Friday 21st October, 2016
Chairman statement to shareholders at AGM
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
SHARE CODE: AEG
(â??Aveng Groupâ?, â??Avengâ? or \"Group\")
AVENG GROUP CHAIRMAN MAHOMED SEEDAT'S STATEMENT TO SHAREHOLDERS AT THE
ANNUAL GENERAL MEETING HELD ON 21 OCTOBER 2016
Operating conditions in South Africa and other markets in sub-Saharan Africa, Australasia and Southeast
Asia remain difficult due to the continued global economic downturn and associated intense competition.
Challenging economic conditions are expected to continue in the short term, although with more positive
medium term opportunities in Australia. More recently, Aveng has experienced improved tender activity
levels in mining, Australia, New Zealand and Southeast Asia as new opportunities come to market.
Aveng is today a more focused business and well positioned for improved performance. This allows the
business to position itself for profitable growth within the second phase of our strategy.
Since the 2016 year-end, Aveng has progressed the following strategic transactions:
The monetisation of the Aveng Capital Partners' investment portfolio has been concluded following four
major infrastructure investments reaching a position and a time where meaningful value could be extracted.
Royal Bafokeng Holdings (Pty) Ltd will acquire three of these assets while Futuregrowth, an existing
shareholder of the N3TC will exercise their pre-emptive rights and acquire the Group's full equity interest in
Aveng has reached an agreement with Kutana Steel whereby Kutana will acquire a 70% interest in the
Aveng Steeledale business.
These two transactions are subject to shareholder approval at a shareholders' meeting scheduled for 14
More recently, Aveng (Africa) Proprietary Limited entered into a binding agreement with Kutana Construction
whereby Kutana will acquire a 51% beneficial interest and a 45% economic interest in Aveng Grinaker-LTA,
with the intention of substantially transforming the business. This transaction will achieve Aveng's
transformation objectives through partnering with a black women-owned and led company, and resulting in
the introduction of a CIBD-certified emerging contractor into the market. This will position Aveng Grinaker-
LTA for future growth and sustainability and will realise real value for shareholders. This transaction
comprises the disposal of an interest in Aveng Grinaker-LTA's business units. The effective date of this
transaction is on or about 1 February 2017, subject to shareholder and regulatory approval and other
Following an extensive period of negotiation Aveng Africa entered into a Settlement Agreement with the
South African Government. As part of the settlement, Aveng, along with other listed construction companies
have committed to contributing to a development fund. Aveng will contribute R21,25 million per annum for
the next 12 years. The present value of this obligation is approximately R170 million. Through the
Settlement Agreement reached Aveng is rebuilding trust and confidence with the public sector, in order to
collaboratively contribute to the infrastructure development needs of South Africa and the region as a whole.
The Settlement Agreement contains certain transformation obligations. Kutana Construction has committed
to assisting Aveng Africa to fulfil its transformation obligations in terms of the Settlement Agreement, by
means of the proposed transaction mentioned above.
The Group is still in negotiations in relation to the sale of Aveng Trident Steel.
Construction and Engineering - Australasia and Asia: The planned return to reasonable profitability and
reversal of the negative working capital and cash flow cycle is progressing, albeit at a slower pace than
anticipated. The guidance relating to the timing of the final outcome of both the QCLNG and Gold Coast
claims remains unchanged. The outcome of both of these claims remains a material risk to the Group, albeit
Construction and Engineering - South Africa and rest of Africa: Aveng Grinaker-LTA has established a solid
base for future profitable growth, led by a stable, lean and disciplined management team. The planned
return to profitability is on track, while even greater attention will be given to driving the transformation
following approval of the Kutana transaction. Political and financial uncertainty together with low commodity
prices, continue to result in very competitive market conditions with subdued activity in the civil and
mechanical & electrical markets, however Aveng Grinaker-LTA Civil Engineering has recently been able to
replenish its order book through the award of a number of contracts.
Mining: Despite a marginal improvement in the mining space conditions remain challenging and lower
activity levels are expected to continue in the short term. Opportunities to deploy idle fleet are anticipated
and strong cash flow is expected in the 2017 financial year. Following amicable discussions with the client,
the scope of works on the Wesizwe Bakubung contract has been reduced. As a result, the completion date
of the contract has been brought forward and is now expected to be May 2017. The revised agreement
removes a significant risk that was highlighted in the 2016 financial results.
Manufacturing and Processing: Aveng Manufacturing continues to be impacted by the lack of rail
construction projects in SADC and the curtailment of rail maintenance work. The launch of a profit
improvement project is expected to improve performance in FY 2017. Aveng Steel remains negatively
impacted by low levels of infrastructure investment, there has however been some improvement in market
conditions following domestic price increases. This, together with optimal stockholding are expected to have
a positive impact in the 2017 financial year.
Order book: The Group's two year order book decreased by 5% from R28,1 billion at 30 June 2016 to R26,6
billion at 30 September 2016. The Construction and Engineering: Australasia and Asia operating segment's
order book decreased by 13% in Australian dollar terms from AUD1,5 billion at June 2016 to AUD1,3 billion
at September 2016. Construction and Engineering: South Africa and rest of Africa's order book increased by
13% from June 2016 to R7,4 billion at September 2016. The Mining order book decreased by 9% to R4,5
The Group issued its 2016 Annual Integrated Report to stakeholders on 20 September 2016. The
consolidated annual financial statements and Integrated Report have been published on the Group website,
The interim results for the six months to 31 December 2016 will be released on SENS on 21 February 2017
when the Group will be updating the market on its business in a presentation in Johannesburg on the same
day, and in Cape Town on 23 February 2017. The presentation will be available for all stakeholders on the
Group's website, www.aveng.co.za.
This announcement includes forward-looking statements that reflect the current views or expectations of the
Board with respect to future events and financial and operational performance. All statements other than
statements of historical fact are, or may be deemed to be, forward-looking statements, including, without
limitation, those concerning: the Group's strategy; the economic outlook for the industry; use of the proceeds
of any rights offer; and the Group's liquidity and capital resources and expenditure.
These forward-looking statements speak only as of the date of this announcement and are not based on
historical facts, but rather reflect the Group's current expectations concerning future results and events. The
Group undertakes no obligation to update publicly or release any revisions to these forward looking
statements to reflect events or circumstances after the date of this announcement.
On behalf of the Board
21 October 2016
JP Morgan Equities South Africa Proprietary Limited
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