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Audited group resultsfor the year ended 30 June 2005
Targeting construction in the developing worldsupported locally by steel and cement
Building sustainable value
Who are we?
• Previously Anglovaal Engineering – hence “Av-eng”
– South African born and bred with 115 years in construction
– Separately listed on the JSE in 1999
• Activities focused around three clusters
– Construction - mining, energy and heavy infrastructure client focus
– Steel & Allied – steel and concrete products for the motor, manufacturing, mining and construction sectors
– Cement - cement, quarry products and ready mixed concrete
• Working in 40 countries and providing 29 000 direct jobs
• Listed in the JSE’s SRI Index since inception two years ago
Corporate objectives
• Return on average equity - 13,4%
– 0,5% short of target of “10% real return”
• Headline earnings per share - 69% growth
• Net debt/equity ratio - 40%
– versus 54% a year ago
– versus 35% target
Highlights
• An about turn in Construction
– Grinaker-LTA : Losses reduced from R126m to R18m
– McConnell Dowell : Operating profit of R55m
• Strong performance from Steel & Allied
– Trident Steel : Automotive industry
– Grinaker-LTA Manufacturing : Residential market
• Outstanding results from Cement
– Perfectly timed 500 000 tons of capacity
– Excellent operational performance
• All suspensive conditions met in BEE transaction with TisoGroup and other broad based empowerment partners
• Successful placement of a seven year R1bn convertible bond with coupon of 6.125%
Financial ReviewDennis Gammie
Financial performance
-(R19m)R72mTaxation
+0,51,9%2,4%Operating margin
+6414 cents23 centsDividends
+69R216mR364mHeadline earnings
(22)R214mR167mNet finance costs
+44R227mR327mOperating Income
+15R11,7bnR13,5bnRevenue
% ChangeJune 2004June 2005
Key ratios
(26)5440Net Debt : Equity ratio (%)
-4,04,0Dividend cover (times)
+42,62,7Asset Turnover (times)
+802,03,6Interest Cover (times)
+439,914,2Return on average capital employed (%)
+658,113,4Return on average equity (%)
% Change
June 2004
June 2005
Background issues
• IAS 17: Leases results in new interpretation for operating leases
• IAS 17: Leases also resulted in reclassifications
• IFRS 3: Business Combinations discontinues amortisation of
goodwill
• Seven year convertible bond issued with 6,125% coupon
SA Construction
+4 1.9 2.0 Asset turnover
+13 3 037 3 427 Assets
+88(2.4%)(0.3%)Operating margin
+86(126)(18)Operating Profit
+20 5 657 6 765 Revenue
% ChangeJune 2004June 2005Rm
•Loss from JV’s and construction associates of R33m (loss of R37m in 2004)
Australia & SE Asia Construction
(9)2.52.3Asset turnover
+2772787Assets
(146)(2.6%)(6.5%)Operating margin
(129)(51)(117)Operating Profit
(7)1 9281 796Revenue
% ChangeJune 2004June 2005Rm
•Profit from JV’s and construction associates of R17m (profit of R18m in 2004)
Steel & Allied
+6 1.5 1.6 Asset turnover
+13 2 705 3 045 Assets
(4)9.7%9.3%Operating margin
+15 404463Operating Profit
+20 4 155 4 974 Revenue
% ChangeJune 2004June 2005Rm
Holcim (46%)
+19 1.8 2.1 Asset turnover
+9 1 733 1 881 Assets
+17 23.6%27.7%Operating margin
+52 7231 099Operating Profit
+30 3 062 3 967 Revenue
% ChangeJune 2004June 2005Rm
Net interest paid
• Issue of R1bn convertible bond in March 2005 enabled short term debt to be repaid– More attractive interest rate terms
13,2%9,1%Average fixed rate
June 2004June 2005Rm
12,8%10,9%Average prime rate
281240Interest paid
6673Interest income
214167Net interest paid
Cost of share options
• Practice adopted several years ago
– Costs of all share options expensed regardless of whether they have
vested or not
• Costs calculated as difference between closing price on 30 June
and option price (strike)
• Costs attributable to subsidiaries included in operating expense
– R31 million in 2005
• Costs attributable to Holcim (South Africa) expensed to income
from associates & joint ventures
– R12 million in 2005
Earnings per share
+10548,599,3Earnings
+6955,3 93,5Headline earnings
% ChangeJune 2004June 2005Cents
+17630737NAV
•No change in weighted average number of shares
Balance sheet – Equity movements
-33Revaluation reserve
-25Negative goodwill transfer
2 495
189
(20)
(358)
(15)
(124)
2 823
June 2004*
387Earnings for period
2 921Closing shareholders’ funds
-IAS 17 and leases
June 2005Rm
42Foreign currency translation
(6)Equity accounted reserve movements
(55)Dividend paid
2 495Opening shareholders’ funds
* June 2004 figures restated
Currency movements
Australian Dollar
US Dollar
(4)4,864,67Average
+184,335,09Closing
(9)6,866,23Average
+76,286,68Closing
% Change 2004June 2004June 2005
Movements versus the Rand
Borrowings
19%70%Long term
22%15%Short term
85%
15%
1 166
857
2 023
June 2005
41%Fixed
June 2004Rm
59%Floating
1 351Net debt
746Cash
2 097Interest bearing debt
Working capital
42
89
122
37
90
118
0
20
40
60
80
100
120
140
Stock days Debtor days Creditor days
Jun-05 Jun-04
Days
Net working capital:
2004 9 days
2005 9 days
Capital expenditure
(201)(252)Net (decrease)/increase
(221)(336)Disposals
(393)(384)Depreciation
413468Total additions
168206Expansion
245262Replacement
June 2004June 2005Rm
Reconciliation of cash balances
48Reclassification of leases
8Other
(1 166)Closing net borrowings
162Assoc. costs & other investments
(55)Dividends
(313)Capital expenditure
(76)Tax
(89)Working capital movement
(167)Net finance costs
667Cash generated by operations
(1 351)Opening net borrowings
June 2005Rm
Operational ReviewCarl Grim
Organisational structure
CEO: Carl Grim
FD: Dennis Gammie
100% 75% 75% 75% 75% 75%
McConnell Dowell Corporation
Construction Opencast Mining Process Engineering Manufacturing Trident Steel
Dave Robinson Howard Jones Brian Wilmot Nick Bell Doug Keet Ben Fourie
Civil & Marine Building & Property Development
South African Operations Metallurgical Operations Steeledale Merchanting
Mechanical & PipelinesMechanical & Electrical
West African Operations Engineering Services Infraset Automotive
Electrical MaintenanceCivils, Roads & Earthworks &
East African Operations Project Management Duraset Cutting
Underground ContractingMarikana Mine MegChem (50%) Lennings Rail Coastal Branches
Trident Sterling Tube
Trident Specialty Steels
Engineering, Construction & Mining Contracting Cluster Steel & Allied Cluster
46%
Holcim (South Africa)
Karl Meissner-Roloff
Dudfield Factory
Ulco Factory
Blending Depots
Stone & Sand Quarries
Ready Mixed Concrete
Slagment
Tanga Cement (62,5%)
Cement
Aveng clusters
Revenue 2005
Engineering, Construction &
Opencast Mining (R9bn)50%
Steel & Allied (R5bn)27%
Cement (equity accounted)
(R4bn)23%
Business segmentation
Trident Steel(23%)
Grinaker-LTA Construction
(37%)Engineering &
Project Management
(3%)
Grinaker-LTA Opencast Mining
(11%)
Grinaker-LTA Manufacturing
(12%)
McConnell Dowell Corporation
(14%)
33%
23%
16%
14%12%
2%
2005 - R13 535 million 2004 - R11 740 million
McConnell Dowell Corporation
Grinaker-LTA Construction
R6,8 billion
Construction
• Significant recovery potential
• Focus on mining, energy and
heavy infrastructure
• Grinaker-LTA Construction
– Gautrain downstream opportunities
– Soccer World Cup, Eskom and
Transnet
– Mining investment
– Non-residential building
• McConnell Dowell Corporation
– China driven
– Oil price driven
Construction segmentation
Mechanical & Electrical
(26%)
Civil & Marine(54%)
Electrical Maintenance
(23%)
Mechanical & Pipelines(23%)
Grinaker-LTA Construction(R5 billion)
McConnell Dowell Corporation(R1,8 billion)
Building & PropertyDevelopment
(36%)
Civils, Roads & Earthworks & Underground Contracting
(38%)
ConstructionImpact of Rand volatility
Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06
5
6
7
8
9
10
11
12
13
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04
Tender exchange rateContract average currency rate
ZAR/US$
Assumptions:1. 3-month award
24-month contract2. Projected exchange rates
at current levels
ConstructionImpact of Rand volatility on profitability
Exchange rate loss/gain
Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06
Forex Gain
Forex Loss
Impact of Rand volatilityCase A: $100m Project - July 2001
-20
0
20
40
60
80
100
120
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Tendered profit
Actual profit
Exchange rate benefits
Months
Pro
fit
& L
oss
(R
an
ds)
R41,5m
Assumptions:•30% of costs in rands•Paid in US$•10% margin•3-month award period•24-month construction period
Impact of Rand volatilityCase B: $100m Project – Oct. 2002
-20
0
20
40
60
80
100
120
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Tendered profit
Actual profit
Exchange rate loss
Months
Pro
fit
& L
oss
(R
an
ds)
(R106,3m)
Assumptions:•30% of costs in rands•Paid in US$•10% margin•3-month award period•24-month construction period
Moving out of Africa
South Africa(75%)
Africa/Middle East
(14%)
Australia & SE Asia
(11%)
34%
10%
56%
Assets 2005 - R7 259 million Assets 2004 - R6 468 million
Construction order book
Grinaker-LTA – South Africa Grinaker-LTA - Africa
79
96
38
5
1912
Building &Property
Development
Civils, Roads &Earthworks &UndergroundContracting
Mechanical &Electrical
2006 2007
49 48
63
410
19
Building &Property
Development
Civils, Roads &Earthworks &UndergroundContracting
Mechanical &Electrical
Order book % of 2005 revenue
Order book % of2005 revenue
Construction order book
81
73
64
75
70
Civil & marine Mechanical & pipelines Electrical Maintenance
20062007
Order book % of 2005 revenue
Grinaker-LTA ConstructionSelected contracts
US$27,5m
Tete Project (Warehouse)Mozambique Leaf Tobacco
US$12mJackets, Bridges & Piles for the EAP 1A ProjectTechnip / ExxonMobil
R481mBerg River Project (Dam)TCTA
R417mMR5 and MR6 – Swaziland (Roads)Ministry of Public Works and Transport - Swaziland
R71mMondi Secondary Effluent Treatment PlantMondi Limited
R104mWalter Sisulu Square of DedicationJohannesburg Development Agency
R53mLow Cost Housing in HeidelbergProvincial Department of Housing
R57mEmperor’s Palace upgrade (Hotel)Peermont Global
McConnell Dowell CorporateSelected contracts
USD$26mBengalon Coal Port & Processing Facility, Kalimantan, Indonesia
PT MitratamaPerkasa & KaltimPrima Coal
SGD$19mPhase 6 Jetties Nos. 18 & 19, JurongIsland, Singapore
Oil Tanking
USD$270m (in JV)
Oil & Gas Pipeline Contracts, AzerbaijanBTC & SCP
NZD$15mMercer to Long Swamp section of the Waikato Expressway,New Zealand
Transit NZ
AUD$60mKogan Creek Civil & Chimney Erection Contracts, Queensland
Siemens
AUD$103mPort Hedland to Telfer Gas Pipeline, Western Australia
GasNet
Grinaker-LTA Opencast Mining
• Number 1 in Africa
• R900 million in assets
• Exchange rate sensitive
• Mali, Guinea, Tanzania, Botswana,
Namibia and South Africa
• Marikana challengeGrinaker-LTA
Opencast Mining
R1,5 billion
Marikana dispute
• 18 Feb 2002 contract awarded for 5 years R12.15 to US$
• Disagreement on “Rise & Fall” price adjustment mechanism
(R130m at June 2005)
• Mediation in March and April 2004 failed
• Arbitration set for 28/29 April 2005
• Agreement on 14 April to appoint auditors to quantify value of
dispute - Report awaited
Order book – Opencast Mining
89
78
2006 2007
135125
2006 2007
Order book % of 2005 revenue
Order book % of 2005 revenue
South Africa Africa
Grinaker-LTA Opencast MiningSelected contracts
R750mSadiola Hill Gold MineAngloGold Ashanti
R1bnGolden Pride Opencast GoldResolute Samantha
R1bnKlipbank Opencast Coal MineIngwe Colliery
R2,03bnWonderwater Opencast Coal MineSasol
Grinaker-LTA Process Engineering
• Upstream of construction on
project value chain
• Attractive risk-adjusted
opportunity
• Focus on mining and energy
clients
• Growth opportunity for Aveng
Grinaker-LTA Engineering &
Project Management
R340 million
Order book – Process Engineering
77
2
2006 2007
5359
2006 2007
South Africa Africa
Order book % of 2005 revenue
Order book % of 2005 revenue
Grinaker-LTA Process EngineeringSelected contracts
R11mSumo Coal Preparation PlantSumo Collieries
R48mSWS ProjectNatref
US$180mMufulira Smelter Expansion Project Phase 1
Mopani Copper Mines (MCM)
R150mAcp Acid Plant RectificationAnglo Platinum
EPCM : R37mCapex: US$43m
Lagos Refined Product Facility Project Energem Nigeria Ltd
R64,7mClear Ash Water Evaporator Replacement Sasol
Aveng Construction order book
75
68
102
66
22
11
92
33
McConnellDowell
Grinaker-LTAConstruction
OpencastMining
ProcessEngineering
2006
2007
Order book % of 2005 revenue
By activity By region
75
68
22
78
37
24
Australia & SE Asia Africa South Africa
Order book % of 2005 revenue
Construction order book (two years)
6.6
8.2
8.7
9.8
8.2
8.9
7.5
8.7
7.2
8.7
0
2
4
6
8
10
12
Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004 June 2005
R billions
Construction order book - (two years)% of revenue
129%
109%
94%
102%
82%
91%
115%
82%
102%
95%
0%
20%
40%
60%
80%
100%
120%
140%
Dec 2000 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004 June 2005
Targetzone
Steel & Allied
• Solid and consistent financial
performance
• Leading positions and large
market shares
• Revenue contribution to Aveng
increased to 37% from 26% over
two years Trident Steel
(23%) Grinaker-LTA Manufacturing
(12%)
R5 billion
Steel & Allied
Trident Steel
• Steel coil: Shaped blanks for automotive industry
• Steel sheet: Cut, bent & drilled for manufacturing industry
• Steel sections: Cut for construction industry
• Steel tube manufacturing capacity updated
• Speciality steel for specialised manufacturing
Grinaker-LTA Manufacturing
• Steeledale: Rebar and mesh• Infraset: Precast concrete
products for infrastructure e.g. railway sleepers, concrete pipes, culverts and poles, pavers and landscaping products
• Duraset: Steel & concrete products for mining e.g. roof bolts, concrete/timber stope support systems
• Lennings Rail: Rail maintenance services
Steel & Allied market segmentsRevenue 2005
Manufacturing(35%)
Automotive(34%)
Construction(22%)
Exports(9%)
Mining(13%)
Construction(85%)
Trident Steel(R3,2 billion)
Grinaker-LTA Manufacturing(R1,8 billion)
Exports(2%)
South African steel market
Prices
--6,5%(5,0%)February 2005
12%19%--January 2005
--7,5%-November 2004
--7,5%6,8%October 2004
--(4,0%)-August 2004
(4,7%)(4,7%)--July 2004
Electro galvanised coil
Cold rolled coilFlat plateStructural steelMonth
Tonnage (% change)
9.9%
4.7%
-8.2%-9.4% -10.5%
7.5% 7.3%
4.0%
-8.0%
11.4%
-9.7%
-5.8%
6.4%4.0%
15.8%
-15.4%
19.8%
-8.2%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Holcim (South Africa)
R4 billion
Cement – Holcim (South Africa)
• Outstanding financial performance
• Number 2 in South Africa with
30% to 34% market share
• 4,1mt of cement capacity
• Nature and timing of additional
capacity being reviewed
• Sand, stone, ready mixed
concrete, slagment, silica fume
and 62% of Tanga Cement
• DK2 R165m upgrade to meet
world class emissions standards
• Aveng owns 46%
Industry cumulative average monthly sales
22 000
27 000
32 000
37 000
42 000
47 000
52 000
Jan
Feb
Mar
Ap
r
May
Jun
Jul
Au
g
Sep
Oct
No
v
Dec
2001 2002 2003 2004 2005
Looking forward
Looking forward - Cement demand
CEMENT MARKET
• Residential 57%
• Non-residential 30%
• Construction 13%
Residential
18.1%
6.3% 6.6%
12.8%
22.5%
10.9%
4.5%3.0%
2000 2001 2002 2003 2004 2005 2006 2007
Non-residential
4.6% 4.9%
-8.4%
1.0%
9.5%7.7%
9.8%
5.6%
2000 2001 2002 2003 2004 2005 2006 2007
Construction
-5.5%-6.9%
11.2%
18.6%
8.2% 7.5%
12.0% 12.0%
2000 2001 2002 2003 2004 2005 2006 2007
Looking forward - Mass housing
•Total investment required estimated to be
R40bn
•Target market is R1 500 to R7 500 monthly
income bracket
Low income housing
(Financial Sector
Charter)
•Reduce backlog of 1,4m units by 50% by
2014
•Gauteng budget R50bn for the next five years
•Target market is the unemployed
Affordable housing
(Government focus)
Mass housing – Cement consumptionC
em
en
t u
sag
e
0
100
200
300
400
500
600
700
800
900
1000
2001 2002 2003 2004 2005 2006 2007 2008
Affordable housing (Government)
Low income housing (FinancialServices Charter)
000 tons
SARB Forecast
AvengForecast
Looking forward - Cement sales
-9.3%
1.9%
7.1%
-2.6%
-10.0%
9.9%
4.5%
6.6%
17.3%
13.9%
8.8%7.0%
5.0%
2.0%
-2.4%
-2.7%
Jun99
Dec99
Jun00
Dec00
Jun01
Dec01
Jun02
Dec02
Jun03
Dec03
Jun04
Dec04
Jun05
Dec05
Jun06
Dec06
Looking forward - Eskom
• R93bn investment by 2010
– R62bn Power stations
– R15bn Transmission
– R9bn IPP Projects
• First projects have already been approved and others still in
feasibility study phase
• Aveng involved in building most of South Africa’s power stations
– Currently involved in building two power stations in Australia
Looking forward - Transnet
• Custodian of port, rail and pipeline infrastructure
• Phase 1 of infrastructure investment plan of R37bn to be split
– R15bn Spoornet
– R14,2bn National Ports Authority
– R4,5bn SA Port Operations
– R3,4bn Pipeline
• Aveng’s has international ports experience and extensive rail
capabilities
Looking forward - Soccer World Cup
Award of 2010 World Cup
Establishment of L.O.C
Government enabling legislation
Audit of provinces & stadia
Design, build and upgrade stadia
SAFA infrastructure completion
FIFA final inspection
Gautrain award
Gautrain
Airports
Roads & stadium precincts
Hotels & private developments
CAF VP Soccer Tournament
Soccer World Cup
2008 2009
2010
2004 2005
2006 2007
Initial deliveryAdjusted delayed deliveryUnchanged delivery
Looking forward – Government infrastructure expenditure
Government infrastructure spending - 2005 to 2008R167 billion
Infrastructure maintenance
19%
Low cost housing13%
Provincial infrastructure
7%Residential services13%
Building24%
Civil/Roads/Transport24%
Looking forward - Civil engineering activity
1.5
2
2.5
3
3.5
4
4.5
2000 2001 2002 2003 2004 2005
Billion
s
Turnover Awards
Looking forward – Automotive industry
Vehicles - Domestic Production and Export
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Export Domestic Production
Number of Vehicles
Source: NAMSA
Looking forward – Fixed investment
Gross Fixed Capital Formation as a Percentage of GDP
0%
5%
10%
15%
20%
25%
30%
35%
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Assuming Government meets its objectives:
•GDP growth of 4%
•GFCF/GDP of 25% by 2014
Then construction industry will approximately double in size over 10 years
Conclusion
• Aquarius Platinum and Aveng need to find a way forward on
Marikana Mine
• Construction has turned and has considerable upside potential
• Steel & Allied and Cement will continue to deliver earnings
growth
Conclusion
• Gearing acceptable and financial structures sound
• Trailblazing BEE initiatives in line with Construction Charter
• Macro variable favourable – stable rand, high oil & commodity
prices, active China and positive fixed investment climate in
South Africa
• Resources available to benefit from increased level of work
Prospects
Aveng will deliver on its three corporate objectives in 2006
– A growth in headline earnings per share of CPIX + 10%
– A return on average equity of CPIX + 10%
– A net debt to equity ratio of 35%
Building Sustainable Value
www.aveng.co.za
Sustainability
Health and safety
• Safety is of paramount importance
– 9 000 employees attended safety courses
– Numerous safety awards including NOSCAR, NOSA and BIFSA
– DIFR 0,69 (2004: 0,62) – considerably better than the industry
average of 8,6
– Achieved five million injury free hours on a single site
• HIV/Aids is our biggest health challenge
– Clear HIV/Aids policy focused on preventative measures
– Wellness programme developed with Lifeline
Environment
• Committed to conducting business in accordance with the
principles of sustainable development
– Protection of the environment
– Welfare of the broader community
• Specific actions include
– ISO 14001 in contracting companies
– Compliance with all relevant environmental legislation
– Compliance with environmental management commitments of clients
– Ensuring compliance by subcontractors and suppliers
Black Economic Empowerment
• 25% of South African managed assets sold to black consortium
– TisoGroup (36%)
– Woman’s Trust (12%)
– Community Empowerment Trust (20%)
– Trust benefiting employees (24%) and black business partners
(8%)
• Suspensive conditions met in February 2005
• Aveng’s BEE transaction in line with Draft Construction Charter
Construction Charter
• Industry, Union and Government stakeholders involved
• Charter will incorporate
– Charter Document (95% complete)
– Scorecard (7-year targets)
• Way forward
– Department of Public Works to ratify Charter document
– DTI to issue Charter as a Code of Good Practice
• Aveng is well aligned with transformation focus of the Charter
Corporate Social Investment
• 1% of prior year’s headline earnings committed to deserving
community investment projects
• CIDA city campus
• Infrastructure development of greater Roodekop for benefit of
local community
• Other examples:
– Borokanelo Trust projects in Kimberley region
– Kutlwanong Home craft development trust
– Development of schools in Dudfield area