Providing a better life - INTEGRATED REPORT 2020 - Aveng
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Providing a better life INTEGRATED REPORT 2020
Aveng Integrated report 2020
OUR VALUES
We do not compromise on, and hold each other accountable for:
AVENG AT A GLANCE
Providing better life 2
2020 performance overview 3
SAFETY AND CARE HONESTY AND INTEGRITY CUSTOMER FOCUS
“Home Without Harm Everyone Everyday”. We do what is right – consistently and We build relationships by engaging,
We care for the health and wellbeing of our transparently. listening, understanding, collaborating and
people, the communities we work in and for delivering on our promises with excellence.
our environment.
5-13 15-21 23-49
Core operations 6 Materiality 16 Review of the independent non-executive
24
Market risks and opportunities 8 Material matters 19 chair
Our business model 10 Strategy 20 Review of the Group chief executive
27
Board of directors 12 officer
Key and senior management 13 Group finance director’s report 38
Outlook and prospects 43
Management’s financial review and
44
key ratios
Sustainable Non-core Core
capital asset operational
restructure disposals performance
OUR STRATEGY
Our strategy is to be an international infrastructure
resources and contract mining group operating in
selected markets and capitalising on the expertise
and experience of McConnell Dowell and Moolmans.
Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
1 Aveng Integrated report 2020
APPENDIX
WORKING TOGETHER PERFORMANCE EXCELLENCE
Shareholders’ analysis 77
We are team players who are committed to We are clear about the desired results and Shareholders’ diary 78
the Aveng purpose and values. We respect what we need to do to get there. We deliver About this report 79
and collaborate with each other, tapping with excellence as we strive to create Corporate information 80
into our rich diversity. ever-improving value for our shareholders.
51-57 59-76
Governance performance 52 Letter from the chairman 60
Audit and risk committee report 56 Part 1: Overview 61
Part 2: Remuneration policy 62
Part 3: Implementation of remuneration
71
policies
Providing a better life
WELCOME TO THE AVENG 2020
INTEGRATED REPORT
For more than 125 years, Aveng has evolved in
character, capacity and reach and continues to make its
mark across the globe. Over the years Aveng developed
world-class expertise in steel, engineering, manufacturing, mining,
concessions, public infrastructure and water treatment in a diverse
range of sectoral and geographic markets. Now the Group is forging
a new future as it responds to material changes in its traditional markets.
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2 Aveng Integrated report 2020
Providing a better life
Our focus in 2020 was to maintain a safe work environment during COVID-19 and
ensure Aveng’s longer-term sustainability. This is our contribution to enabling our
employees, communities and other stakeholders to live a better life.
A stable platform for growth Operational excellence
Aveng restored short-term McConnell Dowell and
financial liquidity and Moolmans, which represent the
renegotiated its core Group’s future, reported further
debt to underpin long- performance improvements,
term growth and value despite COVID-19 setbacks.
creation.
Pages 24 to 42 Pages 27 to 37
Safety and care Effective leadership
We achieved our goal Stronger leadership and
of zero fatalities during management experience in
the 2020 financial our core disciplines effectively
year and improved our implemented Aveng’s growth
performance against strategy and embedded a
key safety, health and values-driven culture.
environment indicators
as our operations
focused on maintaining
safe work environments.
Pages 25, 32 and 36 Pages 25, 26, 32 and 36
Refer to sustainability report
available on www.aveng.co.za
Cash management Securing future growth
We improved our Aveng’s work in hand
cash generation increased by 41% to
with disciplined cash R26,8 billion, as the core
management, disposal operations capitalised on
of non-core businesses growth opportunities in
and settlement of long- core markets.
outstanding claims.
Pages 29, 37 and 41 Pages 29 and 36
Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
3 Aveng Integrated report 2020
2020 performance overview
FINANCIAL
Core revenue Group work in hand McConnell Dowell work in hand –
geography (%)
R14,2 billion R26,8 billion 7
Australia
Southeast Asia
(2019: R13,6 billion) (2019: R19,0 billion) 14 New Zealand and
Pacific Islands
Built Environs
18 61
Operating loss Operating free cash flow Moolmans work in hand –
commodity (%)
R532 million R5 million 4
Iron ore and
waste
outflow
13 Nickel
(2019: R1,1 billion loss) 6 36 Manganese
4 Coal
(2019: R1,0 billion outflow) 3
Gold
34 Zinc
Platinum
NON-FINANCIAL
All injury frequency rate Kolomela – 1 218 lost-time
(AIFR) 2,35 – target 3,28 injury (LTI) free days
Lost-time injury frequency Union mine – 782 LTI-free
rate (LTIFR) 0,19 – target days
0,18
Built Environs – five years
Total recordable injury LTI-free
frequency rate (TRIFR)
0,74 – target 0,82
Learning and development Transformation
Level 3 BBBEE contributor
R76 million R3,4 billion
spent at Moolmans
paid to black-owned
14 600 hours of
training for McConnell Dowell
suppliers, 27% to black
women-owned suppliers
Read more about the Group’s performance on
pages 27 to 42
employees
4 Aveng Integrated report 2020 IN THIS SECTION SALIENT FEATURES Aveng generated revenue of R20,9 billion across its diversified markets: 50% Africa 43% Australia, New Zealand and Pacific Islands 7% Southeast Asia WHO WE ARE We are an international infrastructure, resources and mining group capitalising on the expertise and experience of our core businesses in growing markets in sub-Saharan Africa, Australia, New Zealand and Pacific Islands and Southeast Asia.
Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
5 Aveng Integrated report 2020
Who we are
and how
we create
value
HOW WE CREATE VALUE
Aveng optimises its business model through effective strategy implementation to
create value for stakeholders.
The scale, specialist capabilities, management capacity and brand reputation
of McConnell Dowell and Moolmans equip them to capitalise on growing markets.
Caption to come, caption to come
6 Aveng Integrated report 2020
Core operations
Our core operations’ scale, specialist capability, management capacity and brand reputation
equip them to capitalise on growing markets.
49% 80% 27% LTIFR Southeast Asia Rail
Group revenue Group work of Group 0,11
in hand workforce
Delivering innovative solutions to complex projects for our clients
for over 60 years, with a proven track record of success on Pacific Islands
smaller to mid-range construction projects. Pipelines
Approximately 2 000 employees, including professional
engineers and construction teams working across Australia,
New Zealand and Southeast Asia, earning the trust and loyalty
of our clients with a strong safety record and systematic
Australia
structured approach to project management.
Through its 100% investment in McConnell Dowell, Aveng New Zealand
achieves geographic diversification. McConnell Dowell
capitalises on its strong brand and positioning as a local expert
in its geographic markets. McConnell Dowell differentiates its
value offerings across diversified market sectors to secure Growth prospects
higher-return projects that require specialised capabilities.
2020 revenue by geography (%)
.
Competitive advantages
Australia
• Brand reputation 14
Other and
eliminations
• Strong management
• Engineering and innovation excellence Southeast Asia
27 48 New Zealand
• Collaborative and reliable delivery partner
• Specialist capabilities Built Environs
• Diversity by sector, discipline, geography 14 (3)
Work in hand – AUD1,8 billion
2020 revenue by sector (%)
1 200
1 000
1 132
Civil
800
52 Pipeline
600
13 Marine
400 1 Rail
200 387 150
8 55
323 337 294 122 Mechanical
252
0 15 Building
Australia New Zealand Southeast Asia Built Environs
1 Tunnel
■ 2020 ■ 2019
Plant
Industry accolades
Specialist capabilities
• 2019 Brunel Medal awarded to Amrun Chith export facility
• ARTC Safety / Environmental Award for Public Transport
Partnership Alliance
• AIB Excellence Award for Urbanest Student Accommodation
• Hynds Pipe Systems Underground Services Award, CCNZ for
Lyttelton Harbour Wastewater Upgrade
• 2019 Workplace Health and Safety SHARP Award for the
Marina Bay Sands Rail Tunnel and underground
Building Civils Pipelines Mechanical Marine
Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
7 Aveng Integrated report 2020
Mass
• Current operations
• Previous presence
Dump
19% 20% 48% LTIFR Mass M
Group Group work of Group 0,32 Bur
revenue in hand workforce F
DrillGuR
Gh
For more than 60 years Moolmans has delivered specialised
mining services throughout Africa in a range of commodities
for several reputable clients. Moolmans’ ability to develop
sound client relationships and work in remote and difficult Suppo
locations throughout Africa has earned it a strong reputation
in its selected markets.
Moolmans is positioning to be a multinational mining solutions Unde
provider, leveraging its strengths and core competencies to
offer clients comprehensive services across the mining value
chain. An integrated management system enables Moolmans
to provide best mining safety practices.
A new management team has stabilised Moolmans and
is repositioning the business for growth and sustainable
long-term profitability.
Competitive advantages Current projects
South Africa Rest of Africa
• Brand reputation
• African leader in open-cut contract mining Northern Cape Mpumalanga Guinea
• Experience in remote and difficult environments
– Gamsberg – Klipspruit – Lefa
• Relationships with established mining houses
• R2,3 billion fleet to serve clients’ onsite needs – Kolomela – Nkomati
• Diversity by client, commodity, discipline – Sishen
– Tshipi Limpopo
North West – Amandelbult
– Union mine
Growth prospects
Work in hand – R4,9 billion (%) Industry accolades
• Globally recognised integrated SHEQ system
Iron ore and
waste
4
13 Nickel
6 36 Manganese
4 Coal
Gold
34 3
Zinc
Platinum Specialist capabilities
Excavators/ Dump Drill Support Underground
face shovels trucks rigs equipment equipment
Mass range: Mass range:
170 – 700 100 – 200
tonnes tonnes
Open-cut mining Shaft sinking Underground mining
8 Aveng Integrated report 2020
Market risks and opportunities
Aveng operates in complex environments where risk and opportunity are inherent in all of our
activities. By understanding these risks and opportunities, we can respond to them proactively
with our risk and opportunity management process.
AUSTRALIA NEW ZEALAND AND PACIFIC ISLANDS
Risk and opportunity Risk and opportunity
• Growing pipeline of public sector transport, water and • Construction market buoyancy and competitiveness driven
energy infrastructure projects by growing demand
• Solid baseload of work in Victoria and South Australia • Significant public sector investment in transport, housing
expanding footprint in New South Wales, Queensland and and water infrastructure for growing population
Western Australia • New Zealand projects fully operational after initial
• All projects remain operational with COVID-19 response COVID-19 lockdown but some Pacific Islands borders
measures in place remain closed
• Positioned to capitalise on government stimulus projects,
but anticipate slower private sector investment
• Increasing international competition Our response
McConnell Dowell diversifies its business
geographically to capitalise on growth opportunities
Our response in areas where it has a record of successful project
delivery. The business has a strong reputation in New
McConnell Dowell is well positioned in high-growth
Zealand and Pacific Islands for achieving consistently
markets and areas of specialisation in which it has a
sound performance in safety, productivity, innovation
proven track record of successful project delivery.
and quality and is the market leader in the marine and
A focus on government infrastructure programmes
tunnel sectors. The expansion of Built Environs into
conducted in joint venture alliances provides a source
New Zealand resulted in new awards during the year
of ongoing negotiated repeat work. Our adoption of
and the prospect of future growth opportunities.
early client involvement status on several tenders
reduces project risk but lengthens bidding processes.
These factors have improved the quality of our work in
hand but necessitated judicious acceleration of our
bidding activity to increase revenue and enhance
our margins.
SOUTHEAST ASIA MINING IN AFRICA
Risk and opportunity Risk and opportunity
• Opportunities in transport, energy and wastewater • Mining continues to offer opportunities as mine owners
infrastructure projects heavily impacted by COVID-19 increase output and invest in assets
lockdowns in Singapore and Indonesia • Open cut mining accounts for the bulk of volumes mined
• Outlook strengthened by recent withdrawal of some and new volumes to be brought on stream
competitors, but longer-term opportunities muted by • Predominant opportunities exist in copper in Zambia and
political volatility and ongoing COVID-19 uncertainty DRC, gold in West Africa and other commodities (coal,
iron and zinc) in southern Africa
Our response • After the hard lockdown in March and April, South African
McConnell Dowell’s operations in Southeast Asia have mining projects resumed full operations in a phased
the capacity to perform across marine, pipeline, tunnel manner
and underground sectors. The business unit focuses
on select opportunities where it can demonstrate a Our response
competitive advantage in complexity and scale. Moolmans is well established in South Africa and is
Senior management changes strengthened business pursuing growth in the rest of Africa on the strength of
development to maximise strategic opportunities but the its reputation on the continent. The business has a
business has adopted a cautious cost and bidding promising pipeline of open cast mining opportunities
approach in uncertain market conditions. in South Africa (manganese, iron ore, coal) Ivory Coast
(gold), DRC (copper) and Botswana (coal and
Independent non-executive chairman’s and Group chief executive’s copper).
reviews, pages 24 to 37.Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
9 Aveng Integrated report 2020
COVID-19 RESPONSE
Aveng and McConnell Dowell immediately drafted and implemented standard operating procedures (SOPs) across their
geographically diverse operations as the coronavirus pandemic moved across the world. These SOPs were prepared in
consultation with customers, to protect customers, employees and suppliers against infection, alleviate COVID-19-related
burdens on employees and support the Group’s longer-term sustainability for all of its stakeholders. Management continuously
reviews and adapts its SOPs in response to developments in each of its businesses.
McCONNELL DOWELL AFRICA
McConnell Dowell implemented SOPs across its The Group’s COVID-19 SOPs and recommended best
operations to ensure it was able to continue to operate practice were implemented to enable the safe and
safely and efficiently. efficient remobilisation of operations.
Australia Moolmans
• All McConnell Dowell projects remained operational with • All South African mining operations ceased and were
effective additional measures in place to protect employees placed on care and maintenance during lockdown level 5
and suppliers and slow the spread of the virus in March and April
• IT systems and communication platforms supported the • Moolmans focused on protecting its assets and, in
response plan; office-based employees were equipped to consultation with customers, preparing for a rapid
work remotely remobilisation of operations
• Restrictions and work practices to mitigate COVID-19 • Robust SOPs were implemented to manage COVID-19
impacts were commended by clients and regulators and infections
shared across the engineering and construction industry • The Lefa contract in Guinea remained operational
• No McConnell Dowell projects were cancelled • Full operations at the majority of open cut projects and 50%
• New projects were awarded primarily by government clients of underground mining activities resumed in May; 100% of
who remained supportive, mitigating risk in uncertain underground projects had resumed by June 2020
conditions; Government projects to stimulate economic • New work, contract extensions and contract renegotiations
recovery offer additional opportunities at favourable commercial rates were secured during the
• No confirmed COVID-19 infections lockdown. Moolmans continues to pursue a pipeline of
additional opportunities.
New Zealand and Pacific Islands
• All construction activities in New Zealand other than a few
essential service projects were immediately ceased for
Rest of the Group
five weeks Trident Steel
• Customers were strongly supportive • Operations ceased in line with lockdown level 5 regulations
• Projects resumed full operations after the lockdown and recommenced during level 4 in line with the phased
• New projects and repeat work with major existing customers restarting of the automotive manufacturing and general
were secured steel industries
• No confirmed COVID-19 infections • Continuous monitoring of developments among key
customers and management of supply chain disruption
Southeast Asia
• Construction projects were suspended for two months Manufacturing
in Singapore; Indonesia was also heavily impacted by • South African manufacturing operations all ceased during
lockdown and travel restrictions lockdown level 5, while some operations in southern Africa
• Labour forces were impacted by the restrictions; office- remained operational. The operations reopened
based employees were equipped to work remotely progressively based on customer demand:
• The cost base of Southeast Asian operations was – As a designated essential services provider, ACS moved
realigned to lower revenue expectations in uncertain from 25% to full operating capacity after level 5
market conditions – A skeleton workforce provided essential services from
the Duraset Alrode factory; the Westonaria factory
resumed production of concrete sleepers in June
– Infraset reopened the Brakpan factory to supply railway
products to Transnet
Stakeholder engagement, page 16; independent non-executive
chairman’s and Group CEO’s reviews, pages 24 to 37.10 Aveng Integrated report 2020
Our business model
Aveng optimises its business model through the effective implementation of its strategy to achieve
its business objectives.
INPUTS BUSINESS ACTIVITIES
The key resources we need to optimally We apply Aveng’s resources and relationships in
manage the business. an ethical and responsible manner to create and
sustain value for our stakeholders.
Our core businesses leverage their world-class brands
Financial capital and specialist capabilities to deliver services to their
clients.
• Stabilised balance sheet
• Access to affordable borrowings
• Proceeds from non-core disposals
• Improved working capital management
• Quality work in hand growth
• Delivering innovative solutions to complex projects for over
Group FD report, page 38 60 years
• Offering multi-disciplinary expertise across building, civil,
fabrication, marine, mechanical pipeline, rail, tunnel and
Human capital underground construction to clients in Australia, Southeast
Asia, New Zealand and Pacific Islands.
• 7 266 employees
• Strong leadership
Value offering
• Highly skilled project management and stronger
bench strength across both McConnell Dowell
and Moolmans
• Values-driven culture
Chairman’s and CEO’s reviews, pages 24 to 37
Sustainability report
Social and relationship capital
• Effective stakeholder engagement
• Sound relationships with investors and financial
community, clients and employees
• Responsiveness to stakeholder concerns
• Delivering specialised services across the mining value chain
Chairman’s and CEO’s reviews, pages 24 to 37 over 60 years.
• Offering open-cut mining, shaft sinking and access
development, and underground mining services in a range
Intellectual capital of commodities to reputable clients across Africa.
• Specialist capabilities in construction,
engineering and mining
The core businesses are supported by an agile
• Engineering excellence, innovation and value
corporate office that provides:
creation across specialist capabilities Strategic leadership
• Business administration expertise
Capital allocation
Chairman’s and CEO’s reviews, pages 24 to 37
Treasury and financial reporting
Culture and values
Manufactured capital
People management
• Diverse R2,3 billion mining fleet to serve
clients’ onsite needs Performance management
CEO’s review, page 27
Safety
FD report, page 38
Other areas of expertise required by our clients are
Natural capital outsourced or embedded in the core operations which
• Energy and water use in operations provide input to the corporate office on:
Sustainability report Risk IT ProcurementWho we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
11 Aveng Integrated report 2020
OUTPUTS OUTCOMES
Our business activities generate projects and services that Our business activities and outputs have the
create value for our clients and other stakeholders whose following impacts on our stakeholders:
lives are influenced by our built environments.
Financial capital
• Restructuring and recapitalising of balance sheet
post FY20
• Stabilised balance sheet
• Proceeds from non-core disposals and claim
settlements created liquidity
• Grew core work in hand by 41%
• Moolmans returned to profitability
Group FD report, page 38
Human capital
• Effective executive leadership and new
appointments to key operational positions
• Decisive COVID-19 response to protect employees
and sustain business
• Zero fatalities during the financial year.
• Reduction in employee base tempered by
responsible disposal process
Chairman’s and Group CEO’s reviews, pages 24 to 37
Sustainability report
Social and relationship capital
• B BBEE level 3
• R5,2 million invested in socio-economic development
projects
• Heightened engagement with shareholders, clients
and employees
Chairman’s and Group CEO’s reviews, pages 24 to 37
Sustainability report
Intellectual capital
• Brand reputation of established Aveng Group
• Extending systematic, structured McConnell Dowell
way to Moolmans
Chairman’s and Group CEO’s reviews, pages 24 to 37
Manufactured capital
• Invested R609 million in Moolmans fleet
Group CEO’s review, page 27
Natural capital
• Zero major environmental incidents
Sustainability report12 Aveng Integrated report 2020
Board of directors
EXECUTIVE DIRECTORS
Sean Flanagan (60)* Adrian Macartney (52)
Group chief executive officer Group finance director
BSc (Building) BCom, BCompt (Hons), CA(SA)
Appointed to the Board: November 2015 Appointed to the Board: September 2014
Experience: 31 years of industry and related experience Experience: 26 years of industry and related experience
Board committees: Board committees:
Member: TR Member: TR
INDEPENDENT NON-EXECUTIVE DIRECTORS
Philip Hourquebie (67) May Hermanus (60) Michael Kilbride (68)
Independent non-executive chairman Lead independent non-executive Independent non-executive director
CA(SA), BCom (Hons), BAcc director BSc (Hons) Mining Engineering
Appointed to the Board: August 2015 BSc (Geology), MSc (Physical Metallurgy), (RSM, London University), MDP (Unisa),
SEP (London Business School)
Board committees: Takemi Fellow, Harvard University
Appointed to the Board: July 2012
Appointed to the Board: September 2009
Chairman: Board, IC Board committees:
Board committees:
Member: SET SHE RN TR Chairman: TR RN
Chairman: SHE SET
Member: AR IC SHE SET
Member: AR RN
AR Audit and risk committee
IC Investment committee
Bridget Modise (53) RN Remuneration and nomination committee
Independent non-executive director SET Social, ethics and transformation committee
BCompt (Hons), CA(SA), CIMA
SHE Safety, health and environmental committee
Appointed to the Board: November 2019
Board committees: TR Tender risk committee
Chairman: AR Executive committee
* Attends all committee meetings by invitation
Member: SET ICWho we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
13 Aveng Integrated report 2020
Key and senior management
Scott Cummins (57) Jerome Govender (48)
Chief executive officer Managing director
McConnell Dowell Corporation Limited Moolmans
Experience: 30 years of industry and related experience Experience: 26 years of industry and related experience
At Aveng for: Five years At Aveng for: One year
Hercu Aucamp (52)** Wouter de Gidts (66)**
Managing director Interim managing director
Aveng Steel Aveng Manufacturing
Experience: 31 years of industry and related experience Experience: 41 years of industry and related experience
At Aveng for: Nine years At Aveng for: 40 years
Liesl Tweedie (52) Edinah Mandizha (40)
Group financial controller Group company secretary
Experience: 25 years of industry and related experience Experience: 14 years of industry and related experience
At Aveng for: Three years At Aveng for: Eight years
** These executives will cease to be Aveng key and senior management when the non-core disposal process is completed.14 Aveng Integrated report 2020 IN THIS SECTION OUR MOST MATERIAL MATTERS Liquidity and capital Safety McConnell Dowell and Moolmans’ operational performance Disposal of non-core assets Human capital MATERIALITY We determine and assess material matters regularly by proactively assessing trends in the changing business environment and responding to unforeseen developments. Our material matters inform our strategy and strategy implementation, thereby enabling the Group to create and sustain value.
Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
15 Aveng Integrated report 2020
Materiality
and strategy
STRATEGY
Having reviewed the strategy during 2020, the Board remains committed to it and
confident that our leadership is capable of achieving a sustainable turnaround and
the longer-term growth necessary to create value for our stakeholders.16 Aveng Integrated report 2020
Materiality
Aveng has a well-established process to identify, evaluate and manage risks and opportunities.
Aveng defines materiality of matters for reporting purposes as: matters that materially affect the Group’s ability
to create and sustain value over the short, medium and long term.
Our three-stage material matters determination process is guided
by the International Integrated Reporting Framework
STEP 1 STEP 2 STEP 3
Relevant internal The importance Material matters
and external of matters are prioritised
matters are identified is
identified evaluated
Identifying relevant internal and external fundamentally undermine the Group’s
competitive position and adversely
matters impact its reputation.
Aveng enterprise risk management A Group risk register is updated
Risk and opportunity management approach quarterly and reported to the Board
Our approach to managing risk and opportunity is based on a “three lines of and the audit and risk committee.
defence” combined assurance model.
Opportunity management focuses on
Early identification, quantification, assessment and identifying and removing barriers to
FIRST LINE management of risks and opportunities. success, thereby enabling the Group
to capitalise on opportunities at a
Monitoring the effectiveness of risk and opportunity strategic, business and project level.
SECOND LINE management with risk management compliance. Opportunities are identified by
exploring previously perceived but
Independent assurance, through external and internal unexamined risk, such as learning
THIRD LINE audit, that risk and opportunity management is from best practice, scenario planning
functioning appropriately. and learning from past ignored or
missed opportunities. Opportunities
Governance oversight The tender risk committee, a sub- offer the potential benefits of strategic
The audit and risk committee is committee of the audit and risk alignment and advancement of
delegated by the Board to oversee the committee: business objectives which create
combined assurance model by: • Reviews all major bids and high-risk value for stakeholders.
• Overseeing the activities and efficacy projects to ensure that appropriate Market risks and opportunities report,
of all three lines of defence processes are followed in bid page 8 and 9.
• Reviewing all material risks, major and preparation and that risks are
considered and appropriately Stakeholder engagement
problematic projects, focusing on
mitigated before bid submission Aveng has a diverse range of
delays, changes in costs, commercial
• Provides a mandate specifying the stakeholders who have an interest in
claims, margins and other concerns
terms under which operations may our business and may be affected
• Communicating concerns to the
conclude a contract. by it. Our stakeholders influence our
relevant operating groups for
ability to create sustainable value.
management actions Key risks and opportunities This is why we engage openly and
• Ensuring that lessons learnt from Risk and opportunity management constructively with them to ensure
underperforming or successful involves a continuous process of that we understand and respond to
projects enable continuous regular review and management of their expectations and concerns.
improvement in processes and changes in the Group’s business or By doing so effectively, we can create
project execution project environments. lasting value for our business and our
• Overseeing the activities of external
Key business risks are identified as stakeholders.
and internal audit functions and
receiving input on the adequacy of internal or external risks that have the Aveng has a stakeholder engagement
financial reporting and control potential to cause significant financial plan and report-back process that
mechanisms, and material risk issues loss, or affect the safety and wellbeing enables the corporate office and
that could impact financial results. of employees, matters which may operations to identify and respond to
their material stakeholders.Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
17 Aveng Integrated report 2020
Aveng’s diverse range of stakeholders includes employees; shareholders and financial institutions; clients, subcontractors
and other suppliers; trade unions; government and regulators; industry bodies; and communities.
While the Group engages continuously with all of its stakeholders, during 2020, our engagement plan focused on:
Stakeholder How we responded Our COVID-19 response
Employees • Embedded
a high-performance culture • Prioritised
employee safety and
Employees expect an employer that in core businesses wellbeing by implementing SOPs across
offers its people the opportunity • Rewarded exceptional performance all operations to protect employees
to realise their full potential in safe based on defined standards • Employees were equipped with
working environments. • Disposed of non-core assets Company laptops and relevant software
eople management report,
P responsibly to work remotely
sustainability report • Conducted regular two-way internal • An emergency response plan to sustain
www.aveng.co.za
communication the Group’s businesses required
trade-offs, including salary cuts for the
Board, management and employees
• South African employees received
financial relief from the UIF’s Temporary
Employee Relief Scheme; McConnell
Dowell employees accessed government
wage subsidies
Clients, subcontractors and • Core
operations improved overall • Maintained
service delivery within
other suppliers project delivery COVID-19 constraints
Clients, subcontractors and other • Increased client engagement and • Protected assets during lockdown and
suppliers expect a business that collaboration to secure repeat work worked with clients on fast, safe and
delivers quality projects or services
and mitigate risk efficient remobilisation of operations
on time and within budget.
• Engaged continuously with • Reviewed and amended SOPs in
CEO’s review, subcontractors and other suppliers response to developments in each
pages 27 to 37
to ensure effective delivery to clients business, maintaining high level client
• Reassured clients that non-core and supplier engagement
businesses undergoing disposal • Worked with clients, subcontractors and
are on track other suppliers to mitigate market and
supply chain risks
Shareholders and financial • Reached
an agreement to restructure • Actively
reduced costs and preserved
institutions and recapitalise the balance sheet cash
Shareholders and financial post year end • Grew McConnell Dowell and Moolmans
institutions expect a trustworthy • Disposing of non-core businesses as work in hand
business that fulfils its promise of
going concerns • Secured additional short-term facilities
financial stability and sound,
• Restored sound operational from South African lenders and repaid in
sustainable future returns.
performance in core businesses August 2020
CEO’s review, • Engaged continuously on key matters
pages 27 to 37
Government and regulators • Comply
with laws, regulations, and • Complied
with government restrictions
Government and regulators expect codes of best practice in all countries and lockdown requirements in all of our
a compliant business that shares its in which we operate operating jurisdictions
industry knowledge to ensure fair • Reinforced Aveng values throughout
regulatory environments. organisation
Governance report, • Aveng Code of Business Conduct
pages 52 to 55
requires ethical conduct of all our
companies and employees
• A responsible, compliant taxpayer18 Aveng Integrated report 2020
Materiality continued
Evaluating importance of matters identified
Aveng risk management, stakeholder engagement and the business environment inform the material matters.
Magnitude of effect on the Group
Once the relevant material matters are identified, they are assessed based on their potential impact on Aveng. The assessed
impact of these material matters focuses on:
Impact on Loss of Delays in
profit or achieving Legal Environmental Reputational
the safety of
1 2 3 4 5 6
increased strategic ramifications impact damage
our people
capital cost objectives
Likelihood of occurrence
These matters are assessed according to the likelihood that they will occur based on the following ranges:
Improbable Unlikely Possible Probable Highly likely
3% – 10% >10% – 30% >30% – 60% >60% –Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
19 Aveng Integrated report 2020
Material matters
Aveng reviews these material matters regularly in line with the recommendations of King IV, and our strategic responses, are
discussed below.
The risks associated with COVID-19 increased the potential impact of each of our material matters. The impact of the
pandemic on Aveng and the Group’s response to it are discussed throughout this integrated report.
1 2 3 4 5
Material Liquidity and capital Safety Core operational Non-core assets Human capital
matter performance
Aveng depends
on a sustainable Aveng operates in Sound project Disposals improve Specialist skills
balance sheet, with a diverse, complex execution and quality liquidity and and performance
manageable levels environment and work in hand create strengthen the focus excellence are vital
of debt, to achieve employs a large sustainable value. on McConnell Dowell for organisational
long-term growth and workforce. Employee Underperformance and Moolmans. performance. Loss of
value creation. safety is a core value impacts financial A delayed disposal critical skills affects
that is integral to performance and process is disruptive performance and has
The Group needs to the way the Group undermines future to operations and a negative impact on
create the financial conducts its business work opportunities. employees and may earnings.
liquidity necessary to and will not be negatively impact
sustain its operations compromised. performance.
and repay debt.
Stakeholders Shareholders Employees Clients, Employees Employees
impacted and financial subcontractors
institutions Clients, and other Shareholders Clients,
subcontractors suppliers and financial subcontractors
and other institutions and other
suppliers Shareholders suppliers
and financial
institutions Shareholders
and financial
Employees institutions
Our response • Core debt • Leadership • McConnell Dowell • COVID-19 delayed • Embedding a
refinanced visibility at improved project disposal process values-driven
• R768 million workplaces, performance and • Sold Grinaker-LTA high-performance
non-core asset employee accelerated and DFC culture
proceeds received awareness and bidding activity to • Remaining • Developed
to date accountability for increase its work disposals due to management
• Core businesses safety in hand be completed by capability and
cash positive • Management of • Moolmans June 2021 bench strength in
• Gold Coast and near misses returned to • Sold GEL, Duraset, Moolmans and
Wheatstone claims profitability and REHM Grinaker, McConnell Dowell
settled secured new work Infraset PMB and • Performance
• Reached an and contract other properties incentivisation and
agreement with extensions at post-year end talent retention
stakeholders to favourable rates • Continued drive for
restructure and improved
recapitalise the performance
balance sheet pending disposal
post-year end of the remaining
businesses
Outlook • Complete the • Continued focus • 90% of McConnell • Sale
of the balance • Revised scheme
balance sheet on leadership Dowell’s 2021 of non-core to incentivise
restructure and visibility and revenue secured; businesses on targeted behaviour
recapitalisation employee positioned to track after and performance
transaction awareness and secure more COVID-19 delay in line with
• Strong focus on accountability opportunities in shareholder
working capital • Targeting zero growing markets expectations
management harm and • 81% of Moolmans’ • Holding employees
• Maintain focus on reduction in 2021 revenue accountable for
core operational lost-time and secured; strong performance
performance and recordable injuries opportunity
quality work in pipeline
hand
• Complete non-core
disposals20 Aveng Integrated report 2020
Strategy
Our strategy is to be an international infrastructure, resources and contract mining group operating
in selected markets and capitalising on the expertise and experience within our core businesses.
CE
LEN SA
L FE
XCE TY
E
E Optimised
AN
C
AN
capital
D
M
CA
structure
OR
RE
RF
FD report
page 38
PE
Overhead
and cost
optimisation Safety and
environment
FD report
page 38 Sustainability report
(www.aveng.co.za)
Sustainable
and profitable
international
infrastructure,
resource and
Optimal core mining group
WOR
ITY
business
Focus on
performance
EGR
KIN
human capital
CEO and FD report
G
NT
pages 27 and 38 Sustainability report
TO
(www.aveng.co.za)
Complete
DI
GE
disposal of
AN
TH
non-core assets
Y
ST
E
and rundown
R
NE
of PMO
O
H
CEO and FD report
pages 27 and 38
CUSTOMER FOCUSWho we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
21 Aveng Integrated report 2020
Aveng has largely completed the three-year strategic action plan it implemented in 2018 to address
material short-term risks. The Group is now implementing its long-term strategy to be an international
STRATEGICresources
infrastructure, JOURNEY and mining group, with diversified core operations positioned to achieve
sustainable profitability
WHAT ACTIONS WERE WHAT DID WE NEED WHERE WERE WE WHERE DO WE
TAKEN IMMEDIATELY? TO DO TO FIX IT? PRE COVID-19? WANT TO GET TO?
• Significant changes to the • Capital restructure: • Core businesses starting to • Core operations delivering
board to re-establish perform (H1 FY20 results) long-term growth and
‒ R493 million equity raised
credibility value potential
+ bond conversion of • Significant progress on
• Eric Diack appointed executive R1.5 billion + new debt non-core asset disposals • Achieve sustainable operating
chairman and took over the of R460 million + SSLF profit of R1 billion p.a
• Capital structure with
day-to-day running of R400 million
R2 billion debt not optimal • Restructured balance sheet
of the business
• Strategy to split business into with acceptable debt structure
• Effective COVID-19 risk
• Restructured balance sheet core and non-core:
by writing off R6 billion management • Aveng delivering
‒ Started an aggressive acceptable returns
• Invested AU$55 million into strategy to dispose of 1 2
• ROCE > WACC
Australia to save McConnell 14 non-core businesses
Dowell
• Focus on improving core
business performance
Phase 1 from August 2017 Phase 2 from July 2018 to December 2020 Phase 3 from January 2021
1
Return on Capital
SAFETY Employed
& CARE HONESTY & INTEGRITY CUSTOMER FOCUS WORKING TOGETHER PERFORMANCE EXCELLENCE 1
2
Weighted Average Cost of Capital22 Aveng Integrated report 2020 IN THIS SECTION SALIENT FEATURES Moolmans return to profitability 41% growth in Group work in hand Both core businesses cash generative Settlement of legacy claims Decrease in bond exposure Sales of non-core businesses Restructure and recapitalisation of balance sheet PERFORMANCE Despite the economic setbacks of the past year, Aveng continued to implement its strategy effectively and achieved further performance improvements in McConnell Dowell and Moolmans that represent the Group’s future.
Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
23 Aveng Integrated report 2020
Performance
2021 KEY FOCUS AREAS:
Continued improvement in operational performance of McConnell Dowell
and Moolmans
Optimise quality of order book and embedded margins
Navigate COVID-19 challenges
Positive cash generation
Further reduction in Group cost structure
Complete disposal of non-core assets
Close-out project management office function24 Aveng Integrated report 2020
Review of the independent non-executive
chair
“The Board is committed to Aveng’s strategy.
We are confident that our leadership and
diversified core businesses will continue
navigating external challenges in their
operating environments to achieve their growth
plans. This, in turn, will create sustainable
long-term value for our stakeholders.”
Philip Hourquebie
Independent non-executive chair
Overview In contrast, conditions in McConnell • Ensuring the leadership competence
Aveng continues to build resilience Dowell’s geographic markets were and capacity to effectively implement
across its organisation despite the generally promising. The Group’s core a refreshed culture based on our
significant uncertainty and additional market sectors in Australia continue to values and the growth strategies of
volatility created by the health and grow at a steady pace, driven largely both core operations
economic crises experienced during by public sector investment in the • During the second half of the year,
the last quarter of the 2020 financial engineering, construction and the Board extended its focus to the
year. As many of the Group’s industry infrastructure development sectors. impact of COVID-19 and the Group’s
peers succumbed to market Similarly, in New Zealand, our core multi-layered response to the
challenges, Aveng was buoyed by its markets are supported by public
pandemic.
key strategic levers of geographic sector investment in transport, housing
diversification, improving core and water infrastructure to serve a COVID-19
operational performance and the growing population. Opportunities in COVID-19 impacted our operations
firm commitment of leadership the transport, energy and wastewater in waves, first McConnell Dowell in
and employees. infrastructure sectors in Southeast Australia, New Zealand and Southeast
Asia were heavily impacted by Asia and then our mining and non-
The South African economy grew by COVID-19 lockdowns in Singapore core operations in South Africa. This
0,2% in 2019 and moved into a and Indonesia, while the region’s required a coordinated response to
recession in December 2019. This was strong medium-term to long-term
exacerbated by the coronavirus global lockdowns across our markets
outlook is tempered by the risk of
(COVID-19) pandemic and mandatory and, like many other organisations, we
political uncertainty and competition,
restrictions applied across our reacted rapidly and effectively. Our
although some international
operating jurisdictions to lessen the priorities were to:
competitors have withdrawn from
spread of the virus and manage • alleviate the burden of the pandemic
the region.
associated health and humanitarian on our employees, clients,
arket risks and opportunities report,
M
crises. Conditions in the South African subcontractors and other suppliers
page 8.
mining sector, now Aveng’s primary • secure the longer-term sustainability
domestic market, were mixed. While 2020 focus areas of our business in the interests of
global and domestic opportunities in The Board focused on matters that our stakeholders.
open cut and underground mining materially affect the Group’s ability to
remain promising, the South African The Group’s geographic diversity and
create and sustain value, including:
market has underperformed relative to the classification of many operations
• Consistent implementation of the
its potential due to ongoing policy as essential services lessened the
turnaround and growth strategies
uncertainty and weak economic impact of the lockdowns as our
of our core operations, McConnell
conditions which inhibit investment. activities in some jurisdictions
Dowell and Moolmans
The few remaining South African remained operational while others
• Liquidity and the Group’s ability to
based non-core businesses which were temporarily closed. Many of our
sustain the South African operations
have not yet been disposed of were operations and project sites reopened
• Performance and disposal of
heavily impacted by weakness in their
non-core operations
operating markets.Who we are Materiality
How we create value and strategy Performance Governance Remuneration Appendix
25 Aveng Integrated report 2020
quickly, and we immediately drafted Safety, health and better life becomes even more
and implemented standard operating environment powerful as we apply significant
procedures (SOPs) to protect our Safety and care is a core value and additional effort to maintaining safe
people from the virus. Office workers, integral to Aveng’s commitment to working environments. It is
who returned to work later, were ethical and responsible business commendable that our managers and
equipped to work remotely from their conduct. The Group achieved its goal their teams not only maintained stable
homes in the interim. of zero fatalities and continued to SHE environments during the
experience satisfactory performance considerable disruptions of business
COVID-19 impacted revenue, profit
trends across its key safety, health and reorganisation and COVID-19, but also
margins and cash flows across all
environment (SHE) indicators during strengthened our health management
of our operations. While our core
the 2020 financial year. This is largely systems.
operations remained resilient, the
effect of these impacts on our attributable to: CEO’s review, page 27.
non-core operations is reflected in our • disciplined compliance with SHE
Sustainability report, www.aveng.co.za
overall financial performance. We management systems and local
actively reduced costs and preserved regulatory requirements Strategy
cash, asking all South African • management visibility and employee
Despite the setbacks of the past year,
employees, senior McConnell Dowell engagement on project sites
the Group continued to implement its
employees and the Board, to forego a • increased identification, monitoring
strategy effectively and demonstrated
portion of their salaries deducted over and reporting of hazards
encouraging progress, particularly in
three months. These actions • ensuring that lessons learnt inform
the performance of the core
contributed R168 million in support of future performance.
businesses.
our operations during the lockdown. It was with deep regret that the Board CEO’s review, page 27.
However, our broader interventions to learnt of the significant mining
maintain our remaining non-core incident on 17 November 2020 at our Having reviewed the strategy during
operations as going concerns resulted Gamsberg operations. One of our 2020, the Board remains committed
in the unfortunate loss of 4 728 jobs. colleagues, Melvin Saal, was to it and confident that our leadership
Capital and liquidity recovered soon after the incident, but is capable of achieving a sustainable
regretfully, one of our colleagues was turnaround and the longer-term
Aveng’s short-term liquidity and the
still missing when this report went to growth necessary to create value
stability of its capital base remains
print and the mine owner continues for our stakeholders.
a significant material matter for our
to work with us to locate and recover
South African operations. The Group Leadership and management
has processes and systems in place him. We offer our sincere condolences
In addition to developing and
to monitor and manage cash and we to their families, colleagues and
executing a new strategy and resetting
engage constructively with banks to friends.
our purpose and values over the past
ensure adequate short-term liquidity. Aveng continued to conduct medical three years, leadership has been a
During 2020, revenue losses in health examinations, albeit on a priority of the Board. During this
non-core South African businesses, smaller scale due the disposal of period, Aveng conducted a process
combined with a delay in the non-core non-core businesses. The Group’s to attract and retain culturally aligned,
disposal process, negatively impacted provision of professional and experienced and competent
a liquidity position that was already independent support to employees leadership across the Group.
under pressure. This made it through the employee wellness
We are satisfied that the Board
necessary for the Group to restore programmes (EWP) provided relief
represents an appropriate diversity of
short-term liquidity and refinance our during a turbulent year. An increase skills and experience to navigate the
unsustainable core debt. in employee use of EWP services in opportunities and challenges facing
The Board was pleased with the 2020 reflected the important role this the Group today; and we are confident
significant efforts of management in support plays in employee wellbeing that we have created a new Aveng
negotiating a restructuring of the and productivity. under the present executive
Group’s South African debt and group The Group’s operations maintained leadership which has relevant deep
recapitalisation with both lenders and their focus on initiatives to improve the operating and financial leadership and
certain shareholders subsequent to efficiency of their energy usage and management experience in our core
the financial year end. This is a water conservation. No major disciplines of infrastructure,
transformative development which will environmental incidents that resulted construction, engineering and mining.
be subject to usual approvals for in irreversible harm or damage were At a Group level we have a small,
transactions of this nature. recorded during 2020. stable and experienced team of
CEO’s review, page 27;
During this unprecedented period of executives who are focused on
FD’s report, page 38. developing, supporting and
COVID-19, our purpose of providing a
challenging the leadership across26 Aveng Integrated report 2020
Review of the independent non-executive
chair continued
the Group, while driving an ethical, ethical manner. The Aveng Board contributed to the Group’s level 3
disciplined and accountable culture embraces the principles of good BBBEE contributor status. Moolmans
aligned to our purpose and our values governance – transparency, integrity, is now the primary focus
of safety and care, honesty and accountability and fairness – and is of Aveng’s domestic transformation
integrity, customer focus, working committed to the highest standards objectives; the Group assists the
together and performance excellence. of governance as recommended by non-core operations to transition to
the King IV Report on Corporate their own BBBEE scorecards when
McConnell Dowell has completed the
Governance™ for South Africa they transfer to new owners.
process of staffing its renewed
organisational structure and has (King IV)*. In accordance with our
McConnell Dowell’s diversity and
moved to the next phase of talent value of honesty and integrity, we do
inclusion strategy focuses on
management and succession what is right – consistently and
strengthening the participation of
planning. The strength of McConnell transparently.
indigenous communities in projects
Dowell’s leadership team is reflected After more than six years as a valued across all business units and
in their performance and aspirations. member of the Board, Eric Diack recognising the cultures and
Moolmans is in the final phase of stepped down as executive chair with languages of all employees.
staffing its executive leadership team effect from 30 April 2020 and McConnell Dowell achieved a targeted
and has embarked on the important continued to act as non-executive 60% female intake for its highly
phase of a facilitated leadership team chair to ensure an orderly handover regarded Australia graduate
development initiative. This is vital to before retiring from the Board on programme in 2020, reflecting the
ensure quick and effective adoption 12 June 2020. Eric provided Aveng Group’s support for gender equity.
of our purpose, culture and strategy. with steadfast leadership through
Sustainability report, www.aveng.co.za
a period of significant uncertainty.
Our Group financial function is led Together with the Group CEO and Acknowledgement
by strong finance individuals who are FD, he was pivotal in developing and 2020 reaffirmed the importance of
supported by a small, dedicated team implementing the strategy to secure open and constructive stakeholder
with depth of experience and skill. the Group’s sustainable future. On engagement and relationships. First
This team manages the key functions behalf of the Board and the Group, and foremost, on behalf of the Board,
of liquidity and cash management, we thank Eric for his significant I thank our employees for their
internal financial performance contribution and wish him well in commitment to, and financial sacrifice
management and analysis, external his future endeavours. for, Aveng’s survival and future
financial reporting, taxation, treasury I was appointed independent sustainability. Sean Flanagan and our
and capital structure. The team is non-executive chair with effect from management teams consistently
adequately capacitated to handle 17 June 2020. I have been a Board implemented our purpose and
these roles and operates within a flat member since 2015 and have served strategy, while ensuring that we all
management structure, providing daily on all of the Board’s committees, live Aveng’s values through our
and direct support to the executives. including the tender risk committee. organisational culture. Our loyal
I stepped down as chair of the audit clients, subcontractors, other
This team manages the key functions
of Top South African and risk committee following my suppliers, shareholders and financiers
liquidity and cash management,
employer
internal financial performance appointment as Board chair and was continued to partner with us in
We were delighted to learn during appointed chair of the investment ensuring the continuation of our
management and analysis, external
October 2020 that Aveng was committee. operations, to our mutual benefit.
financial reporting, taxation, treasury
ranked thestructure.
top South African Underpinning the Group’s endeavours
and capital The team is Bridgette Modise joined the Board as
employer capacitated
to work for by has been the steadying force of the
adequately toForbes.
handle an independent non-executive director
The roles
Boardand thanks all ourwithin
people Board. I thank my fellow Board
these operates a flat with effect from 1 November 2019 and
for their contribution and support members for their commitment and
management structure, providing daily was appointed chair of the audit and
during wise counsel during a turbulent
and directthese difficult
support to thetimes, and
executives. risk committee with effect from
for voting us first in South Africa. period.
17 June 2020.
Outlook and prospects report, page 43.
Sustainability report, www.aveng.co.za Governance performance report,
page 52.
Governance and Board Diversity and inclusion
composition Aveng measures its South African
Aveng is a values-driven organisation transformation progress against the
that conducts its business operations BBBEE generic codes of good
and activities in a responsible and practice. Reductions in the workforce
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