Results announcement for the half-year ended 31 December 2017



(Incorporated in the Republic of South Africa)

(Registration number: 1944/018119/06)

ISIN: ZAE000111829


("Aveng", "the Company" or “the Group”)





Salient features

  • Strategic review completed and implementation underway
  • Revenue increased by 13%, with improved gross margin
  • EBIT profit of R94 million compared to R164 million loss in comparative period
  • Good performance from McConnell Dowell
  • Significant number of legacy claims settled in line with expectations
  • Deferred tax impairment of R243 million
  • Net loss of R346 million and headline loss of R335 million
  • Net debt of R555 million (June 2017: R1 070 million)


Strategic review

Management embarked on an extensive strategic review to ensure the Group’s sustainable future. An independent professional advisor was engaged to assist with the process. This review was completed early in February 2018 following a thorough and robust interrogation of all parts of the business. The review included identifying the businesses and assets that are core to the Group and which support the overall long-term strategy, determining the most appropriate operating structure, as well as recommending a sustainable future capital and funding model.  The results of the review are fully supported by the Aveng Board.  


The business has reached a critical juncture and requires decisive action to create a sustainable future. To address these issues, a comprehensive plan has been developed and implementation has commenced.


The plan comprises the following six pillars:


  1. Simplify: reduce complexity by optimising the Group’s portfolio with focus on growing core operations

Aveng aims to focus its business on being an international infrastructure and resources group operating in selected fast-growing markets, capitalising on its considerable knowledge and experience. With the Group’s strong management teams in McConnell Dowell and Moolmans and unique value offering, the Group aims to unlock value to stakeholders by delivering attractive returns and creating opportunities for sustainable growth.



  1. Reshape: reshape operating structure in line with smaller, focussed group

The Group currently operates a hybrid operating model.  A transition to a lean, agile and decentralised organisation structure will empower management, refocus resources to the new operational strategy and remove bureaucracy to enable enhanced corporate agility and organisational focus.


  1. Grow: improve revenue growth and profitability of core operations

Moolmans is a reputable South Africa based open cut contractor with a solid footprint across Africa. Its focus remains on operational excellence, developing partnerships and leveraging existing relationships. The operating group implemented a number of initiatives to address the current business challenges facing it in order to grow and improve profitability.  These initiatives, amongst others, include an ongoing focus on long-term client relationships, continued enhancement of asset life, growth into selected new markets, an increased service and value offering and optimised capital funding models.


McConnell Dowell, is a well-recognised and respected infrastructure company with the ability to execute complex projects. Its current focus is to deliver and position itself for growth in the growing markets of Australia, Southeast Asia, New Zealand and the Pacific Islands.  The business is showing improvement in performance as it implements its turnaround strategy. Good progress has been made closing out the majority of legacy projects and in the process, the organisation has refocused itself on customer relationships and operational excellence which are now a key point of differentiation.  These essential elements will enable McConnell Dowell to become a sustainable business.


  1. Dispose: Refocusing and simplifying the Group’s portfolio of businesses in an orderly fashion

The outcomes of the strategic review have reaffirmed management’s intention to ensure that both Aveng Trident Steel and Aveng Grinaker-LTA are acquired by new shareholders who are better positioned to compete in the South African economy. 

A further outcome of the strategic review is the decision to exit the Aveng Manufacturing businesses which will position these individual businesses to compete more effectively.

These disposals will reduce the Group’s overall exposure to bonding and guarantee lines, and will result in lower working capital requirements for the Group.

Aveng will continue to enhance the efficiency and profitability of these operations prior to any disposal.  

Management will adopt a considered and systematic approach to identify potential buyers, considering its transformational objectives. The completion of the disposal process will require flexibility from a timing perspective in order to fully maximise value.


  1. Deleverage: reduced debt-burden, sustained by core operations

The current debt levels within the Group are considered to be unsustainable.  The convertible bond creates significant constraints on the Group’s capital structure and is a hindrance in the Group’s efforts to unlock value for shareholders. It is management’s intention to explore options which will allow for the early settlement of all or a portion of the convertible bond.


This deleveraging, including the settlement of the convertible bond, will be funded through improved operational cashflow, proceeds from disposal of non-core assets and an appropriate capital market transaction.


  1. Unlock shareholder value: optimising core operations and disposal of non-core assets

It is believed that the current valuation of the Group does not reflect the intrinsic value of the underlying operations. Value can be enhanced by consistent financial performance by the identified core assets, McConnell Dowell and Moolmans, the disposal of all non-core businesses and assets, reshaping the operating structure in line with a smaller focussed group and the achievement of a sustainable capital structure.


The abovementioned action plan will require a two to three-year period to execute. This plan will be delivered in three phases, namely:

  • Immediate:

Over the next six months management will focus on managing liquidity, reducing risk exposures, enhancing operating performance, disposing of non-core assets and the finalisation of a capital market transaction.

  • Transition: (12 – 24 months)

Managing working capital, enhancing predictability of core business’ performance, continuing the orderly sale of non-core assets, and focus on the convertible bond settlement.

  • Sustainable: (24 – 36 months)

Growing and sustaining core businesses, extracting synergistic benefits and creating shareholder value.


Market review

The overall construction industry in Australia, New Zealand and Asia Pacific remains positive and active across all operating regions with strong opportunities in infrastructure development, primarily driven by population growth and urbanisation. Despite the increased activity in the construction industry, government focus remains on the development of transport infrastructure, energy and utilities facilities. The construction industry across Southeast Asia is expected to continue to experience strong growth, with rapid urbanisation, infrastructure being a key priority of many governments in the regions. These changes are contributing to the development and expansion of inter-city rail projects, new airports and improvements to water and sewerage facilities. There is strong competition in all of these markets.

The mining industry is cautiously optimistic, with mining companies looking to increase output and make new investments in assets. The changing political environment in South Africa and the current rally in commodity prices provides opportunities for Moolmans.

Financial performance

Aveng reported a headline loss of R335 million (December 2016: R 391 million) and a net loss of R346 million (December 2016: R429 million).

Basic loss per share was 87,4 cents loss per share compared to a 98,8 cents loss per share in the comparative period and headline loss per share decreased to 84,4 cents loss per share (December 2016: 98,5 cents loss per share).

Statement of comprehensive earnings

Revenue increased by 13% to R16,1 billion (December 2016: R14,3 billion). The increase was primarily driven by the strong operational performance achieved by McConnell Dowell where revenue grew by an impressive 35%. Despite the challenging operating environment, Moolman’s revenue grew by 24% whilst revenue in Aveng Grinaker-LTA remained flat. The difficult economic landscape continued to have an adverse impact on revenue growth for the Aveng Manufacturing and Processing operating group.

The gross margin for the Group improved to 7,0% from 6,7% in the comparative period.

Net operating earnings increased from a loss of R164 million in December 2016 to a profit of R94 million, due to:

  • Improved results in McConnell Dowell reporting a net operating profit of R51 million compared to a loss of      R47 million in the comparative period. The higher earnings were driven by increased revenue growth across the majority of regions and strong project performance in Australia;
  • Moolmans reported a R104 million operating profit despite the operational challenges of projects underway in Burkina Faso and Botswana;
  • Aveng Manufacturing reported weaker results compared to the comparative period mainly driven by a retraction in underground mining activity, rail contract work and demand for infrastructure products;
  • Aveng Grinaker-LTA reported an increased loss of R212 million compared to a loss of R62 million for the comparative period.  The weaker results were primarily due to project underperformance on major contracts in the Aveng Grinaker-LTA Civil Engineering business unit; and
  • The once-off Genrec award of a R243 million (including interest of R118 million) had a positive impact on net operating earnings following the release of the previously raised provision.

An impairment charge of R21 million was recognised against property assets that were reclassified as held for sale.

Net finance charges of R141 million was significantly lower than the net charge of R226 million reported in the comparative period due to the non-recurring interest benefit received on the Genrec claim.

Statement of financial position

The Group incurred capital expenditure of R350 million (2016: R212 million) applying R300 million (2016:
R145 million) to replace and R50 million (2016: R67 million) to expand property, plant and equipment. The majority of the amount was spent as follows:

  • R53 million at McConnell Dowell, relating to specific projects in Australia and Southeast Asia;
  • R233 million at Moolmans as a result of increased machinery required for the Burkina Faso and Gamsberg projects; and
  • R45 million at Aveng Manufacturing and Processing.

Assets held-for-sale increased by R36 million to R158 million (June 2017: R122 million) due to the reclassification of the Kathu Housing properties (carrying value of R51 million) from Aveng Properties (accounted for in “Other and eliminations”) and the impairment of the Vanderbijlpark property by R15 million.

Amounts due from contract customers (non-current and current) decreased by 9% to R4,1 billion (June 2017:
R4,5 billion).  The decrease is primarily attributable to the settlement of various claims which include Majuba, Mokolo, Genrec and Shondoni in relation to the South African operations, and QCLNG, APLNG and MESA Aurora in terms of the Australian operations.

Deferred tax asset write-off of R243 million. Following the underperformance of some South African operations, the expected future utilisation of the deferred tax assets were assessed. Although assessed losses do not expire, management’s conservative estimate reflects the expected utilisation of the deferred tax asset within the foreseeable future.

Operating free cash flow for the period amounted to R648 million and included:

  • cash inflow of R574 million in McConnell Dowell including positive cash movements from the resolution of legacy projects and overall improvement in project operations;
  • positive cashflow generated by Aveng Grinaker-LTA due to the settlement of legacy project claims and a number of advance payments received;
  • a cash outflow of R87 million at Moolmans after capital expenditure;
  • a cash inflow of R38 million at Aveng Steel due to improvements in working capital;
  • a cash outflow at Aveng Manufacturing of R90 million was driven by the underperformance of various segments due to the decrease in volumes and availability of profitable contract work;
  • net capital expenditure of R248 million;
  • net finance charges paid of R82 million; and
  • taxation paid of R49 million.

Cash and bank balances (net of bank overdrafts) increased to R2,4 billion (2016: R2,0 billion) resulting in a net debt position of R555 million, compared to R1,07 million net debt at 30 June 2017.

Operating review


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”. The Aveng safety strategy has been refreshed and a clear set of safety requirements has been developed for implementation.

No fatalities occurred during the six months ended 31 December 2017. The all injury frequency rate (“AIFR”) for the period was 2,91. This indicator includes all types of injuries and is calculated using 200,000 man-hours as the baseline for its frequency rate. There is a noticeable improvement in the overall Aveng frequency rates.

The Aveng Board and executive leadership continue to support and show commitment to the improvement of safety. Operating Groups have launched various campaigns and initiatives to improve the safety performances in the specific high-risk areas, and the effect is visible in the current safety performance improvement. Further contributing to the safe work culture is the improved focus on effective controls for identified high risk areas.

As part of continued efforts in improved monitoring and reporting, the Group continues its extended reporting to include “monitored incidents” ensuring that the fatal risks associated with circumstances outside the control of Aveng, such as on public roads, are duly recognised and properly understood and provide input where possible to decrease the associated risks. Further to understanding Aveng’s risk exposure reporting now includes Total Recordable Injuries, improvement targets have been put in place as a more reliable indicator of incidents and risks and tracking is taking place to ensure improved reporting.

Efforts to address such risks include a number of safety improvement initiatives focusing on 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 behaviour.

The Group will continue with its unwavering commitment to safety.

Construction & Engineering: Australasia and Asia

This operating segment comprises four business units - Australia, New Zealand and Pacific, Southeast Asia and Built Environs. 

Revenue increased by 35% to AUD628 million (2016: AUD465 million), reflecting the increased activity experienced specifically in the Australian business unit. McConnell Dowell returned to profitability in the period. The positive result confirms the successful implementation of the transformational strategy and a strong turnaround in operational and financial performance. Furthermore, the result reflects the strength of the simplified operating model, standardised business systems and structured governance framework.

The level of new work secured during the period was below expectations reflecting the intensely competitive nature of the markets in which McConnell Dowell operates. Core markets remain buoyant and the focus remains on increasing order book. The Group made strong progress with the high level strategic plan to build a solid foundation for long-term stability, growth and profitability. A strong new leadership team is now in place.  


Revenue increased by 109% to AUD372 million (2016: AUD178 million) due to strong project progress and performance on Amrun Export Facility Jetty, Murray Basin Rail Upgrade, Northern Gas Pipeline and Swanson Dock East Rehab Works. The earnings profile was significantly increased with the strong execution performance on all recently awarded projects.

Southeast Asia

Revenue increased by 3% to AUD113 million (2016: AUD110 million) as the business achieved major milestones with the completion of MES Aurora, Brunei LNG and Banyan Avenue Projects. Unfortunately, the operational results were negatively impacted by underperformance on two infrastructure projects in Singapore. Both these projects are scheduled for completion during the 2018 financial year. The Tangguh LNG export jetty contract, which was awarded to the business in 2017, is progressing well and being executed at tendered margin.

New Zealand and Pacific Islands

Revenue reduced by 45% to AUD91 million (2016: AUD165 million) as the business unit successfully delivered key projects within the region including the City Rail Link project in the Auckland CBD and the Christchurch Southern Motorway in the South Island.

Built Environs

Revenue increased by 148% to AUD52 million (2016: AUD21 million) as the business unit successfully advanced work on Urbanest Student Accommodation and West Franklin Apartments.

Moolmans (previously known as Aveng Mining)

This operating segment comprises the merged businesses of Moolmans and Aveng Shafts & Underground.

The segment reported increased revenue to R2,5 billion (Dec 2016: R2,0 billion). Net operating earnings increased by 14% to R104 million (Dec 2016: R91 million).

Equipment under-performance has negatively impacted the contract in Burkina Faso. High-level meetings have been held in the third quarter of 2017 with the client to mitigate any further losses and agree a revised scope. This has been agreed and revised commercial terms have been in effect since December 2017.

The Karowe (Botswana) contract performance has been negatively impacted by underperforming equipment.  Remedial action has been taken and the contract is planned to be profitable from April 2018. 

The Gamsberg (South Africa) start up contract commenced as planned.  An additional contract for the South Pit was awarded and started in September 2017. 

The Sadiola Mine has reached its end of mine stage and a formal notice has been received informing that the contract will be completed in April 2018. This brings to an end 22 years of Moolmans’ successful operation of this mine.  

Due to the upturn in the commodity prices, existing contracts have also started to increase their volumes. 

Construction & Engineering: South Africa and rest of Africa

This operating segment comprises Aveng Grinaker-LTA and Aveng Capital Partners

Revenue remained flat at R3,2 billion (2016: R3,2 billion) for the period.

Net operating loss increased to R212 million (2016: loss of R62 million). This was largely due to the under performance on Civils projects. Two projects relating to the Buildings business also contributed to the loss.

Civil Engineering

Revenue increased by 14% to R588 million (2016: R516 million). The business made an operating loss of R233 million (2016: R118 million). An independent third party was engaged to review the costs to completion on major contracts in progress and the results of that review have been accounted for. Conditions in the civil engineering markets remain difficult and the business focus is to stabilise the existing projects.

Mechanical & Electrical

Revenue decreased by 32% to R458 million (December 2016: R675 million) as a result of reduced work on the major power projects. Operating profit margins were maintained despite lower revenues resulting in operating profit of R14 million (2016: R22 million). The business has successfully closed out a number of diverse projects over the past reporting period and is well positioned with a solid order book in the petro-chemical market. Good opportunities for growth are present in the mining and related commodities markets.

Buildings and Coastal

Revenue was stable at R1.9 billion with an operating loss of R19 million (December 2016: R20 million profit) due to additional costs incurred on certain projects. The new Old Mutual head office building in Sandton was timeously completed and practical completion was achieved on the CTICC contract in Cape Town. Progress continues on the Dr Pixley Ka Isaka Seme Memorial Hospital in KwaZulu-Natal, Leonardo Towers and 129 Rivonia Road in Sandton.

Aveng Water

Revenue increased by 8% to R151 million (December 2016: R140 million) from operational contracts. The focus of the Aveng Water business is to leverage off the significant advantage in desalination plants and acid mine drainage technology, other water treatment processes and operational maintenance. The South African mining and municipal water sectors offer attractive opportunities for growth.

Manufacturing and Processing

This operating segment comprises Aveng Manufacturing and Aveng Steel.

Revenue decreased by 16% to R3,6 billion (2016: R4,3 billion). A net operating loss of R70 million was reported (2016: R24 million profit).

Aveng Manufacturing

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 15% to R1,1 billion (2016: R1,3 billion). Net operating earnings decreased by 162% to a loss of R57 million (2016: profit of R92 million) reflecting the impact from the slowdown in the infrastructure, rail, underground mining and water sectors. The oil, gas and chemical sectors have shown an improvement since last year. Leadership changes have been implemented to address the underperformance of this operating group. 

Aveng ACS: revenue increased by 3% to R215 million (2016: R209 million) due to an increase in product sales and project activity in the traditional oil & gas market. ACS continues to diversify their product revenues into non-traditional power and mining sectors.

Aveng DFC: revenue decreased by 4% to R228 million (2016: R237 million) following low demand in the local water market. Many local water infrastructure maintenance projects that are in the pipeline have been placed on hold. Revenue from foreign subsidiaries has remained flat, with lower revenues achieved from the Americas, compensated by an increase in revenue from Northern and Eastern Europe.

Aveng Duraset: revenue remained stagnant at R232 million (2016: R232 million) despite lower demand in the underground mining sector due to mine closures and various mines being placed on care and maintenance. Lower local demand has been compensated by exports.

Aveng Infraset: revenue decreased by 5% to R370 million (2016: R388 million). Rail product supply volumes continue to remain subdued. Infrastructure product revenue continued to decline, with lower market demand for pipes, culverts, and landscaping product. Roof tile market demand continues to outstrip supply capacity.

Aveng Rail: revenue decreased by 70% to R76 million (2016: R256 million) mainly due to low local and cross border rail construction activity. Local tenders have yet to be awarded. Similarly, cross border quotes and tenders have been submitted, but have yet to be awarded. Mechanised rail maintenance service volumes remain at low levels.

Aveng Steel

This operating group consists of Aveng Trident Steel

Aveng Trident Steel

Revenue increased by 1% compared to the previous reporting period. Volumes were lower, however the business achieved a higher selling price per ton. Exchange rate volatility has had a negative impact on earnings. Aveng Steel continues to contribute positively to the Group’s liquidity through improved working capital management. Its EBITDA improved to a R7million loss compared to a R30 million loss for the comparable period.


Two-year order book

The Group’s two-year order book amounted to R25,1 billion at 31 December 2017, decreasing by 16% from the R29,9 billion reported at 30 June 2017. This includes a 21% decrease in AUD terms in McConnell Dowell’s order book, translating into a 24% decrease in Rand terms. The Aveng Mining order book decreased by 14% or R1,0 billion, in line with ramp up of contracts. Aveng Grinaker-LTA’s order book decreased by 9%. Securing quality work at targeted margins remains a priority.

The geographic split of the order book at 31 December 2017 was 46% Australasia and Asia (December 2016: 53%), 46% South Africa (December 2016: 41 %) and 8% other (December 2016: 6%).

The potential order book is looking promising with a number of near orders in the Moolmans and McConnell Dowell pipelines.

A number of new projects have been awarded in the period under review, these include:

  • McConnell Dowell was awarded the
    • Abbotts Road, Forms part of the Western Programme Alliance, Australia
    • Public Transport Projects Alliance, Department of Planning, Transport and Infrastructure, Australia
    • ECI contract for Kidston Pumped Storage Hydro Project, Australia
    • Lyttelton Harbour Wastewater Project – Pipeline Diamond Harbour/Governors Bay, New Zealand
    • Te Mato Vai, Cook Islands Government, New Zealand Pago Airport Apron – Phase 1, American Samoa
    • Pagao Pago Runway Overlay, American Samoa
    • Sembcorp Tunnel, Southeast Asia
    • HMAS Stirling BU1 & CEPS2, Built Environs, Australia


  • Aveng Mining was awarded an extension on the Klipbankfontein iron ore project
  • Aveng Grinaker-LTA has been awarded various mechanical & electrical maintenance contracts in KwaZulu-Natal and the Western Cape, Nongoma TVET College Campus (KZN), Aspen extensions (EC), UCT GSB lecture theatre.


Outlook and prospects

The markets serviced by McConnell Dowell are expected to continue to offer growth opportunities with the continued roll-out of large- and medium-sized projects in the major Australian cities. In Southeast Asia, opportunities exist in infrastructure in Singapore, Malaysia, Thailand, Indonesia 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. However, recent changes in the political environment have led to an improved sentiment in South Africa.  There are opportunities to increase exports for the manufacturing operations.

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 implementation of the strategic plan. Non-core assets have been identified and a disposal process has commenced.

Work has commenced on a potential capital market transaction and further details will be provided at the appropriate time.



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



EK Diack                                                                         AH Macartney

Executive Chairman and Acting CEO                             Chief Financial Officer

Date of release: 27 February 2018