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Competition Commission and Business Update
AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
ISIN: ZAE000111829
SHARE CODE: AEG
("Aveng" or "the Company" or “the Group”)
Competition Commission and Business Update
Shareholders are advised that following some important developments, the Board believes
that it is appropriate to provide a business update. The Group has reached final settlement
with the Competition authorities and good progress has been made on the challenging Hay
Point Berth and Komo Airfield projects.
COMPETITION COMMISSION – FINAL SETTLEMENT
Further to the SENS announcement of 3 February 2011, shareholders are advised that
Aveng (Africa) Limited, a subsidiary of Aveng Limited, has entered into a settlement
agreement with the Competition Commission with respect to its Fast Track Settlement
investigations into historical anti-competitive practices in the construction industry. The
Competition Commission will make an announcement in due course with regard to its
findings and will disclose the quantum of the administrative penalty levied against Aveng
(Africa) Limited. The settlement amount is within the range provided for by the Company, but
until authorised to do so by the Commission the Company cannot disclose the amount
involved.
The Commission will refer this settlement to the Competition Tribunal. If confirmed by the
Tribunal, this represents a full and final settlement of all alleged collusive conduct as defined
in the Consent Agreement. The Aveng Board welcomes the resolution of this matter.
OPERATIONAL AND SEGMENTAL UPDATE
Construction and Engineering: Australasia and Pacific
Despite a slowdown in mining related infrastructure activities in Australia, the underlying
business has generally performed well with the results eroded by the underperformance of
three large projects. A number of public-sector projects in the Australasian and Pacific region
have recently been awarded to McConnell Dowell, including a contract at the Perth Airport to
expand the international facilities and build new domestic facilities.
Work on the Komo Airfield project in PNG is largely completed and the first Antonov aircraft
landed at the facility in early May 2013. Despite all the difficulties, including monsoons, a
harsh environment and the non-existent infrastructure, McConnell Dowell and its partner
CCC have delivered a high quality airport facility that will also help to drive the economic and
social development of the area.
The commercial issues on the Hay Point Berth project in Queensland have been resolved
with the client and we will work on a collaborative basis with the EPCM contractor to
complete the works.
The Queensland Curtis Liquid Natural Gas Pipeline project is now approximately 85%
complete. However, extreme weather conditions in the first quarter of 2013 have continued
to impact progress and therefore the project still remains a material risk. The Narrows
Crossing part of the project is progressing well with the twin 2.3 km underwater pipe pull
completed in March 2013. This was Australia’s longest large diameter underwater pipe pull
and is a world class engineering achievement. The overall project is expected to be
completed by the end of 2013.
The good progress with the resolution of the commercial issues on some large contracts as
well as the strong order book positions McConnell Dowell for an improved financial
performance.
Construction and Engineering: South Africa and rest of Africa
The segment continues to experience difficult trading conditions within the South African
infrastructure environment. Labour disruptions at the Medupi power station and at other
projects continue to impact negatively on profitability. Over capacity within the local
construction market and a lack of large projects continues to put pressure on margins.
Aveng Grinaker-LTA was awarded some significant projects during the past few months,
including the Nacala Rail Project in Tete, Mozambique and the Majuba Rail Line for Eskom,
and is also working on the financial close of the Mauritius Road Decongestion Project.
The impact of strike action in the second half of FY13 is expected to be materially worse
than the first half. The disruptions started in the latter part of 2012, but escalated into the
2013 calendar year.
Mining
The Mining segment continues to benefit from its diversified client and country portfolio and
the extension to existing contracts. A new 22-month iron ore mining contract in the Northern
Cape will commence in July 2013 which will offset the effects of a recent contract termination
in Zambia by mutual consent with the mine owner. Overall this segment is well placed to
weather the softening and challenging mining market.
Manufacturing and Processing
Improved steel prices and stable demand from the automotive industry has resulted in an
improved performance from Aveng Trident Steel in 2013 compared to the latter half of 2012.
However, lacklustre demand from the construction sector and a highly competitive market
has resulted in challenging trading conditions for Steeledale, significantly impacting on the
financial performance of this business.
The slow-down in the platinum and gold industries has negatively impacted both Duraset
and DFC while the increased focus on opportunities within Mozambique and Australia
benefitted the rail sleeper and track laying parts of the business.
ORDER BOOK AND CONCLUSION
The Group’s two-year order book increased to R41.8 billion as at April 2013, an increase of
6% compared with the R39.7 billion two-year order book reported as at December 2012.
Within the Construction and Engineering: Australasia and Pacific segment, the order book
increased by 11% to R27.4 billion, the Construction and Engineering: South Africa and rest
of Africa segment order book increased by 9% to R6.3 billion and Aveng Mining’s order book
declined by 16% to R7.0 billion.
Following the resolution of the two problematic contracts in Australia and the final settlement
with the Competition Commission, the financial risk within the Group has been substantially
reduced. Despite the improved order book following the award of two large contracts outside
South Africa, local trading conditions remain difficult, compounded by a very volatile general
labour environment.
Sandton
3 June 2013
Sponsor:
J.P. Morgan Equities South Africa (Pty) Limited
Date: 03/06/2013 04:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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