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 2016 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 AJ Bester (CA)SA, Group financial director and have been audited in terms of Section 29(1) of the Act and signed by the directors on 24 August 2016.

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 2015. There have been no new 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 2016. 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 and the 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.

The information presented in the notes below represent audited results for 30 June 2015 and for 30 June 2016.

2. PROFIT BEFORE INTEREST AND TAXATION

R millions Audited
Annual
30 June
2016
  Audited
Annual
30 June
20151
 
Items by function             
Cost of sales  (23 199)    (21 382)   
Distribution and marketing expenses  (9)    (9)   
Administration costs  (2 461)    (2 208)   
Other operating income  796     650    
1 Restated for discontinued operations.

3. (LOSS)/PROFIT FROM DISCONTINUED OPERATIONS

The Board has taken the decision that the Southern African construction operations within Infrastructure & Building platform and the Genrec operations within Power & Water platform are no longer part of the strategic future of the Group. These operations have 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, including the restatement of prior year comparatives as required by the accounting standards. All assets and liabilities related to the sales have been transferred to held-for-sale in the statement of financial position.

3.1 (Loss)/profit from discontinued operations        
R millions Audited
Annual
30 June
2016
  Audited
Annual
30 June
20151
 
Revenue   4 658       6 643     
(Loss)/profit before interest, depreciation and amortisation   (8)      221     
Depreciation and amortisation   (110)      (141)     
(Loss)/profit before interest and taxation (note 3.2)   (118)      80     
Net interest expense   –       (4)     
(Loss)/profit before taxation   (118)      76     
Taxation (expense)/credit   (16)      5     
(Loss)/profit after taxation   (134)      81     
Income from equity accounted investments   10       1     
(Loss)/profit from discontinued operations   (124)      82     
Attributable to:              
– Owners of Murray & Roberts Holdings Limited     (124)        71     
– Non-controlling interests   –       11     
   (124)      82     
3.2 (Loss)/profit before interest and taxation        
R millions Audited
Annual
30 June
2016
  Audited
Annual
30 June
20151
 
(Loss)/profit before interest and taxation includes the following significant items:        
Profit on disposal of businesses (net of transaction and other costs)   11  
Fair value adjustment on disposal group held-for-sale (44)    
Impairment of property, plant and equipment (net) (36)    
3.3 Cash flows from discontinued operations include the following:        
R millions Audited
Annual
30 June
2016
  Audited
Annual
30 June
20151
 
Cash flow from operating activities  (71)    288    
Cash flow from investing activities  (121)    112    
Cash flow from financing activities  25     (21)   
Net (decrease)/increase in cash and cash equivalents  (167)    379    
1 Restated for discontinued operations.

4. RECONCILIATION OF HEADLINE EARNINGS

R millions Audited 
Annual 
30 June 
2016 
  Audited 
Annual 
30 June 
20151
 
Profit attributable to owners of Murray & Roberts Holdings Limited  753     881    
Profit on disposal of businesses (net) (6)    (11)   
Profit on disposal of property, plant and equipment (net) (63)    (36)   
Impairment of assets (net) 49     11    
Fair value adjustment on disposal group classified as held-for-sale  44     –    
Fair value adjustments and net loss on disposal of assets held-for-sale  26       
Loss on sale of other investments  –       
Fair value adjustments on investment properties  (5)    (17)   
Fair value adjustments on investment properties (equity accounted investments) (13)    –    
Realisation of foreign currency translation reserve  (223)    –    
Other (net) –       
Non-controlling interests effects on adjustments  –       
Taxation effects on adjustments  69     11    
Headline earnings  631     856    
Adjustments for discontinued operations:             
Loss/(profit) from discontinued operations  124     (82)   
Non-controlling interests  –     11    
Profit on disposal of businesses (net)    11    
Profit on disposal of property, plant and equipment (net) 57     15    
Fair value adjustment on disposal group classified as held-for-sale  (44)    –    
Fair value adjustments and net loss on disposal of assets held-for-sale  (26)    (7)   
Fair value adjustments on investment properties     17    
Fair value adjustments on investment properties (equity accounted investments) 13     –    
Impairment of property, plant and equipment (net) (36)    –    
Non-controlling interests effects on adjustments  –     (7)   
Taxation effects on adjustments  (7)    (8)   
Headline earnings from continuing operations  723     806    
1 Restated for discontinued operations.

5. GOODWILL

R millions Audited 
Annual 
30 June 
2016 
  Audited 
Annual 
30 June 
2015 
 
At the beginning of the year  636     486    
Additions through business combinations  21     148    
Foreign exchange movements  29       
Transfer to assets classified as held-for-sale  (44)    –    
Impairment  –     (2)   
   642     636    

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 2016, no impairment was recorded.

6. CONTRACTS-IN-PROGRESS AND CONTRACT RECEIVABLES

R millions Audited 
Annual 
30 June 
2016 
  Audited 
Annual 
30 June 
2015 
 
Contracts-in-progress (cost incurred plus recognised profits, less recognised losses)   1 943     2 793    
Uncertified claims and variations (recognised in terms of IAS 11: Construction Contracts)   2 020     2 158    
Amounts receivable on contracts (net of impairment provisions)   2 241     3 224    
Retentions receivable (net of impairment provisions)   275     288    
   6 479     8 463    
 Amounts received in excess of work completed   (1 522)    (2 121)   
   4 957     6 342    
Disclosed as:              
Amounts due from contract customers – non-current10   1 514     2 259    
Amounts due from contract customers – current   4 965     6 204    
Amounts due to contract customers – current   (1 522)    (2 121)   
   4 957     6 342    
10 The non-current amounts are considered by management to be recoverable.

Gautrain Water Ingress Dispute
During November 2013, in the dispute between Gauteng Province ("Province") and Bombela Concession Company, the arbitration panel ruled in favour of Province. The Group raised a provision in the 2014 financial year for its share of potential construction costs to be incurred by the Bombela Civils Joint Venture (Murray & Roberts has a 45% shareholding). The dispute relates to the specifications not met in the tunnel between Park and Rosebank stations. The extent of any other potential financial impact, if any, related to the matter cannot be determined. The arbitration ruling was made an order of court in July 2016 and Bombela Concession Company has applied for leave to appeal, which will be heard in the High Court during September 2016. While this matter lies in the jurisdiction of the courts, the date on which remedial work will commence remains uncertain.

7. 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 Audited
Annual
30 June
2016
  Audited
Annual
30 June
2015
 
Categories of financial instruments        
Financial assets        
Financial assets designated as fair value through profit or loss (level 3)   811     709  
Loans and receivables 6 720   7 880  
Available-for-sale financial assets carried at fair value (level 1)5    
Financial liabilities        
Loans and payables 6 447   9 179  
Derivative financial instruments (level 2)11   3  
5 Amount is less than R1 million.
11 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.
7.1 Financial assets designated as fair value through profit or loss        
R millions Audited
Annual
30 June
2016
  Audited
Annual
30 June
2015
 
Investment in infrastructure service concession (level 3)12             
At the beginning of the year  709     669    
Realisation of investment  (54)    (132)   
Fair value adjustment recognised in the statement of financial performance  156     172    
   811     709    
12 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% (2015: 18,5%). 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 R34,5 million (2015: R33,8 million).

8. 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 Audited
Annual
30 June
2016
  Audited
Annual
30 June
2015
 
Operating lease commitments 1 703   1 640  
Contingent liabilities 2 734   1 650  
Financial institution guarantees 8 199   8 018  

Gautrain Water Ingress Dispute
During November 2013, in the dispute between Gauteng Province ("Province") and Bombela Concession Company, the arbitration panel ruled in favour of Province. The Group raised a provision in the 2014 financial year for its share of potential construction costs to be incurred by the Bombela Civils Joint Venture (Murray & Roberts has a 45% shareholding). The dispute relates to the specifications not met in the tunnel between Park and Rosebank stations. The extent of any other potential financial impact, if any, related to the matter cannot be determined. The arbitration ruling was made an order of court in July 2016 and Bombela Concession Company has applied for leave to appeal, which will be heard in the High Court during September 2016. While this matter lies in the jurisdiction of the courts, the date on which remedial work will commence remains uncertain.

Grayston Pedestrian Bridge
In November 2015, the Department of Labour (“DoL”) instituted a Section 32 Inquiry into the incident to gather information relating to the cause or causes for the collapse of the temporary works structure. This is a formal inquiry conducted under the provisions of the Occupational Health and Safety Act, 1993. At the conclusion of the Inquiry, the DoL will submit a written report containing its findings, to the National Prosecuting Authority for its consideration. Taking into account that the Inquiry is still ongoing and that this is a complex matter, the Group cannot speculate on the cause or causes of the incident at this time. The direct financial impact of this incident on the Group is not expected to be material. No provision has been raised for possible civil claims. A provision to complete the works has been raised, taking into account the delays and additional costs to completion.

SANRAL Claims
SANRAL served summons on Murray & Roberts Limited during April 2016 for alleged additional cost and damages incurred given collusive conduct in the period 2005 to 2006 on four roads contracts. An amount of R591 million has been included in contingent liabilities. The Group has defended the summons and do not believe that there will be a material impact on results.

9. BUSINESS DISPOSALS/ACQUISITIONS

The Group disposed of the majority of its Tolcon businesses’ assets and liabilities in financial year 2015, with the remaining businesses namely the Group’s interest in Cape Point Partnership, Entilini Operations Proprietary Limited and the investment in Entilini Concession Proprietary Limited disposed of in the current financial year. The Group disposed of its interest in Cape Point Partnership, effective 16 October 2015, for gross consideration of R18 million (R13 million net of transaction costs and other adjustments). The total consideration was received on effective date. Entilini Operations Proprietary Limited and Entilini Concession Proprietary Limited were disposed of for gross proceeds of R3 million (R2 million net of transaction costs and other adjustments). The sale was effective 23 June 2016 and proceeds were received on the same day.

Cementation Canada Inc. (“Canada”) completed the acquisition of the assets and business of Merit Consultants International Inc. (“Merit”) on 30 November 2015, for a consideration of R22 million. Merit is a project and construction management company that provides support to the mining and minerals industry worldwide. Services provided by Merit include both technical and project management services to capital projects, with a focus on maintaining control in the owner’s hands and delivering projects safely within budget and schedule. Based in Vancouver, Canada, Merit has helped deliver successful projects for mining companies around the world. The goodwill of R21 million is mainly attributable to the Merit Consultants name, expertise, contracts and key management staff.

Clough Limited (“Clough”) established a new entity, Clough Enercore Limited (“CEL”), in the current financial year. On 8 October 2015, CEL executed an Asset Purchase and Sale Agreement (“Agreement”) with Enercore Projects Limited (“Enercore”) to purchase the business (as carried on by Enercore) and the Purchased Assets, in exchange for the assumption of the Assumed Liabilities, of Enercore. Enercore also obtained 25% shareholding in CEL. Enercore is an engineering services company headquartered in Calgary, Canada, which specialises in the provision of Engineering, Procurement and Construction Management services to the Canadian oil and gas sector. This acquisition will establish Clough’s Canadian Engineering, Procurement and Construction project delivery arm.


R millions Merit   Enercore  
The carrying value and fair value of net assets acquired at the date of acquisition:             
Property, plant and equipment       
Other intangible assets  –       
Trade and other receivables  –     10    
Long term loans  –     (13)   
Trade and other payables  –     (3)   
Fair value of net assets acquired     –    
Goodwill  21     –    
Consideration paid in cash and cash equivalents  22     –    

Impact of acquisitions on the results of the Group

The profit for the year to date includes a loss of R7 million (Enercore: R3 million and Merit: R4 million).

The revenue includes R8 million (Enercore: R4 million and Merit: R4 million) in respect of the businesses acquired during the year.

The effect on revenue of the Group from continuing operations would have been R12 million (Enercore: R5 million and Merit: R7 million) had the businesses been acquired on 1 July 2015, and the loss for the year to date from continuing operations would have been R10 million (Enercore: R3 million and Merit: R7 million).

10. DIVIDEND

In terms of the dividend policy the Board declared a gross dividend of 45 cents per share on 24th August 2016 for the year ended 30 June 2016. 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 45 cents and dividend net of dividend tax will be 38.25 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 2015 or any transactions outside the normal course of business.

12. EVENTS AFTER REPORTING DATE

The directors are not aware of any matter or circumstance arising after the year ended 30 June 2016, not otherwise dealt with in the Group’s annual consolidated financial statements, which significantly affects the financial position at 30 June 2016 or the results of its operations or cash flows for the year then ended.