure. At the fully diluted level, which
takes account of the impact of converting the Aveng debentures as well as
the future vesting of all options issued to management, the year on year
growth in earnings per share is 20%.
These financial results are most encouraging when viewed within the context
of the significant rationalisation costs and write-offs associated with the
above acquisitions.
When announcing the LTA acquisition, Aveng management projected a net
debt-to-equity ratio of 55% by 30 June 2001. This important target has been
achieved. Management will continue to assign a high priority to the paying
down of debt and is projecting to reduce this ratio to the long-term target
of 40% within two years. Aveng believes that the broad geographical spread
of its construction business and the stable cash generating capacities of
its cement and steel businesses make this level of debt appropriate for its
business mix.
Operational review
Construction
A detailed operational review by management concluded that the two
construction companies needed to be fully integrated if Aveng were to
realise its primary objective of being globally competitive. Grinaker-LTA
was born and Frank Crowley was appointed managing director with Howard Jones
as his deputy.
The past six months have been devoted largely to the integration of these
two companies. While the rationalisation/integration task has been
substantially completed, management believes that another eighteen months
will be needed to finalise the strategic repositioning of the group.
The repositioning initiative is being driven by three imperatives:
(i) To streamline support structures, shorten communication channels and
minimise costs
(ii) To redeploy resources to best meet the changing needs of clients
(iii) To assemble complementary skills into flexible strategic units that
are able to respond appropriately to specific opportunities in niche markets
Grinaker-LTA has not attempted to create a centralised technical skills
resource, believing that specialised skills add most value when deployed
within their respective operating entities.
Construction comprises three operating entities:
EUR Construction and Development, consisting of civil and earthworks,
building, property development and concessions. In addition there are
specialised companies focused on railway maintenance, concrete
rehabilitation and ground engineering.
EUR Engineering and Mining Services, consisting of opencast and underground
mining, process engineering, and MEIP (mechanical, electrical,
instrumentation and piping).
EUR McConnell Dowell, the Australian and New Zealand listed construction
company, with its major divisions being civil engineering (largely heavy
marine structures), major pipelines, mechanical and electrical.
Aveng's construction business generates an annual turnover of R7,3 billion
and houses 65% of group assets.
Steel and Allied
Steel and Allied consists of the steel and manufacturing businesses in
Aveng. The following are the most important business units:
EUR Trident service centres, beneficiating steel for the motor, engineering
and construction industries
EUR Trident Midrand Steel, providing specialised and 3CR12 steel to the
engineering and construction industries
EUR Trident Sterling Tube, a manufacturer of steel tubing
EUR Amalgamated Steele; manufacturers of concrete reinforcing and wire
products, structural steel supply and erection, mining products and systems.
EUR Infrastructure and mining products; manufacturers of railway sleepers,
storm water culverts and mine support systems.
In addition, Steel and Allied includes a number of smaller non-core
businesses and Aveng1s small corporate office.
Steel processes over 650 000 tons of steel per annum, contributes R3 billion
to Aveng's turnover and houses 35% of its assets.
Cement
Following the significant decline in the early months of 2000 as a result of
high rainfall, cement volume growth has been good. Industry domestic
cementitious volumes were up by 4,3% in the year ended June 2001 compared to
a decline of 2,6% in the prior year. Alpha1s volume growth was marginally
ahead of that of the industry during the year, largely as a result of the
re-establishment of sales in flood-damaged areas where many Alpha customers
reside.
While average achieved cement prices have shown reasonable growth in rand
terms over the past year, these prices have declined 7% in US dollar terms.
The current at mill net price of $37 per ton is one of the lowest in the
world. This has serious implications for the modernisation of South Africa1s
cement capacity as the business is capital intensive and the cost of
manufacturing plant is largely US dollar based.
Alpha continues to operate a quarrying and ready mixed concrete business
that is complementary to its cement interests. This business has performed
reasonably well over the past year.
The three-year Alpha 2000 revenue enhancement/cost reduction project comes
to an end in December 2001. A recent audit of the results achieved to date
compared to the original objectives reported that the programme was
on track.
Holcim (formerly Holderbank), one of the world1s leading cement companies
and holder of a 54% interest in Alpha, regularly benchmarks cement kiln
performance against that of other kilns in its group. Alpha measures up well
being consistently placed in the upper quartile across a broad range of
performance standards.
Prospects
Locally, prospects look good.
The order book has continued to grow and now stands at R8,2 billion,
including McConnell Dowell which has a good order book of Aus$460 million.
Cement demand is coming off a low base with year-to-date volume growth 4% up
on last year. This trend is expected to continue, possibly at a slightly
lower level, into the new year.
Steel demand in our sector, which is influenced by purchases from the motor
manufacturing industry, is showing similar tendencies.
Internationally, prospects look tough. However, there are still some
interesting opportunities in niche markets which the group hopes to be able
to capitalise on. The biggest concern is that the international slowdown
will negatively affect projects in southern Africa.
Nevertheless, Aveng looks forward to a year of solid real earnings growth.
Dividend
A final dividend, No. 2 of 22,5 cents per ordinary share, has been declared
payable on 26 October 2001 to shareholders registered on 28 September 2001.
Strate
The Company's shares will be dematerialised on 3 December 2001 with
electronic trading commencing on 24 December 2001, and the first electronic
settlements on 3 January 2002. Relevant information will be mailed to
shareholders with the Annual Report.
By order of the board
Richard Savage Carl Grim
Chairman Managing director
4 September 2001
Consolidated income statement
2001 2000 %
Rm Rm Change
Turnover 10 317,1 4 926,1 109,4
Operating income before
depreciation 722,9 332,5
Depreciation 292,1 81,4
Operating income 430,8 251,1 71,6
Income from associates 99,9 74,9
Income from investments 67,2 82,8
Income before interest paid 597,9 408,8
Interest paid 178,5 28,5
Income before exceptional items 419,4 380,3 10,3
Exceptional items (58,6) (21,4)
Income before taxation 360,8 358,9
Taxation 78,6 78,8
Income after taxation 282,2 280,1
Minority interests 14,3 16,4
Earnings 267,9 263,7 1,6
Adjustment for exceptional items,
net of attributable taxation
and minority interests 58,6 13,9
Headline earnings 326,5 277,6 17,6
EARNINGS PER SHARE (cents per share)
Headline 99,4 79,3 25,3
Diluted headline 86,8 72,4 19,9
Earnings 81,6 75,4 8,2
Diluted earnings 71,5 68,9 3,8
Dividend per share (cents) 22,5 18,5 21,6
Other group information
2001 2000
Weighted average number of
shares (millions)
In issue
(reduced by share buy-back) 328,5 349,9
In issue, debentures
and allocated
incentive shares 383,4 392,0
Exceptional items: Rm Rm
(Net surplus)/loss on disposal
and write-down
of investments, subsidiaries
and properties (7,5) (8,7)
Rationalisation and restructuring
costs 16,8
Goodwill written off 65,9 10,0
Other 0,2 3,3
58,6 21,4
Attributable taxation credit (4,5)
58,6 16,9
Attributable to minority interests (3,0)
Net 58,6 13,9
Consolidated balance sheet
2001 2000
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 1 464,4 505,1
Intangible assets 1 050,5
Investments 618,5 440,3
3 133,4 945,4
Current assets
Inventories and contracts
in progress 1 724,1 986,9
Trade, other receivables
and prepayments 923,5 588,5
Cash and cash equivalents 368,0 755,6
3 015,6 2 331,0
TOTAL ASSETS 6 149,0 3 276,4
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders1 funds 2 012,9 1 787,5
Minority interests 173,7 90,3
Total shareholders1 funds 2 186,6 1 877,8
Non-current liabilities
Interest-bearing borrowings 632,3 33,7
Deferred taxation 76,5 64,1
708,8 97,8
Current liabilities
Trade and other payables 2 247,7 1 172,4
Short-term borrowings 930,3 91,4
Taxation 75,6 37,0
3 253,6 1 300,8
TOTAL EQUITY AND LIABILITIES 6 149,0 3 276,4
Note: The 2000 comparatives have been restated with the adoption of the
alternative method of accounting for joint ventures on the equity
accounting method (AC 418).
Cash flow statement
2001 2000
Rm Rm
Cash retained from operating
activities 315,6 401,5
Net fixed assets purchased (492,3) (111,8)
Acquisitions net of disposals (1 550,2) (45,4)
Investments - other 17,8 73,4
Net long-term borrowings 529,0 33,8
Net capital restructuring (10,2)
Net increase/(decrease) in cash
and cash equivalents (1 180,1) 341,3
Cash and cash equivalents at
beginning of the year 694,9 353,6
Net increase/(decrease) in cash
and cash equivalents (1 180,1) 341,3
Cash and cash equivalents at
end of the year (485,2) 694,9
STATEMENT OF CHANGES IN EQUITY
Share Non Automatically Retained TOTAL
capital distributable convertible income
reserves subordinated
debentures
Rm
Balance at 30 601,2 26,0 171,2 989,1 1 787,5
June 2000
Foreign currency 16,0 16,0
translation
Earnings for the 267,9 267,9
year
Dividends paid (60,7) (60,7)
Transfer of
equity accounted
earnings
Increase in
share premium as
a
result of the
issue of shares
to
LTA Limited
shareholders and
share scheme 2,9 2,9
participants
Transfers
arising on
consolidation
Transfers (6,9) 6,9
Other (0,7) (0,7)
Balance at 30 604,1 34,4 171,2 1 203,2 2 012,9
June 2001
Segmental information
2001 2000
% Rm Rm %
Turnover
Construction 70,5 7 270,1 2 692,5 54,6
Steel and allied 29,5 3 047,0 1 673,1 34,0
Bearings 560,5 11,4
100,0 10 317,1 4 926,1 100,0
EBIT
Construction 58,1 250,3 54,3 21,6
Steel and allied 41,9 180,5 142,7 56,8
Bearings 54,1 21,6
100,0 430,8 251,1 100,0
Geographical turnover
Republic of
South Africa (CMA) 64,5 6 654,8 4 122,9 83,7
Africa and Middle
East 21,5 2 217,3 803,2 16,3
Australasia and
South East Asia 14,0 1 445,0
100,0 10 317,1 4 926,1 100,0
Targeting construction in the developing world supported by steel and cement
Directors R B Savage*Yy (chairman), P L Erasmus*y (deputy chairman), C
GrimYy (managing director), E A Behr, C V Campbell*Y, P F Crowley, A Dawson,
M M Doyle, D R GammieY, J R Hersov*, H D K Jones, V Z Mntambo*, P J Owen*Y,
M Taback*, W Wassermeier
*Non-executive director
YMember of Audit Committee,
yMember of Remuneration
Committee Australian, Company secretary P H Hansen, Transfer secretaries
Mercantile Securities Banking, a division of Mercantile Bank Limited, 10th
Floor, 11 Diagonal Street, Johannesburg 2001, PO Box 1053, Johannesburg
2000, Telephone (011) 370-5000, Telefax (011) 370-5560
Registered office 19
Impala Road, Chislehurston, Sandton, 2196
