Wrap Text
Murray & Roberts - Preliminary Report for the year ended 30 June 2006
Murray & Roberts Holdings Limited
(Registration number: 1948/029826/06)
("Murray & Roberts" or "Group")
Share Code: MUR & ISIN code: ZAE00073441
Preliminary Report for the year ended 30 June 2006
SALIENT POINTS
Order Book 18% to R10,0 billion
Revenues 16% to R11,9 billion
Operating profit 47% to R800 million
Headline Earnings 26% to 184 cents per share
(excluding BBBEE transaction)
Full year dividend 33% to 60 cents per share
Murray & Roberts and its associates employ more than 30 000 people directly and
we estimate that a further 20 000 employees of our many business partners
attend daily on our more than 150 active work sites throughout Southern Africa,
Middle East, Australasia, Asia and North America. This collective capacity is
focused on selected markets in the global construction economy and has been
assembled through Rebuilding Murray & Roberts over the six years since July
2000.
Murray & Roberts 2010 is our short-term strategy focused on the delivery of
sustainable value from increased market activity in all the Group"s regional
and sectoral markets, including the impact of increased domestic activity
associated with the 2010 Soccer World Cup, and the integration of our new
business acquisitions into the Group"s strategic value proposition.
Globalising Murray & Roberts is an ongoing strategic initiative that benchmarks
the future performance potential of the Group against best-in-class
characteristics drawn from the global engineering & construction sector.
Brian C Bruce, Group Chief Executive
Executive Summary
On behalf of the Directors, we are pleased to announce a final dividend of 40
cents per share (2005: 30 cents per share) increasing the total dividend for
the full year by 33% to 60 cents per share (2005: 45 cents per share).
Attention is drawn to the formal dividend announcement contained herein.
Shareholders are alerted to the fact that in finalising the audited financial
statements for the reporting period in terms of International Financial
Reporting Standards ("IFRS") some adjustments have been necessary to the
financial statements for the year ended 30 June 2005.
Excluding an R87 million charge to the income statement relating to the
granting of shares to almost 14000 employees in terms of the Group"s Broad
Based Black Economic Empowerment (BBBEE) transaction in the year, diluted
headline earnings for the year to 30 June 2006 increased by 26% to 184 cents
per share (2005: 146 cents per share).
This performance is ahead of the prospects statements included in the 2005
Annual Report and the 2006 Interim Report, but within recent guidance offered
to the market.
Operating profit increased 47% to R800 million (2005: R544 million) off a 16%
increase in revenues to R11,9 billion (2005: R10,3 billion). The operating
margin of 6,7% (2005: 5,3%) is the highest recorded by Murray & Roberts since
its previous peak performance as an industrial holding group through the five
years 1991 to 1995.
The year under review has been characterised by growing levels of activity in
all the Group"s regional and sectoral markets. Of particular note is that
conditions in the South African construction market continued to improve
through the second half-year. This has brought increased levels of efficiency
throughout the Group"s operations resulting in improved utilisation of people
and resources. Higher demand in the final quarter boosted all sectors of the
Group"s construction materials activities.
International markets have been positive overall, with improved performances
delivered out of Canada and Middle East. Positive market conditions in the oil
& gas sector boosted activity in the Group"s 46,1% investment in Australian
associate Clough Limited, but problems with two contracts in India resulted in
a loss in its results for the year. The second half-year saw a return to
profitability in the company.
The Interim Report advised of contracting problems experienced in the Group"s
South African Development Community ("SADC") construction operations. These
have been addressed through the second half-year and where contracts have
permitted, recovery has been pursued. Where applicable, claims have been lodged
in terms of the Group"s liability insurance policies.
The year-end net cash position was R1,6 billion (2005: R1,7 billion) following
capital expenditure of R338 million (2005: R251 million) and a net acquisition
outflow of R125 million (2005: R350 million inflow). Working capital
utilisation at year-end reflects the impact of increased raw material stocks
and slower payments in Construction Middle East.
Interest-bearing long term liabilities increased to R461 million (2005: R339
million). This primarily relates to working capital loans into Clough Limited
and Cementation Canada and instalment sales agreements in Concor.
The Group returned 16,1% (2005: 16,0%) on average shareholder funds in the
year, which remains below the strategic Group target of 20%. This will improve
on a return to profitability in Clough.
International Financial Reporting Standards
The Group has prepared its annual financial statements in accordance with IFRS
which differs in some areas from SA GAAP. Comparative financial statements have
been restated appropriately. Adjustments on transition to IFRS are made
retrospectively to 1 July 2004.
The impact of the transition to IFRS has been an increase in shareholders funds
attributable to equity holders of the holding company of R100 million on 30
June 2005 (1 July 2004: R124 million). For the year ended 30 June 2005,
attributable earnings increased by R15 million to R463 million and diluted
headline earnings increased by 6 cents per share to 146 cents per share.
Market
All markets targeted by the Group continue to promise sustainable growth
potential. In some areas there is evidence of shortages of capacity and in all
sectors there is a reduction in the high levels of price competition that had
become characteristic of the industry.
In South Africa, gross fixed capital formation (GFCF) has extended its growth
trajectory, although recent interest rate increases may dampen consumer demand.
Government investment into primary infrastructure is set to form the foundation
for future growth.
Middle East countries forming the Gulf Cooperative Council (GCC) continue to
benefit from strong oil revenues and have extended the diversification of their
regional economy. The United Arab Emirates in particular offers ongoing
business potential to the Group.
Global growth continues to place increased demand into the natural resources
sector. Indications are that this will continue for at least the next five to
seven years before reaching a new level of sustainable future demand.
Order Book
The Group"s project order book stood at R10,0 billion at 30 June 2006 (2005:
R8,5 billion), an increase of 18% in the year. This includes R1,5 billion
acquired in Concor Limited and excludes the approximately R4,5 billion Murray &
Roberts share in the Gautrain project.
The order book comprises Construction Middle East at R2,3 billion (R3,4
billion); Construction SADC and Concor at R3,8 billion (R1,2 billion); Mining
Contracting at R3,1 billion (R3,4 billion); and Engineering at R0,7 billion
(R0,4 billion). The amounts in brackets are the comparative levels at 30 June
2005. The regional composition of order book is SADC 71% (52%); Middle East 23%
(39%); and Rest of World 6% (9%).
Clough ended the year with an order book of A$809 million (R4,0 billion)
followed by a further A$150 million (R800 million) secured since year-end.
Committed long-term orders in the Group"s industrial fabrication &
manufacturing businesses stand at an estimated R11,9 billion. This includes
both foundry engine programmes and the Spoornet locomotive recapitalisation
programme.
Operations
The Group"s South African regional construction activities recorded revenues of
R2,1 billion (2005: R2,2 billion) at an operating profit of R35 million (2005:
R124 million). This result includes a positive R68 million contribution arising
from a fair value adjustment on concession investments (2005: R46 million) and
a loss of approximately R100 million from the five identified problem projects
in Tanzania, Botswana and South Africa. The delay in award of the Gautrain
project resulted in an overhead under-recovery in the year.
Middle East construction posted increased revenues of R1,6 billion (2005: R906
million) at an operating profit of R77 million (2005: R41 million loss) at a
margin of 4,8%. The Dubai Airport project has contributed to the turnaround of
the business, underpinned by solid performances from other regional activities.
Engineering contracting and services operations experienced improving
conditions in the year with revenues at R611 million (2005: R603 million)
delivering operating profits of R48 million (2005: R26 million) at a margin of
7,9% (2005: 4,3%). There is increased activity evident in the conversion of
natural resources into industrial products and power generation.
Mining contracting operations in Canada, South Africa and Australia recorded
revenues of R2,7 billion (2005: R2,5 billion) and an operating profit of R164
million (2005: R130 million) at a margin of 6,1% (2005: 5,2%). In all these
markets there is a tendency to more underground mining activity, specifically
the construction of access infrastructure including shafts.
Improved levels of gross fixed investment in Southern Africa and Middle East
have driven the demand for construction materials & services. The companies in
this sector have delivered exemplary performances in the year.
Reinforcing steel construction products and trading services increased revenues
13% to R1,7 billion (2005: R1,5 billion) at an operating profit of R127 million
(2005: R86 million).
Concrete and Asphalt infrastructure products increased revenues 32% to R980
million (2005: R743 million) at an operating profit of R218 million (2005: R130
million).
Clay and steel building products delivered revenues of R324 million (2005: R174
million) at an operating profit of R63 million (2005: R11 million). This result
includes the maiden contribution from Ocon Brick.
Steel fabrication operations are dependent on major industrial and
infrastructure projects, of which there is evidence of increasing activity. For
the year under review revenues increased to R781 million (2005: R620 million)
at an operating profit of R58 million (2005: R61 million).
Specialist services to the construction and investment sector delivered an
operating profit of R71 million (2005: R38 million) on revenues of R235 million
(2005: R170 million).
The Group"s industrial manufacturing and specialist fabrication operations
generated revenues of R968 million (2005: R869 million) at an operating profit
of R86 million (2005: R101 million) at a margin of 8.9% (2005: 11,6%).
Net corporate overheads for the year increased to R147 million (2005: R122
million) and include new costs associated with share based expenses required
under IFRS, the Health, Safty and ("HSF") Stop. Think initiative, the
International Advisory Board and other risk management initiatives.
Clough Limited
Murray & Roberts has recorded a break-even result from its 46,1% investment in
Australian associate Clough Limited ("Clough"). This arises as a result of pre-
acquisition accounting for the losses incurred and provisions raised on two EPC
projects in India that have contributed to an attributable loss in the company
of A$ 15,1 million (2005: A$57,6 million loss). The remainder of Clough"s
activities servicing the oil & gas sector, its Indonesian subsidiary and
property division have been profitable in the year, underpinning the embedded
value of the business.
Murray & Roberts will underwrite a A$40 million recapitalisation of Clough
through a convertible note priced at the net asset value (NAV) of the balance
sheet at 30 June 2006. This issue will be available for subscription by
minority shareholders. The Group"s investment in Clough may increase to
approximately R1,0 billion in the year representing an effective shareholding
below 50% at a premium to NAV of 50%. The shareholder agreement between McRae
Investments (representing the Clough family) and the Group will be terminated.
Mr Michael Harding, an experienced Australian oil & gas executive, joined the
Clough board recently and will assume the role of Independent Chairman at the
annual general meeting in November 2006.
Murray & Roberts has appointed experienced Australian construction and
engineering executive Mr John Cooper as chief executive of its Australian
activities and as a nominee to the board of Clough. He has been appointed by
the directors of Clough as Deputy Chairman and will work closely with Clough
management over the year ahead to review the company"s strategy and ensure its
return to sustainable profitability serving the oil & gas market.
Further details on the Clough financial results for the year to 30 June 2006
are available on www.clough.com.au
Exceptional Items
An expense of R87 million relating to part of the Group"s BBBEE transaction in
the year was the major contributor to an exceptional loss of R85 million (2005:
R74 million profit). The empowerment charge is R8 million lower than recorded
at the half-year as surplus shares were subsequently transferred to the Black
Employee Benefits Trust.
Acquisitions and Disposal
The Group acquired 80% of Ocon Brick Manufacturing effective 1 August 2005 for
a consideration of R96 million.
The Group increased its shareholding in Clough Limited based in Perth Australia
to 46,1% in November 2005, for a consideration of approximately R225 million,
plus rights to a further 3,0% on conversion of a loan facility of A$15 million.
The Group has indicated it will raise its shareholding above 50% once Clough is
delivering acceptable financial performance, which is now expected by mid-2007.
Criterion Equipment was sold effective 1 October 2005 to Jay & Jayendra Group
in an empowerment transaction valued at R92,7 million, of which R45 million was
supported through a vendor financing structure.
The Competition Tribunal approved the acquisition of 100% of Concor on 14 June
2006 and its delisting from the JSE Limited was effected on 3 July 2006. The
cost of the transaction is R340 million including accrued interest to
shareholders. This represents a premium of 13% on the NAV of the business which
includes R220 million in cash.
The Group"s financial statements at 30 June 2006 have consolidated the balance
sheet of Concor although the income statement will be consolidated from 1 July
2006.
Concor closed the year with revenues of R1,8 billion (2005: R1,6 billion),
delivering a net profit before tax of R46 million (2005: R43 million) at a
margin of 2,6% (2005: 2.6%).
Black Economic Empowerment
Following the BBBEE transaction in December 2005, the Group conducted a
comprehensive external review of its empowerment status relative to various
industry charters, current legislation and proposed regulation. The review has
shown that the Group meets current empowerment criteria appropriate for
procurement policy in South Africa and has identified key agenda items for
further development of this status including what is stipulated in the
legislation, to meet future development criteria.
Health Safety and Environment
A total of 10 people (2005: 12 people) were fatally injured on Murray & Roberts
worksites in a year where 116 million hours were recorded as worked. Of the
fatalities, 50% were employees of business partners. The declared objective of
the directors is to achieve zero fatalities and disabling injuries in the work
sites and facilities under control of the Group.
A comprehensive HSE campaign under the banner Stop.Think was initiated during
the year and is currently being rolled-out within the South African operations.
The Group"s Lost Time Injury Frequency Rate (LTIFR) is currently at a factor of
4,6 compared to a short-term target of 3,0 and long-term target of 1,0.
Many Group operations already operate within these targets and significant
management attention is being applied to the cultural challenges that influence
the change in attitude needed for sustainable HSE success.
On 30 March 2006 the Bahrain dhow tragedy became world news as the Group was
confronted with the loss of 58 people (10 from Murray & Roberts) associated
with its joint venture City Gardens project in that country. While the project
will be completed, the lives of so many people from many different
nationalities have been permanently affected by this tragic event.
Prospects
A key focus in the year ahead will be to support the executive leadership teams
appointed to deliver acceptable levels of performance in SADC Construction and
Clough, where we expect a significant financial turnaround.
The Gautrain project should commence construction in September 2006 with a
clear objective to commission the link between Johannesburg International
Airport and Sandton in time for the 2010 Soccer World Cup. The many other major
projects required for this global event must also commence during the year
ahead, with little room for time extension. It is in response to these
challenges that the Group recently reorganised its key executive leadership
responsibilities in the Southern Africa market.
New opportunities in Middle East have demanded increased resource allocations
and new executive appointments in the region. The Group"s global mining
contracting operations face increased opportunity and a higher level of
leadership coordination is being planned, linking these operations with the
Group"s increasing global oil & gas capability.
The Directors remain of the view that the next few years will be positive to
the Group and that including the consolidation of its acquisitions, revenues
could be at substantially higher levels by 2010 at the target operating margin
of between 5,0% and 7,5%. The overall positive performance of Murray & Roberts
is expected to continue in the year ahead.
On behalf of the directors
Roy Andersen
Chairman of the Board
Brian Bruce
Group Chief Executive
Roger Rees
Group Financial Director
Bedfordview
30 August 2006
Notice to Shareholders
Declaration of final ordinary dividend (No. 109)
Notice is hereby given that the final dividend, dividend No. 109 of 40 cents
per share in respect of the financial year ended 30 June 2006 has been declared
payable to shareholders recorded in the register at the close of business on
Friday 13 October 2006.
The salient dates for the final ordinary dividend are as follows:
Last day to trade cum the dividend Friday 6 October 2006
Shares commence trading ex dividend Monday 9 October 2006
Record date Friday 13 October 2006
Payment date Monday 16 October 2006
Share certificates may not be dematerialised or re-materialised between Monday
9 October 2006 and Friday 13 October 2006, both days inclusive.
On Monday 16 October 2006, 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 16 October 2006 will be posted on that date.
Dematerialised shareholder accounts will be credited at their CSDP or broker on
Monday 16 October 2006.
By order of the Board
SF Linford
Group Secretary
Bedfordview
30 August 2006
Murray & Roberts Holdings Limited Registration No. 1948/029826/06
Directors:
RC Andersen* (Chairman) BC Bruce (Managing & Group Chief Executive) SJ Flanagan
SE Funde* N Jorek3 SJ Macozoma* NM Magau* JM McMahon* IN Mkhize* RW Rees1 AA
Routledge* MJ Shaw*
KE Smith2 JJM van Zyl* RT Vice*
1 British 2 Irish 3 German *Non executive
Secretary:
SF Linford
Registered office:
Douglas Roberts Centre,
22 Skeen Boulevard, Bedfordview
PO Box 1000
Bedfordview 2008
Registrar:
Link Market Services South Africa (Pty) Limited
11 Diagonal Street, Johannesburg
Condensed consolidated income statement
For the year ended 30 June 2006 Audited Restated
R millions 30.6.06 30.6.05
Revenue 11 920 10 272
Earnings before interest, exceptional 1 044 768
items, depreciation and amortisation
Depreciation (228) (222)
Amortisation of intangible assets (16) (2)
Earnings before interest and exceptional 800 544
items
Exceptional items (85) 74
Headlease and other property activities1 4 10
Broad-based black economic empowerment (87) -
(BBBEE) expense
Other (2) 64
Earnings before interest and taxation2 715 618
Net interest income (expense) 22 (2)
Earnings before taxation 737 616
Taxation (189) (155)
Earnings after taxation 548 461
Share of profit of associates 1 78
Earnings from continuing operations 549 539
Earnings from discontinued operations 12 (46)
(notes 2.4 and 3)
Earnings for the year 561 493
Attributable to:
Shareholders of the holding company 512 463
Minority shareholders 49 30
561 493
Earnings per share (cents)
- Diluted 165 143
- Basic 168 145
Earnings per share from continuing
operations (cents)
- Diluted 162 157
- Basic 164 160
Total dividend per ordinary share (cents) 60 45
Operating cash flow per share (cents) 180 200
1 The headlease and other property
activities include the following:
Rental income 144 161
Interest expense (49) (57)
2 Includes interest expense of R49 million
(2005: R57 million) in respect of the
headlease and other property activities.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Reconciliation of weighted average number
of shares in issue (000)
Weighted average number of ordinary shares 331 893 331 893
in issue
Less: weighted average number of shares (12 139) (13 664)
held by The Murray & Roberts Trust
Less: weighted average number of shares (14 917) -
held by the Letsema BBBEE trusts
Weighted average number of shares used for 304 837 318 229
basic per share figures
Add: dilutive adjustment for share options 5 081 4 611
Weighted average number of shares used for 309 918 322 840
diluted per share figures
Reconciliation of headline earnings
Earnings attributable to shareholders of 512 463
the holding company
Non-headline exceptional items 2 (64)
(Profit) loss on disposal of discontinued (16) 53
operations
Taxation on above adjustments 4 16
Non-headline portion of income from - 2
associate
Headline earnings 502 470
Headline earnings per share (cents)
- Diluted 162 146
- Basic 165 148
Reconciliation of headline earnings excl
BBBEE expense
Headline earnings as above 502 470
BBBEE expense 87 -
Taxation effect on BBBEE expense (20) -
Headline earnings excluding BBBEE expense 569 470
Headline earnings per share excluding
BBBEE expense (cents)
- Diluted 184 146
- Basic 187 148
Condensed consolidated cash flow statement
For the year ended 30 June 2006 Audited Restated
R millions 30.6.06 30.6.05
Cash generated by operations before 1 063 723
working capital changes
Cash outflow from exceptional items (70) -
relating to BBBEE
Cash outflow from headlease and other (82) (69)
property activities
(Increase) decrease in working capital (195) 19
Cash generated by operations 716 673
Interest and taxation (118) (10)
Operating cash flow 598 663
Dividends paid to shareholders of the (154) (143)
holding company
Dividends paid to minority shareholders (29) (20)
Cash flow from operating activities 415 500
Cash flow from investing activities (356) 159
Property, plant and equipment and (307) (168)
intangible assets (net)
Business acquisitions/disposals (net) (126) 317
Other investments (net) 73 (25)
Other (net) 4 35
Cash flow from financing activities (183) 51
Net movement in borrowings 228 67
Treasury share acquisition (411) (16)
Net (decrease) increase in cash and cash (124) 710
equivalents
Net cash and cash equivalents at beginning 1 733 985
of year
Effect of foreign exchange rates 33 38
Net cash and cash equivalents at end of 1 642 1 733
year
Condensed statement of changes in equity
For the year ended 30 June Issued Other Revaluation Hedging and
2006 Capital and fair translation
value
R millions capital reserves reserves reserves
Balances at 1 July 2004 1 445 2 5 (281)
Effect of change in - 24 (21) 278
accounting policies
SA GAAP improvements - - - -
IFRS adjustments - 24 (21) 278
Restated balances at 1 July 1 445 26 (16) (3)
2004
Earnings attributable to
shareholders of the holding
company
Earnings attributable to
minority shareholders
Other movements in minority
interest
Movement in share-based 4
payment reserve
Movement in statutory 3
reserve
Movement in revaluation and 16
fair value reserves
Movement in hedging reserve 3
Foreign currency 17
translation movement on
investments
Movement in treasury shares (20)
Dividend declared and paid
Restated balances at 30 1 425 33 - 17
June 2005
Earnings attributable to
shareholders of the holding
company
Recognition of financial
instruments on acquisition
of businesses
Deferred taxation
recognised directly in
equity
Earnings attributable to
minority shareholders
Purchase of minorities
Other movements in minority
interest
Movement in share-based 24
payment reserve
Foreign currency 82
translation movement on
investments
Movement in treasury shares (411)
Dividend declared and paid
Balances at 30 June 2006 1 014 57 - 99
For the year ended 30 June 2006 Retained Minority
R millions earnings earnings Total
Balances at 1 July 2004 1 432 54 2 657
Effect of change in accounting (157) 1 125
policies
SA GAAP improvements (10) - (10)
IFRS adjustments (147) 1 135
Restated balances at 1 July 2004 1 275 55 2 782
Earnings attributable to shareholders 463 463
of the holding company
Earnings attributable to minority 30 30
shareholders
Other movements in minority interest 32 32
Movement in share-based payment 4
reserve
Movement in statutory reserve (3) -
Movement in revaluation and fair value 16
reserves
Movement in hedging reserve 3
Foreign currency translation movement 17
on investments
Movement in treasury shares (20)
Dividend declared and paid (143) (20) (163)
Restated balances at 30 June 2005 1 592 97 3 164
Earnings attributable to shareholders 512 512
of the holding company
Recognition of financial instruments (29) (29)
on acquisition of businesses
Deferred taxation recognised directly (1) (1)
in equity
Earnings attributable to minority 49 49
shareholders
Purchase of minorities (5) (14) (19)
Other movements in minority interest 6 6
Movement in share-based payment 24
reserve
Foreign currency translation movement 82
on investments
Movement in treasury shares (411)
Dividend declared and paid (154) (29) (183)
Balances at 30 June 2006 1 915 109 3 194
Condensed consolidated balance sheet
For the year ended 30 June 2006 Audited Restated
R millions 30.6.06 30.6.05
ASSETS
Non-current assets 3 589 2 629
Property, plant and equipment 1 714 1 376
Investment property 278 259
Goodwill 147 48
Other intangible assets 68 19
Deferred taxation assets 52 34
Associate companies 877 505
Other investments 435 357
Other non-current receivables 18 31
Current assets 6 796 5 475
Accounts receivable and other 2 110 1 629
Net amounts due from contract 2 878 1 915
customers
Bank balances and cash 1 808 1 931
TOTAL ASSETS 10 385 8 104
EQUITY AND LIABILITIES
Total equity 3 194 3 164
Attributable to equity holders of the 3 086 3 067
holding company
Minority shareholders" interest 108 97
Non-current liabilities 1 027 890
Long-term provisions 22 5
Obligations under finance headleases* 155 274
Other long-term liabilities* 461 339
Non-interest bearing long-term 56 -
liabilities
Deferred taxation liabilities 297 252
Other non-current liabilities 36 20
Current liabilities 6 164 4 050
Accounts payable and other 5 509 3 647
Bank overdrafts* 166 198
Short-term loans* 489 205
TOTAL EQUITY AND LIABILITIES 10 385 8 104
* Interest-bearing borrowings
SUPPLEMENTARY BALANCE SHEET
INFORMATION (R millions)
Net asset value per share (cents) 1 031 980
Commitments
Capital expenditure
- spent 294 251
- authorised but unspent 862 396
Operating lease commitments 125 236
Contingent liabilities 131 148
Financial institution guarantees 1 945 1 788
Segmental analysis
For the year ended EBIT before
30 June 2006 exceptional Exceptional Segment
R millions Revenue items items results
2006
Construction & 6 966 324 (60) 264
engineering
Construction 3 986 537 (15) 522
materials & services
Fabrication & 968 86 (11) 75
manufacture
Corporate - (147) 1 (146)
Continuing operations 11 920 800 (85) 715
Discontinued 46 1 - 1
operations (note 3)
11 966 801 (85) 716
2005
Construction & 6 230 239 (3) 236
engineering
Construction 3 172 326 - 326
materials & services
Fabrication & 869 101 (146) (45)
manufacture
Corporate 1 (122) 223 101
Continuing operations 10 272 544 74 618
Discontinued 402 12 - 12
operations (note 3)
10 674 556 74 630
Notes
1. Basis of preparation
The Group has adopted International Financial Reporting Standards (IFRS)
for the year ended 30 June 2006, with a date of transition of 1 July 2004.
Previously the consolidated results were prepared in accordance with South
African Generally Accepted Accounting Practice (SA GAAP). This preliminary
report has been prepared and presented in accordance with IAS34: Interim
Financial Reporting and the Companies Act 1973 (amended).
The financial statements for the year ended 30 June 2006 is the Group"s
first consolidated IFRS-compliant financial statements and hence IFRS1:
First-time Adoption of IFRS has been applied in preparing this preliminary
report. Comparative information has been restated as required by IFRS. The
condensed financial information does not include all the relevant
information required by IFRS for full annual financial statements. For
further information on the IFRS and related adjustments, refer to the
annual financial statements.
The Group"s 2006 annual financial statements were audited by the Group"s
external auditors, Deloitte & Touche, whose unqualified audit opinion is
available for inspection at the company"s registered office.
2. Effect on the first time adoption of IFRS and other restatements
IFRS 1: First Time Adoption of International Financial Reporting Standards
allows a number of exemptions on adoption of IFRS, and the Group has
elected to utilise the following transitional arrangements:
* Business combinations: The Group has elected not to retrospectively apply
the requirements of IFRS 3 Business Combinations for business combinations
that occurred prior to the transition date of 1 July 2004.
*. Property, plant and equipment: The Group has elected to measure certain
individual items of property, plant and equipment at fair value at the
date of transition to IFRS, hence fair value is deemed to be cost at that
date.
*. Foreign currency translation reserve: The Group has elected to transfer
all foreign currency translation reserves to retained earnings.
2.1 Property, plant and equipment
Useful lives and residual values of certain items of property, plant and
equipment were reassessed in accordance with the criteria of IAS16:
Property, Plant and Equipment (revised). In future, residual values of all
property, plant and equipment will be reassessed on an annual basis.
Previously residual values and useful lives were only assessed on initial
recognition of the specific items and were not subject to annual
reassessment. The continuous reassessment typically leads to a change in
depreciation charges annually. Depreciation ceases when the residual value
of an asset equals or exceeds its carrying value.
Where significant components of an item of property, plant and equipment
have different useful lives or residual values those components are
accounted for as separate items of property, plant and equipment.
Previously all parts of an item of property, plant and equipment were
depreciated at the same rate.
Computer software and related depreciation were reallocated to intangible
assets and amortisation respectively.
Major spare parts having useful lives longer than 12 months were
reallocated from inventories to property, plant and equipment.
2.2 Share-based payment transactions
In accordance with IFRS2: Share-based Payment the fair value of share
options granted to employees is recognised as an employee expense in
operating profit with a corresponding increase in equity. The fair value
is measured at grant date and expensed over the period during which the
employee becomes unconditionally entitled to the equity instruments (the
vesting period). The fair value of the instruments granted is measured
using an appropriate valuation technique, taking into account the terms
and conditions upon which the instruments are granted. This accounting
policy has been applied to all share options granted after 7 November 2002
that had not yet vested at 1 January 2005. Previously such expenses were
not recognised in the income statement.
2.3 Presentation of minority interest in subsidiary companies
Minority interests are now reflected as part of equity. Any change in
ownership interest in subsidiary companies without a change in control is
recognised as an equity transaction in the consolidated financial
statements.
2.4 Discontinued operations
In accordance with the requirements of IFRS5: Non-current Assets Held-For-
Sale and Discontinued Operations, the financial results of discontinued
operations are reported as one line item in the income statement and not
on a line-by-line basis. Refer to note 3.
2.5 Interest free receivables, payables and the recognition of revenue and
purchases
Notional interest
IAS 39: Financial Instruments: Recognition and Measurement requires that
imputed interest be recognised on interest free receivables. IAS18:
Revenue further requires that revenue be recognised at the fair value of
the consideration received or receivable. Accordingly, where the fair
value of the Group"s consideration is significantly impacted by the time
value of money, a portion of the revenue has been deemed to be interest
income recognised on a time apportionment basis. This has resulted in a
decrease in recognised revenue, certain financial receivables and
liabilities.
Rebates and discounts
In accordance with circular 9/2006 issued by the South African Institute
of Chartered Accountants regarding the treatment of settlement discounts
and cash discounts, the valuation of inventories and accounts receivable
and payable as well as the measurement of cost of sales and revenue have
been adjusted retrospectively by the settlement discounts received from
suppliers in respect of purchases, and discounts granted to customers in
respect of sales. The impact on the balance sheet was minimal.
2.6 Reclassifications and disclosure adjustments
In addition to the above, certain reclassifications and disclosure
adjustments were made to the balance sheet presentation, most notably the
reallocation of certain interest-bearing liabilities from accounts payable
to short-term loans.
IFRS transition Restated
R millions 01.7.04 30.6.05
Reclassification of balance sheet
items under IFRS and SA GAAP
improvements
Property, plant and equipment 1 (9)
Intangible assets 5 19
Associate companies 1 1
Other investments (3) (4)
Accounts receivable and other (60) (69)
Accounts payable and other 122 86
Bank balances and cash (66) (24)
2.7 Reconciliation of equity
BALANCE SHEET
Equity previously reported under SA 2 603 2 967
GAAP
SA GAAP adjustments
Goodwill impairment (5) (5)
Current taxation liabilities (5) 2
IFRS adjustments
Property, plant and equipment 155 190
Accounts receivable and other - (46) (18)
impairment provision and notional
interest
Accounts payable and other - - (19)
additional liabilities
Reclassification of minority 55 97
interest as equity
Accounts payable and other - 15 3
subcontractor liabilities
Deferred taxation impact on IFRS 10 (53)
adjustments
Equity as reported under IFRS 2 782 3 164
2.8 Income statement adjustments
Restated
R millions 30.6.05
inCome statement
Earnings attributable to 448
shareholders of the holding company
as reported under SA GAAP
SA GAAP adjustments
Goodwill 5
IFRS adjustments
Revenue - notional interest (8)
Cost of sales and purchases - 7
notional interest
Loss on disposal of minority 4
interest in subsidiary companies
Property, plant and equipment - 20
depreciation
Intangible assets - amortisation (2)
Share options expense (4)
Deferred taxation impact on IFRS (7)
adjustments
Earnings attributable to 463
shareholders of the holding company
as reported under IFRS
3. Earnings from discontinued operations
On 1 October 2005, the Group disposed its forklift truck distribution
business Criterion Equipment for R92.7 million. The comparative numbers
include businesses that were closed or disposed of in the prior year,
being Consani Engineering, Improvair and Booker Tate.
R millions 30.6.06 30.6.05
Earnings from the discontinued operation is
analysed as follows:
Profit (loss) on disposal/closure 16 (53)
Earnings after taxation for the period (4) 7
12 (46)
Earnings after taxation for the period is
analysed as follows:
Revenue 46 402
EBITDA 2 19
Depreciation (1) (7)
EBIT 1 12
Net interest expense (1) (2)
Earnings before taxation - 10
Taxation (4) (3)
Earnings after taxation (4) 7
Our commitment to sustainable earnings growth and value creation is non-
negotiable.
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