The Group operates in the mining, oil & gas and power & water markets and as a result the revenue is not seasonal in nature but is influenced by the nature of the contracts that are currently in progress. Refer to commentary for a more detailed report on the performance of the different operating platforms within the Group.

The provisional condensed consolidated financial statements for the year ended 30 June 2019 have been prepared in compliance with the Listings Requirements of the JSE Limited, the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”), the minimum requirements of the International Accounting Standards (“IAS”) 34, Interim Financial Reporting, SAICA Financial Reporting Guidelines as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council and the Companies Act, No. 71 of 2008 (“Act”). These provisional condensed consolidated financial statements were compiled under the supervision of DF Grobler (CA)SA, Group financial director.

The accounting policies used in the preparation of these results are in accordance with IFRS and are consistent in all material respects with those used in the audited consolidated financial statements for the year ended 30 June 2018. IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers) have been implemented in the current financial year, refer to note 10 for further details.

Deloitte and Touche have issued an unmodified review conclusion on the provisional condensed consolidated financial statements. A copy of their review report on the provisional condensed consolidated financial statements are available for inspection at the Company’s registered office. Any reference to future financial performance included in this announcement has not been audited or reviewed and reported on by the Group’s external auditors. The auditor’s report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor’s engagement they should obtain a copy of that report together with the accompanying financial information from the issuer’s registered office.

The information presented in the notes below represent audited results for 30 June 2018 and reviewed results for 30 June 2019.

Discontinued operations includes the close out of retained assets and liabilities, following the sale of Genrec operations and the Southern African Infrastructure & Building businesses in prior financial years. These operations met the requirements in terms of IFRS 5 Discontinued Operations and have been presented as discontinued operations in the Group’s statement of financial performance.

3.1 LOSS FROM DISCONTINUED OPERATIONS

3.2 LOSS BEFORE INTEREST AND TAXATION

3.3 CASH FLOWS FROM DISCONTINUED OPERATIONS INCLUDE THE FOLLOWING:

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Based on the assessment performed as at 30 June 2019, no impairment was recorded.

UPDATE ON THE GROUP’S CLAIMS PROCESSES

Uncertified revenue as at the end of the financial year decreased to R0,7 billion (FY2018: R1,3 billion), largely represented by claims on projects in the Middle East and the Power & Water platform. The decrease in uncertified revenue is mainly due to the implementation of IFRS 15. Refer to note 10.1 for further details.

The Group’s financial instruments consist mainly of deposits with banks, local money market instruments, short-term investments, accounts receivable and payable and interest-bearing borrowings.

7.1 FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

As a contracting Group, Murray & Roberts is in the ordinary course of its business involved in various disputes, a number of which arise when operations and projects are closed out and finalised. Depending on the merits, disputes can translate into claims and legal proceedings, which Murray & Roberts always rigorously defends. Where in consultation with its legal advisers and counsels, believes the claims are predicated on weak and/or spurious grounds, and Murray & Roberts has sound and strong defences, no provision is made for any such claim, and they are aggregated and disclosed as contingent liabilities. The Board does not believe that adverse decisions in any pending proceeding or claims against the Group will have a material adverse effect on the financial condition or future of the Group.

UPDATE ON THE GROUP’S CLAIM PROCESSES

Uncertified revenue as at the end of the financial year decreased to R0,7 billion (FY2018: R1,3 billion), largely represented by claims on projects in the Middle East and the Power & Water platform. The decrease in uncertified revenue is mainly due to the implementation of IFRS 15. Refer to note 10.1 for further details.

GRAYSTON TEMPORARY WORKS COLLAPSE – UPDATE

There is still no conclusion to the inquiry into the tragedy that occurred in October 2015 at the Grayston Pedestrian Bridge project in Sandton, Johannesburg. The inquiry established by the Department of Labour to determine the cause or causes of the collapse of the temporary works structure has been concluded, but the findings have not yet been made available to the parties involved.

On 1 July 2018 the Group implemented IFRS 15 and IFRS 9, as these standards are applicable to financial years commencing on or after 1 January 2018.

The Group decided to apply the modified retrospective approach to transition from existing IAS’s to IFRS 15 and IFRS 9. Therefore comparatives were not restated. The cumulative effect of initially applying IFRS 15 and IFRS 9 was an adjustment to the opening balance of retained earnings at the date of initial application, being 1 July 2018.

Due to the fact that the modified retrospective approach has been applied for both IFRS 15 and IFRS 9, there is no resultant impact on IAS 33 (Earnings per share).

10.1 IMPLEMENTATION OF IFRS 15 (REVENUE FROM CONTRACTS WITH CUSTOMERS)

The Group has applied IFRS 15 for the first time in the current financial year. IFRS 15 superseded all previous revenue requirements in IFRS (IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services) and applies to all revenue arising from contracts with customers.

IAS 11 (Construction Contracts) stated that contract revenue shall comprise variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue.

IFRS 15:56 states that variable consideration should only be included in the transaction price, when recognising revenue, to the extent that it is highly probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

IFRS 5 defines “highly probable” as “significantly more likely than probable”, where “probable” means “more likely than not” (IFRS 5: Appendix A).

Due to the higher threshold required for recognition and measurement purposes, the application of IFRS 15 will result in the delayed recognition of variable consideration until such time that it is highly probable that the revenue will not be reversed when the uncertainty is resolved.

The cumulative effect of initially applying IFRS 15 was concluded at an amount of R1,1 billion at 1 July 2018. The IFRS 15 adjustment relates mainly to amounts in the Power & Water platform and the Middle East. The Group remains confident that all revenue recorded as uncertified will be certified and paid once attendant commercial matters have been resolved.

Impact of adoption

Revenue for the Group has been recognised as follows:

10.2 IMPLEMENTATION OF IFRS 9 (FINANCIAL INSTRUMENTS)

The impairment requirements under IFRS 9 are based on an expected credit loss (“ECL”) model that replaces the IAS 39 incurred loss model.

The cumulative effect of initially applying the ECL model to assess impairments of receivables in IFRS 9 was concluded at an amount of R9 million.

The Group's client base, in terms of revenue contribution, consists mostly of large firms, which secures funding for projects before the project is awarded.

The adjustment is consistent with low historical loss ratios as there is limited uncertainty once revenue has been certified.

The balance sheet impact of the above IFRS 9 adjustment of R9 million is reflected under trade and other receivables.

Adoption of IFRS 9 has resulted in a change in measurement categories of financial instruments. For change in relevant measurement categories applied, refer to note 7.

10.3 IMPLEMENTATION OF IFRS 16 (LEASES)

IFRS 16 (Leases) is deemed to have a material impact on the Group and has therefore been assessed as follows:

MATTER

IFRS 16 requires lessees to account for all leases under a single statement of financial position model in a similar way to finance leases under IAS 17.

Exemptions in applying IFRS 16 includes short-term leases (less than 12 months) and low value leases. If the exemption is applied, the lease will be expensed on a straight-line basis.

For all leases where the exemptions are not applied, assets and debt would increase while the expense related to these leases would now be classified as depreciation and interest expense, rather than operating expenses.

EXPECTED IMPACT

The Group has decided that it will apply the modified retrospective approach to transition from existing IASs to IFRS 16. Therefore comparatives will not be restated. The cumulative effect of initially applying IFRS 16 will result in an adjustment to the opening balance of retained earnings at the date of initial application.

The cumulative effect of initially applying IFRS 16 is currently estimated to the recognition of an asset and liability of between R0,7 billion and R1,1 billion.

11.1 ACQUISITION OF GULF COAST DIVISION

On 15 February 2019, Clough USA Inc., which forms part of the Oil & Gas platform, acquired the business of Saulsbury Industries Inc., Gulf Coast division for a consideration of R79 million.

In accordance with the asset purchase agreement an additional consideration of up to approximately R42 million may be payable to Saulsbury Industries Inc., subject to the successful award of a significant contract within the US to Clough USA Inc. R39 million of this amount has been recognised as contingent consideration at balance sheet date.

With respect to the above mentioned contingent consideration, in August 2019, Clough US Inc. was awarded a petrochemical engineering, procurement and construction contract (EPC) in the US, valued at US$620 million. Clough US Inc. expects to receive full notice to proceed on the project by October.

The acquisition of the Gulf Coast division was structured through an acquisition of assets.

The Gulf Coast division’s capabilities includes engineering services, a construction operation, equipment hire, a project controls organisation and a supply chain organisation. The acquisition aligned with Clough’s strategy to extend the Oil & Gas platform’s EPC service offering to the growing oil and gas and petrochemical sectors in North America.

The net cash outflow arising from the acquisition was R79 million.

The assets and liabilities recognised as a result of the acquisition are as follows:

The amounts above have been measured on a provisional basis. If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisition, then the accounting for the acquisition will be revised.

In the four months to 30 June 2019, the acquisition contributed revenue of R393 million and a loss of R24 million to the Group’s results. If the acquisition had occurred on 1 July 2018, management estimates that consolidated revenue would have been an additional R680 million and the consolidated loss for the year would have been an additional R85 million. 

Loss for the four-month and full year period includes acquisition-related costs of R15 million. These costs are expensed in the statement of financial performance and are included under operating cash flows in the statement of cash flows.

In determining these amounts, management have assumed that the fair value adjustments, determined provisionally that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2018.

11.2 ACQUISITION OF TERRA NOVA TECHNOLOGIES (“TNT”)

On 1 May 2019, Cementation Americas, which forms part of the Murray & Roberts Underground Mining platform, acquired 100% of TNT for a total consideration of R635 million.

The acquisition of the TNT business was structured through an acquisition of assets of TNT USA Inc. and a 100% share purchase of TNT Chile Limitada.

TNT provides services to the global mining industry (both surface and underground) and design, supply and commission overland conveyors, crushing/conveying systems, mobile stacking systems, including dry stack tailings and heap leach systems, crushing and screening plants and in-pit crushing and conveying systems. TNT also provides process equipment for mining projects. The acquisition of TNT complements the engineering and construction services of Cementation Americas and the Murray & Roberts Underground Mining platform.

The net cash outflow arising from the acquisition was R586 million.

The assets and liabilities recognised as a result of the acquisition are as follows:

The amounts above have been measured on a provisional basis. If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisition, then the accounting for the acquisition will be revised.

In the two months to 30 June 2019, the acquisition contributed revenues of R122 million and a loss of R1 million to the Group’s results. If the acquisition had occurred on 1 July 2018, management estimates that the consolidated revenues would have been an additional R730 million and the consolidated profit for the year would have been an additional R45 million.

Profit for the two-month and full year period includes acquisition-related costs of R13 million. These costs are expensed in the statement of financial performance and are included under operating cash flows in the statement of cash flows.

In determining these amounts, management has assumed that the fair value adjustments, determined provisionally that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2018.

A gross annual dividend, relating to the 30 June 2019 financial year, of 55 cents per share was declared in August 2019. In line with the approved dividend policy, the board of directors will only consider paying an annual dividend.

There have been no significant changes to the nature of related party transactions since 30 June 2018 or any transactions outside the normal course of business.

The directors are not aware of any matter or circumstance arising after the year ended 30 June 2019, not otherwise dealt with in the Group’s annual results, which significantly affects the financial position at 30 June 2019 or the results of its operations or cash flows for the period then ended.