Aveng shareholders are advised that in respect of the financial results for the year ended 30 June 2015, the Group anticipates headline earnings per share (?HEPS?) to decline by at least 50% compared to the 112.5 cents per share reported for the comparative period. This translates to HEPS of at most 56.3 cents per share. A further announcement with a range will be issued in due course. HEPS excludes the profit on the sale of Electrix of R713 million after taxation, as well as various impairments recognised against goodwill, intangible assets and ancillary operations.
The challenging economic conditions in the Group\"s domestic and foreign markets, labour disruptions in the mining and steel sectors and higher than expected costs to complete on certain contracts continue to have an adverse impact on the Group's operating earnings. The adverse performance is compounded by the decrease in global steel prices and the contraction in local demand at Aveng Steel, the slower than anticipated turn around to profitability at Aveng Grinaker-LTA and the deterioration of market conditions in Australia that has negatively impacted on the order book of McConnell Dowell. In response to these conditions, the Group has entered into a series of actions to reduce costs, close out contracts and improve operational efficiencies.
Restructuring and cost saving initiatives
The cost saving initiatives mentioned above have unfortunately resulted in further headcount reductions across the Group in the second half of the year. The associated restructuring expenses have been recognised in the current period. During the period, the Group initiated a program to achieve efficiency within the supply chain. This involved engagement with the Group's strategic suppliers to enable cost savings through improved pricing, the elimination of price increases or the improvement of credit terms.
Net finance expenses
As anticipated, headline earnings is expected to be negatively affected by a substantially higher net finance expense due to a lower net cash position, increased commitment fees in support of the Group\"s liquidity position and a higher effective interest rate applied to the convertible bond.
Following the Group's withdrawal of a cautionary on 21 May 2015 there have been no further developments in terms of the sale of the majority of the Group's property portfolio. Pending the receipt of regulatory approval, the effective date of this transaction is anticipated to be in the first quarter of the new financial year. A comprehensive evaluation of the Group's forecast results to June 2015 and its short term business plan has been completed. Considering the Group's operating cash flows (including the repayment of the Queensland Curtis Liquefied Natural Gas (?QCLNG?) advance, if required), future funding requirements, available facilities and related covenants, the Group is considered to be adequately funded at this time and there is no current need for additional capital.
The Group's order book has reduced by 10% since December 2014. This reduction is primarily driven by a contraction in the infrastructure market in Australia, the completion of major projects in Australia and to a lesser extent in the Construction and Engineering: South Africa and rest of Africa segment.
Shareholders are advised that Executive Director David Robinson will be retiring as Managing Director of McConnell Dowell at the end of October 2015. The process to fill this position is well advanced. The Board would like to extend its thanks to David for his valuable contribution over the years. As announced previously, Mahomed Ismail Seedat who joined the Board in July 2012, as an Independent Non-Executive Director will succeed Angus William Band as the Independent Non-Executive Chairman with effect from 1 July 2015. Angus will retire as the Chairman of the Board with effect from 30 June 2015 but will remain on the Board as an Independent Non-Executive Director. The Group will host a conference call with investors and analysts on Thursday, 18 June 2015 at 15h00. A copy of the presentation will be available on the website at www.aveng.co.za from 15h00.
Construction and Engineering: Australasia and Asia
The Group reported a decline in the order book for McConnell Dowell in its interim results to 31 December 2014. While the Group anticipated a reduction in future revenue, as a result of the completion of certain major projects in the mining and oil and gas sectors, market conditions in Australia in particular, have declined, resulting in a further deterioration in the order book. Unsuccessful tenders have led to higher than expected tender costs without a resulting improvement in the order book. In response, a cost reduction program was initiated to reduce costs to a level appropriate to the anticipated reduced revenue.
In order to reduce future uncertainty and de-risk the historical contractual exposure, McConnell Dowell has entered into a settlement agreement on the Hay Point Berth contract in respect of liquidated damages, with a resulting adverse impact on current period operating earnings. McConnell Dowell continues to pursue its legal rights in terms of the QCLNG contract. This legal process continues to progress in line with our previously communicated timeline, finalisation of the arbitration is expected in the latter half of calendar year 2016. Simultaneously, the Group continues to engage with the client to reach a suitable commercial settlement. McConnell Dowell has made progress with the advancement of outstanding issues on the Gold Coast Rapid Transit (?GCRT?) contract, in order to achieve completion of the contract in the first quarter of the new financial year, although this has resulted in higher costs. The transit system is currently operating efficiently and is experiencing higher passenger volumes than anticipated. As planned, significant progress has been made in the formulation and documentation of the commercial claims. McConnell Dowell expects to progress these claims in line with previous guidance.
Construction and Engineering: South Africa and rest of Africa
Despite making strides in its turnaround strategy, Aveng Grinaker-LTA continues to report operating losses. However, it is expected that the operating loss for the second six months will be lower than that reported in the first half. As previously reported, costs associated with Aveng Grinaker-LTA's Mokolo Crocodile Pipeline contract (?Mokolo?) and Grootegeluk Cyclic Ponds contracts, and a water purification contract within Aveng Engineering have exceeded previous estimates. The order book remains biased towards the Building business, with recent wins in flagship projects in Sandton, Cape Town and Durban.
Aveng Grinaker-LTA has continued to execute on the Recovery and Stabilise phase of the Group Strategy. This includes actions to improve risk management, tender processes, project execution and the resolution of commercial positions. Under-performing business units within Aveng Grinaker-LTA and Aveng Engineering have been restructured. During the second half of the year, action was taken to further reduce the costs and improve efficiencies and profitability within the Operating Group.
The new management at Aveng Grinaker-LTA is progressing well with the resolution of underperforming contracts and claims recoveries which should result in a more normalised margin in the near term, although still low due to competitive pressures and a lack of large infrastructure projects.
During the second half of the year, the business of Aveng Moolmans and Aveng Mining Shafts and Underground were merged under a single Aveng Mining leadership team. The performance of Aveng Moolmans continues to meet expectations despite weak commodity prices. Aveng Mining Shafts and Underground continues to manage an underperforming contract in both South Africa and Chile, respectively. In both instances, management are actively engaged with their clients to seek appropriate resolution of the commercial positions. Mining management are evaluating the merged business and will plan future activities in line with the current depressed commodity cycle. Mining continues to focus on cash flow generation in the commodity downturn and has been able to maintain positive cash flow despite the weaker trading environment.
Manufacturing and Processing
Aveng Steel has been negatively impacted by the global fall in steel prices and a contraction in local demand. This has translated into a material decline in both revenue and margins in the second half of the year. In response, a strategy of sizing the business to the current market conditions was implemented, with a further reduction in headcount following the restructuring of a number of processes and functions within the business. In addition, management continue to actively manage the investment in working capital in response to declining volumes in the local market.
Aveng Manufacturing is performing within expectations despite difficult trading conditions. Business units within Manufacturing were adversely impacted by labour disruption in both the mining and steel sectors earlier in the year. Manufacturing continues to seek improved performance through better working capital management. Cash flow in both Aveng Manufacturing and Aveng Steel remains strong.
The above information has not been reviewed or reported on by Aveng's independent external auditors. The Group\"s results for the year ended 30 June 2015 will be released on SENS on 18 August 2015 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 19 August 2015. The presentation will be available for all stakeholders on the Group\"s website, www.aveng.co.za.