| Mon 12 Sep 2005, 8:28 | | Aveng Limited: Audited group results for the year |
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Aveng Limited: Audited group results for the year ended 30 June 2005
Aveng Limited:
Registration number 1944/018119/06
Aveng
`Building sustainable value`
Audited group results for the year ended 30 June 2005
Consolidated balance sheet
2005 2004
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 1 858 1 891
Goodwill and other intangibles 763 718
Investments 691 555
Deferred tax 143 66
3 455 3 230
Current assets
Inventories and contracts in progress 1 345 1 018
Trade and other receivables and 3 293 2 887
prepayments
Cash and cash equivalents 857 746
5 495 4 651
TOTAL ASSETS 8 950 7 881
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` funds 2 921 2 495
Minority interests 9 5
Total shareholders` funds 2 930 2 500
Non-current liabilities
Interest-bearing borrowings 1 418 691
Deferred tax 28 28
1 446 719
Current liabilities
Trade and other payables 3 900 3 256
Short-term borrowings 605 1 406
Taxation payable 69
4 574 4 662
TOTAL EQUITY AND LIABILITIES 8 950 7 881
Cash flow statement
2005 2004
Rm Rm
Cash retained from operating 288 345
activities
Net fixed assets purchased (313) (298)
Minorities acquired (136)
Investments - other 162 135
Net long-term borrowings 861 (89)
Net increase/(decrease) in cash and 998 (43)
cash equivalents
Cash and cash equivalents at beginning (444) (401)
of the year
Cash and cash equivalents at end of 554 (444)
the year
Other group information
2005 2004 %
Rm Rm change
Determination of headline earnings:
Adjustment for amortisation of 46
goodwill
Net surplus on disposal of properties (24) (4)
and equipment
Net loss/(surplus) on disposal of 1 (15)
investments
(23) 27
Earnings 387 189
Headline earnings 364 216
Capital expenditure
Expansion 262 245 7
Maintenance 207 168 23
469 413 14
Goodwill, intangibles and amortisation
(net)
At beginning of the year 719 959
Acquisition of subsidiaries (33)
Adjustment due to adoption of IFRS 3 25
Foreign exchange movements 20 (162)
Current year change - Goodwill (45)
- Intangibles (1) (1)
At end of year 763 718
Number of shares (millions)
In issue 396 396
Weighted average 389 389
Net debt to equity ratio 40% 54%
Consolidated income statement
2005 2004 %
Rm Rm change
Revenue 13 535 11 740 15
Operating income before depreciation 711 620
Depreciation 384 393
Operating income 327 227 44
Income from associates and joint 270 184
ventures
Income from investments 82 66
Income before interest paid 679 477 42
Interest paid 240 281
Income before goodwill and non-trading 439 196 124
items
Amortisation of goodwill and other (2) (47)
intangibles
Non-trading items 23 20
Income before taxation 460 169 172
Taxation 72 (19)
Income after taxation 388 188 106
Minority interests 1 (1)
Earnings 387 189 105
Determination of headline earnings
Earnings 387 189
Net adjustment for amortisation of (23) 27
goodwill and non-trading items
Headline earnings 364 216 69
EARNINGS PER SHARE (cents)
Earnings 99,3 48,5 105
Headline 93,5 55,3 69
NET ASSET VALUE PER SHARE 737,4 629,8 17
Dividend per share 14,0 (100)
Segmental information
2005 2004
Rm % Rm %
Revenue
Construction - Grinaker-LTA 6 765 50 5 657 48
Construction - McConnell Dowell 1 796 13 1 928 17
Steel and Allied 4 974 37 4 155 35
13 535 100 11 740 100
Operating income
Construction - Grinaker-LTA (18) (5) (126) (54)
Construction - McConnell Dowell (117) (35) (51) (23)
Steel and Allied 462 140 404 177
327 100 227 100
Geographical revenue
Republic of
South Africa (CMA) 8 825 65 7 547 64
Africa and Middle East 2 855 21 2 415 21
Australasia and
South East Asia 1 855 14 1 778 15
13 535 100 11 740 100
Holcim (South Africa)
(Proprietary) Limited - (100%)
Revenue 3 967 3 062
Operating income 1 099 723
NOTE: The financial information above relates to Holcim (South Africa)
(Proprietary) Limited (100%) and not the equity accounted entity Altur. Aveng
Limited holds its 45,65% stake in Holcim (South Africa) through Altur.
NOTES
These results have been compiled in accordance with International Financial
Reporting Standards (`IFRS`). The presentation of these results also conform to
the Listings Requirements of the JSE Limited and Schedule 4 of the South African
Companies Act. The accounting policies used in the preparation of the results
are consistent in all material respects with those adopted in the annual
financial statements from the year ended 30 June 2004, except for the effect of
the adoption of IFRS 3: Business Combinations.
IFRS 3: Business Combinations
The group adopted IFRS 3: Business Combinations during the current financial
reporting period. The adoption of this statement resulted in a change in the
accounting policy for goodwill. An entity shall apply IFRS 3 prospectively from
the beginning of the first annual period on or after 31 March 2004. In
accordance with the provisions of this statement:
- effective 1 July 2004, the group discontinued amortising goodwill;
- effective 1 July 2004, the group eliminated the carrying amount of the related
accumulated amortisation with the corresponding decrease in goodwill; and
- effective 1 July 2004, annually test the goodwill for impairment in accordance
with IAS 36.
The adoption of this accounting policy resulted in goodwill amortisation of R45
million ceasing and the reversal of R25 million of negative goodwill. The impact
of the adoption of IFRS 3 is reflected below.
2005 2004
IFRS 3: Business Effect Rm Rm
combinations: Impact on
financials
Balance sheet
Distributable reserves Increase 70
Goodwill Increase 70
Income statement
Amortisation of goodwill Decrease 45
Comparative unchanged
IAS 17: Leases
In prior years, operating lease payments were recognised in the income statement
in the year incurred. Circular 7/2005 issued in August 2005, by the South
African Institute of Chartered Accountants, requires minimum lease payments that
are subject to fixed escalations to be spread evenly over the life of the lease
instead of as incurred.
IAS 17 Leases: Impact on 2005 2004
financials
Payments spread evenly Effect Rm Rm
over life of lease
Balance sheet
Distributable reserves - Decrease 2 3
current year
Distributable reserves - Decrease 17 13
prior year
Trade and other payables Increase 19 17
Income statement
Operating expenses Increase 2 3
Comparatives restated
IAS 17 Leases: Impact on 2005 2004
financials
Lease reclassification Effect Rm Rm
Balance sheet
Distributable reserves - Decrease 1 1
current year
Distributable reserves - Decrease 8 7
prior year
Property, plant and Increase 39 40
equipment
Interest-bearing Increase 48 48
borrowings
Trade and other payables Increase 6 6
Trade and other Increase 6 6
receivables
Income statement
Operating expenses Increase (6) (6)
Depreciation Increase 1 1
Interest paid Increase 6 6
Comparatives restated
The annual financial statements have been prepared on a going-concern basis.
The results have been audited by Ernst & Young and the unqualified audit opinion
is available on request from the company secretary at the company`s registered
office.
The group`s annual financial report will be available by the end of September
2005.
Statement of changes in equity
Share Share
for the year ended capital premium
30 June 2005 Rm Rm
Balance at 1 July 2003 19 930
Accounting policy IAS 17
Dividends paid
Earnings for the year
Equity accounted reserve
movements
Foreign currency
translation
Balance at 30 June 2004 19 930
Dividends paid
Earnings for the year
Equity accounted reserve
movements
Foreign currency
translation
Negative goodwill transfer
Revaluation reserve
Transfers
Balance at 30 June 2005 19 930
Statement of changes in equity
Non
distri-
butable Retained
for the year ended reserves income Total
30 June 2005 Rm Rm Rm
Balance at 1 July 2003 (100) 1 974 2 823
Accounting policy IAS 17 (20) (20)
Dividends paid (124) (124)
Earnings for the year 189 189
Equity accounted reserve movements (15) (15)
Foreign currency translation (358) (358)
Balance at 30 June 2004 (473) 2 019 2 495
Dividends paid (55) (55)
Earnings for the year 387 387
Equity accounted reserve movements (6) (6)
Foreign currency translation 42 42
Negative goodwill transfer 25 25
Revaluation reserve 33 33
Transfers (1) 1
Balance at 30 June 2005 (405) 2 377 2 921
Commentary
Directors are pleased to report that the first step in Aveng`s recovery
programme has been successfully completed, as demonstrated by the 69% growth in
headline earnings. This marginally exceeds the growth indication announced to
the market in January this year.
With a return on average equity of 13,4% the group is just short of its target
to achieve a real return of 10% for shareholders. Most encouraging is the 10%
decline in net debt and the associated reduction in the net debt to equity ratio
to 40%, the lowest in five years and fast approaching the Aveng target of 35%.
The group successfully raised R1 billion in the form of a seven year, 6,125%
convertible bond early in 2005. The interest on the bond is payable semi-
annually in arrears in rands.
Operations
Safety is of paramount importance in our business. The past year DIFR (lost time
injuries per 200 000 man hours worked) was an outstanding 0,69 (2004: 0,62) in
the construction cluster compared to a South African industry average recorded
by the compensation commissioner of 8,6.
Grinaker-LTA Construction, the largest of the Grinaker-LTA operating groups,
generated revenue of R5 billion in 2005 and made a small profit before head
office overhead cost allocations. Building and Property Development contributes
approximately 36% of construction`s revenue. These businesses have performed
well. Civils, Roads and Earthworks and Underground Contracting (38% of
construction revenue) was primarily responsible for last year`s large losses in
construction. While not yet profitable, Roads and Earthworks is at breakeven and
is set to make a positive contribution in 2006. Civils and underground
contracting continue to perform well. Mechanical and Electrical (26% of
construction revenue) had a difficult year, largely because of some large loss-
making contracts in the Middle East. It disposed of a number of its smaller non-
core operations during the year.
Grinaker-LTA Opencast Mining (Moolmans) generated revenue of around R1,5
billion. It has yet to resolve its difficulties with Aquarius Platinum where it
is contracted to provide mining services to the Marikana Mine. Independent
auditors are completing their analysis of the `rise and fall` escalation
dispute. While the settlement of this matter will undoubtedly go to arbitration.
Management are actively trying to find a workable solution going forward.
Grinaker-LTA Process Engineering`s annual revenue of approximately R340 million,
has significant growth potential. Its activities are upstream of construction on
the project value chain and it uses its niche skills to engineer and project
manage solutions principally for mining, refining and energy clients.
McConnell Dowell generated revenue of R1,8 billion for the year, and operating
profits of R55 million, including R17 million of joint venture contract
contributions. Unfortunately there were a number of negative once-off
adjustments, including the Walter Bau AG liquidation write-off of R41 million,
the settlement of a number of quarantined projects at a cost of R25 million and
the reversal of R90 million of previously recognised revenue on contracts
currently in dispute, to bring McConnell Dowell into line with Aveng`s revenue
recognition guidelines. These adjustments resulted in an operating loss of R117
million for the year. During the year a shareholders loan of R195 million was
converted into equity. McConnell Dowell is focused mainly in the areas of Civil
and Marine Contracting (54% of revenue), Mechanical and Pipelines (23% of
revenue) and Electrical Maintenance (23% of revenue).
Steel & Allied, which is made up of Trident Steel, Grinaker-LTA Manufacturing
and the Aveng corporate office, increased revenues by 20% to R5 billion, 37% of
Aveng`s revenue. Operating income increased by 15% to R463 million, after
expensing R35 million in respect of the convertible bond and R31 million
relating to the executive incentive schemes.
Trident Steel generated just over 60% of the Steel & Allied revenue with
approximately one third of its sales going to each of the automotive and
manufacturing sectors. Construction absorbed 22% of sales and exports about 9%.
A number of capital investments were completed during the year to enhance the
cluster`s service capability. The most important was a large laser cutting bed
and extensions to Trident Sterling Tube which supported the consolidation of all
its operations into a single facility at Alrode.
Grinaker-LTA Manufacturing contributed close to 40% of Steel & Allied`s revenue,
up from 33% in the prior year. Its Steeledale and Infraset businesses have been
particularly active as they benefited indirectly from the current housing boom.
Duraset will recover as mining investment picks up and Lennings Rail will
benefit from infrastructure spending in Transnet, South Africa`s rail utility.
Holcim (South Africa) revenue of R4 billion for the year was 30% higher than the
prior year while operating income of R1,1 billion reflected a 52% increase. This
enabled the company to practically eliminate its debt. Capital expenditure was
relatively low at R145 million as the R165 million upgrade to the precipitators,
and related work on Dudfield Kiln No.2, to bring emission levels to
international standards, had to be postponed due to high cement demand. In spite
of its adding 500 000 tons of additional capacity in January 2004, the company
is now running close to capacity. The board is currently reviewing the
situation.
Prospects
The next few years will be important for the South African construction
industry. The low interest rate led consumer boom that benefited the housing,
cement and associated industries during the past two years is moving to the
upstream supply chain, principally retail, logistics and manufacturing. Our
building and property development companies are experiencing increases in
activity.
Other important macro variables in our target markets are the rand/dollar
exchange rate, commodity prices activity in China and the oil price. While the
rand has remained strong and is expected to remain so for the foreseeable
future, it has also been relatively stable. Industry is adapting to the stronger
currency and we are seeing signs of increased investment from exchange rate
sensitive mining clients. In addition, high oil and commodity prices are
stimulating investment across the globe. This augers well for group companies,
all of which are keenly focused on serving the mining and energy industries.
Activity in China and the associated demand for resources is of particular
benefit to McConnell Dowell. Finally, we have seen a definite change in the
public sector infrastructure investment climate in South Africa. While
implementation capacity remains a challenge, there is an increased level of
urgency.
Because Grinaker-LTA construction held back resources to execute the Gautrain
project, its order book, excluding Opencast Mining and Process Engineering, is a
relatively low 79% of the prior year`s revenue. It therefore has valuable excess
capacity to respond to the growing construction requirements of its important
clients and benefit from the increased level of work available. Grinaker-LTA
Process Engineering has a two-year order book of 99%, Grinaker-LTA Opencast
Mining of 194% and McConnell Dowell`s order book is 99%. We are confident that
the Steel & Allied businesses and Cement will continue to deliver solid
performances although it would be unrealistic to expect substantial improvements
off the current high levels in the year ahead.
Aveng will deliver on its three corporate objectives in 2006:
* a growth in headline earnings per share of CPIX +10%
* a return on shareholder equity of CPIX + 10%
* a net debt to equity ratio of 35%
Dividend declaration 2005
Dividend No 6 of 23,0 cents per share, being the total dividend in respect of
the financial year ended 30 June 2005 (2004: 14,0 cents per share) has been
declared payable to shareholders recorded in the share register at close of
business on Friday, 21 October 2005.
The salient dates are:
Last date to trade shares cum dividend Friday, 14 October 2005
Shares trade ex dividend from Monday, 17 October 2005
Record date Friday, 21 October 2005
Payment date Monday, 24 October 2005
No dematerialisation or rematerialisation of shares may take place for the
period from 17 October 2005 to 21 October 2005, both days inclusive.
On Monday, 24 October 2005, the dividend will be electronically transferred to
the bank accounts of all certificated shareholders unless this has not been
requested by or is not available to them. If electronic funds transfer is not
applicable cheques dated 24 October 2005 will be posted on that date. Transfers
will be made to the dematerialised shareholder accounts at their CSDP or broker
on 24 October 2005.
By order of the board
RB Savage Chairman
C Grim Chief Executive
DR Gammie Director Finance
Sandton, 9 September 2005
Targeting construction in the developing world supported locally by steel and
cement
Directors: R B Savage* (Chairman), P L Erasmus* (Deputy Chairman), C Grim (Chief
Executive), D R Gammie (Finance), B P J Fourie, L Gcabashe*, J R Hersov*, H D K
Jones, W E Lucas-Bull*, K W Meissner-Roloff*, V Z Mntambo*, D G Robinson
(Australian), B P Steele*
*Non-executive director
Company secretary: C M Bishop
Registrars: Computershare Investor Services 2004 (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:
ZAE 000018081 Registered office: Block B, 204 Rivonia Road, Morningside, 2057
For more information visit
www.aveng.co.za
Logos
McConnell Dowell
Grinaker-LTA
Trident Steel
Holcim
