Notes
1. BASIS OF PREPARATION
The Group operates in the oil & gas, 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 condensed consolidated interim financial statements for the period ended 31 December 2016 have been prepared in accordance with International Financial Reporting Standard (IAS) 34, Interim Financial Reporting, the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The condensed consolidated financial information was compiled under the supervision of AJ Bester (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 2016. There have been no new Standards and Interpretations applied in the current financial period.
The review has been conducted in accordance with International Standards on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor, Deloitte & Touche and their unmodified review report is available for inspection at the Company’s registered office. Any reference to future financial performance included in this announcement has not been reviewed or 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/financial results. 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 the auditor’s report together with the accompanying financial information from the registered office.
The information presented in the notes below represents audited results for 30 June 2016 and reviewed results for 31 December 2016 and 31 December 2015.
2. PROFIT BEFORE INTEREST AND TAXATION
| R millions | 31 December 2016 |
31 December 20151 |
30 June 2016 |
||
| Items by nature | |||||
| Cost of sales | (9 392) | (11 845) | (23 199) | ||
| Distribution and marketing expenses | (2) | (3) | (9) | ||
| Administration expenses | (1 257) | (1 118) | (2 461) | ||
| Other operating income | 250 | 573 | 796 | ||
| (10 401) | (12 393) | (24 873) |
| 1 | Restated for discontinued operations. |
3. LOSS FROM DISCONTINUED OPERATIONS
The Board has taken the decision that the Southern African operations within the Infrastructure & Building platform and the Genrec operations within the 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: Non-current Assets Held for Sale and 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 from discontinued operations | |||||
| R millions | 31 December 2016 |
31 December 20151 |
30 June 2016 |
||
| Revenue | 2 552 | 2 350 | 4 658 | ||
|---|---|---|---|---|---|
| (Loss)/profit before interest, depreciation and amortisation | (162) | 57 | (8) | ||
| Depreciation and amortisation | (2) | (61) | (110) | ||
| Loss before interest and taxation (note 3.2) | (164) | (4) | (118) | ||
| Net interest income | – | 2 | – | ||
| Loss before taxation | (164) | (2) | (118) | ||
| Taxation expense | (14) | – | (16) | ||
| Loss after taxation | (178) | (2) | (134) | ||
| (Loss)/income from equity accounted investments | (1) | – | 10 | ||
| Loss from discontinued operations | (179) | (2) | (124) | ||
| Attributable to: | |||||
| – Owners of Murray & Roberts Holdings Limited | (179) | (2) | (124) | ||
| – Non-controlling interests | – | – | – | ||
| (179) | (2) | (124) |
| 3.2 Loss before interest and taxation | |||||
| R millions | 31 December 2016 |
31 December 20151 |
30 June 2016 |
||
| Loss before interest and taxation includes the following significant items: | |||||
| Profit on disposal of businesses (net of transaction and other costs) | – | 6 | 6 | ||
| Fair value adjustment on disposal group held-for-sale | – | – | (44) | ||
| Fair value loss on assets and liabilities held-for-sale | (79) | – | – | ||
| Voluntary Rebuild Programme charge | (170) | – | – | ||
| Impairment of property, plant and equipment (net) | – | – | (36) |
| 3.3 Cash flows from discontinued operations include the following: | |||||
| R millions | 31 December 2016 |
31 December 20151 |
30 June 2016 |
||
| Cash flow from operating activities | 199 | (180) | (71) | ||
|---|---|---|---|---|---|
| Cash flow from investing activities | (20) | 61 | (121) | ||
| Cash flow from financing activities | 32 | (66) | 25 | ||
| Net increase/(decrease) in cash and cash equivalents | 211 | (185) | (167) |
4. RECONCILIATION OF HEADLINE EARNINGS
| R millions | 31 December 2016 |
31 December 20151 |
30 June 2016 |
||
| Profit attributable to owners of Murray & Roberts Holdings Limited | (60) | 376 | 753 | ||
|---|---|---|---|---|---|
| Profit on disposal of businesses (net) | – | (6) | (6) | ||
| Profit on disposal of assets (net) | (18) | (54) | (63) | ||
| Impairment of assets (net) | – | 46 | 49 | ||
| Reversal on impairment of property, plant and equipment (net) | (1) | – | – | ||
| 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 | 79 | – | 26 | ||
| Fair value adjustments on investment property | – | (3) | (5) | ||
| Fair value adjustments on investment property (equity accounted investments) | – | – | (13) | ||
| Realisation of foreign currency translation reserve | – | – | (223) | ||
| Taxation effects on adjustments | (17) | (3) | 69 | ||
| Headline earnings | (17) | 356 | 631 | ||
| Adjustments for discontinued operations: | |||||
| Loss from discontinued operations | 179 | 2 | 124 | ||
| Profit on disposal of businesses (net) | – | 6 | 6 | ||
| Profit on disposal of property, plant and equipment classified as held-for-sale (net) | 10 | 48 | 57 | ||
| 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 | (79) | – | (26) | ||
| Fair value adjustments on investment property | – | 3 | 5 | ||
| Fair value adjustments on investment property (equity accounted investments) | – | – | 13 | ||
| Impairment of property, plant and equipment (net) | – | (36) | (36) | ||
| Taxation effects on adjustments | 19 | 5 | (7) | ||
| Headline earnings from continuing operations | 112 | 384 | 723 |
| 1 | Restated for discontinued operations. |
5. GOODWILL
| R millions | 31 December 2016 |
31 December 2015 |
30 June 2016 |
||
| At the beginning of the year | 642 | 636 | 636 | ||
|---|---|---|---|---|---|
| Additions through business combinations | – | 21 | 21 | ||
| Foreign exchange movements | (35) | 41 | 29 | ||
| Transfer to assets classified as held-for-sale | – | – | (44) | ||
| 607 | 698 | 642 |
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 31 December 2016, no impairment was recorded.
6. CONTRACTS-IN-PROGRESS AND CONTRACT RECEIVABLES
| R millions | 31 December 2016 |
31 December 2015 |
30 June 2016 |
||
| Contracts-in-progress (cost incurred plus recognised profits, less recognised losses) | 2 184 | 3 194 | 1 943 | ||
|---|---|---|---|---|---|
| Uncertified claims and variations (recognised in terms of IAS 11: Construction Contracts) | 945 | 2 090 | 2 020 | ||
| Amounts receivable on contracts (net of impairment provisions) | 2 215 | 3 307 | 2 241 | ||
| Retentions receivable (net of impairment provisions) | 360 | 368 | 275 | ||
| 5 704 | 8 959 | 6 479 | |||
| Amounts received in excess of work completed | (1 435) | (2 046) | (1 522) | ||
| 4 269 | 6 913 | 4 957 | |||
| Disclosed as: | |||||
| Amounts due from contract customers – non-current10 | 586 | 2 661 | 1 514 | ||
| Amounts due from contract customers – current | 5 118 | 6 298 | 4 965 | ||
| Amounts due to contract customers – current | (1 435) | (2 046) | (1 522) | ||
| 4 269 | 6 913 | 4 957 |
| 10 | The non-current amounts are considered by management to be recoverable. |
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 | 31 December 2016 |
31 December 2015 |
30 June 2016 |
||
| Categories of financial instruments | |||||
| Financial assets | |||||
| Financial assets designated as fair value through profit or loss (level 3) | 806 | 718 | 811 | ||
| Loans and receivables | 6 105 | 7 842 | 6 720 | ||
| Available-for-sale financial assets carried at fair value (level 1) | – | – | – | ||
| Financial liabilities | |||||
| Loans and payables | 5 563 | 9 379 | 6 447 | ||
| Derivative financial instruments (level 2)11 | – | – | – |
| 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 | 31 December 2016 |
31 December 2015 |
30 June 2016 |
||
| Investment in infrastructure service concession (level 3)12 | |||||
| At the beginning of the year | 811 | 709 | 709 | ||
| Realisation of investment | (122) | (54) | (54) | ||
| Fair value adjustment recognised in the statement of financial performance | 117 | 63 | 156 | ||
| 806 | 718 | 811 |
| 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 economic fundamentals, taking into consideration the operating conditions experienced in the current financial year. The future profits from the concession are governed by a contractual agreement and are 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 and the Actual Total Revenue 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 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 | 31 December 2016 |
31 December 2015 |
30 June 2016 |
||
| Operating lease commitments | 1 463 | 1 913 | 1 703 | ||
|---|---|---|---|---|---|
| Contingent liabilities | 2 034 | 2 226 | 2 734 | ||
| Financial institution guarantees | 6 410 | 9 286 | 8 199 |
Grayston Pedestrian Bridge Temporary Works Collapse
In November 2015, the Department of Labour instituted a Section 32 Inquiry (“the Inquiry”) into the
incident to determine 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.
The Inquiry is due to resume on 27 March 2017.
All costs incurred to date have been expensed. The direct financial impact of this incident on the Group is not expected to be material considering its comprehensive insurance cover.
Gautrain Water Ingress Dispute
During November 2013, in the dispute between Gauteng Province (“Province”) and Bombela
Concession Company (“BCC”), 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 (“BCJV”) (Murray & Roberts has a 45% shareholding). The dispute
related to the specifications not met by BCJV in the tunnel between Park and Rosebank stations.
In November 2016, BCC (on behalf of BCJV) and Province agreed to a comprehensive settlement of all disputes relating to the development period (construction period) of the Gautrain Rapid Rail Link Project, bringing an end to multi-year protracted legal processes. Due to the extended time, significant costs and uncertain outcomes involved in these legal processes, both parties agreed to conclude an amicable settlement of all development period disputes. In terms of the agreement, Province agreed to pay an upfront amount of R980 million and a further payment over a two-year period of a capped amount of R294 million – these values are inclusive of Value Added Tax and the Group’s share in the settlement value is 50 percent. This is a final settlement of all construction-related disputes and in the best interest of all stakeholders.
The settlement includes the following disputes:
- Sandton Station cavern;
- John Vorster and Jean Avenues cantilever bridges in Centurion;
- Delay and Disruption; and
- Water Ingress in the tunnel section between Park Station and Emergency shaft E2.
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 road
contracts. An amount of R591 million was included in contingent liabilities at June 2016. Following
the signing of the Voluntary Rebuild Programme (“VRP”) in October 2016, SANRAL has withdrawn its
claims of R591 million.
9. DIVIDEND
A gross annual dividend, relating to the 30 June 2016 financial year, of 45 cents per share was declared in August 2016 and paid during the period.
In line with the approved dividend policy, communicated at the release of the Group’s FY2015 results on 26 August 2015, the Board will only consider paying an annual dividend.
10. RELATED PARTY TRANSACTIONS
There have been no significant changes to the nature of related party transactions since 30 June 2016 or any transactions outside the normal course of business.
11. EVENTS AFTER REPORTING DATE
The directors are not aware of any matter or circumstance arising after the period ended 31 December 2016, not otherwise dealt with in the Group’s interim results, which significantly affects the financial position at 31 December 2016 or the results of its operations or cash flows for the period then ended.