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Business update: Aveng Group chairman Angus Band’s statement to shareholders at the AGM held on 8 November 2012
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 8 November 2012
The Aveng Group continues to experience the impact of adverse market conditions,
notably in the construction and steel environment. The construction market in Australasia
has slowed down substantially in the first quarter, with a sharp decline in tender activity.
In South Africa, the envisaged R844 billion public sector infrastructure spend has not yet
translated into increased tender activity in the local market.
The Group’s potential order pipeline remains stable at R111 billion although tenders are
taking much longer to be awarded and contract terms are increasingly onerous. The two
year order book has decreased by 9% from R47 billion at 30 June 2012 to R43 billion at
30 September 2012. Approximately 73% of the order book is from the private sector and
74% is in respect of projects outside of South Africa. Recent contract awards include:
- Mechanical and Electrical contract on the Kusile Power Station for Alstom,
- Hazelmere Water Treatment Works,
- Bridgeway (Century City)
- Tweefontein Mine Package,
- New Brackenfell training centre.
Construction and engineering South Africa
Aveng Grinaker LTA continues to experience difficult market conditions with limited new
opportunities impacting on the order book and margins. Notwithstanding having secured
R1.6 billion in new work in the first quarter, the two year order book has declined by 3% to
R6.3 billion. A number of tenders are in the final stages of negotiation which would have a
material impact on the order book.
The remainder of the steel supply contract with Genrec, for Medupi and Kusile, has been
renegotiated with the ultimate client Hitachi on more favourable terms. The contractual
claims against Genrec are being vigorously pursued.
Aveng Grinaker LTA continues to focus on project execution and embedding the benefits
of the restructuring process, all with the near-term objective of returning to profitability.
The performance of Aveng Water and Aveng E+PC has been hampered by delays
experienced in project awards and a lack of new projects. Aveng E+PC has been
awarded various new projects which are largely scheduled to commence within the next
calendar year.
McConnell Dowell
While the business is clearly experiencing tighter trading conditions the two year order
book remains strong at $3.2bn despite a 9% decrease over the past quarter. A number of
contracts have been delayed as the resource sector adjusts its project pipeline to
projected demand realities.
Although solid progress has been made in resolving the previously reported problematic
contracts at the Queensland Curtis LNG (QCLNG) export pipeline and the Hay Point Berth
projects, both from an operational and commercial perspective, McConnell Dowell have
yet to reach agreement with the clients on claims and extension of time. Until these
issues are resolved, these contracts will continue to pose a material risk to the Group both
in terms of profitability and liquidity.
The Adelaide Desalination Plant project is on schedule to achieve its full capacity of 100
Gigalitres of desalinated water per annum by the handover date of December 2012 and
the Komo project in Papua New Guinea is progressing well.
Aveng Mining
Aveng Mining continues to deliver a strong financial performance with its geographic
diversification being a positive factor. A steady workload, improved equipment utilization
and efficiencies continue to underpin this performance, particularly in Africa. In South
Africa, the impact of the recent labour strikes within the mining industry in South Africa will
adversely impact the financial performance for the second quarter of this financial year.
Despite these events, this operating group is expected to deliver a strong financial
performance over the full year.
Manufacturing and processing
Aveng Trident Steel’s volumes were marginally down for the quarter, primarily as a result
of the impact of the transport strike on key customers as well as difficulties in both global
and domestic steel supply. Demand is generally muted which has impacted on the unit’s
merchanting, cutting and tube divisions. The global steel market remains under pressure
which continues to negatively impact prices and therefore margins. Automotive volumes
remain positive, as does the demand for steel by power station - related projects. The
combined effect of the transport strike, supply constraints and pric e pressure will
materially affect the unit’s financial performance for the first half of the financial year and
the outlook for the remainder of the year is dependent on a recovery in demand and price
levels.
Aveng Manufacturing has experienced solid demand for railway sleepers, while activity in
the mechanized track maintenance and rail construction markets remains stable. Higher
volumes in the building and landscape markets have also sustained performance,
although the recent mining and transport strikes and a drop in demand from the platinum
and gold producers have had a negative effect in the quarter. Aveng Manufacturing will
commission a R160 million manufacturing facility in Tete, Mozambique during the first half
of 2013.
Competition Commission
In the Competition Commission’s Fast Track settlement process involving the construction
sector, Aveng submitted a settlement offer, against which a provision was raised during
the 2012 financial year. The Group has not reached finality with the Commission regarding
any settlement.
Outlook
The medium term outlook for South African construction will be shaped by the robust
implementation of the government’s national infrastructure development plan. The
implementation of the Infrastructure Plan will undoubtedly provide a boost for the industry
and create thousands of jobs. Since the peak in 2008, approximately 100 000 jobs have
been lost in the civil construction industry and in Aveng’s view the construction and
engineering industry is best placed to stimulate growth and create jobs.
While the past quarter has seen a downturn in new business won particularly in
Australasia, the Group’s two year order book remains strong and the project pipeline
stable. The Group will continue to focus on project execution, with a view to reducing the
financial impact of challenging contracts. Special attention is being given to improving the
overall performance of the local construction segment as well as the Australian QCLNG
Export Pipeline and Hay Point Berth projects.
The Group’s diversified product offering and broad geographical footprint positions Aveng
well for the anticipated increase in construction and related infrastructure development in
its markets over the medium term.
The Group will issue a trading update in early 2013 ahead of the announcement of its
Interim Results for the six months ending 31 December 2012.
Integrated Report
The Group issued its 2012 Annual Integrated Report to stakeholders on 28 September
2012. The consolidated financial statements and Integrated Report have been published
on the website www.aveng.co.za.
Disclaimer
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 ar e, 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 Groups 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 Groups 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.
Sandton
08 November 2012
Sponsor:
J.P. Morgan Equities Limited
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