Wrap Text
Reviewed interim condensed consolidated financial statements for the six months ended 31 December 2017
AVENG GROUP
(Incorporated in the Republic of South Africa)
Company registration number 1944/018119/06
Share codes JSE: AEG ISIN: ZAE 000111829
Stock code AEGCB ISIN: ZAE000194940
("Aveng" or "the Group")
Reviewed interim condensed consolidated financial statements for
the six months ended 31 December 2017
Salient features - financial performance
for the period ended 31 December 2017
Revenue Net operating earnings
R16,1 billion R94 million
Increase from R14,3 billion at December 2016 Increase from R164 million loss at December 2016
Headline loss Operating free cash flow
R335 million R648 million inflow
Decrease from R391 million at December 2016 Improvement from R226 million outflow
at December 2016
Loss per share Headline loss per share
87,4 cents 84,4 cents
Decrease from 98,8 cents at December 2016 Decrease from 98,5 cents at December 2016
Two-year order book
R25,1 billion
Decrease from R29,9 billion at June 2017
Salient features - segmental analysis
Net operating earnings / (loss) - segmental analysis
HY HY June
2017 2016 Change 2017
Rm Rm % Rm
South Africa and rest of Africa (212) (62) >100 (392)
Aveng Grinaker-LTA (196) (62) >100 (399)
Aveng Capital Partners (16) - >(100) 7
Australasia and Asia 51 (47) >(100) (4 370)
Total Construction and Engineering (161) (109) 48 (4 762)
Mining 104 91 14 219
Manufacturing and Processing (70) 24 >(100) (3)
Aveng Steel (13) (68) (81) (53)
Aveng Manufacturing (57) 92 >(100) 50
Other and Eliminations 221 (170) >(100) (849)
Net operating earnings / (loss) 94 (164) >(100) (5 395)
Loss attributable to equity-holders of the parent (347) (392) (11) (6 708)
Headline loss (335) (391) (14) (6 449)
Interim condensed statement of financial position
as at 31 December 2017
31 December 31 December 30 June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
ASSETS
Non-current assets
Goodwill arising on consolidation 342 342 342
Intangible assets 271 320 271
Property, plant and equipment 4 476 4 513 4 611
Equity-accounted investments 309 118 334
Infrastructure investments 264 200 265
Deferred taxation 1 095 1 870 1 290
Amounts due from contract customers 8 631 1 305 756
7 388 8 668 7 869
Current assets
Inventories 2 141 2 159 2 085
Derivative instruments - 5 2
Amounts due from contract customers 8 3 456 7 178 3 712
Trade and other receivables 1 619 1 721 1 840
Taxation receivable 58 - 61
Cash and bank balances 2 724 2 017 1 996
9 998 13 080 9 696
Non-current assets held-for-sale 9 158 1 101 122
TOTAL ASSETS 17 544 22 849 17 687
EQUITY AND LIABILITIES
Equity
Share capital and share premium 2 009 2 009 2 009
Other reserves 907 1 118 1 060
Retained earnings 2 634 9 297 2 981
Equity attributable to equity-holders of parent 5 550 12 424 6 050
Non-controlling interest 8 12 8
TOTAL EQUITY 5 558 12 436 6 058
Liabilities
Non-current liabilities
Deferred taxation 399 242 319
Borrowings and other liabilities 10 1 969 1 851 1 945
Payables other than contract-related 118 - 133
Employee-related payables 295 329 312
Derivative instruments 4 - -
Trade and other payables - 126 -
2 785 2 548 2 709
Current liabilities
Amounts due to contract customers 8 1 707 1 338 1 351
Borrowings and other liabilities 10 1 025 1 103 1 121
Payables other than contract-related 21 - 21
Employee-related payables 340 299 501
Derivative instruments 43 26 17
Trade and other payables 5 780 4 854 5 909
Taxation payable - 116 -
Bank overdrafts 285 - -
9 201 7 736 8 920
Non-current liabilities held-for-sale - 129 -
TOTAL LIABILITIES 11 986 10 413 11 629
TOTAL EQUITY AND LIABILITIES 17 544 22 849 17 687
Interim condensed statement of comprehensive earnings
for the six months ended 31 December 2017
Six months Six months
ended ended
31 December 31 December Year ended
2017 2016 30 June 2017
(Reviewed) (Reviewed) Change (Audited)
Notes Rm Rm % Rm
Revenue 16 111 14 296 13 23 456
Cost of sales (14 987) (13 336) 12 (26 591)
Gross earnings / (loss) 1 124 960 17 (3 135)
Other earnings 36 77 (53) 206
Operating expenses (1 060) (1 039) 2 (2 305)
(Loss) / earnings from equity-accounted investments (6) 3 >(100) 4
Operating earnings / (loss) 94 1 >(100) (5 230)
South African government settlement - (165) >(100) (165)
Net operating earnings / (loss) 94 (164) >(100) (5 395)
Impairment / loss on derecognition of property,
plant and equipment, intangible assets and
non-current assets held-for-sale (21) (5) >100 (278)
Profit on sale of subsidiary - 3 >(100) -
Profit on sale of property, plant and equipment 7 - >(100) 4
Earnings / (loss) before financing transactions 80 (166) >(100) (5 669)
Finance earnings 191 98 95 198
Interest on convertible bonds (123) (117) 5 (237)
Other finance expenses (209) (207) 1 (405)
Loss before taxation (61) (392) (84) (6 113)
Taxation 11 (285) (37) >(100) (626)
Loss for the period (346) (429) (19) (6 739)
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 (158) (709) (78) (773)
Other comprehensive loss for the period, net of taxation (158) (709) (78) (773)
Total comprehensive loss for the period (504) (1 138) (56) (7 512)
Six months Six months
ended ended
31 December 31 December Year ended
2017 2016 30 June 2017
(Reviewed) (Reviewed) Change (Audited)
Rm Rm % Rm
Total comprehensive loss for the period attributable to:
Equity-holders of the parent (505) (1 102) (54) (7 481)
Non-controlling interest 1 (36) >(100) (31)
(504) (1 138) (56) (7 512)
Loss for the period attributable to:
Equity-holders of the parent (347) (392) (11) (6 708)
Non-controlling interest 1 (37) >(100) (31)
(346) (429) (19) (6 739)
Other comprehensive loss for the period, net of taxation
Equity-holders of the parent (158) (710) (78) (773)
Non-controlling interest - 1 >(100) -
(158) (709) (78) (773)
Results per share (cents)
Loss - basic (87,4) (98,8) (11,5) (1 690,6)
Loss - diluted (86,3) (97,5) (11,5) (1 668,2)
Number of shares (millions)
In issue 416,7 416,7 416,7
Weighted average 396,8 396,8 396,8
Diluted weighted average 402,1 402,1 402,1
EBITDA for the Group, being net operating earnings before interest, tax, depreciation and amortisation is R438 million
(December 2016: R344 million; June 2017: R(4 740) million).
Interim condensed statement of changes in equity
for the six months ended 31 December 2017
Total
share Foreign
capital currency
Share Share and translation
capital premium premium reserve
Rm Rm Rm Rm
Six months ended 31 December 2016 (Reviewed)
Balance at 1 July 2016 20 1 989 2 009 1 534
Loss for the period - - - -
Other comprehensive loss for the period (net of taxation) - - - (710)
Total comprehensive loss for the period - - - (710)
Equity-settled share-based payment charge - - - -
Increase in equity investment - - - -
Dividends paid - - - -
Total contributions and distributions recognised - - - -
Balance at 31 December 2016 20 1 989 2 009 824
Year ended 30 June 2017 (Audited)
Balance at 1 July 2016 20 1 989 2 009 1 534
Loss for the period - - - -
Other comprehensive loss for the period (net of taxation) - - - (773)
Total comprehensive loss for the period - - - (773)
Equity-settled share-based payment charge - - - -
Decrease in equity investment - - - -
Dividends paid - - - -
Total contributions and distributions recognised - - - -
Balance at 30 June 2017 20 1 989 2 009 761
Six months ended 31 December 2017 (Reviewed)
Balance at 1 July 2017 20 1 989 2 009 761
(Loss) / earnings for the period - - - -
Other comprehensive loss for the period (net of taxation) - - - (158)
Total comprehensive loss for the period - - - (158)
Equity-settled share-based payment release - - - -
Dividends paid - - - -
Total contribution and distributions recognised - - - -
Balance at 31 December 2017 20 1 989 2 009 603
Equity-
settled Convertible
share-based bond Total
payment equity other Retained
reserve reserve reserves earnings
Rm Rm Rm Rm
Six months ended 31 December 2016 (Reviewed)
Balance at 1 July 2016 19 268 1 821 9 689
Loss for the period - - - (392)
Other comprehensive loss for the period (net of taxation) - - (710) -
Total comprehensive loss for the period - - (710) (392)
Equity-settled share-based payment charge 7 - 7 -
Increase in equity investment - - - -
Dividends paid - - - -
Total contributions and distributions recognised 7 - 7 -
Balance at 31 December 2016 26 268 1 118 9 297
Year ended 30 June 2017 (Audited)
Balance at 1 July 2016 19 268 1 821 9 689
Loss for the period - - - (6 708)
Other comprehensive loss for the period (net of taxation) - - (773) -
Total comprehensive loss for the period - - (773) (6 708)
Equity-settled share-based payment charge 12 - 12 -
Decrease in equity investment - - - -
Dividends paid - - - -
Total contributions and distributions recognised 12 - 12 -
Balance at 30 June 2017 31 268 1 060 2 981
Six months ended 31 December 2017 (Reviewed)
Balance at 1 July 2017 31 268 1 060 2 981
(Loss) / earnings for the period - - - (347)
Other comprehensive loss for the period (net of taxation) - - (158) -
Total comprehensive loss for the period - - (158) (347)
Equity-settled share-based payment release 5 - 5 -
Dividends paid - - - -
Total contribution and distributions recognised 5 - 5 -
Balance at 31 December 2017 36 268 907 2 634
Total
attributable
to equity- Non-
holders controlling Total
of the parent interest equity
Rm Rm Rm
Six months ended 31 December 2016 (Reviewed)
Balance at 1 July 2016 13 519 37 13 556
Loss for the period (392) (37) (429)
Other comprehensive loss for the period (net of taxation) (710) 1 (709)
Total comprehensive loss for the period (1 102) (36) (1 138)
Equity-settled share-based payment charge 7 - 7
Increase in equity investment - 14 14
Dividends paid - (3) (3)
Total contributions and distributions recognised 7 11 18
Balance at 31 December 2016 12 424 12 12 436
Year ended 30 June 2017 (Audited)
Balance at 1 July 2016 13 519 37 13 556
Loss for the period (6 708) (31) (6 739)
Other comprehensive loss for the period (net of taxation) (773) - (773)
Total comprehensive loss for the period (7 481) (31) (7 512)
Equity-settled share-based payment charge 12 - 12
Decrease in equity investment - 5 5
Dividends paid - (3) (3)
Total contributions and distributions recognised 12 2 14
Balance at 30 June 2017 6 050 8 6 058
Six months ended 31 December 2017 (Reviewed)
Balance at 1 July 2017 6 050 8 6 058
(Loss) / earnings for the period (347) 1 (346)
Other comprehensive loss for the period (net of taxation) (158) - (158)
Total comprehensive loss for the period (505) 1 (504)
Equity-settled share-based payment release 5 - 5
Dividends paid - (1) (1)
Total contribution and distributions recognised 5 (1) 4
Balance at 31 December 2017 5 550 8 5 558
Interim condensed statement of cash flows
for the six months ended 31 December 2017
31 December 31 December 30 June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
Operating activities
Cash retained / (utilised) from operations 82 (174) (5 681)
Non-cash and other movements 12 (34) (474) 4 490
Cash retained from / (utilised by) operations 48 (648) (1 191)
Depreciation 330 329 627
Amortisation 14 14 28
Cash generated / (utilised) by operations 392 (305) (536)
(Increase) / decrease in inventories (62) 48 163
Decrease in amounts due from contract customers 381 981 27
Decrease in trade and other receivables 222 337 198
Increase in amounts due to contract customers 356 16 29
(Decrease) / increase in trade and other payables (136) (910) 28
Increase in derivative instruments 32 14 8
Movements in held-for-sale assets - (37) (106)
(Decrease) / increase in payables other than contract-related (21) - 144
Decrease in employee-related payables (155) (310) (79)
Total changes in working capital 617 139 412
Cash generated / (utilised) by operating activities 1 009 (166) (124)
Finance expenses paid (265) (264) (531)
Finance earnings received 183 99 215
Taxation paid (49) (111) (182)
Cash inflow / (outflow) from operating activities 878 (442) (622)
Acquisition of property, plant and equipment - expansion (37) (58) (135)
Acquisition of property, plant and equipment - replacement (299) (145) (793)
Proceeds on disposal of property, plant and equipment 102 157 315
Proceeds on disposal of other assets - 298 104
Proceeds on disposal of ACP assets - - 821
Net proceeds on disposal of Steeledale assets - - 50
Acquisition of intangible assets - expansion - (9) -
Acquisition of intangible assets - replacement (14) - (27)
Capital expenditure net of proceeds on disposal (248) 243 335
Loans repaid by / (advanced to) equity-accounted
investments net of dividends received 13 (31) (27)
Increase in equity-accounted investments - - (11)
Net loans repaid by infrastructure investment companies 1 - 9
Dividends received 4 4 8
Cash (outflow) / inflow from investing activities (230) 216 314
Operating free cash inflow / (outflow) 648 (226) (308)
Loans repaid by non-controlling interest - 15 5
Dividends paid (1) (3) (3)
Net repayment of borrowings (133) (76) (25)
Net increase / (decrease) in cash and bank balances
before foreign exchange movements 514 (290) (331)
Foreign exchange movements on cash and bank balances (71) (143) (123)
Cash and bank balances at the beginning of the period 1 996 2 450 2 450
Total cash and bank balances at the end of the period 2 439 2 017 1 996
Borrowings excluding bank overdrafts 2 994 2 954 3 066
Net debt position (555) (937) (1 070)
Notes to the interim condensed consolidated financial statements
for the six months ended 31 December 2017
1. Corporate information
The reviewed interim condensed consolidated financial statements ("interim results") of Aveng Limited
(the "Company") and its subsidiaries (the "Group") for the six months ended 31 December 2017 were
authorised for issue in accordance with a resolution of the directors on 23 February 2018.
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.
Change in directorate
Ms Kholeka Mzondeki was appointed as lead independent director effective from 23 August 2017.
Mr Eric Diack was appointed as executive chairman effective from 23 August 2017 and interim chief executive
officer effective from 22 September 2017.
Mr Kobus Verster resigned as an executive director effective from 22 September 2017.
Mr Mahomed Seedat retired as an independent non-executive director effective from 24 November 2017.
Ms Thoko Mokgosi-Mwantembe resigned as a non-executive director effective from 24 November 2017.
Mr Peter John Erasmus, an independent non-executive director, passed away on 4 February 2018.
2. Basis of preparation and accounting policies
The interim results have been prepared on a historical basis except for certain financial instruments that are
measured at fair value.
These interim results are presented in South African Rand ("ZAR") and all values are rounded to the nearest million
("Rm") except when otherwise indicated. The interim results are prepared in accordance with IAS 34 Interim Financial
Statements and the Listings Requirements of the Johannesburg Stock Exchange. The accounting policies adopted are
consistent with those of the Group's audited consolidated financial statements as at 30 June 2017.
The interim results have been prepared by Liesl Tweedie CA(SA) under the supervision of the Group Chief Financial
Officer, Adrian Macartney CA(SA).
The interim results for the six-month period ended 31 December 2017, set out on pages [###][###] to [###][###], have
been reviewed by the Company's external auditors Ernst & Young Inc., in accordance with International Standard on
Review Engagements ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditors of the
Entity. The unmodified review opinion is available on request from the Company Secretary at the Company's registered
office.
Assessment of significance or materiality of amounts disclosed in these interim results
The Group presents amounts in these interim results in accordance with International Financial Reporting Standards
("IFRS"). Only amounts that have a relevant and material impact on the interim results have been separately disclosed.
The assessment of significant or material amounts is determined by taking into account the qualitative and quantitative
factors attached to each transaction or balance that is assessed.
3. Significant accounting judgements and estimates
The preparation of the interim results requires management to make judgements, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and future periods.
3.1 Judgements and estimation assumptions
In the process of applying the Group's accounting policies, the Group has made judgements relating to certain items
recognised, which have the most significant effect on the amounts recognised in the interim results. The key assumptions
concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are
described below. The Group based its assumptions and estimates on parameters available when the interim results were
prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or
circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
3.1.1 Deferred taxation
Deferred taxation assets are recognised for all unused taxation losses to the extent that it is probable that taxable
earnings will be available against which the losses can be utilised. Significant management judgement is required to
determine the amount of deferred taxation assets that can be recognised, based upon the likely timing and level of
future taxable earnings. If the deferred taxation assets and the deferred taxation liability relate to income taxation
in the same jurisdiction, and the law allows net settlement, they have been offset in the statement of financial position.
Refer to note 11: Taxation for further detail.
3.1.2 Impairment of property, plant and equipment, intangible assets and goodwill arising on consolidation
The Group assesses the recoverable amount of any goodwill arising on consolidation and indefinite useful life intangible
assets annually or when indicators of potential impairment are identified as allocated to the cash-generating unit ("CGU")
of the Group.
Impairment exists when the carrying amount of a CGU exceeds its recoverable amount, which is the higher of its fair value
less costs to dispose of and its value-in-use. The fair value less costs of disposal calculation is based on available
data (if applicable) from binding sales transactions, conducted at arm's length, for similar assets or observable market
prices less incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted cash flow
model. The cash flows are derived from future budgets and do not include restructuring activities that the Group is not
yet committed to or significant future investments that will enhance the asset's performance of the CGU.
The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model, the expected
future cash inflows and the growth rates used for extrapolation and terminal value purposes. In accordance with the
requirements of IFRS, the directors have considered the carrying values of all the assets at 31 December 2017,
and are satisfied that no impairments are required.
3.1.3 Loss-making and onerous contracts
In determining whether a contract is loss making or onerous, management applies its professional judgement to assess
the facts and circumstances specific to the relevant contract. The assessments are performed on a contract-by-contract
basis. When it is probable that total contract costs will exceed total contract revenue, the total expected loss is
recognised immediately as an expense. The following factors are taken into account: future estimated revenues; the
stage of completion of the contract; costs to complete the nature and relationship with the customer; expected
inflation; the terms of the contract; and the Group's experience in that industry.
3.1.4 Revenue recognition
The Group uses the percentage of completion method in accounting for its construction contracts.Judgements made in
the application of the accounting policies for contracting revenue and profit and loss recognition include:
- the determination of stage of completion;
- estimation of total contract revenue and total contract costs;
- assessment of the amount the client will pay for contract variations; and
- estimation of project production rates and programme through to completion.
The construction contracts undertaken by the Group may require it to perform extra or change order work, and this can
result in negotiations over the extent to which the work is outside the scope of the original contract or the price
for the extra work.
Given the complexity of many of the contracts undertaken by the Group, the knowledge and experience of the Group's
project managers, engineers, and executive management is used in assessing the status of negotiations with the
customer, the reliability with which the estimated recoverable amounts can be measured, the financial risks pertained
to individual projects and the associated judgements and estimates employed. Cost and revenue estimates and judgements
are reviewed and updated monthly, and more frequently as determined by events or circumstances.
In addition, many contracts specify the completions schedule requirements and allow for liquidated damages to be charged
in the event of failure to achieve that schedule; on these contracts, this could result in the Group incurring liquidated
damages.
Material changes in one or more of these judgements and/or estimates, while not anticipated, would significantly affect
the profitability of individual contracts and the Group's overall results. The impact of a change in judgements and/or
estimates has and will be influenced by the size and complexity of individual contracts within the portfolio at any point
in time.
4. New accounting standards not yet effective
Standard Matter Expected impact
IFRS 15 IFRS 15 replaces all existing revenue The Group anticipates minimal changes
Revenue from contracts with customers requirements in IFRS (IAS 11 Construction in accounting under this new standard
Effective 1 January 2018 Contracts, IAS 18 Revenue, IFRIC 13 for the projects that are currently
Customer Loyalty Programmes, IFRIC 15 booked. Processes and procedures will
Agreements for the Construction of Real need to be updated to ensure that the
Estate, IFRIC 18 Transfers of Assets correct method is used and documented
from Customers and SIC 31 Revenue - Barter in arriving at the treatment under IFRS
Transactions Involving Advertising Services) 15. Possible impact for loss-making
and applies to all revenue arising from contracts due to these contracts being
contracts with customers. within the scope of IAS 37 and the
onerous contract requirements are used
in the assessment, rather than the
previous IAS 11 requirements.
Disclosures relating to revenue are
expected to be expanded significantly
on the adoption of IFRS 15.
Phase 1 which was the initial high-level
assessment of a sample of contracts has
been completed. Training was done in
November 2017 with all operating groups
to understand the technical issues and
discuss the overall implication of the
standard for the Group. A task team was
set up in February 2018 and a detailed
plan will be agreed.
Once this has been completed, practical
workshops will be set up to assess all
contracts as well as the process of
accounting for all contracts. Tax and
legal will be consulted where necessary.
The Group will also decide on the
transition method to be adopted.
IFRS 9 (2014) Financial Determines the measurement and presentation IFRS 9 (2010) which relates to classification
Instruments Effective of financial instruments depending on their and measurement was early adopted in the year
1 January 2018 contractual cash flows and business model ended 30 June 2015. IFRS 9 (2014) which relates
under which they are held. The impairment to impairment requirement and hedge accounting
requirements are based on an expected credit is effective for the 30 June 2019 financial year
loss ("ECL") model that replaces the IAS 39 end. The Group is in the process of performing
incurred loss model. The new hedging model a more detailed assessment of the impact of
provides for more economic hedging strategies these changes and the related disclosures.
meeting the requirements for hedge accounting.
The Group is expected to be impacted by the ECL
model for trade receivables and amounts due from
contract customers. The measurement of provisions
against receivables will be revised to comply
with the ECL method. The Group is still finalising
its estimation methodology.
Extensive additional disclosures will be required,
specifically relating to credit risk and expected
credit losses.
IFRS 16 Leases IFRS 16 requires lessees to account for all The largest impact to the Group under this standard
Effective leases under a single Statement of Financial will be related to the sale and operating leaseback
1 January 2019 Position model in a similar way to finance of properties implemented during the previous
leases under IAS 17 financial year, as well as a number of operating
leases for equipment and vehicles. Assets and debt
would increase while the expense related to these
properties would be shown as depreciation and added
back for EBITDA. Finance expense relating to the
debt is initially expected to increase and subsequently
decrease with the unwinding of the debt profile.
No significant impact is expected for the Group's
finance leases.
The Group is in the process of identifying and
assessing all operating leases, in conjunction
with the process for the two standards detailed
above.
Early application is permitted, but not before an
entity applies IFRS 15.
5. Going concern
In determining the appropriate basis of preparation for the interim results, the directors are required to consider
whether the Group can continue in operational existence for the foreseeable future. The directors have considered
all plans and forecasts, the approved outcome of the strategic review process, all actions taken by the Group during
the period and to the date of approval of these interim condensed consolidated financial statements and are therefore
of the opinion that the going concern assumption is appropriate in the preparation of the financial statements.
Refer to note 15: Events after the reporting period and pending transactions which forms an integral part of the
going concern assessment.
6. Segmental 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 segments are components of the Group:
- that engage in business activities from which they earn revenues and incur expenses; and
- 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 in the assessment of their performance.
The Group's reportable segments are categorised as follows:
1. Construction and Engineering
1.1 Construction and Engineering: South Africa and rest of Africa
This segment includes: Aveng Grinaker-LTA and Aveng Capital Partners ("ACP"). Aveng Grinaker-LTA is divided into
the following business units: Aveng Grinaker-LTA Building and Coastal, Aveng Grinaker-LTA Civil Engineering
(including Rand Roads and Ground Engineering ("GEL")), Aveng Grinaker-LTA Mechanical & Electrical and Aveng Water.
Revenues from this segment include the supply of expertise in a number of market sectors: power, mining,
infrastructure, commercial, retail, industrial, oil and gas, real estate and renewable concessions and investments.
1.2 Construction and Engineering: Australasia and Asia
This segment comprises McConnell Dowell and is divided into the following business units: Australia, New Zealand
and Pacific, Built Environ, Southeast Asia and Middle East.
This 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 segment comprises Aveng Mining and operates in the Open Cut and Underground Mining sectors.
Revenues from this segment are derived from mining-related activities.
3. Manufacturing and Processing
This segment comprises Aveng Manufacturing and Aveng Steel.
The revenues from this segment comprise the supply of products, services and solutions to the mining, construction,
oil and gas, water, power and rail sectors across the Group's value chain locally and internationally.
Aveng Manufacturing business units include Aveng Automation and Control Solutions ("ACS"), Aveng Dynamic Fluid Control
("DFC"), Aveng Duraset, Aveng Infraset and Aveng Rail.
Aveng Steel business units include: Aveng Trident Steel. The comparative information includes the results of Aveng
Steeledale, until 31 December 2016 (70% equity stake sold effective 1 January 2017).
4. Other and Eliminations
This segment comprises corporate services, Africa construction, corporate held investments, including properties and
consolidation eliminations. This segment also includes the Group's 30% equity stake in Aveng Steeledale, which is
equity accounted from 1 January 2017.
Construction and Engineering:
South Manu-
Africa facturing Other
and and and
December 2017 (Reviewed) rest of Australasia Process- Elimi-
Rm Africa and Asia Mining ing nations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets - - 26 105 140 271
Property, plant and equipment 387 522 2 573 751 243 4 476
Equity-accounted investments (42) 31 4 (1) 317 309
Infrastructure investments 122 - - - 142 264
Deferred taxation 60 609 48 13 365 1 095
Amounts due from contract customers 379 3 020 700 35 (47) 4 087
Inventories 38 19 245 1 839 - 2 141
Trade and other receivables 98 195 102 1 122 102 1 619
Taxation receivable (1) 8 27 - 24 58
Cash and bank balances 379 1 646 265 556 (122) 2 724
Non-current assets held-for-sale 4 - - - 154 158
Total assets 1 424 6 150 3 990 4 430 1 550 17 544
Liabilities
Deferred taxation 55 82 251 113 (102) 399
Borrowings and other liabilities - 160 235 25 2 574 2 994
Payables other than contract related - - - - 139 139
Employee-related payables 121 281 108 63 62 635
Trade and other payables 779 2 663 644 1 490 204 5 780
Derivative instruments - - 8 39 - 47
Amounts due to contract customers 450 1 166 89 2 - 1 707
Bank overdrafts - - - 70 215 285
Total liabilities 1 405 4 352 1 335 1 802 3 092 11 986
Construction and Engineering:
South Manu-
Africa facturing Other
and and and
December 2016 (Reviewed) rest of Australasia Process- Elimi-
Rm Africa and Asia Mining ing nations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets - - 28 136 156 320
Property, plant and equipment 429 629 2 163 970 322 4 513
Equity-accounted investments (42) 55 4 - 101 118
Infrastructure investments 58 - - - 142 200
Deferred taxation 209 866 127 33 635 1 870
Derivative instruments - - 5 - - 5
Amounts due from contract customers 670 6 760 682 161 210 8 483
Inventories 26 10 246 1 877 - 2 159
Trade and other receivables 215 154 112 1 068 172 1 721
Cash and bank balances 485 1 153 341 594 (556) 2 017
Non-current assets held-for-sale 665 - - 343 93 1 101
Total assets 2 715 9 727 3 708 5 192 1 507 22 849
Liabilities
Deferred taxation 133 92 271 104 (358) 242
Borrowings and other liabilities - 961 212 5 1 776 2 954
Employee-related payables 133 288 157 45 5 628
Derivative instruments - - - 26 - 26
Trade and other payables 859 1 880 436 1 505 300 4 980
Amounts due to contract customers 443 733 119 25 18 1 338
Taxation payable 97 10 21 2 (14) 116
Non-current liabilities held-for-sale - - - 149 (20) 129
Total liabilities 1 665 3 964 1 216 1 861 1 707 10 413
Construction and Engineering:
South Manu-
Africa facturing Other
June 2017 and and and
(Audited) rest of Australasia Process- Elimi-
Rm Africa and Asia Mining ing nations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets - - 28 95 148 271
Property, plant and equipment 398 602 2 539 766 306 4 611
Equity-accounted investments (40) 52 4 (1) 319 334
Infrastructure investments 123 - - - 142 265
Deferred taxation 143 551 47 19 530 1 290
Derivative instruments - - 2 - - 2
Amounts due from contract customers 876 3 029 764 86 (287) 4 468
Inventories 40 9 211 1 825 - 2 085
Trade and other receivables 112 86 93 1 413 136 1 840
Taxation receivable 12 10 25 (1) 15 61
Cash and bank balances 237 1 237 410 505 (393) 1 996
Non-current assets held-for-sale 4 - - - 118 122
Total assets 1 905 5 676 4 123 4 717 1 266 17 687
Liabilities
Deferred taxation - - 184 2 133 319
Borrowings and other liabilities - 921 317 4 1 824 3 066
Payables other than contract-related - - - - 154 154
Employee-related payables 173 298 187 75 80 813
Derivative instruments - - - 17 - 17
Trade and other payables 966 2 304 677 1 757 205 5 909
Amounts due to contract customers 394 854 85 1 17 1 351
Total liabilities 1 533 4 377 1 450 1 856 2 413 11 629
Construction and Engineering:
South Manu-
Africa facturing Other
and and and
Six months ended December 2017 (Reviewed) rest of Australasia Process- Elimi-
Rm Africa and Asia Mining ing nations Total
Gross revenue 3 228 6 566 2 478 3 622 217 16 111
Cost of sales (3 284) (6 104) (2 259) (3 419) 79 (14 987)
Gross earnings / (loss) (56) 462 219 203 296 1 124
Other earnings / (loss) 9 12 (9) 19 5 36
Operating expenses (165) (421) (106) (292) (76) (1 060)
Loss from equity-accounted investments - (2) - - (4) (6)
Net operating earnings / (loss) (212) 51 104 (70) 221 94
Impairment / loss with derecognition of property, plant and
equipment, intangible assets and non-current assets held-for-sale - - - - (21) (21)
Profit on sale of property, plant and equipment 5 - - - 2 7
Earnings / (loss) before financing transactions (207) 51 104 (70) 202 80
Net finance (expenses) / earnings 1 (113) (31) (36) 38 (141)
(Loss) / earnings before taxation (206) (62) 73 (106) 240 (61)
Taxation (99) (15) (35) 32 (168) (285)
(Loss) / earnings for the period (305) (77) 38 (74) 72 (346)
Capital expenditure 17 53 233 45 2 350
Depreciation (31) (77) (179) (38) (5) (330)
Amortisation - - (2) (4) (8) (14)
Earnings / (loss) before interest, taxation, depreciation
and amortisation (EBITDA) (181) 128 285 (28) 234 438
Construction and Engineering:
South Manu-
Africa facturing Other
and and and
Six months ended December 2016 (Reviewed) rest of Australasia Process- Elimi-
Rm Africa and Asia Mining ing nations Total
Gross revenue 3 270 4 912 2 001 4 300 (187) 14 296
Cost of sales (3 133) (4 580) (1 802) (4 022) 201 (13 336)
Gross earnings 137 332 199 278 14 960
Other earnings / (loss) 21 4 (13) 53 12 77
Operating expenses (220) (386) (95) (307) (31) (1 039)
Earnings from equity-accounted investments - 3 - - - 3
Operating earnings / (loss) (62) (47) 91 24 (5) 1
South African government settlement - - - - (165) (165)
Net operating (loss) / earnings (62) (47) 91 24 (170) (164)
Impairment / loss with derecognition of property,
plant and equipment, intangible assets and non-current
assets held-for-sale - - - - (5) (5)
Profit on sale of property, plant and equipment - - - - 3 3
(Loss) / earnings before financing transactions (62) (47) 91 24 (172) (166)
Net finance (expenses) /earnings 6 (88) (8) (23) (113) (226)
(Loss) / earnings before taxation (56) (135) 83 1 (285) (392)
Taxation (18) 18 (48) (1) 12 (37)
(Loss) / earnings for the period (74) (117) 35 - (273) (429)
Capital expenditure 38 76 38 55 5 212
Depreciation (34) (112) (127) (50) (6) (329)
Amortisation - - - (7) (7) (14)
Earnings / (loss) before interest, taxation, depreciation
and amortisation (EBITDA) (28) 65 218 81 8 344
Construction and Engineering:
South Manu-
Year ended Africa facturing Other
June 2017 and and and
(Audited) rest of Australasia Process- Elimi-
Rm Africa and Asia Mining ing nations Total
Gross revenue 5 876 6 183 4 184 7 936 (723) 23 456
Cost of sales (5 843) (9 767) (3 774) (7 444) 237 (26 591)
Gross (loss) / earnings 33 (3 584) 410 492 (486) (3 135)
Other earnings 60 9 6 108 23 206
Operating expenses (481) (810) (197) (603) (214) (2 305)
Earnings / (loss)from equity-accounted investments (4) 15 - - (7) 4
Operating (loss) / earnings (392) (4 370) 219 (3) (684) (5 230)
South African government settlement - - - - (165) (165)
Net operating (loss) / earnings (392) (4 370) 219 (3) (849) (5 395)
Impairment / loss with derecognition of property,
plant and equipment, intangible assets and non-current
assets held-for-sale 33 - 1 (273) (39) (278)
Profit on sale of property, plant and equipment - - - 3 1 4
(Loss) / earnings before financing transactions (359) (4 370) 220 (273) (887) (5 669)
Net finance (expenses) / earnings 14 (179) (20) (46) (213) (444)
(Loss) / earnings before taxation (345) (4 549) 200 (319) (1 100) (6 113)
Taxation 93 (209) (90) 70 (490) (626)
(Loss) / earnings for the period (252) (4 758) 110 (249) (1 590) (6 739)
Capital Expenditure 80 168 557 142 8 955
Depreciation (69) (175) (269) (102) (11) (626)
Amortisation - - (1) (13) (15) (29)
(Loss) / earnings before interest, taxation, depreciation
and amortisation (EBITDA) (323) (4 195) 489 112 (823) (4 740)
The Group operates in six principal geographical areas:
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
December December June December December June
2017 2016 2017 2017 2016 2017
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm % % %
Revenue
South Africa 8 409 8 483 15 281 52,2 59,4 65,2
Rest of Africa including Mauritius 1 031 741 1 717 6,4 5,2 7,3
Australasia and Asia 3 962 2 178 1 193 24,6 15,2 5,1
New Zealand 951 1 590 2 580 5,9 11,1 11,0
Southeast Asia 1 182 1 157 2 427 7,3 8,1 10,3
Middle East and other regions 576 147 258 3,6 1,0 1,1
16 111 14 296 23 456 100,00 100,00 100,00
Segment assets
South Africa 10 742 11 432 11 172 61,2 50,1 63,2
Rest of Africa including Mauritius 1 308 1 235 1 157 7,5 5,4 6,5
Australasia and Asia 3 055 7 087 2 751 17,4 31,0 15,6
New Zealand 525 1 084 798 3,0 4,7 4,5
Southeast Asia 1 732 1 778 1 631 9,9 7,8 9,2
Middle East and other regions 182 233 178 1,0 1,0 1,0
17 544 22 849 17 687 100,00 100,00 100,00
7. Headline Loss
December 2017 December 2016 June 2017
(Reviewed) (Reviewed) (Audited)
Gross of Net of Gross of Net of Gross of Net of
taxation taxation taxation taxation taxation taxation
Rm Rm Rm Rm Rm Rm
Determination of headline earnings
Loss for the period attributable to
equity holders of parent (347) (392) (6 708)
Impairment of property, plant
and equipment 6 6 4 3 225 221
Impairment of non-current
assets held-for-sale 15 12 - - - -
Impairment of intangible assets - - 1 1 53 53
Profit on sale of property,
plant and equipment (7) (6) (4) (3) (14) (13)
Gain on Steeledale transaction - - - - (2) (2)
Headline loss (335) (391) (6 449)
8. Amounts due from / (to) contract customers
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Uncertified claims and variations (underclaims)**1 1 673 6 283 1 760
Contract contingencies** (536) (286) (701)
Progress billings received (including overclaims)2 (1 618) (1 127) (1 205)
Uncertified claims and variations less progress
billings received (481) 4 870 (146)
Contract receivables3 2 763 2 386 3 262
Provision for contract receivables (2) (2) (2)
Retention receivables4 189 102 149
2 469 7 356 3 263
Amounts received in advance5 (89) (211) (146)
Net amounts due from contract customers 2 380 7 145 3 117
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Disclosed on the statement of financial
position as follows:
Uncertified claims and variations** 1 673 6 283 1 760
Contract contingencies (536) (286) (701)
Contract and retention receivables 2 952 2 488 3 411
Provision for contract receivables (2) (2) (2)
Amounts due from contract customers 4 087 8 483 4 468
Progress billings received (1 618) (1 127) (1 205)
Amounts received in advance (89) (211) (146)
Amounts due to contract customers (1 707) (1 338) (1 351)
Net amounts due from contract customers 2 380 7 145 3 117
** Provisions have been netted off against uncertified claims and variations.
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. These conditions are anticipated to be fulfilled within the following
12 months.
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
December 2017 (Reviewed)
Non-current assets 631 - - - - 631
Current assets 1 042 (536) 2 763 (2) 189 3 456
1 673 (536) 2 763 (2) 189 4 087
December 2016 (Reviewed)
Non-current assets 1 305 - - - - 1 305
Current assets 4 978 (286) 2 386 (2) 102 7 178
6 283 (286) 2 386 (2) 102 8 483
June 2017 (Audited)
Non-current assets 756 - - - - 756
Current assets 1 004 (701) 3 262 (2) 149 3 712
1 760 (701) 3 262 (2) 149 4 468
Amounts due from contract customers includes R919 million (December 2016: R4,1 billion;
June 2017: R908 million) which is subject to protracted legal proceedings.
9. Non-current assets held-for-sale
Included in the carrying amount of non-current assets held-for-sale is an amount of R154 million
(December 2016: R169 million) relating to property and R4 million relating to an investment in JSG
Proprietary Limited.
During the current year the Kathu housing property was classified as held-for-sale and was written down
to fair value less costs to sell of R50,8 million resulting in an impairment of R4 million. The sale is
expected to be completed within 12 months of classification and is in line with the Group's strategic
funding objectives.
The carrying amount of the Vanderbijlpark property was revised to R100 million (June 2017: R115 million)
representing a revision of the fair value less costs to sell the property based on a recent offer
received for the sale of the property.
Both amounts were recognised in 'Impairment / loss on derecognition of property, plant and equipment,
intangible assets and non-current assets held-for-sale', in the statement of comprehensive earnings
for the six months ended 31 December 2017.
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Non-current assets held-for-sale 158 1 101 122
Non-current liabilities held-for-sale - (129) -
158 972 122
December 2017 December June
(Reviewed) 2016 2017
Properties ACP Total (Reviewed) (Audited)
Rm Rm Rm Rm Rm
Movement during the year
Opening balance 118 4 122 1 484 1 484
Transferred from:
Infrastructure investments - - - - 4
Transferred to / (from):
Property, plant and equipment 51 - 51 - -
Impairment (15) - (15) - -
Effect of foreign currency translation - - - (4) (4)
Infrastructure investments - - - - (39)
Loans to group companies - - - (26) (32)
Inventory - - - (36) (36)
Amounts due from contract customers - - - (3) (3)
Trade and other receivables - - - (42) (36)
Elimination of loans to group companies - - - 26 32
Sold - - - (298) (1 248)
Total non-current assets held-for-sale 154 4 158 1 101 122
Non-current liabilities held-for-sale
Opening balance - - - (247) (247)
Loans from group companies - - - 15 16
Trade and other payables - - - 118 181
Elimination of loans from group companies - - - (15) (16)
Sold - - - - 66
Total non-current liabilities
held-for-sale - - - (129) -
Net non-current assets held-for-sale 154 4 158 972 122
10. Borrowings and other liabilities
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
10.1 Borrowings held at amortised cost comprise:
Interest-bearing borrowings comprise:
Payment profile
- within one year 1 025 1 103 1 121
- between two and five years 1 969 1 851 1 945
2 994 2 954 3 066
Interest rate structure
Fixed and variable (interest rates)
Fixed - long term 1 918 1 642 1 901
Fixed - short term 292 259 348
Variable - long term 51 210 48
Variable - short term 733 843 769
2 994 2 954 3 066
December December June
(Reviewed) (Reviewed) (Audited)
Rate of 2017 2016 2017
Description Terms interest Rm Rm Rm
Convertible bond Interest coupon is Coupon of
of R2 billion payable bi-annually 7,25%
until July 2019 1 874 1 776 1 823
Revolving credit Repayable JIBAR plus
facility October 2018 3,00%
to 5,75% 700 - -
Short-term facility Settled Bank bill swap
of AUD10 million**** September 2017 rate plus 0,70% - 99 101
Short-term facility Settled Bank bill swap
of AUD60 million*** September 2017 rate plus 2,20% - 594 603
Term loan facility Monthly instalments Fixed interest
denominated in ZAR ending April 2021 rate of 10,58% 52 - 66
Finance lease Monthly instalments Fixed interest
facility of ending November rate of
AUD13 million* 2020 4,5% 128 177 145
Finance sale and Monthly instalments Fixed interest
lease back amounting settled December rate of 5,15%
to AUD2 million* 2017 to 6,08 - 28 24
Hire purchase Monthly instalments Fixed interest
agreements amounting ending November rate of
to AUD3,7 million* 2023 1,35% to 7% 32 42 42
Hire purchase Monthly instalments Fixed interest
agreement amounting ended August rate of
to AUD0,5 million* 2017 6,81% - 21 5
Hire purchase Quarterly instalments Fixed interest
agreement denominated ended September rate of 4,58%
in USD* 2017 to 4,65% - 67 44
Hire purchase Monthly instalments South African
agreement denominated ended December prime less
in ZAR* 2017 2,00% - 30 16
Hire purchase Monthly instalments South African
agreement denominated ended November prime plus
in ZAR* 2017 2,00% - - 21
Hire purchase Monthly instalments South African
agreement denominated ending November prime less
in ZAR* 2019 1,70% 38 74 51
Hire purchase Monthly instalments Fixed interest
agreement denominated ending May rate of
in ZAR* 2018 9,70% 9 36 24
Finance lease Monthly instalment South African
facility denominated ending June prime
in ZAR* 2018 2 - 4
Hire purchase Monthly instalments Fixed interest
facility denominated ending August rate of
in USD* 2021 6,68% 66 - 74
Finance lease Monthly instalments South African
facilities denominated ending August prime
in ZAR* 2022 19 8 20
Hire purchase Monthly instalments South African
agreement denominated ending August prime plus
in ZAR* 2020 0,50% 23 - -
Hire purchase Monthly instalments Fixed interest
agreement denominated ending September rate of
in ZAR* 2018 12,50% 49 - -
Interest-bearing borrowings 2 992 2 952 3 063
Interest outstanding on interest-bearing borrowings** 2 2 3
Total interest-bearing borrowings 2 994 2 954 3 066
* These borrowings and other liabilities are finance leases.
** Interest outstanding in the current year relates to finance leases.
*** Backed by a bank guarantee.
**** Secured by cash collateral in South Africa.
Subsequent to the interim period, a Super Senior Lending Facility was concluded by the Group with
ABSA and Standard Bank totalling R200 million. Refer to note 15: Events after the reporting period and
pending transactions for further details on the facility.
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Finance lease liabilities are payable as follows:
Minimum lease payments due
- within one year 188 284 206
- in two to five years 210 236 184
Less: future finance charges (30) (33) (38)
Present value of minimum lease payments 368 487 352
The Australasia and Asia operating segment enters into asset-based finance arrangements to fund the
acquisition of various items of plant and machinery.
The total asset-based finance facilities amounted to AUD25 million. The amount outstanding on these
facilities as at 31 December 2017 was AUD17 million and is equivalent to R160 million. These asset-based
arrangements were secured by plant and equipment with a net carrying amount of R245 million.
The Mining and Manufacturing and Processing operating segments entered into various asset-based finance
lease agreements to purchase operating equipment denominated in both USD and ZAR. These arrangements are
secured by the assets for which the funding was provided and are repayable in monthly and quarterly
instalments with the final repayment to be made in August 2021. The total amount outstanding on these
facilities amounted to R185 million. Equipment with a net carrying amount of R222 million has been
pledged as security for the facility.
The Mining and Manufacturing and Processing operating segments entered into various vehicle lease
arrangements. Equipment with a net carrying amount of R22 million has been pledged as security.
11. Taxation
Major components of the taxation expense
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Current taxation 46 132 91
Deferred taxation 239 (95) 535
285 37 626
South African income taxation is calculated at 28% (December 2016: 28%; June 2017: 28%) of the taxable
income for the year. Taxation in other jurisdictions is calculated at rates prevailing in the relevant
jurisdictions.
The Group effective tax rate for the period ended 31 December 2017 is negative 467,2% (December 2016:
negative 9,4%; June 2017: negative 10,2%)
The main driver affecting the tax rate is the reduction of the deferred tax asset relating to tax losses
in Aveng Africa Proprietary Limited and Grinaker-LTA Proprietary Limited, to the amount of R243 million.
Deferred taxation assets
The Group's results include a number of legal statutory entities within a number of taxation jurisdictions.
The recoverability of the deferred taxation assets was assessed in respect of each individual tax-paying
entity.
Deferred taxation assets are recognised to the extent that the realisation of the related tax benefit
through future taxable profits is probable.
Specific focus was placed on Aveng Africa Proprietary Limited and Grinaker-LTA Proprietary Limited.
A re-assessment of the utilisation of tax losses was done as at 31 December 2017. The deferred tax
asset was reduced by R243 million. The main reasons for the reduction are as follows:
- Lower than expected performance and profit forecasts in selected South African operations due to
slower than expected economic growth; and
- The cancellation of the Aveng Grinaker-LTA empowerment transaction.
12. Non-cash and other movements
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Earnings from disposal of property, plant and equipment (44) (77) (147)
Gain on Steeledale transaction - - (2)
Impairment of goodwill, property, plant and
equipment and intangible assets 6 5 278
Impairment of non-current assets held-for-sale 15 - -
Fair value adjustments - (23) (56)
Movements in foreign currency translation (16) (386) (562)
Movement in equity-settled share-based payment reserve 5 7 12
Claims write down* - - 4 967
(34) (474) 4 490
* Claims write down includes QCLNG of R2,4 billion and Other uncertified revenue and claims write
off of R2,7 billion.
13. Contingent liabilities
December December June
2017 2016 2017
(Reviewed) (Reviewed) (Audited)
Contingent liabilities at the reporting date,
not otherwise provided for in the interim results,
arise from performance bonds and guarantees issued in:
South Africa and rest of Africa
Guarantees and bonds (ZARm) 2 679 3 204 3 014
Parent company guarantees (ZARm) 501 505 507
3 180 3 709 3 521
Australasia and Asia
Guarantees and bonds (AUDm) 321 363 326
Parent company guarantees (AUDm) 509 469 588
830 832 914
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
position 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 probable.
Contingent assets
In the prior period, a counter claim against the Group was awarded to Kenmare Resources to the value
of R150 million for Professional Indemnity insurance. The Group has lodged a claim against the
insurer to recover this amount.
14. Fair value of assets and liabilities
The Group measures the following financial instruments at fair value:
- Infrastructure investments; and
- Forward exchange contracts.
The infrastructure investments comprise the following:
- Firefly Investments 238 Proprietary Limited ("Firefly");
- Imvelo Concession Company Proprietary Limited ("Imvelo"); and
- Dimopoint Proprietary Limited ("Dimopoint").
The methodology, valuation parameters and assumptions for infrastructure investments have remained
unchanged since 30 June 2017. For more detail, refer to the 30 June 2017 consolidated financial
statements available on the Group's website.
The Group has reassessed the fair value of its infrastructure investments at 31 December 2017 which
resulted in Rnil unrealised gains being recognised during the period (December 2016: R23 million;
June 2017: R56 million).
Fair value hierarchy
The table below shows the Group's fair value hierarchy and carrying amounts of assets and liabilities.
Valuation Valuation Valuation
reference to based on based on
observable observable unobservable
Carrying Fair prices inputs inputs
amounts value Level 1 Level 2 Level 3
Rm Rm Rm Rm Rm
31 December 2017 (Reviewed)
Assets and liabilities recognised
at fair value
Assets
Infrastructure investments 264 264 - - 264
Infrastructure investments
(held-for-sale) 4 4 - - 4
Liabilities
Forward exchange contracts (FECs) 43 43 - 43 -
31 December 2016 (Reviewed)
Assets and liabilities recognised
at fair value
Assets
Infrastructure investments 200 200 - - 200
Infrastructure investments
(held-for-sale) 665 665 - - 665
Forward exchange contracts (FECs) 5 5 - 5 -
Liabilities
Forward exchange contracts (FECs) 26 26 - 26 -
30 June 2017 (Audited)
Assets and liabilities recognised
at fair value
Assets
Infrastructure investments 265 265 - - 265
Infrastructure investments
(held-for-sale) 4 4 - - 4
Forward exchange contracts (FECs) 2 2 - 2 -
Liabilities
Forward exchange contracts (FECs) 17 17 - 17 -
The Group uses Level 2 valuation techniques to measure foreign exchange contracts and Level 3
valuation techniques to measure infrastructure investments. Valuation techniques used are appropriate
in the circumstances and for which sufficient data was available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable inputs.
There were no transfers between the different levels during the period.
Reasonably
possible
changes to Potential effect recorded
Significant significant directly in profit and loss
unobservable unobservable Increase Decrease
input inputs Rm Rm
Infrastructure investments
Risk-adjusted discount rate:
- Imvelo 17,3% 0,5% <(1) <1
- Firefly 14,1% 0,5% (2) 2
- Dimopoint 15,0% 0,5% (11) 11
15. Events after the reporting period and pending transactions
Completion and approval of Group strategic review
Management embarked on an extensive strategic review to ensure the Group's sustainable future.
An independent professional advisor was engaged to assist with the process. This review was
completed in early February 2018 following a thorough and robust investigation of all parts of
the business. The review was undertaken:
- to identify operating businesses and assets that are core to the Group and that support the overall
Group long-term strategy, and those businesses and assets that are non-core;
- to determine the most appropriate Group operating structure, to both support and enhance the future
sustainability of the Group; and
- to recommend a sustainable future capital and funding model for the Group, including a capital
markets transaction strategy to address the obligations under the convertible bond which matures
in July 2019.
Non-core asset disposal strategy
As reported in the 30 June 2017 Consolidated Financial Statements as an event after the reporting period,
the Group identified certain properties, minority interests and other assets as non-core and embarked on
plans to realise value from the disposal of these assets. These assets have been considered in line with
the requirements of IFRS 5 Non-Current Assets Held-for-Sale, and where the requirements have been met,
these assets have been classified as non-current assets held-for-sale at 31 December 2017.
Refer to note 9 for the non-current assets held-for-sale disclosures.
Subsequent to 31 December 2017, the Board approved the intention to dispose of additional businesses
identified as non-core through the strategic review process. After the interim period, discussions and
engagement with potential buyers have commenced on certain businesses. These additional assets do not
meet the criteria for non-current assets held-for-sale as at 31 December 2017.
The financial effects of the disposal of the additional non-core businesses identified through the Group
strategic review process, can only be determined as the disposal plans progress to the point where the
disposals are highly probable.
Liquidity
At the date of the statement of financial position, the Group had R421 million in unutilised borrowing
facilities and R2,4 billion in net cash and cash equivalents.
Subsequent to 31 December 2017 the Group secured a further working capital facility totalling R200 million.
The facility is a super senior lending facility, bears interest at between 2% and 3% above South African
prime lending rates and is repayable by 30 June 2018. Refer to note 10.
The Board has approved an updated liquidity forecast covering a minimum of 12 months from the date of
these interim results, incorporating the strategic review conclusions and the further working capital
facility provided. The Group maintained its borrowings and working capital requirements with its
major funding banks. The major funding banks have indicated that they remain supportive of the
Group, and the directors believe that these facilities will provide adequate financial resources
to enable the Group to meet its obligations over the next 12 months.
Commentary
Overview
Salient features
- Strategic review completed and implementation underway
- Revenue increased by 13%, with improved gross margin
- EBIT profit of R94 million compared to R164 million loss in comparative period
- Good performance from McConnell Dowell
- Significant number of legacy claims settled in line with expectations
- Deferred tax impairment of R243 million
- Net loss of R346 million and headline loss of R335 million
- Net debt of R555 million (June 2017: R1 070 million)
Strategic review
Management embarked on an extensive strategic review to ensure the Group's sustainable future. An independent
professional advisor was engaged to assist with the process. This review was completed early in February 2018
following a thorough and robust interrogation of all parts of the business. The review included identifying
businesses and assets that are core to the Group and which support the overall long-term strategy, determining
the most appropriate operating structure, as well as recommending a sustainable future capital and funding
model. The results of the review are fully supported by the Aveng Board.
The business has reached a critical juncture and requires decisive action to create a sustainable future.
To address these issues, a comprehensive plan has been developed and implementation has commenced.
The plan comprises the following six pillars:
1. Simplify: reduce complexity by optimising the Group's portfolio with focus on growing core operations
Aveng aims to focus its business on being an international infrastructure and resources group operating
in selected fast-growing markets, capitalising on its considerable knowledge and experience. With the
Group's strong management team in McConnell Dowell and Moolmans and unique value offering, the Group aims
to unlock value to stakeholders by delivering attractive returns and creating opportunities for sustainable
growth.
2. Reshape: reshape operating structure in line with smaller, focused group
The Group currently operates a hybrid operating model. A transition to a lean, agile and decentralised
organisation structure will empower management, refocus resources to the new operational strategy and
remove bureaucracy to enable enhanced corporate agility and organisational focus.
3. Grow: improve revenue growth and profitability of core operations
Moolmans is a reputable South African open cut contractor with a solid footprint across Africa. Its focus
remains on operational excellence, developing partnerships and leveraging existing relationships. The
operating group implemented a number of initiatives to address the current business challenges facing
it in order to grow and improve profitability. These initiatives, among others, include an ongoing focus
on long-term client relationships, continued enhancement of asset life, growth into selected new markets,
an increased service and value offering and optimised capital funding models.
McConnell Dowell, is a well-recognised and respected infrastructure company with the ability to execute
complex projects. Its current focus is to deliver and position itself for growth in the growing markets
of Australia, Southeast Asia, New Zealand and the Pacific Islands. The business is showing improvement
in performance as it implements its turnaround strategy. Good progress has been made closing out the
majority of legacy projects and in the process, the organisation has refocused itself on customer
relationships and operational excellence which are now a key point of differentiation. These essential
elements will enable McConnell Dowell to become a sustainable business.
4. Dispose: Re-focusing and simplifying the Group's portfolio of businesses in an orderly fashion
The outcomes of the strategic review have reaffirmed management's intention to ensure that both
Aveng Trident Steel and Aveng Grinaker-LTA are acquired by new shareholders, who are better positioned
to compete in the South African economy.
A further outcome of the strategic review is the decision to exit the Aveng Manufacturing businesses
which will position these individual businesses to compete more effectively.
These disposals will reduce the Group's overall exposure to bonding and guarantee lines, and will result
in lower working capital requirements for the Group.
Aveng will continue to enhance the efficiency and profitability of these operations prior to any disposal.
Management will adopt a considered and systematic approach to identify potential buyers, considering
its transformational objectives. The completion of the disposal process will require flexibility from
a timing perspective in order to fully maximise value.
5. Deleverage: reduced debt-burden, sustained by core operations
The current debt levels within the Group are considered to be unsustainable. The convertible bond
creates significant constraints on the Group's capital structure and is a hinderance in the Group's
efforts to unlock value for shareholders. It is management's intention to explore options which will
allow for the early settlement of all or a portion of the convertible bond.
This deleveraging, including the settlement of the convertible bond, will be funded through improved
operational cash flow, proceeds from disposal of non-core assets and an appropriate capital market
transaction.
6. Unlock shareholder value: optimising core operations and disposal of non-core assets
It is believed that the current valuation of the Group does not reflect the intrinsic value of the
underlying operations. Value can be enhanced by consistent financial performance by the identified
core assets, McConnell Dowell and Moolmans, the disposal of all non-core business and assets,
reshaping the operating structure in line with a smaller focused group and the achievement
of a sustainable capital structure.
The above mentioned action plan will require a two to three-year period to execute. This plan will be
delivered in three phases, namely:
- Immediate:
Over the next six months management will focus on managing liquidity, reducing risk exposures,
enhancing operating performance, disposing of non-core assets and the finalisation of a capital market
transaction.
- Transition: (12 - 24 months)
Managing working capital, enhancing predictability of core business' performance, continuing the orderly
sale of non-core assets, and focus on the convertible bond settlement.
- Sustainable: (24 - 36 months)
Growing and sustaining core businesses, extracting synergistic benefits and creating shareholder value.
Market review
The overall construction industry in Australia, New Zealand and Asia Pacific remains positive and active
across all operating regions with strong opportunities in infrastructure development, primarily driven by
population growth and urbanisation. Despite the increased activity in the construction industry, government
focus remains on the development of transport infrastructure, energy and utilities facilities. The
construction industry across Southeast Asia is expected to continue to experience strong growth, with
rapid urbanisation, infrastructure being a key priority of many governments in the regions. These changes
are contributing to the development and expansion of inter-city rail projects, new airports and improvements
to water and sewerage facilities. There is strong competition in all of these markets.
The mining industry is cautiously optimistic, with mining companies looking to increase output and make new
investments in assets. The changing political environment in South Africa and the current rally in commodity
prices provides opportunities for Moolmans.
Financial performance
Aveng reported a headline loss of R335 million (December 2016: R391 million) and a net loss of R346 million
(December 2016: R429 million).
Basic loss per share was 87,4 cents loss per share compared to a 98,8 cents loss per share in the comparative
period and headline loss per share decreased to 84,4 cents loss per share (December 2016: 98,5 cents loss
per share).
Statement of comprehensive earnings
Revenue increased by 13% to R16,1 billion (December 2016: R14,3 billion). The increase was primarily
driven by the strong operational performance achieved by McConnell Dowell where revenue grew by an
impressive 35%. Despite the challenging operating environment, Moolmans' revenue grew by 24% while
revenue in Aveng Grinaker-LTA remained flat. The difficult economic landscape continued to have an
adverse impact on revenue growth for the Aveng Manufacturing and Processing operating group.
The gross margin for the Group improved to 7,0% from 6,7% in the comparative period.
Net operating earnings increased from a loss of R164 million in December 2016 to a profit of R94 million,
due to:
- Improved results in McConnell Dowell reporting a net operating profit of R51 million compared to a
loss of R47 million in the comparative period. The higher earnings were driven by increased revenue
growth across the majority of regions and strong project performance in Australia;
- Moolmans reported a R104 million operating profit despite the operational challenges of projects
underway in Burkina Faso and Botswana;
- Aveng Manufacturing reported weaker results compared to the comparative period mainly driven by a
retraction in underground mining activity, rail contract work and demand for infrastructure products;
- Aveng Grinaker-LTA reported an increased loss of R212 million compared to a loss of R62 million for the
comparative period. The weaker results were primarily due to project underperformance on major contracts
in the Aveng Grinaker-LTA Civil Engineering business unit; and
- The once-off Genrec award of R243 million (including interest of R118 million) had a positive impact on
net operating earnings following the release of the previously raised provision.
An impairment charge of R21 million was recognised against property assets that were reclassified as
held-for-sale.
Net finance charges of R141 million was significantly lower than the net charge of R226 million reported
in the comparative period due to the non-recurring interest benefit received on the Genrec claim.
Statement of financial position
The Group incurred capital expenditure of R350 million (2016: R212 million) applying R300 million
(2016: R145 million) to replace and R50 million (2016: R67 million) to expand property, plant and
equipment. The majority of the amount was spent as follows:
- R53 million at McConnell Dowell, relating to specific projects in Australia and Southeast Asia;
- R233 million at Moolmans as a result of increased machinery required for the Burkina Faso and
Gamsberg projects; and
- R45 million at Aveng Manufacturing and Processing.
Assets held-for-sale increased by R36 million to R158 million (June 2017: R122 million) due to the
reclassification of the Kathu Housing properties (carrying value of R51 million) from Aveng Properties
(accounted for in "Other and eliminations") and the impairment of the Vanderbijlpark property by
R15 million.
Amounts due from contract customers (non-current and current) decreased by 9% to R4,1 billion (June 2017:
R4,5 billion). The decrease is primarily attributable to the settlement of various claims which include
Majuba, Mokolo, Genrec and Shondoni in relation to the South African operations, and QCLNG, APLNG and
MESA Aurora in terms of the Australian operations.
Deferred tax asset write-off of R243 million. Following the underperformance of some South African
operations, the expected future utilisation of the deferred tax assets were assessed. Although assessed
losses do not expire, management's conservative estimate reflects the expected utilisation of the deferred
tax asset within the foreseeable future.
Operating free cash flow for the period amounted to R648 million and included:
- cash inflow of R574 million in McConnell Dowell including positive cash movements from the resolution
of legacy projects and overall improvement in project operations;
- positive cash flow generated by Aveng Grinaker-LTA due to the settlement of legacy project claims and
a number of advance payments received;
- a cash outflow of R87 million at Moolmans after capital expenditure;
- a cash inflow of R38 million at Aveng Steel due to improvements in working capital;
- a cash outflow at Aveng Manufacturing of R90 million was driven by the underperformance of various
segments due to the decrease in volumes and availability of profitable contract work;
- net capital expenditure of R248 million;
- net finance charges paid of R82 million; and
- taxation paid of R49 million.
Cash and bank balances (net of bank overdrafts) increased to R2,4 billion (2016: R2,0 billion) resulting
in a net debt position of R555 million, compared to R1 070 million net debt at 30 June 2017.
Operating review
Safety
Safety remains a core value for Aveng and is integral to the way in which its Operating Groups conduct
their business. Aveng prioritises the wellbeing of its people, clients and communities in which it operates.
The Group remains fully committed to delivering on its safety vision of "Home Without Harm, Everyone,
Everyday". The Aveng safety strategy has been refreshed and a clear set of safety requirements has been
developed for implementation.
No fatalities occurred during the six months ended 31 December 2017. The all injury frequency rate ("AIFR")
for the period was 2,91. This indicator includes all types of injuries and is calculated using 200,000 man-hours
as the baseline for its frequency rate. There is a noticeable improvement in the overall Aveng frequency rates.
The Aveng Board and executive leadership continue to support and show commitment to the improvement of safety.
Operating Groups have launched various campaigns and initiatives to improve the safety performances in the
specific high-risk areas, and the effect is visible in the current safety performance improvement. Further
contributing to the safe work culture is the improved focus on effective controls for identified high
risk areas.
As part of continued efforts in improved monitoring and reporting, the Group continues its extended reporting to
include "monitored incidents" ensuring that the fatal risks associated with circumstances outside the control
of Aveng, such as on public roads, are duly recognised and properly understood and provide input where possible
to decrease the associated risks. Further to understanding Aveng's risk exposure reporting now includes Total
Recordable Injuries, improvement targets have been put in place as a more reliable indicator of incidents and
risks and tracking is taking place to ensure improved reporting.
Efforts to address such risks include a number of safety improvement initiatives focusing on safety controls
on road closures, enhancing employee vigilance during work activities inside a road closure or in close
proximity to public vehicles, and monitoring employee behaviour.
The Group will continue with its unwavering commitment to safety.
Construction & Engineering: Australasia and Asia
This operating segment comprises four business units - Australia, New Zealand and Pacific, Southeast Asia
and Built Environs.
Revenue increased by 35% to AUD628 million (2016: AUD465 million), reflecting the increased activity
experienced specifically in the Australian business unit. McConnell Dowell returned to profitability
in the period. The positive result confirms the successful implementation of the transformational
strategy and a strong turnaround in operational and financial performance. Furthermore, the result
reflects the strength of the simplified operating model, standardised business systems and structured
governance framework.
The level of new work secured during the period was below expectations reflecting the intensely competitive
nature of the markets in which McConnell Dowell operates. Core markets remain buoyant and the focus remains
on increasing the order book. The Group made strong progress with the high level strategic plan to build a
solid foundation for long-term stability, growth and profitability. A strong new leadership team is now
in place.
Australia
Revenue increased by 109% to AUD372 million (2016: AUD178 million) due to strong project progress and
performance on Amrun Export Facility Jetty, Murray Basin Rail Upgrade, Northern Gas Pipeline and
Swanson Dock East Rehab Works. The earnings profile was significantly increased with the strong
execution performance on all recently awarded projects.
Southeast Asia
Revenue increased by 3% to AUD113 million (2016: AUD110 million) as the business achieved major
milestones with the completion of MES Aurora, Brunei LNG and Banyan Avenue Projects. Unfortunately,
the operational results were negatively impacted by underperformance on two infrastructure projects
in Singapore. Both these projects are scheduled for completion during the 2018 financial year. The
Tangguh LNG export jetty contract, which was awarded to the business in 2017, is progressing well
and being executed at tendered margin.
New Zealand and Pacific Islands
Revenue reduced by 45% to AUD91 million (2016: AUD165 million) as the business unit successfully
delivered key projects within the region including the City Rail Link project in the Auckland CBD
and the Christchurch Southern Motorway in the South Island.
Built Environs
Revenue increased by 148% to AUD52 million (2016: AUD21 million) as the business unit successfully
advanced work on Urbanest Student Accommodation and West Franklin Apartments.
Moolmans (previously known as Aveng Mining)
This operating segment comprises the merged businesses of Moolmans and Aveng Shafts & Underground.
The segment reported increased revenue to R2,5 billion (Dec 2016: R2,0 billion). Net operating
earnings increased by 14% to R104 million (Dec 2016: R91 million).
Equipment under-performance has negatively impacted the contract in Burkina Faso. High-level
meetings have been held in the third quarter of 2017 with the client to mitigate any further
losses and agree a revised scope. This has been agreed and revised commercial terms have been
in effect since December 2017.
The Karowe (Botswana) contract performance has been negatively impacted by under-performing
equipment. Remedial action has been taken and the contract is planned to be profitable from
April 2018.
The Gamsberg (South Africa) start-up contract commenced as planned. An additional contract
for the South Pit was awarded and started in September 2017.
The Sadiola Mine has reached its end of mine stage and a formal notice has been received
informing that the contract will be completed in April 2018. This brings to an end 22 years
of Moolmans successful operation of this mine.
Due to the upturn in the commodity prices, existing contracts have also started to increase
their volumes.
Construction & Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA and Aveng Capital Partners.
Revenue remained flat at R3,2 billion (2016: R3,2 billion) for the period.
Net operating loss increased to R212 million (2016: loss of R62 million). This was largely
due to the under-performance on Civils projects. Two projects relating to the Buildings business
also contributed to the loss.
Civil Engineering
Revenue increased by 14% to R588 million (2016: R516 million). The business made an operating
loss of R233 million (2016: R118 million). An independent third party was engaged to review
the costs to completion on major contracts in progress and the results of that review have
been accounted for. Conditions in the civil engineering markets remain difficult and the
business focus is to stabilise the existing projects.
Mechanical and Electrical
Revenue decreased by 32% to R458 million (December 2016: R675 million) as a result of reduced
work on the major power projects. Operating profit margins were maintained despite lower revenues
resulting in operating profit of R14 million (2016: R22 million). The business has successfully
closed out a number of diverse projects over the past reporting period and is well positioned
with a solid order book in the petrochemical market. Good opportunities for growth are present
in the mining and related commodities markets.
Buildings and Coastal
Revenue was stable at R1,9 billion with an operating loss of R19 million (December 2016:
R20 million profit) due to additional costs incurred on certain projects. The new Old Mutual
head office building in Sandton was timeously completed and practical completion was achieved
on the CTICC contract in Cape Town. Progress continues on the Dr Pixley Ka Isaka Seme Memorial
Hospital in KwaZulu-Natal, Leonardo Towers and 129 Rivonia Road in Sandton.
Aveng Water
Revenue increased by 8% to R151 million (December 2016: R140 million) from operational contracts.
The focus of the Aveng Water business is to leverage off the significant advantage in desalination
plants and acid mine drainage technology, other water treatment processes and operational maintenance.
The South African mining and municipal water sectors offer attractive opportunities for growth.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
Revenue decreased by 16% to R3,6 billion (2016: R4,3 billion). A net operating loss of R70 million
was reported (2016: R24 million profit).
Aveng Manufacturing
This operating group consists of Aveng Automation & Control Solutions (ACS), Aveng Dynamic Fluid
Control (DFC), Aveng Duraset, Aveng Infraset and Aveng Rail.
Revenue decreased by 15% to R1,1 billion (2016: R1,3 billion). Net operating earnings decreased
by 162% to a loss of R57 million (2016: profit of R92 million) reflecting the impact from the
slowdown in the infrastructure, rail, underground mining and water sectors. The oil, gas and
chemical sectors have shown an improvement since last year. Leadership changes have been
implemented to address the under-performance of this operating group.
Aveng ACS: revenue increased by 3% to R215 million (2016: R209 million) due to an increase in
product sales and project activity in the traditional Oil & Gas market. ACS continues to
diversify their product revenues into non-traditional power and mining sectors.
Aveng DFC: revenue decreased by 4% to R228 million (2016: R237 million) following low demand in the
local water market. Many local water infrastructure maintenance projects that are in the pipeline
have been placed on hold. Revenue from foreign subsidiaries has remained flat, with lower revenues
achieved from the Americas, compensated by an increase in revenue from Northern and Eastern Europe.
Aveng Duraset: revenue remained stagnant at R232 million (2016: R232 million) despite lower demand
in the underground mining sector due to mine closures and various mines being placed on care and
maintenance. Lower local demand has been compensated by exports.
Aveng Infraset: revenue decreased by 5% to R370 million (2016: R388 million). Rail product supply
volumes continue to remain subdued. Infrastructure product revenue continued to decline, with lower
market demand for pipes, culverts, and landscaping product. Roof tile market demand continues to
outstrip supply capacity.
Aveng Rail: revenue decreased by 70% to R76 million (2016: R256 million) mainly due to low local
and cross border rail construction activity. Local tenders have yet to be awarded. Similarly,
cross border quotes and tenders have been submitted, but have yet to be awarded. Mechanised rail
maintenance service volumes remain at low levels.
Aveng Steel
This operating group consists of Aveng Trident Steel.
Aveng Trident Steel
Revenue increased by 1% compared to the previous reporting period. Volumes were lower, however
the business achieved a higher selling price per ton. Exchange rate volatility has had a negative
impact on earnings. Aveng Steel continues to contribute positively to the Group's liquidity through
improved working capital management. Its EBITDA improved to a R7 million loss compared to a R30 million
loss for the comparable period.
Two-year order book
The Group's two-year order book amounted to R25,1 billion at 31 December 2017, decreasing by 16% from the
R29,9 billion reported at 30 June 2017. This includes a 21% decrease in AUD terms in McConnell Dowell's
order book, translating into a 24% decrease in Rand terms. The Aveng Mining order book decreased by 14%
or R1,0 billion, in line with ramp up of contracts. Aveng Grinaker-LTA's order book decreased by 9%.
Securing quality work at targeted margins remains a priority.
The geographic split of the order book at 31 December 2017 was 46% Australasia and Asia
(December 2016: 53%), 46% South Africa (December 2016: 41%) and 8% other (December 2016: 6%).
The potential order book is looking promising with a number of near orders in the Moolmans and McConnell
Dowell pipelines.
A number of new projects have been awarded in the period under review, these include:
- McConnell Dowell was awarded the
- Abbotts Road, Forms part of the Western Programme Alliance, Australia
- Public Transport Projects Alliance, Department of Planning, Transport and Infrastructure, Australia
- ECI contract for Kidston Pumped Storage Hydro Project, Australia
- Lyttelton Harbour Wastewater Project - Pipeline Diamond Harbour/Governors Bay, New Zealand
- Te Mato Vai, Cook Islands Government, New Zealand Pago Airport Apron - Phase 1, American Samoa
- Pagao Pago Runway Overlay, American Samoa
- Sembcorp Tunnel, Southeast Asia
- HMAS Stirling BU1 & CEPS2, Built Environs, Australia
- Aveng Mining was awarded an extension on the Klipbankfontein iron ore project.
- Aveng Grinaker-LTA has been awarded various mechanical and electrical maintenance contracts in
KwaZulu-Natal and the Western Cape, Nongoma TVET College Campus (KZN), Aspen extensions (EC),
UCT GSB lecture theatre.
Outlook and prospects
The markets serviced by McConnell Dowell are expected to continue to offer growth opportunities with
the continued roll out of large- and medium-sized projects in the major Australian cities. In Southeast
Asia, opportunities exist in infrastructure in Singapore, Malaysia, Thailand, Indonesia and the
Philippines. Government investment in large scale transport and water projects will fuel growth
in the New Zealand market.
Domestically the outlook for the infrastructure market remains subdued with limited visibility on
large scale projects. However, recent changes in the political environment have led to an improved
sentiment in South Africa. There are opportunities to increase exports for the manufacturing operations.
The improved contract mining environment and some notable contract wins place the operating group in
a strong position to pursue its longer-term growth strategy in selected international markets.
Furthermore, the focus will remain on optimisation efforts in Aveng Steel to deliver a break-even
result in the current depressed market conditions, which are expected to persist.
The immediate priority for the Group will be the implementation of the strategic plan. Non-core assets
have been identified and a disposal process has commenced.
Work has commenced on a potential capital market transaction and further details will be provided at
the appropriate time.
Disclaimer
The financial information on which any outlook statements are based has not been reviewed or reported
on by the external auditor. These forward looking statements are based on management's current belief
and expectations and are subject to uncertainty and changes in circumstances. The forward looking
statements involve risks that may affect the Group's operations, markets, products, services and prices.
By order of the Board
EK Diack AH Macartney
Executive Chairman and Acting CEO Chief Financial Officer
Date of release: 27 February 2018
Corporate information
Directors
EK Diack (Executive Chairman and Chief�Executive Officer), KW�Mzondeki*# (Lead�Independent Director), PJ Erasmus*#
(deceased�4�February 2018), SJ�Flanagan*#, MA�Hermanus*#, PA�Hourquebie*#, MJ�Kilbride*#, AH�Macartney (Group CFO),
JJA Mashaba (Group�Executive Director)
(*non-executive) (#independent)
Company Secretary
Michelle Nana
Business address and registered office
Aveng Park
1 Jurgens Street, Jet Park
Boksburg, 1459
South Africa
Telephone +27 (0) 11 779 2800
Company registration number
1944/018119/06
Share codes
JSE: AEG
ISIN: ZAE 000111829
Stock code AEGCB ISIN: ZAE000194940
Website
http://www.aveng.co.za
Auditors
Ernst & Young Inc.
Registration number: 2005/002308/21
102 Rivonia Road
Sandton, Johannesburg, 2196
Private Bag X14
Northlands, 2146
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
FirstRand Bank Limited
HSBC Bank plc
Investec Bank Limited
Nedbank Limited
The Standard Bank of South Africa Limited
United Overseas Bank Limited
Corporate legal advisers
Baker McKenzie
Sponsor
UBS South Africa Proprietary Limited
Registration number: 1995/011140/07
64 Wierda Road East
Wierda Valley, Sandton 2196
PO Box 652863
Benmore, 2010
South Africa
Telephone +27 (0) 11 322 7000
Facsimile +27 (0) 11 322 7380
Registrars
Computershare Investor Services Proprietary Limited
Registration number: 2004/003647/07
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196, South Africa
PO Box 61051
Marshalltown, 2107
South Africa
Telephone +27 (0) 11 370 5000
Telefax +27 (0) 11 688 5200
Date: 27/02/2018 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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