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MURRAY & ROBERTS HOLDINGS LIMITED - PRELIMINARY REPORT FOR THE ENDED 30 JUNE

Release Date: 26/08/2004 07:11
Code(s): MUR
Wrap Text

MURRAY & ROBERTS HOLDINGS LIMITED - PRELIMINARY REPORT FOR THE ENDED 30 JUNE 2004 Murray & Roberts Holdings Limited (Registration number 1948/029826/06) ("Murray & Roberts" or "the Group") Share Code: MUR ISIN code: ZAE000008983 Preliminary Report for the year ended 30 June 2004 The audited results for the year ended 30 June 2004 are set out below: Summarised consolidated income statement Audited
Audited Restated (R millions) 30 June 2004 30 June 2003 Revenue 8 424 10 111 Earnings before interest, exceptional items, depreciation and amortisation (EBITDA) 615 856 Amortisation of goodwill (5) (5) Depreciation (189) (218) Earnings before interest and exceptional items (EBIT) 421 633 Exceptional items (9) (5) Headlease and other discontinued property activities (note 2) - (54) Other (9) 49 Earnings before interest and taxation 412 628 Interest 10 (66) Net interest income (expense) 10 (17) Unrealised currency loss on offshore treasury funds - (49) Earnings before taxation 422 562 Taxation (note 3) (27) (76) Earnings after taxation 395 486 Income from associate 114 97 Minority shareholders" interest (25) (9) Earnings attributable to ordinary shareholders 484 574 Reconciliation of headline Attributable earnings 484 574 Exceptional items as above 9 5 Amortisation of goodwill 5 5 Non-headline portion of income from Associate 5 8 Headline earnings 503 592 Reconciliation of weighted average number of shares in issue ("000) (note 2) Weighted average number of ordinary shares in issue 331 893 331 893 Less weighted average number of shares held by the Murray & Roberts Trust (13 788) (14 077) Weighted average number of shares in issue used in the determination of basic per share figures 318 105 317 816 Add: adjustment for share Options 6 173 9 291 Weighted average number of shares in issue used in the determination of diluted per share figures 324 278 327 107 Earnings per share (cents) - Excluding treasury shares 146 173 - Diluted 149 175 - Basic 152 181 Headline earnings per share (cents) - Excluding treasury shares 152 178 - Diluted 155 181 - Basic 158 186 Total dividend per ordinary share (cents) 45.0 52.5 Operating cash flow per share (cents) 87 107 Summarised consolidated balance sheet Audited Audited Restated (R millions) 30 June 2004 30 June 2003 ASSETS Non-current assets 2 355 2 082 Property, plant and equipment 1 099 1 080 Discontinued headlease investment properties (note 2) 257 277 Associate company - Unitrans Limited 653 571 Other investments 346 154 Current assets 3 664 4 211 Accounts receivable and other 2 560 2 667 Bank balances and cash 1 104 1 544 Total tangible assets 6 019 6 293 Goodwill 5 10 Deferred taxation assets(note 3) 33 - TOTAL ASSETS 6 057 6 303 EQUITY AND LIABILITIES Permanent capital 2 661 2 497 Ordinary shareholders" funds 2 607 2 484 Minority shareholders" interest 54 13 Non-current liabilities 580 714 Long-term provision (note 2) 29 59 Discontinued finance headlease liabilities* (note 2) 346 401 Other long-term liabilities* 139 197 Deferred taxation liabilities 66 57 Current liabilities 2 816 3 092 Accounts payable and other 2 533 2 729 Bank overdrafts and short-term Loans 283 363 TOTAL EQUITY AND LIABILITIES 6 057 6 303 Net asset value per share (cents) 785 748 *Interest-bearing borrowings SUPPLEMENTARY INFORMATION (Rm) Commitments Capital expenditure - spent 353 238 - authorised but unspent 397 405 Operating lease Commitments 55 176 Contingent liabilities 56 16 Summarised consolidated cash flow statement Audited Audited Restated (R millions) 30 June 2004 30 June 2003 Cash generated by operations before working capital changes 533 824 Cash outflow from discontinued headlease property activities (note 2) (114) (99) Increase in working capital (88) (270) Cash generated by operations 331 455 Interest and taxation (43) (99) Operating cash flow 288 356 Dividends paid (167) (159) Dividends paid to minority Shareholders (1) (4) Cash retained in operations 120 193 Net investment activities (253) (142) Net funds flow (133) 51 Summarised statement of changes in equity Audited
Audited Restated (R millions) 30 June 2004 30 June 2003 Opening balance 2 484 2 648 Restatement - headlease and other discontinued property activities (note 2) - (72) AC133 transitional adjustment - (33) Earnings attributable to ordinary shareholders 484 574 Movement in revaluation reserve (2) - Movement in non-trading financial asset reserve 12 - Movement in hedging reserve 2 (5) Foreign currency translation movement on investments (163) (440) Movement in treasury shares (note 2) (43) (29) Dividend declared and paid (167) (159) Segmental analysis Audited Audited Restated
(R millions) 30 June 2004 30 June 2003 REVENUE Construction operations 3 502 3 981 Engineering contracting and services 651 955 Construction services and material supplies 3 011 3 383 Fabrication and manufacture 1 210 1 420 Corporate 1 30 Ongoing operations 8 375 9 769 Discontinued operations 49 342 Revenue as reported 8 424 10 111 EBIT Construction operations 96 199 Engineering contracting and services 81 116 Construction services and material Supplies 274 288 Fabrication and manufacture 68 108 Corporate (100) (95) Ongoing operations 419 616 Discontinued operations 2 17 EBIT as reported 421 633 Notes: 1. These consolidated summarised preliminary financial statements are prepared in accordance with AC127: Interim Financial Reporting. The accounting policies and methods of computation for the financial statements for the year ended 30 June 2004 are consistent with those applied in the prior year except as described in note 2 below and are in accordance with South African Statements of Generally Accepted Accounting Practice and the Companies Act in South Africa. 2. Restatements and comparatives Headlease and other discontinued property activities All headleases where the Group has a controlling interest in the property at the end of the lease term are more appropriately accounted for as separate finance lease obligations and the underlying leased assets are accounted for as investment properties. The opening balance on accumulated profit at 1 July 2002 and the balance sheet at 30 June 2003 have been restated on this basis and there has been no impact on the income statement in 2003. The restatement has no impact on the prior year earnings and headline earnings. The income statement impact of the headleases and other discontinued property activities classified as both operating and finance leases will continue to be disclosed as exceptional items and excluded from headline earnings. The effect on the current year"s earnings per share is nil cents. Concession investments Concession investments, which constitute a separate business unit and which will be traded in the relative short-term, have been more appropriately designated held for-trade financial investments. Consequently, the 2003 income statement has been restated to reflect the fair value adjustment to the concession investment amounting to R 10 million after taxation. The Murray & Roberts Trust The Murray & Roberts Trust is consolidated in line with the ruling of the JSE"s GAAP Monitoring Panel. Where the Trust has purchased the company"s equity share capital, the consideration paid, including any attributable incremental external costs net of income taxes, is deducted from total shareholders" equity as treasury shares until they are cancelled. Where such shares are subsequently sold, or reissued, any consideration received is included in shareholders" equity. The weighted average number of shares held by the trust are deducted from the average number of shares in issue used in the determination of earnings and headline earnings per share. Restatements The table below provides a detailed breakdown of the effect of the restatements referred to above on the 2003 financial statements. The table below provides a detailed breakdown of the effect of the restatements referred to above on the 2003 financial statements. The table below provides a detailed breakdown of the effect of the restatements referred to above on the 2003 financial statements. Audited Restated Audited
30.6.03 30.6.03 Effect on the summarised consolidated income statement Earnings before interest, exceptional items, depreciation and amortisation (EBITDA) 856 844 Taxation 76 74 Earnings per share (cents) Excluding treasury shares 173 170 Diluted 175 170 Basic 181 170 Headline earnings per share (cents) Excluding treasury shares 178 175 Diluted 181 175 Basic 186 175 Effect on the summarised consolidated balance sheet Non-current assets Property, plant and Equipment 1 080 1 179 Discontinued headlease investment properties 277 - Other investments 154 159 Current assets Accounts receivable and Other 2 667 2 688 Permanent capital Ordinary shareholders" Funds 2 484 2 559 Non-current liabilities Long term provision 59 243 Discontinued finance headlease liabilities 401 - Other long-term liabilities 197 218 Deferred taxation liabilities 57 54 Current liabilities Accounts payable and other 2 729 2 806 Bank overdrafts and short-term liabilities 363 258 Effect on the summarised consolidated cash flow statement Dividends paid (159) (166) 3. Deferred taxation assets totalling R 33 million were recognised during the current year. It is the Group"s policy to only recognise deferred taxation assets to the extent that it is probable that taxable profits within the Group"s budgeting horizon, will be available against which deductible temporary differences can be utilised. 4. The results have been audited by the company"s auditors, Deloitte & Touche. Their unqualified audit opinion is available for inspection at the company"s registered office. COMMENTARY Further to the Trading Statement and Cautionary Announcement released through the Securities Exchange News Service (SENS) on 9 June 2004, Murray & Roberts has finalised the year ended 30 June 2004 with fully diluted headline earnings per share of 152 cents (restated 2003: 178 cents) off a 17% decline in revenue to R 8,4 billion (2003: R 10,1 billion). The operating margin of 5,0% (restated 2003: 6,3%) is at the minimum target and reflects the difficult trading conditions experienced by the Group in this fourth year of Rebuilding Murray & Roberts. The decline in operating profit (EBIT) to R 421 million (restated 2003: R 633 million) is more fully detailed in the report below. Cash reserves in the Group remain strong at R 1,10 billion (2003: R 1,54 billion). Offshore cash has been translated at an exchange rate 17% stronger than at the previous reporting period. The Group returned 19,0% on average shareholders" funds (2003: 22,4%), which for this year is marginally below the target return of 20%. Accounting Standards The Group has restated the measurement and disclosure of its headlease agreements and other discontinued property activities in accordance with South African Statements of Generally Accepted Accounting Practice. The Group"s concession investments have been reclassified compared to the previous year with no material impact on prior year earnings. These changes require restatement of the previous year"s financial statements, full details of which are included in the notes to the Balance Sheet. Overview The Group has experienced mixed fortunes in its different markets throughout the year, highlighted in the business update issued at the annual general meeting on 27 October 2003, the Prospects Statement in the report on interim results for the six months ended 31 December 2003 published on 25 February 2004 and the Trading Statement and Cautionary Announcement published through SENS on 9 June 2004. The SA Rand strengthened an average 22% in the year and together with delays in targeted major projects and disappointing performance from certain operations, combined to depress the financial results for this year. In pursuit of the objective of Rebuilding Murray & Roberts by 30 June 2005, the Group has nevertheless continued to rationalise its activities and exit markets and sectors where an appropriate growth potential or return on investment is not evident. This is particularly the case in parts of Africa. The Group has continued to source new levels of executive leadership and human capital, with a particular focus on building its global leadership capacity. It is from this foundation that Globalising Murray & Roberts has been approved by the board as the strategy to extend its commitment to sustainable earnings growth and value creation. Order Book The Group"s project order book stood at R 3,1 billion at 30 June 2004 (2003: R 4,8 billion). This has been enhanced by a further R 1,9 billion through acquisition of the Cementation mining business in South Africa and Canada effective July 2004. The decline in traditional order book has had a negative short-term impact on revenues and is largely due to delays in the flow of major industrial, mining, infrastructure and building projects. The recognition of future project losses in this and previous years has increased the relative percentage of break-even work, which impacts on operating margin and return on equity in the short-term. Award of the Soccer 2010 World Cup to South Africa has given additional impetus to finalisation of the delayed Gautrain project on which the Group has submitted a tender. It will also maintain the high levels of fixed investment currently being experienced in the domestic construction economy. In Dubai, the Group initially pre-qualified and has since submitted competitive proposals for two of the world"s largest construction projects. The long-term order book for foundry work has strengthened with work-in-hand extending at near current levels beyond 2010. The Group awaits an announcement on the locomotive replacement programme in South Africa, which could impact future profitability. Operations Construction operations serving global building, infrastructure, mining and industrial markets delivered disappointing operating profits of R 96 million (restated 2003: R 199 million) on revenues of R 3,50 billion (2003: R 3,98 billion) at a margin of 2,7% (2003 restated : 5,0%). This includes a R 27 million realised profit on the sale of a building concession investment and a R 7 million fair value increase in concession investments. South Africa and the SADC countries continue to offer favourable business conditions and the construction operations achieved good market access to deliver an operating profit of R 39 million on revenues of R 1,90 billion. Difficult business conditions, conservative revenue recognition and poor operating performances in Equatorial Guinea, Benin, Nigeria and Egypt resulted in an operating loss of R 23 million on revenues of R 234 million in the rest of Africa. A period of consolidation in the Middle East delivered a marginal operating profit on revenues of R 900 million. The Middle East business reports independently into the Group"s international structure and is under new management from 1 July 2004. In South Africa, the construction, roads and mechanical (MEI) operations have been linked with the regional building businesses in SADC from 1 July 2004 to form an integrated regional construction cluster. Engineering contracting and services to the industrial and mining markets delivered an operating profit of R 81 million (2003: R 116 million) on revenues of R 651 million (2003: R 955 million) at a margin of 12,4% (2003: 12,2%). The Mozal and Hillside smelter projects were completed in the year, ending a 12-year investment programme that has established a global reputation for Murray & Roberts in mega-project implementation. Unfortunately, the strength of the SA Rand and some investment uncertainty in the local economy have resulted in long gestation periods for new mining and industrial projects. Construction services and material supplies to the building, infrastructure, mining and industrial markets delivered operating profits of R 247 million (2003: R 260 million) on revenues of R 2,69 billion (2003: R 3,00 billion) at a margin of 9,2% (2003: 8,7%).The general level of domestic construction investment has remained buoyant, offering stable market conditions to the Group"s construction materials activities. This is particularly evident in the supply of materials to the infrastructure market, where installed capacity is approaching full utilisation for the first time in more than a decade. The market for steel products, however, has been negatively impacted by price volatility caused by increased global demand. The manufacture and supply of automotive components to the domestic and selected global markets generated operating profits of R 39 million (2003: R 52 million) on revenues of R 501 million (2003: R 673 million) at a margin of 7,8% (2003: 7,7%). The Group"s three-year investment programme to modernise its foundry operations has created a world-class business that has successfully optimised the niche opportunity offered by government"s Motor Industry Development Plan. Contract partnerships have been established with leading automotive groups to supply sophisticated engine system elements into their global supply networks. The fabrication and assembly of specialist products for the domestic and global transport markets generated operating profits of R 28 million (2003: R 62 million) on revenues of R 572 million (2003: R 818 million) at a margin of 4,9% (2003: 7,6%). The UCW Partnership performed well in the year, creating value that sets a standard for long-term empowerment in the Group. The demand for improved rolling-stock capacity in the country requires innovative and competitive solutions from both client and contractor. By contrast, industrial manufacturing for export from South Africa has been negatively impacted by the strong SA Rand and reduced global demand. Consani has delivered an operating loss in the year and has been severely rationalised in line with market conditions. Industrial services companies Booker Tate, Criterion, Johnson Arabia, Improvair, Elgin and Pefco generated operating profits of R 30 million (2003: R 39 million) on revenues of R 504 million (2003: R 658 million). Corporate overheads for the year amounted to R 100 million (2003: R 95 million) reflecting increased corporate activity in preparation for the Group"s new globalisation strategy. Both domestic and international leadership have been enhanced to ensure the capacity for growth and risk management that will flow from pursuit of this strategy. Unitrans Limited ("Unitrans") Shareholders are reminded that the company published a cautionary announcement through SENS on Friday 20 August 2004 advising shareholders that the company has received an offer for its 44% shareholding in Unitrans. The Group has advised shareholders since August 2000 that its intention was to seek a strategic solution for its investment in Unitrans. This investment is subject to pre-emptive conditions over the shares. The above offer includes black economic empowerment. Unitrans has subsequently announced its intention to engage in a transaction which if approved by the regulators would have the effect of diluting existing shareholders" holdings. This decision was made without first seeking specific approval from shareholders. Murray & Roberts advises that it intends to proceed with the sale of its shares, that it is evaluating its options and that a further announcement will be made in due course. In its report to its shareholders, Unitrans announced headline earnings of R 263 million (restated 2003: R 230 million) on revenues of R 9,3 billion (restated 2003: R 7,6 billion). Operating margin was 4,5% and attributable earnings grew to R 253 million (restated 2003: R 212 million). Details are available in the Unitrans preliminary report published on 24 August 2004. Exceptional Items The loss incurred on disposal of non-core assets amounted to R 9,0 million and no underlying deterioration of the head lease properties has arisen in the current year. Acquisitions and Disposals Acquisition of the Cementation mining contracting companies in South Africa and Canada was finalised post-year end for a total consideration of approximately R 160 million. Rights to the name have been secured in Australia. Minority shareholders have been advised that an offer will be made for their shares and that an application will be made to cancel the company"s listing on the JSE. The Group has finalised the terms of disposal of Elgin Engineering and the sale of Pefco Foundry is being finalised. Subject to conditions precedent expected to be fulfilled by 30 September 2004, agreement has been reached subsequent to financial year-end to dispose of the Group"s interest in Booker Tate, based in the United Kingdom. Each of these companies carries unique long-term liabilities, all of which are eliminated from the Group"s future risk profile. Prospects Globalising Murray & Roberts is a growth strategy focused on three regional markets and three market sectors. Johannesburg is the Group"s head office and base for operations in South Africa. Murray & Roberts International (and its subsidiaries) operates in three regions, northern hemisphere (including international treasury), Middle East and South Asia and sub Saharan Africa. The primary focus of the Group is to serve the construction economies of the less developed world, with a secondary involvement leveraging South African competitiveness through industrial manufacturing. New areas of opportunity are being sought in the oil and gas sector, with extensions of existing capability in mining, industrial and construction materials. The Group is currently involved in tendering for a number of mega-project opportunities in the Middle East and South Africa. These include major building projects and airport expansions, power generation facilities, transport systems and others. The demand for construction materials in South Africa is expected to remain buoyant through the year ahead. Whether the risk of new investment to increase current capacity is justified by future market confidence, must still be tested, however. The Group has recently invested in upgrading the capacity of its steel mill output. In addition to the R 1,9 billion order book brought through Cementation, the Group is confident that further opportunity will materialise as resource groups expand capacity to meet increased global demand for commodities. Expansion is planned for the energy generation capacity of South Africa and transport infrastructure is in need of significant upgrades to meet economic development targets. These will require increased public private partnership activity. With a lower interest rate and inflation regime, the Group is positive that market conditions will improve during the year ahead, but does not expect any significant increase in Foreign Direct Investment into South Africa. This will maintain major project activity at a low level, especially in the industry and mining sector. Growth will again be driven from government investment into infrastructure and by commercial investment into buildings and residential accommodation. International markets of interest to the Group are expected to grow in line with a resurgence of economic activity in South and South-east Asia and demand from China. The Middle East follows its own dynamic, driven primarily by energy, with increasing attention to the benefits of diversification into minerals extraction and tourism. It is expected that Unitrans will contribute associate earnings only for the first half-year and that the reduction in second half-year earnings subsequent to the disposal, will not be fully compensated by contributions from new acquisitions. The directors expect that earnings for the year to 30 June 2005 will not show a material change while the Group reorganises itself to meet the objectives of Globalising Murray & Roberts. Directorate and Management Mr Roy Andersen was appointed chairman of the company following the retirement of Mr David Brink on 31 December 2003. Mr Peter Joubert and Ms Brigalia Bam retired with effect from 30 June 2004, having passed the mandatory retirement age. Mr Allen Morgan resigned on 26 July 2004 to avoid potential conflicts of interest. Following board and director evaluations in the context of Globalising Murray & Roberts, additional independent directors have been identified and will be announced shortly. Mr Roy Andersen was appointed chairman of the Nomination Committee during the year and a new chairman of the Health, Safety, Environment and Corporate Social Involvement Committee will be announced in due course, succeeding Mr Allen Morgan. The directors have mandated an International Advisory Board to assist the board with its strategic guidance in respect of the growing international activities of the Group. Appointments to this board will be notified in due course. Company Secretary Mrs Elsabe Marx resigned as Company Secretary for personal reasons on 31 July 2004. A new appointment will be announced through SENS in due course. Mr Millard Arnold has been appointed acting secretary with effect from 24 August 2004. Dividend The directors have declared a final dividend of 30,0 cents per share in respect of the year ended 30 June 2004 (2003: 37,5 cents per share) making the total dividend 45,0 cents per share for the year (2003:52,5 cents per share). Attention is drawn to the formal dividend announcement contained herein. On behalf of the directors Roy Andersen Chairman of the Board Brian Bruce Group Chief Executive Roger Rees Group Financial Director Bedfordview 25 August 2004 NOTICE TO SHAREHOLDERS Declaration of final ordinary dividend (No. 105) Notice is hereby given that the final dividend, dividend No. 105 of 30,0 cents per share in respect of the financial year ended 30 June 2004, has been declared payable to shareholders recorded in the register at the close of business on Friday 15 October 2004. The salient dates for the final ordinary dividend are as follows: Last day to trade cum dividend Friday 8 October 2004 Shares commence trading ex dividend Monday 11 October 2004 Record date 15 October 2004 Payment date Monday 18 October 2004 Share certificates may not be dematerialised or re-materialised between Monday 11 October 2004 and Friday 15 October 2004, both days inclusive. On Monday 18 October 2004, the dividend will be electronically transferred to the bank accounts of all certificated shareholders where this facility is available. Where electronic fund transfer is not available or desired, cheques dated 18 October 2004 will be posted on that date. Dematerialised shareholder accounts will be credited at their CSDP or broker on Monday 18 October 2004. By order of the Board M W Arnold Acting Secretary Bedfordview 25 August 2004 Murray & Roberts Holdings Limited Registration No. 1948/029826/06 Directors: RC Andersen* (Chairman) BC Bruce (Managing & Chief Executive) WP Esterhuyse* SE Funde* SJ Macozoma* RW Rees1 AA Routledge* MJ Shaw* KE Smith2 JJM van Zyl* Secretary: MW Arnold (acting) 1 British 2 Irish *Non executive Registrar Computershare Limited, Investor Services Division, 70 Marshall Street, Johannesburg 2001 Additional information available at www.murrob.com Sponsor Merrill Lynch Global Markets & Investment Banking Group Merrill Lynch South Africa (Pty) Ltd Registration number 1995/001805/07 Registered Sponsor and Member of the JSE Securities Exchange South Africa Date: 26/08/2004 07:12:32 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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