- Net loss of R6,7 billion and headline loss of R6,4 billion
- Non-cash impairments and write-downs on long-outstanding uncertified revenue of R5,9 billion
- Headline loss of R630 million excluding non-recurring write-downs and charges
- Queensland Curtis Liquefied Natural Gas Pipeline Project (“QCLNG”) award of R508 million (AUD50,5 million)
- Fixed overhead expenses reduced by R503 million or 18%
- Unacceptable operating performance, hence operational intervention
- Net asset value (“NAV”) reduced to R14,56 per share
- Contracting businesses’ order book for FY18 100% secured
- Agreement reached with major funding banks to renew and extend facilities
- Mr. Kobus Verster has resigned as Chief Executive Officer with immediate effect and Mr. Eric Diack will assume the duties of Chief Executive Officer and Executive Chairman
Write-offs and derisking
Aveng received R508 million (AUD$50,5 million) from the QCLNG award. Given that this was well below expectation and the amount was recognised as a receivable, the Group has recorded a non-cash write-down of R2,4 billion (AUD234 million) in relation to the QCLNG award in its reported results for the year ended 30 June 2017.
Other long-outstanding uncertified revenue
As announced in the trading statement of 20 September 2017, Aveng continuously assesses its recognised uncertified revenue. The progress on the various outstanding claims and project performance are assessed in the context of current performance of the business, the current business environment, and expected future market conditions.
The following factors have guided the assessment:
- Certain unfavourable claim settlement awards, most notably the recent QCLNG award, which realised substantially less than the carrying value, as well as the previously reported Kenmare Resources and Mokolo Crocodile Water Augmentation awards in South Africa
- The current economic climate, which has resulted in a highly litigious environment and a protracted and costly process in bringing long-outstanding claims to commercial conclusion
- The complexity of the claims and the associated commercial challenges
- The limitations such a process places on management’s ability and flexibility to balance the value of commercial settlements with the associated costs, business disruptions, client relationships and impact on the Group’s reputation.
The Board has therefore decided to write-down long-outstanding uncertified revenue and claims in an amount of R2,7 billion for the year ended 30 June 2017.
This change of approach has resulted in six major commercial settlements and arbitration awards being concluded, resulting in positive cash inflows and further reducing uncertainty.
Net debt of R1,07billion (June 2016: R534 million).
Post year-end, the proceeds from the QCLNG award improved the Group’s net cash position by R508 million.
The QCLNG award and write-downs remove significant risk and uncertainty from the Group’s balance sheet. The NAV of the business is now R14,56 per share after recognising the various write-downs and impairments.
Subsequent to the year end, and following the reported outcome of the QCLNG award, the Group engaged with its major funding banks who currently provide various facilities under existing agreements. This engagement resulted in the conclusion of an overarching term sheet, renewing and extending these facilities.
Following credit approval by all the major funding banks, this term sheet has been approved by the Board, and the Group will now commence the process of formalising same with these major funding banks and expects this to be completed in due course.
Following the QCLNG award and the re-evaluation of the long-outstanding uncertified revenue, the Group executed a recapitalisation and working capital injection into its Australian-based operating subsidiaries through McConnell Dowell. The purpose of the plan is to ensure an adequate capital base and working capital.
Aveng Capital Partners: proceeds from sale of infrastructure investments
On 12 December 2016, Aveng successfully disposed of Steelmetals’ N3TC equity interest for a purchase price of
R195 million. On 6 February 2017, the conditions precedent were fulfilled in respect of the Blue Falcon equity interest and the Windfall equity interest. R600 million from these disposals was received on 13 February 2017. A total amount of R821 million was received in respect of the sale of these assets.
Following the long outstanding dispute between Genrec Engineering (Pty) Limited (“Genrec”) and the Aveng Steel Fabrication division, and which relates to Aveng’s entitlement to compensation as determined by an arbitration award in August 2014, the Dispute Adjudication Board (“DAB”) ordered Genrec to pay to Aveng the sum of R123 million; and in addition, to pay interest on such sum at the simple interest rate of 15.5% from 1 September 2011 to date of payment.
The DAB is currently curing calculation errors in its award, which amended award has not yet been delivered to the parties. The parties have agreed that the final value of the award is R124 million (excluding interest).
In terms of the initial award, the total cash award payable to Aveng is R238 million. Genrec is obliged to promptly give effect to the terms of the award and make payment. The award will remain binding unless and until overturned by way of an arbitration process which may follow.
With a view to the medium- and long-term sustainability of the Group’s overall financial and operational structure, an independent professional advisor has been engaged to undertake an overall strategic review of the Group. This review began during August 2017, and incorporates the consideration and evaluation of all key requirements to both support and enhance the future sustainability of the Group, including amongst others:
- The identification of operating businesses and assets that are core to the Group and support the overall Group long-term strategy; and
- Recommending a sustainable future capital and funding model for the Group over the medium-term, including recommendations specific to the Australian-based operating structure and planning for funding options required to fund the repayment of the Group’s convertible bonds maturing in July 2019.
The Group has identified certain assets as non-core, and will embark on a plan during the current financial year to realise value from the disposal of these assets. Once the disposal of non-core assets has been executed and the strategic review has been concluded, the objectives will be to reduce debt in South Africa and to further enhance the working capital structure of the Group.
The outcomes of the strategic review are expected to be completed by 30 November 2017.
Remedial actions to date
Aveng continuously assesses its recognised uncertified revenue. This review resulted in a significant write-down, which has derisked the Group’s balance sheet. The Group has further enhanced its internal controls regarding the recognition of uncertified revenue and renewed its focus on cash flow and performance monitoring across the Group.
Furthermore, taking the current economic environment into account, the Group overheads was significantly down-sized to reflect the current operating environment.
The Profit Improvement Programme initiated at Aveng Manufacturing during the second half of the 2017 financial year, is expected to yield results in the next financial year.
The McConnell Dowell organisational reset has been completed and is now moving towards a stabilised operation preparing for growth. This reset process has resulted in:
- Simplified organisation with new operating model
- Empowered business units
- Strengthened technical and operational capabilities
- Structured project review process: improved project and business governance
- Increased connectivity and collaboration – enhanced efficiency
- Strengthened client focus
- Enhanced and refreshed the executive leadership of the business
Eric Diack was appointed as Executive Chairman on 23 August 2017. Eric's extensive commercial experience will support the management team as it enhances its strategy to enable the Company to realise its significant underlying value.
There is an enhanced focus on cash flow and performance monitoring across the Group. An operational review will commence immediately, focussed on Aveng Manufacturing and Aveng Grinaker-LTA.
Over the course of the last year, the top management has been enhanced and strengthened. The Profit Improvement Plan was implemented and executive focus is now required on unlocking the identified benefits. This programme is focussed on markets, procurement, production efficiency and the rationalisation of production capacity in line with market demand. The targeted improvements will be quantified and reported at half-year.
The appointment of a managing director is a priority and a search is currently underway. An appointment is expected to be made early in the new calendar year. In the interim the organisational design will be reviewed in order to achieve an efficient and effective operating structure. In addition, a comprehensive review of major Civil Engineering projects will be conducted and the Building and Coastal divisions will be subject to a margin enhancement intervention. The Mechanical & Electrical, Aveng Water and Aveng Rand Road divisions are performing according to plan. The results of these interventions will be fully reported at half-year.
The South African infrastructure market remains subdued, reflecting the marginal economic growth experienced in the country. Aveng Grinaker-LTA continues to operate in a tough market environment, with its financial performance adversely affected by low revenue and continued underperformance in project execution, mainly in the civil engineering division. Despite current building projects under construction, it is expected that building activity will reduce and shift to demand in healthcare facilities, student accommodation and other smaller projects. The civil engineering industry remains competitive, with limited new opportunities coming to market. Road rehabilitation work remains dominant. Current public infrastructure spend is focussed on the transportation, energy and water segments.
The pace of expansion in the Australia and Asia Pacific construction industry steadied over the past 12 months; however, the Australian construction industry is expected to grow at a consistent rate over the next five years. Despite the limited growth in the mining and energy sectors, the outlook remains positive. The growth will largely be driven by significant private and public sector investments in road, rail and power infrastructure projects. The Australian building industry remains robust, with spending set to expand on affordable housing programmes and commercial projects. The growth in Southeast Asia remains very healthy and driven by investments in infrastructure, water utilities and energy projects. In addition, the market in New Zealand continues to gain momentum, with government investment in large-scale transport and water projects, which will continue to fuel growth for the region and expansion of the construction industry.
The mining industry in South Africa and globally is cautiously optimistic, with mining companies looking to increase output and make new investments in assets. The current rally in commodity prices provides opportunities for Aveng Mining.
The South African manufacturing industry is experiencing some headwinds due to weak economic activities and difficult trading conditions. The sector had negative annual growth over the past 12 months and it is not expected to improve in the short term. However, having access to a diverse product portfolio, with multiple manufacturing facilities and the ability to access markets in various geographies, provides an opportunity to improve the overall performance of Aveng Manufacturing.
The economic environment facing the steel industry continues to be challenging. Oversupply continues to weigh on the steel sector. The improvements experienced in the current year were mainly due to the increase in raw material prices and increased protection measures rather than any significant improvement in the demand for steel. The recently announced safeguard duties on imports of certain steel products will improve the local market and should benefit Aveng Steel during the next financial year.
Aveng reported a headline loss of R6,4 billion and a net loss of R6,7 billion. This loss included the impairments and write-downs on long-outstanding uncertified revenue of R5,1 billion, and resultant deferred tax asset write-downs of R531 million. In order to better understand the underlying performance of the Group, a discussion of the result excluding the adjustments is required.
Basic loss per share was 1690,6 cents loss per share compared to 25,4 cents earnings per share in the comparative period and headline loss per share increased to 1625,3 cents loss per share (2016: 75,2 cents loss per share).
Statement of comprehensive earnings
Adjusted revenue decreased by 19% to R27,4 billion (2016: R33,8 billion). Revenue reduced in the majority of segments due to weak market conditions in the South African market and reduced activity at McConnell Dowell. However, this was partially offset by some growth in activity levels in Aveng Mining.
The adjusted gross margin of 7.2% for the Group, remained largely in line with the prior year.
Adjusted net operating earnings decreased from a profit of R146 million in 2016 to a loss of R113 million, due to:
- resolution of some major commercial claims at Aveng Grinaker-LTA relating to the Mokolo Water Augmentation and Majuba Rail contracts
- operational underperformance in relation to Civil Engineering and a disappointing performance in Building and Coastal on certain contracts
- completion of work and commercial matters in relation to legacy and historic projects at McConnell Dowell
- weak performance in the Manufacturing businesses in the second half
- separation costs relating to Aveng Mining’s contract with Wesizwe’s Bakubung mine and poor performance on a project in Burkina Faso
though partially offset by:
- the realisation of R503 million savings in overhead expenses throughout the Group, which resulted in a 18% reduction in operating costs compared to June 2016
- improved performance in Aveng Mining’s open cut business during the second half of the year
- continued improved operating performance at Aveng Steel due to efficiencies and improved margins.
The adjusted headline loss increased to R630 million from a R299 million loss in the comparative period.
Net losses of R6,7 billion include the following non-recurring items:
- a present value charge of R165 million (R255 million payable over 12 years) for the expense pertaining to the Settlement Agreement concluded on 11 October 2016 with the South African government
- Aveng previously reflected a debt of R206 million from Kenmare Resources pertaining to work performed in 2011/12. During December 2016, the Arbitration Tribunal issued their partial ruling, with Aveng being awarded their debt of R206 million in full, together with interest. The Tribunal awarded a counter claim in favour of Kenmare in the amount of R150 million. This amount, together with associated legal costs, is the subject of an insurance claim which has not been recognised as an asset
- a non-cash impairment of uncertified revenue that reduces the risk and uncertainty of R5,1 billion, comprising the QCLNG award settlement that was lower than the carrying value (R2,4 billion) and long outstanding uncertified revenue (R2,7 billion). In addition, a resultant impairment of deferred tax assets in the Group of R531 million was recognised, which aligns to the expected future utilisation of the deferred tax asset.
An impairment charge of R278 million was recognised against underutilised assets in Aveng Steel as a result of the continued subdued trading conditions in the steel market. This includes a R225 million charge against Plant & Equipment and R53 million against intangible assets.
Net finance charges of R444 million increased by 30% (2016: R341 million) in relation to the comparative period due to higher utilisation of facilities.
Statement of financial position
The Group incurred capital expenditure of R955 million (2016: R510 million) applying R820 million (2016:
R323 million) to replace and R135 million (2016: R187 million) to expand property, plant and equipment. The majority of the amount was spent as follows:
- R168 million at McConnell Dowell, relating to specific projects in Australia and Southeast Asia
- R123 million at Aveng Manufacturing to increase capacity and optimise efficiencies of its factories
- R557 million at Aveng Mining, mainly to replace older fleet.
Equity-accounted investments increased by 234% to R334 million (2016: R100 million), recognising the 30% investment in Steeledale.
Assets held-for-sale decreased due to the conclusion of both the Aveng Capital Partners and Steeledale transactions.
Amounts due from contract customers (non-current and current) decreased by 53% to R4,5 billion (2016:
R9,5 billion). This balance was impacted by the non-cash impairment on uncertified revenue and the QCLNG award being lower than the carrying value.
Payables other than contract-related increased by R154 million pertaining to the Settlement Agreement with the South African government.
Deferred tax asset write-off of R531 million. Following the QCLNG award and the impairments and write-downs disclosed above, an assessment was performed to evaluate the expected future utilisation of the deferred tax assets in various jurisdictions. Although assessed losses in South Africa and Australia do not expire, management’s estimate reflects the expected utilisation of the deferred tax asset within the foreseeable future.
Operating free cash flow for the period amounted to an outflow of R308 million and included:
- significant cash outflow, albeit less than the prior period, for McConnell Dowell, associated with the completion of work and commercial matters in relation to legacy and historic projects
- Aveng Grinaker-LTA cash outflow as a result of project losses during the second half of the year and retrenchment costs related to the restructuring of the civil engineering business unit
- a cash outflow of R41 million at Aveng Mining due to capital expenditure
- a cash inflow of R58 million at Aveng Steel due to improved working capital management
- a cash outflow at Aveng Manufacturing of R76 million due to capital expenditure and late payments received from debtors
- net capital expenditure of R640 million
- inflows of R821 million and R104 million from the sale of infrastructure investments
- net finance charges of R316 million
- taxation paid of R182 million
Cash and bank balances decreased to R2,0 billion (2016: R2,4 billion) resulting in a net debt position of R1,07 billion, compared to R534 million net debt at 30 June 2016.
Safety remains a core value for Aveng and is integral to the way in which its operating groups conduct their business. Aveng prioritises the wellbeing of its people, clients and communities in which it operates. The Group remains fully committed to delivering on its safety vision of “Home Without Harm, Everyone, Everyday”. As a result, the Aveng safety strategy has been revised and a clear set of safety requirements has been developed for implementation.
The all injury frequency rate (“AIFR”) for the period was 3,28. This indicator includes all types of injuries and is calculated using 200,000 man-hours as the baseline for its frequency rate. Although the AIFR for the period was marginally weaker, Aveng is still showing a longer-term improvement trend over the past few years. Total man-hours have decreased over this period, also impacting on the frequency rates.
Regrettably, two fatalities were recorded in the current financial year. A fatal incident occurred at McConnell Dowell’s Barangaroo Project in Sydney, Australia on 1 March 2017. The deceased, Timothy MacPherson, was a labour hire worker for a marine subcontractor. The second fatal incident occurred when Johannes Qhanya, a jumbo drill operator for Aveng Shafts & Underground, fell approximately 14 metres to the shaft bottom at Aveng Mining’s operation in Limpopo. Sadly, Mr Qhanya passed away from his injuries six months later in June 2017.
The Aveng Board and executive leadership remain concerned with the current levels of unsafe behaviour demonstrated by road users, especially given that the Group works on various public road projects across its operations. For this reason, the Group has extended its reporting to include “monitored incidents” to ensure that the fatal risks associated with circumstances outside the control of Aveng, such as on public roads, are duly recognised and properly understood. Efforts to address such risks include increasing safety controls on road closures, enhancing employee vigilance during work activities inside a road closure or in close proximity to public vehicles, and monitoring employee driver behaviour. Regrettably, two lives were lost in the reporting period in a single monitored road traffic accident that was caused by a third party.
Aveng extends its sincere condolences and deepest sympathies to the families and colleagues of the deceased. The Group will continue with its unwavering safety commitment and efforts within its control to avert such tragedies in future.
Construction & Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA (including Aveng Water) and Aveng Capital Partners
Adjusted revenue decreased by 17% to R6,1 billion (2016: R7,3 billion) primarily due to lower work volumes in the Civil Engineering and Mechanical & Electrical business units and the discontinuation of the Aveng Engineering business.
Adjusted net operating loss increased to R188 million (2016: R187 million). This result includes the adverse effect of the Mokolo Crocodile Water Augmentation project claim, which resulted in earnings being reduced by R110 million.
Adjusted revenue decreased by 41% to R1,3 billion (June 2016: R2,3 billion) reflecting lower activity in the civil infrastructure market. The business made an operating loss of R388 million on contracts with state-owned entities, compared to an operating profit of R24 million in 2016.
Under-recovery of overheads negatively impacted margins. The business overheads were restructured by 30 June 2017. Construction of the Majuba Rail contract is complete and final accounts have been concluded on the Majuba Rail and Mokolo Crocodile Water Augmentation projects.
Mechanical & Electrical
Revenue decreased by 14% to R1,2 billion (June 2016: R1,5 billion) as a result of reduced work on some of the major power projects. The operating margin benefited from the lower overhead cost structure as the business focussed its efforts on shutdown and maintenance work. A substantial turnaround contributed to an operating profit of R68 million (June 2016: R143 million loss).
Buildings and Coastal
Revenue was stable at R3,1 billion with a net operating loss of R75 million (2016: R83 million profit) due to a once-off gain in the prior period as well as the close-out of several complex and fast-tracked projects. Progress continued on the Dr Pixley Ka Isaka Seme Memorial Hospital in KwaZulu-Natal and Leonardo Towers and 129 Rivonia Road in Sandton.
Revenue increased by 15% to R356 million (June 2016: R309 million) due to the successful running of operational contracts and the upgrade of operational components on plants. The completion of loss-making projects and careful management of the cost on the eMalahleni contracts, resulted in the business unit turning around from a loss of
R273 million in 2016 to a profit of R32 million in 2017. The focus of the Aveng Water business is to leverage on the significant advantage in acid mine drainage, water treatment processes and operational maintenance. The South African mining and municipal water sectors offer attractive opportunities for growth.
Aveng Capital Partners
Aveng Capital Partners is responsible for managing the Group’s investments in South African toll roads, real estate and renewable energy concessions and investments.
Aveng Capital Partners continues to manage the remaining assets in the portfolio, including the co-management of the SANRAL rehabilitation project on the N1 highway between Polokwane and Bela Bela and a 30% interest in the Dimopoint property portfolio. Aveng Capital Partners is undergoing a period of restructuring under new management, following the sale of the majority of its operational infrastructure assets. A number of opportunities, which are at an early stage of evaluation, have been identified in the water, transport and government accommodation sectors which could be beneficial to the wider Group.
Construction & Engineering: Australasia and Asia
This operating segment comprises four business units - Australia, New Zealand and Pacific, Southeast Asia and Built Environs. The Middle East business remains a joint venture operated in partnership with Dutco.
Adjusted revenue for FY17 decreased by 25% to AUD912 million (2016: AUD1,2 million), and reflects the reduced level of activity across all business units. Over the course of the FY17, overheads were reduced by 20% to AUD79 million (2016: AUD98 million) and the cost structures were effectively adjusted and are commensurate to the revenue profile of the company. The costs associated with sales and tendering were in line with budget.
Adjusted revenue declined by 38% to AUD328 million (2016: AUD525 million) due to the more selective approach to bidding. The Webb Dock project was completed during the year and performed in line with expectations. The operating earnings were negatively impacted by margin slippage on a few loss-making contracts, most of which were completed in 2017. The new contracts secured in FY17 are being executed at tendered margins.
Revenue decreased by 32% to AUD237 million (2016: AUD346 million) as a result of a major transmission pipeline in Thailand being completed in the prior year. The operational results were negatively impacted by underperformance on two infrastructure projects in Singapore. Both these projects are scheduled for completion during the first half of 2018. The Tangguh LNG export jetty contract, which was awarded to the business in 2017, is being executed at tendered margins.
New Zealand and Pacific Islands
Revenue reduced by 16% to AUD270 million (2016: AUD323 million) as the business unit successfully delivered the Waterview tunnel project and its work on the Christchurch infrastructure rebuild programmes. Even though some projects exceeded tendered margins within the business, these performances were not sufficient to compensate for the adverse impacts of the underperformance on the NOIC and Kawarua Falls Bridge projects, resulting in an overall operating loss for this business. These two loss-making contracts are scheduled for completion during 2018.
Built Environs has experienced a more than 100% increase in work in-hand compared to the same time last year, increasing revenue by 5%. New contract awards include the West Franklin Residential Development, Midvale Shopping Centre and Urbanest Student Housing projects. All projects are performing to tendered margin and there is a good pipeline of work opportunities in both Australia and New Zealand.
This operating segment comprises the merged businesses of Aveng Moolmans and Aveng Shafts & Underground.
The segment reported a decrease in revenue to R4,1 billion (June 2016: R5,0 billion). Net operating earnings decreased by 21% to R219 million (June 2016: R276 million). The gross margin remained at 5% against the comparative period. The pressures experienced by clients due to the downturn in the commodity cycle are still evident in the current year’s results, however the second half has seen significant improvement in the open cut business.
Equipment underperformance has negatively impacted a contract in Burkina Faso. However, new drill rigs have been deployed in the last quarter and have been effectively commissioned. High-level meetings have been held in July with the client to mitigate any further losses and agree a revised scope.
The Bakubung platinum mine separation agreement was concluded on 20 September 2016 with full site evacuation in mid-June 2016. The impact is accounted for in the current year’s results. The finalisation of this agreement removes significant risk from the business.
The Shondoni mine contract was terminated in April 2017. Aveng Mining and Sasol Mining entered into an unsuccessful mediation process and the business will proceed with arbitration in order to resolve the dispute.
The Gamsberg (South Africa) and Karowe (Botswana) mine contracts that commenced in the second half have been mobilised and are progressing to plan. Due to the upturn in the commodity prices, existing contracts have also started to increase their volumes.
The mining operating group has made significant investments in the business through various financing type arrangements to effectively demonstrate the ability to lower its cost of capital and maintain an effective mixture of on vs off balance sheet arrangements. The balance sheet of the mining business continues to remain conservative to allow for any new projects to be capitalised.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
Revenue decreased by 10% to R7,9 billion (2015: R8,8 billion). Net operating loss improved significantly to a loss of
R3 million (2016: R70 million loss).
This operating group consists of Aveng Automation & Control Solutions (ACS), Aveng Dynamic Fluid Control (DFC), Aveng Duraset, Aveng Infraset and Aveng Rail.
Revenue decreased by 18% to R2,4 billion (2016: R3,0 billion). Net operating earnings (EBIT) decreased by 47% to R51 million (2016: R96 million). Top line decline is evident in rail, mining, infrastructure and oil and gas sectors in South Africa. Profit has decreased substantially in the second half of the year. Low GDP growth has seen the traditional manufacturing customer base struggle to gain traction, resulting in lower turnover. Projects and tenders have been slow to be awarded or are subsequently being delayed. Furthermore, key customers are holding back capital expenditure and expansions.
Aveng ACS: Revenue decreased by 7% to R408 million (2016: R441 million) due to lower project activity in the oil and gas sector.
Aveng DFC: Revenue increased by 3% to R481 million (2016: R469 million) due to higher turnover from the foreign subsidiaries. Lower local market demand was prevalent in the water, mining, and projects markets. While South Africa, and European markets remained subdued, the Americas showed an increased growth trend.
Aveng Duraset: Revenue decreased by 7% to R454 million (2016: R487 million). Turnover decline can be attributed to a downturn in market demand from both local and export mines.
Aveng Infraset: Revenue decreased by 13% to R744 million (2016: R851 million). Market demand has declined in both the infrastructure and rail maintenance sectors. Consequently, there have been lower sleeper, pipes and paving tile sales.
Aveng Rail: Revenue decreased by 52% to R372 million (2016: R770 million). Rail maintenance and rail construction continues to remain sluggish in terms of sales for the second half of the year. Tenders have been slow to be awarded and the timelines are constantly being pushed out.
This operating group consists of Aveng Trident Steel and Aveng Steeledale
Revenue decreased by 6% for Aveng Steel compared to the previous reporting period mainly as a result of the inclusion of six months’ trading activities relating to Aveng Steeledale, which is being equity accounted from 1 January 2017. This was after a 70% beneficial interest was sold to Kutana Steel.
Aveng Trident Steel
Revenue increased by 10% compared to the previous reporting period. Volumes were flat, however the business achieved a higher selling price per ton. Exchange rate volatility has had a negative impact on the business earnings. Aveng Steel continues to contribute positively to the Group’s liquidity through improved working capital management. Its EBITDA improved to a R22 million loss compared to a R106 million loss for June 2016.
Two-year order book
The Group’s two-year order book amounted to R29,9 billion at 30 June 2017, increasing by 8% from the R27,7 billion reported at 31 December 2016. This includes a 1% increase in AUD terms in McConnell Dowell’s book, translating into a 3% increase in Rand terms. The Aveng Mining order book increased by 29% or R1,7 billion, in line with increased activity in the commodities sector. Aveng Grinaker-LTA’s order book increased by 2%. Securing quality work at targeted margins remains a priority.
The geographic split of the order book at 30 June 2017 was 51% Australasia and Asia (December 2016: 53%), 41% South Africa (December 2016: 41 %) and 8% other (December 2016: 6%).
A number of new projects have been awarded in the period under review, these include:
- Aveng Grinaker-LTA has been awarded various mechanical & electrical maintenance contracts, the Mtentu bridge in the Eastern Cape, thePampoennek road project in Northwest and the Fincorp office development in Mbabane, Swaziland
- McConnell Dowell was awarded the Murray Basin rail upgrade in Australia, Level Crossing Removal Authority, Western Programme Alliance, Australia, Dryandra Road in Australia, Australia Swanson dock east rehabilitation works in Melbourne, the Northern gas pipeline in Australia, and the U2 on Waymouth development in Australia
- Aveng Mining was contracted to the Khutala (Botswana) and Gamsberg (South Africa) mines.
Outlook and prospects
The markets serviced by McConnell Dowell are expected to offer growth opportunities over the medium-term. In Australia, the continued roll-out of large- and medium-sized projects in the major cities is set to continue. In Southeast Asia, opportunities exist in infrastructure in Singapore, Malaysia, Thailand and the Philippines. Government investment in large scale transport and water projects will fuel growth in the New Zealand market.
Domestically the outlook for the infrastructure market remains subdued with limited visibility on large scale projects. The muted outlook is expected to extend into the manufacturing sector. However, there are opportunities to increase the penetration into selected international markets.
The local construction and manufacturing businesses will remain focussed on improving financial performance in what is expected to be a continuingly difficult market environment.
The improved contract mining environment and some notable contract wins place the operating group in a strong position to pursue its longer-term growth strategy in selected international markets.
Furthermore, the focus will remain on optimisation efforts in Aveng Steel to deliver a break-even result in the current depressed market conditions, which are expected to persist.
The immediate priority for the Group will be the completion of the strategic and operational reviews. Non-core assets have been identified and a disposal process has commenced.
The improvement of liquidity headroom will remain a key focus in the immediate term.
Resignation of Aveng CEO
In compliance with paragraph 3.59 of the Listing Requirements of the JSE, Aveng wishes to announce that Mr Kobus Verster has informed the Company’s Board of Directors of his resignation as Chief Executive Officer and Executive Director, with immediate effect.
Kobus has made the decision to step down as CEO of the Company to pursue other opportunities.
Mr Eric Diack will assume the duties of CEO, until such time as a new CEO has been appointed.
Financial assistance: Notice to shareholders in terms of Section 45(5) of the Companies Act.
In terms of the special resolution that was adopted by the Company at the Company’s general meeting on 21 October 2016, the shareholders of the Company authorised the Company to provide financial assistance to all related and inter-related companies within the Group.
The Company will be providing loan funding to Aveng Australia Holdings Proprietary Limited. These loans constitute "financial assistance" as defined in section 45(1) of the Companies Act, 2008.
Accordingly, notice is hereby given that, in terms of the provisions of section 45(5) of the Companies Act, and pursuant to the special resolution referred to above, the board of directors of the Company has adopted resolutions to approve the provision of financial assistance to Aveng Australia Holdings Proprietary Limited. The financial assistance will exceed one-tenth of 1% of the Company's net worth at the time of passing the resolution.
Having considered all reasonable financial circumstances of the Company in terms of and pursuant to the provisions of section 45 as read with section 4 of the Companies Act, the board satisfied itself that:
- immediately after providing the financial assistance referred to above, the Company would satisfy the solvency and liquidity test contemplated in section 4 of the Companies Act
- all relevant conditions and restrictions relating to the granting of such financial assistance by the Company contained in the Company's memorandum of incorporation are satisfied
- the terms and conditions on which such financial assistance is to be given are fair and reasonable to the Company.
The financial information on which any outlook statements are based has not been reviewed or reported on by the external auditor. These forward-looking statements are based on management’s current belief and expectations and are subject to uncertainty and changes in circumstances. The forward-looking statements involve risks that may affect the Group’s operations, markets, products, services and prices.
By order of the Board