NOTES

1. Basis of preparation

The Group operates in the mining, engineering and construction environment 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 summarised consolidated financial statements for the year ended 30 June 2015 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 summarised consolidated financial statements were compiled under the supervision of Mr AJ Bester (CA)SA, Group financial director and have been audited in terms of Section 29 (1) of the Act.

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 2014. There have been no new or revised Standards and Interpretations applied in the current financial year.

The external auditors, Deloitte & Touche, have issued their opinion on the Group’s consolidated financial statements for the year ended 30 June 2015. The audit was conducted in accordance with International Standards on Auditing. The auditor responsible for the audit is AJ Zoghby. They have issued an unmodified audit opinion on the consolidated financial statements and provisional summarised consolidated financial statements. These provisional summarised consolidated financial statements have been derived and are consistent in all material respects with the Group’s consolidated financial statements. A copy of their audit reports on the consolidated financial statements and the summarised 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 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.

2. Profit before interest and taxation

R millions 30 June
2015
  30 June
2014
 
Items by nature        
Cost of sales (27 559)   (32 383)  
Distribution and marketing expenses (11)   (16)  
Administration expenses (2 578)   (2 678)  
Other operating income 705   571  
  (29 443)   (34 506)  

3. Profit from discontinued operations

The Group disposed of the majority of it’s Tolcon businesses’ assets and liabilities, effective 31 August 2014 for a gross consideration of R186 million (R132 million net of working capital adjustment, transaction costs and other adjustments). Of the total consideration, R112 million was received on the effective date and R20 million was deferred; and is receivable within 24 months from closing date. Earlier payment of the deferred consideration is subject to certain contractual conditions. To date R10 million of the deferred consideration has been received in payments of R5 million each during November 2014 and January 2015 respectively. R10 million of the deferred consideration is still payable within 24 months from closing date; the timing of which is dependent on the meeting of certain contractual obligations.

The disposal excludes the Group’s investment in Bombela Concession Company Proprietary Limited and 23,9% investment in Bombela Operating Company Proprietary Limited.

The agreements for the disposal of the remaining Tolcon businesses, comprising of Cape Point Partnership, Entilini Operations Proprietary Limited and the investment in Entilini Concession Proprietary Limited, are only subject to final conditions precedent.

3.1 Profit from discontinued operations

R millions 30 June
2015
  30 June
2014
 
Revenue 88   2 025  
Profit before interest, depreciation and amortisation 19   588  
Depreciation and amortisation   (8)  
Profit before interest and taxation (note 3.2) 19   580  
Net interest income   7  
Profit before taxation 19   587  
Taxation credit/(expense) 12   (165)  
Profit after taxation 31   422  
Income from equity accounted investments 1   1  
Profit from discontinued operations 32   423  
Attributable to:        
– Owners of Murray & Roberts Holdings Limited 22   422  
– Non-controlling interests 10   1  
  32   423  

3.2 Profit before interest and taxation

R millions 30 June
2015
  30 June
2014
 
Profit before interest and taxation includes the following significant items:        
Profit on disposal of businesses (net of transaction and other costs) 11   539  
Other impairments   (34)  
  11   505  

3.3 Cash flows from discontinued operations include the following:

R millions 30 June
2015
  30 June
2014
 
Cash flow from operating activities 87   (201)  
Cash flow from investing activities 225   1 348  
Cash flow from financing activities 66   21  
Net increase in cash and cash equivalents 378   1 168  

4. Reconciliation of headline earnings

R millions 30 June
2015
  30 June
2014
 
Profit attributable to owners of Murray & Roberts Holdings Limited 881   1 261  
Profit on disposal of businesses (net) (11)   (539)  
Profit on disposal of property, plant and equipment (net) (36)   (10)  
Loss on sale of intangible assets   3  
Impairment of assets (net) 11   20  
Fair value adjustments and net profit on disposal of assets held-for-sale 7   73  
Realisation of foreign currency translation reserve   (41)  
Loss on sale of other investments 2    
Fair value adjustment on investment properties (17)    
Other (net) 1   1  
Non-controlling interests effects on adjustments 7   (3)  
Taxation effects on adjustments 11   135  
Headline earnings 856   900  
Adjustments for discontinued operations:        
Profit from discontinued operations (32)   (423)  
Non-controlling interests 10   1  
Profit on disposal of businesses (net) 11   539  
Fair value adjustments and net loss on disposal of assets held-for-sale (7)   (73)  
Realisation of foreign currency translation reserve   41  
Non-controlling interests effects on adjustments (7)   1  
Taxation effects on adjustments (1)   (139)  
Headline earnings from continuing operations 830   847  

5. Contracts-in-progress and contract receivables

R millions 30 June
2015
  30 June
2014
 
Contracts-in-progress (cost incurred plus recognised profits, less recognised losses) 2 793   2 691  
Uncertified claims and variations (recognised in terms of IAS 11: Construction Contracts) 2 158   1 550  
Amounts receivable on contracts (net of impairment provisions) 3 224   3 286  
Retentions receivable (net of impairment provisions) 288   245  
  8 463   7 772  
Amounts received in excess of work completed (2 121)   (2 326)  
  6 342   5 446  
Disclosed as:        
Amounts due from contract customers – non-current16 2 259   2 088  
Amounts due from contract customers – current 6 204   5 684  
Amounts due to contract customers – current (2 121)   (2 326)  
  6 342   5 446  
16 The non-current amounts are considered by management to be recoverable.

6. Financial instruments

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

R millions 30 June
2015
  30 June
2014
 
Categories of financial instruments        
Financial assets        
Financial assets designated as fair value through profit or loss (level 3) 709   669  
Loans and receivables 7 880   9 607  
Available-for-sale financial assets carried at fair value (level 1)   1  
Financial liabilities        
Loans and payables 9 179   10 413  
Derivative financial instruments (level 2)17 3   4  
17 The derivative financial instruments’ value has been determined by using forward looking market rates until the realisation date of the relevant instruments obtained from the relevant financial institutions.

6.1 Financial assets designated as fair value through profit or loss

Investment in infrastructure service concession (level 3)18
R millions 30 June
2015
  30 June
2014
 
At the beginning of the year 669   581  
Realisation of invest (132)   (146)  
Fair value adjustment recognised in the statement of financial performance 172   234  
  709   669  
18
The fair value of the Bombela Concession Company Proprietary Limited is calculated using discounted cash flow models and a market discount rate of 18,5% (2014: 19,5%). The discounted cash flow models are based on forecast patronage, operating costs, inflation and other economical fundamentals, taking into consideration the operating conditions experienced in the current financial year. The future profits from the concession is governed by a contractual agreement and is principally based on inflationary increases in the patronage revenue and operating costs of the current financial year. Revenue based on patronage is underpinned by the Gauteng Province. The Patronage Guarantee is the difference between the Minimum Required Total Revenue (“MRTR”) and the Actual Total Revenue (“ATR”) in each month. A decrease of 1% in the discount rate would result in an increase in the value of the concession investment of approximately R33,8 million (2014: R35 million).

7. Contingent liabilities

Contingent liabilities relate to disputes, claims and legal proceedings in the ordinary course of business. The Group does not account for any potential contingent liabilities where a back-to-back arrangement exists with clients or subcontractors, and there is a legal right to offset.

R millions 30 June
2015
  30 June
2014
 
Operating lease commitments 1 640   1 799  
Contingent liabilities 1 650   1 508  
Financial institution guarantees 8 018   9 805  

Gautrain Water Ingress Dispute

During November 2013, in the dispute between Gauteng Province and Bombela Concession Company (“BCC”), the arbitration panel ruled in favour of Gauteng Province. The Company raised a provision of about R300 million in the prior financial year for its share of potential construction costs to be incurred by the Bombela Civils Joint Venture (“BCJV”) (Murray & Roberts shareholding of 45%). The extent of any other potential financial impact, if any, related to the matter cannot be determined. Various matters between the parties, relating to the arbitration award, remain unresolved will be heard in court. The timing of any future work is uncertain.

8. Business disposals/acquisitions

The Group disposed of the majority of it’s Tolcon businesses’ assets and liabilities effective on 31 August 2014 for a gross consideration of R186 million (R132 million net of working capital adjustments, transaction costs and other adjustments). Refer to note 3 for additional information.

Murray & Roberts completed the acquisition of 100% of the shares of CH-IV International LLC (“CH-IV”) on 6 August 2014, a boutique engineering company based in the United States of America for a consideration of R57 million. The fair value of the net assets acquired at the date of acquisition was R34 million. The goodwill of R23 million is attributable mainly to the expertise of the CH-IV workforce and accessibility to the contracts in the United States of America engineering market. The goodwill is expected to be deductible for tax purposes.

Murray & Roberts completed the acquisition of 100% of the shares of BWA (Holdings) Limited (“Booth Welsh”) on 4 September 2014, a privately owned engineering services company based in Ayrshire, Scotland for a consideration of R79 million. The fair value of the net liabilities acquired at the date of acquisition was R17 million. The goodwill of R96 million is attributable mainly to the expertise of the Booth Welsh workforce and accessibility to the contracts in the European engineering market. None of the goodwill is expected to be deductible for tax purposes.

Murray & Roberts completed the acquisition of the assets, liabilities and business of Aquamarine Water Treatment (“Aquamarine”) on 1 October 2014, a company that designs, manufactures and installs water treatment solutions, and offers a complete customised solution, including support for and maintenance of its installations for a consideration of R28 million. Of the total consideration, R26 million was paid on the effective date and payment of the remaining R2 million is contingent on certain contractual obligations being satisfied. Should the contractual obligations be satisfied, R1 million is payable during October 2016 and the remaining R1 million is payable during October 2017. The fair value of the net liabilities acquired at the date of acquisition was R1 million. The goodwill of R29 million is attributable mainly to the expertise of Aquamarine’s key management personnel and the synergies expected to be achieved from integrating the company into the Group’s water business. None of the goodwill is expected to be deductible for tax purposes.

  CH-IV Booth Welsh Aquamarine  
The carrying value and fair value of net assets/(liabilities) acquired at the date of acquisition:        
Property, plant and equipment 1 4  
Other intangible assets 4 11  
Deferred taxation asset 12 2  
Amounts due from contract customers 10 71 3  
Trade and other receivables 1 26 1  
Cash and cash equivalents 14 4  
Trade and other payables (5) (33) (5)  
Short term loans (94)  
Current taxation liability (4)  
Subcontractor liabilities (3) (4)  
Fair value of net assets/(liabilities) acquired 34 (17) (1)  
Goodwill 23 96 29  
Consideration paid 57 79 28  
Consideration paid in cash and cash equivalents 57 79 26  
Contingent consideration 2  
Less: Cash and cash equivalent balances acquired (14) (4)  
  43 75 28  

Impact of acquisitions on the results of the Group

The profit for the year includes an amount of R23 million (CH-IV: R9 million, Booth Welsh: R12 million and Aquamarine: R2 million) that relates to the businesses acquired during the year. The revenue includes R390 million (CH-IV: R93 million, Booth Welsh: R272 million and Aquamarine: R25 million) in respect of the businesses acquired during the year.

The effect on revenue of the Group from continuing operations would have been R470 million (CH-IV: R98 million, Booth Welsh: R342 million and Aquamarine: R30 million) if businesses had been acquired on 1 July 2014, and the profit for the year from continuing operations would have been R27 million (CH-IV: R10 million, Booth Welsh: R15 million and Aquamarine: R2 million).

9. Goodwill

R millions 30 June
2015
  30 June
2014
 
At the beginning of the year 486   488  
Additions through business combinations 148    
Transfers to assets classified as held-for-sale   (7)  
Foreign exchange movements 4   5  
Impairment (2)    
  636   486  

10. Dividend

In terms of the dividend policy the Board declared a gross dividend of 50 cents per share on 26 August 2015 for the year ended 30 June 2015. The dividends will be declared out of income reserves. The dividend will be subject to dividend tax. The local dividends tax rate is 15% for South African shareholders, except where shareholders are exempt for tax purposes. The gross dividend will be 50 cents and dividend net of dividend tax will be 42,5 cents. The Group’s income tax reference number is 9000203712.

11. Related party transactions

There have been no significant changes to the nature of related party transactions since 30 June 2014.

12. Events after reporting date

The directors are not aware of any matter or circumstance arising after the period ended 30 June 2015, not otherwise dealt with in the Group’s annual consolidated financial statements, which significantly affects the financial position at 30 June 2015 or the results of its operations or cash flows for the period then ended.