CONTENTS CONSTRUCTION- CONSTRUCTION BEARING MAN RELATED PIC TO COME PIC TO COME PIC TO COME

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1 CONTENTS Group activites Financial highlights Six year review Directors Aveng strategy Chairman s review Managing Directors Review Group activites Financial highlights Six year review Directors Aveng strategy CONSTRUCTION CONSTRUCTION- RELATED PIC TO COME PIC TO COME PIC TO COME BEARING MAN

2 AVENG ANNUAL REPORT VISION TO BE A GLOBALLY COMPETITIVE CONSTRUCTION- MATERIALS GROUP FOCUSED PRINCIPALLY ON EMERGING MARKETS PIC TO COME STRATEGY South African based strength in steel and cement to be nurtured and used as a platform from which to launch the four-pronged internationalisation of our construction interests: Strengthening our southern African position by broadening, rather than deepening the construction footprint Expanding further into Africa, concentrating on hard-currency contracts Entering other areas of the developing world through partnerships and acquisitions Achieving global competitiveness through growing product and service specialisation

3 2 AVENG ANNUAL REPORT 2000 GROUP ACTIVITIES OBJECTIVES TO COMMAND A PRICE-EARNINGS RATING WITHIN THE TOP THREE OF OUR SECTOR TO ACHIEVE A LONG-TERM REAL RETURN ON EQUITY OF 10% TO GENERATE 25% OF GROUP EARNINGS OFFSHORE BY 2003 CONSTRUCTION Lorem ipsum dolor sit amet, conse ctetuer adip iscing elit, sed diam nonummynibh euismod tinci dunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis autem vel eum iriure dolor in hen drerit in vulputate velit esse CONSTRUCTION- MATERIALS molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit prae sent luptatum zzril delenit augue duis dolore te feugait nulla GRAPH TO COME facilisi. Lorem ipsum dolor ullasit amet, consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam consequat erat. BEARING MAN Ut wisi enim ad minim veniam, quis nostrud exerci tation ullam corper suscipit lobortis nisl ut aliquip ex ea pozze commo Ut wisi enim ad minim veniam, quis nostrud exerci tation ullam corper suscipit lobortis nisl ut aliquip ex ea pozze commo ipsumodio. dignissim qui blandit prae. Ut wisi enim ad minim veniam, aliquip ex ea pozze commo

4 AVENG ANNUAL REPORT FINANCIAL HIGHLIGHTS % Rm Rm change GROUP SUMMARY Revenue ,0 10,9 Operating income 33,1 297,7 11,5 Income before taxation and exceptional items 403,0 370,2 8,8 Headline earnings 277,6 270,3 2,7 Earnings 263,7 210,7 25,1 Total assets 3 680, ,2 7,1 SHARE PERFORMANCE (cents per share) Headline earnings 9,3 80,2 (1,1) Headline earnings fully diluted 73,0 74,0 (1,3) Earnings 75,4 62,5 20,6 Earnings fully diluted 69,4 58,2 19,2 Dividend* 18,5 100,0 Net asset value 453,8 435,6 4,2 FINANCIAL RATIOS (per cent) Return on ca[pital employed 20,2 20,5 (1,5) Return on equity 16,2 16,0 1,2 Debt to equity (net) (25,5) (239) 6,7 OBJECTIVES TARGET Price earnings rating in sector Top 3 N/A Top 3 Real returns in equity (%) 10,3 10 Group off shore earnings On track 25% by 2003 Number of employee Turnover per employee (R 000) 389,5 326,6 Note: Definitions are given on page xx * The comparative figure are to the pro forma numbers relevant to the group following the restructuring which was effective 30 June Headline earnings per share (cents) Capital employed (Rm) 95% 90 88% % GRAPH TO COME TO BE PLACED BEFORE PROOF GOES OUT GRAPH TO COME TO BE PLACED BEFORE PROOF GOES OUT

5 4 AVENG ANNUAL REPORT 2000 BOARD OF DIRECTORS From the top (right to left): Basil Hersov, Richard Savage, Carl Grim, Phil Erasmus, Ernie Behr, Peter Owen, Dennis Gammie, Howard Jones, Keith Kunene, Mike Doyle, Alan Dawson, James Hersov, Bean Bornheimer CARL GRIM, age 49, Managing Director Member of Audit Committee and Remuneration Committee. DENNIS GAMMIE, age 46, Financial Director Member of the Audit Committee. ERNIE BEHR, age 64, Managing Director of Tristel Holdings (Pty) Limited. MIKE DOYLE, age 54, Managing Director of Alpha (Pty) Limited. HOWARD JONES, age 51, Managing Director of Grinaker Construction Limited. GREG TILL, age 51, Managing Director of Bearing Man Limited. BEAN BORNHEIMER, age 60, non-executive director. Member of the Audit Committee PHIL ERASMUS, age 59, non-executive director Member of the Remuneration Committee. Director of Imperial Holdings Limited. JAMES HERSOV, age 35, Non-executive director

6 AVENG ANNUAL REPORT SOUTH AFRICA IS THE FOUNDATION ON WHICH WE ARE BUILDING OUR GLOBAL CONSTRUCTION BUSINESS KEITH KUNENE, age 58, non-executive director Managing Director of Kunene Bros. Holdings (Pty) Limited. Formerly a director of Anglovaal Industries Limited. BASIL HERSOV, age 73, Chairman, non-executive director. RICHARD SAVAGE, age 57, Deputy Chairman, non-executive director Chairman of the Audit and Remuneration Committees. JAKES MOMBASA, age 45, First National Bank of Southern Africa Limited. Director of Alpha (Pty) Limited, Bearing Man Limited, Grinaker Construction Limited and Tristel Holdings (Pty) Limited. PETER OWEN, age 60, Non-executive director. Member of the Audit Committee. ALAN DAWSON, age 57, Diameter Construction

7 6 AVENG ANNUAL REPORT 2000 CHAIRMAN S REVIEW PIC TO COME GROWTH WILL COPY TO COME BE AGRESSIVE AND GLOBAL The past year marked a momentous period for Aveng which achieved a successful listing on the Johannesburg Stock Exchange as a publicly owned construction company, greater focus on its core construction and related activities through corporate activity, and the proposed acquisition of LTA Limited, a major player in the construction industry. This was accomplished in a period characterised by sluggish demand as the economy struggled to revive. As Aveng s businesses are inextricably linked to the South African economy, this slowdown in activity naturally had an impact on the group s financial performance. Also depressing Aveng s earnings growth this past year were the lower interest rates earned on the large cash holding accumulated over the past year in anticipation of a major acquisition. At the end of December Aveng s cash holdings totalled over R580-million and the decline in interest earned year-on-year was approximately 7 per cent berore tax. Aveng s earnings of 75,4 cents a share (1999: 62,5 cents) for the year were in line with management s revised estimates for the year. The board has declared a dividend of 18,5 cents per ordianry shares in issue. There was no prior year dividend. A great deal of corporate activity took place during the year. This included both Grinaker Construction and Tristel Holdings becoming wholly-owned subsidiaries, the recently proposed acquisition of 100% of LTA Limited and proposed sale of Aveng s 55% interest in Bearing Man, as well as a host of smaller restructuring initiatives. These activities have significantly tightened Aveng s focus on construction and related industries in line with our stated strategy and has completed its restructuring programme for the medium term. The building blocks are now in place to position the group as a major construction player in the developing world. Having already successfully met many of its objectives, Aveng will carefully review the next steps in its strategy as it moves forward seeking to consolidate its position. Operating environment For the second successive year our companies had to operate in tough conditions. While the fundamentals improved, sentiment and growth failed to lift off. Excessive rainfall further exacerbated these poor conditions, having a significant impact on group performance. Nevertheless Grinaker and Trident posted excellent results and their teams are to be congratulated for this. Both the value of building plans and contract awards are still lower than in previous years with no signs of an upturn, and disappointingly, a number of major projects have again been postponed. Indicators yet again pointed to an economic recovery but this was not to be GDP growth continued to disappoint and it is clear that the economy needs to be vigorously stimulated.

8 AVENG ANNUAL REPORT Although interest rates have declined, it is not likely that a further cut in rates a fillip that would invigorate the economy will be seen before Consequently, the forecasts of a 3% growth in GPD for the year 2000 are not likely to be attained. Confidence, always fragile within South Africa, was severely damaged by the political instability emanating from Zimbabwe. The South African construction industry is expected to grow by 2% in calendar 2000 improving to 3,9% next year and to increase by 6,3% in the year If these growth forecasts materialise, this year should be the starting point of a three-year sustainable growth phase for the construction industry, which means that Aveng is well placed to show excellent growth for shareholders. PIC TO COME Contribution to headline earnings Capital employed GRAPH TO COME 5% Bearings 39% Cement 13% Construction GRAPH TO COME 5% Bearings 39% Cement 13% Construction 43% Steel 43% Steel

9 8 AVENG ANNUAL REPORT 2000 CHAIRMAN S REVIEW Share ownership Following the conversion of the preference shares held by the Hersov family into ordinary shares in October 1999, Aveng is now a truly public company with no one shareholder owning more than 20% of the company s stock. In addition, having received approval from shareholders at last year s annual general meeting, Aveng initiated a share buyback programme in June this year. We took advantage financial year and remains a committed participant in this worthwhile programme. In addition, group companies make ongoing contributions to education and the support of numerous charitable organisations. This social investment totalled Rxx in the year under review. Our group companies have committed themselves to introducing environmental programmes to ensure the sustainable development of their operations and have established environmental policies and management systems to meet or GROWTH WILL BE AGRESSIVE AND GLOBAL of stock market conditions and acquired 4,63% of the company s issued ordinary share capital. Social responsibility Aveng recognises its responsibility to transformation and the role that its companies can play in addressing pressing social issues in South Africa. Each of the group companies manages its own initiatives, appropriate to its own market circumstances. As responsible corporate citizens Aveng and its subsidiaries contribute meaningfully to the upliftment of the communities in which we operate and to the creation of working conditions which are pleasant and sympathetic to the environment. Some particularly successful initiatives have involved the creation of empowerment operating companies where group companies have taken a minority shareholding position. Through its operating companies, Aveng invested R4 million in the Business Trust in the previous exceed the minimum legal environmental standards. As with our uncompromising stance on the environment, our companies are rigidly committed to the maintenance of the highest standards in the areas of safety and health. Corporate governance The separate report on Corporate Governance includes a comprehensive overview of Aveng s broader risk management programme. We look forward to adopting the code of practice that will result from the revised proposals of the King Commission. Looking ahead Aveng has achieved a great deal in its short public life. The challenge going forward will be to consolidate these initiatives, particularly the LTA acquisition, and realise the potential that lies within

10 AVENG ANNUAL REPORT operating companies. Aveng s ability to develop its companies and to extract maximum value for its shareholders will be tested in what promises to be another year of uneven economic growth. Leading economic indicators signal a global slowdown during the second half of the year driven by the softening of consumer spending in the United States and the failure of the Japanese recovery to take hold. Nevertheless there are patches of optimism in the developing world, something on which our companies will no doubt capitalise in their drive to become more international. Domestically, growth forecasts for South Africa have been downgraded but the fundamentals underpinning a solid recovery are in place a stable interest rate environment, a strong balance of payments position, a fast improving trade surplus and a currency which is holding its own against most of South Africa s trading partners. These strengthening indicators are a tribute to the fiscal discipline exercised by our Department of Finance under the able leadership of Minister Trevor Manuel and point the way forward to a more robust economy. Appreciation The considerable achievements of the past year are a credit to the perseverance of management supported by teams within each of our companies Alpha, Bearing Man, Grinaker and Trident. For them the past year has been one of considerable change and their willingness to participate in the transformation of Aveng for the creation of greater wealth for shareholders has facilitated the successful accomplishment of our strategic objectives and the rapid expansion of the company. I would like to welcome Peter Owen and Alan Dawson to the Aveng Board. Both have considerable construction experience which will undoubtedly stand us in good stead as we move into the future. The past 12 months has been a period filled with challenges for both the management and the staff of Aveng and its companies. It is a great credit to Carl Grim and his small team at the Aveng head office that the event-filled year has progressed so well. Basil Hersov Chairman date

11 10 AVENG ANNUAL REPORT 2000 MANAGING DIRECTOR S REPORT This report reviews Aveng s first year as a public group listed on the Johannesburg Stock Exchange. The pro forma annual report published a year ago set out Aveng s objectives, vision and detailed our strategy. The past year was, not surprisingly, dominated by the corporate restructuring necessary to implement this strategy and we are pleased to report on progress made. Grinaker: Early in the year Aveng made a successful offer to the Grinaker minority shareholders which led to the delisting of Grinaker Construction Limited. This action was the first step in implementing our construction growth strategy and resulted in construction s contribution to Aveng headline earnings growing from 12% to 23%. Tristel: Aveng acquired the remaining 1,1% of Tristel Holdings, giving Aveng 100% of the equity and full control of Tristel s cash flows. Bearing Man: The management-friendly deal struck with Invicta Holdings Limited allows Aveng to exit from a non-core business in return for cash. This transaction which is effective from 1 July 2000, is still subject to a number of conditions precedent. LTA: In a single step and three years early, the offer to acquire 100% of LTA Limited will enable Aveng to achieve its most challenging primary objective to generate 25% of its income in hard currencies by broadening Aveng s construction footprint into the developing world. In addition, the acquisition is almost perfectly congruent with Aveng strategy. These transactions fundamentally change the face of Aveng: All Aveng businesses are now core to its strategy and medium-term growth. There is only one entry point to Aveng compared to three a year ago. Construction-generated EBITDA will increase from 13% to 70%. Aveng holds 100% of its managed entities other than Alpha and can therefore optimise the group s cash management. The corporate activity of the past year has laid a sound foundation on which Aveng will build the globally competitive construction group envisaged at the time of our listing. Financial results The past year has been challenging as it followed a period of high interest rates, made tougher by heavy rainfall and a dearth of public spending. The delayed impact of a high interest rate environment is illustrated by the fall in fixed investment as a percentage of gross domestic product from an already low 17% in the final quarter of 1998 to 14,5% in the first quarter of Turnover rose to R5,7 billion on increase 10,9%. Aveng s large cash balances held in a year of low interest rates also put a brake on earnings growth. A year ago we noted our expectation of a real earnings growth for the year. At the interim stage the headline earnings projection was downrated from real to nominal growth before last year s deferred tax writeback. In the event we are pleased to report that Aveng has delivered on this undertaking to its shareholders, with fully diluted HEPS (pre-deferred tax writeback) being up by 6,1% on This equates to 73,0 cents per share on a fully diluted basis. Headline earnings for the year are R277,6 million compared to R270,3 million in Alpha The past year was a period of considerable change for Alpha. Operations have been significantly revamped with the focus on improving efficiency. While we have had to reduce the number of employees from to 2 200, it is pleasing to report that productivity figures in some