Wrap Text
Summarised audited consolidated annual financial
statements for the year ended 30 June 2015
Aveng Group
1944/018119/06
Share codes
JSE: AEG
ISIN: ZAE 000111829
Summarised audited consolidated annual financial
statements for the year ended 30 June 2015
Leaders in infrastructure
Salient features - financial performance
For the year ended 30 June 2015:
Revenue
R43,9 billion
Decrease of 17% from R53,0 billion at June 2014
Net operating loss
R288 million
Decrease from R799 million earnings at June 2014
Profit on sale of subsidiary
R777 million
Sale of Electrix, subsidiary of McConnell Dowell
Impairment of goodwill, PPE and related intangible assets
R621 million
Decrease by 25% from R831 million at June 2014
Loss for the period attributable to equity holders of the parent
R460 million
Increase of 21% from R381 million at June 2014
Headline loss
R578 million
Decrease from R421 million earnings at June 2014
Operating free cash flow
R1 027 million outflow
June 2014: R1 398 million outflow
Loss per share
114,8 cents
Increase of 13% from 101,9 cents at June 2014
Headline loss per share
144,3 cents
Decrease from 112,5 cents earnings at June 2014
Net operating (loss) / earnings - segmental analysis
FY2015 FY2014 Change
Rm Rm %
South Africa and rest of Africa* (697) (434) (61)
Australasia and Asia 112 271 (59)
Total Construction and Engineering (585) (163) >100
Mining 413 529 (22)
Manufacturing and Processing 54 364 (85)
Other and Eliminations* (170) 69 >100
Total (288) 799 >100
* Aveng Capital Partners have been reallocated from Other and Eliminations segment to the Construction and
Engineering: South Africa and rest of Africa segment to more accurately reflect the synergies with Aveng
Grinaker-LTA and Aveng Engineering. Comparatives have been adjusted accordingly.
Summarised audited statement of financial position
as at 30 June 2015
Notes 2015 2014
Rm Rm
ASSETS
Non-current assets
Investment property - 86
Goodwill arising on consolidation 8 342 663
Intangible assets 339 321
Property, plant and equipment 5 626 6 346
Equity-accounted investments 9 151 306
Infrastructure investments 10 778 -
Financial investments* - 190
Deferred taxation 11 1 580 1 403
Derivative instruments* 6 **
Amounts due from contract customers 12 900 2 946
9 722 12 261
Current assets
Inventories 2 529 2 793
Derivative instruments* 35 1
Amounts due from contract customers 12 9 394 8 405
Trade and other receivables 2 424 2 785
Cash and bank balances 2 856 4 136
17 238 18 120
Non-current assets held-for-sale 13 559 607
TOTAL ASSETS 27 519 30 988
EQUITY AND LIABILITIES
Equity
Share capital and share premium 2 023 2 008
Other reserves* 1 162 1 127
Retained earnings* 9 790 10 250
Equity attributable to equity-holders of parent 12 975 13 385
Non-controlling interest 23 11
Total Equity 12 998 13 396
Liabilities
Non-current liabilities
Deferred taxation 11 221 257
Borrowings and other liabilities 14 2 037 2 303
Payables other than contract-related - 102
Employee-related payables 16 468 682
Derivative instruments* - 3
2 726 3 347
Current liabilities
Amounts due to contract customers 12 2 562 2 677
Borrowings and other liabilities 14 426 564
Payables other than contract-related 102 95
Employee-related payables 16 648 893
Derivative instruments* 2 60
Trade and other payables* 15 7 961 9 743
Taxation payable 94 213
11 795 14 245
TOTAL LIABILITIES 14 521 17 592
TOTAL EQUITY AND LIABILITIES 27 519 30 988
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations
adopted, changes in accounting policies and other reclassifications.
** Less than R1 million.
Summarised audited statement of comprehensive earnings
for the year ended 30 June 2015
Notes 2015 2014
Rm Rm
Revenue 43 930 52 959
Cost of sales* (41 566) (49 324)
Gross earnings 2 364 3 635
Other earnings* 471 302
Operating expenses* 17 (3 063) (3 171)
(Loss) / earnings from equity-accounted investments 9 (60) 33
Net operating (loss) / earnings (288) 799
Impairment / loss with derecognition of property,
plant and equipment and intangible assets (330) (15)
Impairment of goodwill arising on consolidation 8 (291) (816)
Profit on sale of subsidiary 5 777 -
Loss before financing transactions (132) (32)
Finance earnings 177 136
Interest on convertible bonds 14 (167) -
Other finance expenses (316) (319)
Loss before taxation (438) (215)
Taxation 18 (80) (161)
Loss for the period (518) (376)
Other comprehensive earnings
Other comprehensive earnings to be reclassified to
earnings or loss in subsequent periods (net of taxation):
Exchange differences on translating foreign operations (372) 402
Available-for-sale fair value reserve - 93
Other comprehensive loss released / (recognised)
from equity-accounted investments 28 (28)
Other comprehensive (loss) / earnings for the period,
net of taxation (344) 467
Total comprehensive (loss) / earnings for the period (862) 91
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations
adopted, changes in accounting policies and other reclassifications.
EBITDA for the Group, being net operating earnings before interest, tax, depreciation and amortisation
is R662 million (June 2014: R1 708 million).
2015 2014
Rm Rm
Total comprehensive (loss) / earnings
for the period attributable to:
Equity-holders of the parent (804) 86
Non-controlling interest (58) 5
(862) 91
Loss for the period attributable to:
Equity-holders of the parent (460) (381)
Non-controlling interest (58) 5
(518) (376)
Other comprehensive earnings for the
period, net of taxation
Equity-holders of the parent (344) 467
Results per share (cents)
Loss - basic (114,8) (101,9)
Loss - diluted (114,4) (94,8)
Headline (loss) / earnings - basic (144,3) 112,5
Headline (loss) / earnings - diluted (143,8) 104,7
Number of shares (millions)
In issue 416,7 416,7
Weighted average 400,6 374,0
Diluted weighted average 402,1 402,1
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations
adopted, changes in accounting policies and other reclassifications.
Summarised audited statement of changes in equity
for the year ended 30 June 2015
Equity-
Total Foreign Available- Equity- settled
share currency for-sale accounted share-
capital trans- fair invest- based
Share Share and lation value ments payment
capital premium premium reserve reserve* reserve reserve
Rm Rm Rm Rm Rm Rm Rm
Balance at 1 July 2013 19 1 369 1 388 727 - - 21
Loss for the period - - - - - - -
Other comprehensive earnings for the period
(net of taxation) - - - 402 93 (28) -
Adoption of IFRS 9 accounting standard - - - - (93) - -
Total comprehensive earnings for the period - - - 402 - (28) -
Movement in treasury shares - (1) (1) - - - -
Equity-settled share-based payment charge - - - - - - 5
Issue of shares to BEE consortium 1 620 621 - - - -
Dividends paid - - - - - - -
Total contributions and distributions recognised 1 619 620 - - - 5
Balance at 1 July 2014 as restated 20 1 988 2 008 1 129 - (28) 26
Loss for the period - - - - - - -
Other comprehensive loss for the period
(net of taxation) - - - (372) - 28 -
Total comprehensive loss for the period - - - (372) - 28 -
Movement in treasury shares - 15 15 - - - -
Equity-settled share-based payment charge - - - - - - (11)
Transfer of convertible bond option to
convertible bond equity reserve - - - - - - -
Deferred transaction costs allocated to
convertible bond equity reserve - - - - - - -
Increase in equity investment - - - - - - -
Foreign currency translation movement - - - - - - -
Dividends paid - - - - - - -
Total contributions and distributions recognised - 15 15 - - - (11)
Balance at 30 June 2015 20 2 003 2 023 757 - - 15
Total attri-
Conver- butable
tible to equity-
bond Total holders Non-
equity other Retained of the controlling Total
reserve reserves* earnings* parent* interest equity
Rm Rm Rm Rm Rm Rm
Balance at 1 July 2013 - 748 11 159 13 295 12 13 307
Loss for the period - - (381) (381) 5 (376)
Other comprehensive earnings for the period
(net of taxation) - 467 - 467 - 467
Adoption of IFRS 9 accounting standard - (93) 93 - - -
Total comprehensive earnings for the period - 374 (288) 86 5 91
Movement in treasury shares - - - (1) - (1)
Equity-settled share-based payment charge - 5 - 5 - 5
Issue of shares to BEE consortium - - (621) - - -
Dividends paid - - - - (6) (6)
Total contributions and distributions recognised - 5 (621) 4 (6) (2)
Balance at 1 July 2014 as restated - 1 127 10 250 13 385 11 13 396
Loss for the period - - (460) (460) (58) (518)
Other comprehensive loss for the period
(net of taxation) - (344) - (344) - (344)
Total comprehensive loss for the period - (344) (460) (804) (58) (862)
Movement in treasury shares - - - 15 - 15
Equity-settled share-based payment charge - (11) - (11) - (11)
Transfer of convertible bond option to
convertible bond equity reserve 402 402 - 402 - 402
Deferred transaction costs allocated to
convertible bond equity reserve (12) (12) - (12) - (12)
Increase in equity investment - - - - 76 76
Foreign currency translation movement - - - - 1 1
Dividends paid - - - - (7) (7)
Total contributions and distributions recognised 390 379 - 394 70 464
Balance at 30 June 2015 390 1 162 9 790 12 975 23 12 998
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations adopted, changes in
accounting policies and other reclassification.
Summarised audited statement of cash flows
for the year ended 30 June 2015
Note 2015 2014
Rm Rm
Operating activities
Cash utilised by operations (92) (98)
Depreciation 929 881
Amortisation 21 28
Non-cash and other movements 19 (457) 549
Cash generated by operations (401) 1 360
Changes in working capital:
Decrease / (increase) in inventories 201 (13)
Decrease / (increase) in amounts due from contract customers 547 (2 094)
Decrease / (increase) in trade and other receivables 357 (12)
(Decrease) / increase in amounts due to contract customers (43) 310
(Decrease) / increase in trade and other payables (1 953) 693
(Decrease) / increase in derivative instruments (101) 62
Decrease in payables other than contract-related (102) (102)
Decrease in employee-related payables (258) (106)
Total changes in working capital (1 352) (1 262)
Cash (utilised) / generated by operating activities (951) 98
Finance expenses paid (361) (283)
Finance earnings received 174 127
Taxation paid (397) (252)
Cash outflow from operating activities (1 535) (310)
Investing activities
Property, plant and equipment purchased
expansion (175) (384)
replacement (649) (677)
Proceeds on disposal of property, plant and equipment 245 256
Proceeds on disposal of investment property 97 -
Acquisition of intangible assets (52) (176)
Capital expenditure net of proceeds on disposal (534) (981)
Loans advanced to equity-accounted investments net of
dividends received (68) (140)
Proceeds on disposal of equity-accounted investments 5 -
Loans advanced to infrastructure investment companies (208) -
Acquisition of subsidiary (net of cash acquired) (23) -
Net proceeds on disposal of subsidiary 1 314 -
Dividend earnings 22 33
Cash inflow / (outflow) from investing activities 508 (1 088)
Operating free cash outflow (1 027) (1 398)
Financing activities with equity-holders
Shares repurchased (7) (7)
Loans advanced by non-controlling interest 76 -
Dividends paid (7) (6)
Financing activities with debt-holders
Proceeds from convertible bonds 1 947 -
(Repayment) / proceeds from borrowings raised (2 066) 1 336
Net decrease in cash and bank balances before
foreign exchange movements (1 084) (75)
Foreign exchange movements on cash and bank balances (196) 314
Cash and bank balances at beginning of the period 4 136 3 897
Total cash and bank balances at end of the period 2 856 4 136
Borrowings excluding bank overdrafts 2 463 2 867
Net cash position 393 1 269
Summarised audited accounting policies
for the year ended 30 June 2015
1. Corporate information
The summarised consolidated financial statements of Aveng Limited (the “Company”) and its subsidiaries (the “Group”) for the period
ended 30 June 2015 were authorised for issue in accordance with a resolution of the directors on 17 August 2015.
Nature of business
Aveng Limited is a limited liability company incorporated and domiciled in the Republic of South Africa whose shares are publicly
traded. The Group operates in the construction, engineering and mining environments and as a result the revenue is not seasonal in
nature, but is influenced by the nature and execution of the contracts currently in progress.
Business restructuring
Effective from 1 July 2014, management responsibility for Aveng Engineering moved to Aveng Grinaker-LTA. The change in reporting
structure enhanced the Group’s competitive advantage in the renewable power and water markets, which is expected to grow over the
next few years. There was no change in the segment reports as both operating groups fall within the same reporting segment.
During the period, the Aveng Moolmans (surface mining) and Aveng Shafts & Underground (shaft sinking and access development) businesses
merged into Aveng Mining. The full consolidation of these business units was completed to create a single sizeable entity operating
under a common management team with shared support services. \
Changes in directorate
Mr AH Macartney was appointed as Group Finance Director effective from 8 September 2014.
Mr PA Hourquebie was appointed as a non-executive director effective from 5 August 2015.
Mr DG Robinson retired as executive director effective from 17 August 2015.
2. Presentation of summarised consolidated financial statements
The accounting policies below are applied throughout the summarised consolidated financial statements.
Basis of preparation
The summarised consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets
which are measured at fair value.
These summarised consolidated financial statements are presented in South Africa Rand (“ZAR”) and all values are rounded to the nearest
million (“Rm”) except where otherwise indicated. The summarised consolidated financial statements are prepared in accordance with IAS 34
Interim Financial Statements and the Listing Requirements of the Johannesburg Stock Exchange Limited (“JSE”). The accounting policies
adopted are consistent with those of the previous year, except as disclosed in note 3 relating to the adoption of new and revised Standards
and Interpretations that became effective during this reporting period.
The summarised consolidated financial statements do not include all the information and disclosures required in the consolidated
financial statements, and should be read in conjunction with the Group’s audited consolidated financial statements as at 30 June 2015
that are available on the Company’s website, www.aveng.co.za.
The Company’s integrated report for the year ended 30 June 2015 will be available by
4 September 2015.
The financial results have been prepared by Clare Giletti under the supervision of the Group Finance Director, Adrian Macartney.
The summarised consolidated financial statement have been audited by Ernst & Young Incorporated and the unqualified audit opinion is
available on request from the Company Secretary at the Company’s registered office.
South African infrastructure investments
With effect from 1 July 2014, the concessions and property-related activities of the Group were reorganised to fall within Aveng Capital
Partners (“ACP”). All future infrastructure and real estate investments will be managed by ACP. This business unit has been determined to
be operating as a venture capital organisation, such that the investments managed by ACP have been reclassified as financial assets at
Fair Value Through Profit or Loss (“FVTPL”). This includes investments in associates and joint ventures that would otherwise have been
equity-accounted. The 10,9% investment in the N3 Toll Concession (RF) Proprietary Limited has been classified as a financial investment
at FVTPL as a result of the early adoption of IFRS 9 Financial Instruments. In future such investments will be designated as at FVTPL
upon initial recognition. For the year ended 30 June 2015, fair value remeasurements of R185 million have been recognised in earnings.
These remeasurements have been included in headline earnings.
ACP is included in the Construction and Engineering: South Africa and rest of Africa segment. Refer to note 10: Infrastructure
investment for further information.
3. New accounting standards and interpretations adopted, changes in accounting policies and other reclassifications
Balance 3.2 3.4.1
as Early Derivative
previously adoption instruments Restated
reported of IFRS 9* split balance
Note Rm Rm Rm Rm
Statement of financial position as at
30 June 2014
ASSETS
Non-current assets
Available-for-sale investments 190 (190) - -
Financial investments - 190 - 190
Derivative instruments - - ** **
Current assets
Derivative instruments - - 1 1
EQUITY AND LIABILITIES
EQUITY
Other reserves 1 220 (93) - 1 127
Retained earnings 10 157 93 - 10 250
LIABILITIES
Non-current liabilities
Derivative instruments - - 3 3
Current liabilities
Derivative instruments - - 60 60
Trade and other payables 15 9 805 - (62) 9 743
* Comparatives for 30 June 2013 have not been amended as a result of the early adoption of IFRS 9 as there were no fair value
adjustments on financial investments recognised in the available-for-sale fair value reserve as at 30 June 2013.
** Amounts less than R1 million.
3.3.5
Balance as 3.3.2 3.3.3 3.3.4 Reallocation
previously Reallocation Reallocation Split of of operating Restated
reported of fair value of dividends impairment expenses balance
Notes Rm Rm Rm Rm Rm Rm
Statement of comprehensive earnings for
the 12 months ended
30 June 2014
Cost of sales (49 122) - - - (202) (49 324)
Gross earnings 3 837 - - - (202) 3 635
Other earnings 254 15 33 - - 302
Operating expenses 17 (3 373) - - - 202 (3 171)
Share of dividend earnings from
financial investments 33 - (33) - - -
Net operating earnings 784 15 - - - 799
Impairment of non-financial assets (831) - - 831 - -
Impairment of property, plant and
equipment and intangibles - - - (15) - (15)
Impairment of goodwill arising
on consolidation - - - (816) - (816)
Fair value adjustments 15 (15) - - -
3.3.1 3.3.2
Balance as Derivative Reallocation 3.3.6
previously instruments of Segment Restated
reported split fair value reallocation balance
Rm Rm Rm Rm Rm
Segmental report as at
30 June 2014
Total assets
Construction and Engineering: South Africa and rest of Africa 4 546 - - 522 5 068
Construction and Engineering: Australasia and Asia 13 340 - - - 13 340
Mining 4 848 - - - 4 848
Manufacturing and Processing 7 029 - - - 7 029
Other and Eliminations 1 224 1 - (522) 703
30 987 1 - - 30 988
Total liabilities
Construction and Engineering: South Africa and rest of Africa 2 450 - - 114 2 564
Construction and Engineering: Australasia and Asia 8 623 - - - 8 623
Mining 2 244 - - - 2 244
Manufacturing and Processing 2 589 - - - 2 589
Other and Eliminations 1 685 1 - (114) 1 572
17 591 1 - - 17 592
Segmental report for the
year ended 30 June 2014
Net operating earnings
Construction and Engineering: South Africa and rest of Africa (566) - - 132 (434)
Construction and Engineering: Australasia and Asia 271 - - - 271
Mining 529 - - - 529
Manufacturing and Processing 364 - - - 364
Other and Eliminations 186 - 15 (132) 69
784 - 15 - 799
3.1 Standards and interpretations effective and adopted in the current year
In the current period, the Group has adopted the following standards and interpretations that are effective for the current financial year
or may be early adopted and that are relevant to its operations.
Standard Description Matter Impact
IFRS 9 (2010) Financial Instruments IFRS 9 (2010) provides guidance on the Refer to note 3.2 and Accounting policies
classification and measurement of financial detailed in the consolidated financial
assets and financial liabilities. statements available on the Group’s
website.
3.2 Change in accounting policy - Financial instruments (early adoption of IFRS 9 (2010))
The Group early adopted IFRS 9 (2010) with a date of initial application of 1 July 2014.
As a result the Group has classified its debt type financial assets as subsequently measured at either amortised cost or fair value through
profit or loss, depending on its business model for managing those financial assets and the assets’ contractual cash flow characteristics.
In accordance with the transitional provisions of IFRS 9 (2010), the Group has classified the financial assets held at 1 July 2014
retrospectively based on the facts and circumstances of the business model in which the financial assets were held at that date.
As a result of IFRS 9 (2010) R114 million (R93 million net of tax) was reclassified at 1 July 2014 from the fair value reserve to retained
earnings, because the investments were reclassified from available-for-sale investments to financial assets measured at fair value through
profit or loss.
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied on a retrospective basis.
Because the Group does not have any financial liabilities designated at fair value through profit or loss or embedded derivatives, the
adoption of IFRS 9 (2010) did not impact the Group’s accounting policy for financial liabilities and derivative financial instruments.
The provisions of IFRS 9 have not been applied to financial assets and financial liabilities derecognised before 1 July 2014.
The change in accounting policy had no impact on basic and diluted earnings per share for the period.
Classification of financial assets on date of initial application
The following table summarises the transitional classification and measurement adjustments to the Group’s financial assets on 1 July 2014,
the Group’s date of initial application. In addition, the table sets out the measurement adjustments, which were recognised as an adjustment
to the opening equity as at 1 July 2014:
2015 2014
Original New Original New
carrying carrying carrying carrying
Original New amount amount amount amount
classification classification under under under under
under under IAS 39 IFRS 9 IAS 39 IFRS 9
IAS 39 IFRS 9 Rm Rm Rm Rm
Financial investments Available- Fair value 190* 190* 190 190
for-sale
Trade and other receivables Amortised Amortised 2 424 2 424 2 785 2 785
cost cost
Amounts due from contract customers Amortised Amortised 10 294 10 294 11 351 11 351
cost cost
Cash and bank balances Amortised Amortised 2 856 2 856 4 136 4 136
cost cost
* With effect from 1 July 2014, financial assets were transferred to infrastructure investments. The balance as at 30 June 2015 was Rnil.
The Group’s accounting policies on classification of financial instruments under IFRS 9 (2010) are set out in note 3.3 and financial
instruments. Application of these policies resulted in reclassifications, which are set out in the table above and explained further below:
Under IFRS 9, all equity instruments other than those for which the fair value through other comprehensive earnings option is selected
are measured at fair value through profit or loss. Prior to the adoption of IFRS 9 (2010), all equity instruments not held for trading
were classified as available-for-sale equity investments.
The Group has elected to early adopt IFRS 9 (2010), with a date of initial application of 1 July 2014, which is the beginning of the
reporting period. As the impairment and hedge accounting requirements of IFRS 9 (2014) have not been adopted, no restatements were made
relating to these topics.
For more information and details on the new classification refer to the consolidated financial statements available on the Group’s website.
3.3 Other reclassifications affecting comparative figures
As part of the Group’s financial reporting improvement initiatives, the structure, format and presentation of disclosures in the financial
statements were reviewed. This resulted in the reallocation of certain comparative amounts. This initiative is an ongoing programme targeting
the most appropriate disclosure and presentation practices to best serve the interests of the Group’s stakeholders based on interaction with
them during the period.
The resulting reallocations had no impact on the earnings of the Group and as such the reallocations are regarded as not having had a
qualitatively significant effect on the information presented.
3.3.1 Derivatives instruments of R62 million were reclassified from trade and other payables to a separately disclosed line item.
3.3.2 Fair value adjustments on investment property of R15 million were combined with other earnings.
3.3.3 Share of dividend earnings from financial investments of R33 million was combined with other earnings.
3.3.4 Impairment of non-financial assets in June 2014 of R831 million was reclassified to separately disclosable line items. The amount
reclassified was presented according to the nature, namely impairment of property, plant and equipment and intangible assets of
R15 million and goodwill arising on consolidation amounting to R816 million.
3.3.5 Operating expenses of R202 million was reallocated to cost of sales to more accurately allocate overheads to cost of sales.
3.3.6 ACP was reallocated from the Other and Eliminations segment to Construction and Engineering: South Africa and rest of Africa. The
adjustments accurately reflect the value chain inherent in the Construction and Engineering: South Africa and rest of Africa
business model.
Impact of change in disclosure
The impact of new standards and interpretations adopted retrospectively as well as other reclassifications were not considered significant on the
statement of financial position at 1 July 2013 and accordingly, a third statement of financial position is not presented.
For additional information regarding the accounting policies refer to the consolidated financial statements available on the Group’s website.
Notes to the summarised audited consolidated financial statements
for the year ended 30 June 2015
4. Business combinations and acquisition of non-controlling interests
Dynamic Fluid Control Proprietary Limited, a wholly owned subsidiary of Aveng (Africa) Proprietary Limited, acquired 100% of the equity
and voting rights of Atval Proprietary Limited (“Atval”) effective from 1 July 2014.
Atval was established in 1985 and is a leading South African manufacturer of high-pressure knife-gate valves with 25 years of proven
experience in the South African market. The company primarily focuses on high-pressure pinch valves that are extensively used in mineral
processing, particularly abrasive tailings pipelines, with annuity income generated from maintenance of valve sleeve linings.
2015
Rm
Cash outflow on acquisition
Consideration paid 25
Less: Cash and bank balance acquired with the subsidiary (2)
23
Goodwill arising on acquisition
Consideration paid 25
Less: Fair value of identifiable net assets acquired (15)
10
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Atval as at the date of
acquisition were:
2015
Rm
Fair value recognised
Note on acquisition
Assets 22
Liabilities (7)
Total identifiable net assets at fair value 15
Goodwill arising on acquisition 8 10
Consideration paid 25
Since its acquisition, Atval contributed external revenue of R28 million and earnings before interest and tax of R3,5 million to the Group
for the period 1 July 2014 to 30 June 2015. As the acquisition occurred on 1 July 2014, the impact of Atval on the Group’s revenue and
earnings / (loss) before taxation is for the full reporting period.
5. Disposal of subsidiary
On 31 October 2014, 100% of the investment in Electrix Proprietary Limited and Electrix Limited (collectively “Electrix”) was disposed of.
Electrix was a wholly owned business and formed part of the Construction and Engineering: Australasia and Asia segment.
The profit on disposal of the subsidiary was R777 million (R713 million after taxation) including the recycled foreign currency translation
reserve (“FCTR”) of R111 million. The profit is separately disclosed in the statement of comprehensive earnings.
Electrix has always formed part of the Construction and Engineering: Australasia and Asia segment. Electrix was not considered an operating
segment nor a separate major line of business or geographical area. The sale of this business does not give rise to a discontinued operation
but rather a disposal group only.
2015
Rm
Net cash impact of sale
Total assets (excluding cash and bank balances) 756
Property, plant and equipment, net of accumulated depreciation 144
Deferred taxation 59
Inventories 19
Amounts due from contract customers 510
Trade and other receivables, net of provisions 24
Cash and bank balances 129
Total liabilities (536)
Amounts due to contract customers (72)
Borrowings and other liabilities (12)
Payables other than contract-related (1)
Employee-related payables (181)
Trade and other payables (260)
Taxation payable (10)
Net assets sold 349
Profit on disposal (before tax) 777
Add back: Associated obligations and transaction costs 464
Less: FCTR recycled to earnings (111)
Total proceeds received in cash 1 479
Less: Cash and bank balances sold (129)
Less: Transaction costs paid (36)
Net cash received 1 314
6. Segment report
The Group has determined four reportable segments that are largely organised and managed separately according to the nature of products
and services provided.
These operating segments are components of the Group:
- that engage in business activities from which they earn revenue and incur expenses; and
- which have operating results that are regularly reviewed by the Group’s chief operating decision-makers to make decisions about
resources to be allocated to the segments and assess their performance.
The Group’s operating segments are categorised as follows:
1. Construction and Engineering
1.1 Construction and Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA, Aveng Engineering and ACP.
Details of the revenues from this segment are the supply of expertise in a number of market sectors: power, mining, infrastructure,
commercial, retail, industrial, oil and gas.
1.2 Construction and Engineering: Australasia and Asia
This operating segment comprises McConnell Dowell.
This operating segment specialises in the construction and maintenance of tunnels and pipelines, railway infrastructure maintenance
and construction, marine and mechanical engineering, industrial building projects, oil and gas construction and mining and mineral
construction.
2. Mining
This operating segment comprises Aveng Moolmans and Aveng Shafts & Underground. During the second half of the year, the business
of Aveng Moolmans and Aveng Shafts & Underground were merged under a single Aveng Mining leadership team.
Details of the revenues from this segment is derived from mining related activities.
3. Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
The revenues from this segment are the supply of products, services and solutions to the mining, construction, oil and gas, water, power
and rail sectors across the value chain locally and internationally.
4. Other and Eliminations
This operating segment comprises corporate services, corporate held investments including properties and consolidation eliminations.
Statement of financial position
Construction and Construction and
Engineering: South Africa Engineering: Australasia
and rest of Africa and Asia Mining
2015 2014 % 2015 2014 % 2015 2014 %
Assets
Investment property - - - - - - - - -
Goodwill arising on consolidation - - - 100 431 (76,8) - - -
Intangible assets 2 6 (66,7) - 35 (100,0) 8 - 100,0
Property, plant and equipment 494 702 (29,6) 799 1 170 (31,7) 2 506 2 746 (8,7)
Equity-accounted investments 131 196 (33,2) 56 56 - 4 4 -
Infrastructure investments 706 - 100 72 - 100 - - -
Financial investments - 126 (100) - 64 (100) - - -
Deferred taxation 1 463 970 50,8 617 472 30,7 195 238 (18,1)
Derivative instruments - - - 15 - 100,0 - - -
Amounts due from contract customers 2 256 2 185 3,2 6 895 8 085 (14,7) 1 253 997 25,7
Inventories 31 98 (68,4) 7 23 (69,6) 225 304 (26,0)
Trade and other receivables 469 434 8,1 186 174 6,9 91 93 (2,2)
Cash and bank balances 215 351 (38,7) 2 350 2 830 (17,0) 266 466 (42,9)
Non-current assets held-for-sale - - - - - - - - -
Total assets 5 767 5 068 13,8 11 097 13 340 (16,8) 4 548 4 848 (6,2)
Liabilities
Deferred taxation 99 17 >100 72 - 100,0 182 211 (13,7)
Borrowings and other liabilities - - - 250 862 (71,0) 557 653 (14,7)
Payables other than contract-related 102 197 (48,2) - - - - - -
Employee-related payables 211 200 5,5 446 886 (49,7) 273 230 18,7
Derivative instruments - 29 (100,0) - 34 (100,0) - - -
Trade and other payables 1 382 1 333 3,7 3 928 5 168 (24,0) 701 824 (14,9)
Amounts due to contract customers 614 728 (15,7) 1 588 1 612 (1,5) 272 231 17,7
Taxation payable 31 60 (48,3) 11 61 (82,0) 42 95 (55,8)
Total liabilities 2 439 2 564 (4,9) 6 295 8 623 (27,0) 2 027 2 244 (9,7)
Manufacturing and Other and
Processing Eliminations Total
2015 2014 % 2015 2014 % 2015 2014 %
Assets
Investment property - - - - 86 (100,0) - 86 (100,0)
Goodwill arising on consolidation 10 - 100,0 232 232 - 342 663 (48,4)
Intangible assets 152 155 (1,9) 177 125 41,6 339 321 5,6
Property, plant and equipment 1 326 1 374 (3,5) 501 354 41,5 5 626 6 346 (11,3)
Equity-accounted investments - - - (40) 50 >(100,0) 151 306 (50,7)
Infrastructure investments - - - - - - 778 - 100
Financial investments - - - - - - - 190 (100)
Deferred taxation (154) (102) (51,0) (541) (175) >(100) 1 580 1 403 12,6
Derivative instruments 9 - 100,0 17 1 >(100) 41 1 >100
Amounts due from contract customers 472 534 (11,6) (582) (450) (29,3) 10 294 11 351 (9,3)
Inventories 2 266 2 368 (4,3) - - - 2 529 2 793 (9,5)
Trade and other receivables 1 463 1 980 26,1 215 104 >100 2 424 2 785 (13,0)
Cash and bank balances 271 720 (62,4) (246) (231) (6,5) 2 856 4 136 (30,9)
Non-current assets held-for-sale - - - 559 607 (7,9) 559 607 (7,9)
Total assets 5 815 7 029 (17,3) 292 703 (58,5) 27 519 30 988 (11,2)
Liabilities
Deferred taxation (54) 18 >(100,0) (78) 11 >(100) 221 257 (14,0)
Borrowings and other liabilities 5 7 (28,6) 1 651 1 345 22,8 2 463 2 867 (14,1)
Payables other than contract-related - - - - - - 102 197 (48,2)
Employee-related payables 122 151 (19,2) 64 108 (40,7) 1 116 1 575 (29,1)
Derivative instruments 2 - 100,0 - - - 2 63 (96,8)
Trade and other payables 1 757 2 307 (23,8) 193 111 73,9 7 961 9 743 (18,3)
Amounts due to contract customers 88 106 (17,0) - - - 2 562 2 677 (4,3)
Taxation payable 16 - 100,0 (6) (3) (100,0) 94 213 (55,9)
Total liabilities 1 936 2 589 (25,2) 1 824 1 572 16,0 14 521 17 592 (17,5)
Statement of comprehensive earnings
Construction and Construction and
Engineering: South Africa Engineering: Australasia
and rest of Africa and Asia Mining
2015 2014 % 2015 2014 % 2015 2014 %
Gross revenue 8 355 8 677 (3,7) 20 912 28 169 (25,8) 5 956 6 582 (9,5)
Cost of sales (8 491) (8 549) 0,7 (19 678) (26 594) 26,0 (5 258) (5 708) 7,9
Gross (loss) / earnings (136) 128 >(100) 1 234 1 575 (21,7) 698 874 (20,1)
Other earnings 226 88 >100 45 (10) >100 1 (14) >100
Operating expenses (736) (678) (8,6) (1 152) (1 296) 11,1 (286) (332) 13,9
Earnings from equity-accounted investments (51) 28 >(100) (15) 2 >(100,0) - 1 (100,0)
Net operating (loss) / earnings (697) (434) (60,6) 112 271 (58,7) 413 529 (21,9)
Impairment of property, plant and equipment
and intangible assets (209) - (100) (44) - (100,0) (32) - (100)
Impairment of goodwill arising on consolidation - - - (291) - (100,0) - - -
Profit on sale of subsidiary - - - 777 - 100,0 - - -
(Loss) / earnings before financing transactions (906) (434) >(100) 554 271 >100 381 529 (28,0)
Net finance earnings / expenses 15 6 >100 (36) (62) 41,9 (42) (42) -
Loss before taxation (891) (428) >(100) 518 209 >100 339 487 (30,4)
Taxation 111 119 (6,7) (14) (14) - (194) (163) (19,0)
(Loss) / earnings for the period (780) (309) >(100) 504 195 >100 145 324 (55,2)
Capital expenditure 96 152 (36,8) 262 243 7,8 257 298 (13,8)
Depreciation (91) (85) (7,1) (286) (258) (10,9) (418) (407) (2,7)
Amortisation (5) (13) 61,5 - - - - - -
Earnings before interest, taxation, depreciation
and amortisation (EBITDA) (601) (336) (78,9) 398 529 (25,0) 831 936 (11,2)
Manufacturing and Other and
Processing Eliminations Total
2015 2014 % 2015 2014 % 2015 2014 %
Gross revenue 9 928 10 612 (6,4) (1 221) (1 081) (13,0) 43 930 52 959 (17,0)
Cost of sales (9 243) (9 661) 4,3 1 104 1 188 (7,1) (41 566) (49 324) 15,7
Gross (loss) / earnings 685 951 (28,0) (117) 107 >(100) 2 364 3 635 (35,0)
Other earnings 164 248 (33,9) 35 (10) >100 471 302 56,0
Operating expenses (795) (834) 4,7 (94) (31) >(100) (3 063) (3 171) 3,4
Earnings from equity-accounted investments - (1) 100,0 6 3 100,0 (60) 33 >(100)
Net operating (loss) / earnings 54 364 (85,2) (170) 69 >(100) (288) 799 >(100)
Impairment of property, plant and equipment
and intangible assets (32) - (100) (13) (15) 13,3 (330) (15) >(100)
Impairment of goodwill arising on consolidation - - - - (816) 100 (291) (816) 64,3
Profit on sale of subsidiary - - - - - - 777 - 100,0
(Loss) / earnings before financing transactions 22 364 (94,0) (183) (762) 76,0 (132) (32) >(100,0)
Net finance earnings / expenses (25) 4 >(100) (218) (89) >(100) (306) (183) (67,2)
Loss before taxation (3) 368 >(100) (401) (851) 52,9 (438) (215) >(100)
Taxation (7) (110) 93,6 24 7 >100 (80) (161) 50,3
(Loss) / earnings for the period (10) 258 >(100) (377) (844) 55,3 (518) (376) (37,8)
Capital expenditure 180 406 (55,7) 81 138 (41,3) 876 1 237 (29,2)
Depreciation (119) (112) (6,3) (15) (19) 21,1 (929) (881) (5,4)
Amortisation (12) (5) >(100) (4) (10) 60,0 (21) (28) 25,0
Earnings before interest, taxation, depreciation
and amortisation (EBITDA) 185 481 (61,5) (151) 98 >(100) 662 1 708 (61,2)
The Group operates in five principal geographical areas:
2015 2014 2015 2014
2015 2014 Segment Segment Capital Capital
Revenue Revenue assets assets expenditure expenditure
Rm Rm Rm Rm Rm Rm
South Africa 19 628 19 489 14 048 14 206 541 794
Rest of Africa including Mauritius 2 908 4 609 1 625 2 706 65 199
Australasia and Asia 15 880 25 001 9 383 12 377 110 225
Southeast Asia 5 115 3 300 2 154 1 244 160 19
Middle East and other regions 399 560 309 455 - -
43 930 52 959 27 519 30 988 876 1 237
7. Impairments
The Group assesses the recoverable amount of any goodwill arising on consolidation, indefinite useful
life intangible assets and property, plant and equipment as allocated to the cash-generating units
(“CGUs”) of the Group, annually or when indicators of potential impairment are identified.
As at 30 June 2015, it was necessary to impair assets due to the subdued economic conditions and the
resultant pressure on the order book. An impairment charge totalling R273 million was recognised against
ancillary operations comprising property, plant and equipment in the Construction and Engineering: South
Africa and rest of Africa (R198 million charge), Mining (R32 million charge), Manufacturing and Processing
(R32 million charge) and Construction and Engineering: Australasia and Asia (R11 million) segments
respectively.
An impairment charge totalling R57 million relating to intangible assets was recognised comprising the
Construction and Engineering: South Africa and rest of Africa (R11 million) and Construction and
Engineering: Australasia and Asia (R33 million) segments and Other and Eliminations segments
(R13 million) during the period ended 30 June 2015.
Goodwill of R291 million associated with the Built Environs business in the Construction and Engineering:
Australasia and Asia segment was fully impaired during the period ended 30 June 2015.
There was no impairment of property, plant and equipment during the previous year.
During the period ended 30 June 2014, indefinite life intangibles within Aveng Grinaker-LTA were fully
impaired by R15 million.
During the period ended 30 June 2014, the goodwill associated with the Aveng Water business (R75 million)
was impaired as a result of its repositioning within the Group to a more ancillary and supportive role
within the Construction and Engineering: South Africa and rest of Africa segment.
During the period ended 30 June 2014, the goodwill associated with Aveng Grinaker-LTA was also fully
impaired amounting to R741 million.
For more detail refer to the consolidated financial statements available on the Group’s website.
Impairments recognised during the year
2015 2014
Rm Rm
Goodwill (291) (816)
Intangible assets (57) (15)
Property, plant and equipment (273) -
(621) (831)
8. Goodwill arising on consolidation
Reconciliation of goodwill arising on consolidation
2015 2014
Rm Rm
Cost
Opening balance 1 479 1 425
Acquisition 10 -
Foreign exchange movements (34) 54
1 455 1 479
Accumulated impairment
Opening balance (816) -
Impairment* (291) (816)
Foreign exchange movements (6) -
(1 113) (816)
Carrying amount 342 663
* Further detail on the impairment relating to goodwill is presented in impairment of goodwill arising on
consolidation note as detailed in the consolidated financial statements available on the Group’s website.
Allocation of goodwill to CGUs
Goodwill is allocated to the Group’s CGUs identified according to the CGUs that are expected to benefit
from the business combination. The carrying amount of goodwill has been allocated to the following CGUs:
2015 2014
Rm Rm
Dynamic Fluid Control 242 232
McConnell Dowell 100 431
342 663
9. Equity-accounted investments
2015 2014
Rm Rm
Opening balance 306 144
Transfer to infrastructure investments held at fair value* (3) -
Transfer of shareholder loans to infrastructure investments* (168) -
Loan advanced 74 154
Share of other comprehensive earnings - (28)
Share of (loss) / earnings before taxation and dividends (44) 44
Amount recorded in the statement of comprehensive earnings (60) 33
Excluding: Fair value adjustments on foreign exchange contracts
disclosed as derivative instruments 16 11
Dividends received (6) (13)
Foreign currency translation movement 7 6
Impairment (7) -
Disposal (5) -
Other (3) (1)
151 306
Reconciliation of investments Holdings 2015 2014
Rm Rm
Blue Falcon 140 Trading Proprietary Limited 29% - 60
Imvelo Concession Company Proprietary Limited 30% - 40
Oakleaf Investment Holdings 86 Proprietary Limited 50% 48 41
REHM Grinaker Construction Co Limited 43% 7 14
REHM Grinaker Property Co Limited 43% 11 (7)
RPP Developments Proprietary Limited 10% 10 7
RPP JV Property Proprietary Limited 40% 7 7
Windfall 59 Properties Proprietary Limited 29% - 71
Dutco McConnell Dowell Middle East Limited 49% 56 56
Other 12 17
151 306
* In accordance with IAS 28, the exemption from equity accounting was applied
from 1 July 2014 in respect of the following investments, which were previously
equity-accounted:
- Blue Falcon 140 Trading Proprietary Limited;
- Windfall 59 Properties Limited; and
- Imvelo Concession Company Proprietary Limited.
Refer to note 10: Infrastructure investments for further detail of the investments detailed above that
were transferred to infrastructure investments held at fair value. ACP has been determined to be
operating as a venture capital organisation, these investments have therefore been reclassified as
financial assets at fair value through profit or loss in accordance with the IAS 28 exemption. These
investments are managed, reported and evaluated on a fair value basis in term of ACP’s investment
methodology.
The following is summarised financial information for the Group’s interest in associates
and joint ventures, based on the amount reported in the Group’s consolidated financial
statements:
2015 2014
Rm Rm
Aggregate carrying amount of associates 103 282
Aggregate carrying amount of joint ventures 48 24
151 306
The Group’s share of results of operations of equity-accounted
investments are summarised below:
Associates
Earnings from continued operations 11 20
Joint ventures
(Loss) / earnings from continued operations (55) 24
Other comprehensive earnings from continued operations - (28)
(55) (4)
(Loss) / earnings from the equity-accounted investments (44) 44
Forward exchange contract losses* (16) (11)
Total share of (loss) / earnings from equity-accounted investments (60) 33
* The underlying performance of renewable energy contracts housed within Oakleaf
Investment Holdings 86 Proprietary Limited was influenced by fluctuations in the ZAR
exchange rate against the USD and EUR. This was offset by the realised and unrealised
fair value losses on the forward exchange contracts (“FEC”) held within the contract
within the Other and Eliminations segment and presented as part of earnings from
equity-accounted investments, in order to reflect the true economic performance of the
contract within the context of the Group’s economic interest. The carrying amount of
the FECs are recognised in derivative instruments (refer to note Derivative instruments
as detailed in the consolidated financial statements available on the Group’s website).
Regulatory constraints
There are no regulatory constraints in South Africa, apart from the provision of the Companies Act
71 of 2008 (as amended) of South Africa, which restrict the distribution of funds to shareholders.
There are also no regulatory constraints in Australia apart from profits from associates not being
distributed without the consent of both the Group and the local shareholder.
Contingent liabilities
The Group’s share of bank guarantees issued by its joint ventures and associates is R537 million
(June 2014: R820 million). Other than as stated above, the Group did not incur any other contingent
liabilities with regard to associates and joint ventures.
For the list of Group entities, refer to Group operating entities note as detailed in the consolidated
financial statements available on the Group’s website.
Joint operations in the Group are unincorporated and therefore do not have year-ends different to the
Group year-end. The Group accounts for the relative share of assets, liabilities, revenue and expenses
of joint operations.
For detail on the Commitments note refer to the consolidated financial statements available on the Group’s
website and note 20: Contingent liabilities in this set for the Group’s contingent liabilities relating to
its associates and joint ventures.
The ability of the Group’s associates or joint ventures to transfer funds or distribute its profits to the
Group in the form of cash dividends, or to repay loans or advances made by the Group resulting from borrowing
arrangements are governed by approval from the investors.
10. Infrastructure Investments
2015 2014
Rm Rm
South African infrastructure investments
Financial investments at FVTPL 706 -
706 -
Other infrastructure investments
Financial investments at FVTPL 72 -
Total infrastructure investments 778 -
With effect from 1 July 2014, the Group’s South African infrastructure investments managed by ACP were
measured at fair value. These include all South African infrastructure investments in which the Group
holds less than 50%. These investments are managed, reported and evaluated on a fair value basis in
terms of ACP’s investment methodology. Refer to note 9: Equity-accounted investments for the details
pertaining to these investments. To the extent that these investments were previously equity-accounted,
they have been reclassified to infrastructure investments at their equity-accounted values as at
30 June 2014. This is not considered to be a change in accounting policy but rather a change in the
business management as the ACP business model was only approved from 1 July 2014.
2015 2014
Rm Rm
South African infrastructure investments
Opening balance - -
Reclassification of equity investments from equity-accounted investments 3 -
Reclassification of shareholder loans from equity-accounted investments 168 -
Recycling of equity-accounted earnings from other comprehensive earnings 28 -
Reclassification from financial investments 126 -
Fair value remeasurement through comprehensive earnings 173 -
Loans advanced 208 -
706 -
Balance at the end of the year comprises:
Blue Falcon 140 Trading Proprietary Limited 217 -
Imvelo Company Proprietary Limited 40 -
N3 Toll Concessions (RF) Proprietary Limited 128 -
Windfall Proprietary Limited 321 -
706 -
Other infrastructure investments
Opening balance - -
Reclassification from financial investments 64 -
Foreign currency translation movement (4) -
Fair value remeasurement through comprehensive earnings 12 -
72 -
11. Deferred taxation
2015 2014
Rm Rm
Reconciliation of deferred taxation asset
At the beginning of the year 1 403 1 347
Recognised in earnings or loss - current year 143 234
Recognised in earnings or loss - adjustment for prior year 81 (97)
Effect of change in foreign tax rate - (2)
Foreign currency translation movement 13 49
Reallocation from deferred taxation liability - 33
Restructuring (1) (161)
Disposal of subsidiary (59) -
1 580 1 403
Reconciliation of deferred taxation liability
At the beginning of the year (257) (319)
Recognised in earnings or loss 11 (42)
Recognised in earnings or loss - adjustment for prior year 25 1
Available-for-sale fair value reserve - (21)
Reallocation to deferred taxation asset - (33)
Restructuring 1 161
Foreign currency translation movement (1) (4)
(221) (257)
Deferred taxation asset balance at the year-end comprises
Accelerated capital allowances (303) (368)
Provisions 370 577
Contracts (70) (194)
Other 358 426
Assessed losses carried forward 1 225 962
1 580 1 403
Deferred taxation liability balance at the year-end comprises
Accelerated capital allowances (327) (304)
Provisions 29 20
Contracts 17 1
Other 22 (3)
Assessed losses carried forward 38 29
(221) (257)
The Group’s results include a number of legal statutory entities within a number of taxation jurisdictions.
As at 30 June 2015, the Group had unused taxation losses of R5 603 million (2014: R4 301 million) available
for offset against future profits. A deferred taxation asset has been recognised in respect of R4 116 million
(2014: R3 691 million) of such losses. No deferred taxation asset has been recognised in respect of the
remaining R1 487 million (2014: R610 million) due to the uncertainty of future taxable profits in the related
specific legal entities.
Unused tax losses - Assumptions
The Group performed a five-year forecast for the financial years 2016 to 2020 which is the key evidence that
supports the recognition of the deferred taxation asset. This forecast specifically focused on Aveng (Africa)
Proprietary Limited, out of which Aveng Grinaker-LTA operates and which, given its financial performance over
the past three years, has contributed significantly to these assessed losses in the Group. Aveng Grinaker-LTA
has been repositioned in 2013 and 2014 to strengthen its service offering to clients in its core operations. This
process saw new executive leadership progressively appointed during the year. The new management has been tasked
with minimising losses and cash outflows on existing contracts, strengthening project execution and commercial
management and to return Aveng Grinaker-LTA to profitability. Fundamental to these initiatives, is securing quality
contracts that fulfil both risk and return requirements for the Group. Inputs used were based on perceived risk
within the business and attainable revenue and gross profit margins which are consistent with market observations.
Although the turnaround in 2015 was slower than anticipated good progress was made in positioning Aveng Grinaker-LTA
for the future. This included considerable restructuring and right-sizing of the business in line with the current
market conditions. Attention has also been given to the commercial and risk management processes and pre-tender
assessments. This will protect our margins into the future.
Also included in Aveng (Africa) Proprietary Limited are Aveng Manufacturing, Aveng Steel operating groups as well
as Aveng Shafts & Underground. Aveng Steel will continue to focus on reducing overheads in line with the
current subdued steel market. Aveng Manufacturing enters challenging market environments in a strong position in
the 2016 financial year. Aveng Shafts & Underground is expected to improve performance. Aveng Manufacturing and
Aveng Steel as well as Aveng Shafts & Underground are expected to contribute to earnings and thereby reduce
the extent of assessed losses in Aveng (Africa) Proprietary Limited. Aveng Grinaker-LTA is expected to break even
in 2016 and start contributing to profitability thereafter.
12. Amounts due from / (to) contract customers
2015 2014
Rm Rm
Uncertified claims and variations (underclaims)1 5 862 6 763
Provision for amounts due from contract customers1 (958) (1 102)
Progress billings received (including overclaims)2 (1 921) (1 766)
Uncertified claims and variations less progress billings received 2 983 3 895
Contract receivables3 5 147 5 527
Provision for contract receivables - (46)
Retention receivables4 243 209
8 373 9 585
Amounts received in advance5 (641) (911)
Net amounts due from contract customers 7 732 8 674
Disclosed on the statement of financial position as follows:
Uncertified claims and variations 5 862 6 763
Provision for amounts due from contract customers (958) (1 102)
Contract and retention receivables 5 390 5 736
Provision for contract receivables - (46)
Amounts due from contract customers 10 294 11 351
Progress billings received (1 921) (1 766)
Amounts received in advance (641) (911)
Amounts due to contract customers (2 562) (2 677)
Net amounts due from contract customers 7 732 8 674
1 Includes revenue not yet certified - recognised based on percentage of completion /
measurement and agreed variations, less provisions and deferred contract costs.
2 Progress billings are amounts billed for work performed above revenue recognised.
3 Amounts invoiced still due from customers.
4 Retentions are amounts invoiced but not paid until the conditions specified in the
contract are fulfilled or until defects have been rectified.
5 Advances are amounts received from the customer before the related work is performed.
Provision
for
amounts Provision
Uncertified due from for
claims and contract Contract contract Retention
variations customers receivables receivables receivables Total
Rm Rm Rm Rm Rm Rm
2015
Non-current assets 900 - - - - 900
Current assets 4 962 (958) 5 147 - 243 9 394
5 862 (958) 5 147 - 243 10 294
2014
Non-current assets 3 460 (737) 223 - - 2 946
Current assets 3 303 (365) 5 304 (46) 209 8 405
6 763 (1 102) 5 527 (46) 209 11 351
13. Non-current assets held-for-sale
During the previous financial year, the Group made a decision to dispose of non-core properties. These
properties were classified as non-current assets held-for-sale and will be sold as a single portfolio of
land and buildings.
These properties continue to meet the definition of a disposal group. When assessed for impairment (as a
single portfolio), the fair value of the properties, as determined by valuation experts significantly
exceeded the carrying amount of the properties. No impairment is therefore necessary. The Other and
Elimination segment houses the disposal group.
As at year-end, the Group had a binding agreement with Imbali Props 21 Proprietary Limited, a member of the
Collins Property Group for approximately R1,2 billion. Certain properties were removed from the originally
anticipated transaction while a number of cranes were added during the negotiation process. The Group will
retain a 30% interest in Dimopoint Proprietary Limited, a special purpose vehicle created for the purpose of
holding the non-core properties and which is currently wholly owned by Aveng (Africa) Proprietary Limited.
The Competition Commission approval has been obtained for this transaction and all necessary documents have
been signed after year-end. All conditions precedent have been met and therefore the disposal transaction is
substantially complete.
2015 2014
Rm Rm
Non-current assets held-for-sale
Land and buildings 559 607
Movement during the period
Opening balance 607 -
Transferred to PPE (123) -
Transferred from PPE 75 607
559 607
Operating leases commitments
Future minimum lease payment under
this non-cancellable operating lease:
- within one year 113 -
- within two and five years 815 -
- later than five years 1 271 -
2 199 -
14. Borrowings and other liabilities
14.1 Borrowings held at amortised cost
Rate of 2015 2014
Description Terms interest Rm Rm
Convertible bond of Interest coupon payable bi-annually Coupon of 7,25% 1 651 -
R2 billion for a period of 5 years
Finance sale and lease back Monthly instalment from 2012 to June 2018 Fixed range 5,5% to 7,6% 91 259
amounting to AUD10 million*
Short-term facility of Repayable in May 2016 Bank bill swap rate plus 1,65% 94 603
AUD10 million
Secured loan agreement denominated in ZAR Interest on loan repayable monthly Fixed interest rate of 9,82% - 66
with principal owing in June 2021
Hire purchase agreement in AUD7 million* Monthly instalment from 2014 to September 2019 Fixed interest rate of 6,81% 65 -
Hire purchase agreement in USD* Quarterly instalments ending June 2017 Fixed rate ranging 4,58% to 4,65% 253 312
Hire purchase agreement denominated in ZAR* Monthly instalment ending in November 2017 South African prime less 2% 74 100
Hire purchase agreement denominated in ZAR* Monthly instalment ending in March 2017 South African prime less 1,7% 148 138
Hire purchase agreement in ZAR* Monthly instalment ending in May 2018 Fixed interest rate of 9,7% 69 102
Revolving credit facility in Interest payable monthly with bullet payment Jibar + 2,75% - 1 000
ZAR payable in June 2016
Revolving credit facility in Interest payable monthly with bullet payment Jibar + 1,75% - 250
ZAR payable in December 2016
Finance lease facilities in ZAR* Monthly instalment ending in March 2017 South African prime 13 9
Interest-bearing borrowings 2 458 2 839
Interest outstanding on interest-bearing borrowings** 5 28
Total interest-bearing borrowings 2 463 2 867
* These borrowings and other liabilities are finance leases and are included in the analysis of the payable finance lease liability.
** Interest outstanding in the current year relates to finance leases.
14.2 Borrowings held at amortised cost
2015 2014
Rm Rm
Finance lease liability are payable as follows:
Minimum lease payments due
- within one year 369 324
- within two and five years 411 671
Less: Future finance charges (62) (75)
Present value of minimum lease payments 718 920
Present value of minimum lease payments due
- within one year 332 286
- within two and five years 386 634
718 920
The Construction and Engineering: Australasia and Asia operating segment entered into a finance sale and
leaseback arrangement in the 2012 financial year and in the current year entered into an asset based
finance arrangement.
The arrangement, amounting to AUD10 million (R91 million) (2014: AUD26 million (R259 million) has been
secured by plant and equipment with a net carrying amount of R60 million (2014: R283 million). The
arrangements are repayable in monthly instalments with the final instalment payable in June 2018 and bears
interest at fixed rates, ranging from 5,5% to 7,6%.
The new arrangement amounting to AUD7 million (R65 million) has been secured by assets with a net carrying
amount of R49 million. The arrangement is repayable in monthly instalments with the final instalment payable
in September 2019 and bears interest at 6,81%.
The Mining operating segment entered into various asset-based finance lease agreements in 2012, 2013, 2014
and the current financial year to purchase operating equipment denominated both in USD and ZAR. These
arrangements are secured by the assets for which the funding was provided and is repayable in monthly and
quarterly instalments with the final repayment to be made in May 2018. Equipment with a net carrying amount of
R613 million (2014: R673 million) has been pledged as security for the facility.
The Mining and Manufacturing and Processing operating segments entered into various vehicle lease arrangements
in the 2014 and 2015 period. Equipment with the net carrying amount of R10 million (2013: R8 million) has been
pledged as security.
14.3 Convertible bonds
During July 2014, the Company issued convertible bonds denominated in South Africa Rand with a nominal value of
R2 billion and a coupon of 7,25%. Interest is payable bi-annually for a period of five years with the bond
repayment date being five years from the issue date at par plus interest.
The bonds are convertible into 69,6 million Aveng Limited shares at the holder’s option based on a conversion price
of R28,76 subject to shareholders’ approval, which was received on 19 September 2014.
The Company has the option to call the bonds at par plus accrued interest at any time on or after 7 August 2017 up
to 20 consecutive dealing days before the redemption date, if the aggregate value of the underlying shares per
bond for a specified period of time is 130% of the conversion price. However, the bondholders may convert the
bonds into shares before the actual settlement.
The Company also has the option to settle the outstanding bonds at par value plus accrued interest at any time
if less than 15% of the bond remains outstanding.
The convertible bond comprises a liability component as well as an embedded conversion option, being the
option for the bondholder to convert the bond to a fixed number of Aveng Limited shares.
The liability component is recognised and initially measured at fair value, adjusted for transaction costs and
subsequently measured at amortised cost in accordance with the Company’s accounting policy on borrowings and
other liabilities. The conversion option was initially measured at fair value with changes in the fair value
recognised in comprehensive earnings in accordance with the Company’s accounting policy on derivative
instruments. On the date that the shareholder approval was obtained to settle the instruments in shares, the
derivative was reclassified to equity, at the then fair value.
The effective interest rate associated with the convertible bond liability is 13,6% per annum.
Convertible
Convertible bond
bond Derivative equity
liability liability reserve Total
Rm Rm Rm Rm
Issued July 2014 1 562 438 - 2 000
Transaction costs (41) - - (41)
Payment (73) - - (73)
Fair value adjustment to comprehensive earnings* - (36) - (36)
Transfer to equity - (402) 402 -
Transaction costs allocated to equity component - - (12) (12)
Interest determined with the effective interest rate* 203 - - 203
Accrual of coupon interest for convertible bond 136 - - 136
Unwinding of liability owing to:
- Transaction costs capitalised 6 - - 6
- Effect of fair value adjustment of derivative liability 5 - - 5
- Effect of fair value of conversion option reclassification to equity 56 - - 56
1 651 - 390 2 041
* Interest on convertible bond.
15. Trade and other payables
2015 2014
Rm Rm
Trade payables 2 859 3 287
Subcontractors 425 409
Accrued expenses 3 180 3 600
Income received in advance 1 072 1 438
Promissory notes 425 1 009
7 961 9 743*
* Comparatives have been amended as detailed in
note 3: New accounting standards and interpretations adopted,
changes in accounting policies and other reclassification.
Trade and other payables comprise amounts owing to suppliers for goods and services supplied in the normal course
of business.
Promissory notes issued to the Group amount to R425 million (2014: R1 billion). The notes bear interest between a
range of 7,7% and 7,8% per annum. Terms vary in accordance with contracts of supply and service but are generally
settled on 30 to 90 day terms.
Included in accrued expenses is advance payments received relating to the Queensland Curtis Liquified Natural Gas
contract of AUD112,5 million (R1 055 million) which is backed by bank guarantees. AUD30 million (R301 million) of
the advance payment was paid back on 3 July 2014.
16. Employee-related payables
IFRS 2 Share-based payment obligation
Share-based payment obligations comprise cash-settled options for executives and senior employees. The cost of
cash-settled transactions is measured initially at fair value at the grant date using an adjusted binomial option
pricing model taking into account the terms and conditions upon which the instruments were granted. This fair
value is expensed over the period until vesting with recognition of a corresponding liability. The liability is
remeasured at each reporting date up to and including the settlement date with changes in fair value recognised
in earnings. Refer to Share-based payments note as detailed in the consolidated financial statements available on
the Group’s website.
Employee entitlements
Employee entitlements are obligations raised for the various employee incentive plans in place throughout the Group.
Included in employee entitlements are short and medium-term incentive plan obligations, along with statutorily
determined retrenchment commitments.
Leave pay benefits
Leave pay benefits are amounts due to employees for accumulated leave balances, the timing of which is uncertain at
year-end. Discounting of these obligations amount to R10 million (2014: R12 million) accretion.
Recognised/
(reversed)
Opening in earnings Currency Unwinding
balance or loss Utilised adjustment of discount Total
Rm Rm Rm Rm Rm Rm
Reconciliation of employee-related payables - 2015
IFRS 2 Share-based Payment 31 (31) - - - *
Employee entitlements 789 195 (374) (4) * 606
Leave pay benefits 755 431 (640) (26) (10) 510
1 575 595 (1 014) (30) (10) 1 116
* Amounts less than R1 million.
Recognised/
(reversed)
Opening in earnings Currency Unwinding
balance or loss Utilised adjustment of discount Total
Rm Rm Rm Rm Rm Rm
Reconciliation of employee- related payables - 2014
IFRS 2 Share-based Payment 55 (2) (22) - - 31
Employee entitlements 966 425 (540) (70) 8 789
Leave pay benefits 649 525 (492) 61 12 755
1 670 948 (1 054) (9) 20 1 575
2015 2014
Rm Rm
Non-current 468 682
Current 648 893
1 116 1 575
17. Operating Expenses
2015 2014*
Rm Rm
Operating lease charges - premises 88 92
Operating lease charges - plant and equipment 9 10
Rationalisation and restructuring 123 66
Depreciation of property, plant and equipment 47 105
Amortisation of intangible assets 21 28
Share-based payment expense (20) (13)
Employee costs 1 895 1 980
Employee benefits 65 98
Computer costs 105 103
Consulting fees 119 89
Audit fees 54 54
Other 557 559
3 063 3 171
* Comparitives have been amended as detailed in note 3: New accounting
standards and interpretation adopted, changes in accounting and policies
and other reclassifications.
18. Taxation
Major components of the taxation expense
Current
Local income taxation - current period 25 30
Local income taxation - recognised in current taxation for prior periods (4) (9)
Foreign income taxation or withholding taxation - current period 377 262
Foreign income taxation or withholding taxation - recognised in the current
taxation for prior periods (58) (28)
340 255
Deferred
Deferred taxation - current period (154) (192)
Deferred taxation - foreign rate change - 2
Deferred taxation - arising from prior period adjustments (106) 96
(260) (94)
80 161
The net movement on deferred taxation amounts to R213 million (2014: R118 million), which comprises a credit to the
statement of comprehensive earnings of R260 million (2014: R94 million credit), a debit of Rnil fair value adjustment
on financial investments (2014: R21 million debit), (2014: Rnil at the CGT rate of 18,7%) (2014: R114 million) and a
credit of R12 million (2014: R45 million debit) to the foreign currency translation reserve, and R59 million
(2014: Rnil) relating to the disposal of a subsidiary.
2015 2014
Reconciliation of the taxation expense
Reconciliation between applicable taxation rate and
effective taxation rate
Effective taxation rate (18,3)% (74,9)%
Goodwill impairment charge (36,0)% 101,0%
Effective taxation rate on earnings excluding goodwill
impairment loss (54,3)% 26,1%
Exempt income (134,4)% 14,3%
Deferred taxation asset not recognised 186,8% (14,4)%
Disallowable charges 43,0% (4,8)%
Change in tax rate - (0,4)%
Prior year adjustment (34,9)% 5,3%
Effects of other jurisdictions and other 21,8% 1,9%
28,0% 28,0%
South African income taxation is calculated at 28% (2014: 28%) of the taxable income for the year. Taxation in other
jurisdictions is calculated at rates prevailing in the relevant jurisdictions.
19. Non-cash and other movements
2015 2014
Rm Rm
Earnings from disposal of property, plant and equipment (61) (66)
Impairment of goodwill, property, plant and equipment and intangible assets 628 831
Profit on disposal of subsidiary (777) -
Fair value adjustments (196) (15)
Movements in foreign currency translation (62) (206)
Movement in equity-settled share-based payment reserve 11 5
(457) 549
20. Contingent liabilities
Contingent liabilities at the reporting date, not otherwise provided for in the consolidated financial statements,
arise from performance bonds and guarantees issued in:
2015 2014*
Rm Rm
South Africa and rest of Africa
Guarantees and bonds (ZARm) 3 721 3 895
Parent company guarantees (ZARm) 898 2 987
4 619 6 882
Australasia
Guarantees and bonds (AUDm) 647 651
Parent company guarantees (AUDm) 1 215 4 149
1 862 4 800
* Adjusted to remove advance payment guarantees where the
advance payment is already recognised as a liability to the
Group.
Aveng has a rehabilitation liability relating to the sale of the properties. Refer to Non-current assets held-for-sale note
as detailed in the consolidated financial statements available on the Group’s website. The amount of this liability will be
confirmed as soon as the environmental experts have completed their assessment of the extent and amount of damage.
Contract performance guarantees issued by the parent company on behalf of its group companies are calculated based on the
probability of draw down.
Claims and legal disputes in the ordinary course of business
The Group is, from time to time, involved in various claims and legal proceedings arising in the ordinary course of business.
The Board does not believe that adverse decisions in any pending proceedings or claims against the Group will have a material
adverse effect on the financial condition or future operations of the Group. Provision is made for all liabilities which are
expected to materialise and contingent liabilities are disclosed when the outflows are possible.
21. Headline Earnings
2015 2014
Gross of Net of Gross of Net of
taxation taxation taxation taxation
Rm Rm Rm Rm
Determination of headline earnings
Loss for the period attributable to equity holders of parent - (460) - (381)
Impairment of goodwill 291 291 816 816
Impairment of property, plant and equipment 273 252 - -
Impairment of intangible assets 57 57 15 15
(Loss) / profit on sale of property, plant and equipment 6 4 (25) (18)
Profit on sale of subsidiary (777) (713) - -
Fair value adjustment on investment property (11) (9) (15) (11)
Headline (loss) / earnings (578) 421
22. Events after the reporting period
Disposal of non-core assets
The non-core properties have been classified as non-current assets held-for-sale. Refer to note 13: Non-current assets
held-for-sale of the consolidated financial statements. The Competition Commission approval has been obtained for this
transaction and all necessary documents have been signed after year-end. All conditions precedent have been met and
therefore the disposal transaction is substantially complete.
As part of this transaction the Group will have committed lease payments for these properties after the disposal.
Commentary
Overview
Salient features
- All Injury Frequency Rate improved to 3,5 compared to 3,8 at 30 June 2014
- Revenue decreased by 17% to R43,9 billion (2014: R53,0 billion)
- Net operating earnings decreased to a loss of R288 million (2014: R799 million profit)
- Headline earnings per share decreased to a loss of 144,3 cent (2014: 112,5 cent profit)
- Sale of Electrix business was successfully completed resulting in a R777 million profit
- Successfully placed R2 billion senior unsecured convertible bonds
- Net cash of R0,4 billion from R1,3 billion in June 2014
- Property deal is substantially concluded
Safety
Safety remains a core value of Aveng and is integral to the way the Group conducts its business. The Group remains
fully committed to improving its safety culture by driving the safety vision “Home without harm, Everyone, Everyday”.
Aveng deeply regrets the loss of five people's lives during the period ended 30 June 2015. This is unacceptable as the Group
strives towards fatality-free operations. The Aveng Board and management have extended their sincere condolences to the families,
friends and colleagues of the deceased employees.
In 2015 the All Injury Frequency Rate (AIFR) improved by 8% to 3,5. This indicator includes all types of injuries and
principally indicates broad personal injury trends. Aveng continues to see year-on-year improvement in the reporting
culture, and anticipates that reporting thresholds for total injuries will continue to improve across operations.
Operating environment
Overview
The Group has made inroads in delivering on its short and medium term strategy. However, improved operational
performance was overshadowed by the economic slowdown in the Group’s key markets and the continued impact of the resolving
historical problematic contracts. The Group’s performance was negatively impacted by a substantial loss in the steel
operating and engineering operating groups, restructuring costs incurred across the Group and a substantial provision
created for unresolved claims pertaining to South African operations.
There has been no material improvement in domestic infrastructure investment in South Africa, aggravated by the impact
of reduced mining activities and labour disruptions. The substantial drop in the price of steel, combined with low
demand, significantly impacted the results of the steel operating group.
Provisions were raised relating to long-standing commercial claims that are under negotiation in Aveng Grinaker-LTA.
These claims did not achieve sufficient progress by year end. While the Group remains confident of an acceptable commercial
outcome, the increased uncertainty associated with protracted negotiation processes, resulted in the requirement for this
substantial provision.
Trading conditions in Australia remain difficult, with a fall in all categories of infrastructure development except
for residential building. The general social and infrastructure-related projects are not yet compensating for the reduced
mining infrastructure spend and the decline in liquid natural gas projects.
In spite of these macro-economic challenges, the recovery and stabilisation plan implemented in the previous financial
year, focusing on the restoration of liquidity and the reduction in fixed overhead cost, continued to progress well in
most business units. Related restructuring costs have impacted results in 2015.
Decisive steps were taken during the year to strengthen the Group’s financial position and its leadership capacity,
thereby addressing areas of underperformance in operations. Interventions to reduce fixed costs and improve operating
efficiencies were implemented in all the operating groups. The mining businesses were fully integrated under Aveng Mining,
and steel businesses were integrated under Aveng Steel. Together with other actions to turnaround underperforming business
units these interventions have, to a large extent, delivered positive outcomes, the full effect of which will contribute to
the financial performance improvement in 2016.
Construction and Engineering: Australasia and Asia
Declining investment in infrastructure development in Australia was exacerbated by the sharp decrease in oil and gas
prices, and further reductions in iron ore and coal prices. Delays or cancellation in government tenders impeded
anticipated growth in social and transport-related infrastructure projects. Strong competition from international contractors
for fewer opportunities made it difficult for the segment to win replacement projects for completed work. Following the
completion of major projects, these conditions have led to a larger than anticipated fall in the order book of McConnell
Dowell. Significant bidding costs were incurred for unsuccessful tenders. Notwithstanding, opportunities for social and
transport-related infrastructure projects continue to be pursued to move away from mining-related work. Favourable higher
quality contracts awarded in New Zealand and Southeast Asia partially offset the Australian based operations’
significant reduction in revenue.
Construction and Engineering: South Africa and rest of Africa
The segment remained constrained due to the lack of investment in large infrastructure projects, typically generated
by the public and mining sectors. Private sector investment remains subdued due to external factors, including low
commodity prices and government spending policy uncertainty. Activity was driven by construction on large private sector
building-related contracts and engineering work on renewable energy contracts. The Sishen Photovoltaic Project was
successfully completed on time. This 74 MW project has been contributing to South Africa’s energy needs since December 2014.
The Gouda Wind Project is due to come on-stream in the first quarter of the new financial year, further contributing renewable
energy to the grid. Labour disruption in the mining and steel industries impacted the operating segment, while the Medupi
Power Station site experienced renewed labour unrest in the second half of the financial year. The order book mix
continued to be biased towards the relatively lower margin building work, following the successful award of flagship building
projects in Durban, Cape Town and Sandton. Management will continue to balance construction disciplines to optimise the
portfolio of projects.
Mining
Aveng Moolmans and Aveng Shafts & Underground were fully integrated during the year to create Aveng Mining, a single
sizeable entity operating under a common management team with shared support services. A drive to rationalise costs,
strengthen operational efficiencies and renew the focus on safety will enable the operating segment to remain competitive in
a weak commodity market.
The mining industry continues to be negatively impacted by low commodity prices. The domestic market carries the
additional burden of labour disruption and an uncertain regulatory environment which discourages investment. Clients are
under pressure to reduce costs and are demanding higher levels of efficiency from contractors, which resulted in lower
margins for the segment.
The majority of open-cast and underground mining contracts delivered solid performances. However, overall performance
was down largely due to losses incurred in the Chilean operations and the Bakubung contract which was further impacted
by labour disruptions.
In spite of the challenging market conditions, the operating segment secured and commenced work on a number of
long-term shaft sinking and development contracts at acceptable margins. Certain clients recently announced suspensions and
terminations due to current market conditions that have negatively impacted the order book for Aveng Mining.
Aveng Manufacturing
The manufacturing businesses performed well following recent investments by Infraset in Mozambique and Zambia benefiting in
particular, from the strong demand for concrete rail products. Aveng Rail (previously Lennings Rail) continued to benefit
from rail construction and maintenance services in Southern Africa. Labour disruptions and constrained infrastructure
investment adversely impacted the mining and specialist-construction products business units.
Aveng Steel
The difficult market conditions that characterised the second half of the previous financial year continued in the
current year, with the South African steel sector experiencing several business failures. Widespread labour disruptions
had a significant negative impact on volumes and inventory levels. This was compounded by fierce international competition
and a sharp drop in the price of steel in the second half of this year, resulting in a significant drop in margins. The
falling demand and lower margins have led to a requirement for cost savings and efficiency initiatives. This has led to
the steel operating group reporting a substantial loss in the current financial year versus the profit reported in the
prior year, a deterioration of R308 million.
Financial performance
Statement of comprehensive earnings
Revenue decreased by 17% to R43,9 billion against the comparative period’s R53,0 billion primarily as a result of:
- The completion of multi-year major mining and infrastructure projects within the Construction and Engineering:
Australasia and Asia segment;
- Labour disruption in the mining and steel sectors;
- Reduced demand and lower pricing on the back of lower international prices in the steel sector; and
- Non-renewal of three gold-mining contracts in Aveng Mining as well as slower production on other contracts.
Net operating earnings decreased to a loss of R288 million (2014: R799 million profit) as a result of:
- A weaker Australian construction market, with a large number of major contracts close to completion without having
been replaced as well as, extensive tendering costs of approximately R200 million, in an increasingly competitive market;
- Liquidated damages paid on the Hay Point Berth project in order to reduce the future risk;
- Cost overruns due to remedial work on the GCRT contract;
- Further losses on the Mokolo Crocodile Pipeline contract, due to an extended close out of the contract;
- Increased costs and penalties associated with remedial action to address the under-performance of water purification
contracts at Aveng Engineering (R93 million);
- The Mining segment’s earnings were negatively impacted by losses incurred on shaft-sinking contracts;
- A tough steel sector culminated in a weak result from Aveng Steel. This was driven by labour disruptions, weak margins
due to low demand and increased price competition;
- Once-off restructuring costs of R123 million to re-align the fixed cost base;
- Additional provisions were raised relating to long-standing commercial claims that are under negotiation in Aveng
Grinaker-LTA. These claims did not achieve sufficient progress by year end. While the Group remains confident of an
acceptable commercial outcome, the increased uncertainty associated with protracted negotiation processes, resulted in
substantial provision of R583 million; and
- Loss from equity-accounted investments of R60 million was lower by R93 million against the earnings in the comparative
period predominantly due to the impact of delays on the technical sign-off of the Gouda Wind Project, and certain
investments being reclassified as infrastructure investments (held at fair value), effective 1 July 2014.
This was partially mitigated by:
- Solid results from Aveng Manufacturing driven by strong demand for rail and related services in sub-Saharan Africa;
- Solid results from Aveng Moolmans;
- Decreased operating expenses due to restructuring and cost saving initiatives. The full benefit of these initiatives
will be realised in the 2016 financial year; and
- Fair value gains of R196 million included in other earnings - representing infrastructure investments reaching a
marketable maturity level allowing for their reclassification as financial assets held at fair value, and gains on
investment properties.
McConnell Dowell disposed of the Electrix business on 31 October 2014 for R1,3 billion. The profit on sale of this
subsidiary (treated as a disposal group and not a discontinued operation) amounted to R777 million before taxation.
The Group recognised impairment charges of R621 million (2014: R831 million) following a review of current business
performance, prevailing and future market conditions and the resultant pressure on order books.
Goodwill of R291 million and intangible assets of R33 million, associated with the Built Environs business in the
Construction and Engineering: Australasia and Asia segment, have been fully impaired. While management have implemented
a robust turnaround plan for this business, there is uncertainty around the business’s ability to generate the required
returns within a reasonable time frame based on the current order book.
An impairment charge of R273 million was recognised against ancillary operations, comprising plant and equipment in
the Construction and Engineering: Australasia and Asia (R10 million charge), Construction and Engineering: South Africa
and rest of Africa (R198 million charge), Manufacturing and Processing (R32 million charge) and Mining (R32 million
charge) segments.
A further impairment charge of R24 million was made against intangible assets.
Net finance charges of R306 million increased by 67% in relation to the comparative period. Transaction costs of R78 million
were above the comparative period (R68 million) in order to maintain access to previously arranged loan facilities in South
Africa and Australia. The effective interest on the convertible bond equalled R167 million, 6,35% above the coupon rate of 7,25%.
This charge was reduced by a R36 million fair value gain on the carrying amount of the equity option embedded in the convertible
bonds. Following shareholder approval (on 19 September 2014) to equity settle the bonds, the option was reclassified to equity
and will no longer be fair valued.
The taxation expense amounts to R80 million compared to R161 million for June 2014. This represents a negative
effective tax rate of 54,3%, compared to 26,1% in the prior year (this excludes the impact of goodwill impairment charges). The
effective tax rate was impacted mainly by the sale of the Electrix business as well as deferred tax assets not recognised
in respect of certain entities.
Included in non-controlling interest is the 40% non-controlling interest in a Chilean joint venture. This is excluded
from earnings attributable to shareholders of the Group and headline earnings. This incorporated joint venture was
contracted for the Chuquicamata Copper Mine deep-level shaft sinking contract. Due to operational and commercial challenges
a loss was recognised.
Headline earnings decreased to a loss of R578 million. Items excluded from the calculation of headline earnings
include the profit on the sale of Electrix, impairment charges and fair value gains on investment properties.
Loss per share of 114,8 cents (2014: 101,9 cents loss) deteriorated by 13% and headline earnings per share (HEPS) of
negative 144,3 cents decreased from 112,5 cents profit. Per share amounts were reduced due to the impact of dilution
caused by the issuing of shares to conclude the Group’s BEE transaction on 30 June 2014.
Statement of financial position
The Group reduced its capital expenditure to R876 million (2014: R1,2 billion): applying R649 million (2014: R677 million)
to replace and R175 million (2014: R384 million) to expand property, plant and equipment. R52 million (2014: R176 million)
was applied in expansion of intangible assets. The majority of the amount was spent as follows:
- R262 million at McConnell Dowell, related to specific contracts;
- R109 million at Aveng Grinaker-LTA;
- R257 million at Aveng Mining including an excavator replaced due to fire damage, which was partially funded by an
insurance claim;
- R156 million at Aveng Manufacturing for plant expansions at the Tete factory for Aveng Infraset (R52 million) and
upgrades of R58 million at Aveng Rail; and
- R24 million at Aveng Steel.
Capital expenditure net of proceeds and insurance claim pay-outs reduced to R534 million (2014: R981 million).
Intangible assets increased due to the implementation of SAP ERP (HCM) system which was offset by the impairment of an
indefinite useful life brand name of R33 million associated with the Built Environs business and R11 million relating
to intangibles for a project in Aveng Water.
The Group disposed of its investment properties in December 2014, through the sale of its 15% undivided share in the
Goldfields Mall Shopping Centre, for R97 million.
The decrease of goodwill arising on consolidation is due to the aforementioned Built Environs impairment of R291 million,
offset by goodwill recognised on the acquisition of Atval of R10 million by the Aveng DFC business unit. The balance of
the variance relates to foreign translation differences on the impaired Built Environs goodwill. The remaining goodwill is
made up of R100 million for McConnell Dowell and R242 million for Aveng DFC.
Equity-accounted investments decreased by 51% to R151 million (2014: R306 million) due to the reclassification of
three concessions investments as infrastructure investments. This reclassification resulted from Aveng Capital Partners
(ACP, formerly Aveng Concessions) investments reaching a marketable maturity level allowing for their reclassification as
financial assets held at fair value. The reduction also related to losses booked on the Gouda renewable energy project.
Infrastructure investments of R778 million represent the aforementioned reclassification from equity-accounted investments and
financial investments of R190 million, the Group’s investment in the N3 Toll Concession (which was reclassified as a result of
the early adoption of IFRS 9), along with the investment in GoldlinQ, the concession investment in the GCRT project.
Derivative instruments relate to various Forward Exchange Contracts held to economically hedge foreign currency
exchange risk and have remained flat year-on-year.
Non-current assets held for sale decreased to R559 million and comprise properties which form part of the anticipated
property transaction. During the prior year, the Group made a decision to dispose of non-core properties and classified
these as non-current assets held for sale, to be sold as a single portfolio of land and buildings. At year end the Group
had a binding agreement of sale with Imbali Props 21 Proprietary Limited, an entity of the Collins Property Group for
approximately R1,1 billion. Due to the strategic nature of the investment, the Group will retain an interest in the
property vehicle, together with the Collins Property Group. Competition authority approval was obtained on 12 August 2015,
with all remaining conditions precedent expected to be completed by the beginning of September 2015.
Net deferred tax assets increased to R1,4 billion against a comparative position of R1,1 billion. This is mainly due
to assessed losses incurred within Aveng Africa and management has concluded that there will be sufficient future taxable
income against which these deferred tax assets can be utilised. The Group has continued to conservatively recognise any
increases in the deferred taxation assets for its South African business. Taking cognisance of the deterioration in
market conditions during the budgeting and medium term forecasting process, the Group has taken a more prudent view thus
reducing the initially anticipated deferred taxation assets recognised in Aveng Africa. Further, deferred taxation assets
related to the discontinued Engineering business have not been recognised.
Amounts due from contract customers (non-current and current) decreased by 10% to R10,3 billion (2014: R11,4 billion)
predominantly due to a R1 billion reduction in contract receivables at McConnell Dowell due to settlement payments
received on major mining, transport infrastructure and oil and gas contracts.
Amounts due to contract customers decreased by 4% to R2,6 billion (2014: R2,7 billion) due to the utilisation of
advance payments at McConnell Dowell.
Inventories decreased by 11% to R2,5 billion (2014: R2,8 billion) against the comparative as a result of improved
inventory management and falling demand in the Manufacturing and Processing and Mining segments.
Trade and other receivables of R2,4 billion (2014: R2,8 billion) decreased by 14% due to improved collections at Aveng
Manufacturing and Aveng Steel, combined with reduced sales at Aveng Steel.
Employee related payables decreased by R459 million, mainly due to reduced leave pay and other payroll provisions
within McConnell Dowell.
Trade and other payables decreased by 18% to R8,0 billion (2014: R9,7 billion) due to lower accruals at McConnell
Dowell as a result of lower contract-related expenditure and payment of trade payables on completion of major contracts
during the year. AUD30 million (R366 million) of the AUD142,5 million advance payment was repaid on the Queensland Curtis
Liquid Natural Gas (QCLNG) contract in July 2014. Trade finance utilisation at Aveng Steel decreased by R624 million since
June 2014.
Operating free cash flow for the period amounted to a R1,0 billion outflow (2014: R1,4 billion outflow) after
including the R1,3 billion proceeds on the disposal of Electrix. Furthermore, the cash flow performance was characterised by:
- Significant cash outflows for McConnell Dowell associated with the remedial work on the GCRT contract, repayment of
the AUD30 million advance payment on the QCLNG contract, and significant trade payable requirements associated with
ongoing major contracts. This was offset by positive inflows for Webb Dock, Roy Hill and Gladstone LNG;
- Decrease in trade finance of R624 million as well as operating losses offset by steady working capital reduction at
Aveng Steel;
- Operating losses, utilisation of onerous contract provisions and working capital requirements within Aveng
Grinaker-LTA;
- Funding of R208 million advanced to infrastructure investments by Aveng Capital Partners;
- Proceeds on the sale of the Goldfields Mall of R97 million;
- Net capital expenditure of R630 million; and
- Sound operating performance from Aveng Moolmans and Aveng Manufacturing that partly mitigated the outflows.
The Board has considered the Group’s operating cash flows, future funding requirements and commitments, available
facilities and related covenants and despite the disappointing results, remain satisfied that these are considered adequate
at this time and that there is no current need for additional capital.
Cash and bank balances decreased to R2,9 billion (2014: R4,1 billion), resulting in a net cash position of R393 million
(June 2014: R1,3 billion).
Borrowings decreased to R2,5 billion (2014: R2,9 billion) due to the repayment of borrowings at McConnell Dowell.
The Group successfully placed a R2 billion senior unsecured convertible bond on 16 July 2014, listed on the Johannesburg Stock
Exchange (JSE) on 4 September 2014. At the date of issue, the convertible option (derivative) was measured at a fair value of
R438 million and the convertible bond liability was recognised at R1,5 billion (including transaction costs of R42 million).
Authority for physical settlement in shares, on conversion, was granted at the General Meeting convened on 19 September 2014.
The derivative liability was re-measured at this date and the fair value gain amounted to R36 million. Thereafter, the carrying
amount of the option of R402 million was reclassified to equity.
Proceeds from the issue of the convertible bond were utilised to repay revolving credit facilities and fund working
capital requirements.
Operating review
Construction and Engineering: Australasia and Asia
This operating segment comprises Australian Operations, Overseas Operations, Pipelines and Underground, and
Tunnelling.
Revenue decreased by 27% to AUD2,2 billion (2014: AUD3,0 billion) or 26% to R20,9 billion (2014: R28,2 billion)
against the comparative period. This is reflective of the completion of multi-year pipeline and infrastructure contracts and
the sale of Electrix earlier in the financial year. Net operating earnings decreased by 61% to AUD11 million (2014: AUD28
million) or 59% to R112 million (2014: R271 million). The poor performance in the second half of the financial period is
reflective of the weaker Australian construction market, further negatively impacted by the recognition of liquidated damages
following the completion of the Hay Point Berth contract, costs associated with remedial works on the GCRT contract and additional
tender expenses for significant engineering, procurement and construction contracts that were not secured. Significant restructuring
costs of AUD7 million or R67 million were incurred while resizing the business to the current order book. The benefit of reduced
overheads will flow into 2016.
These negative impacts masked sound operating performances on a number of contracts, notably the Roy Hill project in
Western Australia and the Webb Dock maritime infrastructure and Springvale Grade Separation projects in Victoria. Project
execution was strong on the majority of operations in Southeast Asia. This performance was reflected in the improved
gross margin percentage of 5,9% up from 5,6%. Significant growth was recorded in the international operations with Southeast Asia
East Asia revenue up and the Pacific region showing solid growth opportunities. The specialist rail business has started
to secure regular maintenance and upgrade works and the mechanical business has won good contracts in the water, gas and
oil sectors.
Australian Operations
Australian Operations reported an increase in revenue of 6% to R10,0 billion (AUD 1,0 billion) in 2015, mainly from
Webb Dock and Roy Hill. The Australian market is challenging and competition for larger projects very aggressive,
resulting in tender costs being expensed on contracts not won negatively impacting operating margin.
Remedial work and demobilisation actions associated with the GCRT contract is substantially complete. Given the
technical and legal complexities, it is expected that the commercial negotiations will be protracted, and thus the final
outcome remains uncertain and a material risk to the Group. The process of lodging, finalising and resolving claims with the
affected counterparties has been intensified, and is progressing according to plan.
The specialist rail business has started to secure regular maintenance and upgrade works with clients such as
Australian Rail Track Corporation and V-Line public transport services in Victoria. The
mechanical business continues to tender for smaller packages of work and secured a pilot project for a water
treatment plant in Victoria. Overall the work back-log of Australian operations has reduced significantly despite rigorous
tendering efforts and this will result in a sharp decline in revenues in the new financial year.
Built Environs successfully completed the expansion of the Ocean Keys Shopping Centre in Western Australia during the
period. The expansion on Perth Airport Terminal 1 is nearing completion and the terminal will be handed over for
Operational Readiness Testing on 21 August 2015. A new managing director was appointed and significant effort is being applied
to securing new work.
In response to ongoing declines in available work and a challenging outlook for the Australian construction and
engineering market, additional steps were taken in 2015 to reduce costs and McConnell Dowell will continue to review its
overheads relative to market conditions.
Overseas Operations
Overseas operations performed well in challenging market conditions due to excellent project execution. Revenue was
flat at R3,6 billion (AUD372 million) with an acceptable margin due to excellent project execution in most areas. Earnings
reduced to R257 million due to losses incurred on a major contract.
In New Zealand, the Christchurch rebuild project continued, while new contracts were secured in the transport and
water sectors. Southeast Asia highlights included the completion of the Nestlé Project in Malaysia, the Bakan Gold Mine in
Indonesia and the Wheatstone modules fabricated in the Batam facility.
Pipelines
As expected, Pipeline revenue of R3,4 billion (AUD353 million) declined significantly from R7,1 billion (AUD746 million) in
2014 following completion of the major LNG projects in Australia. Earnings were down 20% to R259 million due to the fall in
revenue and are within expectations. The business unit has successfully transitioned to securing smaller available projects
in Australia including Mereenie, Tirrawarra and Victorian Northern Interconnect Expansion projects and continues to pursue
further good opportunities in Thailand and Malaysia. Overseas, the Fourth Transmission Pipeline project in Thailand has
performed very well achieving strong productivity since December 2014. Phase 1 was handed over in April 2015 and Phase 2 is
99% complete and ahead of schedule.
Tunnelling and Underground
Related revenue declined by 11% to R1,6 billion (AUD170 million). The Land Transit Authority contracts in Singapore
are nearing completion and both have been a technical success. The Waterview project, the largest infrastructure development
ever undertaken in New Zealand, is on schedule for completion in late 2016. Earnings fell to a loss of R28 million in line with
decreased revenue and the tender costs incurred in pursuit of the large Westconnex B1 projects in Sydney.
Electrical
In October 2014, McConnell Dowell completed the successful divestment of Electrix, (its separately branded construction and
asset maintenance business) to VINCI Energies. This reduced debt and provided liquidity for McConnell Dowell. During the
current period before the sale, it reported revenue of R1,2 billion (AUD118 million).
Construction and Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA, Aveng Engineering and Aveng Capital Partners. The results of
Aveng Capital Partners have been reallocated from the Other and Eliminations segment to the Construction and Engineering:
South Africa and rest of Africa segment to more accurately reflect the synergies with Aveng Grinaker-LTA and Aveng
Engineering. Comparatives have been adjusted accordingly.
Revenue decreased by 3% to R8,4 billion (2014: R8,7 billion). This lower revenue included activity on the Sishen and
Gouda renewable energy projects, the Nacala and Majuba rail contracts, work on Eskom-related projects and two major
private sector contracts, namely Mall of the South in Alberton and Sasol Corporate Head Office in Sandton.
Net operating losses for the segment increased by 61% to R697 million (2014: R434 million). The result was adversely
affected by losses on legacy contracts, namely the Mokolo Crocodile Pipeline (Mokol”) contract, the Grootgeluk Cyclic
Pond contract and certain contracts related to the Eskom build programme, all within Aveng Grinaker-LTA and two water
purification contracts in Aveng Engineering.
The performance of Aveng Engineering weakened significantly during the second half of the year due to the cost of
remedial works on the two water treatment contracts, combined with costs incurred due to a delay in technical sign-off
of the Gouda renewable energy contract.
Additional steps were taken in the second half of the year to further reduce the fixed costs of Aveng Grinaker-LTA and
Aveng Engineering including the discontinuation of loss-making business units of Aveng Engineering. Cost savings from
these measures will be realised in 2016.
Civil Engineering
Revenue (including that for Aveng Rand Roads and Aveng Ground Engineering), remained flat at R3,1 billion as
rail-related activity continued on the Majuba Rail Link contract, while the Nacala Section 2 Rail Link contract was
successfully completed during the second half of the financial year. The operating losses increased to R367 million
(June 2014: R266 million).
The significant operational issues noted in the first half of the financial period, notably the aforementioned Mokolo
contract, have been sufficiently de-risked.
Weather delays and scope changes at the Grootegeluk project, labour disruptions at the Majuba project and ongoing
challenges at the Mokolo project contributed to a significant decline in operating earnings.
Significant progress was made on resolution of claims on the Medupi joint venture contract.
Aveng Rand Roads was successfully restructured into a leaner operating structure focused mainly on asphalt and binder
manufacturing and services but its earnings were negatively impacted by low volumes in the second half of the year,
particularly at its asphalt and binder plants.
Aveng Ground Engineering was awarded a number of new contracts which contributed to an increase in its revenue and
earnings for the year and was critical to the achievement of the programme on the Sishen solar plant with the completion
of the complex geotechnical works scope.
Mechanical and Electrical
Revenue increased by 6% to R1,8 billion (2014: R1,7 billion) due to additional work on Eskom’s two new coal-fired
power plants contracts, and work in the oil and gas sector. Good progress continues to be made on the commercial challenges
surrounding the Eskom contracts. This is reflected in the decreased operating losses of R108 million (June 2014: R220
million).
Buildings and Coastal
Revenue increased marginally to R2,7 billion (2014: R2,6 billion) but net operating earnings showed significant
improvement to R24 million from a loss of R9 million. The unit’s improved performance was due to the ramp-up of the Mall
of the South, which is nearing completion, and Sasol Corporate Head Office, which also continues to track well operationally.
The Coastal operations are proceeding according to plan with major contracts, namely Dr Pixley Ka Isaka Seme Memorial
hospital in KwaZulu-Natal, extensions to the Cape Town International Convention Centre and Aspen Pharmacare’s
manufacturing facilities in Port Elizabeth.
A joint venture contract to build the Old Mutual head office in Sandton was awarded to Buildings during the second
half of the year.
Aveng Engineering
Revenue declined to R705 million (2014: R1,0 billion) due to lower levels of activity in the mining sector which was
partially offset by the Group’s renewable energy projects. The Sishen solar energy facility in the Northern Cape was
successfully completed during the year and exceeded its power generation performance.
Although the Gouda wind farm in the Western Cape achieved its scheduled physical completion date, the unexpected low
wind pattern for the specific period in the year caused a significant delay to the testing and technical compliance
(sign-off) of the plant. This directly contributed in the failure to achieve the anticipated sign-off causing liquidated
damages to be charged, resulting in an adverse impact on the financial results.
The lack of production at a modular water treatment facility had an adverse impact on the net operating earnings of the Aveng
Water business, as did the remedial works on two other water treatment projects. The plant was impaired by R44 million.
Once-off restructuring costs and lease cancellation penalties to realign the fixed cost base were incurred during the
second half of the financial period, contributing to the poor performance of the operating group.
Aveng Capital Partners
Aveng Capital Partners is responsible for managing the Group’s investments in South African toll road, real estate and
renewable energy concessions.
Net operating earnings of R183 million increased by 38% against the comparative period (2014: R133 million) primarily
due to fair value gains of R173 million on certain renewable energy and real estate investments achieving a marketable
maturity level. In the prior year, R111 million net success fee was earned upon reaching financial close on the Gouda
renewable energy project.
Mining
This operating segment comprises a merger of Aveng Moolmans and Aveng Mining
Shafts & Underground.
During the second half of the year, the two mining businesses were fully integrated under a single leadership
structure. This enables the operating group to leverage the combined strength of the business units, and market its scale
and vast mining contracting capabilities more effectively.
The segment reported a 9% decrease in revenue to R6,0 billion (2014: R6,6 billion). Net operating earnings decreased
by 22% to R413 million (2014: R529 million) largely as a result of losses incurred on the Chuquicamata and Wesizwe
deep-level shaft sinking contracts. The combined operating margin declined to 7% (2014: 8%), impacted by labour disruption
and safety stoppages at some domestic underground mining operations.
Aveng Moolmans
The revenue of Aveng Moolmans decreased by R157 million to R4,6 billion (2014: R4,7 billion) due to the non-renewal of
three gold-mining contracts in the rest of Africa. This was partially offset by increased activity on existing
contracts. The Nkomati Nickel Mine five-year contract commenced operations in July 2014. Despite a slow start, this contract
has continued to improve month on month and has met all our expectations in the last quarter, with a record production
achievement in June 2015.
Aveng Moolmans continued to record good results, albeit constrained by cost reduction pressure experienced from
clients. Strong performances were achieved on other domestic and international mining contracts, notably the Sadiola Gold
Mine in Mali. Tati Nickel’s Phoenix Mine in Botswana is reaching its end of current forecast life which impacts efficiencies,
but the client is considering expanding the mine.
Aveng Moolmans’ portfolio currently spans five commodities mined for seven customers in four countries, with 24% of
the work sourced outside South Africa compared to 51% in the comparative period.
Aveng Mining Shafts & Underground
The revenue of Aveng Mining Shafts & Underground decreased by 26% to R1,4 billion (2014: R1,9 billion) due to the
general downturn in the mining industry and a more selective approach to bidding for new work in order to strengthen the
quality of the business unit’s earnings, and mitigate the risk by securing longer-term contracts.
Net operating earnings were significantly impacted by margin slippage on shaft sinking contracts in South Africa,
resulting in a loss of R186 million against the R42 million profit in 2014. In addition, the business unit continues to
experience operational and commercial challenges on the Chuquicamata Copper Mine contract in Chile. Despite ongoing
negotiations with the client, a contract loss was recognised during the period. Aveng holds a 60% economic interest in the
consolidated joint venture, with the 40% non-controlling interest added back for determination of earnings.
Wesizwe continues to be negatively impacted by production delays as a result of safety and labour stoppages, aggravated by
significant commercial challenges. Provision has been made against this contract.
Good progress has been made on Ivanhoe’s Platreef Platinum Mine. Unfortunately, subsequent to year end, the announcement by Royal
Bafokeng Platinum, relating to the Styldrift mine foreshadowed the potential reduction in scope of work in hand for Aveng Shafts &
Underground. This, together with the difficult labour environment currently experienced, will result in some serious challenges in
the Mining business.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
Revenue decreased by 7% to R9,9 billion (2014: R10,6 billion). Net operating earnings decreased significantly by 85%
or R310 million to R54 million (2014: R364 million) due to steel sector labour disruptions affecting both operating
groups. Additionally, Aveng Steel was negatively impacted by weak demand, reducing international steel prices, increased
competition and significant restructuring costs to realign the fixed cost base. Despite lower gross profit margins, the
operating segment continued to contribute to positive cash flows.
Aveng Manufacturing
This operating group consists of Aveng Infraset, Aveng Duraset, Aveng Rail (formerly Lennings Rail Services), Aveng
Dynamic Fluid Control (DFC), Aveng Automation & Control Solutions (ACS) and Aveng Façades.
Aveng Manufacturing’s revenue decreased against the comparative period to R3,3 billion (2014: R3,5 billion). In spite
of tough market conditions and the impact of the aforementioned labour disruptions at Aveng DFC and Aveng Duraset, Aveng
Infraset and Aveng Rail produced good results. The operating group delivered an acceptable performance overall,
particularly as a result of strong demand for concrete construction and rail products, as well as ongoing supply of rail
construction and maintenance services in southern Africa, notably on the Nacala contract in Mozambique. Investments to
increase capacity of concrete rail products in the SADC region enabled Aveng Manufacturing to respond adequately to this
growth in demand. Net operating profits decreased slightly by 1% to R226 million (2014: R228 million) largely as a result of
the sustained optimisation drive undertaken in all of its operations to reduce cost of sales and overheads, improve
efficiencies and adapt to technological advances.
The restructuring and optimisation of Aveng Duraset in 2014 contributed to a lower cost base, improved efficiencies in
its factories and stronger marketing capacity. The operation achieved revenue growth and a return to profitability as a
result.
Aveng Manufacturing incurred capital expenditure of R156 million on a number of initiatives to increase the capacity
and optimise the efficiency of its factories during the year.
Aveng Steel
This operating group consists of Aveng Trident Steel, Aveng Steeledale and Aveng Steel Fabrication.
Revenue decreased by 7% to R6,7 billion (2014: R7,2 billion), severely impacted by labour disruptions, lower
international steel prices, lower demand and increased competition. Profitability fell in line with revenue and was further
impacted by restructuring costs. The benefits of integrating the three businesses continued to materialise. Cost savings
achieved as a result of the integration were driven by improved efficiencies across the operating group. However, these
advances were offset by significant once-off restructuring expenses to realign the fixed cost base.
Aveng Steel maintained its focus on cash management. Working capital management, including debtor collections and
stock turnaround, remain key focus areas. A concerted effort was made to sustain the turnaround achieved by Steeledale in
2014 and return Steel Fabrication to profitability. While Steeledale maintained its volumes and remained profitable,
significant margin pressure constrained operating profits. Steel Fabrication achieved stable production on its work at the
Kusile Power Station but was unable to achieve break-even by year end. Restructuring measures implemented at Trident Steel
and Steel Fabrication to align their fixed cost bases with lower market demand resulted in a reduction in headcount during
the year and efforts to adjust the business are expected to continue, including further reduction in inventory levels.
Other and Eliminations
The results of Aveng Capital Partners have been reallocated from the Other and Eliminations segment to the
Construction and Engineering: South Africa and rest of Africa segment. Comparatives have been adjusted accordingly.
Included in Other and Elimination is the Group’s Corporate Office and Property Portfolio. Additional provisions were
raised relating to long-standing commercial claims that are under negotiation in Aveng Grinaker-LTA. These claims did not
achieve sufficient progress by year end. While the Group remains confident of an acceptable commercial outcome, the
increased uncertainty associated with protracted negotiation processes, resulted in the requirement for this additional
substantial provision.
Two-year order book
The Aveng Group’s two-year order book (excluding Electrix) amounted to R28,9 billion at 30 June 2015, reflecting a
decline of 11% since 31 December 2014 (R32,5 billion) and 22% since 30 June 2014 (R37,1 billion).
In the current market environment, the focus is on securing quality work at targeted margins, which has contributed to
the short-term contraction of the order book. The Group has adopted a portfolio approach at McConnell Dowell and Aveng
Grinaker-LTA. This model optimises the balance across the core disciplines to achieve targeted margins and diversify
revenue streams. For Aveng Grinaker-LTA the focus is on targeting higher levels of civil engineering and mechanical and
electrical work to rebalance the current bias towards lower margin building work.
Based on the current slowing of McConnell Dowell’s traditional markets in Australia and ongoing weakness in the South
African construction market, Aveng continues to intensify efforts to increase its presence in the growth markets of
Southeast Asia (road and rail transport infrastructure), the Middle East (oil and gas, petrochemical, water) and the rest of
Africa (mining, transport infrastructure).
Despite the lower order book and change in market conditions, McConnell Dowell has experienced an increased level of
tender activities in the last six months, notably in the last quarter.
The geographic split of the order book at 30 June 2015 was 40% Australasia and Asia (2014: 55%), 56% South Africa
(2014: 39%) and 3% in the rest of Africa (2014: 5%).
Outlook and prospects
Aveng is not expecting an improvement in its key market in the short-term and will continue to focus on the recovery of
underperforming businesses, resolving unsettled claims and preserving its balance sheet. There are attractive opportunities in
Australia, New Zealand and Southeast Asia in particular. Although substantially lower revenue is expected for the construction
business, the Group anticipates improved profitability. The Mining and Steel businesses will remain constrained by a challenging
operating environment. Manufacturing will continue to focus on growth opportunities and improved financial performance.
Overall the realisation of structural improvements and improved project delivery, should result in an improved performance in the
2016 financial year.
Directors
Further to the announcement of David Robinson’s retirement on 11 June 2015, shareholders are advised that Mr Robinson
retired from the Aveng Board on 17 August 2015.
In addition Mr Philip Hourquebie was appointed as an independent non-executive director of the Aveng Board with effect from 5 August 2015.
By order of the Board
M Seedat HJ Verster
Chairman Chief Executive Officer
Leaders in infrastructure
Corporate information
Directors
MI Seedat*# (Chairman),
EK Diack*#,
HJ Verster (Chief Executive Officer),
AWB Band*#,
PJ Erasmus*#,
MA Hermanus*#,
MJ Kilbride*#,
PA Hourquebie*#,
AH Macartney (Group Finance Director),
JJA Mashaba (Group Executive Director),
TM Mokgosi-Mwantembe*#,
KW Mzondeki*#,
PK Ward*#.
(*non-executive) (#independent)
Company Secretary
Michelle Nana
Business address and registered office
Aveng Park, 1 Jurgens Street,
Jetpark, Gauteng, 1620
PO Box 6062, Rivonia, Johannesburg,
Gauteng, 2128, South Africa
Telephone: +27 (0) 11 779 2800
Telefax: +27 (0) 11 784 5030
Company registration number
1944/018119/06
Share codes
JSE: AEG
ISIN: ZAE 000111829
Auditors
Ernst & Young Incorporated
Registration number: 2005/002308/21
102 Rivonia Road
Sandton
Johannesburg, 2194
Private Bag X14
Northlands, 2116
South Africa
Telephone +27 (0) 11 772 3000
Telefax +27 (0) 11 772 4000
Principal bankers
Absa Bank Limited
Australia and New Zealand Banking Group Limited
Barclays Bank Public Limited Company
Commonwealth Bank of Australia Limited
FirstRand Bank Limited
Investec Bank Limited
Nedbank Limited
The Hong Kong and Shanghai Banking Corporation Limited
The Standard Bank of South Africa Limited
Corporate legal advisers
Backer & McKenzie
Cliffe Dekker Hofmeyr
Norton Rose Fulbright
Webber Wentzel
Sponsor
J.P. Morgan Equities South Africa (Proprietary) Limited
Registration number: 1995/011815/07
1 Fricker Road, cnr Hurlingham Road
Illovo, 2196
South Africa
Telephone +27 (0) 11 537 0300
Telefax +27 (0) 11 507 0351/2/3
Registrars
Computershare Investor Services (Proprietary) Limited
Registration number: 2004/003647/07
70 Marshall Street, Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
South Africa
Telephone +27 (0) 11 370 5000
Telefax +27 (0) 11 688 5200
Website
www.aveng.co.za
18 August 2015
Date: 18/08/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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