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Aveng Limited - Unaudited Interim Results For The Six Months Ended
Release Date: 08/03/2004 10:00:01 Code(s): AEG
AVENG LIMITED - UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2003
AVENG LIMITED
Registration number 1944/018119/06
JSE Share code: AEG
ISIN code: ZAE000018081
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
`Targeting consistent long-term value`
CONSOLIDATED BALANCE SHEET
31 31 Percentage 30 June
December December
Rm 2003 2002 change 2003
Assets
Property, plant and 1 946,5 1 804,8 1 922,9
equipment
Goodwill 868,1 1 017,1 959,2
Investments 558,4 490,9 526,1
Deferred taxation 2,5 29,8
Inventories 898,0 1 388,0 1 121,4
Trade and other 2 709,9 2 865,1 3 122,5
receivables
Cash and cash 566,6 709,8 673,8
equivalents
Total assets 7 550,0 8 275,7 8 355,7
Equity and
liabilities
Ordinary 2 603,8 2 540,5 2 823,2
shareholders` funds
Minority interests 5,7 199,5 173,9
Interest-bearing 747,7 551,6 732,1
borrowings - Long
term
Deferred taxation 86,0 53,2
Trade and other 3 026,0 3 533,5 3 242,7
payables
Interest-bearing 1 126,2 1 318,7 1 256,2
borrowings - Short
term
Taxation 40,6 45,9 74,4
Total equity and 7 550,0 8 275,7 8 355,7
liabilities
Net debt-to-equity 50,1 42,4 18 43,9
ratio (%)
Net asset value per 657 641 2 713
ordinary share
(cents)
Included in investments are associated and joint venture companies comprising
unlisted investments valued by the directors at not less than their carrying
value.
STATEMENT OF CHANGES IN EQUITY
Six months ended Year
ended
31 31 30 June
December December
Rm 2003 2002 2003
Ordinary shareholders` funds at 2 823,2 2 555,0 2 555,0
the beginning of the period
Dividends paid (124,4) (105,2) (105,2)
Earnings for the period 68,0 307,3 587,3
Equity accounted reserve (6,8) (42,6)
movements
Foreign currency translation (156,2) (215,3) (169,2)
Repurchase of shares by the (1,3) (2,1)
Share Trust
2 603,8 2 540,5 2 823,2
CONSOLIDATED CASH FLOW
Six months ended Year
ended
31 31 30 June
December December
Rm 2003 2002 2003
Cash generated from operations 265,3 470,6 1 016,0
Working capital movements 419,5 (107,1) (334,1)
Cash generated by operations 684,8 363,5 681,9
Net financing costs (133,9) (119,1) (261,5)
Taxation paid (62,4) (43,5) (118,5)
Cash flow from operations 488,5 200,9 301,9
Dividends paid (124,4) (105,2) (111,0)
Cash retained from operating 364,1 95,7 190,9
activities
Net fixed assets purchased (195,1) (272,2) (551,7)
Acquisitions net of disposals (2,4)
Investments - other (159,2) 205,5 240,9
Net long-term borrowings 26,4 (51,4) 152,9
Net increase/(decrease) in cash 36,2 (22,4) 30,6
and cash equivalents
Cash and cash equivalents at (400,3) (430,9) (430,9)
beginning of period
Cash and cash equivalents at (364,1) (453,3) (400,3)
end of period
CAPITAL EXPENDITURE
Six months ended Year
ended
31 31 30 June
December December
Rm 2003 2002 2003
Expansion 164,2 129,1 403,8
Maintenance 82,7 169,1 423,8
246,9 298,2 827,6
Commitments for future capital
expenditure:
Contracted 33,1 117,7 120,1
Authorised, but not contracted 186,7 201,7 38,6
for
219,8 319,4 158,7
CONTINGENT LIABILITIES
Claims which may result from pending litigation and guarantees issued amount to
R287,1 million compared to R154,6 million at 30 June 2003.
CONSOLIDATED INCOME STATEMENT
Six months ended Year
ended
31 31 Percentage 30 June
December December
Rm 2003 2002 change 2003
Revenue 5 948,8 6 968,9 (15) 13 244,2
Operating income 322,4 467,2 (31) 1 047,1
before
depreciation
Depreciation 195,4 195,9 375,4
Operating income 127,0 271,3 (53) 671,7
Income from 89,1 90,8 155,1
associates and
joint ventures
Income from 34,7 20,4 53,9
investments
Income before 250,8 382,5 880,7
interest paid
Interest paid 168,7 139,5 315,4
Income before 82,1 243,0 (66) 565,3
exceptional items
Amortisation of (26,6) (27,7) (59,9)
goodwill
Non-trading items 10,0 145,3 192,4
Income before 65,5 360,6 (83) 697,8
taxation
Taxation (2,5) 45,8 100,6
Income after 68,0 314,8 (78) 597,2
taxation
Minority interests 7,5 9,9
Earnings 68,0 307,3 (78) 587,3
Net adjustments 17,7 (117,6) (125,6)
for amortisation
of goodwill and
non-trading items
Headline earnings 85,7 189,7 (55) 461,7
Earnings per share
(cents)
Diluted headline 22,0 48,7 (55) 118,6
Diluted earnings 17,5 78,9 (78) 150,9
Headline 22,0 48,7 (55) 118,6
Earnings 17,5 78,9 (78) 150,9
Number of shares
(millions)
In issue 396,1 396,1 396,1
Weighted average 389,3 389,5 389,3
Diluted weighted 389,3 389,5 389,3
average
Dividend per share Nil Nil 30,0
(cents)
Analysis of net
adjustments
Net loss/(surplus) (10,0) (145,9) (191,7)
on disposal of
investments
Net (surplus)/loss 0,6 (0,7)
on disposal of
properties
Non-trading items (10,0) (145,3) (192,4)
Goodwill 26,6 27,7 59,9
Taxation 1,1 6,9
17,7 (117,6) (125,6)
SEGMENTAL ANALYSIS
Revenue
Six Six
months months Year
ended ended ended
31 Dec 31 Dec 30 June
2003 2002 2003
Rm Rm Rm
Business
Segmentation
Construction 3 910,0 4 895,2 9 832,4
Steel and Allied 2 038,8 2 073,7 3 411,8
5 948,8 6 968,9 13 244,2
Revenue
Geographical
Segmentation
Republic of
South Africa 3 784,1 4 119,0 7 871,5
(CMA)*
Africa and Middle 1 270,5 1 846,0 3 398,3
East
Australasia and
South East Asia 894,2 1 003,9 1 974,4
5 948,8 6 968,9 13 244,2
SEGMENTAL ANALYSIS
Operating income
Six Six
months months Year
ended ended ended
31 Dec 31 Dec 30 June
2003 2002 2003
Rm Rm Rm
Business
Segmentation
Construction 6,9 142,6 342,9
Steel and Allied 120,1 128,7 328,8
127,0 271,3 671,7
Assets
Geographical
Segmentation
Republic of
South Africa 3 854,2 3 975,8 3 105,1
(CMA)*
Africa and Middle 1 880,6 1 985,0 3 233,9
East
Australasia and
South East Asia 687,7 1 114,2 787,0
6 422,5 7 075,0 7 126,0
* Common monetary area of South Africa, Namibia, Lesotho and Swaziland.
NOTES
Accounting Policies
The interim financial statements have been prepared in accordance with the South
African Statements of Generally Accepted Accounting Practice, International
Financial Reporting Standards and the listing requirements of the JSE Securities
Exchange South Africa. 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 2003.
COMMENTARY
Financial Review
In line with the profit warning of 2 February 2004, Aveng reports a difficult
first half where revenues and headline earnings declined by 15% and 55%
respectively.
There were three reasons for this downturn in performance:
* The negative impact of foreign currency translation, with the average
rand/dollar exchange rate strengthening by 29% and the closing rate by 23%
compared to the prior period.
* The indirect `knock-on` impact of the strong rand on investment in the
mining, steel-based exports and other South African industry sectors
serviced by Aveng companies.
* Substantial losses on three non-rand denominated southern African road
contracts.
Negative taxation of R3 million resulted from the reversal of deferred tax.
Working capital was well managed, contributing to a marginal reduction in debt
levels despite some significant demands on cash. These included a capex
programme of R247 million, the purchase of the McConnell Dowell Corporation
minorities for R123 million, the payment for additional opencast mining
equipment at R165 million and dividends paid of R124 million.
Shareholders funds reduced by R388 million as a result of a negative foreign
exchange translation of R156 million, a R168 million reduction in minority
shareholders, and dividends paid. Consequently, inspite of a decline in group`s
net debt, the net debt to equity ratio increased to 50,1% compared to 43,9% at
30 June 2003.
Operational Review
Construction, comprising Grinaker-LTA (Africa/Middle East) and McConnell Dowell
Corporation (Australia/SE Asia), had a difficult six months reflected in a
revenue decline of 20% and an operating profit being little better than break
even.
Traditionally, Construction has earned more than half of its revenue in hard
currencies, principally the US$, with a large portion of its remaining business
directed at South African clients in the mining, energy and export sectors. The
latter have themselves been particularly hard hit by the strong rand. As
Grinaker-LTA has no significant involvement in the South African residential
sector, it has benefited little from the buoyant conditions currently being
experienced in this market.
A detailed review of current contracts conducted in January this year indicated
that further losses needed to be accounted for in respect of three non-rand
denominated southern African road contracts. These and other similar jobs had
been tendered for around the time of the merging of Grinaker and LTA, when the
rand was weakening and both companies were aggressively seeking to grow their
hard-currency earning capacity by securing aid-funded US$ denominated road
contracts in Africa. After being delayed by between twelve to twenty four
months, a number of these jobs were awarded simultaneously, resulting in the
then recently merged group`s order book jumping to 129% of annual revenue in
December 2000. Grinaker-LTA`s resources were stretched and, a host of other
issues such as security, cross-border logistics and inflexibility in funding
mechanisms used by the aid agencies served to further exacerbate the problems
being experienced.
Management has accordingly taken the decision not to bid for further road
construction work outside of South Africa, and its neighbouring countries and
will downscale the Roads & Earthworks business unit accordingly.
The international construction market is becoming increasingly challenging, with
clients attempting to pass more risk on to contractors through larger engineer,
procure, contract (EPC) type contracts. Litigation has escalated, and the
traditionally cordial relationship between client, engineer and contractor is
under strain. These developments do of course also bring opportunity as all
parties actively seek a more progressive approach. Those construction companies
able to adapt quickly and capitalise on the changing environment, will benefit.
Steel and Allied, consisting of Trident Steel, Grinaker-LTA Infrastructure and
Mining Services and the Aveng corporate office performed satisfactorily despite
a difficult steel market, which contracted by 19% over the period. Precast
concrete products some of which are linked to consumer demand patterns, did
reasonably well. Motor industry demand was steady and overall cost control
excellent. Revenues declined by only 2% and operating income by 9% compared with
the prior period.
The Saldanha Bay coil processing facility is presently being commissioned. The
new warehouse in Blackheath, Cape Town has been completed, enabling Trident to
integrate its two existing local operations.
Cement has benefited from strong consumer driven demand for residential
building. Industry sales in the second half of 2003 were a significant 6,6%
above the prior period. This buoyant level of activity is also reflected in an
excellent performance from the quarrying and concrete businesses.
The R300 million upgrade of the Dudfield cement factory has been successfully
completed, allowing the company to realise significant operational cost savings
by being able to service its national cement market from just two kilns for the
foreseeable future.
Following current practice in the international cement industry, Holcim
(Switzerland) is in the process of introducing a common branding into their
subsidiaries around the world. Aveng believes that this offers long-term value
for the company and has accordingly supported the adoption of the Holcim brand
in South Africa. Effective 1 February 2004 Alpha (Pty) Limited changed its name
to Holcim (SA) (Pty) Limited.
Dividend
It is the group`s policy to consider paying a single annual dividend after its
30 June financial year-end.
Prospects
In its profit warning on 2 February this year, Aveng stated that `profits for
the year ending June 2004 may be in the region of 50% lower than that of the
corresponding period`. This statement assumed an exchange rate of R7 to the US$.
While the absolute size of the construction order book for execution in the next
two years has declined by 15%, it currently stands at 85% of last year`s
revenue, which is very close to the middle of the 70% - 100% desirable range. As
the business is in the process of contracting revenue, this level of order book
is acceptable.
In addition to the substantial downsizing of its Roads & Earthworks business
unit, Grinaker-LTA is conducting a fundamental review of its market focus,
organisational structure and overhead costs in the light of recent developments
both locally and in the international construction environment. McConnell Dowell
Corporation has done better than the planned profit breakeven for the period and
is getting stronger. The level of complementary capability, cross-learning and
co-operation between Grinaker-LTA and McConnell Dowell Corporation operating in
different parts of the world is particularly gratifying. The successfully
completed R1,8 billion Sasol pipeline project, handed over to the client last
month, bears testimony to this.
The steel and cement businesses continue to perform well and provide a solid
base for the Aveng group`s future growth.
By June 2004 Grinaker-LTA will have been re-engineered and dealt with all
current known problems, enabling the Aveng group to enter the new financial year
with an organisational and overhead structure best suited to meeting its future
challenges. The directors remain committed to the group`s corporate objectives
and believe them to be achievable in the medium term.
Richard Savage
(Chairman)
Carl Grim
(Chief Executive)
Dennis Gammie
(Financial Director)
8 March 2004
Sandton
Directors:
RB Savage* (Chairman), PL Erasmus* (Deputy chairman), C Grim (Chief executive),
CV Campbell*, PF Crowley, BPJ Fourie, DR Gammie, L Gcabashe*, JR Hersov*,
HDK Jones, KK Meissner-Roloff**, V Mntambo* A Mpungwe*, BP Steele*,
M Taback**
*Independent
**Non-executive
Company Secretary:
CM Bishop
Registrars:
Computershare Limited
(Registration number 2000/006082/06),
70 Marshall Street,
Johannesburg, 2001;
PO Box 61051,
Marshalltown, 2107
Telephone (011) 370-5000,
Telefax (011) 688-7717
Registered office:
Block B 204 Rivonia Road,
Morningside, Sandton, 2057
Targeting construction in the developing world supported locally by steel and
cement
For more information visit:
www.aveng.co.za
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