AVENG LIMITED AEG 201702200054A
Reviewed interim condensed consolidated financial statements for the six months ended 31 December 2016
AVENG GROUP
(Incorporated in the Republic of South Africa)
Company registration number 1944/018119/06
Share codes JSE: AEG ISIN: ZAE 000111829
Reviewed interim condensed consolidated financial statements
for the six months ended 31 December 2016
Salient features - financial performance
for the period ended 31 December 2016
Revenue
R14,3 billion
Decrease of 21% from R18,0 billion at December 2015
Operating costs
25% decrease, R250 million sustainable savings
South African government settlement
R165 million
(R21,25 million per annum for 12 years)
Adjusted net operating earnings
R151 million
Increase from R52 million at December 2015
Adjusted headline loss
R76 million
from R231 million at December 2015
Operating free cash flow
R226 million outflow
December 2015: R295 million outflow
Adjusted headline loss per share
19,2 cents
Improved from 58,0 cents loss at December 2015
Two year order book maintained at
R27,7 billion
Salient features - segmental analysis
H1 H1 June
2017 2016 Change 2016
Rm Rm % Rm
South Africa and rest of Africa (62) (111) (44) (148)
Aveng Grinaker-LTA (71) (19) >100 (69)
Aveng Water 9 (83) >100 (273)
Aveng Capital Partners - (9) >(100) 194
Australasia and Asia (47) 8 >(100) 14
Total Construction and Engineering (109) (103) 6 (134)
Mining 91 198 (54) 276
Manufacturing and Processing 24 (48) >(100) (70)
Aveng Steel (68) (147) (54) (166)
Aveng Manufacturing 92 99 (7) 96
Other and Eliminations (170) 5 >(100) 74
Net operating (loss) / earnings (164) 52 >(100) 146
Special items 315 - >(100) -
Adjusted net operating earnings 151 52 >(100) 146
(Loss) / earnings attributable to equity-holders:
Equity-holders of the parent (392) 230 >(100) (101)
Non-controlling interest (37) 2 >(100) 36
Total (loss) / earnings attributable to equity-holders (429) 232 >(100) (65)
Headline loss (391) (231) 69 (299)
Adjusted headline loss (76) (231) (67) (299)
Condensed statement of adjusted earnings for the six months ended 31 December 2016
The Group presents adjusted earnings as a more representative and sustainable indicator of the Group's
true economic performance. Adjusted earnings excludes non-recurring items that otherwise distort the
Group's results and may provide users of this financial information with additional meaningful comparisons
between current results and results in prior operating periods. Adjusted earnings should be viewed in
addition to, and not as an alternative to, the reported operating results or any other measure of
performance prepared in accordance with IFRS. In addition, the presentation of the adjusted earnings
may not be comparable to similarly titled measures that other companies use.
Six months ended 31 December 2016
Special Adjusted
Earnings items earnings
Rm Rm Rm
Revenue [1.1] 14 296 150 14 446
Cost of sales (13 336) - (13 336)
Gross earnings 960 150 1 110
Other earnings 77 - 77
Operating expenses (1 039) - (1 039)
Earnings from equity-accounted investments 3 - 3
Operating earnings 1 150 151
South African government settlement [1.2] (165) 165 -
Net operating (loss) / earnings (164) 315 151
Impairment of property, plant, equipment and intangible assets [1.3] (5) - (5)
Profit on sale of property, plant and equipment [1.4] 3 - 3
(Loss) / earnings before financing transactions (166) 315 149
Finance earnings 98 - 98
Interest on convertible bonds (117) - (117)
Other finance expenses (207) - (207)
(Loss) / earnings before taxation (392) 315 (77)
Taxation (37) - (37)
(Loss) / earnings for the period (429) 315 (114)
Equity-holders of the parent (392) 315 (77)
Non-controlling interest (37) - (37)
Adjusted headline loss (391) 315 (76)
Results per share (cents)
(Loss) / earnings - basic (98,8) (19,4)
Headline loss - basic (98,5) (19,2)
Condensed statement of adjusted earnings for the six months ended 31 December 2016
Six months ended 31 December 2015 Year ended 30 June 2016
Special Adjusted Special Adjusted
Earnings items earnings Earnings items earnings
Rm Rm Rm Rm Rm Rm
Revenue1.1 17 998 - 17 998 33 755 - 33 755
Cost of sales (16 711) - (16 711) (31 260) - (31 260)
Gross earnings 1 287 - 1 287 2 495 - 2 495
Other earnings 214 214 591 - 591
Operating expenses (1 392) - (1 392) (2 808) - (2 808)
Earnings from equity-accounted
investments (57) - (57) (132) - (132)
Operating earnings 52 - 52 146 - 146
South African government settlement1.2 - - - - - -
Net operating (loss) / earnings 52 - 52 146 - 146
Impairment of property, plant, equipment
and intangible assets1.3 (23) - (23) (333) 310 (23)
Profit on sale of property,
plant and equipment1.4 577 (577) - 592 (577) 15
(Loss) / earnings before
financing transactions 606 (577) 29 405 (267) 138
Finance earnings 105 - 105 211 211
Interest on convertible bonds (111) - (111) (225) (225)
Other finance expenses (150) - (150) (327) (327)
(Loss) / earnings before taxation 450 (577) (127) 64 (267) (203)
Taxation (218) 101 (117) (129) 76 (53)
(Loss) / earnings for the period 232 (476) (244) (65) (191) (256)
Equity-holders of the parent 230 (476) (246) (101) (191) (292)
Non-controlling interest 2 - 2 36 - 36
Adjusted headline loss (231) - (231) (299) - (299)
Results per share (cents)
(Loss) / earnings - basic 57,8 (61,8) (25,4) (73,5)
Headline loss - basic (58,0) (58,0) (75,2) (75,2)
1.1 Kenmare Resources' counter claim to be recovered from Professional Indemnity insurance. Refer to note 12.
1.2 Present value of settlement with South African government. Refer to note 10.
1.3 Impairment of assets due to subdued economic conditions affecting the Steel business, relating to June 2016.
1.4 Profit on sale of properties relating to Dimopoint properties that were held-for-sale, relating to December 2015
and June 2016.
Interim condensed statement of financial position as at 31 December 2016
31 December 31 December 30 June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
ASSETS
Non-current assets
Goodwill arising on consolidation 342 342 342
Intangible assets 320 332 325
Property, plant and equipment 4 513 5 450 4 843
Equity-accounted investments 118 136 100
Infrastructure investments 200 877 177
Deferred taxation 1 870 1 829 1 858
Derivative instruments - 15 -
Amounts due from contract customers 8 1 305 1 174 1 417
8 668 10 155 9 062
Current assets
Inventories 2 159 2 400 2 211
Derivative instruments 5 106 20
Amounts due from contract customers 8 7 178 9 068 8 047
Trade and other receivables 1 721 2 005 2 058
Cash and bank balances 2 017 3 452 2 450
13 080 17 031 14 786
Non-current assets held-for-sale 7 1 101 7 1 484
TOTAL ASSETS 22 849 27 193 25 332
EQUITY AND LIABILITIES
Equity
Share capital and share premium 2 009 2 009 2 009
Other reserves 1 118 2 031 1 821
Retained earnings 9 297 10 020 9 689
Equity attributable to equity-holders of parent 12 424 14 060 13 519
Non-controlling interest 12 11 37
Total Equity 12 436 14 071 13 556
Liabilities
Non-current liabilities
Deferred taxation 242 434 266
Borrowings and other liabilities 9 1 851 1 901 1 770
Employee-related payables 329 474 379
Trade and other payables 10 126 - -
2 548 2 809 2 415
Current liabilities
Amounts due to contract customers 8 1 338 1 792 1 322
Borrowings and other liabilities 9 1 103 1 220 1 214
Employee-related payables 299 548 559
Derivative instruments 26 - 27
Trade and other payables 10 4 854 6 566 5 886
Taxation payable 116 187 106
7 736 10 313 9 114
Non-current liabilities held-for-sale 7 129 - 247
TOTAL Liabilities 10 413 13 122 11 776
TOTAL EQUITY AND LIABILITIES 22 849 27 193 25 332
Interim condensed statement of comprehensive earnings for the six months ended 31 December 2016
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2016 2015 2016
(Reviewed) (Reviewed) Change (Audited)
Notes Rm Rm % Rm
Revenue 14 296 17 998 (21) 33 755
Cost of sales (13 336) (16 711) 20 (31 260)
Gross earnings 960 1 287 (25) 2 495
Other earnings 77 214 (64) 591
Operating expenses (1 039) (1 392) 25 (2 808)
Earnings / (loss) from
equity-accounted investments 3 (57) >(100) (132)
Operating earnings 1 52 (98) 146
South African government settlement 10 (165) - >(100) -
Net operating (loss) / earnings (164) 52 >(100) 146
Impairment of property, plant, equipment and
intangible assets (5) (23) 78 (333)
Profit on sale of property, plant and equipment 3 577 (99) 592
(Loss) / earnings before financing transactions (166) 606 >(100) 405
Finance earnings 98 105 (7) 211
Convertible bond interest (117) (111) (5) (225)
Other finance expenses (207) (150) (38) (327)
(Loss) / earnings before taxation (392) 450 >(100) 64
Taxation 11 (37) (218) 83 (129)
(Loss) / earnings for the period (429) 232 >(100) (65)
Other comprehensive earnings to be
reclassified to earnings or loss in subsequent
periods (net of taxation):
Exchange differences on translating foreign operations (709) 985 >(100) 786
Other comprehensive (loss) / earnings for the
period, net of taxation (709) 985 >(100) 786
Total comprehensive (loss) / earnings (1 138) 1 217 >(100) 721
Total comprehensive (loss) / earnings for
the period attributable to:
Equity-holders of the parent (1 102) 1 223 >(100) 676
Non-controlling interest (36) (6) >(100) 45
(1 138) 1 217 >(100) 721
(Loss) / earnings for the period attributable to:
Equity-holders of the parent (392) 230 >(100) (101)
Non-controlling interest (37) 2 >(100) 36
(429) 232 >(100) (65)
Other comprehensive (loss) / earnings for
the period, net of taxation
Equity-holders of the parent (710) 993 >100 777
Non-controlling interest 1 (8) >(100) 9
(709) 985 >(100) 786
Results per share (cents)
(Loss) / earnings - basic (98,8) 57,8 >(100) (25,4)
(Loss) / earnings - diluted (97,5) 57,2 >(100) (25,1)
Headline (loss) - basic (98,5) (58,0) >(100) (75,2)
Headline (loss) - diluted (97,2) (57,5) >(100) (74,4)
Number of shares (millions)
In issue 416,7 416,7 - 416,7
Weighted average 396,8 398,0 (0,3) 397,4
Diluted weighted average 402,1 402,1 - 402,1
EBITDA for the Group, being operating earnings before interest, tax, depreciation and amortisation is R344 million
(December 2015: R496 million; June 2016: R969 million).
Interim condensed statement of changes in equity for the six months ended 31 December 2016
Equity-
Total Foreign settled
share currency share-
capital trans- based
Share Share and lation payment
capital premium premium reserve reserve
Six months ended 31 December 2015 (Reviewed) Rm Rm Rm Rm Rm
Balance at 1 July 2015 20 2 003 2 023 757 15
Earnings for the period - - - - -
Other comprehensive earnings for the period (net of taxation) - - - 993 -
Total comprehensive earnings for the period - - - 993 -
Movement in treasury shares - (23) (23) - -
Equity-settled share-based payment release - 9 9 - (9)
Equity-settled share-based payment charge - - - - 7
Bond equity reserve - - - - -
Decrease in equity investment - - -
Total contributions and distributions recognised - (14) (14) - (2)
Balance at 31 December 2015 20 1 989 2 009 1 750 13
Year ended 30 June 2016 (Audited)
Balance at 1 July 2015 20 2 003 2 023 757 15
Loss for the period - - - - -
Other comprehensive loss for the period (net of taxation) - - - 777 -
Total comprehensive earnings for the period - - - 777 -
Movement in treasury shares - (23) (23) - -
Equity-settled share-based payment release - 9 9 - (9)
Equity-settled share-based payment charge - - - - 13
Recognition of deferred tax on convertible bond - - - - -
Decrease in equity investment - - - - -
Dividends paid - - - - -
Total contribution and distributions recognised - (14) (14) - 4
Balance at 30 June 2016 20 1 989 2 009 1 534 19
Total attri-
Conver- butable
tible to equity-
bond Total holders Non-
equity other Retained of the controlling Total
reserve reserves earnings parent interest equity
Six months ended 31 December 2015 (Reviewed) Rm Rm Rm Rm Rm Rm
Balance at 1 July 2015 390 1 162 9 790 12 975 23 12 998
Earnings for the period - - 230 230 2 232
Other comprehensive earnings for the period
(net of taxation) - 993 - 993 (8) 985
Total comprehensive earnings for the period - 993 230 1 223 (6) 1 217
Movement in treasury shares - - - (23) - (23)
Equity-settled share-based payment release - (9) - - - -
Equity-settled share-based payment charge - 7 - 7 - 7
Bond equity reserve (122) (122) - (122) - (122)
Decrease in equity investment - - - - (6) (6)
Total contributions and distributions recognised (122) (124) - (138) (6) (144)
Balance at 31 December 2015 268 2 031 10 020 14 060 11 14 071
Year ended 30 June 2016 (Audited)
Balance at 1 July 2015 390 1 162 9 790 12 975 23 12 998
Loss for the period - - (101) (101) 36 (65)
Other comprehensive loss for the period
(net of taxation) - 777 - 777 9 786
Total comprehensive earnings for the period - 777 (101) 676 45 721
Movement in treasury shares - - - (23) - (23)
Equity-settled share-based payment release - (9) - - - -
Equity-settled share-based payment charge - 13 - 13 - 13
Recognition of deferred tax on convertible bond (122) (122) - (122) - (122)
Decrease in equity investment - - - - (29) (29)
Dividends paid - - - - (2) (2)
Total contribution and distributions recognised (122) (118) - (132) (31) (163)
Balance at 30 June 2016 268 1 821 9 689 13 519 37 13 556
Interim condensed statement of changes in equity continued
for the six months ended 31 December 2016
Equity-
Total Foreign settled
share currency share-
capital trans- based
Share Share and lation payment
capital premium premium reserve reserve
Six months ended 31 December 2016 (Reviewed) Rm Rm Rm Rm Rm
Balance at 1 July 2016 20 1 989 2 009 1 534 19
Loss for the period - - - - -
Other comprehensive loss for the period (net of taxation) - - - (710) -
Total comprehensive earnings for the period - - - (710) -
Equity-settled share-based payment charge - - - - 7
Increase in equity investment - - - - -
Dividends paid - - - - -
Total contributions and distributions recognised - - - - 7
Balance at 31 December 2016 20 1 989 2 009 824 26
Total attri-
Conver- butable
tible to equity-
bond Total holders Non-
equity other Retained of the controlling Total
reserve reserves earnings parent interest equity
Six months ended 31 December 2016 (Reviewed) Rm Rm Rm Rm Rm Rm
Balance at 1 July 2016 268 1 821 9 689 13 519 37 13 556
Loss for the period - - (392) (392) (37) (429)
Other comprehensive loss for the period
(net of taxation) - (710) - (710) 1 (709)
Total comprehensive earnings for the period - (710) (392) (1 102) (36) (1 138)
Equity-settled share-based payment charge - 7 - 7 - 7
Increase in equity investment - - - - 14 14
Dividends paid - - - - (3) (3)
Total contributions and distributions recognised - 7 - 7 11 18
Balance at 31 December 2016 268 1 118 9 297 12 424 12 12 436
Interim condensed statement of cash flows for the six months ended 31 December 2016
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Notes Rm Rm Rm
Operating activities
Cash (utilised) / retained from operations (174) 660 529
Depreciation 329 429 793
Amortisation 14 15 30
Non-cash and other movements 13 (474) (194) (403)
Cash (utilised) / generated by operations (305) 910 949
Decrease in inventories 48 162 150
Decrease in amounts due from contract customers 981 52 825
Decrease in trade and other receivables 337 424 206
Increase in derivative instruments 14 (82) 46
Increase / (decrease) in amounts due to contract customers 16 (770) (1 240)
Increase / (decrease) in trade and other payables (910) (338) (782)
QCLNG repayment - (1 072) (1 072)
Decrease in payables other than contract-related - (102) (102)
Movement in held-for-sale assets (37) - -
Decrease in employee-related payables (310) (96) (254)
Total changes in working capital 139 (1 822) (2 223)
Cash utilised by operating activities (166) (912) (1 274)
Finance expenses paid (264) (209) (458)
Finance earnings received 99 102 214
Taxation paid (111) (233) (316)
Cash outflow from operating activities (442) (1 252) (1 834)
Investing activities
Property, plant and equipment purchased
- expansion (58) (75) (175)
- replacement (145) (89) (319)
Proceeds on disposal of property, plant and equipment 157 45 161
Proceeds on disposal of items held-for-sale 298 - -
Acquisition of intangible assets
- expansion (9) (7) (12)
- replacement - - (4)
Proceeds from property transaction - 1 127 1 127
Capital expenditure net proceeds on disposal 243 1 001 778
Loans advanced to equity-accounted investments
net of dividends received (31) (40) (63)
Net loans advanced to infrastructure investment companies - (7) (13)
Dividend earnings 4 3 7
Cash inflow from investing activities 216 957 709
Operating free cash outflow (226) (295) (1 125)
Financing activities with equity-holders
Shares repurchased - (23) (23)
Loans repaid by non-controlling interest 15 (6) (20)
Dividends paid (3) - (2)
(Repayment of) / proceeds from borrowings raised (76) 606 429
Net (decrease) / increase in cash and bank
balances before foreign exchange movements (290) 282 (741)
Foreign exchange movements on cash and bank balances (143) 314 315
Cash and bank balances at the beginning of the period 2 450 2 856 2 856
Cash related to assets held-for-sale - - 20
Total cash and bank balances at the end of the period 2 017 3 452 2 450
Borrowings excluding bank overdrafts 2 954 3 121 2 984
Net (debt) / cash position (937) 331 (534)
Notes to the interim condensed consolidated financial statements for the six months ended 31 December 2016
1. CORPORATE INFORMATION
The reviewed interim condensed consolidated financial statements (the 'interim results') of Aveng Limited
(the 'Company') and its subsidiaries (the 'Group') for the six months ended 31 December 2016 were authorised
for issue in accordance with a resolution of the directors on 17 February 2017.
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
Mr PK Ward retired as a non-executive director effective from 30 June 2016.
Mr AWB Band retired as a non-executive director effective from 19 August 2016.
2. BASIS OF PREPARATION AND ACCOUNTING POLICY
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 2016. The interim results have been prepared by Clare Giletti CA(SA) under the supervision of
Group Finance Director, Adrian Macartney CA(SA).
The reviewed condensed consolidated interim financial statements for the six-month period ended 31 December 2016,
set out in the SENS, have been reviewed by the Company's external auditor, 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. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED, CHANGES IN ACCOUNTING POLICIES AND OTHER RECLASSIFICATIONS
As part of the Group's financial reporting improvement initiatives, the structure, format and presentation of
disclosures in the financial statements were reviewed. This resulted in the reallocation of certain comparative
amounts. This initiative is an ongoing programme targeting the most appropriate disclosure and presentation
practices to best serve the interests of the Group's stakeholders based on interaction with them during the period.
The resulting reallocations had no impact on the earnings of the Group and as such the reallocations are regarded
as not having had a qualitatively significant effect on the information presented.
Deferred tax assets relating to historical assessed losses of Aveng (Africa) Proprietary Limited were transferred
to Aveng Corporate from the various segments as these losses are managed centrally.
The Africa Construction business included in the Construction and Engineering: South Africa and rest of Africa
segment has been reallocated to Other and Eliminations segment.
Consistent with the disclosure made at 30 June 2016 the net operating earnings related to Dimopoint has
been reallocated from the Construction and Engineering: South Africa and the rest of Africa segment to
Other and Eliminations segment.
Balance as Deferred Africa
previously tax asset construction Restated
reported reallocation reallocation balance
Rm Rm Rm Rm
Segmental report as at 31 December 2015
Total assets
Construction and Engineering: South Africa
and rest of Africa 5 436 (1 373) (118) 3 945
Construction and Engineering: Australasia
and Asia 11 558 - - 11 558
Mining 4 818 (168) - 4 650
Manufacturing and Processing 6 047 (109) - 5 938
Other and Eliminations (666) 1 650 118 1 102
27 193 - - 27 193
Total liabilities
Construction and Engineering: South Africa
and rest of Africa 1 918 - (9) 1 909
Construction and Engineering: Australasia
and Asia 5 426 - - 5 426
Mining 1 958 - - 1 958
Manufacturing and Processing 1 946 - - 1 946
Other and Eliminations 1 874 - 9 1 883
13 122 - - 13 122
Balance as Net operating earnings/(loss)
previously Dimopoint Africa Restated
reported Properties business balance
Rm Rm Rm Rm
Net operating earnings / (loss)
Construction and engineering: South Africa
and rest of Africa (125) (15) 29 (111)
Construction and engineering: Australasia
and Asia 8 - - 8
Mining 198 - - 198
Manufacturing and Processing (48) - - (48)
Other and Eliminations 19 15 (29) 5
52 - - 52
Balance as Deferred Africa
previously tax asset construction Restated
reported reallocation reallocation balance
Rm Rm Rm Rm
Segmental report as at 30 June 2016
Total assets
Construction and Engineering: South Africa
and rest of Africa 3 466 - (15) 3 451
Construction and Engineering: Australasia
and Asia 10 699 - - 10 699
Mining 3 952 - - 3 952
Manufacturing and Processing 5 470 - - 5 470
Other and Eliminations 1 745 - 15 1 760
25 332 - - 25 332
Total liabilities
Construction and Engineering: South Africa
and rest of Africa 2 022 - 22 2 044
Construction and Engineering: Australasia
and Asia 4 410 - - 4 410
Mining 1 425 - - 1 425
Manufacturing and Processing 2 162 - - 2 162
Other and Eliminations 1 757 - (22) 1 735
11 776 - - 11 776
Balance as
previously Africa business Restated
reported Net operating balance
Rm earnings/(loss) Rm
Net operating earnings / (loss)
Construction and engineering: South Africa
and rest of Africa (187) 39 (148)
Construction and engineering: Australasia and Asia 14 - 14
Mining 276 - 276
Manufacturing and Processing (70) - (70)
Other and Eliminations 113 (39) 74
146 - 146
4. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the interim condensed consolidated financial statements 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.
Impairment of cash-generating units
Where indicators existed the Group assessed the recoverable amount (higher of its fair value less cost
to dispose and its value in use) of the relevant cash-generating units. The value in use was used as the
Group expects to recover the economic benefits through operational use.
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.
The following assumptions were used in the calculation:
1. The Group WACC was adjusted to take into account the risk specific to each cash-generating unit; and
2. Non-cash settled intercompany balances were excluded from the calculation of the net asset value ('NAV').
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.
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. When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised immediately as an expense.
In addition, many contracts specify the completions schedule requirements and allow 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 and is often outside the control of the Group.
5. 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 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 reportable segment includes Aveng Grinaker-LTA (including Aveng Water) and Aveng Capital Partners ('ACP').
Revenues from this segment include the supply of expertise in a number of market sectors: power, mining,
infrastructure, commercial, retail, industrial, Oil & 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 & Gas
construction and mining and mineral construction.
2. Mining
This segment comprises Aveng Moolmans and Aveng Shafts & Underground.
Revenue from this segment is 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 & 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 ('DFC'), Aveng Duraset, Aveng Infraset and Aveng Rail.
Aveng Steel business units include: Aveng Steeledale (held-for-sale) and Aveng Trident Steel.
4. Other and Eliminations
This segment comprises corporate services, Africa construction, corporate held investments, including
properties and consolidation eliminations.
Construction and
Engineering:
Segment report December 2016 South Africa Manufac- Other
(Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations 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
Trade and other payables 859 1 880 436 1 505 300 4 980
Derivative instruments - - - 26 - 26
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:
Segment report December 2015 South Africa Manufac- Other
(Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets 1 - 15 145 171 332
Property, plant and equipment 465 865 2 326 1 324 470 5 450
Equity-accounted investments 109 58 4 - (35) 136
Infrastructure investments 712 86 - - 79 877
Deferred taxation 397 735 126 (249) 820 1 829
Derivative instruments 15 18 - 49 39 121
Amounts due from contract customers 1 442 7 649 1 208 537 (594) 10 242
Inventories 13 7 243 2 137 - 2 400
Trade and other receivables 304 200 235 1 096 170 2 005
Cash and bank balances 487 1 840 493 889 (257) 3 452
Non-current assets held-for-sale - - - - 7 7
Total assets 3 945 11 558 4 650 5 938 1 102 27 193
Liabilities
Deferred taxation 258 105 200 (86) (43) 434
Borrowings and other liabilities - 939 486 6 1 690 3 121
Employee-related payables 161 497 233 84 47 1 022
Trade and other payables 966 2 951 738 1 795 116 6 566
Amounts due to contract customers 496 980 194 122 - 1 792
Taxation payable 28 (46) 107 25 73 187
Total liabilities 1 909 5 426 1 958 1 946 1 883 13 122
Construction and
Engineering:
Segment report June 2016 South Africa Manufac- Other
(Audited) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Assets
Goodwill arising on consolidation - 100 - 10 232 342
Intangible assets - - 20 142 163 325
Property, plant and equipment 433 805 2 294 976 335 4 843
Equity-accounted investments 75 56 4 - (35) 100
Infrastructure investments 49 - - - 128 177
Deferred taxation 79 940 129 (74) 784 1 858
Derivative instruments - - 19 1 - 20
Amounts due from contract customers 1 169 7 167 675 223 230 9 464
Inventories 9 10 244 1 949 (1) 2 211
Trade and other receivables 243 96 115 1 405 199 2 058
Cash and bank balances 534 1 441 452 424 (401) 2 450
Non-current assets held-for-sale 860 84 - 414 126 1 484
Total assets 3 451 10 699 3 952 5 470 1 760 25 332
Liabilities
Deferred taxation 149 104 257 5 (249) 266
Borrowings and other liabilities - 905 340 7 1 732 2 984
Employee-related payables 200 372 217 95 54 938
Trade and other payables 1 240 2 209 528 1 720 189 5 886
Amounts due to contract customers 435 753 70 47 17 1 322
Derivative instruments - - - 27 - 27
Taxation payable 20 67 13 (2) 8 106
Non-current assets held-for-sale - - - 263 (16) 247
Total liabilities 2 044 4 410 1 425 2 162 1 735 11 776
Construction and
Engineering:
Six months ended December South Africa Manufac- Other
2016 (Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations 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 21 4 (13) 53 12 77
Operating expenses (220) (386) (95) (307) (31) (1 039)
Earnings from
equity-accounted investments - 3 - - - 3
Operating (loss) / earnings (62) (47) 91 24 (5) 1
South African government
settlement - - - - (165) (165)
Net adjusted operating
(loss) / earnings (62) (47) 91 24 (170) (164)
Impairment of property, plant
and equipment and intangible assets - - - - (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 earnings / (expenses) 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)
(Loss) / earnings before
interest, taxation, depreciation
and amortisation (EBITDA) (28) 65 218 81 8 344
Construction and
Engineering:
Six months ended December South Africa Manufac- Other
2015 (Reviewed) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Gross revenue 3 857 7 048 2 968 4 396 (271) 17 998
Cost of sales (3 656) (6 543) (2 658) (4 182) 328 (16 711)
Gross earnings 201 505 310 214 57 1 287
Other earnings 23 36 17 96 42 214
Operating expenses (312) (498) (129) (358) (95) (1 392)
Earnings from
equity-accounted investments (23) (35) - - 1 (57)
Net operating (loss) / earnings (111) 8 198 (48) 5 52
Impairment of property, plant,
equipment and intangible assets - - (23) - - (23)
Impairment of goodwill arising
on consolidation - - - - - -
Gain on property transaction - - - 7 570 577
(Loss) / earnings before
financing transactions (111) 8 175 (41) 575 606
Net finance earnings / (expenses) 19 (29) (6) (7) (133) (156)
(Loss) / earnings before taxation (92) (21) 169 (48) 442 450
Taxation 89 (21) (81) 30 (235) (218)
(Loss) / earnings for the period (3) (42) 88 (18) 207 232
Capital expenditure 19 41 26 69 16 171
Depreciation (38) (112) (207) (67) (5) (429)
Amortisation - - - (6) (9) (15)
Earnings before interest, taxation,
depreciation and amortisation (EBITDA) (73) 120 405 25 19 496
Construction and
Engineering:
Year ended June 2016 South Africa Manufac- Other
(Audited) and rest Australasia turing and and
Rm of Africa and Asia Mining Processing Eliminations Total
Gross revenue 7 344 12 828 5 026 8 794 (237) 33 755
Cost of sales (7 117) (11 737) (4 586) (8 289) 469 (31 260)
Gross earnings 227 1 091 440 505 232 2 495
Other earnings 315 18 72 130 56 591
Operating expenses (632) (1 022) (235) (705) (214) (2 808)
Earnings from
equity-accounted investments (58) (73) (1) - - (132)
Net operating (loss) / earnings (148) 14 276 (70) 74 146
Impairment / loss with
derecognition of property, plant,
equipment and intangible assets - - (38) (295) - (333)
Profit on sale of property,
plant and equipment - - - 22 570 592
(Loss) / earnings before
financing transactions (148) 14 238 (343) 644 405
Net finance earnings / (expenses) 35 (109) (10) (21) (236) (341)
(Loss) / earnings before taxation (113) (95) 228 (364) 408 64
Taxation (90) 3 (123) 120 (39) (129)
(Loss) / earnings for the period (203) (92) 105 (244) 369 (65)
Capital expenditure 42 150 151 139 28 510
Depreciation (75) (248) (336) (123) (11) (793)
Amortisation (1) - - (13) (16) (30)
Earnings before interest,
taxation, depreciation and
amortisation (EBITDA) (72) 262 612 66 101 969
The Group operates in five 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
2016 2015 2016 2016 2015 2016
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm % % %
Revenue
South Africa 8 483 9 609 18 511 59,4 53,4 54,8
Rest of Africa
including Mauritius 741 1 046 1 743 5,2 5,8 5,2
Australia 2 178 3 311 5 794 15,2 18,4 17,2
New Zealand 1 590 1 555 3 514 11,1 8,6 10,4
Southeast Asia 1 157 2 191 3 542 8,1 12,2 10,5
Middle East and
other regions 147 286 651 1,0 1,6 1,9
14 296 17 998 33 755 100,00 100,00 100,00
Segment assets
South Africa 11 432 13 358 12 850 50,1 49,1 50,8
Rest of Africa
including Mauritius 1 235 2 210 1 416 5,4 8,1 5,6
Australia 7 087 8 234 7 933 31,0 30,3 31,3
New Zealand 1 084 872 1 050 4,7 3,2 4,1
Southeast Asia 1 778 2 230 1 752 7,8 8,2 6,9
Middle East and
other regions 233 289 331 1,0 1,1 1,3
22 849 27 193 25 332 100,00 100,00 100,00
6. HEADLINE EARNINGS
Six months ended Six months ended Year ended
31 December 2016 31 December 2015 30 June 2016
(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) / earnings for the period
attributable to equity-holders of parent (392) 230 (101)
Impairment of property, plant and equipment 4 3 23 17 333 302
Impairment of intangible assets 1 1 - - - -
Profit on sale of property, plant and equipment (4) (3) (585) (478) (610) (500)
Headline loss (391) (231) (299)
7. NON-CURRENT ASSETS HELD-FOR-SALE
Aveng Capital Partners: The sale of the N3TC investment was concluded during the period while various approvals remained
outstanding in terms of the sale of Gouda, Sishen and Imvelo investments.
GoldlinQ: The GoldlinQ investment was sold for AUD8 million during the period.
Aveng Steeledale: Certain conditions precedent had not been met at 31 December 2016.
December December
2016 2015
(Reviewed) (Reviewed)
Rm Rm
Non-current assets held-for-sale 1 101 7
Non-current liabilities held-for-sale (129) -
972 7
Aveng
Movement during the period Properties Steeledale ACP GoldlinQ Other
Opening balance 125 398 860 84 17 559
Capitalised costs:
Environmental provision relating to property - - - - - 15
Transferred from / (to):
Property, plant and equipment - - - - - 45
Movement in:
Loans to group companies - (26) - - - -
Inventory - (36) - - - -
Amounts due from contract customers - (3) - - - -
Trade and other receivables - (42) - - - -
Elimination of loans to group companies - 26 - - - -
Foreign currency translation - - - (4) - -
Sold (6) - (195) (80) (17) (612)
Total non-current assets held-for-sale 119 317 665 - - 7
Opening balance - (247) - - -
Movement in:
Loans from group companies - 15 - - - -
Trade and other payables - 118 - - - -
Elimination of loans from group companies - (15) - - - -
Total non-current liabilities held-for-sale - (129) - - - -
Net non-current assets held-for-sale 119 188 665 - - 7
June
2016
(Audited)
Rm
Non-current assets held-for-sale 1 484
Non-current liabilities held-for-sale (247)
1 237
Aveng
Movement during the period Properties Steeledale ACP GoldlinQ Other
Opening balance 559 - - - -
Capitalised costs:
Environmental provision relating to property 15 - - - -
Transferred from / (to):
Property, plant and equipment 163 35 - - -
Equity-accounted investments - - - - 17
Infrastructure investments - - 860 84 -
Loans to group companies - 32 - - -
Inventory - 169 - - -
Amounts due from contract customers - 5 - - -
Trade and other receivables - 165 - - -
Cash and cash equivalents - 20 - - -
Taxation receivable - 4 - - -
Elimination of loans to group companies - (32) - - -
Sold (612) - - - -
Total non-current assets held-for-sale 125 398 860 84 17
Loans from group companies - (16) - - -
Trade and other payables - (247) - - -
Elimination of loans from group companies - 16 - - -
Total non-current liabilities held-for-sale - (247) - - -
Net non-current assets held-for-sale 125 151 860 84 17
8. AMOUNTS DUE FROM / (TO) CONTRACT CUSTOMERS
December December June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Uncertified claims and variations (underclaims)1**/*** 6 283 6 547 6 584
Contract contingencies** (286) (343) (390)
Progress billings received (including overclaims)2 (1 127) (1 342) (1 014)
Uncertified claims and variations less progress billings received 4 870 4 862 5 180
Contract receivables3 2 386 3 807 3 146
Provision for contract receivables (2) * (2)
Retention receivables4 102 231 126
7 356 8 900 8 450
Amounts received in advance5 (211) (450) (308)
Net amounts due from contract customers 7 145 8 450 8 142
Disclosed on the statement of financial position as follows:
Uncertified claims and variations** 6 283 6 547 6 584
Contract contingencies (286) (343) (390)
Contract and retention receivables 2 488 4 038 3 272
Provision for contract receivables (2) * (2)
Amounts due from contract customers 8 483 10 242 9 464
Progress billings received (1 127) (1 342) (1 014)
Amounts received in advance (211) (450) (308)
Amounts due to contract customers (1 338) (1 792) (1 322)
Net amounts due from contract customers 7 145 8 450 8 142
1 Includes revenue not yet certified - recognised based on percentage of completion / measurement and agreed
variations, less provisions and deferred contract costs.
2 Progress billings are amounts billed for work performed above revenue recognised.
3 Amounts invoiced still due from customers.
4 Retentions are amounts invoiced but not paid until the conditions specified in the contract are fulfilled or
until defects have been rectified.
5 Advances are amounts received from the customer before the related work is performed.
* Amounts less than R1 million.
** Provisions have been netted off against uncertified claims and variations
*** Includes an amount of AUD14,5 million relating to bank guarantees called by Perth Airport
during the period.
Amounts due from contract customers included R4,1 billion (December 2015: R4,6 billion; June 2016: R4,7 billion) which
are subject to protracted legal proceedings.
Provision
Uncertified Contract for
claims and contin- Contract contract Retention
variations** gencies** receivables receivables receivables Total
Rm Rm Rm Rm Rm Rm
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
December
2015
(Reviewed)
Non-current assets 1 174 - - - - 1 174
Current assets 5 373 (343) 3 807 * 231 9 068
6 547 (343) 3 807 * 231 10 242
June
2016
(Audited)
Non-current assets 1 417 - - - - 1 417
Current assets 5 167 (390) 3 146 (2) 126 8 047
6 584 (390) 3 146 (2) 126 9 464
* Amounts less than R1 million.
** Provisions have been netted off against uncertified claims and variations.
9. BORROWINGS AND OTHER LIABILITIES
December December June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
9.1 Borrowings held at amortised cost
Interest-bearing borrowings comprise:
Payment profile
- within one year 1 103 1 220 1 214
- between two and five years 1 851 1 901 1 770
2 954 3 121 2 984
Interest rate structure
Fixed and variable (interest rates)
Fixed - long term 1 642 1 730 1 635
Fixed - short term 259 254 285
Variable - long term 210 171 136
Variable - short term 843 966 928
2 954 3 121 2 984
December December June
(Reviewed) (Reviewed) (Audited)
Rate of 2016 2015 2015
Description Terms interest Rm Rm Rm
Convertible bond of Interest coupon is payable Coupon rate of 7,25% 1 776 1 690 1 731
R2 billion bi-annually until July 2019
Finance sale and lease Monthly instalment ending Fixed interest rate 28 97 34
back amounting to in June 2018 of 5,15% to 6,08%
AUD2,8 million*
Hire purchase agreement* Monthly instalment ending Fixed interest rate 7 - 11
amounting to AUD1 million in May 2018 of 1,35% to 1,60%
Hire purchase agreement* Monthly instalment ending Fixed interest of 5,90% 35 - 51
amounting to AUD3,5 million in May 2018
Short-term facility of Repayable in April 2017 Bank bill swap rate 99 111 110
AUD10 million**** plus 0,70%
Short-term facility of Repayable in April 2017 Bank bill swap rate 594 669 658
AUD60 million*** plus 2,20%
Hire purchase agreement* Monthly instalment ending Fixed interest rate 177 - -
amounting to AUD18 million in October 2020 of 4,5%
Hire purchase agreement* Monthly instalment Fixed interest rate 21 60 42
amounting to AUD2 million ending in August 2017 of 6,81%
Hire purchase agreement* Quarterly instalments ending Fixed rate ranging 4,58% 67 233 138
denominated in USD in June 2017 to 4,65%
Hire purchase agreement* Monthly instalment ending in South African prime less 30 60 46
denominated in ZAR December 2017 2,00%
Hire purchase agreement* Monthly instalment ending in South African prime less 74 126 101
denominated in ZAR November 2019 1,70%
Hire purchase agreement* Monthly instalment ending in Fixed interest rate of 36 59 49
denominated in ZAR May 2018 9,70%
Finance lease facilities* Monthly instalment ending in South African prime 8 13 11
denominated in ZAR June 2018
Interest-bearing borrowings 2 952 3 118 2 982
Interest outstanding on 2 3 2
interest-bearing borrowings**
Total interest-bearing 2 954 3 121 2 984
borrowings
* These borrowings and other liabilities are finance leases and are included in the analysis of the payable finance
lease liability.
** Interest outstanding in the current period relates to finance leases.
*** Backed by a bank guarantee
**** Secured by cash collateral in South Africa.
December December June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Finance lease liabilities are payable as follows:
Minimum lease payments due
- within one year 284 397 321
- in two to five years 236 300 194
Less: future finance charges (33) (46) (30)
Present value of minimum lease payments 487 651 485
The Australasia and Asia operating segment entered into an asset-based finance arrangement in the current year.
A new arrangement amounting to AUD18 million has been secured by plant and equipment with a net carrying amount of
AUD6 million.
The arrangement amounting to AUD2,8 million has been secured by plant and equipment with a net carrying amount of
AUD2,2 million.
The arrangement amounting to AUD2 million has been secured by assets with a net carrying amount of AUD3,4 million.
The arrangement amounting to AUD3,5 million has been secured by assets with a net carrying amount of AUD2,1 million.
The Mining operating segment entered into various asset-based finance lease arrangements to purchase operating
equipment denominated both in 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 November 2019.
Equipment with a net carrying amount of R513 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 the net carrying amount of R2 million has been pledged as security.
10. TRADE AND OTHER PAYABLES
December December June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Current
Trade payables 2 036 2 686 2 787
Subcontractors 407 462 338
Accrued expenses 1 758 2 734 2 197
South African government settlement 37 - -
Income received in advance 105 111 110
Promissory notes 511 573 454
4 854 6 566 5 886
Non-current
South African government settlement 126 - -
Trade and other payables comprise amounts owing to suppliers for goods and services supplied in the normal course of
business.
Promissory notes issued by the Group bear interest between a range of 9,32% and 10,06% per annum. Terms vary in
accordance with contracts of supply and service but are generally settled on 30 to 90 day terms.
Included in income received in advance is an advance payment received relating to the Perth Airport contract of
AUD10 million (R99 million).
South African government settlement
Following an extensive period of negotiation, the South African government and the participating construction companies
have concluded the settlement agreement which addresses outstanding legacy issues and commits to a plan which will ensure
the repositioning of the South African construction sector. All parties to the settlement agreement acknowledge the need
to foster a better relationship between the government and the construction industry going forward.
Aveng anticipates that having concluded the settlement agreement, it will precipitate the unlocking of significant public
sector funded, major infrastructure project opportunities as part of the process of rebuilding trust and confidence, thereby
enabling Aveng Grinaker-LTA, with its new proposed shareholders, Kutana Construction, to collaboratively contribute to the
infrastructure development needs of South Africa and the region as a whole.
A provision has been made for the annual payment of R21,25 million over 12 years. This provision was discounted to a value
of R165 million. The first payment was made during the period.
11. TAXATION
Taxation expense
December December June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Current taxation expense 132 326 328
Deferred taxation charge (95) (108) (199)
37 218 129
South African income taxation is calculated at 28% (December 2015: 28%; June 2016: 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 2016 is negative 9.4% (December 2015: 48.4%; June 2016:
negative 201%).
The drivers affecting the tax rate include:
- Deferred tax assets to the amount of R100 million (December 2015: R141 million; June 2016: R92,6 million) not
recognised.
- The effect of the settlement with the South African government amounting to R165 million (December 2015: Rnil;
June 2016: Rnil) which is a non-deductible expense.
- Effect of the disposal of Aveng Capital Partners investments which resulted in capital gains tax of R41 million
(December 2015: Rnil; June 2016: Rnil).
Deferred taxation asset
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 legal 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. The Group continues to make good progress in positioning
Aveng for future profitability. Transactions that have been included in management's estimate of future taxable profits
include the sale of investments held by Aveng Capital Partners as well as restructuring actions which include the sale of
Aveng Steeledale and the proposed Aveng Grinaker-LTA empowerment transaction. Management has committed to further restructuring
opportunities to achieve future profitability targets within the Group. Furthermore, profit improvement programmes have been
initiated which are expected to reduce costs and further enhance profitability.
12. CONTINGENT LIABILITIES AND ASSETS
December December June
2016 2015 2016
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Contingent liabilities at the reporting date, not otherwise
provided for in the condensed consolidated financial
statements, arise from performance bonds and guarantees
issued in:
South Africa and rest of Africa
Guarantees and bonds (ZARm) 3 204 3 716 3 615
Parent company guarantees (ZARm) 505 964 516
3 709 4 680 4 131
Australasia
Guarantees and bonds (AUDm) 363 498 409
Parent company guarantees (AUDm) 469 409 521
832 907 930
Contract performance guarantees issued by the parent company on behalf of its group companies are disclosed
based on the probability of draw down.
Claims and legal disputes in the ordinary course of business
The Group is, from time to time, involved in various claims and legal proceedings arising in the ordinary course
of business. The Board does not currently believe that adverse decisions in any pending proceedings or claims against
the Group will have a material adverse effect on the financial condition or future operations of the Group based on
all the available information. Provision is made for all liabilities which are expected to materialise and contingent
liabilities are disclosed when the outflows are possible.
Contingent assets
During December 2016 a counter claim against the Group was awarded to Kenmare Resources to the value of R150 million.
Professional Indemnity insurance was in place during the time of the related project. The Group has lodged a claim against
the insurance to recover this amount.
13. NON-CASH AND OTHER MOVEMENTS
Earnings from disposal of property, plant and equipment (77) (13) (648)
Impairment of goodwill, property, plant, equipment and intangible assets 5 23 333
Gain on property transaction before transaction costs - (582) -
Fair value adjustments (23) (12) (306)
Movements in foreign currency translation (386) 383 205
Movement in equity-settled share-based payment reserve 7 7 13
(474) (194) (403)
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 comprises the following:
- Firefly Investments 238 Proprietary Limited ('Firefly'); and
- Dimopoint Proprietary Limited ('Dimopoint').
The methodology, valuation parameters and assumptions for all other infrastructure investments have remained unchanged
since 30 June 2016. For more detail refer to the 30 June 2016 consolidated financial statements available on the Group's
website.
The Group has reassessed the fair value of these infrastructure investments as at 31 December 2016 and except for
Dimopoint and Firefly, where a R14 million and R9 million fair value adjustment was calculated respectively.
Fair value hierarchy
The table below shows the Group's fair value hierarchy and carrying amounts 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 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
FECs 26 26 - 26 -
31 December 2015 (Reviewed)
Assets and liabilities recognised at fair value
Assets
Infrastructure investments 877 877 - - 877
FECs 15 15 - 15 -
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
30 June 2016 (Audited)
Assets and liabilities recognised at fair value
Assets
Infrastructure investments 177 177 - - 177
Infrastructure investments (held-for-sale) 944 944 - - 944
Forward exchange contracts (FECs) 20 20 - 20 -
Liabilities
FECs 27 27 - 27 -
The Group uses Level 2 valuation techniques to measure foreign exchange contract 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 six-month period.
Sensitivity analysis: Financial assets valuations, using observable and unobservable inputs
The following table shows the sensitivity of significant unobservable inputs used in measuring the fair value of
infrastructure investments:
Reasonably
possible
changes to
Significant significant Potential effect recorded
unobservable unobservable directly in profit and loss
input inputs Increase Decrease
% % Rm Rm
Infrastructure investments
Risk-adjusted discount rate:
- Firefly Investments 238 Proprietary Limited 14,5 0,5 (2) 2
- Dimopoint Proprietary Limited 15,0 0,5 (11) 11
The estimated fair value would increase / (decrease) if:
- the risk-adjusted discount rate was lower / (higher)
- the internal rate of return was lower / (higher)
15. EVENTS AFTER THE REPORTING PERIOD AND PENDING TRANSACTIONS
The directors are not aware of any other significant matter or circumstance arising after the reporting period up to
the date of this report except as stated below:
Aveng Grinaker-LTA empowerment transaction
During the first half of the financial year, the Group concluded a binding agreement with Kutana Construction Proprietary
Limited ('Kutana Construction') in which a 51% beneficial interest would be sold to Kutana Construction, subject to
certain conditions being met. Subsequent to the initial transaction announcement, Aveng Africa Proprietary Limited's interest
in the Aveng Water business has been included in the proposed transaction. With the inclusion of Aveng Water, the net asset
value attributable to the Aveng Grinaker-LTA business was R71 million and the net loss after tax was R343 million for the
year ended 30 June 2016. It is anticipated that the circular pertaining to this transaction (which will include the impact
of the Water business) will be posted to shareholders on 24 February 2017 with a general meeting of shareholders scheduled
for 29 March 2017.
Aveng Capital Partners' transaction: receipt of proceeds from the sale of infrastructure investments
On 12 December 2016, Aveng successfully disposed of Steelmetals, N3TC Equity interest for a purchase price of R195 million,
which was settled in cash on 12 December 2016. On 6 February 2017, the conditions precedent were fulfilled in respect of
the Blue Falcon Equity Interest and the Windfall Equity interest. The funds from these disposals were received by Aveng on
13 February 2017.
Aveng Steeledale disposal
As previously announced the Group concluded a binding agreement with Kutana Steel Proprietary Limited ('Kutana Steel')
whereby Kutana Steel will effectively acquire a 70% interest in the Steeledale business, for approximately R252 million.
The Group confirms that all conditions precedent to the transaction have been met and the transaction is now effective.
The parties remain confident in, and committed to, the future success of the Steeledale business.
Aveng Trident Steel
Further to the renewal of the cautionary announcement on 9 January 2017 regarding Aveng Trident Steel, the Group is still
in discussions with prospective buyers, and has not yet reached a stage where an announcement can be made on either the naming
of prospective buyers, transaction value nor structure. The market will be kept informed once there are material developments
to report.
QCLNG claims settlement update
The arbitration process has been finalised and an award outcome is expected during the course of the current financial year.
COMMENTARY
Overview
Salient features
- Strong safety performance
- Revenue declined in line with projections by 21% to R14,3 billion (2015: R18,0 billion)
- Fixed overhead expenses reduced by 25% compared to 31 December 2015
- Adjusted net operating earnings improved to R151 million (2015: R52 million) with an improved gross margin
- Adjusted headline loss of R76 million (2015: headline loss of R231 million)
- Adjusted earnings excludes R165 million Settlement Agreement with the South African government, and
R150 million Kenmore counter claim
- Aveng Grinaker-LTA improved performance with positive cash generation
- McConnell Dowell performance below expectations
- Order book maintained, strong growth in Aveng Mining
- Aveng Capital Partners and Aveng Steeledale transactions reached financial closure
Improving results
Aveng reported an adjusted headline loss of R76 million or 19,2 cents loss per share for the six months
ended 31 December 2016, compared to a headline loss of R231 million or 58,0 cents loss per share for the
comparative period.
In line with expectations, Group revenue declined by 21% to R14,3 billion (2015: R18,0 billion), due to a weak
macro-economic climate and the completion of some large projects, with McConnell Dowell being most significantly
impacted. Adjusted net operating earnings increased to R151 million from R52 million in 2015, driven primarily
by a marked improvement in Aveng Grinaker-LTA, Aveng Trident Steel and a 25% reduction in Group overheads.
This improved performance was partially offset by the under-performance at McConnell Dowell and the impact of
the downturn in the mining sector in the prior year.
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 well-being of its people, clients and the communities in which it operates. The Group remains
fully committed to delivering on its safety vision of 'Home without Harm, Everyone, Everyday'.
The all injury frequency rate ('AIFR') for the period was 3,1. This indicator includes all types of injuries and is
calculated using 200,000 man-hours as the baseline for its frequency rate. Total man-hours have decreased over this
period thus impacting on the frequency rates. Aveng continues to see a year-on-year improvement in terms of total
injuries, with a 4,7% decrease in the number of injuries when compared to the six months ended 31 December 2015.
The Aveng Board and executive leadership remain concerned with the current levels of unsafe behaviours demonstrated
by road users in terms of road traffic safety, especially given that the Group works on various public road projects
across its operations. For this reason, the Group has extended its reporting to include 'monitored incidents', to
ensure that the fatal risks associated with circumstances outside the control of Aveng, such as on public roads,
are duly recognised and properly understood. Efforts to address such risks include increasing 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 driver behaviour. Regrettably, two lives were lost in a single monitored road
traffic accident that was caused by a third party. Aveng extends its sincere condolences to the families and
colleagues who have suffered such a painful loss. The Group will continue with its commitment and efforts to
avert such tragedies.
Strategic initiative update
We are pleased to report the following progress on our previously communicated strategic initiatives.
Aveng Grinaker-LTA
During the first half of the year the Group entered into a binding agreement with in which a 51% beneficial interest
would be sold to Kutana Construction Proprietary Limited ('Kutana Construction'). Subsequent to the initial
transaction announcement, Aveng's interest in the Aveng Water business has been included in the transaction.
This transaction is subject to shareholder approval and other conditions precedent.
Aveng Capital Partners: proceeds from sale of infrastructure investments
On 12 December 2016, Aveng successfully disposed of Steelmetals' N3TC equity interest for a purchase price of
R195 million. On 6 February 2017, the conditions precedent were fulfilled in respect of the Blue Falcon equity
interest and the Windfall equity interest. R600 million from these disposals was received on 13 February 2017.
Aveng Steeledale
As previously announced the Group concluded a binding agreement whereby Kutana Steel Proprietary Limited
('Kutana Steel') will effectively acquire a 70% interest in the Steeledale business, for approximately R252 million.
Steeledale Proprietary Limited has procured a funding facility, which will allow the payment to Aveng of the
minimum upfront cash of R50 million. The Group confirms that all conditions precedent to the transaction
have been met and the transaction is now effective. The parties remain confident in and committed to, the future
success of the Steeledale business.
Aveng Trident Steel
Further to the renewal of the cautionary announcement on 9 January 2017 regarding Aveng Trident Steel, the Group
is still in discussions with prospective buyers and has not yet reached a stage where an announcement can be
made on either the transaction value or the naming of prospective buyers, nor the structure. The market will be
kept informed once there are material developments to report.
QCLNG claim update
The hearings pertaining to the arbitration process were completed and the process is in its final stages
prior to an award being made. This is expected during the course of the current financial year.
Cash generation
While McConnell Dowell has made good progress in finalising various large projects and under-performing contracts,
its financial performance remains sub-optimal. McConnell Dowell's operating free cash flow was impacted primarily
by the unwinding of working capital as large projects were completed as well as the utilisation of cash to settle
a bank guarantee on Perth Airport Project.
The South Africa and rest of Africa operations were cash generative during the first half of the year.
The cost base reduction across the business, to align with current market conditions, continues to deliver results.
Market review
The local infrastructure market remains subdued, mirroring the marginal economic growth being experienced in
South Africa. The local building environment remained relatively strong in 2016 with a recent increase in the
number of building plans passed primarily led by industrial development. There are limited large civil
engineering and mechanical and electrical projects coming to market. Current public infrastructure spend is
focussed on the transportation, energy and water segments.
The transport sector in Australia remains buoyant, led by significant road and rail infrastructure investment
programmes in Victoria and New South Wales. The resources sector continues to be slow, although there are
signs of recovery with improved commodity prices and several major developments in planning stages. The
Australian building sector remains active and offers good opportunities for the Built Environs business.
The market in New Zealand remains strong, with several major opportunities in water and transport.
Southeast Asia remains buoyant, with investment in Oil & Gas, water and transport infrastructure across
the region, providing good opportunities in the key disciplines of marine, tunnels and pipelines.
Competition remains strong in all of these markets.
The mining industry in South Africa and globally is cautiously optimistic with mining companies looking
to increase output and make new investments in assets. The current rally in commodity prices provides
opportunities for the Aveng Mining operating group.
The manufacturing environment continues to be impacted by weakness and low activity in Aveng Manufacturing's
traditional markets. Demand in the mining, rail and construction sectors remains below historical volumes.
The recent drought across South Africa has negatively impacted water valve volumes. Large projects in the
Oil & Gas and rail sectors continue to be delayed. As a result, Aveng Manufacturing has focused on smaller
projects and value added services, as well as continuous diversification into non-traditional markets.
South African steel demand remained flat compared to the comparative period. Recent price increase
announcements by the local mills assisted in improving the viability of the local market and should
benefit the Aveng Steel operating group during the second half of the year.
Financial performance
Statement of comprehensive earnings
Revenue decreased by 21% to R14,3 billion (2015: R18,0 billion). Revenue reduced in all segments in line with
management's forecasts and prevailing difficult market conditions, but was partially offset by some growth
in activity levels in Aveng Grinaker-LTA Building and Coastal business units and Aveng Trident Steel.
The full impact of contract cancellations on Aveng Mining's revenue was apparent in the current period.
The adjusted gross margin for the Group improved to 7,7% compared to 7,2% in the comparative period with more
contracts meeting their tendered margins as a result of improved operational performance and selective
tendering processes.
Adjusted net operating earnings improved to R151 million, from R52 million in 2015, as a result of:
- continued improved underlying operational performance from Aveng Grinaker-LTA;
- realisation of savings in overhead expenses throughout the Group which resulted in a 25% reduction in
operating costs compared to December 2015;
- an improved financial performance from Aveng Steel, although still loss making;
though partially offset by:
- a lower than expected award on the Mokolo Crocodile Water Augmentation project;
- separation costs relating to Aveng Mining's contract with Wesizwe's Bakubung mine; and
- under-performance in McConnell Dowell.
Adjusted earnings excludes the following non-recurring exceptional items:
- a present value charge of R165 million (R255 million payable over 12 years) for the expense pertaining to the
settlement agreement concluded on 11 October 2016 with the South African government; and
- Aveng previously reflected a debt of R206 million from Kenmare Resources pertaining to work performed in 2011/12.
During December 2016, the arbitration tribunal issued their partial ruling, with Aveng being awarded their debt
of R206 million in full, together with interest. The costs award remains outstanding and is anticipated before
year end. The tribunal awarded a counter claim in favour of Kenmare to the amount of R150 million. This amount
together with associated legal costs is the subject of an insurance claim. In making this award, the tribunal
saw no impediment for coverage under the applicable policies. Despite the findings of the tribunal and
management's view that it is probable that Aveng will recover an amount in excess of the R150 million awarded,
the Group's accounting policies do not permit the recognition of insurance claims and hence a charge of
R150 million has been recognised.
Net finance charges of R226 million increased by 45% (2015: R156 million) in relation to the comparative period
as a result of the utilisation of facilities remaining high for the first half.
The adjusted headline loss improved to R76 million from a R231 million loss in the comparative period.
The adjusted basic loss per share decreased to 19,4 cents loss per share (2015: 61,8 cents earnings per share)
after adjusting the profit on sale of property of R577 million in the comparative period and adjusted headline
loss per share improved to 19,2 cents loss per share compared to 58,0 cents loss in the comparative period.
Basic loss per share decreased to 98,8 cents loss per share (2015: 57,8 cents earnings per share) and headline
loss per share declined to 98,5 cents loss per share (2015: 58,0 cents loss per share).
Statement of financial position
The Group incurred capital expenditure of R212 million (December 2015: R171 million): applying R145 million
(December 2015: R89 million) to replace and R67 million (2015: R82 million) to expand property, plant and
equipment. The majority of the amount was spent as follows:
- R76 million at McConnell Dowell, relating to specific projects in Australia and Southeast Asia;
- R43 million at Aveng Manufacturing to increase capacity and optimise efficiencies of its factories; and
- R38 million at Aveng Mining.
Equity-accounted investments increased by 18% to R118 million (June 2016: R100 million) due to an additional
investment made in a Mauritian associate.
Amounts due from contract customers (non-current and current) decreased by 10% to R8,5 billion (June 2016:
R9,5 billion). This balance remained flat after removing the impact of movement in the Australian dollar.
Trade and other receivables of R1,7 billion decreased by 16% (June 2016: R2,1 billion) as a result of
reduced activity levels throughout the Group and improved collections at Aveng Steel.
Trade and other payables decreased by 15% to R5,0 billion (June 2016: R5,9 billion). The decrease was
mainly attributable to major projects coming to an end in McConnell Dowell and Aveng Grinaker-LTA.
Operating free cash flow for the period amounted to an outflow of R226 million and included:
- significant cash outflow, albeit less than the prior period, for McConnell Dowell associated with the
completion of large projects and the settlement of a bank guarantee on Perth Airport of R150 million;
- strong cash generation in Aveng Steel;
- R298 million from the sale of infrastructure investments;
- net capital expenditure of R55 million;
- net finance charges of R226 million;
- cash outflow on the problematic water contract provided for in June 2016; and
- a cash outflow at Aveng Manufacturing of R50 million due to capital expenditure and late payments
received from debtors.
Cash and bank balances decreased to R2,0 billion (June 2016: R2,4 billion) resulting in a net debt position
of R937 million compared, to R534 million net debt at 30 June 2016.
Operating review
Construction & Engineering: South Africa and rest of Africa
This operating segment comprises Aveng Grinaker-LTA (including Aveng Water) and Aveng Capital Partners.
Revenue decreased by 15% to R3,3 billion (2015: R3,9 billion) primarily due to lower work volumes in the
Civil Engineering and Mechanical & Electrical business units and the discontinuation of the Aveng
Engineering business.
Net operating loss decreased to R62 million (2015: R111 million loss) as evidence of the turnaround of
Aveng Grinaker-LTA. This result includes the adverse effect of the Mokolo Crocodile Water Augmentation
project claim, which resulted in earnings being reduced by R92 million. The Group is not in agreement
with this award and is considering filing a notification of dissatisfaction which may move this
dispute into arbitration. The underlying performance shows a marked improvement from the comparative
period excluding the effect of the claim.
Civil Engineering
Revenue decreased by 57% to R516 million (December 2015: R1,2 billion) reflecting lower activity in the civil
infrastructure market. The business made an operating loss of R118 million compared to an operating profit of
R33 million in 2015, mainly as a result of the Mokolo Crocodile Water Augmentation project claim.
Under-recovery of overheads negatively impacted margins. Construction of the Majuba Rail contract is complete
with rehabilitation works underway. Final account negotiations are ongoing on the Majuba Rail contract, which
is a complex contract with significant increases in contract values above their tendered amounts.
Mechanical and Electrical
Revenue decreased by 19% to R675 million (December 2015: R835 million) as a result of reduced work
on some of the major power projects. The operating margin benefited from the lower overhead cost
structure as the business focused its efforts on the shut down and maintenance markets. A substantial
turnaround contributed to an operating profit of R22 million (2015: R70 million loss).
Buildings and Coastal
Revenue increased by 20% to R1,8 billion (December 2015: R1,5 billion) with the net operating earnings
reflecting a decrease to R20 million from R64 million due to a once-off gain in the comparative period.
The improvement in revenue is due to the inclusion in the order book of a number of major high-rise buildings
in Sandton coupled with the successful completion of the Sasol Head Office. Progress continued on the
Dr Pixley Ka Isaka Seme Memorial Hospital in KwaZulu-Natal and extensions to the Cape Town International
Convention Centre.
Aveng Water
Revenue decreased by 7% to R140 million (December 2015: R149 million) due to the completion of construction
works and the move to the operations phase for several projects. Operating profit improved as costs on the
completion of various plants were managed as anticipated. The focus of the Aveng Water business is now on
leveraging the significant advantage in acid mine drainage, water treatment processes and operational
maintenance. The South African mining and municipal water sectors offer attractive opportunities for growth.
Aveng Capital Partners
Aveng Capital Partners is responsible for managing the Group's investments in South African toll roads,
real estate and renewable energy concessions and investments.
This business will continue to co-manage the maintenance of the N1 until contract completion in 2018 and
the handback of the roadway in accordance with the contractual undertakings. Development of new medium-term
project pipeline opportunities is underway.
Construction & Engineering: Australasia and Asia
This operating segment comprises four business units - Australia, New Zealand and Pacific, Southeast Asia
and Built Environs. The Middle East business remains a joint venture operated in partnership with Dutco.
Revenue in the first half decreased by 36% to AUD465 million (2015: AUD 726 million), reflecting the reduced
scale of the business in all regions and the low contribution of new work secured late in the previous
financial year. This resulted in an under-recovery of overheads. The costs associated with tendering and
ongoing legal fees placed additional burden on profitability. Net operating earnings decreased to a loss
of AUD4,4 million (2015: profit of AUD1,4 million). While certain projects have performed well, these were
offset by under-performance on other projects. Legacy contracts are largely complete and the focus is on
commercial finalisation of these projects. Initiatives to improve the underlying operational performance
are being rolled out as part of the reset strategy.
Australia
The performance of the Australian business in the first half was heavily impacted by commercial issues on
largely completed historic projects and a lack of new work. Revenue declined by 42% to AUD178 million
(2015: AUD306 million). The Webb Dock, O'Bahn and AMRUN projects have produced good results, albeit that
these were eroded by high tendering and legal costs.
Southeast Asia
Revenue decreased by 51% to AUD110 million (2015: AUD226 million). Southeast Asia's operating results were
impacted by the reduced revenue which reflects the competitive market conditions coupled with the impact of
the start-up phase of new work recently won. The prospects for this business remain good.
New Zealand and Pacific
Revenue remained flat compared to the comparative period at AUD156 million (2015: AUD160 million).
The Waterview tunnel and Stronger Christchurch Infrastructure Rebuild Team (SCIRT) alliance contracts,
together with significant improvement in the Kiribati project underpinned the solid performance in
New Zealand.
Built Environs
The Built Environs business has experienced a significant turnaround compared with the same period last year.
All projects performed to tendered margin and there is a good pipeline of opportunities for the future
including the recent win of the West Franklin Apartments in Australia.
Aveng Mining
This operating segment comprises the merged businesses of Aveng Moolmans and Aveng Shafts & Underground.
The segment reported a decrease in revenue to R2,0 billion (December 2015: R3,0 billion). Net operating earnings
decreased by 54% to R91 million (December 2015: R198 million). The gross margin remained at 10% against the
comparative period as a result of good contract productivities and operational efficiency initiatives. The
pressures experienced by clients due to the downturn in the commodity cycle is, however, evident in the current
period's results.
The Burkina Faso contract was negatively impacted by equipment under-performance. A detailed rectification plan was
implemented to remedy the situation. This contract is expected to recover from April 2017.
The Chuquicamata contract is complete, albeit including additional costs in the final closure processes. The quality
of the execution has been well received by the client and Aveng Mining has demonstrated their ability in undertaking
this project in a new territory.
The Bakubung platinum mine separation agreement was signed with Wesizwe on 20 September 2016 and accounted for in
the current period's results. The operation is being handed over to the client and the reduced scope is expected
to be completed by the last quarter of this financial year. The finalisation of this agreement removes significant
risk from the business.
Pleasingly the recent improvement in commodity prices has resulted in clients increasing volumes. To this end the
Gamsberg contract was awarded in November 2016 with the start-up planned for April 2017, and the new contract in
Botswana by Boeti Mining (a wholly owned subsidiary of Lucara Diamond Corp) at its Karowe diamond mine. Mobilisation
activities are currently under way. The percentage of idle fleet has decreased and will decrease further in the
second half of the year. Aveng Mining continues to work closely with clients to assist in reducing overall mining
costs and to mobilise quickly as the opportunities arise.
Aveng Mining was awarded a new contract in Botswana by Boteti Mining (a wholly owned subsidiary of Lucara Diamonds)
at its Karowe diamond mine. Mobilisation activities are currently under way.
Manufacturing and Processing
This operating segment comprises Aveng Manufacturing and Aveng Steel.
Revenue decreased marginally to R4,3 billion (2015: R4,4 billion). Net operating earnings improved significantly to
a profit of R24 million (2015: R48 million loss).
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 19% to R1,3 billion (2015: R1,6 billion). Net operating earnings decreased by 8% to R92 million
(2015: R99 million), reflecting the impact from the slowdown in the rail, mining and Oil & Gas sectors in South Africa.
Profit has increased substantially from the immediately preceding six months where break-even was achieved.
Aveng ACS: revenue decreased by 12% to R209 million (2015: R237 million) due to lower project activity in their
traditional Oil & Gas market.
Aveng DFC: revenue decreased by 4% to R237 million (2015: R246 million) following low demand in the local water
market, as well as difficulty in securing volumes from the Russian and European markets. This was offset by growth
in the Americas, particularly South America.
Aveng Duraset: revenue decreased by 12% to R232 million (2015: R263 million) driven by lower volume demand from the
local mining sector, as well as lower export orders.
Aveng Infraset: revenue decreased by 17% to R388 million (2015: R464 million) due to a reduction in rail
maintenance activity and the subsequent lower sleeper sales in the SADC market. New rail construction
projects continue to be delayed. Construction products enjoyed solid demand locally and are performing as
expected with additional investment in capacity to be added in 2017.
Aveng Rail: revenue decreased by 42% to R256 million (2015: R437 million) mainly due to reduced rail maintenance
activity as well as the substantial completion of the Majuba rail construction project.
Aveng Steel
This operating group consists of Aveng Trident Steel and Aveng Steeledale (of which 70% was sold to Kutana Steel).
Revenue increased by 8% compared to the comparable period. Volumes stabilised and higher selling prices were
achieved, however this was not enough to compensate for the current market structure. Exchange rate volatility
has also had a negative impact on the business earnings. Aveng Steel contributed positively to the Group's
liquidity through improved working capital management. EBITDA improved to a R52 million loss compared to a
R142 million loss for December 2015.
Consolidation of the Aveng Trident Steel facilities is underway and will further improve the cost structure of the
business without impacting on revenue.
Two-year order book
The Group's two-year order book amounted to R27,7 billion at 31 December 2016, decreasing by 1% from the R28,1 billion
reported at 30 June 2016. This includes a 2% decrease in Australian Dollar term in McConnell Dowells' book; translating
into 11% decline in Rand terms, primarily as a result of the strengthening of the Rand against the Australian Dollar.
The Aveng Mining order book increased by R1,1 billion in line with increased activity in the commodities sector.
Aveng Grinaker-LTA's order book increased marginally. Securing quality work at targeted margins remains a priority.
The geographic split of the order book at 31 December 2016 was 53% Australasia and Asia (June 2016: 59%), 41%
South Africa (June 2016: 37%) and 6% other (June 2016: 4%).
New projects awarded in the period include the Provincial Gas Transmission Pipeline Project for PTT in Thailand,
Christchurch Southern Motorway Stage 2 in New Zealand, Dryandra Road and West Franklin Apartments in Australia for
McConnell Dowell, Gamsberg and Khutala in South Africa and the Karowe Mine in Botswana, for Aveng Mining and
Leonardo Towers Phase II for Aveng Grinaker-LTA.
Strategy overview
The first phase of the Group's strategy being the 'Recovery and Stabilisation' phase is largely completed.
During this phase, attention was given to the closure and or turnaround of under-performing businesses,
sustainable reduction in fixed costs throughout the Group and the improvement of the balance sheet, notably
through divestments and improved operational performance. In addition focus was also given to the reduction of
commercial claims and litigation risk together with the completion of a number of large projects.
Lastly, the implementation of the strategic transactions was a key priority.
In the second phase of 'Positioning for Growth', Aveng is focusing on areas which were not fully completed in Phase 1,
mainly the operational performance recovery and balance sheet health of McConnell Dowell, as well as project execution
within Aveng Grinaker-LTA. Aveng needs to further improve the Groups' balance sheet and move the businesses from a
return to profitability, to achieving industry comparable earnings and returns. Going forward Aveng will selectively
start to invest in capacity through modernisation.
The third phase of our current strategy will be to Realise growth and sustain profitability by targeting the
achievement of industry leadership positions in all our businesses by focusing on the following strategic pillars:
delivery, client focus, innovation and sustainability. Aveng aims to expand its footprint into selected regions.
Outlook and prospects
Challenging economic conditions are expected to continue in the short term. There are attractive mining opportunities
being investigated as a result of a more optimistic outlook emerging on commodity prices. We expect the benefits of the
various business optimisation initiatives to continue to contribute to performance in the second half of the financial
year as the business positions itself for profitable growth within the second phase of our strategy.
The claims resolution process on QCLNG is expected to be concluded during the course of the current financial year and
Gold Coast in the 2018 calendar year. In addition, we are involved in other significant commercial close outs and
negotiations which add uncertainty. Winning work at acceptable margins, improving operational performance and the
recovery of claims remain a priority for McConnell Dowell.
The Group will look to grow the Aveng Grinaker-LTA order book with the finalisation of the transformation
transaction, which is aligned to the strategy of Aveng to further develop and transform the South African
construction industry and will ultimately result in value enhancement for shareholders.
The divestment of Aveng Trident Steel remains an objective, however the achievement of acceptable value under current
market conditions is likely to be challenging.
Appointment of new sponsor/change in sponsor
Shareholders are advised that the Company has appointed UBS South Africa Proprietary Limited as sponsor to the
Company, replacing JP Morgan Equities South Africa Proprietary Limited, with effect from 10 February 2017.
Disclaimer
The financial information on which any outlook statements are based has not been reviewed or reported on by the
external auditors. 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
MI Seedat HJ Verster
Chairman Chief Executive Officer
Date of release: 20 February 2017
DIRECTORS
MI Seedat*# (Chairman), EK Diack*#, HJ Verster (Chief Executive Officer), PJ Erasmus*#, SJ Flanagan*#,
MA Hermanus*#, PA Hourquebie*#, MJ Kilbride*#, AH Macartney (Group CFO), JJA Mashaba (Group Executive Director),
TM Mokgosi-Mwantembe*, KW Mzondeki*# (*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
PO Box 6062, Rivonia, Johannesburg Gauteng, 2128, South Africa
AUDITORS
Ernst & Young Inc. Registration number: 2005/002308/21 102 Rivonia Road Sandton, Johannesburg, 2194
Private Bag X14 Northlands, 2116 South Africa Telephone +27 (0) 11 772 3000 Telefax +27 (0) 11 772 4000
PRINCIPAL BANKERS
Absa Bank Limited
Australia and New Zealand Banking Group Limited
Barclays Bank plc
Commonwealth Bank of Australia 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
Norton Rose Fulbright
Webber Wentzel
SPONSOR
UBS South Africa Proprietary Limited
Registration number: 1995/011140/07
64 Wierda Road East Wierda Valley, Sandton 2196
P.O. 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
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Original documenthttp://www.aveng.co.za/news-media/sens/aveng-limited-reviewed-interim-condensed-consolidated-financial-statements-six
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