Aveng Limited · JSE:AEG
Aveng — H1 2005 Earnings Presentation
50 slides from Aveng's earnings presentation, Mar 7, 2005
Slide 1: Interim Results for the six months ended 31 December 2004
Interim Results for the six months ended 31 December 2004 Presented by: Carl Grim – Chief executive Dennis Gammie – Director: Finance
Slide 2: Agenda
Agenda • Introduction • Corporate update • Financial review • Operational review – Construction – Steel & Allied – Cement • Prospects • Conclusion
Slide 3: Who are we?
Who are we? • We were previously Anglovaal Engineering – South African born and bred with 115 years of history – Separately listed on the JSE in 1999 • Our activities are focused around three clusters – Construction and engineering for the mining, energy and heavy infrastructure markets – Steel & Al
Slide 4: Highlights
Highlights • About turn in Construction with operating loss of R18m compared to R186m loss in prior six months • Strong performance in Steel & Allied due to high levels of investment by Trident Steel to service motor industry in past three years • Well timed addition of half million tons of Cement m
Slide 5: Financial performance
Financial performance Dec 2004 Dec 2003 % Change Revenue R6 664m R5 949m +12 Headline Earnings R133m R86m +55 Return on Equity* 10,4% 6,3% ─ Real return on Equity* 6,3% 1,1% ─ Interest Cover 2,9x 1,6x ─ Asset Turnover* 2,9x 2,6x ─ Net Debt R1 502m R1 307m +15 Net Debt : Equity ratio 58% 52% ─ * Annu
Slide 6: Domestic market conditions
Domestic market conditions CONSUMERS PRIVATE SECTOR PUBLIC SECTOR Low Interest Rates Strong Rand High Consumer Demand Tardy infrastructure Direct negative spend by government, impact on foreign currency revenue particularly at Excellent performance from businesses (30% of Aveng provincial and supply
Slide 7: International market conditions
International market conditions • Two roads contracts remain in the rest of Africa – both are profitable • Opencast mining in Africa increasingly difficult • Buoyant Australian market – …but very severe skills shortage • Considerable EPC opportunities – …but the apportionment of risk remains the key
Slide 8: Corporate update
Corporate update
Slide 9: Aveng group rationale
Aveng group rationale Knowledgeable Executive Committee with complementary perspectives on the broader construction industry CRITICAL MASS Aveng Corporate STRATEGIC BALANCE ●Balance Sheet Office ● Borrowing costs ● Balance between growth •Corporate governance ● Bonding capacity potential & stability
Slide 10: Restructure in Grinaker-LTA
Restructure in GrinakerLTA • Smaller business units with improved operational focus – Renewed emphasis on each business’ proactive relationship with its customers – Greater autonomy; improved incentives and rigourous performance review • Impartial Aveng risk assessment resource
Slide 11: Organisational structure
Organisational structure AVENG Carl Grim* GROUP F.D. CO.SEC. RISK Dennis Gammie* Craig Bishop Hylton Macdonald GLTA Exco under Howard Jones’ leadership with Brian Barrow responsible for the shared services function DIVSIONS GLTA MDC ENGINEERING MOOLMANS MANUFACTURING TRIDENT STEEL HOLCIM (SA) Howar
Slide 12: Tender risk review
Tender risk review Business Unit Review NO YES Completion of detailed project review template NO YES Small/simple project YES Divisional Exco NO Submit Tender Review YES Independent Corporate Risk Aveng Tender Risk NO Assessment Review Committee YES Submit Tender
Slide 13: BEE transaction unconditional
BEE transaction unconditional • 25% of South African managed assets sold to consortium – TisoGroup – Woman’s Trust – Community Empowerment Trust – Trust benefiting employees and black business partners • Final suspensive conditions met in early February 2005 Operational Financial Implications Implic
Slide 14: Implications of BEE deal
Implications of BEE deal OPERATIONAL IMPLICATIONS FINANCIAL IMPLICATIONS • Trailblazing BEE transaction in • Nature of transaction and high our industry coupon rate (CPIX + 8%) • Top drawer strategic partners in incentivises all parties to add TisoGroup significant value, failing which – Over 70% of
Slide 15: Financial Review
Financial Review
Slide 16: Financial performance
Financial performance Rm December 2004 December 2003 % Change Revenue 6 664 5 949 +12 Operating 121 127 4 Income Net finance 84 134 37 costs Headline 133 86 +55 earnings
Slide 17: Headline earnings
Headline earnings Headline earnings 133 +55% 86 Dec03 Dec04 Operating income Interest paid 127 169 22% 4% 132 121 Dec03 Dec04 Dec03 Dec04 Incom e from associates and JV's Taxation 11 +38% 123 89 (3) Dec03 Dec04 Dec03 Dec04
Slide 18: Revenue by activity
Revenue by activity Construction 4 331 +11% 3 910 Revenue 6 664 Dec03 Dec04 +12% 5 949 Steel and Allied 2 333 Dec03 Dec04 +14% 2 039 Dec03 Dec04
Slide 19: Revenue by region
Revenue by region Revenue 6,664.0 +12% 5,948.8 Dec03 Dec04 South Africa Africa and Middle East Australasia and South East Asia +23% 4,649.0 894.2 3,784.1 1,270.5 10% 2% 1,140.0 875.0 Dec03 Dec04 Dec03 Dec04 Dec03 Dec04
Slide 20: Operating income
Operating income Revenue • Currency impact 6 664 +12% • Existing projects 5 949 tendered at weaker Rand Operating income Dec03 Dec04 • Impact of share 127 4% price on share 121 options Operating expenses +12% 6,543 Dec03 Dec04 5,822 Dec03 Dec04
Slide 21: Share scheme expense calculation
Share scheme expense calculation ASSUMPTIONS At the beginning of reporting period Share options allocated 10m Employee cost per share R6.00 Share price R7.00 Options provision on scheme R10m At the end of reporting period Share price R12.00 Increase in share price R5.00 Share options in issue 10m To
Slide 22: Segmental margins
Segmental margins Construction 7 • Construction – Rand impact on foreign construction Operating income contracts 127 (18) 4% Dec03 Dec04 – Completion of old 121 contracts Steel and Allied Dec03 Dec04 • Steel and allied 139 +16% – Benefits from 120 recent capital investments Dec03 Dec04
Slide 23: Earnings per share
Earnings per share December December % Cents 2004 2003 change Headline earnings 34,0 22,0 +55 Earnings 34,2 17,5 +96 NAV 648 657 1
Slide 24: Balance sheet – Equity movements
Balance sheet – Equity movements December December June Rm 2004 2003 2004 Opening shareholders’ funds 2 519 2 997 2 823 Dividend paid (55) (124) (124) Equity accounted reserve movements − (7) (15) Foreign currency translation (32) (156) (358) Repurchase of shares by share trust − (168) − Earnings fo
Slide 25: Currency movements
Currency movements December June % Change % Change since 2004 2004 2004 Dec 2001 Closing 5,67 6,28 10 53 US dollar Average 6,18 6,86 10 39 Closing 4,42 4,33 +2 29 AU dollar Average 4,56 4,86 6 12
Slide 26: Impact of currency on gearing
Impact of currency on gearing 31 December 2004 Actual Adjusted Rm Shareholder’s Funds 2 571 2 571 Foreign Currency Translation Reserves since June 2001 − 484 Adjusted Shareholder’s funds 2 571 3 055 Net Debt 1 502 1 502 Debt : Equity Ratio 58% 49% Reduce net Debt by Investment in Stock of R290m 1 21
Slide 27: Borrowings
Borrowings December December June Rm 2004 2003 2003 Interest bearing debt 2 094 1 874 2 049 Cash 592 567 746 Net debt 1 502 1 307 1 303 Floating 65% 60% 64% Fixed 35% 40% 36%
Slide 28: Working capital
Working capital Days Rm 120 500 108 413 104 400 100 300 87 83 223 80 80 200 194 63 100 60 0 41 37 (118) 40 (100) 32 (200) 20 (217) (288) (300) 0 (400) Stock days Debtor days Creditor days December 2004 December 2003 June 2004 Investments June 04 to Dec 04 Investments Dec 03 to June 04
Slide 29: Capital expenditure
Capital expenditure December December 2004 2003 Maintenance 56 83 Expansion 124 164 Total additions 180 247 Depreciation (185) (195) Disposals (34) (52) Net (decrease)/increase (39) NIL
Slide 30: Reconciliation of cash balances
Reconciliation of cash balances Rm Working Opening net Net finance capital Capital and Closing net borrowings Cash ex Ops. costs movement Tax Capex Dividends investments borrowings 0 (200) (400) (600) (1,303.0) (1,502.0) (800) (84.0) (1,000) 310.0 (1,200) (218.0) (25.0) (1,400) (146.0) (55.0) 19.0 (
Slide 31: Accounting for Convertible Bond
Accounting for Convertible Bond* DAY 1 DEBIT CREDIT Bank 1 000 Equity 140 Convertible Bond Debt 860 EVERY SIX MONTHS Interest expense 39 Bank 31 Convertible Bond Debt 8 Deferred tax 2 Income statement tax charge 2 * Number for illustrative purposes only
Slide 32: Impact of convertible bond on headline earnings
Impact of convertible bond on headline earnings Assumed Number of shares Shares in issue 396 145 908 Held by Aveng Trust (6 910 930) Net shares in issue 389 234 978 Shares to be converted 65 487 885 Fully diluted shares in issue 454 722 863 Pre Headline earnings as at June 2004 R220m Bond HEPS as
Slide 33: Operating review
Operating review
Slide 34: Construction
Construction GrinakerLTA Central time Based in (75%) zone Johannesburg McConnell Eastern time Based in (25%) Dowell zone Melbourne
Slide 35: Construction
Construction Market conditions Progress and achievements •Buoyant residential •Restructure in GrinakerLTA •Inactive mining industry –Tighter, smaller & simpler •Tardy government expenditure •Withdrawal from unprofitable African •Active Australian market road work •Arm wrestling with clients on risk
Slide 36: Construction order book
Construction order book (two years only) R 12 (billion) 10 9.8 8.9 8.7 8.7 8.2 8.2 8 7.5 7.2 6.6 6 4 2 0 Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004
Slide 37: Construction order book: % of revenue
Construction order book : % of revenue (two years only) 140% 129% 120% 115% 109% 102% 100% 94% 91% 85% 86% 82% Target zone 80% 60% 40% 20% 0% Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004
Slide 38: ENR international contractors
ENR international contractors Rank Company 2004 2003 1 1 Skanska AB, Sweden 2 2 Hochtief AG, Germany (Concor) 3 3 Vinci, France 4 11 Bechtel, U.S.A. 5 4 Bouygues, France (Basil Read) 45 43 GrinakerLTA, South Africa 78 77 McConnell Dowell, Australia Note: Contractors ranked on the basis of work exec
Slide 39: Berg River Project
Berg River Project AWENG
Slide 40: Toyota Paint Shop
Toyota Paint Shop
Slide 41: Infrastructure investment schedule for World Cup Soccer
Infrastructure investment schedule for World Cup Soccer 2004 2005 Award of 2010 2006 2007 Soccer World Cup Audit of Provinces 2008 2009 and Stadia 2.3 Build and upgrade Stadiums 3.3 Airports n/a Gautrain ** 5.5 Roads and Stadium precincts 1.5 Other: Hotels, Private developments Develop / Ticketing C
Slide 42: Overall infrastructure budget for World Cup Soccer
Overall infrastructure budget for World Cup Soccer 400 15,000 Expected Construction & Related Industries Expenditure (Excluding Gautrain) M illions of ZAR Rm 350 Rm 12,000 300 250 9,000 accumulative monthly 200 6,000 150 100 3,000 50 0 0 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09
Slide 43: Steel & Allied
Steel & Allied Market conditions Progress and achievements •Excellent in motor & precast concrete •Ongoing fine tuning of systems’ •Poor in mining & manufacturing operating efficiencies and overheads •Reasonable in construction •Integration of the Lennings Rail •Significant price increases leading t
Slide 44: Investing in Steel & Allied
Investing in Steel & Allied 4.5 4.1 Construction Steel & Allied 4.0 Capex spend as multiple of depreciation 3.5 3.5 3.0 2.5 2.1 2.0 2.0 2.0 1.8 1.5 1.3 1.0 1.0 0.8 0.8 0.5 2001 2002 2003 2004 H1 2005
Slide 45: Holcim
Holcim Market conditions Progress and achievements •Exceptional, however industry starting •Additional 500 000 tons of cement to turn capacity perfectly timed –17.3% growth in 6mts to June 04 •Acquisition of Slagment –13.9% growth in 6mts to Dec 04 •Minority stake in Nova Cimangola sold •Quariers &
Slide 46: Industry Cumulative Average Monthly Sales (tons)
Industry Cumulative Average Monthly Sales (tons) 52 000 47 000 42 000 37 000 32 000 2001 2002 27 000 2003 2004 2005 22 000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Slide 47: Industry Cementitious Sales
Industry Cementitious Sales 20% 17.3% 15% 13.9% 9.9% 10% 6 mnth % Change YOY 7.1% 6.6% 4.5% 5% 1.9% 0.1% 0% 2.7% 2.6% 5% 2.4% 10% 9.3% 15% H1 1999 H2 1999 H1 2000 H2 2000 H1 2001 H2 2001 H1 2002 H2 2002 H1 2003 H2 2003 H1 2004 H2 2004
Slide 48: Looking forward
Looking forward • Construction spend set to benefit from government infrastructure spend – Preparing by reducing order book and migrating African resources South – Eskom and Transnet upgrades – Gautrain and World Cup projects – Other infrastructure projects e.g. Wild Coast Freeway • Steel & Allied –
Slide 49: Conclusion
Conclusion • GrinakerLTA to benefit from restructure to address increasing Rand strength • McConnell Dowell Corporation making good progress • Recent Steel & Allied investments are paying off • Cement performing well • Convertible Bond gives Aveng financial stability necessary – Ability to secure p
Slide 50: Building Sustainable Communities
Building Sustainable Communities www.aveng.co.za