Management reviews > Financial director’s review
 
Our business fundamentals remain sound despite the tough market conditions and Aveng is well placed to apply capital to fuel growth opportunities as a result of its strong balance sheet and positive cash balances.
     
     


Financial performance

The Group lifted revenue by 14% to R33,8 billion over the last year. The Construction and Engineering and Opencast Mining segments showed strong revenue increases of 21% and 26%, respectively. However, the Manufacturing and Processing segment came under significant pressure due to weak steel prices and lower volumes in the second half of the year, reflecting a 6% decrease in revenue.

Operating profit decreased by 13% to R2,1 billion (2008: R2,4 billion), primarily due to the significantly lower steel prices and reduced volumes. This was offset somewhat by continued improvements in operating margins from the Construction and Engineering and Opencast Mining segments. The operating profit margin declined to 6,3% from 8,2% in the previous year as operating expenses increased by 30%. The Group received net income from investments of Our business fundamentals remain sound R715,3 million (2008: R866,2 million) in line with the Group’s despite the tough market conditions and net cash position, which decreased in line with the return Aveng is well placed to apply capital to fuel of cash to shareholders in the form of a special dividend and the share repurchase programme which has totalled growth opportunities as a result of its strong R4,6 billion since March 2008.

The Group reported a lower net effective tax rate of 27,7% (2008: 30,5%) which resulted from the change in geographic earnings. In addition, a deferred tax asset of R46,3 million was charged to the income statement following the conversion of the remaining R80 million of the corporate bond into equity.

Earnings attributable to Aveng shareholders decreased by 9% to R2,1 billion from R2,3 billion reported last year. Headline earnings declined by 10% to R2,1 billion compared to R2,3 billion in 2008.

Headline earnings per share decreased by 11% to 528,5 cents (2008: 591,4 cents) and earnings per share of 538,8 cents (2008: 594,2 cents) reflected a reduction of 9%.

Shareholders’ equity

Under the general authority granted to the Aveng Group at its annual general meeting in October 2008, the Group repurchased shares in the amount of R414,3 million (8,0 million shares) which were subsequently cancelled.

The R80 million remaining portion which was still outstanding on the R1,0 billion corporate bond was converted into equity between November 2008 and the end of June 2009 at the contractual conversion rate of R14,30. These conversions entailed the issue of 5,6 million new Aveng shares with a par value of 5,0 cents at a premium of R14,25 per share.

The net effect of the share repurchase and the bond conversion was a decrease in the total number of shares in issue by 2,5 million to 396,0 million (2008: 398,5 million).

The share premium moved from R1,9 billion to R2,0 billion, reflecting a net increase of R85,4 million which is a reflection of the share premium raised on the bond conversion.

Share capital showed a small increase due to the net effect of the share repurchase and the bond conversion, resulting in a reduction in total shares in issue of 2,5 million shares, at par value of 5,0 cents.

Foreign currency transaction reserves (FCTR) reflect a R245,7 million decrease in a negative non-distributable reserve of R125,5 million, relating to the carrying value of McConnell Dowell at the end of the financial year. The Rand strengthened significantly to R6,30 to the Australian Dollar in June 2009 from R7,58 in the comparable period leading to a change of R264,1 million in the FCTR.

                                           

Distributable reserves showed a net increase of R520,2 million from R8,5 billion to R9,0 billion at the end of 2009, net of the R1,1 billion dividend paid in 2009.

Goodwill and other intangibles

Goodwill and other intangibles were recorded at R1,1 billion, a net increase of R269,7 million from 2008. The increase is largely attributable to Built Environs Group (Australia) and Keyplan (Pty) Limited being acquired during the year. Goodwill is periodically tested for impairment.

Diluted weighted number of shares

The diluted weighted average number of shares of 429 368 990 was reduced by the consolidation of the Aveng Limited Share Incentive Trust, which holds 6,0 million (2008: 6,1 million shares) Aveng Limited shares.
   
Weighted average number of shares in issue by Company 394 076 109  
Less: Weighted average number of treasury shares (6 037 716,7) 
Weighted average number of shares in issue 388 038 394  
Add: Contingently issuable shares 41 330 596  
Diluted weighted average number of shares in issue 429 368 990