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Murray & Roberts - Interim report for the six months ended 31 December 2004
Murray & Roberts Holdings Limited
(Registration number 1948/029826/06)
("Murray & Roberts" or "the Group")
Share Code: MUR ISIN code: ZAE00008983
Interim report for the six months ended 31 December 2004
* Order Book up 70%
* Revenue up 29%
* Operating profit up 9%
* Headline earnings per share down 10%
* Interim dividend 15 cents per share
We are Murray & Roberts and we are South African
We strive for World Class Fulfilment in everything we do
We are primarily Engineers & Contractors
Our Core Competence is Industrial Design
Summarised consolidated income statement
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
(R millions) 31.12.04 31.12.03 30.06.04
Revenue 5 361 4 163 8 424
Earnings before interest,
exceptional items, depreciation
and amortisation (EBITDA) 329 281 615
Amortisation of goodwill (note 2) - (2) (5)
Depreciation (126) (92) (189)
Earnings before interest and 203 187 421
exceptional items (EBIT)
Exceptional items 51 - (9)
Headlease and other discontinued - (2) -
property activities
Other 51 2 (9)
Earnings before interest and 254 187 412
taxation
Net interest (expense) income (9) 15 10
Earnings before taxation 245 202 422
Taxation (note 3) (60) (30) (27)
Earnings after taxation 185 172 395
Income from associates 68 59 114
Minority shareholders" interest (9) (2) (25)
Earnings attributable to ordinary 244 229 484
shareholders
Reconciliation of headline earnings
Attributable earnings 244 229 484
Exceptional items as above (51) - 9
Taxation on exceptional items 17 - -
Amortisation of goodwill - 2 5
Non-headline portion of income from - 3 5
associate
Headline earnings 210 234 503
Reconciliation of weighted average
number of shares in
issue ("000)
Weighted average number of ordinary 331 893 331 893 331 893
shares in issue
Less weighted average number of
shares held
by The Murray & Roberts Trust (13 640) (13 818) (13 788)
Weighted average number of shares in
issue used
in the determination of basic per 318 253 318 075 318 105
share figures
Add: dilutive adjustment for share 5 018 6 025 6 173
options
Weighted average number of shares in
issue used in the determination
of diluted per share figures 323 271 324 100 324 278
Earnings per share (cents)
- Issued 74 69 146
- Diluted 75 71 149
- Basic 77 72 152
Headline earnings per share (cents)
- Issued 63 71 152
- Diluted 65 72 155
- Basic 66 74 158
Dividend per ordinary share (cents) 15.0 15.0 45.0
Operating cash flow per share (32) 28 87
(cents)
Summarised consolidated balance sheet
Unaudited Unaudited Audited
(R millions) 31.12.04 31.12.03 30.06.04
ASSETS
Non-current assets 2 112 2 110 2 355
Property, plant and equipment 1 175 945 1 099
Discontinued headlease investment 253 261 257
properties
Associate company - Unitrans Limited - 598 653
Associate company - Clough Limited 406 - -
Other investments 278 306 346
Current assets 4 186 3 189 3 664
Accounts receivable and other 2 696 2 111 2 560
Amounts receivable from disposals 914 - -
Bank balances and cash 576 1 078 1 104
Total tangible assets 6 298 5 299 6 019
Goodwill 56 8 5
Deferred taxation assets 28 - 33
(note 3)
TOTAL ASSETS 6 382 5 307 6 057
EQUITY AND LIABILITIES
Permanent capital 2 716 2 448 2 661
Ordinary shareholders" funds 2 676 2 438 2 607
Minority shareholders" interest 40 10 54
Non-current liabilities 564 604 580
Long-term provision 20 34 29
Discontinued finance headlease 321 372 346
liabilities*
Other long-term liabilities* 134 141 139
Deferred taxation liabilities 89 57 66
Current liabilities 3 102 2 255 2 816
Accounts payable and other 2 420 2 110 2 533
Bank overdrafts and short-term 682 145 283
loans*
TOTAL EQUITY AND LIABILITIES 6 382 5 307 6 057
Net asset value per share (cents) 806 735 785
* Interest-bearing borrowings
Supplementary information
Unaudited Unaudited Audited
(R millions) 31.12.04 31.12.03 30.06.04
Commitments
Capital expenditure
- spent 151 108 353
- authorised but unspent 240 246 397
Operating lease commitments 40 146 55
Contingent liabilities 67 15 56
Summarised consolidated cash flow statement
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
(R millions) 31.12.04 31.12.03 30.06.04
Cash generated by operations before 301 274 533
working capital changes
Cash outflow from discontinued (31) (67) (114)
headlease property activities
Increase in working capital (362) (89) (88)
Cash (utilised in) generated by (92) 118 331
operations
Interest and taxation (14) (24) (43)
Operating cash flow (106) 94 288
Dividends paid (96) (119) (167)
Dividends paid to minority (17) - (1)
shareholders by subsidiaries
Cash (utilised) retained in (219) (25) 120
operations
Net investment activities (618) (81) (253)
Net funds flow (837) (106) (133)
Summarised statement of changes in equity
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
(R millions) 31.12.04 31.12.03 30.06.04
Opening balance 2 607 2 484 2 484
Earnings attributable to ordinary 244 229 484
shareholders
Movement in revaluation reserve (1) - (2)
Movement in non-trading financial 16 - 12
asset reserve
Movement in hedging reserve - - 2
Foreign currency translation (94) (141) (163)
movement on investments
Change in cost of shares held by The - (15) (43)
Murray & Roberts Trust
Dividend declared and paid (96) (119) (167)
2 676 2 438 2 607
Segmental analysis
Unaudited Unaudited Audited
(R millions) 31.12.04 31.12.03 30.06.04
REVENUE
Construction & engineering 3 232 2 087 4 153
Construction materials & services 1 522 1 405 2 886
Fabrication & manufacture 425 314 763
Corporate - - 1
Ongoing operations 5 179 3 806 7 803
Discontinued operations 182 357 621
Revenue as reported 5 361 4 163 8 424
EBIT
Construction & engineering 68 78 177
Construction materials & services 147 135 274
Fabrication & manufacture 43 29 80
Corporate (50) (47) (100)
Ongoing operations 208 195 431
Discontinued operations (5) (8) (10)
EBIT as reported 203 187 421
NOTES
1. These consolidated summarised interim financial statements are prepared in
accordance with AC127: Interim Financial Reporting. The accounting policies and
methods of computation for the financial statements for the six months ended 31
December 2004 are consistent with those applied in the year ended 30 June 2004
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. Change in accounting policy
IFRS3 (AC140): Business Combinations
The Group adopted IFRS3 (AC140): Business Combinations during the current
period. The adoption of this statement resulted in a change in the accounting
policy for goodwill. For all business combinations on or after 31 March 2004
goodwill is measured as the excess of the "cost of the acquisition" over the
"interest in the fair value of the assets, liabilities and contingent
liabilities acquired and recognised".
Until 30 June 2004, goodwill was:
- amortised on a straight line basis over its useful life with a maximum of
ten years.
In accordance with the provisions of IFRS3 (AC140):
- the Group ceased amortisation of goodwill from 1 July 2004;
- accumulated amortisation as at 30 June 2004 has been eliminated with a
corresponding decrease in the cost of goodwill; and
- from 1 July 2004 onwards, goodwill is tested annually for impairment, as
well as when there are indications of impairment.
3. Deferred taxation assets totaling R33 million were recognised during the
prior 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. Change in comparative information for the six months ended 31 December 2003
Comparative information for the six months ended 31 December 2003 has been
adjusted to reflect the effect of accounting restatements made during the year
ended 30 June 2004 in respect of:
- the recognition of the headlease properties and finance headlease
liabilities;
- the reclassification of the concession investments as designated held-for-
trade financial investments; and
- the consolidation of The Murray & Roberts Trust.
The table below provides a breakdown of the effect of the restatements referred
to above on the financial statements for the six months ended 31 December 2003.
Unaudited
Restated Unaudited
31.12.03 31.12.03
Effect on the summarised consolidated
income statement
Earnings per share (cents)
- Issued 69 69
- Diluted 71 69
- Basic 72 69
Headline earnings per share (cents)
- Issued 71 71
- Diluted 72 71
- Basic 74 71
Effect on the summarised consolidated
balance sheet (R millions)
Property, plant and equipment 945 1 046
Discontinued headlease investment 261 -
properties
Other investments 306 311
Accounts receivable and other 2 111 2 132
Ordinary shareholders" funds 2 438 2 513
Long-term provision 34 176
Discontinued finance headleases liabilities 372 -
Other long-term liabilities 141 162
Deferred taxation liabilities 57 54
Accounts payable and other 2 110 2 188
Bank overdrafts and short-term loans 145 70
Effect on the summarised consolidated
cash flow statement (R millions)
Dividends paid (119) (124)
Commentary
Performance in this final year of Rebuilding Murray & Roberts is proving even
more volatile than was anticipated in the prospects statement included in the
2004 annual report. Order book and revenue have improved significantly on the
previous year, but the legacy of poor project performance and ongoing
strengthening of the SA Rand continues to impact the Group.
The Group"s construction operations in South Africa and Middle East will
continue to be rationalised through to year-end. The decision to liquidate
Consani Engineering brings finality to a business where sustainability is
largely outside the control of the Group. The acquisition of Cementation Mining
and a 29% strategic shareholding in Clough as well as the disposal of the
Group"s 44% shareholding in Unitrans have demanded significant executive time
throughout the reporting period. These transactions have an impact on the income
statement and balance sheet profile of the Group in the current financial year,
which establishes a new framework for future development.
Regrettably, the Group suffered 6 fatalities during the period (2003: 8), one
each in Egypt and Namibia and two each in mining and construction in South
Africa. The Group has sharpened its focus on health, safety and environmental
compliance and has qualified for the Socially Responsible Investment Index on
the JSE Securities Exchange.
Revenue of R5,4 billion (2003: R4,2 billion) in the period are back to the
levels recorded two years ago at December 2002. During this period the SA Rand
exchange rate to the US Dollar has strengthened 34% and some operations have
suffered the consequences of adverse market dynamics. The operating margin is
disappointing at 3,8% (2003: 4,5%), reflecting the carry-over order book at
breakeven margin notified in the annual report and other factors highlighted
under operations.
Attributable earnings are up 7% at R244 million (2003:
R229 million). This includes a profit on the disposal of Unitrans and an
impairment against Consani Engineering. Net financing costs of R9 million (2003:
income of R15 million) and an interim tax charge of R60 million (2003: R30
million) including capital gains tax of R17 million on the surplus from the
Unitrans sale, have increased the charge against earnings compared with the
previous corresponding period. This has resulted in a decline in fully diluted
headline earnings to 65 cents per share (2003: 72 cents per share). It is
anticipated that a normalised tax rate of 29% will apply for the second half of
the year.
Operating cash outflow is R106 million compared to an inflow of R94 million in
the previous corresponding period. Working capital increased by R362 million
(2003: R89 million) of which R176 million was in the Steel Cluster, which is
budgeted to be realised by year-end.
The directors have declared an interim ordinary dividend of 15 cents per share
in respect of the half-year ended 31 December 2004. Following the disposal of
Unitrans, dividend cover has been changed to three times earnings excluding
associates. Attention is drawn to the formal dividend announcement contained
herein.
Order Book
The Group"s project order book stood at R8,5 billion at
31 December 2004, up 70% in the first six months of the year and 112% on the
level at 31 December 2003. Of this order book
R2,3 billion relates to the Group"s 40% share of Dubai International Airport,
more than 90% of which will be realised in the 2006 and 2007 financial years.
The order book comprises Construction Middle East at R3,2 billion (R750
million); Construction SADC at R1,75 billion (R1,55 billion); Mining Contracting
at R3,1 billion (R2,4 billion); and Engineering at R450 million (R300 million).
The amounts in brackets are the comparative levels at 30 June 2004.
The regional composition of the order book is SADC 53% (73%); Middle East 37%
(15%); and Rest of World 10% (12%). More information on the Clough order book is
given later in this report.
Quality construction opportunity in South Africa remains the Group"s primary
order book challenge. Building margins are too low relative to performance risk
and there is currently insufficient higher margin engineering-related work.
Operations
Construction operations in South Africa and Middle East continue to struggle for
performance in markets where abundant opportunity has not translated into
profitable work. New entrants at all levels of client, developer, professional
and contractor; the psychology of lowest price; and industry-wide deficits in
leadership, management, supervision and skills have combined to make
conventional construction ever more risky and volatile. The Group recently
conducted an independent study to benchmark global best practice in the
contracting sector, and is working to reframe its procurement philosophy and
risk procedures accordingly.
Compared with the corresponding period in the previous year, a reduction in
operating profit of R28 million in the Middle East (primarily a project in
Qatar) and R28 million in South Africa (primarily roads and MEI) reflect the
extent of problems experienced in these construction markets. Settlement of
claims and a fair value increase of concession investments of R29 million
enabled construction operations to deliver a combined operating profit of R20
million (2003: R9 million) on revenue of R1,65 billion (2003: R1,45 billion) at
a margin of 1,2% (2003: 0,6%).
In contrast, continued buoyancy in the domestic general construction economy
allowed the construction services & material supplies sector to maintain
operating profits of R132 million (2003: R126 million) on revenue of R1,4
billion (2003:
R1,3 billion) at a margin of 9,4% (2003: 9,7%). Demand for all categories of
construction product has been steady, and it is pleasing to report a return to
performance in structural steel.
With no major industrial projects in hand, the engineering contracting &
services sector disappointed with an operating loss of R2 million (2003: profit
of R45 million) on revenue of
R302 million (2003: R338 million). This sector has experienced a welcome upturn
in order intake during the review period.
The acquisition of Cementation has boosted performance of the mining sector with
a first half operating profit of R45 million (2003: R6 million) on revenue of
R1,3 billion (2003:
R302 million) at a margin of 3,5% (2003: 2,0%). The integration of Cementation
and consolidation with RUC is progressing well with a new executive leadership
team appointed to lead the process.
Revenue from the manufacture and supply of automotive and transport products,
excluding Consani, are effectively hedged and operating profits of R42 million
were recorded (2003: R29 million) on higher revenue of R397 million (2003: R294
million) at a margin of 10,6% (2003: 9,9%).
Industrial services companies in the Group delivered operating profits of R21
million (2003: R14 million) on revenue of
R180 million (2003: R264 million).
Corporate costs for the period increased to R50 million (2003:
R47 million) and include costs associated with the enhanced international
office. This office oversees northern hemisphere operations in Canada, Middle
East and North Africa.
Cash of R576 million was enhanced by R901 million post balance sheet through the
disposal of the Group"s Unitrans shares. Approximately a third of cash resources
is denominated in offshore currencies. The acquisitions of Cementation and a
strategic shareholding in Clough totalling R550 million were funded primarily
from existing cash resources.
Associates
The Group acquired on 10 November 2004 a 29,3% shareholding in Clough Limited
based in Perth, Australia, but holds a shared economic interest in 64% of the
company in terms of a shareholder agreement with McRae (Pty) Limited
representing the Clough Family interests. Due diligence identified a potential
liability on a project in the Bass Straights, the effects of which are pre-
acquisition.
This project is largely complete and Clough is off site, but the resolution of
disputes remains a priority. Murray & Roberts executives are actively supporting
the resolution process and closely monitor progress.
Clough is on track under a new board and executive leadership team. The order
book stood at R4,5 billion at 31 December 2004, up from R1,5 billion at 30 June
2004 with new work secured in Australia, India, Indonesia and Saudi Arabia.
Clough presented associate earnings of R4 million for the two months in the
period under review. Unitrans was effectively sold on 31 December 2004 and its
final contribution to the Group is associate earnings of R64 million (2003: R59
million).
Exceptional Items
Improved conditions in the domestic economy have ensured that trading in the
property headlease portfolio has been held within budget through the current
period and no additional provision is necessary at this stage.
A profit of R211 million on the disposal of the Group"s 44% shareholding in
Unitrans is offset by an impairment of
R127 million against Consani, a loss of R28 million on the sale of Booker Tate
and an impairment of R5 million on residual goodwill.
Acquisitions, Disposals & Empowerment
The Group seeks to secure its future growth partly through acquisition of
leading businesses and partnerships serving its core business sector. This is
defined as the construction economies of Southern Africa, the gulf states of
Middle East, Australasia and Southeast Asia. This includes both empowerment and
indigenisation and will over time facilitate the disposal of remaining
businesses no longer strategic to the Group.
In support of the Mining Charter and broad-based black economic empowerment in
South Africa, AKA Capital will acquire 26% of Murray & Roberts Cementation,
which includes the assets of Murray & Roberts RUC focused on the local market.
The transaction is effective 1 January 2005.
A consortium comprising our existing empowerment partners and others will be
formed to partner the concession, development and property business of Murray &
Roberts. It is envisaged that this operating partnership will facilitate a new
model for engaging the changing circumstances in the domestic and regional
construction sector.
Directorate
A number of director appointments have been announced over the past six months
following the evaluation process designed to strengthen the Board in the context
of improved corporate governance and Globalising Murray & Roberts.
The appointment in September 2004 of Mr Michael McMahon and Dr Namane Magau as
independent directors was confirmed at the annual general meeting. Mr McMahon
has been appointed chairman of the Health, Safety, Environment & Corporate
Social Involvement Committee and Dr Magau to the Remuneration & Human Resources
Committee. Ms Imogen Mkhize and Mr Royden Vice were appointed independent
directors in January 2005. Ms Mkhize has been appointed to the Audit & Risk
Management Committee.
Mr Norbert Jorek and Mr Sean Flanagan were appointed executive directors. The
appointment of Mr Jorek was confirmed at the annual general meeting. Mr Flanagan
has taken responsibility for the Southern Africa mining contracting,
construction and development business. He and Mr Keith Smith together have
responsibility for 80% of the Group"s construction-related operations.
Professor Willie Esterhuyse retired from the Board with effect from 28 February
2005. Appointed to the Board in 1990, Professor Esterhuyse has served the Group
with distinction over the past 15 years.
The International Advisory Board mandated to assist the Board with strategic
guidance in respect of the growing international activities of the Group is
being formulated.
Mr Malose Chaba and Mr Craig Lawrence were appointed to the Murray & Roberts
executive committee and directors of Murray & Roberts Limited during the period.
Ms Sandi Linford joined the Group as Company Secretary in November 2004.
Prospects
Finalisation of Rebuilding Murray & Roberts remains an absolute focus for the
Board and executive management of the Group over the months ahead. The improved
order book, a more focused management structure, the series of acquisitions and
disposals and in particular the planned empowerment of the Group"s domestic
construction-related businesses, offers the potential for meaningful growth in
the years ahead.
However, the prospects statement in the annual report and the business update at
the annual general meeting cautioned investors of the challenges faced in the
current year. Taking into account the liquidation of Consani, the unexpected
reversal on the project in Qatar, the restructuring of aspects of the business
in terms of the Group"s empowerment initiatives, the dilutive impact of the
Unitrans disposal and an increase in the effective taxation rate, the directors
have concluded that it is prudent to expect headline earnings in the second half
of the year to be similar to those recorded in the first half.
On behalf of the directors
Roy Andersen
Chairman of the Board
Brian Bruce Roger Rees
Group Chief Executive Group Financial Director
Bedfordview
28 February 2005
NOTICE TO SHAREHOLDERS
Declaration of interim ordinary dividend (No. 106)
Notice is hereby given that an interim ordinary dividend No 106 of 15 cents per
share (2004: 15 cents), in respect of the financial year ending 30 June 2005 has
been declared payable to shareholders recorded in the register on Friday 15
April 2005.
Salient dates 2005
Last day to trade cum dividend Friday 8 April
Trading ex dividend commences Monday 11 April
Record date Friday 15 April
Payment date Monday 18 April
Share certificates may not be dematerialised or re-materialised between Monday
11 April 2005 and Friday 15 April 2005, both days inclusive.
On Monday 18 April 2005 the interim 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 April 2005 will be posted on that date.
Shareholders who have dematerialised their share certificates will have their
accounts at their CSDP or broker credited on Monday 18 April 2005.
By order of the Board
Sandi Linford
Company Secretary
Bedfordview
28 February 2005
Murray & Roberts Holdings Limited (Registration number 1948/029826/06)
Directors:
RC Andersen* (Chairman) BC Bruce (Managing and Group Chief Executive) WP
Esterhuyse* SJ Flanagan SE Funde* N Jorek3
SJ Macozoma* Dr NM Magau* JM McMahon1* IN Mkhize* RW Rees1
AA Routledge* MJ Shaw* KE Smith2 JJM van Zyl* RT Vice*
1British 2Irish 3German *Non-executive
Company Secretary:
SF Linford
Website:
www.murrob.com
Registered office:
Douglas Roberts Centre,
22 Skeen Boulevard, Bedfordview
Registrar:
Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg 2001
Sponsor
Merrill Lynch SA (Pty) Limited
Date: 28/02/2005 04:35:10 PM Supplied by www.sharenet.co.za
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