Aveng interim results impacted by exceptional items

13th February 2017

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

     

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Owing to two nonrecurring exceptional items incurred in the half-year to December 31, JSE-listed Aveng expects to report a headline loss of between R290-million and R310-million, a widening of the R231-million loss it reported for the same period in 2015.

The items include a present value charge of R165-million for the expense pertaining to its settlement agreement with local government in October and R206-million owed to Aveng by Kenmare Resources pertaining to work performed in 2011/12.

During December, an arbitration tribunal issued a partial ruling, awarding Aveng R206-million in full, together with interest. The costs award remains outstanding and is anticipated before year-end.

The tribunal awarded a counterclaim in favour of Kenmare in the amount of R150-million. This amount, together with associated legal costs, is the subject of an insurance claim. In making this award, the tribunal saw no impediment for coverage under the applicable policies.

Despite the findings of the tribunal and management’s view that it is probable that Aveng will recover an amount in excess of the R150-million awarded, the group’s accounting policies do not permit the recognition of insurance claims and, hence, a charge of R150-million has been recognised.

This would also impact the company’s headline earnings a share, which are expected to decrease by between 26% and 34% year-on-year.

Excluding the financial impacts, the group expects to report adjusted headline earnings of between R1-million and R20-million, comprising continued improved financial performance from Aveng Grinaker-LTA, which returned to profitability in the first half of the year; the realisation of savings in overhead expenses implemented throughout the group, which resulted in a 25% reduction, compared with December 2015; and an improved financial performance from Aveng Steel, although still lossmaking.

Aveng further expects net debt of R937-million, up from the previous year’s R534-million, mainly as a result of the weaker performance and slower-than-anticipated settlement of contract claim receivables in McConnell Dowell.

Despite difficult trading conditions, the group has maintained its order book at June 30, 2016, levels, with encouraging and strong growth in Aveng Mining offsetting the impact of the rand's appreciation on the McConnell Dowell order book, which reflected a marginal decline of 2% in Australian dollar terms.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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