RESULTS PRESENTATION 26 September 2017 OVERVIEW OVERVIEW 2 - PowerPoint PPT Presentation

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