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AEG - Aveng Limited - Business Update

Release Date: 03/11/2011 10:19
Code(s): AEG
Wrap Text

AEG - Aveng Limited - Business Update AVENG LIMITED (Incorporated in the Republic of South Africa) (Registration number: 1944/018119/06) ISIN: ZAE000111829 SHARE CODE: AEG ("Aveng Group". "Aveng" or "Group") BUSINESS UPDATE: AVENG GROUP CHAIRMAN ANGUS BAND`S STATEMENT TO SHAREHOLDERS AT THE AGM HELD ON 3 NOVEMBER 2011 Against a backdrop of global economic uncertainty and slower than anticipated domestic economic recovery, the South African construction sector remains challenging for the Aveng Group. However, other sectors and geographies in which the Aveng Group is active are showing growth and resilience which will benefit both Aveng Moolmans and McConnell Dowell. The Group`s potential order pipeline remains stable at R110 billion. Its two year order book has increased by 18% since 30 June 2011 from R37 billion to R43.5 billion as of 30 September 2011. Approximately 85% of the order book is from the private sector and 73% is in respect of projects outside of South Africa. Construction and engineering South Africa The South African economic environment continues to be impacted by ongoing delays in contract awards, particularly in the public sector. The Aveng board is encouraged by Finance Minister Pravin Gordhan`s medium-term budget strategy statement on 25 October 2011 which highlighted a shift in government spend from consumption-driven expenditure towards a greater investment in economic infrastructure and welcomes the programmes aimed at addressing project management capacity in government. Public sector infrastructure spend is currently estimated at R233 billion, or 7.8% of GDP, with government`s infrastructure plans for the next three years increasing to R802 billion. The Aveng board endorses the Minister`s comments that this substantial investment programme "should provide considerable opportunity for local construction and manufacturing development and job creation." Aveng Grinaker-LTA (Including Aveng E-PC Aveng Water) Private sector work currently comprises approximately 81% of Aveng Grinaker- LTA`s order book which was R9.1bn at 30 September 2011 compared to R10.2bn at 30 June 2011. The unit`s two year order book indicates that approximately 10% of work over this period will be generated by its international operations. More recent contract awards include; - The Mokolo Crocodile water augmentation project near Lephalele - The Boardwalk Casino in Port Elizabeth - The Bridge City railway line project in Durban Unresolved claims in the steel fabrication contracts for Medupi and Kusile power plants continue to affect both profitability and liquidity. Progress has been made in resolving these issues positively. McConnell Dowell The Australasian markets continue to provide good growth opportunities, currently underpinned by the Mining and Oil & Gas sectors. McConnell Dowell`s offshore operations are performing well within the constraints of highly competitive international market conditions. As reported previously, three large projects, namely the Adelaide desalination plant, the Komo airport and the QCLNG export pipeline are experiencing difficulty with a number of commercial issues which remain unresolved. These currently pose a material risk in respect of completion and project cost overruns. A significant proportion of management effort is being dedicated to these projects, so as to ensure effective and timely project execution and risk mitigation. During the quarter McConnell Dowell was awarded several new contracts and the order book has grown substantially to R26bn which compares to R19Bn at 30 June 2011. These include - An alliance agreement with other parties for the rehabilitation of earthquake-damaged infrastructure in Christchurch, New Zealand - The construction contract for the Hume Dam in Albury-Wodonga for the New South Wales State Water Corporation - The Waterview tunnel project in New Zealand - AP LNG Pipeline in Queensland - Vale Load-out facility in Malaysia Aveng Moolmans Aveng Moolmans has continued to secure new contracts in southern and central Africa of which the largest is the five-year Tshipi Borwa Manganese Mine project in the Northern Cape, South Africa. The current order book of R7.2bn is marginally down on 30 June 2011 (R7.3bn) which is a reflection of the normal contract renewal and replacement cycle within the business. On-going demand for commodities, supported by the weaker Rand, is expected to support the continued viability of South African commodity producers. Manufacturing and processing Demand within Aveng Manufacturing and Aveng Trident Steel continues to improve and these operations are trading in line with expectations. Steel pricing has stabilised over the quarter resulting in less volatility in gross margins. Sales volumes grew substantially for the quarter, following the initial impact of the July 2011 strike action. Production and supply constraints of local steel producers continue to impact steel availability. Imports have been increased to service customer demand until local steel supply has normalised. The rail construction and rail products business experienced lower demand during the quarter but the anticipated award of international rail and related work should impact positively in the short to medium term. BEE Transaction In accordance with the notice to shareholders, which details the proposed terms in respect of the extension of the existing agreement with the Qakazana broad-based black economic empowerment consortium to 2014, shareholders have been requested to vote at the special general meeting on the 3rd November 2011 on the proposed extension of this agreement. The Aveng Group is pleased with the success of the initial empowerment arrangement, which will realise in excess of R900 million for its empowerment stakeholders, its employees and community investment projects. On the assumption that the scheme is approved by shareholders an additional 8 586 097 ordinary shares will be issued by the company on Friday 4 November 2011 in part discharge of its obligation to the empowerment consortium. The total number of shares in issue following this allotment will be 401 588 097 at a par value of 5 cents each. The authorised share capital of the Group remains unaltered at 882 034 263 shares of 5 cents each. Competition Commission Shareholders will recall that on 1 February 2011 the Competition Commission published details of a "Fast Track Settlement Process" whereby construction companies were encouraged to fully disclose any collusive conduct. Aveng submitted comprehensive applications to the Commission on 15 April 2011 in terms of this process. Settlement negotiations are still in process and it remains premature to speculate on the quantum of any possible settlement. On 9 September 2008 Aveng advised by means of a SENS announcement that it had become aware of a broad and ongoing investigation into the steel industry whereby Aveng Trident Steel had been cited in the Commission`s complaint initiation statement. Shareholders are advised that in respect of this matter, the Commission has confirmed its ongoing investigation into this sector. The company will keep shareholders informed of developments in respect of these matters. Outlook Difficult market conditions are anticipated to extend well into the 2012 calendar year in South Africa. The Aveng Group`s diversified product offering and relatively large geographical footprint in higher growth markets in Australia and Asia, as well as the expectation of a boost in infrastructure spending by the South African government, results in the group being positive on the medium term outlook for construction and related infrastructure development. Sandton 03 November 2011 Sponsor: J.P. Morgan Equities Limited Date: 03/11/2011 10:19:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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