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Group performance review and outlook

Audited summarised consolidated annual financial statements

Accounting policies to the summarised consolidated annual financial statements

1. Corporate information

The summarised consolidated annual financial statements of the Group for the year ended 30 June 2014 were authorised for issue in accordance with a resolution of the directors on 25 August 2014.

Aveng Limited is a limited liability company incorporated and domiciled in the Republic of South Africa whose shares are publicly traded. The Group operates in the construction, engineering and mining environment and as a result the revenue is not seasonal in nature, but is influenced by the nature and execution of the contracts currently in progress. Refer to the commentary here for a detailed report on the performance of the different operating segments within the Group.

2. Basis of preparation and accounting policy

The summarised consolidated annual financial statements have been prepared on a historical cost basis, except for certain financial assets which are measured at fair value.

These summarised consolidated annual financial statements are presented in South African rand ("ZAR") and all values are rounded to the nearest million ("Rm") except where otherwise indicated. The summarised consolidated annual financial statements are prepared in accordance with IAS 34 – Interim Financial Statements and the Listings Requirements of the JSE Stock Exchange Limited ("JSE"). The accounting policies adopted are consistent with those of the previous year, except for the adoption of new and revised standards and interpretations that became effective during this reporting period.

The summarised financial results do not include all the information and disclosures required in the consolidated annual financial statements, and should be read in conjunction with the Group's audited consolidated annual financial statements as at 30 June 2014 that are available on the company's website, www.aveng.co.za.

The annual financial results have been prepared under the supervision of the Chief Executive Officer ("CEO") and acting Group Financial Director, Mr HJ Verster.

The results have been audited by Ernst & Young Incorporated and the unqualified audit opinion is available on request from the company secretary at the Company's registered office and our website at www.financialresults.co.za/2014/aveng-integrated-report-2014/sumauditopinion.

Contracting revenue

The Group uses the percentage of completion method in accounting for its construction contracts. Use of the percentage of completion method requires the Group to estimate the construction services and activities performed to date as a proportion of the total services and activities to be performed. In addition, judgements are required when recognising and measuring any variations or claims on each contract.

3. New accounting standards and interpretations adopted, changes in accounting policies
and other reclassifications

As part of the Group's financial reporting improvement initiatives, the structure, format and presentation of disclosures in the summarised consolidated annual financial statements were reviewed. This resulted in the reallocation of certain comparative amounts.

For more detail on new accounting standards and interpretations adopted, changes in accounting policies and other reclassifications, refer to the full consolidated annual financial statements available on the Group's website.

Change in accounting policy – Investment property

During the year, the Group changed its accounting policy on investment property from the cost model to the fair value model. There is no impact in the prior year as the property was acquired late in June 2013 and the fair value approximated the cost at the acquisition date. Earnings and losses arising from changes in the fair value of investment properties are included in earnings in the period in which they arise.

N3 Toll concession ("N3TC")

In prior years the available-for-sale investment in N3TC was shown at cost, which approximated fair value, due to limited marketability and reliable valuation methodologies for investments of this nature.

As a result of the adoption of IFRS 13 – Fair value measurement, and a single framework being applied for all fair value measurements, the fair value of the investment was determined by calculating the present value of the projected equity cash flows related to the Group's 10,9% shareholding, based on the risk-adjusted discount rate of 18%. The projected equity cash flows comprising dividends and equity investments were sourced from the updated N3TC financial model. The financial model forecasts revenue (toll pricing and traffic volume), operating costs, capital expenditure and other relevant financial performance measures over the concession term.

 

Notes to the summarised consolidated annual financial statements

4. Segmental report

The Group has determined four reportable segments that are largely organised and managed separately according to the nature of products and services provided.

These operating segments are components of the Group:
  • that engage in business activities from which they earn revenues and incur expenses; and
  • which have operating results that are regularly reviewed by the Group's chief operating decision makers to make decisions about resources to be allocated to the segments and assess their performance.
  Construction and
Engineering
       
Segment report
2014 (Rm) 
South  
Africa  
and the  
rest of  
Africa  
Australasia  
and Asia  
Mining   Manu-  
facturing  
and  
Processing  
Adminis-  
tration  
and  
Eliminations  
Total  
External revenue   8 105   28 169   6 581   9 958   146   52 959  
Internal revenue   438   —   1   654   (1 093)  —  
Gross revenue   8 543   28 169   6 582   10 612   (947)  52 959  
Cost of sales   (8 529)  (26 594)  (5 708)  (9 459)  1 168   (49 122) 
Gross earnings   14   1 575   874   1 153   221   3 837  
Other earnings   48   (10)  (14)  248   (18)  254  
Operating expenses   (662)  (1 296)  (332)  (1 036)  (47)  (3 373) 
Operating (loss) /earnings before other gains and losses   (600)  269   528   365   156   718  
Earnings / (loss) from equity-accounted investments   27   2   1   (1)  4   33  
Share of dividend earnings from available-for-sale investments   7   —   —   —   26   33  
Net operating
(loss) / earnings  
(566)  271   529   364   186   784  
Impairment of              
non-financial assets   —   —   —   —   (831)  (831) 
Fair value adjustment   —   —   —   —   15   15  
Finance earnings   53   39   17   11   16   136  
Finance and transaction expenses   (63)  (101)  (59)  (7)  (89)  (319) 
(Loss) / earnings before taxation   (576)  209   487   368   (703)  (215) 
Taxation   152   (14)  (163)  (110)  (26)  (161) 
(Loss) / earnings after taxation   (424)  195   324   258   (729)  (376) 
Capital expenditure*   152   243   298   406   138   1 237  
Depreciation   (85)  (258)  (407)  (112)  (19)  (881) 
Amortisation   (13)  —   —   (5)  (10)  (28) 
* Segment capital expenditure includes an intangible asset investment R176 million.  

  Construction and
Engineering
       
Segment
report 2013
(Rm)*  
South   
Africa   
and the   
rest of   
Africa**
Australasia  
and Asia  
Mining   Manu-   
facturing   
and   
Processing**
Adminis-  
tration  
and  
Eliminations  
Total  
External revenue   7 173    26 749   7 435   10 146    201   51 704  
Internal revenue   219    —   —   409    (628)  —  
Gross revenue   7 392    26 749   7 435   10 555    (427)  51 704  
Cost of sales   (7 738)   (24 918)  (6 427)  (9 477)   327   (48 233) 
Gross (loss) / earnings   (346)   1 831   1 008   1 078    (100)  3 471  
Other earnings   140   5   71   191   23   430  
Operating expenses   (765)   (1 192)  (381)  (1 034)   98   (3 274) 
Operating (loss) / earnings before other gains and losses   (971)   644   698   235    21   627  
(Loss) / earnings from equity-accounted investments   (2)   (5)  2   —    (7)  (12) 
Share of dividend earnings from available-for-sale investments   5    —   1   —    35   41  
Net operating (loss) / earnings   (968)   639   701   235    49   656  
Finance earnings   39    57   11   11    14   132  
Finance and transaction expenses   (8)   (80)  (43)  (10)   (21)  (162) 
(Loss) / earnings before taxation   (937)   616   669   236    42   626  
Taxation   472    (157)  (315)  (36)   (131)  (167) 
(Loss) / earnings after taxation   (465)   459   354   200    (89)  459  
Capital expenditure***   47    384   615   306    106   1 458  
Depreciation   (93)   (402)  (581)  (93)   (12)  (1 181) 
Amortisation   (11)   —   —   (10)   (29)  (50) 
* Comparatives have been amended as detailed in note 3: New accounting standards and interpretations adopted, changes in accounting policies and other reclassifications.
** Aveng Steel Fabrication ("ASF"), Aveng Manufacturing Automation & Control Solutions ("A&CS") and Aveng Manufacturing Facades business units are now reported under the Manufacturing and Processing segment compared to the Construction and Engineering: South Africa and the rest of Africa segment in the prior year. Comparatives have been adjusted.
*** Segment capital expenditure includes an intangible asset investment of R29 million.

  Construction and
Engineering
       
Segment report
2014 (Rm) 
South  
Africa  
and the  
rest of  
Africa  
Australasia  
and Asia  
Mining   Manu-  
facturing  
and  
Processing  
Adminis-  
tration  
and  
Eliminations  
Total  
ASSETS              
Investment property   —   —   —   —   86   86  
Property, plant and equipment   702   1 170   2 746   1 374   354   6 346  
Goodwill arising on consolidation   —   431   —   —   232   663  
Intangible assets   6   35   —   155   125   321  
Equity-accounted investments   18   56   4   —   228   306  
Available-for-sale investments   —   64   —   —   126   190  
Deferred taxation assets   965   472   238   (102)  (170)  1 403  
Amounts due from contract customers   2 185   8 085   997   534   (450)  11 351  
Inventories   98   23   304   2 368   —   2 793  
Trade and other receivables   242   174   93   1 980   296   2 785  
Cash and bank balances   330   2 830   466   720   (210)  4 136  
Non-current assets              
held-for-sale   —   —   —   —   607   607  
TOTAL ASSETS   4 546   13 340   4 848   7 029   1 224   30 987  
LIABILITIES              
Deferred taxation liabilities   2   —   211   18   26   257  
Borrowings and other liabilities   —   862   653   7   1 345   2 867  
Employee-related payables   196   886   230   151   112   1 575  
Amounts due to contract customers   669   1 612   231   106   59   2 677  
Trade and other payables   1 368   5 202   824   2 307   104   9 805  
Taxation payable   18   61   95   —   39   213  
Payables other than contract-related   197   —   —   —   —   197  
TOTAL LIABILITIES   2 450   8 623   2 244   2 589   1 685   17 591  
             
  Construction and
Engineering
       
Segment report
2013 (Rm)*  
South    
Africa    
and the    
rest of    
Africa**
Australasia  
and Asia  
Mining   Manu-    
facturing    
and    
Processing**
Adminis-  
tration  
and  
Eliminations  
Total  
ASSETS              
Investment property   —     —   —   —     71   71  
Property, plant and equipment   647     1 146   2 872   1 401     723   6 789  
Goodwill arising on consolidation   —     377   —   —     1 048   1 425  
Intangible assets   16     32   —   57     79   184  
Equity-accounted investments   (10)    49   3   —     102   144  
Available-for-sale investments   —     58   —   —     12   70  
Deferred taxation assets   823     451   188   82     (197)  1 347  
Amounts due from contract customers   1 895     6 409   1 061   467     (575)  9 257  
Inventories   129     17   292   2 342     —   2 780  
Trade and other receivables   254     509   (110)  1 804     316   2 773  
Cash and bank balances   527     2 477   794   476     (154)  4 120  
TOTAL ASSETS   4 281     11 525   5 100   6 629     1 425   28 960  
LIABILITIES              
Deferred taxation liabilities   12     60   139   91     17   319  
Borrowings and other liabilities   —     767   698   —     66   1 531  
Employee-related payables   181     947   328   145     69   1 670  
Amounts due to contract customers   1 015     955   528   58     (189)  2 367  
Bank overdraft   —     —   —   122     101   223  
Trade and other payables   1 168     4 921   861   1 761     339   9 050  
Taxation payable   10     86   28   25     61   210  
Payables other than contract-related   283     —   —   —     —   283  
TOTAL LIABILITIES   2 669     7 736   2 582   2 202     464   15 653  
  ** Comparatives have been amended as detailed in note 3: New accounting standards and interpretations adopted, changes in accounting policies and other reclassifications.
  ** Aveng Steel Fabrication (“ASF”), Aveng Manufacturing Automation & Control Solutions (“A&CS”) and Aveng Manufacturing Facades business units are now reported under the Manufacturing and Processing segment, compared to the Construction and Engineering: South Africa and the rest of Africa segment in the prior year. Comparatives have been adjusted.  

The Group operates in five principal geographical areas:  
  2014   2013   2014   2013* 2014   2013  
  Revenue  
Rm  
Revenue  
Rm  
Segment  
assets  
Rm  
Segment  
assets  
Rm  
Capital  
expenditure  
Rm  
Capital  
expenditure  
Rm  
South Africa   19 489   19 164   14 205   13 564   794   750  
Rest of Africa including Mauritius   4 609   4 984   2 706   3 350   199   257  
Australasia and Asia   25 001   24 661   12 377   10 768   225   327  
Southeast Asia   3 300   2 544   1 244   989   19   57  
Middle East and              
other regions   560   351   455   289   —   67  
  52 959   51 704   30 987   28 960   1 237   1 458  
  * Comparatives have been amended as detailed in note 3: New accounting standards and interpretations adopted, changes in accounting policies and other reclassifications.  
5. Investment property, property, plant and equipments and intangible assets

During the year ended 30 June 2014, the Group acquired assets at a cost of R1 237 million (2013: R1 502 million), applied to R384 million (2013: R459 million) in expansions, and R677 million (2013: R925 million) in replacements relating to property, plant and equipment, R176 million (2013: R47 million) in intangible assets and R nil (2013: R71 million) in investment property.

The change in accounting policy on investment property from the cost model to the fair value model resulted in an increase of R15 million (before taxation) in the carrying amount of the property.

Indefinite useful life intangible assets of R15 million were impaired during the current financial year. Refer to note 6: Impairment of non-financial assets for further details.

6. Impairment of non-financial assets

As at 30 June 2014, the market capitalisation of the Group was below the carrying amount of its equity, resulting in the identification of a potential indicator of impairment of goodwill and other assets of the Group.  

Cash-generating unit (“CGU”) impaired: Goodwill and associated indefinite useful life intangible asset
  • Aveng Engineering: Goodwill of Aveng Water business unit
  • Aveng Grinaker-LTA: Goodwill and associated indefinite useful life asset

• Aveng Engineering
The recoverable amount of the Aveng Engineering, CGU which includes the Aveng Water business, does not require impairment on a technical basis. However, this position is premised on the Aveng Water business remaining within Aveng Engineering.

From 1 July 2014, the operating group will be managed by Aveng Grinaker-LTA.

As such the Aveng Water business unit would play a supporting role in securing for example, civil engineering water infrastructure contracts, as opposed to its current market facing position. Consequently, the relocation to another business unit and its ancillary role therein would have a detrimental impact on the R75 million goodwill of the Aveng Water business, especially given the further impairment below. The Group has consequently determined to fully impair the goodwill directly related to Aveng Engineering’s Water business amounting to R75 million. No other impairment of the assets of Aveng Engineering is considered necessary.

• Aveng Grinaker-LTA
Given the fact that a verifiable and objective fact pattern supporting the turnaround of Aveng Grinaker-LTA remains largely qualitative in nature, a pragmatic view was adopted relating to the recoverability of the R741 million goodwill and R15 million associated with indefinite useful life intangible assets.

Significant strides have been made in improving the quality of management and processes within the operating group and whilst the net operating loss position has reduced in 2014 along with the recent cash burn rate, a number of legacy issues continue to affect the business, notably within the Mechanical and Electrical business unit. Despite a robust zero-based budgeting and business planning process applied to the CGU, the construction industry remains challenging thereby increasing the range of key assumptions used in the valuation. These factors have the ability to detrimentally impact the recoverable amount assumptions modelled for this operating group.

Based on the sensitivities of the recoverable amount to changes in discount rate and margin assumptions, the Group fully impaired the goodwill directly related to Aveng Grinaker-LTA, amounting to R741 million.

The impairment loss has been included in a separate line item in the statement of comprehensive earnings.

The LTA trademark is considered to have an indefinite useful life given the strength and durability of the trademark and the time it has been in existence. As part of the impairment testing that was performed on the goodwill balance, an impairment of the LTA trademark to the value of R15 million was also effected.  

Impairments recognised during the year   2014  
Rm  
2013  
Rm  
Goodwill   (816)  —  
Intangible assets   (15)  —  
  (831)  —  
There was no impairment of property, plant and equipment during the current year (2013: R2 million).      
7. Deferred taxation
Impairments recognised during the year   2014  
Rm  
2013  
Rm  
Reconciliation of deferred taxation asset      
At the beginning of the year   1 347   998  
Transfer from statement of comprehensive earnings – current year   234   209  
Transfer from statement of comprehensive earnings – prior year   (97)  71  
Effect of change in foreign tax rate   (2)  (1) 
Foreign currency translation movement   49   66  
Reallocation from deferred taxation liability   33   (117) 
Restructuring   (161)  121  
  1 403   1 347  
Reconciliation of deferred taxation liability      
At the beginning of the year   (319)  (299) 
Transfer from statement of comprehensive earnings – current year   (42)  (33) 
Transfer from statement of comprehensive earnings – prior year   1   19  
Available-for-sale fair value reserve   (21)  —  
Reallocation from deferred taxation asset   (33)  117  
Restructuring   161   (121) 
Foreign currency translation movement   (4)  (2) 
  (257)  (319) 
Deferred taxation asset balance at year-end comprises      
Accelerated capital allowances   (368)  (338) 
Provisions   577   498  
Contracts*   (194)  21  
Other   426   174  
Assessed losses carried forward*   962   992  
  1 403   1 347  
Deferred taxation liability balance at year-end comprises      
Accelerated capital allowances   (304)  (384) 
Provisions   20   16  
Contracts   1   35  
Other   (3)  11  
Assessed losses carried forward   29   3  
  (257)  (319) 
* In addition an amount of R383 million was reclassified between assessed losses carried forward and contracts. The reclassification had no impact on the net deferred taxation asset balance, net deferred taxation liability balance or earnings.  

Unused taxation losses  

The Group’s results include a number of legal statutory entities within a number of taxation jurisdictions. The deferred taxation assets cannot be offset against the deferred taxation liabilities, as the Group will not be able to settle taxation on a net basis in most of the different jurisdictions.

As at June 2014, the Group had unused taxation losses of R4 301 million (2013: R3 577 million) available for offset against future profits. A deferred taxation asset has been recognised in respect of R3 691 million (2013: R3 304 million) of such losses. No deferred taxation asset has been recognised in respect of the remaining R610 million (2013: R273 million) due to the uncertainty of future taxable profits in the related specific local entities.

The Group performed a five-year forecast for the financial years 2015 to 2019 which is the key evidence that supports the recognition of the deferred taxation asset. This forecast specifically focused on Aveng (Africa) Proprietary Limited, out of which Aveng Grinaker-LTA operates and which, given its financial performance over the past three years, has contributed significantly to these assessed losses in the Group. Aveng Grinaker-LTA has been repositioned in 2013 and 2014 to strengthen its service offering to clients in its core operations. This process saw new executive leadership progressively appointed during the year. The new management has been tasked with minimising losses and cash outflows on existing contracts, strengthening contract execution and commercial management and to return Aveng Grinaker-LTA to profitability. Fundamental to these initiatives is securing quality contracts that fulfil both risk and return requirements for the Group. Inputs used assumed forecast real revenue growth averages of 3,9% between 2014 and 2019 that are supported by average industry benchmarks. Furthermore, the industry benchmark for average gross margins over the past ten years was approximately 9%. These have been used as key inputs into the five-year forecast for the periods 2015 and beyond.

Also included in Aveng (Africa) Proprietary Limited are Aveng Manufacturing and Aveng Steel operating groups. Aveng Trident Steel will continue to focus on diversifying its revenues and strengthening its profit margins by increasing its branch network in South Africa, increasing value added products and maintaining its focus on operational efficiency improvements. Aveng Manufacturing enters challenging market environments in a strong position in the 2015 financial year. These two operating groups are expected to continue their contribution to earnings and thereby also reduce the extent of assessed losses in Aveng (Africa) Proprietary Limited.

8. Amounts due from / (to) contract customers
  2014  
Rm  
2013  
Rm  
Uncertified claims and variations (underclaims)  6 763   4 181  
Provision for amounts due from contract customers   (1 102)  (1 076) 
Progress billings received (overclaims)  (1 766)  (1 690) 
Uncertified claims and variations less progress billings received   3 895   1 415  
Contract receivables   5 527   6 042  
Provision for contract receivables   (46)  (64) 
Retention receivables   209   174  
  9 585   7 567  
Amounts received in advance   (911)  (677) 
Net amounts due from contract customers   8 674   6 890  
Disclosed on the statement of financial position as follows:      
Uncertified claims and variations   6 763   4 181  
Provision for amounts due from contract customers   (1 102)  (1 076) 
Contract and retention receivables   5 736   6 216  
Provision for contract receivables   (46)  (64) 
Amounts due from contract customers   11 351   9 257  
Progress billings received   (1 766)  (1 690) 
Amounts received in advance   (911)  (677) 
Amounts due to contract customers   (2 677)  (2 367) 
Net amounts due from contract customers   8 674   6 890  
9. Cash and bank balances
  2014  
Rm  
2013  
Rm  
Cash and bank balances consist of:      
Cash and bank balances   4 136   4 120  
Less: Bank overdrafts   —   (223) 
  4 136   3 897  
Cash and bank balances at the end of the period include the following cash and bank balances that are restricted from immediate use:      
Group share of cash held by joint operations   636   935  
  636   935  
Off-setting of transactional banking counterparty’s balances      
Favourable balance   1 648   1 444  
Overdraft   (598)  (377) 
Net balance included in cash and bank balances   1 050   1 067  
The Group has early-adopted IAS 32 – Financial instruments: Presentation, and therefore the Group is offsetting notional
10. Non-current assets held-for-sale

During the current year, the Group made a decision to dispose of non-core properties. These have been classified as non-current assets held-for-sale at year-end. These properties will be sold as a single portfolio of land and buildings and therefore meets the definition of a disposal group. When assessed for impairment (as a single portfolio), the fair value as determined by valuation experts substantially exceeds the carrying amount of the properties and therefore no impairment is necessary. The Administration and Eliminations segment houses the disposal group. Refer to note 4: Segment report, for more information.  

No formal offers from potential buyers were sited by year-end and no agreement is in place regarding the sale of the abovementioned properties. Once the sale is concluded, the intention of management is to lease back these properties. It is unlikely that the lease period will be for the majority of their useful lives. These leases will be classified as operating leases in terms of IAS 17 – Leases, and thus the properties will be sold outright.

11. Payables other than contract-related
Reconciliation of payables other than contract-related – 2014  
  Opening  
balance  
Rm  
Reallocated /  
Recognised  
Rm  
Utilised  
Rm  
Unwinding  
of discount  
Rm  
Total  
Rm  
Payables other than contract-related   283   —   (102)  16   197  
 
Reconciliation of payables other than contracted-related – 2013  
  Opening  
balance  
Rm  
Reallocated /  
Recognised  
Rm  
Utilised  
Rm  
Unwinding  
of discount  
Rm  
Total  
Rm  
Payables other than contract-related   307   (24)  —   —   283  
           

The Group has proactively engaged and cooperated with the Competition Commission in its investigation into historic anti-competitive practices in the South African construction industry. In June 2013, the Group entered into a settlement agreement with the Competition Commission with respect to the abovementioned investigations, levying an administrative penalty against the Group of R307 million. This represents a full and final settlement of all alleged collusive conduct as defined in the Consent Agreement, confirmed by the Competition Tribunal. During the current year, an amount of R102 million was paid. The remaining balance will be settled over the next two years.

At the date on which these summarised consolidated annual financial statements have been approved, the Group is not aware of any civil damage claims, relating to the Competition Commission Consent agreement that was confirmed by the Competition Commission Tribunal.

12. Taxation
  2014  
Rm  
2013  
Rm  
Major components of the taxation expense      
Current      
Local income taxation – current period   30   131  
Local income taxation – recognised in current taxation for prior periods   (9)  (5) 
Dividend withholding taxation   —   1  
Foreign income taxation or withholding taxation – current period   262   348  
Foreign income taxation or withholding taxation – recognised in current taxation for prior periods   (28)  (43) 
  255   432  
Deferred      
Deferred taxation – current period   (192)  (176) 
Deferred taxation – foreign rate change   2   1  
Deferred taxation – arising from prior period adjustments   96   (90) 
  (94)  (265) 
  161   167  

The net movement on deferred taxation amounts to R118 million (2013: R329 million), which comprises a credit to the statement of comprehensive earnings of
R94 million, a debit of R21 million (2013: R nil) fair value adjustment on available-for-sale investments (R114 million at the CGT rate of 18,7%) and R45 million to the foreign currency translation reserve.

South African income taxation is calculated at 28% (2013: 28%) of the taxable income for the year. Taxation in other jurisdictions is calculated at rates prevailing in the relevant jurisdictions.

13. Contingent liabilities
Contingent liabilities at the reporting date, not otherwise provided for in the summarised consolidated annual financial statements, arising from:  
Performance bonds and guarantees issued in:   2014   2013  
– South Africa and the rest of Africa (ZARm)  8 238   8 179  
– Australasia and Asia (AUDm)  4 800   4 580  
Other contract claims (ZARm)  —   3  
South Africa and the rest of Africa      
Guarantees and bonds (ZARm)  5 150   5 013  
Parent company guarantees (ZARm)  3 088   3 166  
8 238   8 179  
Australia and Asia      
Guarantees and bonds (AUDm)  651   646  
Parent company guarantees (AUDm)  4 149   3 934  
4 800   4 580  

Contract performance guarantees issued by the parent company on behalf of other Group companies are calculated either on the basis of all or part of the contract sum of each respective assignment, depending on the terms of the agreement, without being offset against amounts received as compensation from the customer.  

Performance bonds and guarantees issued in Australia includes advance payment guarantees for an amount of AUD142,5 million (R1 429 million), of which AUD30 million (R301 million) was called on 1 July 2014, have been issued by McConnell Dowell to the client on the QCLNG contract. A letter of support has been issued by Aveng Limited indicating continued financial support on the guarantees still outstanding.  

Taxation dispute with Zambia Revenue Authority ("ZRA")

A subsidiary of the Group, Moolmans Mining Zambia, is currently in a taxation dispute with the ZRA relating to additional taxation assessments issued to the company by the ZRA. The dispute is currently ongoing. As at 30 June 2014, the outcome of the dispute is still uncertain. Aveng Moolmans has raised sufficient provision in this regard.  

14. Events after the reporting period
14.1   QCLNG contract  
  Included in trade and other payables is an advance payment from McConnell Dowell with regards to a portion of the Queensland Curtis Liquefied Natural Gas (“QCLNG”) export gas pipeline contract of AUD142,5 million (R1 429 million) which is backed by bank guarantees. AUD30 million (R301 million) of the advance payment was paid back during July 2014 with the balance due in December 2014. Contingency funding plans are in place should the balance of advance payments have to be paid.  
   
14.2   Convertible bond  
  Subsequent to 30 June 2014, the Group issued R2 billion senior unsecured convertible bonds with a tenure of five years. The offering forms part of the Group’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. The main terms of the bonds are:
  • Issuer call: From the end of year three, subject to the share price being 130% of the conversion price;
  • Coupon 7,25%; and
  • Conversion price: 30% on the preference share price (currently R28,76, but will be adjusted downwards due to dividends declared to shareholders and customary bondholder protection clauses).

The Group will list the unsecured senior convertible bonds on the JSE Stock Exchange on 29 August 2014.  

The bondholders of the bonds have an option to convert the bonds into fully paid Group ordinary shares. The issue of the ordinary shares required for the conversion is subject to the approval of the shareholders at a special shareholders’ meeting scheduled on 19 September 2014.  

Consequently, if the approval for the issue of the required additional Group shares is not approved, the bondholders will be settled in cash on maturity or earlier as provided under the terms of the bonds.  

The Group intends to use the net proceeds from the offering to repay certain existing debt facilities, extend its debt maturity profile and for general corporate purposes.  

15. Related parties

During the period Aveng Limited and its subsidiaries, in the ordinary course of business, entered into various sale and purchase transactions with equity-accounted investments. There have been no significant changes to the nature of related party transactions since 30 June 2013.

There were no related party transactions with directors or entities in which the directors have a material interest.

16. Black economic empowerment ("BEE") transaction

During the 2012 financial year, shareholders approved amendments to the terms of the 2004 BEE transaction which served to extend this structure. The final shares in terms of the amended BEE share transaction were issued on 30 June 2014. This resulted in the issued share capital of the Company increasing by 26 832 834 shares to 416 670 931 shares. Of the 26 832 834 shares issued, 8 586 507 were each allocated to the Community Investment Trust and the Aveng Empowerment Trust, and 9 659 820 to the BEE strategic partner. This concludes the arrangement for the Community Investment Trust and the BEE strategic partner.

Of the total economic benefit of R942 million (as previously reported), R301 million was awarded to employees up to 2013. This was funded by a scrip lending agreement between Investec Private Bank Limited (“Investec”) and Aveng Management Company Proprietary Limited, whereby the Aveng Management Company Proprietary Limited lent 8 586 593 Aveng treasury shares to Investec in order to facilitate a loan to be provided to the Aveng Empowerment Trust by Investec. These shares will be returned to the Aveng Management Company Proprietary Limited by Investec at the end of the loan period, being 16 February 2015. The shares allocated to the Aveng Empowerment Trust on 30 June 2014 will be used to discharge its obligation to Investec. The scrip lending shares held by Aveng Management Company Proprietary Limited are regarded as treasury shares for accounting purposes in these summarised consolidated annual financial statements and are therefore eliminated in the Group’s results.

17. Disposals of assets
Disposal of non-core assets  

The Group embarked on a programme to dispose of non-core assets with the objective of raising at least R2,5 billion. The assets to be disposed of include properties and a business unit to be identified, if and when negotiations are sufficiently advanced.

No formal offers from potential buyers were sited by year-end and no agreement is in place regarding the abovementioned properties.

These steps, together with cash management and turnaround initiatives implemented, will allow the Group to manage its liquidity needs, reduce its level and cost of borrowings and position the business to take advantage of growth opportunities in Africa, Australasia and Asia.

The non-core properties have been classified as non-current assets held-for-sale at year-end. Refer to note 10: Non-current assets held-for-sale. These properties will be sold as a single portfolio of land and buildings and therefore meets the definition of a disposal group.

Unlike the properties the non-core business unit did not meet the reclassification criteria necessary for recognition as a disposal group at 30 June 2014.