2017 FINANCIAL YEAR-END RESULTS PRESENTATION 26 September 2017
OVERVIEW OVERVIEW 2 AGENDA OVERVIEW FINANCIAL ANALYSIS OPERATIONAL REVIEW OUTLOOK Eric Diack Adrian Macartney Eric Diack Eric Diack Executive Chairman CFO Executive Chairman Executive Chairman AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW
OVERVIEW 4 THE PERFECT STORM QCLNG award and related write-down Write-down of uncertified revenue Poor operational performance and cash generation Liquidity Agreement with Australian banks Agreement with major funding banks Results delay Changes to the Board and executive management Queensland Curtis Liquefied Natural Gas Pipeline Project , Australia AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 5 SALIENT FEATURES Net loss of R6,7 billion and headline loss of R6,4 billion Non-cash impairments and write-downs on long-outstanding uncertified revenue of R5,9 billion Headline loss of R630 million excluding non-recurring write-downs and charges QCLNG award of R508 million (AUD50,5m) Fixed overhead expenses reduced by R503 million or 18% Unacceptable operating performance, hence operational intervention Current net asset value of R14,56 per share Contracting businesses’ order book for FY18 100% secured Agreement reached with major funding banks to renew and extend facilities Not business as usual Built Environs – Urbanest Project, Adelaide AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 6 UNCERTIFIED REVENUE AND IMPAIRMENTS The reassessment of the long outstanding uncertified revenue was guided by: The need to address the balance sheet risk Unfavourable claims outcomes such as QCLNG, Kenmare Resources and Mokolo Crocodile Water Augmentation Current economic climate has resulted in a highly litigious environment Focus on commercial settlements rather than adversarial, unpredictable and expensive litigation Allowing management to focus on client relationships and current operational performance rather than time consuming litigation The review resulted in a non-cash write-down of R2,7 billion The QCLNG award of R508 million (AUD50,5m) was below expectation, resulting in non-cash write-down of R2,4 billion Total write-downs together with the associated deferred tax impairments amounted to R5,6 billion Aveng Steel assets impaired by R273 million Six major commercial settlements and arbitration awards have been concluded, resulting in positive cash inflows and removing uncertainty Dr Pixley Ka Isaka Seme Memorial Hospital – Aveng Grinaker-LTA Buildings, KZN AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 7 LIQUIDITY Net debt of R1,070 billion (June 2016: R534 million) Disposed of Aveng Capital Partners assets for R821 million Operating cash flows not acceptable Impairments, poor performance and the requirement to recapitalise McConnell Dowell necessitated discussions with major funding banks These discussions, together with the finalisation of the review of uncertified revenue, caused a delay in release of results Reached agreement with major funding banks to renew and extend their facilities McConnell Dowell recapitalisation now complete Additional performance measures implemented to monitor cash flow Majuba Rail Project, Aveng Grinaker-LTA Civil Engineering, Ermelo AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 8 STRATEGIC REVIEW A robust strategic review has been initiated in conjunction with independent consultants to address: Optimal business portfolio Identification of non-core assets Creation of a sustainable balance sheet addressing : optimal capital structure sustainable funding model for McConnell Dowell the convertible bond the need for a lower interest charge The review will be completed in November 2017 Artist Impression: West Franklin, McConnell Dowell AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 9 REMEDIAL ACTIONS TO DATE Addressed uncertified revenue and derisked the balance sheet Improved process and controls for the recognition of uncertified revenue Significantly down-sized overheads Profit Improvement Programme at Aveng Manufacturing yet to yield full benefits McConnell Dowell organisational reset Simplified organisation with new operating model Empowered business units Strengthened technical and operational capabilities Structured project review process: improved project and business governance Increased connectivity and collaboration – enhanced efficiency Strengthened client focus Enhanced and refreshed the executive leadership of the business Aveng Board and executive management changes Aveng DFC Manufacturing Facility - Johannesburg AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 10 OPERATIONAL REVIEW Aveng Manufacturing: Improved top management bench-strength Executive focus required on Profit Improvement Programme Focussed on markets, procurement, production efficiency and rationalise production capacity in line with demand Quantified targets to be reported by half-year Aveng Grinaker-LTA: Appointment of Aveng Grinaker-LTA managing director, search underway Organisational design to be reviewed Comprehensive review of major civils projects Building and Coastal margin enhancement intervention Mechanical & Electrical, Aveng Water and Aveng Rand Roads performing to budget Report back on interventions by half-year Enhanced focus on cash flow and performance monitoring across the Group Aveng Duraset Manufactuirng Facility AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
OVERVIEW 11 MARKET CONDITIONS Local infrastructure market remains subdued, with limited large projects in both public and private sector. Current public infrastructure spend is focussed on the transportation, energy and water segments. Improved outlook for the mining sector resulting in increased production and prices in some commodities The Australian infrastructure market remains buoyant, limited growth expected in the mining sector but growth will be driven by road, rail and power infrastructure projects Australian building industry remains strong with accommodation and defence opportunities in South Australia Growth in Southeast Asian markets remains healthy, driven by investments in infrastructure, water utilities and energy projects The market in New Zealand continues to gain momentum as a result of government investment in large-scale infrastructure projects AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS 13 EARNINGS AND ADJUSTED EARNINGS Adjusted FY 2017 FY 2017 FY 2016 Rm Rm Rm Revenue 23 456 27 442 33 755 Gross margin % 7.2 7.4 (13.4) Operating expenses (2 305) (2 808) (2 305) Adjusted net operating earnings / (loss) (5 395) (113) 146 Net interest (444) (341) (444) Impairment of PPE and intangibles - (333) (278) Write-down of uncertified revenue (5 117) - - Headline loss (6 449) (630) (299) Headline loss per share (158.8) (1 625.3) Aveng Mining, Thubelisha AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
FINANCIAL ANALYSIS 14 ADJUSTED NET OPERATING EARNINGS - WATERFALL Full year ended 30 June 2017(Rm) 2 615 2 352 165 150 (113) (5 395) Settlement Agreement Adjusted earnings Earnings (pre-adjusted) Impairment of QCLNG Non-cash write-down Kenmare loss with South African 30 June 2017 30 June 2017 of uncertified revenue government AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
FINANCIAL ANALYSIS 15 ADJUSTED SEGMENTAL RESULTS Adjusted revenue Adjusted operating earnings /(loss) FY 2017 FY 2016 FY 2017 FY 2016 % change Rm Rm Rm Rm C&E South Africa and rest of Africa 6 080 7 344 (17) (188) (148) C&E Australasia and Asia 9 293 12 828 (28) (129) 14 Aveng Mining 4 184 5 026 (17) 219 276 Aveng Manufacturing 2 444 2 965 (18) 51 95 Aveng Steel 5 492 5 829 (6) (54) (165) Other & eliminations (51) (237) 78 (12) 74 27 442 33 755 (19) (113) 146 AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
FINANCIAL ANALYSIS 16 STATEMENT OF FINANCIAL POSITION Jun’17 Dec’16 Jun’16 Jun’17 Dec’16 Jun’16 % % Rm Rm Rm Rm Rm change Rm change LIABILITIES & EQUITY 17 687 22 849 (23) 25 332 ASSETS 17 687 22 849 (23) 25 332 Goodwill and intangible LIABILITIES 613 662 (7) 667 assets Borrowings and liabilities 3 066 2 954 4 2 984 Property, plant and 4 611 4 513 2 4 843 equipment Working capital 7 260 6 318 15 7 208 Investments 599 318 88 277 Deferred taxation 319 242 (32) 266 Deferred taxation 1 290 1 870 (31) 1 858 Other liabilities 171 142 20 133 Other assets 63 5 >100 20 Employee-related payables 813 628 29 938 Working capital 8 393 12 363 (32) 13 733 Non-current liabilities - 129 (100) 247 held-for-sale Non-current assets 122 1 101 (89) 1 484 held-for-sale EQUITY 6 058 12 436 (51) 13 556 Cash and bank balances 1 996 2 017 (1) 2 450 NAV PER SHARE 14.5 29.9 32.5 AUDITED GROUP RESULTS FOR THE YEAR-ENDED 30 JUNE 2017 │ 26 SEPTEMBER 2017
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