Crown Publications - Aveng Group Results

Revenue up 1% to R34-billion on F2009
Operating profit of R2,1-billion
Margin maintained above 6%
Cost savings of an estimated R264-million
Strong group cash generation; 7% growth in cash generated by operations to R3,2-billion
Net cash holdings maintained above R7-billion, at R7,5-billion in F2010
R102-billion order pipeline identified; 2 year order book of R31-billion
Successful and timeous delivery of large infrastructure projects
Overall robust performance despite a difficult environment
Share repurchase programme of R1-billion

Commenting on the results for the twelve months to 30 June 2010 Roger Jardine, CEO of leading infrastructure development group, The Aveng Group, said: "Notwithstanding a tough operating environment, The Aveng Group has outperformed consensus forecasts, with pleasing bottom line performance supported by strong cost savings initiatives. Our competence and leadership in the construction sector is illustrated by our timeous delivery of signature 2010 World Cup infrastructure and other large projects. These include the Trekkopje Desalination Plant in Namibia, the Sentosa Bridge linking Sentosa Island with Singapore, and the Optimum Coal Acid Mine Drainage plant in Middelburg, South Africa."
He added: "With our strong cash holdings, the board has approved a share repurchase programme, while also maintaining the dividend to shareholders. We will continue to pursue initiatives to deploy our cash in a value accretive manner."

Financial Overview

The Aveng Group's revenues increased by 1% to R34-billion this financial year, largely supported by the Group's involvement in 2010 FIFA World Cup and other large scale projects which countered the effects of the ongoing financial downturn.
Reflective of the Group's focus on cost containment, which saw cost benefits of roughly R264-million, operating profit before depreciation and amortisation was R3,2-billion (F2009: R3-billionn). This translated into a margin of 9,3% (F2009: 9%), the second highest margin that the Group has seen in the past five years (F2008: 10,4%).
Due to lower investment income however, The Aveng Group's operating income decreased to R2,6-billion in F2010 (F2009: R3-billion), while an operating profit margin above 6% was maintained.
Strong cash flow generation remained in force for the year, with cash generated by operations increasing 7% to R3,2-billion.

Operations

A large proportion of both revenue and profit is contributed by the construction sector, which was responsible for 70% of Group revenue in F2010 (F2009: 67%). The sector reported operating profit of R1,3-billion, contributing 61% to overall group operating profits. Lower steel prices resulted in a 13% decline in the Manufacturing and Processing segment's revenue to R6,9-billio. However, this was an improvement on the first half's performance as steel prices and demand improved in the second half of the year.

Construction and Engineering

The Group's South African Construction and Engineering business comprises of Grinaker-LTA and Engineering & Projects Company (E+PC). The operating margin rose to 6.2% (F2009: 4,8%), with revenue of R10,8-billion (F2009: R10,6-billion).

F2010 was a successful year for Grinaker-LTA due to the delivery of significant construction projects, including those linked to the World Cup. The strong performance of this division was supported by a turnaround of previously underperforming business units and operational improvements. This produced an impressive operating profit increase of 45%.

The segment's Australasia and Pacific Rim business, McConnell Dowell, was responsible for the larger portion of construction revenue (55%) despite the increased competitive environment in those territories. Losses on two pipeline projects and currency fluctuations were largely the cause of the 25% decline in the operating profit, which saw an operating profit margin of 4,6% in F2010 (F2009: 6,5%). Going forward, McConnell Dowell has a stable order book of R13,4-billion and will focus on integrated procurement and cost management to counter margin pressure.

E+PC delivered a sound performance given the tough operating environment, reporting a 7% decline in revenue to R781-million. The operation has continued its focus on infrastructure development, retention of its engineering skills base and development of water treatment solutions given the heightened awareness of Acid Mine Drainage (AMD

Commenting on the specialist capabilities of Keyplan, Jardine says: "We have prioritised the development of water treatment solutions and will continue to invest in our proprietary technology in response to the threats of diminishing water resources and acid mine drainage. We see water as life and are positioned to partner and support government to overcome this complex legacy issue towards the resolution of the problem."

Manufacturing and Processing

The segment's businesses include Aveng Manufacturing (Steeledale, Infraset, Lennings Rail Services and Duraset) and Trident Steel. Aveng Manufacturing and Processing experienced a tough operational year in F2010, although there was a clear improvement in the second half, with Infraset producing strong results and contributing 30% of segment revenue (F2009: 25%). Given the lower demand and lower pricing on steel products, revenue was down 13% for the year to R6,9-billion. A focus on cost containment saw the operating margin recorded at 6,6%, albeit lower than F2009's 8,2%.

Opencast Mining

Moolmans' revenue growth of 8% (to R3,3-billion) was led by higher volumes at its mining operations as the stronger rand constrained foreign denominated earnings by an estimated R51-million. Ongoing cost saving initiatives and the significant investment in capex in 2009 saw the operating profit margin reported at a higher 11,2% for the year, from a previous 10,4%. The segment will look to continued growth, ensuring that projects pursued will maximise returns. Moolmans' two year order book is at a robust R7-billion.

Outlook

While industry conditions are anticipated to remain relatively difficult, the Group has identified a stable and healthy project opportunity pipeline of R102-billion and a two year order book of R31-billion.

Roger Jardine concludes: "With a stable order book, healthy pipeline and multi-disciplinary capabilities, we are well positioned to compete successfully in a difficult market in the year ahead."