Interim Results. for the six months ended 31 December Presented by: Carl Grim Chief executive Dennis Gammie Director: Finance

Transcription

1 Interim Results for the six months ended 31 December 2004 Presented by: Carl Grim Chief executive Dennis Gammie Director: Finance

2 Agenda Introduction Corporate update Financial review Operational review Construction Steel & Allied Cement Prospects Conclusion

3 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 & Allied manufactures products for motor, manufacturing, mining and construction sectors Cement focuses on cement production, quarrying and ready mixed concrete We are currently working in 32 countries and providing more than direct jobs

4 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 manufacturing capacity now fully utilised All suspensive conditions met in BEE transaction with TisoGroup and other broad based empowerment partners Provisional placing of a seven year R1bn convertible bond with coupon of 6.125%

5 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% * Annualised

6 Domestic market conditions CONSUMERS PRIVATE SECTOR PUBLIC SECTOR Low Interest Rates Strong Rand High Consumer Demand Excellent performance from businesses supplying consumers Direct negative impact on foreign currency revenue (30% of Aveng revenue) Tardy infrastructure spend by government, particularly at provincial and municipal level Cement Motor Vehicles Precast products to housing market Indirect impact on Aveng clients earning Dollars e.g. Mining industry

7 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 issue

8 Corporate update

9 Aveng group rationale Knowledgeable Executive Committee with complementary perspectives on the broader construction industry CRITICAL MASS Balance Sheet Borrowing costs Bonding capacity Market capitalisation Broad range of local & international investors Alternative financial instruments Aveng Corporate Office Corporate governance Impartial Risk assessment Strategic Leadership Operational Review Investor Communication Cash Management STRATEGIC BALANCE Balance between growth potential & stability Balanced currency exposure Balanced risk/return project profiles CAPACITY TO DELIVER LARGE & COMPLEX PROJECTS AT LOWER RISK

10 Restructure in Grinaker LTA 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

11 Organisational structure AVENG Carl Grim* GROUP GLTA Exco under Howard Jones leadership with Brian Barrow responsible for the shared services function F.D. Dennis Gammie* CO.SEC. Craig Bishop RISK Hylton Macdonald BUSINESS UNITS DIVSIONS G LTA Howard Jones* Building Civil Roads & Earthworks M & E Construction Africa/ Middle East RPP MDC David Robinson* Civil & Marine ME & I Electrix Pipelines Tunneling ENGINEERING Nick Bell* Design Operations MegChem MOOLMANS Brian Wilmot West Africa East Africa Southern Africa Marikana MANUFACTURING Doug Keet* Chair HDKJ Steeledale Infraset Duraset Lennings Rail TRIDENT STEEL Ben Fourie* Service Centres Trident Sterling Tube Trident Specialty Steels HOLCIM (SA) Karl Meissner Roloff Cement SA Quarries & Concrete Slagment Tanga Cement Concessions Dudco Underground Mining *Members of Aveng Executive Committee CLUSTERS ENGINEERING & CONSTRUCTION MINING STEEL & ALLIED CEMENT Effective 01 March 2005

12 Tender risk review Business Unit Review NO YES Completion of detailed project review template NO YES Small/simple project Submit Tender YES Divisional Exco Review NO Independent Corporate Risk Assessment YES Aveng Tender Risk Review Committee NO YES Submit Tender

13 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 Implications Financial Implications

14 Implications of BEE deal OPERATIONAL IMPLICATIONS Trailblazing BEE transaction in our industry Top drawer strategic partners in TisoGroup Over 70% of the benefits of the transaction accrue to broadlybased beneficiaries Creates the BEE platform to reposition Aveng group companies to contribute meaningfully and sustainably to the socio economic transformation of South Africa FINANCIAL IMPLICATIONS Nature of transaction and high coupon rate (CPIX + 8%) incentivises all parties to add significant value, failing which status quo reverts No cash flow implications during 7 to 9 year term of transaction Top level BEE transaction more efficient and cost effective than ad hoc project by project transactions

15 Financial Review

16 Financial performance Rm December 2004 December 2003 % Change Revenue Operating Income Net finance costs Headline earnings

17 Headline earnings 86 Headline earnings % Dec 03 Dec 04 Operating income Interest paid 127 4% % 132 Dec 03 Dec 04 Dec 03 Dec 04 Incom e from associates and JV's % Taxation 11 Dec 03 Dec 04 (3) Dec 03 Dec 04

18 Revenue by activity Construction +11% Revenue +12% Dec 03 Dec Dec 03 Dec Steel and Allied +14% Dec 03 Dec 04

19 Revenue by region Revenue 5, % 6,664.0 Dec 03 Dec 04 South Africa Africa and Middle East Australasia and South East Asia 3, % 4, , % 1, % Dec 03 Dec 04 Dec 03 Dec 04 Dec 03 Dec 04

20 Operating income Revenue Currency impact 127 Operating income 4% % Dec 03 Dec 04 Operating expenses Existing projects tendered at weaker Rand Impact of share price on share options Dec 03 Dec 04 5, % 6,543 Dec 03 Dec 04

21 Share scheme expense calculation ASSUMPTIONS At the beginning of reporting period Share options allocated Employee cost per share Share price Options provision on scheme 10m R6.00 R7.00 R10m At the end of reporting period Share price Increase in share price Share options in issue Total liability Provided Expensed R12.00 R m R50m (R10m) R40m

22 Segmental margins Operating income 127 4% 121 Dec 03 Dec 04 Construction 7 (18) Dec 03 Dec 04 Steel and Allied % 120 Dec 03 Dec 04 Construction Rand impact on foreign construction contracts Completion of old contracts Steel and allied Benefits from recent capital investments

23 Earnings per share Cents December 2004 December 2003 % change Headline earnings 34,0 22,0 +55 Earnings 34,2 17,5 +96 NAV

24 Balance sheet Equity movements Rm December 2004 December 2003 June 2004 Opening shareholders funds 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 for period ,0 193 Closing shareholders funds

25 Currency movements December 2004 June 2004 % Change 2004 % Change since Dec 2001 Closing 5,67 6, US dollar Average 6,18 6, Closing 4,42 4, AU dollar Average 4,56 4,

26 Impact of currency on gearing 31 December 2004 Rm Shareholder s Funds Actual Adjusted Foreign Currency Translation Reserves since June Adjusted Shareholder s funds Net Debt Debt : Equity Ratio 58% 49% Reduce net Debt by Investment in Stock of R290m Adjusted Debt : Equity Ratio 47% 40%

27 Borrowings Rm December 2004 December 2003 June 2003 Interest bearing debt Cash Net debt Floating 65% 60% 64% Fixed 35% 40% 36%

28 Working capital Days Rm (118) (100) (200) 20 (288) (217) (300) 0 Stock days Debtor days Creditor days December 2004 December 2003 June 2004 Investments June 04 to Dec 04 Investments Dec 03 to June 04 (400)

29 Capital expenditure December 2004 December 2003 Maintenance Expansion Total additions Depreciation Disposals Net (decrease)/increase (185) (34) (39) (195) (52) NIL

30 Reconciliation of cash balances Rm 0 Opening net borrowings Cash ex Ops. Net finance costs Working capital movement Tax Capex Dividends Capital and investments Closing net borrowings (200) (400) (600) (1,303.0) (800) (1,502.0) (1,000) (84.0) (1,200) (218.0) (25.0) (1,400) (146.0) (55.0) 19.0 (1,600) (1,800)

31 Accounting for Convertible Bond* DAY 1 Bank Equity Convertible Bond Debt DEBIT CREDIT EVERY SIX MONTHS Interest expense Bank Convertible Bond Debt Deferred tax Income statement tax charge 2 2 * Number for illustrative purposes only

32 Impact of convertible bond on headline earnings Assumed Shares in issue Held by Aveng Trust Net shares in issue Shares to be converted Fully diluted shares in issue Number of shares ( ) Pre Headline earnings as at June 2004 R220m Bond HEPS as at June ,50c Post Bond Headline earnings as at June 2004 Interest saving (approximate) Adjusted headline earnings Adjusted HEPS Potential dilution R220m R30m R250m 54,98c 2,7%

33 Operating review

34 Construction Grinaker LTA Central time zone Based in Johannesburg (75%) McConnell Dowell Eastern time zone Based in Melbourne (25%)

35 Construction Market conditions Buoyant residential Inactive mining industry Tardy government expenditure Active Australian market Arm wrestling with clients on risk Strategy More rigourous in client selection Real value add Long term relationships Working with government and SME s Building sustainable communities Supporting SA s NEPAD initiatives Progress and achievements Restructure in Grinaker LTA Tighter, smaller & simpler Withdrawal from unprofitable African road work Significant progress on claims settlement Additional risk review capacity Prospects & outlook 2010 World Cup Gautrain Eskom capacity Transnet projects General infrastructure in Australasia

36 Construction order book (two years only) R (billion) Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004

37 Construction order book : % of revenue (two years only) 140% 129% 120% 109% 115% 102% 100% 80% 94% 82% 91% 85% 86% Target zone 60% 40% 20% 0% Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004

38 ENR international contractors 2004 Rank 2003 Company 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) Grinaker LTA, South Africa McConnell Dowell, Australia Note: Contractors ranked on the basis of work executed outside of home countries.

39 Berg River Project

40 Toyota Paint Shop

41 Infrastructure investment schedule for World Cup Soccer Award of 2010 Soccer World Cup Audit of Provinces and Stadia Build and upgrade Stadiums 3.3 Airports n/a Gautrain ** 5.5 Roads and Stadium precincts 1.5 Other: Hotels, Private developments Develop / Ticketing Construct Sales SAFA estimated completion all Infrastructure FIFA Final Inspection CAF Cup Soccer Tournament Construction & related industries annual participation values (R bn) ** Gautrain values not available adjudication process Feb to Apr 05.

42 Overall infrastructure budget for World Cup Soccer R m 300 Expected Construction & Related Industries Expenditure (Excluding Gautrain) Millions of ZAR 15,000 R m 12, monthly 9,000 accumulative 6, , Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09

43 Steel & Allied Market conditions Excellent in motor & precast concrete Poor in mining & manufacturing Reasonable in construction Significant price increases leading to some stock profits Strategy Continue to invest in plant and equipment necessary to further beneficiate steel products for our customers Support construction s drive to work with government & SME s to build sustainable communities Progress and achievements Ongoing fine tuning of systems operating efficiencies and overheads Integration of the Lennings Rail business into manufacturing Additional gas and laser flat bed cutting capacity Prospects & outlook Motor & precast (consumer driven) good in short term Construction excellent in medium term Mining good in longer term Manufacturing uncertain

44 Investing in Steel & Allied Construction Steel & Allied 4.0 Capex spend as multiple of depreciation H1 2005

45 Holcim Market conditions Exceptional, however industry starting to turn 17.3% growth in 6mts to June % growth in 6mts to Dec 04 Quariers & RMC excellent Tanzania good Strategy Keep a cool head on capacity expansion Minor de bottlenecking of capacity & fine tuning projects R150m capex on DK2 to reduce emissions to world class levels Progress and achievements Additional tons of cement capacity perfectly timed Acquisition of Slagment Minority stake in Nova Cimangola sold Prospects & outlook Excellent but tonnage throughput for 2005 unlikely to be at 2004 levels If this view proves incorrect, imports of cement become likely

46 Industry Cumulative Average Monthly Sales (tons) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

47 Industry Cementitious Sales 20% 17.3% 15% 13.9% 6 mnth % Change Y O Y 10% 5% 0% 5% 2.7% 2.4% 1.9% 7.1% 2.6% 0.1% 9.9% 4.5% 6.6% 10% 9.3% 15% H H H H H H H H H H H H2 2004

48 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 additional steel beneficiation projects Modernising DK2 and reviewing rationale to increase cement capacity Upgrade corporate capacity to review project risk More careful selection of clients Real value add Long term relationships Strong focus on working with all interested parties to build sustainable communities in SA and further a field in support of SA government initiatives

49 Conclusion Grinaker LTA 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 programme funding to execute large infrastructure projects Conditions for the second half remain uncertain Walter Bau AG liquidation Marikana litigation

50 Building Sustainable Communities