Aveng : Trading statement for the six months ended 31 December 2016

AVENG LIMITED

(Incorporated in the Republic of South Africa)

(Registration number: 1944/018119/06)

ISIN: ZAE000111829

SHARE CODE: AEG

('Aveng', 'the Company' or 'the Group')

TRADING STATEMENT AND TRANSACTION UPDATE

Trading statement for the six months ended 31 December 2016

In terms of paragraph 3.4 (b) of the JSE Limited Listings Requirements, a listed company is required to publish a trading statement as soon as a reasonable degree of certainty exists that the financial results for the upcoming reporting period will differ by more than 20% from those of the previous corresponding period.

Aveng shareholders are therefore advised that the unaudited financial results for the six months ended 31 December 2016 will include two 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 (the 'Settlement') 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 in 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.

Excluding the financial impact of the abovementioned matters, the Group expects to report adjusted headline earnings of between R1 million and R20 million. This compares to a reported headline loss of R231 million in the period ended 31 December 2015.

Including the impact of the two non-recurring items highlighted above:

• The Group anticipates reporting a headline loss of between R290 million and R310 million and between 25% and 34% worse than the headline loss of R231 million for the period ended 31 December 2015.
• HEPS is expected to reduce by between 26% and 34% and be between (73.0) and (78.0) cents per share compared to (58.0) cents per share for 31 December 2015.
• Earnings for the period is expected to decrease by between 226% and 235% and be between (R290) million and (R310) million compared to earnings of R230 million for 31 December 2015. The prior period included the once off gain on the sale of the majority of the Group's property portfolio.
• EPS is expected to reduce by between 226% and 235% and be between (73.0) and (78.0) cents per share compared to 57.8 cents earnings per share for 31 December 2015.

The improvement in adjusted headline earnings being between R1 million and R20 million compared to an headline loss of R231 million (31 December 2015), being defined as excluding the non-recurring items described above reflects the Group's underlying performance and is as a result of:

• continued improved financial performance from Aveng Grinaker-LTA which returned to profitability in the first half of the year;
• realisation of savings in overhead expenses implemented throughout the Group which resulted in a 25% reduction compared to December 2015;
• an improved financial performance from Aveng Steel, although still loss-making;

though partially offset by:

• separation costs relating to the settlement of Wesizwe's Bakubung contract in Aveng Mining; and
• under performance from McConnell Dowell which is receiving intensive attention.

Net debt is expected to be R937 million (R534 million: 30 June 2016), mainly as a result of the weaker performance and slower than anticipated settlement of contract claim receivables in McConnell Dowell. Positively, the net position has substantially improved post-31 December 2016 with the receipt of the remaining proceeds from the sale of Aveng Capital Partners' infrastructure investments and the settlement of previously-delayed receivables.

Despite difficult trading conditions, the Group has maintained its order book at 30 June 2016 levels, with encouraging and strong growth in Aveng Mining offsetting the impact of the Rand's appreciation on the McConnell Dowell order book, which reflected a marginal decline of 2% in Australian Dollar terms.

The forecast financial information contained in this trading statement has not been reviewed and reported on by Aveng's auditors.

Transaction Update

Aveng Grinaker-LTA empowerment transaction

During the first half of the financial year, the Group concluded a binding agreement with Kutana Construction (Pty) Ltd ('Kutana Construction') in which a 51% beneficial interest was sold to Kutana Construction. Subsequent to the initial transaction announcement, Aveng Africa Proprietary Limited's interest in the Aveng Water business has been included in the 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 remaining funds from these disposals were received on 13 February 2017.

Aveng Steeledale disposal

As previously announced the Group concluded a binding agreement with Kutana Steel (Pty) Ltd ('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. While the effective date is 1 January 2017, Steeledale Proprietary Limited has received approval for a funding facility, which is in the process of being concluded, and which will allow the payment to Aveng of at least the minimum upfront cash amount, and implementation of the transaction on 10 February 2017. 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 remains in discussions with parties on this transaction, and has not yet reached a stage where an announcement can be made on the naming of prospective buyers, transaction value and structure. The market will be kept informed once there are material developments to report.

QCLNG claims settlement 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.

Appointment of new sponsor / change in sponsor

Shareholders are advised that the Group has appointed UBS South Africa Proprietary Limited as sponsor, replacing JP Morgan Equities South Africa (Pty) Ltd, with effect from 10 February 2017.

Reporting

The Group's reviewed interim results for the six months to 31 December 2016 will be released on the Stock Exchange News Service on 20 February 2017. The Group will be updating the market on its business in a presentation in Johannesburg on 21 February 2017. The presentation will be webcast and will be available for all stakeholders on the Group's website, www.aveng.co.za/ir.

Renewal of Cautionary Announcement

As noted above, Aveng remains in discussions in relation to the sale of the Aveng Trident Steel business unit, and shareholders are advised to continue to exercise caution when dealing in Aveng Limited securities until a further announcement is published.

Forward-looking statements

This announcement includes forward-looking statements that reflect the current views and expectations of the Board with respect to future events and financial and operational performance. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements, including, without limitation, those concerning the Group's strategy; the economic outlook for the industry; and the Group's liquidity and capital resources and expenditure.

These forward-looking statements speak only as of the date of this announcement and are not based on historical facts, but rather reflect the Group's current expectations concerning future results and events. The Group undertakes no obligation to update publicly or release any revisions to these forward looking statements to reflect events or circumstances after the date of this announcement.

JSE Sponsor

UBS South Africa Proprietary Limited

By Order of the Board

13 February 2017

Jet Park

Michael Canterbury

Group Executive: Strategy & Investor Relations

Tel: 011 779 2979

Email: michael.canterbury@avenggroup.com