While most of our business units delivered improved results, a number of problem contracts in Australia and South Africa, combined with the continued challenging construction market in South Africa, negatively impacted our headlines earnings which are down by 58%.
Since 2008 the South African government’s public infrastructure spend has decreased significantly.
Despite ambitious plans announced by government in the 2012 National Budget totalling R844.5 billion, we have not seen this impact on our order book and only expect this to impact results in the next 18-24 months. The markets in South East Asia and Africa show strong growth, and the Group continued to expand its operations in these geographies.
The order book:
We are very pleased with the improvement in the two year order book which rose by 27% driven by strong growth in the McConnell Dowell (“MacDow”) order book on the back of a number of contracts in the oil & gas sector. We also won the largest tunnel alliance contract in New Zealand and were awarded a twin submarine gas pipeline contract in Hong Kong, where Aveng re-established its office. In Saudi Arabia we won a contract for mechanical and piping installation works at the Ma'aden Smelter. Currently 74% of the group’s two year order book comes from outside South Africa compared to 65% in 2010. Our South African construction order book fell by 20% to R6.5 billion year-on-year, but was up by 25% over the last six months from R5.2 billion. The exposure of our order book to the South African public sector is currently only 3.6% having reduced from 10.5% in 2010.
Short to medium term outlook:
We plan to grow the Australasian business organically with a focus on the larger spend markets of oil & gas/mining and rail which indicate positive growth in the next three years.
The combined mining entity -- comprising Moolmans’ Open Cut and Aveng Grinaker-LTA’s Shafts & Underground -- has become a leader in the contract mining business with a turnover of R7bn. The business is active in nine countries with 18 clients who mine seven commodities (platinum, coal, gold, manganese, iron ore, copper and uranium). In addition to the work won by our Open Cut mining business, it is pleasing to note that our Shafts & Underground mining team has won two deep shaft projects: one in Chile of 920m and the other at Wesizwe in South Africa of 930m. These show the increasing brand reputation and recognition of our capabilities. Aveng Mining is one of four companies in the world with a deep shaft sinking capability. This division will continue to benefit from long-term relationships with clients, a diversified commodity and geographical mix and continued focus on operational efficiencies.
Indications are that the global steel industry will remain under pressure with no significant improvement in prices anticipated in 2013. This will continue to present challenges for our Manufacturing and Processing segment which will pursue growth in new markets and offer a wider product range with a specific focus on opportunities in the local and African rail infrastructure and mining sectors. Underlying the strategy will be an on-going focus on driving efficiencies, reducing costs and providing value added products and services to our customers.
Aveng was awarded two renewable energy contracts (75MW solar and 138MW wind) in the second submission round, establishing the group as a strong player in this market. We will bring the projects to financial close by the beginning of 2013.
The Aveng Group plans to utilise the strength of its balance sheet by investing a total of R1.3 billion in concessions related construction projects and other growth initiatives in South Africa, Australia, Mauritius and Mozambique - and in strategic growth areas such as the automotive sector. We plan to establish a plant servicing our Manufacturing and Processing businesses in Mozambique.
Revenue up 19% to R40.9 billion
Headline earnings down 58% to R495 million
Two year order book up 27% on June 2011 to R47 billion
The exposure of our order book to the South African public sector is currently only 3.6%; down from 13.3% in 2009
We maintain a stable capital position with a strong balance sheet. Net cash is R3.9 billion
Dividend of 60c per share
Aveng Moolmans capital restructuring is advanced
Aveng Manufacturing interventions yield positive results
Encouraging progress has been made on previously reported problem contracts in both the Australasian and South African construction
Results show the benefits of a strong portfolio of different businesses - marked improvement in all operating groups but operating loss in Aveng Grinaker-LTA.
Aveng Manufacturing delivered a strong performance despite a generally depressed market, reporting a 21% revenue increase to R3.4 billion and a significant improvement in operating profit due to the impact of the efficiency and cost reduction programs and the full year contribution of DFC. All operating units, with the exception of Infraset, delivered growth in revenue and profit.
Aveng Trident Steel increased revenue by 12% to R5.7 billion, largely due to increasing demand from the automotive industry and an 11% increase in average steel prices.
Assisted by improving operating efficiencies and the non-recurrence of underperforming contracts in South Africa, Aveng Moolmans increased revenue by 28% and reported a higher profit margin of 10.2% (FY2011: 8.9%)
The disappointing performance of Aveng Grinaker-LTA was driven by DSE steel fabrication, restructuring costs, holding costs and losses on a number of smaller projects. Progress was made at Medupi.
McConnell Dowell’s revenue grew by 29% to R17.1 billion, supported by a strong Australian dollar and solid performances by the offshore construction business, where revenue grew 64%, and the electrical businesses, with a revenue increase of 36%.
Aveng was awarded two renewable energy contracts (75MW Solar and 138MW wind) in the second submission round.
Undisclosed provision raised for Competition Commission fast track settlement