NOTES
1. BASIS OF PREPARATION
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 condensed consolidated interim financial statements for the period ended 31 December 2017 have been prepared in accordance with and containing the information required by the International Financial Reporting Standards (IFRS) (IAS 34), Interim Financial Reporting, the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the 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 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 2017. There have been no new Standards and Interpretations applied in the current financial year.
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 auditor. 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 represent audited results for 30 June 2017 and reviewed results for 31 December 2016 and 31 December 2017.
2. PROFIT BEFORE INTEREST AND TAXATION
| R millions | 31 December 2017 |
31 December 2016 |
30 June 2017 |
||
| Items by function | |||||
| Cost of sales | (10 695) | (9 392) | (19 552) | ||
| Distribution and marketing expenses | (3) | (2) | (11) | ||
| Administration costs | (990) | (1 257) | (2 104) | ||
| Other operating income | 228 | 250 | 757 |
3. LOSS FROM DISCONTINUED OPERATIONS
Discontinued operations for the current period include Genrec operations, where an active process is in place to sell the business as well as Southern African Infrastructure & Building businesses not part of the sale completed in the prior year. 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.
3.1 LOSS FROM DISCONTINUED OPERATIONS
| R millions | 31 December 2017 |
31 December 3 2016 |
30 June 2017 |
||
| Revenue | 337 | 2 552 | 3 674 | ||
|---|---|---|---|---|---|
| Loss before interest, depreciation and amortisation | (134) | (162) | (279) | ||
| Depreciation and amortisation | – | (2) | (2) | ||
| Loss before interest and taxation (note 3.2) | (134) | (164) | (281) | ||
| Net interest expense | (2) | – | (9) | ||
| Loss before taxation | (136) | (164) | (290) | ||
| Taxation credit/(expense) | 22 | (14) | 37 | ||
| Loss after taxation | (114) | (178) | (253) | ||
| Income from equity accounted investments | – | – | – | ||
| Loss from discontinued operations | (114) | (178) | (253) | ||
| Attributable to: | |||||
| – Owners of Murray & Roberts Holdings Limited | (114) | (178) | (253) | ||
| – Non-controlling interests | – | – | – | ||
| (114) | (178) | (253) |
3.2 LOSS BEFORE INTEREST AND TAXATION
| Loss before interest and taxation includes the following significant items: | |||||
| Loss on disposal of businesses (net of transaction and other costs) | – | – | (28) | ||
| Fair value adjustment on disposal group classified as held for sale | (8) | (79) | (96) | ||
| Voluntary Rebuild Programme charge | – | (170) | (170) |
3.3 CASH FLOWS FROM DISCONTINUED OPERATIONS INCLUDE THE FOLLOWING:
| Cash flow from operating activities | (67) | 199 | (110) | ||
|---|---|---|---|---|---|
| Cash flow from investing activities | (27) | (20) | (78) | ||
| Cash flow from financing activities | 49 | 32 | 25 | ||
| Net (decrease)/increase in cash and cash equivalents | (45) | 211 | (163) |
| 3 | A 38% investment in Forum SA Trading 284 (Pty) Ltd (Property development) was not included in the sale of the Southern African Infrastructure and Building businesses and has therefore been reclassified from discontinued operations in the prior period and included as continuing operations for all periods presented. |
4. RECONCILIATION OF HEADLINE EARNINGS
| R millions | 31 December 2017 |
31 December3 2016 |
30 June 2017 |
||
| Profit/(loss) attributable to owners of Murray & Roberts Holdings Limited | 110 | (60) | 48 | ||
|---|---|---|---|---|---|
| Loss on disposal of businesses (net) | – | – | 28 | ||
| Profit on disposal of property, plant and equipment (net) | (2) | (18) | (30) | ||
| Profit on sale of assets held for sale (net) | – | – | (17) | ||
| Impairment of assets (net) | – | – | 11 | ||
| Reversal of impairment of property, plant and equipment (net) | (2) | (1) | (1) | ||
| Fair value adjustment on disposal group classified as held for sale | 8 | 79 | 96 | ||
| Fair value adjustments on investment property | – | – | (7) | ||
| Taxation effects on adjustments | (1) | (17) | (22) | ||
| Headline earnings | 113 | (17) | 106 | ||
| Adjustments for discontinued operations: | |||||
| Loss from discontinued operations | 114 | 178 | 253 | ||
| Loss on disposal of businesses (net) | – | – | (28) | ||
| Profit on disposal of property, plant and equipment (net) | – | – | 8 | ||
| Profit on sale of assets held for sale (net) | – | 10 | 17 | ||
| Fair value adjustment on disposal group classified as held for sale | (8) | (79) | (96) | ||
| Fair value adjustments on investment property | – | – | 7 | ||
| Taxation effects on adjustments | 2 | 19 | 26 | ||
| Headline earnings from continuing operations | 221 | 111 | 293 |
| 3 | A 38% investment in Forum SA Trading 284 (Pty) Ltd (Property development) was not included in the sale of the Southern African Infrastructure and Building businesses and has therefore been reclassified from discontinued operations in the prior period and included as continuing operations for all periods presented. |
5. GOODWILL
| R millions | 31 December 2017 |
31 December 2016 |
30 June 2017 |
||
| At the beginning of the year | 607 | 642 | 642 | ||
|---|---|---|---|---|---|
| Foreign exchange movements | (6) | (35) | (35) | ||
| 601 | 607 | 607 |
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 2017, no impairment was recorded.
6. CONTRACTS-IN-PROGRESS AND CONTRACT RECEIVABLES
| R millions | 31 December 2017 |
31 December 2016 |
30 June 2017 |
||
| Contracts-in-progress (cost incurred plus recognised profits, less recognised losses) | 2 082 | 2 184 | 1 903 | ||
|---|---|---|---|---|---|
| Uncertified claims and variations less payments received on account of R438 million (FY2017: R445 million) (recognised in terms of IAS 11: Construction Contracts) | 1 026 | 945 | 914 | ||
| Amounts receivable on contracts (net of impairment provisions) | 2 372 | 2 215 | 2 343 | ||
| Retentions receivable (net of impairment provisions) | 256 | 360 | 296 | ||
| 5 736 | 5 704 | 5 456 | |||
| Amounts received in excess of work completed | (1 625) | (1 435) | (1 571) | ||
| 4 111 | 4 269 | 3 885 | |||
| Disclosed as: | |||||
| Amounts due from contract customers – non-current11 | 513 | 586 | 542 | ||
| Amounts due from contract customers – current | 5 223 | 5 118 | 4 914 | ||
| Amounts due to contract customers – current | (1 625) | (1 435) | (1 571) | ||
| 4 111 | 4 269 | 3 885 |
| 11 | 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 2017 |
31 December 2016 |
30 June 2017 |
||
| Categories of financial instruments | |||||
| Financial assets | |||||
| Financial assets designated as fair value through profit or loss (level 3) | 1 283 | 806 | 893 | ||
| Loans and receivables | 5 803 | 6 105 | 6 148 | ||
| Derivative financial instruments (level 2)12 | – | – | 2 | ||
| Financial liabilities | |||||
| Loans and payables13 | 5 196 | 4 972 | 4 566 |
| 12 | 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. |
| 13 | The prior period amounts reflected in financial liabilities have been adjusted due to the incorrect inclusion of provisions. |
7.1 FINANCIAL ASSETS DESIGNATED AS FAIR VALUE THROUGH PROFIT OR LOSS
| R millions | 31 December 2017 |
31 December 2016 |
30 June 2017 |
||
| Investment in infrastructure service concession (level 3)14 | |||||
| At the beginning of the year | 893 | 811 | 811 | ||
| Additions | 357 | – | – | ||
| Realisation of investment | (106) | (122) | (170) | ||
| Fair value adjustment recognised in the statement of financial performance | 139 | 117 | 252 | ||
| 1 283 | 806 | 893 |
| 14 | The Group concluded the acquisition of a further 17% in the Bombela Concession Company
(RF) (Proprietary) Limited (“BCC”) for an adjusted purchase price of R357 million in December
2017 (Original purchase price of R405 million adjusted for dividends declared and interest from
1 October 2017). The Group’s investment in BCC has therefore increased to 50% (FY2017: 33%).
Post the transaction, the investment is still reflected at fair value through profit or loss, as the
investment meets the requirement of IAS 28.18 with regards to venture capital organisations or
similar entities, as the transaction does not result in a change of control. The fair value of the BCC is calculated using discounted cash flow models and a market discount rate of 18,5% (FY2017: 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 period. 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 period. A decrease of 1% in the discount rate would result in an increase in the value of the concession investment of approximately R44,9 million (FY2017: R31,2 million). Operating cost includes an operating fee that is payable to the Bombela Operating Company Proprietary Limited (“BOC”), the company responsible for the operation and maintenance of Gautrain. The fee payable to BOC is subject to annual inflationary increases. The contract is subject to review every fifth year where increases of more than inflation are considered. An annual operating fee increase of 1% above inflation will result in a decrease in the value of the concession investment of approximately R9 million (FY2017: R17,7 million). Operating cost also includes a Railway Usage Fee (“RUF”) which constitutes a fee for the use of the system owned by Gauteng Province. The fee is 50% of the concessionaires excess free cash flow above an 18% real rate of return. The fee reduces to 35% should the concessionaire comply with certain Socio Economic Development (“SED”) obligations. Historically the SED obligations have been achieved and the valuation is based on the SED obligations being achieved. If these obligations are not achieved, then the result would be a decrease in the value of the concession investment of R301 million (FY2017: R191 million). 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. Due to the predictable nature of revenue it is not considered to be a significant unobservable input and therefore no quantitative information is provided. |
8. CONTINGENT LIABILITIES
The Group is from time to time involved in various disputes, claims and legal proceedings arising in the ordinary course of business. The Group does not account for any potential contingent liabilities where a back-to-back arrangement exists with the clients or subcontractors and there is a legal right to offset (R2 billion). 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.
| R millions | 31 December 2017 |
31 December 2016 |
30 June 2017 |
||
| Operating lease commitments | 1 159 | 1 463 | 1 314 | ||
|---|---|---|---|---|---|
| Contingent liabilities | 2 210 | 2 034 | 1 943 | ||
| Financial institution guarantees | 6 203 | 6 410 | 5 881 |
Update on the Group’s claim processes
The Group’s uncertified revenue as at the end of December 2017 remained at R1 billion (FY2017 H1: R1 billion), largely represented by claims on projects in the Middle East. All claims are diligently pursued and stakeholders will be kept informed as to their progress. Further to the update shared on SENS on 2 February 2018, the Dubai International Arbitration Centre extended its deadline for the award on the Dubai Airport dispute from May to November 2018. This is a large and complex dispute and the arbitration Tribunal requested more time within which to deliver its award.
Grayston Pedestrian Bridge Temporary Works Collapse – Update
The Department of Labour instituted a Section 32 Inquiry (“the Inquiry”) in November 2015 into this incident to determine the cause or causes of the collapse of the temporary works structure. The Inquiry was recently paused, but is due to resume again in July 2018. The Board is disappointed by the slow progress that is delaying closure of this distressing incident for all parties involved.
9. DIVIDEND
A gross annual dividend, relating to the 30 June 2017 financial year, of 45 cents per share was declared in August 2017 and paid during the period. In line with the approved dividend policy, the board of directors will 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 2017 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 2017, not otherwise dealt with in the Group’s interim results, which significantly affects the financial position at 31 December 2017 or the results of its operations or cash flows for the period then ended.