Aveng Limited CIRCULAR TO AVENG SHAREHOLDERS

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION The definitions commencing on page 4 of this Circular apply mutatis mutandis throughout this document including this cover page. Aveng Shareholders are referred to page 2 of this Circular, which sets out the action required of them with regard to the matters set out in this Circular. If you are in any doubt as to the action that you should take, please consult your broker, CSDP, banker, legal adviser, accountant or other professional adviser immediately. If you have disposed of all of your Aveng Shares, this Circular should be forwarded to the purchaser to whom, or the Broker, CSDP or agent through whom you disposed of your Aveng Shares. This Circular does not constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of, issue or purchase any security in any jurisdiction. Aveng Limited (Incorporated in the Republic of South Africa) (Registration number 1944/018119/06) Share code: AEG ISIN: ZAE ( Aveng or the Company ) CIRCULAR TO AVENG SHAREHOLDERS relating to: the granting and approval of a specific authority to the Directors to allot and issue up to a maximum of Aveng Shares for the purpose of conversion of the Convertible Bonds; and including: a notice convening a General Meeting of Aveng Shareholders; a form of proxy (for use by Certificated Shareholders and Dematerialised own name Aveng Shareholders only) (blue); a voting instruction form (for use by Dematerialised Shareholders other than Dematerialised own name Aveng Shareholders) (blue) Sponsor Independent Reporting Accountants and Auditors J.P. Morgan Equities South Africa (Pty) Ltd Ernst & Young Inc. Legal Adviser Independent professional expert Webber Wentzel PricewaterhouseCoopers Corporate Finance (Pty) Ltd Date of issue: 18 August 2014 This Circular is available in English only. Copies of this Circular may be obtained from the registered office of Aveng, the Sponsor and the Transfer Secretaries whose addresses are set out in the Corporate information and advisers section of this Circular, as well as in electronic form from the Company s website (

2 CORPORATE INFORMATION AND ADVISERS BUSINESS ADDRESS AND REGISTERED OFFICE 204 Rivonia Road Morningside, Sandton, 2057 PO Box 6062 Rivonia, 2128 South Africa Telephone: Telefax: COMPANY REGISTRATION NUMBER 1944/018119/06 COMPANY SECRETARY Michelle Nana SHARE CODES JSE: AEG ISIN: ZAE WEBSITE DIRECTORS AWB Band Independent Non-Executive Chairman EK Diack Independent Non-Executive PJ Erasmus Independent Non-Executive MA Hermanus Independent Non-Executive RL Hogben Independent Non-Executive MJ Kilbride Independent Non-Executive JJA Mashaba Executive TM Mokgosi-Mwantembe Independent Non-Executive KW Mzondeki Independent Non-Executive DG Robinson Executive MI Seedat Independent Non-Executive HJ Verster Executive PK Ward Independent Non-Executive REGISTRARS Computershare Investor Services (Pty) Ltd Registration number: 2004/003647/07 70 Marshall Street, Johannesburg, 2001 PO Box Marshalltown, 2107 South Africa Telephone: Telefax: AUDITORS Ernst & Young Inc. Registration number: 2005/002308/ Rivonia Road, Sandton, Johannesburg, 2128 Private Bag X14 Northlands, 2116 South Africa Telephone: Telefax: Telefax: INDEPENDENT PROFESSIONAL EXPERT PricewaterhouseCoopers Corporate Finance (Pty) Ltd Registration number: 1970/003711/07 2 Eglin Road, Sunninghill 2157 Private Bag X36, Sunninghill, 2157 Telephone: Fax: LEGAL ADVISER Webber Wentzel 10 Fricker Road, Illovo Boulevard, Illovo, Sandton, 2146 PO Box Marshalltown, Johannesburg, 2107 PLACE OF INCORPORATION: South Africa DATE OF INCORPORATION: 22 November 1944 SPONSOR J.P. Morgan Equities South Africa (Pty) Ltd Registration number: 1995/011815/07 1 Fricker Road, cnr Hurlingham Road lllovo, 2196 South Africa Telephone: Telefax:

3 TABLE OF CONTENTS Page Corporate information and advisers IFC Action required by Aveng Limited shareholders 2 Salient dates and times Definitions and interpretations 4 Circular to Aveng Shareholders 1. Introduction 6 2. Use of proceeds and rationale for the issue of the Convertible Bonds 6 3. Rationale for the specific issue of shares upon conversion of the Convertible Bonds 6 4. Salient terms of the Convertible Bonds 7 5. Related party 7 6. Independent Expert s report 8 7. Share capital 8 8. Pro forma financial information 8 9. Expenses Overview of the business Prospects Information relating to the directors Litigation statement relating to Aveng Share trading history Issues of securities in the previous three years Corporate governance Responsibility statement Consents Documents available for inspection 16 ANNEXURE 1: PRO FORMA FINANCIAL INFORMATION OF AVENG 17 ANNEXURE 2: INDEPENDENT REPORTING ACCOUNTANTS REPORT ON THE PRO FORMA FINANCIAL INFORMATION OF AVENG 22 ANNEXURE 3: INDEPENDENT EXPERT S OPINION ON THE ISSUE OF CONVERTIBLE BONDS 24 ANNEXURE 4: DIRECTORS INFORMATION 26 ANNEXURE 5: SHARE TRADING INFORMATION 30 ANNEXURE 6: CORPORATE GOVERNANCE 32 NOTICE OF A GENERAL MEETING OF AVENG SHAREHOLDERS 37 FORM OF PROXY FOR A GENERAL MEETING 39 1

4 ACTION REQUIRED BY AVENG LIMITED SHAREHOLDERS This Circular is important and requires your immediate attention The definitions commencing on page 6 of this Circular apply mutatis mutandis to this section. Please take careful note of the following provisions regarding the action required by Aveng Shareholders: If you are in any doubt as to what action to take, consult your CSDP, broker or other professional adviser immediately. If you have disposed of all of your Aveng Shares, this Circular should be handed to the purchaser of such Aveng Shares or the CSDP, broker or other agent who disposed of your Aveng Shares on your behalf. Shareholders Meeting Qualifying Aveng Shareholders are invited to attend a General Meeting regarding the specific authority to issue Aveng Shares. The General Meeting, convened in terms of the notice of General Meeting, will be held at the Company s registered office, 204 Rivonia Road, Morningside on Friday, 19 September 2014 at 10:00 (South African time). You should carefully read through this Circular and decide how you wish to vote on the resolutions to be proposed at the General Meeting. Own Name Dematerialised Shareholders and Certificated Shareholders If you are a Qualifying Certificated Shareholder or a Qualifying own-name Dematerialised Shareholder and are unable to attend the General Meeting and wish to be represented thereat, you are required to return the attached form of proxy (blue), duly completed in accordance with the instructions contained therein, to the Transfer Secretaries, Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), which forms, in order to be valid, must be received by the Transfer Secretaries by no later than 10:00 on Wednesday, 17 September Dematerialised Shareholders You must not complete the attached form of proxy (blue). If your CSDP or broker does not contact you, you are advised to contact your CSDP or broker and provide them with your voting instructions. If your CSDP or broker does not obtain instructions from you, they will then be obliged to act in terms of your mandate furnished. Dematerialised Shareholders, wishing to attend the General Meeting are required to request their broker or CSDP to provide them with the necessary letter of representation to attend the General Meeting. Should Dematerialised Shareholders, other than own-name Dematerialised Shareholders wish to vote at the General Meeting by proxy, they are required to provide their broker or CSDP with their voting instructions in terms of the custody agreement entered into between them and their broker or CSDP. These instructions must be provided to the CSDP or broker by the cut-off time and date advised by the CSDP or broker for instructions of this nature. 2

5 SALIENT DATES AND TIMES 2014 Circular and Notice of General Meeting posted to shareholders Last date to trade in order to be eligible to vote at the General Meeting Record date in order to vote at the General Meeting Form of proxy to be lodged by no later than 10:00 General Meeting to be held at 10:00 Results of the General Meeting to be released on SENS Monday, 18 August Friday, 5 September Friday, 12 September Wednesday, 17 September Friday, 19 September Friday, 19 September Notes 1. The above dates and times are subject to amendment. Any such amendment will be released on SENS and published in the press. 2. All times indicated above are given in South African time. 3. To be valid, the completed form of proxy must be lodged with the Transfer Secretaries of the Company, Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), South Africa, to reach the Transfer Secretaries on or before 10:00 on Wednesday, 17 September 2014, being at least 48 hours (excluding Saturdays and Sundays and public holidays in South Africa) before the time appointed for the holding of the General Meeting. 3

6 DEFINITIONS AND INTERPRETATIONS In this Circular and the annexures hereto, unless otherwise stated or the context clearly indicates a contrary intention, the following words and expressions shall bear the meaning assigned to them hereunder. Words in the singular shall include the plural and vice versa, words signifying any one gender shall include the other genders and references to natural persons shall include juristic persons and associations of persons: Allan Gray Aveng or the Company Aveng Group or the Group Aveng Shares Aveng Shareholders Board Certificated Shareholders Certificated Shares this Circular Companies Act Convertible Bonds Convertible Bond Holder/s Convertible Bond Offering CSDP Dematerialise or Dematerialised or Dematerialisation Dematerialised Shareholders Dematerialised Shares Allan Gray Limited (registration number 2005/002576/07) and its associates as defined in the Listings Requirements; Aveng Limited, with registration number 1944/018119/06, a limited liability public company duly incorporated in accordance with the laws of South Africa and listed on the main board of the JSE under equities code AEG, ISIN: ZAE ; Aveng and its Subsidiaries; ordinary shares in the share capital of Aveng with a par value of R0,05 each; holders of Aveng Shares; Board of Directors of Aveng; holders of Certificated Shares; Aveng Shares that have not been Dematerialised in terms of Strate, title to which is represented by Documents of Title; this bound document, dated 18 August 2014, including the annexures thereto, the Notice of General Meeting and the form of Proxy (blue); Companies Act, No. 71 of 2008, as amended, including the Companies Regulations; the ZAR2 billion convertible bonds issued by Aveng being Convertible Bonds, each with a face value of ZAR bearing a coupon of 7,25%; holder/s of Convertible Bonds including Alan Gray and various local and international investors, which may change from time to time as the bonds trade on the JSE; offering of Convertible Bonds with qualifying international and local institutional investors, as announced by the Company on 16 July 2014; Central Securities Depository Participant defined as a participant in section 1 of the Financial Markets Act and appointed by individual Aveng Shareholders for purposes of, and in regard to, Dematerialisation of Documents of Title for the purpose of incorporation into Strate; the process by which securities held in certificated form are converted to or held in electronic form as uncertificated securities and recorded in a sub-register of securities holders by a CSDP; holders of Dematerialised Shares; Aveng Shares which have been Dematerialised in terms of the requirements of Strate and the ownership of which is no longer evidenced by physical Documents of Title but by electronic records; Directors Directors of Aveng as set out in annexure 4; Documents of Title Financial Markets Act General Meeting Independent Expert share certificates, certified transfer deeds, balanced receipts, or any other documents of title as the case may be; Financial Markets Act, No. 19 of 2012, as amended; General Meeting of Aveng Shareholders to be held at 10:00, (South African time) on Friday, 19 September 2014, at the offices of the Company, 204 Rivonia Road, Sandton; PricewaterhouseCoopers Corporate Finance Proprietary Limited (registration number 1970/003711/07); 4

7 JSE Last Practicable Date Listings Requirements Notice of General Meeting Qualifying Aveng Shareholders or Qualifying Certificated Holder or Qualifying own-name Dematerialised Shareholder Rand or R or ZAR SENS South Africa Strate Subsidiary Terms and Conditions Transfer Secretaries JSE Limited (registration number 2005/022939/06), a public company incorporated in South Africa and licensed as an exchange under the Financial Markets Act; 11 August 2014, the last practicable date prior to the finalisation of this Circular; the Listings Requirements of the JSE, as amended from time to time by the JSE; Notice of General Meeting enclosed with this Circular; Aveng Shareholders that are not, and whose associates are not, Convertible Bond Holders from the period commencing on the last day to trade date as set out in the section titled Salient Dates and Times 2014, up to and including the date of the General Meeting; South African Rand, the official currency of South Africa; Stock Exchange News Service of the JSE; Republic of South Africa; the settlement and clearing system used by the JSE, managed by Strate Limited (registration number 1998/022242/06), a limited liability public company duly incorporated in South Africa; subsidiary as defined in the companies act; the terms and conditions on which the Convertible Bonds were issued; Computershare Investor Services Proprietary Limited (registration number 2004/003647/07), a private company incorporated in accordance with the laws of South Africa, being the transfer secretaries of Aveng. 5

8 Aveng Limited (Incorporated in the Republic of South Africa) (Registration number 1944/018119/06) Share code: AEG ISIN: ZAE ( Aveng or the Company ) CIRCULAR TO AVENG SHAREHOLDERS 1. INTRODUCTION Aveng Shareholders are referred to the announcement on SENS, dated 16 July 2014, in which Aveng announced the successful placement of the Convertible Bonds. Details of all issues of Aveng Shares as contemplated in this Circular will be announced through SENS in compliance with the Listings Requirements. Salient details of the Convertible Bonds are provided in paragraph 4 below. The purpose of this Circular is to furnish information to Qualifying Aveng Shareholders to enable them to make an informed decision as to whether or not they should vote in favour of the resolution to be proposed at the General Meeting, arising from the issue of the Convertible Bonds. The resolution is set out in the Notice of General Meeting and the rationale for the resolution is explained in paragraph 3 below. 2. USE OF PROCEEDS AND RATIONALE FOR THE ISSUE OF THE CONVERTIBLE BONDS Aveng intends to use the net proceeds from the offering to repay certain existing debt facilities, extend its debt maturity profile and for general corporate expenditure. The offering forms part of the Company s strategy to manage its liquidity needs, diversify its funding sources and reduce its reliance on bank debt, and to position itself to take advantage of growth opportunities. Following a review of its financial position, Aveng decided to (a) diversify its sources of liquidity; (b) lengthen the maturity profile of its debt sources; (c) repay some of its existing credit facilities; and (d) create a buffer for unforeseen shocks which will not be subject to bank-style covenants. Aveng has selected the Convertible Bond as an appropriate instrument to accomplish this. 3. RATIONALE FOR THE SPECIFIC ISSUE OF SHARES UPON CONVERSION OF THE CONVERTIBLE BONDS The Convertible Bonds are currently cash-settled instruments. If Qualifying Aveng Shareholders do not approve the issuance of Aveng Shares upon conversion of the Convertible Bonds, then the Convertible Bonds will remain subject to cash settlement. Cash settlement of the Convertible Bonds will require significant cash reserves, which could constrain the Group s ability to invest in existing and new projects, fund ongoing business activities, retire or service outstanding debt and pay dividends, all of which could adversely affect its results of operations and financial condition. Furthermore, while the Convertible Bonds remain cash-settled, they must be accounted for under IAS 39 and will be fully recorded as a liability. Any movements in the value of the equity option must be accounted for on a mark-to-market basis through the statement of comprehensive income for each reporting period. An increase in the value of the equity option would negatively impact on earnings per share, while a decrease in the value of the equity option would positively impact on earnings per share. This accounting treatment introduces volatility in earnings which does not represent the underlying operational performance of the Company. Subject to the approval of the ordinary resolution number 1 as set out in the Notice of General Meeting ( Specific Authority ), the Convertible Bonds will be convertible into Aveng Shares and must be accounted for as a compound financial instrument under IAS 32 on an amortised cost basis with no requirement to account for the equity option on a mark-to-market basis. Accordingly, there will be no volatility in earnings relating to the Convertible Bonds once the Specific Authority has been obtained. Subject to obtaining the Specific Authority, the Convertible Bonds will be convertible into Aveng Shares at an initial conversion price of R28,76, representing a 30% premium to the reference share price of R22,12 as set out in section 4 below. At the initial conversion price, the number of Aveng Shares to be issued upon the conversion of R2 billion in nominal amount of Convertible Bonds will be Aveng Shares, representing 16,69% of the number of existing Aveng Shares in issue. The Terms and Conditions provide that the conversion price will be adjusted on the occurrence of certain events which include dividend payments, payments to shareholders and where buybacks are done at more than a 5% premium to the closing prices of the five trading days prior to the buyback. If such adjustments result in a reduction of the conversion price, the number of Aveng Shares to be issued in the event of a conversion of the Convertible Bonds will be increased. 6

9 Aveng shareholders are accordingly requested to approve ordinary resolution number 1 contained in the Notice of General Meeting attached hereto, in order to grant Specific Authority for the Board of the Company to allot and issue a maximum of Aveng Shares, issuable upon conversion of the Convertible Bonds, either at any time pursuant to the Early Redemption Option exercised by Aveng or during the Conversion Period as defined in section 4 below. In terms of section 5,51 (g) of the Listings Requirements only Qualifying Aveng Shareholders may vote on the resolution to approve the specific authority as set out in the Notice of General Meeting. 4. SALIENT TERMS OF THE CONVERTIBLE BONDS The salient features of the Convertible Bonds are as follows: Issuer: Listing: Securities offered Issue size: Denomination: Aveng Limited JSE (listing application has been made) Senior unsecured convertible bonds ZAR2 billion ZAR per bond, to be offered in a minimum trading size of ZAR2 million being 200 bonds of ZAR each Initial Underlying shares: Coupon: Reference Share Price: Conversion Premium: Initial Conversion Price: Conversion Period: Settlement upon conversion: Early Redemption: (at the option of the Company) 7,25% per annum, payable semi-annually in arrears on 24 January and 24 July each year ZAR22,12 (being the volume weighted average price of Aveng Shares on the JSE between the launch and pricing of the Convertible Bonds on 16 July 2014) 30% over the reference share price ZAR28,76 The period during which conversion rights may be exercised by a Convertible Bond Holder (from 2 September 2014 until 14 July 2019) Subject to the approval of the ordinary resolution, the Convertible Bonds will be settled in Aveng Shares. If the ordinary resolution is not approved then the Convertible Bonds will be settled in cash The Company may redeem in cash, the Convertible Bonds in whole but not in part at their principal amount together with accrued interest: (i) on or at any time after 7 August 2017, subject to the volume weighted average price of Aveng Shares exceeding 130% of the conversion price on no less than 20 out of the 30 consecutive dealing days prior to redemption; or (ii) at any time if less than 15% of the Convertible Bonds originally issued remain outstanding Once the early redemption option has been elected by Aveng, Convertible Bond Holders retain the right to convert into Aveng Shares at the conversion price subject to any adjustments Fair market call Dividend Protection Threshold: Callable in whole but not in part, no later than 10 days prior to 30 June 2015, if shareholder approval for issuance of Aveng Shares has not been obtained. The Convertible Bonds may be repurchased by Aveng at the higher of (i) 102% of the market value of the bonds plus accrued interest, or (ii) 102% of the principal issue size plus accrued interest There will be a downward adjustment of the conversion price for any dividends paid Maturity Date: 24 July 2019 Redemption price at maturity: 100% 5. RELATED PARTY As per the Listings Requirements, Allan Gray is regarded as a related party, as it held, directly or indirectly, more than a 10% beneficial interest in Aveng Shares at the commencement of the bookbuild process being 16 July Allan Gray participated in the Convertible Bond Offering, on the same terms as all other participants, and was allocated Convertible Bonds with nominal amount of R300 million through the bookbuilding process run by the Joint Bookrunners. In terms of the Listings Requirements, an independent fairness opinion is required given the potential issue of Aveng Shares to a related party as a result of the conversion of the Convertible Bonds. Furthermore Allan Gray is excluded from voting on the ordinary resolution to be proposed at the General Meeting. 7

10 6. INDEPENDENT EXPERT S REPORT The Independent Expert was appointed by the Board to determine whether the terms and conditions of the issue of the Convertible Bonds are fair to Aveng Shareholders. The Independent Expert has considered the terms and conditions, including the allocation of the Convertible Bonds to Allan Gray, and is of the opinion that the issue of Aveng Shares on conversion of the Convertible Bond is fair insofar as Aveng Shareholders are concerned. The Board has considered the Terms and Conditions, including the participation of Allan Gray, together with the opinion of the Independent Expert and is of the opinion that the issue of Aveng Shares is fair insofar as Aveng Shareholders are concerned. The Board therefore recommends that Qualifying Aveng Shareholders vote in favour of the specific authority to issue Aveng Shares upon conversion of the Convertible Bond. 7. SHARE CAPITAL The authorised share capital and issued share capital of the Company, at the Last Practicable Date, is set out below: Before the issue R Authorised Aveng Shares of R0,05 per share ,15 Issued Aveng Shares of R0,05 per share , Aveng Shares issued for BEE of R0,05 per share ,70 Treasury shares ( ) ( ,90) Share capital ,65 Share premium ,99 Total ,64 The authorised share capital and issued share capital of the Company, post the issue of Aveng Shares: After the issue R Authorised Aveng Shares of R0,05 per share ,15 Issued Aveng Shares of R0,05 per share , Aveng Shares issued for BEE of R0,05 per share ,70 Treasury shares ( ) ( ,90) Share capital* ,65 * The share premium amount will vary depending on the conversion price at the date of issue of the Aveng Shares. 8. PRO FORMA FINANCIAL INFORMATION The pro forma financial effects set out below have been prepared to assist Aveng Shareholders in assessing the impact of the specific issue of shares for cash on the earnings per share ( EPS ), headline earnings per share ( HEPS ), and net asset value ( NAV ) and net tangible asset value ( NTAV ) per Aveng Share. Due to the nature of these pro forma financial effects, they are presented for illustrative purposes only and may not fairly present Aveng s financial position or the results of its operations after the specific issue of shares for cash. The pro forma financial effects have been prepared in terms of the Listings Requirements and the Guide on Pro Forma Financial Information issued by the South African Institute of Chartered Accountants. These pro forma financial effects are the responsibility of the Board. The material assumptions are set out in the notes following the table. The pro forma financial effects set out below were reported on by Ernst & Young Inc., whose report is included as Annexure 2 to this Circular. Ernst & Young Inc., have consented to the issue of this Circular, containing the report in Annexure 2 and have not withdrawn their consent as at the date of the circular. Pro forma financial effects The table below sets out the summary pro forma financial effects of the Issue of the Senior Unsecured Bond and Conversion by bond holders, on Aveng Limited s EPS, HEPS, NAV and NTAV per Aveng share. The summary pro forma financial effects have been prepared to illustrate the impact of the specific issue of shares for cash on the interim, published financial information of Aveng Limited for the period ended 31 December 2013, had the specific issue of shares for cash occurred on 1 July 2013 for the purpose of the statement of comprehensive income and on 31 December 2013 for the purpose of the statement of financial position. The summary pro forma financial effects have been prepared using accounting policies that comply with International Financial Reporting Standards and that are consistent with those applied in the audited, published financial statements of Aveng Limited for the year ended 30 June These accounting policies are also consistently applied in the unaudited consolidated interim financial information of Aveng for the six months ended 31 December The summary pro forma financial effects set out below are the responsibility of the Directors and have been prepared for illustrative purposes only and because of their nature may not fairly present the financial position, changes in equity, and results of operations or cash flows of Aveng after the specific issue of shares for cash. 8

11 Before (Note 1) Issue of the Bond (Note 2) Approval of issue of ordinary shares (Note 3) Conversion by bond holders (Note 4) Percentage change (Note 6) Cents Cents Cents Cents % EPS Basic 82,4 76,5 78,0 69,5 (16%) Diluted 76,6 71,1 65,3 65,3 (15%) HEPS Basic 82,1 76,2 77,7 69,2 (16%) Diluted 76,3 70,9 65,1 65,1 (15%) NAV per share 35,4 35,4 36,5 34,3 (3%) NTAV per share* 27,6 27,6 28,7 27,7 0% * Not published Notes and assumptions 1. Extracted without adjustment from the unaudited consolidated interim financial information of Aveng for the six months ended 31 December Adjustments in respect of the issue of the Convertible Bonds has been based on the following assumptions: 2.1 Basic, diluted and headline earnings: Assumes that the Convertible Bonds were issued on 1 July Effective interest expense of R23 million (before tax at 28%) on the financial liability has been adjusted for interest savings due to the settlement of legacy loans Transaction costs (including the costs of the issue and listings of the Convertible Bonds) amounting to R43 million have been capitalised and subsequently expensed as part of the effective interest (noted above) over the term of the Aveng bonds in terms of IAS 39 Financial Instruments: Recognition and Measurement The effective interest rate of the Convertible Bonds is based on the coupon of 7,25% combined with the amortisation of the conversion premium plus the amortisation of the transaction costs, approximating in total 13,31% and accounted for as required by IAS 39 Financial Instruments: Recognition and Measurement For purpose of the pro forma financial effects, an increase of R7,8 million relating to the derivative have been assumed. Due to the short period of time from issue of the Convertible Bonds until the shareholders meeting where granting and approval of a specific authority to the Directors to allot and issue up to a maximum of Aveng Shares for purposes of conversion of the Convertible Bonds is requested, the R7,8 million increase was based on a time value of money factor of 7,45% per annum and all other market variables stayed constant Refer to note 5 below for additional information relating to the accounting policy for the issue of the Convertible Bond 2.2 Net assets and tangible net assets: Assumes that the Convertible Bonds were issued on 31 December The net increase of R219 million in liabilities arises due to: Proceeds received from the issue of Convertible Bonds net of transaction costs of R1,95 billion, resulting in an increase in loans and borrowings of R1,5 billion and the recognition of a derivative liability of R429 million; and A cash payment of R1,7 billion to settle legacy loans The net increase of R219 million in cash is due to: Proceeds received from the issue of Convertible Bonds, net of transaction costs, of R1,95 billion A cash payment of R1,7 billion to settle legacy loans Transaction costs of R43 million were incurred at 31 December 2013 and proportionately allocated to the liability and the derivative based on carrying values Refer to note 5 below for additional information relating to the accounting policy for the Convertible Bonds 9

12 3. Adjustments when shareholder approval is obtained at the special shareholder meeting for granting and approval of a specific authority to the Directors to allot and issue up to a maximum of Aveng Shares for purposes of conversion of the Convertible Bonds, have been based on the following assumptions: 3.1 Earnings and headline earnings: The approval in respect of the issue of Ordinary Shares if converted by the Convertible Bondholders, was effective on 1 July The increase of R7,8 million recognised under above was reversed as the derivative is recognised in equity with no subsequent re-measurements For the purpose of calculating diluted earnings and diluted headline earnings per share, the diluted weighted average number of shares in issue have been increased by 69,6 million shares and the earnings for the period have been adjusted to reverse the effective interest on the Convertible Bonds Refer to note 5 below for additional information relating to the accounting policy for the Convertible Bonds 3.2 Net assets and net tangible assets: Assumes that the approval for issue of Ordinary Shares if converted at the option of the Convertible Bondholders was effective on 31 December A decrease in financial liabilities of R429 million and an increase in share capital and share premium of R438 million and a decrease to retained earnings of R9 million, being the reclassification of a portion of the Convertible Bonds between debt and equity (net of transaction costs), has been based on a fair value calculation of the derivative The fair value relating to the derivative on the date of shareholders approval is reclassified to equity Transaction cost of R9 million allocated to the derivative was incurred by 31 December 2013 and reclassified to retained earnings Refer to note 5 below for additional information relating to the accounting policy for the Convertible Bonds 4. Adjustments in respect of the exercise of the conversion option by the bondholders has been based on the following assumptions: 4.1 The issue of Ordinary Shares on conversion was effective on 1 July For the purpose of calculating earnings and headline earnings per share, the issued weighted average number of shares in issue has been increased by 69,5 million shares and the earnings for the period was adjusted to reverse the effective interest on the Convertible Bonds The effective interest expense of R23 million recognised under above was reversed as the bond liability is reclassified to equity with no subsequent re-measurements 4.2 Net assets and tangible net assets: Assumes that the issue of Ordinary Shares was effective on 31 December A further decrease in financial liabilities of R1,528 billion and an increase in share capital and share premium of R1,56 billion and a decrease to retained earnings of R34 million, being the reclassification of the liability component on exercise of the conversion rights by the bondholders to equity. In total share capital and share premium increased with R2 billion (refer above) on the transaction Transaction cost of R34 million allocated to the loan has been incurred by 31 December 2013 and reclassified to retained earnings Refer to note 5 below for additional information relating to the accounting policy for the Convertible Bonds 5. Accounting policy for the Convertible Bonds (in terms of IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement: 5.1 Convertible Bonds (prior to approval for the issue of Ordinary Shares) Prior to approval for the issue of Ordinary Shares, the Convertible Bonds are cash-settled instruments. These instruments are accounted for as two separate instruments as follows: A financial liability at amortised cost disclosures under loans and borrowings; and An embedded derivative at fair value through profit and loss, disclosed as part of trade and other creditors At initial recognition, the embedded derivative is valued using option pricing methodology. The balance of the cash received is classified as a financial liability at amortised cost 10

13 5.1.3 The embedded derivative is revalued at every reporting period, with gains or losses being accounted for as part of other income/ expenses in the statement of comprehensive income The financial liability increases at every reporting period by an effective interest charge that is accounted for as part of finance costs in the statement of profit or loss and other comprehensive income 5.2 Convertible Bonds (after approval for the issue of Ordinary Shares) The accounting treatment of the Convertible Bonds will change in that it will be treated as a compound financial instrument with two separate instruments as follows: A financial liability at amortised cost disclosure under loans and borrowings; and an equity portion The financial liability linked to the Convertible Bonds continues to the be accounted for at amortised cost The derivative liability (i.e. the conversion right) is re-measured to fair value and thereafter reclassified as equity on the date of shareholders approval The equity portion linked to the ZAR Convertible Bonds is not revalued or restated after this reclassification 5.3 Convertible Bonds (exercise of conversion rights by bond holders) After shareholders approval and on exercise of the conversion rights by the bondholders, the carrying amount of the liability is derecognised and reclassified to equity No other re-measurement of the convertible bonds is carried out in equity 6. Represents the percentage change between the revised before position, reflecting the pro forma after the issue of the Convertible Bonds, the pro forma after the approval for the issue of Ordinary Shares and on exercise of the conversion right of the Convertible by the Bondholders 7. All of the above adjustments with the exception of transaction costs are expected to have a continuing impact 9. EXPENSES It is estimated that Aveng s expenses relating to the specific issue of shares for cash will amount to approximately R Part of these expenses have been paid from the proceeds of the specific issue of shares for cash. The expenses (excluding Value Added Tax) relating to the specific issue of shares for cash have been detailed below. Nature of expense Paid/Payable to R JSE documentation inspection fee JSE JSE listing fee* JSE Printing, publication and distribution Bastion Independent Expert PWC Corporate Finance Reporting Accountants and Auditors Ernst & Young Aveng legal advisers Webber Wentzel Total Other than set out in this section, Aveng has incurred no preliminary expenses in relation this Circular. * This is an estimate based on the maximum number of shares issued at the initial conversion price. 10. OVERVIEW OF THE BUSINESS The Aveng Group is an infrastructure development company with a strong presence in Southern Africa, Australia and Southeastern Asia. The Aveng Group provides construction, infrastructure and engineering through the following operating groups: McConnell Dowell which is Australia based operates predominantly in the Eastern Australian Time Zone, and is a major engineering, construction, building and maintenance company with business units in civil and marine, mechanical, electrical, pipeline, tunnelling and underground services. Aveng Engineering consists of Aveng Power, Aveng Minerals and Aveng Water. Aveng Minerals offer engineering, design and project delivery services as well as the operation and maintenance of metallurgical processing plants. Aveng Power was successful in securing two contracts in the government s renewable energy programme to construct the Sishen solar farm and the Gouda wind farm. Aveng Water applies innovative advanced desalination technologies to produce high-quality water to meet clients specifications, and also specialises in operating and maintaining plants on behalf of clients. Aveng Manufacturing manufactures and supplies diverse steel and concrete products, services and engineered solutions in mining, construction and building sectors and also undertakes rail construction and maintenance projects in the rail sector. Aveng Manufacturing consists of six business units, namely: Aveng Manufacturing Infraset which manufactures concrete products for the infrastructural market; Aveng Manufacturing Duraset manufactures steel and concrete products for the mining and geotechnical industries; Aveng Manufacturing Lennings Rail Services provides construction and maintenance services in the rail sector; Aveng Manufacturing Dynamic Fluid Control (DFC) supplies specialised 11

14 mineral processing valves to the mining sector as well as water valves for the municipal sector; Aveng Manufacturing Automation and Control Solutions supply automated process control solutions through the implementation of equipment and software; Aveng Manufacturing Facades is a specialist business unit that operates within the highly specialised field of systemised facade cladding for major commercial building projects both nationally and internationally. Aveng Mining through Aveng Moolmans is the leader in opencast mining in Africa. Aveng Moolmans is one of the largest surface mining contractors in Africa, moving in excess of 22 million tonnes of material each month. Aveng Moolmans offers a complete open-pit mining capability with over 40 years of experience in both hard and soft rock environments. Besides drill, blast, load and dump, Aveng Moolmans is well placed to provide mine planning, surveying, production scheduling and grade control. Aveng Mining Shafts and Underground is one of only four deep-level shaft-sinking companies worldwide. Aveng Mining is involved across the mining value chain; ranging from opencast mining, shaft sinking, underground development and contract mining, mineral processing and acid mine drainage plants, to construction of miningrelated infrastructure and the supply of mining equipment and products. Aveng Grinaker-LTA is a construction and engineering division, based in South Africa, which operates in multiple market sectors: mining, infrastructure, power, commercial and industrial, oil and gas. Aveng Steel consists of Aveng Trident Steel, Aveng Steeledale and Aveng Steel Fabrication and supplies products to the automotive and steel industry in South Africa as well as internationally from its steel yards, steel processing service centres, speciality steel division and tube manufacturing plant. * * 12

15 A. BUSINESS MODEL The Aveng Group provides a range of construction, infrastructure, and engineering products, services, and solutions. The Aveng Group offers geotechnical, civil and earthworks engineering, road construction, motorway and rail track rehabilitation, mine infrastructure, multidisciplinary construction, engineering works, structural, mechanical, electrical, instrumentation, piping, transport infrastructure, industrial, oil and gas, power and water, retail and commercial construction, project management, and facades services. It also provides design, construction, and maintenance related services to building, marine, tunnelling and rail, mining and metals, ports, commercial building, and defence sectors, as well as heavy industrial processing sectors, including fabrication facilities supplying structural steel, piping, and precast concrete elements. In addition, the Aveng Group executes feasibility studies, front-end engineering design, and engineering projects; offers project delivery services; maintains metallurgical processing plants; manufactures and supplies concrete main line railway and turnout sleepers, universal and mine sleepers, pipes, culverts, and landscape products. Further, it supplies mine roof support products; valves for mineral processing and water industries; and plates and structural steel products to the domestic and international steel markets, and the domestic automotive industry, as well as supplies and constructs reinforced steel and mesh fencing wires. Additionally, the Aveng Group is involved in open cut mining services and operations, including shaft sinking, underground development and contract mining, mine rehabilitation, and mine infrastructure; and designs, builds, and operates mine water, conventional water and waste water, and waste water reuse treatment. B. STRATEGY The strategy of the Aveng Group is focused on: Enhancing the profitability of the existing portfolio with a focus on cash management and financial returns; Increasing operational efficiency and improving project delivery; Reinforcing the Group s leadership position in selected areas of the infrastructure market in South Africa, the rest of Africa, Australia and Southeast Asia; Expanding its portfolio by further exploiting the infrastructure value chain internationally to produce value-added services and solutions. The Aveng Group strives to ensure that the companies within its portfolio become industry leaders based on market share and profitability. Operational performance is therefore reviewed on an ongoing basis, and where performance does not meet Aveng s targets, strategic and operational interventions are initiated to increase shareholder value. Therefore the Aveng Group is embarking on a number of initiatives to drive shareholder value: A continued focus on reducing overhead costs throughout the Group; Optimising the Group s capital structure, cash management and capital allocation to enhance returns; A continual focus on driving optimal efficiencies; Further strengthening of the commercial and project execution capabilities within the construction and engineering operating groups; Continual review of the Group s portfolio focused on return and cash flow generation to optimise the business model; At Aveng Grinaker-LTA the focus will be on reducing project losses, improving project delivery on large projects and reducing overheads. 13

16 Finland United States of America Qatar Chile Mali Guinea Ghana DRC Zambia Namibia Botswana South Africa United Arab Emirates Saudi Arabia Kenya Tanzania Malawi Mauritius Zimbabwe Mozambique Swaziland Lesotho Thailand Malaysia Hong Kong Laos Philippines Singapore Indonesia Australia Kiribati Papua New Guinea Solomon Islands Samoa New Caledonia New Zealand Aveng operates with a global footprint extending throughout Africa and Australasia, with smaller operations also in the Middle East, Europe and the Americas. 11. PROSPECTS The South African construction and manufacturing markets remain challenging due to the slow infrastructure-related spend, the impact of lower mining activity resulting from weaker commodity prices, industry labour disruptions and a generally subdued manufacturing and steel sector. The building and rail related infrastructure environment in the SADC region offers good opportunities for the Group. The Australia construction market is experiencing a slowdown in mining-related infrastructure spend, though it still offers good opportunities, particularly in transport and general infrastructure. As set out in the trading statement released on SENS on 2 July 2014, notwithstanding these challenges, there has been an uptick in operating group performance with previously reported under-performing businesses and contracts expected to report a marked improvement. The Group anticipates a substantial improvement in net operating earnings before the impact of impairment of goodwill intangible assets. The expected increase in the interest and taxation expenses however, adversely impacted headline earnings. The Group s two-year order book increased to R38,8 billion as at 31 March 2014, an increase of 8% compared with the R36,7 billion two-year order book reported as at December Within the Construction and Engineering: Australasia and Pacific segment, the order book increased by 9% to R22,2 billion, the Construction and Engineering: South Africa and rest of Africa segment order book declined by 10% to R7,7 billion, Aveng Mining s order book increased by 13% to R8,0 billion, and the order book of the contracting business within Aveng Manufacturing increased by 39% to R0,9 billion. The Group has made substantial progress in addressing the operational under-performance in certain areas. Despite a difficult economic environment, notably domestically, the performance of Aveng Grinaker-LTA and certain steel businesses has improved, supporting continuing strong performances by Mining, Manufacturing and the majority of the McConnell Dowell business. The Board has a clear plan to improve liquidity over the short term and addressing the overall fixed cost base of the Group. While addressing the claims recoveries process, the Group will continue to focus on improved operational performance with a specific focus on returns and cash generation. 12. INFORMATION RELATING TO THE DIRECTORS 12.1 DIRECTORS The full names, functions, date of appointment, ages, nationalities, business addresses, qualifications, and experience of the Directors of Aveng are set out in Annexure 4 to this Circular. 14

17 12.2 DIRECTORS INTERESTS IN SECURITIES As at the Last Practicable Date, the following Directors (and their Associates as defined in the Listings Requirements), including Directors of Aveng who have resigned in the last 18 months, had indirect and direct beneficial interests in the Company: Executive Directors Name Direct beneficial Indirect beneficial Total Percentage holding HJ Verster ,07% JJA Mashaba ,11% DG Robinson ,07% Share Appreciation Rights HJ Verster ,10% JJA Mashaba ,09% DG Robinson ,10% Forfeitable Shares HJ Verster ,13% JJA Mashaba ,04% DG Robinson ,05% Ordinary Shares WR Jardine* ,02% Non-Executive Directors Name Direct beneficial Indirect beneficial Total Percentage holding Hogben Family Trust ,002% R Hogben ,002% PK Ward ,00005% *Information as at date of resignation of WR Jardine (31 August 2014) There have been no changes in the interests of the Directors, or Directors of Aveng who have resigned in the previous 18 months, between the end of the preceding financial year and the Last Practicable Date DIRECTORS INTERESTS IN TRANSACTIONS No Director, including Directors of Aveng who have resigned in the last 18 months, has or had any beneficial interest, whether direct or indirect, in any transaction which is or was material to the business of the Aveng Group taken as a whole and which was effected by the Company during the current or immediately preceding financial year, or during any earlier financial year and which remains in any respect outstanding or unperformed. Director s remuneration will not be varied as a result of the specific issue of shares for cash. 13. LITIGATION STATEMENT RELATING TO AVENG As at the Last Practicable Date, there has been no litigation, arbitration or administrative proceedings that have taken place in the previous 12 months, that are pending or, to the knowledge of any of the Aveng Group s officers, threatened against the Company or any of its property which, if adversely determined, could have either separately or in aggregate a material effect on Aveng Group s financial position. 14. SHARE TRADING HISTORY The share trading history of Aveng on the JSE up to the Last Practicable Date is set out in Annexure 5 of this Circular. 15. ISSUES OF SECURITIES IN THE PREVIOUS THREE YEARS Date Issued to No of Aveng Shares Price per share Reason 4 November 2011 Aveng Management Company treasury shares R0,05 As part of Scrip Lending Agreement forming part of BEE transaction approved by shareholders 30 June 2014 Four Arrows Investment 39 Proprietary Limited, Aveng Community Investment Trust and The Aveng Empowerment Trust R35,10 Settlement of BEE transaction approved by shareholders 15