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AVENG LIMITED - Voluntary Announcement: Business Update Including Impact Of Covid-19 And Settlement Of Outstanding Claims

Release Date: 14/05/2020 10:40
Code(s): AEG     PDF:  
 
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Voluntary Announcement: Business Update Including Impact Of Covid-19 And Settlement Of Outstanding Claims

AVENG LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1944/018119/06)
Share code: AEG
Share ISIN: ZAE000194940
 ("Aveng", "the Company")

VOLUNTARY ANNOUNCEMENT: BUSINESS UPDATE INCLUDING IMPACT OF COVID-19 AND
SETTLEMENT OF OUTSTANDING CLAIMS

Stakeholders are referred to the Company’s announcement released on SENS on 26 March 2020.

The Group’s geographic diversity has posed some challenges as each country of operation has faced
varying restrictions at different times. However, this diversity has helped to mitigate the impact on overall
business performance with some jurisdictions remaining operational while others have been required to
shut down temporarily. During this time, management have continuously monitored and responded to
developments in each of its businesses. The priorities remain the safety and well-being of all of our
people as well as ensuring the long-term sustainability of the business for the benefit of all stakeholders.

Notwithstanding the differing impacts on each business, the Group has enhanced its focus on actively
reducing costs and preserving cash in all areas. The Group continues to pursue identified opportunities to
grow its order book in the core businesses of McConnell Dowell and Moolmans.

BUSINESS UPDATE AND IMPACT OF COVID-19

McConnell Dowell

Aveng’s Australian based subsidiary McConnell Dowell, which operates in the engineering and
construction sector across Australia, New Zealand and Pacific Islands and South East Asia, has
undertaken substantial planning to ensure it is able to continue to operate safely and efficiently where
permitted to do so, and where lock-downs have been implemented, to ensure a full and efficient
recommencement when the time comes.

McConnell Dowell has continued to deliver on its growth priority and has been awarded AUD$1 billion in
new contracts since December 2019. These awards are with government customers and span all
geographic regions and include:
•      Jurong Regional Line package 108 (J108), for Singapore’s Land Transport Authority
•      Palembang City Sewerage project in Java, Indonesia
•      New Bang Pha Pump station in Thailand for Thai Oil
•      The Cherry St, Old Geelong Rd, Werribee St and Cranborne Line Upgrade (CLU) packages for
       Victoria’s Level Crossing Removal Project in Melbourne, Australia
•      South Australian Water Frameworks package for SA Water
•      HMAS Coonawarra Marine Works project in Darwin, Australia for Laing O’Rourke (as managing
       contractor for Department of Defence)
•      Early works award for the Warkworth to Snells water pipeline on the North Island of New Zealand
       for WaterCare NZ
•      Mangere TARP mechanical maintenance works program for WaterCare NZ
These new awards result in a current order book of AUD 1.9 billion, representing growth of 47% since 31
December 2019. The higher proportion of Government contracts is expected to provide a level of risk
mitigation in the current environment. These projects will very likely form an integral part of the stimulus
packages and recovery efforts that the respective governments will implement as they emerge from
lockdown restrictions. The healthy level of the order book further supports revenue in 2021.

In addition to the secured orders, McConnell Dowell has in excess of AUD 1.2 billion of tenders that are
currently under evaluation, pending contract award. The pipeline of new work is further supported by AUD
930 million worth of projects which are currently in preferred status or Early Client Involvement (ECI)
contracts. Tender volumes are expected to increase further over the coming months, particularly in
support of stimulus packages as economies enter a post lockdown period.

There have been no project cancellations within the McConnell Dowell portfolio and government clients
have remained supportive during this period. The operational impact of the pandemic on each of the three
regions is outlined below.

To date, restrictions affecting McConnell Dowell’s operations have been imposed most significantly in
New Zealand and Singapore, which entered into one and two month lock-down periods respectively,
ceasing all construction activity other than a small number of projects deemed essential works. Impacts
have also been felt in Indonesia and the Pacific Islands. In Australia construction activity has largely
continued despite government restrictions designed to slow the spread of COVID-19.

Moolmans

Moolmans, currently has open cut contract mining operations in the Northern Cape and Mpumalanga
provinces in South Africa and in Guinea together with a deep level shafting sinking operation in the
Limpopo province of South Africa.

In line with the level 5 lockdown regulations announced at the start of South Africa’s initial lockdown
period, all the mining contracts in the country ceased and were placed on care and maintenance.
Moolmans care and maintenance practices undertaken during this time were designed to ensure the
protection of its assets and to allow for a rapid recommencement of operations

Since the move to level 4 in South Africa, Moolmans has recommenced full operations at the majority of
their open cut mining contracts. The underground project at Platreef is operating at 50% in line with
revised regulations.

As part of the remobilization process, Moolmans has implemented COVID-19 specific health and safety
precautions, in line with recommended best practice, to ensure that staff are protected against possible
infection.

The Lefa contract in Guinea has continued to operate during this period.

Despite the disruption caused by the pandemic, Moolmans continues to actively pursue a number of
opportunities for new work during this period.
Rest of Group

Trident Steel has recommenced operations in Port Elizabeth, Durban, Cape Town and Roodekop since
the move to level 4. This is aligned to the phased restarting of the Automotive Manufacturers and the
general steel industry. The team is continuously monitoring the developments amongst its key customers.

The Manufacturing businesses have restarted in varying degrees depending on customer demand.
Whilst some customers are able to operate at Level 4, others will only commence operations at a later
time. Infraset is manufacturing orders of rail products. Duraset is running a small team to meet specific
requirements from its mining clients. ACS is operating at full capacity as it supplies into the essential
services sectors of the economy. Management is adopting a cautious approach and will regularly
reassess the need to increase production, add production lines and products and open factories in
response to demand from the economy.

In response to lower levels of economic activity, several cost saving measures have been and will
continue to be implemented across the Group to combat the effect of the pandemic as it unfolds.

Notwithstanding all of the above actions taken by management in response to the pandemic, there have
been revenue, productivity, margin and cash flow impacts across all businesses in the Group. Given the
uncertainty around the outcome of the pandemic on the global economy, it is likely that there are further
impacts, yet to be determined, in the coming months.

SETTLEMENT OF OUTSTANDING CLAIMS

Significant progress has been made in the resolution of legacy claims within McConnell Dowell. Aveng is
pleased to announce that settlements have been concluded on two long-standing claims. In reaching the
decision to settle these matters, the Board has been mindful of the current uncertainties facing the
business and the market in general and has taken this decision with a view to enhancing the resilience of
the underlying business by improving available liquidity. These settlements will assist this objective by
releasing AUD 41.5 million in cash in the short term, reducing ongoing legal costs, removing litigation
uncertainty and allowing management to focus on the growth objectives of McConnell Dowell. There will
be an associated non-cash impairment of AUD 19 million. The resolution of these legacy claims is a
significant achievement at a critical time and will be cash flow enhancing. The proceeds of the claims will
be used to strengthen the Groups liquidity position.

LIQUIDITY

Liquidity and cash flow management in the South African market remains a key risk to the Group. The
Group has appropriate processes and systems in place to provide the necessary information to manage
cash and liquidity. However, the lockdown and related loss of revenue across all businesses in South
Africa has negatively impacted a liquidity position that was already under pressure. Management continue
to monitor the liquidity position and engage constructively with banks and other stakeholders as
appropriate.

CONCLUSION
The Company has continuously engaged with our key stakeholders including clients, suppliers, insurers,
banks and investors during this period. Management will continue to do so during the remaining period of
the lockdown, in the various jurisdictions, to find ways to protect Aveng, ensure its ongoing sustainability
and alleviate the burden on our people and other stakeholders.

Due to the complex and extremely fluid nature of the current environment, it is not possible to provide an
accurate assessment of the impact on the Group’s financial performance at this stage. The Board will,
however, continue to communicate to shareholders as appropriate.

The information contained in this announcement has not been reviewed and reported on by Aveng’s
external auditors.



Melrose Arch
14 May 2020

JSE Sponsor
UBS South Africa Proprietary Limited




Michael Canterbury
Group Executive: Strategy & Investor Relations
Tel: 011 779 2979
Email: michael.canterbury@avenggroup.com

Date: 14-05-2020 10:40:00
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