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| FINANCIAL DIRECTOR REPORT |
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| Roger Rees, financial director |
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| In May 2007, Murray & Roberts entered the JSE Top
40 Index. The Group reached a market capitalisation
of R21 billion at 30 June 2007, which compares to
R8 billion at the previous year end. The increase in market
capitalisation due to the underlying share price performance
is indicative of the Group's future prospects which are
supported by a growing order book, increased operating
margin and cash generation. |
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| INCOME STATEMENT |
Operating profit increased by 100% to R1,4 billion during
the year under review, at an operating margin of 8,0%
compared to 6,5% in the prior year. This is the first time
the operating margin has exceeded the strategic margin
framework of 5,0% to 7,5%.
Continuing revenue increased by 61% to R17,9 billion.
Construction & engineering revenue increased by 70%
benefiting from the first time consolidation of Concor
Limited, which was acquired from 1 July 2006, the Gautrain
contract and a full year of the Dubai Airport project. Mining
revenue increased by 35% over the prior year.
Construction materials & services revenue increased by
48%, benefiting from the first time inclusion of Concor
Technicrete, while the revenue of steel operations and
infrastructure grew by 33% and 27% respectively.
Johnson Arabia, an access platform and crane hire
operation, doubled its revenue during the period.
Corporate costs increased marginally and there was an
increase in IFRS 2 expense relating to share option
expense. Year-on-year, the Group's share price increased
152%, consequently increasing the share option expense
in the income statement.
The Group's effective tax rate, excluding the impact of
exceptional items, was 24,7%, a slight improvement on
the prior year, reflecting an increase in nil tax rated income
earned in Middle East.
A loss of A$105,3 million was reported by the Group's
49,1% associate company Clough Limited. A loss of
R114 million was reported in the Group's income
statement as an associate loss which recognised pre-acquisition
project losses in Clough Limited.
Murray & Roberts held a 49,1% shareholding in Clough
Limited at 30 June 2007. Certain legacy problem
contracts existed in Clough Limited and with impending
consolidation into the Group with effect from 1 July 2007,
have been addressed with the appropriate loss provisions
raised. Provisions amounting to A$131 million have been
raised in Clough Limited in the year ending 30 June 2007
relating to the BassGas and G1 Indian contracts.
Excluding the impact of these legacy contracts, Clough
Limited reported an underlying net profit of A$25 million.
Exceptional items of R147 million include an impairment
write-down on the Clough investment of R115 million,
specifically relating to the above provision raised by Clough, and a loss of R48 million on disposal of Borbet.
Also included is a R13 million net profit from headlease
and other properties activities. A separate section dealing
with headleases follows in this report. |
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| BALANCE SHEET |
In July 2006, Murray & Roberts paid R333 million for the
acquisition of Concor Limited. Additions to fixed assets in
the year totalled R1 billion. The Group's shareholdings in
Borbet and Foundries were sold during the year for cash
of R368 million.
Included in the R1 billion capital expenditure in the year
was R252 million in mining which was primarily project
related. Concor and construction spent R312 million on
upgrading capital equipment to meet future growth. A
further R731 million and R45 million was invested in the
steel and infrastructure businesses respectively, to
upgrade plant and equipment and secure property rights.
Cash generated by operations increased to R2,2 billion
(2006: R716 million). Operating cash flow of R1,93 billion
(2006: R598 million) was impacted by an increase in
taxation paid to R290 million. Working capital showed a
decrease of R637 million during the year. Receivable
collection in Construction Middle East improved in the
year, but remains a challenge and requires constant focus.
Cash on hand at 30 June 2007 was R2,8 billion
(2006: R1,8 billion) after significant outflow on the payment
for Concor, capital expenditure and convertible notes
taken up in Clough Limited. The year end cash on hand
included approximately R1 billion held in joint ventures.
Interest bearing long term liabilities increased slightly to
R696 million (2006: R672 million). These primarily relate
to investment funding into Clough and Cementation
Canada and instalment sales agreements in Concor.
With effect from 10 January 2007, the Group acquired
an 80% shareholding in Wade Walker Limited, a
mechanical, electrical and instrumentation company with
R57 million goodwill arising on acquisition. Total goodwill
in the Group's balance sheet at 30 June 2007 was R206
million (2006: R147 million) and has not been impaired.
The Group's investment in associate companies at 30 June
2007 was R885 million, a net increase of R8 million over
the prior year. During the year, R139 million of convertible
loan notes were taken up in Clough Limited and a further
3% of equity was purchased for R35 million. Ahead of the
full consolidation of Clough Limited from 1 July 2007, an
impairment write-down of R115 million has been made.
A recapitalisation of Clough Limited has been approved.
The Group will take up its share of a rights issue and
purchase additional equity and convertible notes at an
approximate cost of R290 million. Details are included in
the report of the directors. |
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| HEADLEASES AND OTHER
PROPERTY ACTIVITIES |
Headleases and other property activities are disclosed
under exceptional items. The underlying operating profit
is included in headline earnings. During the year the
Group settled certain structured finance liabilities relating
to its headlease commitments going back to 1997. These
amounted to R261 million and are mitigated by a fair
value adjustment of R253 million arising from fair valuing
the properties arising on a change of accounting policy.
The property headlease portfolio contributed an operating
profit of R13 million. The majority of the headleases
are accounted for as financial lease liabilities with an
obligation of R78 million (2006: R155 million) under
finance leases at 30 June 2007. Related headlease
property fair valued at year end was stated at R516 million
(2006: R259 million restated).
Full details of the Group's headleases are disclosed in
notes 1, 2, 17, 18 and 25 of the annual report. |
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| EARNINGS AND DIVIDENDS |
The Group reported diluted headline earnings per share
of 325 cents compared to 184 cents in the prior year. The
prior year is exclusive of a once-off expense relating to
the BBBEE transaction.
The total dividend for the year has been declared at
116 cents with a final dividend of 71 cents per share.
The dividend cover is 2,8 times headline earnings and is at
the top end of the Group's strategic range of between 2,8
and 3,2 times cover. |
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| Roger Rees |
| Financial director |
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