Aveng Limited

Highlights:

• Aveng undergoes strategic leadership transition for sustained profitability
• CEO Sean Flanagan to retire on March 1, 2024, after successfully executing turnaround strategy
• Scott Cummins, CEO of McConnell Dowell, appointed as new Group Chief Executive
• CFO Adrian Macartney stays on, supporting continuity and relocation to Melbourne in January 2024

Highlights:

• Arrowhead is updating its coverage on Aveng Limited (“Aveng” or “the Company”) with a fair value bracket of ZAR 29.30 – ZAR 35.81 (Share Price on November15, 2023: ZAR 6.14) based on Discounted Cash Flow Valuation and Comparable Company Valuation.
• Aveng is a diversified business group providing infrastructure development and resources and contract mining solutions, through its subsidiaries – McConnell Dowell and Moolmans. The Group is headquartered in South Africa and its projects are primarily in Australasia, South-East Asia, and Africa. The Company is listed on the Johannesburg Stock Exchange – (JSE: AEG).
• Until 2018, Aveng had several business units providing manufacturing, construction & engineering, and steel beneficiation services across several countries. However, the large number of businesses led to inefficiencies and the Group faced significant challenges in its operations and was unprofitable from FY’14 to FY’20.
• To achieve profitability and deleverage its balance sheet, the Group devised a comprehensive plan in 2018, whereby it decided to focus exclusively on its key operating units and dispose of its unprofitable business verticals. Since the implementation of this plan, the Group has started emerging from the significant challenges that it faced in recent years.
• The Group has completed the restructuring plan initiated in 2018 to dispose of the unprofitable units and reduce debt on its balance sheet. To continue being profitable and focus on its potentially viable and profitable business units, the Group will be focusing exclusively on McConnell Dowell and Moolmans. Pursuant to its strategy to narrow down its focus, on October 4, 2022, the Group announced that it entered an agreement to sell Trident Steel and completed its disposal on April 28, 2023.
• The proceeds from the disposal of Trident Steel were partially used to settle the South African legacy debt of ZAR 478 million (which was at ZAR 3.3 billion at its all-time high and now completely extinguished) and the Trident Steel short-term trade finance facility of ZAR 450 million

• Shareholders are advised that the Group expects to report an earnings loss per share and a headline loss per share for the year ended 30 June 2023, in comparison to earnings per share of 106 cents and headline earnings of 252 cents per share in the prior year.
• The financial information on which this trading statement is based has not been reviewed or reported on by the Group’s external auditors.
• A further trading statement will be released providing shareholders with ranges for earnings per share and headline earnings per share, as required by the JSE Listings Requirements, in due course.
• McConnell Dowell’s Australian and New Zealand & Pacific business units are expected to report increased operating earnings in comparison to the prior year (FY2022: R777 million (AUD70 million)). This improved performance is overshadowed by the losses in Southeast Asia, primarily from the Batangas LNG terminal project (“BLNG project”).
• Despite the improved performance in the Australian and New Zealand & Pacific business units, McConnell Dowell is expected to report an operating loss in the order of R820 million (AUD65 million) for the year. The BLNG project is expected to report a total operational loss of R1 350 million (AUD114 million) after providing for costs to date and costs to complete.
• Moolmans focus during the year was investment in equipment, people and systems to aid efficient project execution. With the new five-year Tshipi é Ntle project secured, Moolmans committed to a R900 million investment in new heavy mining equipment. The majority of this equipment is now on site and is either in deployment or awaiting commissioning.
• The Group is expected to report a net cash position of R1,3 billion, excluding IFRS16, after taking into account positive cash on hand of R2,3 billion and debt of R1 billion. The current debt is made up of c.R700 million in new asset backed finance in Moolmans and c.R286 million in McConnell Dowell incurred on the BLNG project. McConnell Dowell’s debt will be settled in FY2024.

Highlights:

• Aveng provided a R210 million loan as part of the Trident Steel disposal transaction, allowing them to acquire a 30% equity stake in the new Trident Steel Business.
• The option holder has exercised the call option on Aveng’s 30% holding, leading Aveng to call upon the demand guarantee. Aveng received R210 million payment, including interest, contributing to the Group’s liquidity, balance sheet strength, and supporting its McConnell Dowell and Moolmans businesses.

Highlights:

• Aveng Africa Proprietary Limited has completed the sale of Trident Steel for a total cash inflow of R1,222 million, which includes R700 million in purchase consideration, R264 million net cash retained by Aveng, and R183 million of additional liquidity refund.
• Aveng Africa Proprietary Limited provided a short-term BBBEE loan of R210 million to subscribe for 30% in the equity of the Business, and the loan will be recognised by Aveng as a short-term receivable.
• The sale of Trident Steel has allowed Aveng Africa Proprietary Limited to de-risk its balance sheet by terminating over R500 million in ancillary trade finance facilities, fully settle its remaining South African legacy debt of R278 million, and fully settle the Trident Steel short-term trade finance facility of R450 million.