An environment of challenging market conditions, including ongoing strength of the SA Rand and delays in major projects targeted by Murray & Roberts, is reflected in the operating margin of 5,0% (restated 2003: 6,3%), which represents the minimum performance target.

The Group demonstrated its resilience by maintaining strong cash reserves of R1,10 billion (2003: R1,5 billion). The return on average shareholders’ funds was 19,0% (2003: 22,4%), marginally below the target return of 20%.

A final dividend of 30,0 cents was declared making the total dividend 45,0 cents for the year.

“Globalising Murray & Roberts is a growth strategy that will demand a commitment of leadership intervention and innovation matching that of Rebuilding Murray & Roberts. The executive capacity has been assembled over the past few years to engage this journey to a new and exciting future,” says Group CE Brian Bruce.

Overview

Murray & Roberts has experienced mixed fortunes in its different markets throughout the year. The SA Rand strengthened an average 22% and together with project delays and disappointing performances from certain operations, combined to depress the financial results for this year. In pursuit of the objective of Rebuilding Murray & Roberts by 30 June 2005, the Group has nevertheless continued to rationalise its activities and exit markets and sectors where an appropriate growth potential or return on investment is not evident. This is particularly the case in parts of Africa.

The Group has continued to source new levels of executive leadership and human capital, with a particular focus on building its global leadership capacity.

Order Book

The Group’s project order book stood at R3,1 billion at 30 June 2004 (2003: R4,8 billion) and was enhanced by a further R1,9 billion with the acquisition in July 2004 of the Cementation mining business in South Africa and Canada. The decline in traditional order book has a negative short-term impact on revenues and is largely due to delays in the flow of major industrial, mining, infrastructure and building projects.

The award of the Soccer 2010 World Cup to South Africa has given additional impetus to the finalisation of the delayed Gautrain project on which the Group has submitted a tender. It will also maintain the high levels of fixed investment currently being experienced in the domestic construction economy. In Dubai, the Group initially pre-qualified and has since submitted competitive proposals for two of the world’s largest construction projects.

Operations

Construction operations serving global building, infrastructure, mining and industrial markets delivered disappointing operating profits of R96 million (restated 2003: R 199 million) on revenues of R3,5 billion (2003: R3,98 billion) at a margin of 2,7% (restated 2003: 5,0%). This includes a R27 million realised profit on the sale of a building concession investment and a R7m fair value increase in concession investments.

South Africa and the SADC countries continue to offer favourable business conditions and the construction operations achieved good market access to deliver an operating profit of R39 million on revenues of R1,9 billion.

Difficult business conditions, conservative revenue recognition and poor operating performances in Equatorial Guinea, Benin, Nigeria and Egypt resulted in an operating loss of R23 million on revenues of R234 million in the rest of Africa. A period of consolidation in the Middle East delivered a marginal operating profit on revenues of R900 million.

The Middle East business reports independently into the Group’s international structure and is now under new management. In South Africa, the construction, roads and mechanical (MEI) operations have been linked with the Group’s regional building businesses in SADC to form an integrated regional construction cluster.

Engineering contracting and services to the industrial and mining markets delivered an operating profit of R81 million (2003: R116 million) on revenues of R651 million (2003: R955 million) at an improved margin of 12,4% (2003: 12,2%).

The Mozal and Hillside smelter projects were completed in the year, ending a 12-year investment programme that has established a global reputation for Murray & Roberts in mega-project implementation. Unfortunately the strength of the SA Rand and some investment uncertainty in the local economy have resulted in long gestation periods for new mining and industrial projects.

Construction services and material supplies to the building, infrastructure, mining and industrial markets delivered operating profits of R247 million (2003: R260 million) on revenues of R2,69 billion (2003: R3,00 billion) at an improved margin of 9,2% (2003: 8,7%).

The general level of domestic construction investment has remained buoyant, offering stable market conditions to the Group’s construction materials activities. This is particularly evident in the supply of materials to the infrastructure market, where installed capacity is approaching full utilisation for the first time in more than a decade. The market for steel products, however, has been negatively impacted by price volatility caused by increased global demand.

The manufacture and supply of automotive components to the domestic and selected global markets generated operating profits of R39 million (2003: R52 million) on revenues of R501 million (2003: R 673 million) at an improved margin of 7,8% (2003: 7,7%).

The Group’s three-year investment programme to modernise its foundry operations has created a world class business that has successfully optimised the niche opportunity offered by government’s Motor Industry Development Plan. Contract partnerships have been established with leading automotive groups to supply sophisticated engine system elements into their global supply networks.

The fabrication and assembly of specialist products for the domestic and global transport markets generated operating profits of R28 million (2003: R62 million) on revenues of R572 million (2003: R818 million) at a margin of 4,9% (2003: 7,6%).

The UCW Partnership performed well in the year, creating value that sets a standard for long-term empowerment in the Group. The demand for improved rolling-stock capacity in the country offers significant opportunity, requiring innovative and competitive solutions from both client and contractor.

Unitrans Limited (“Unitrans”)

Shareholders are reminded that the Company published a cautionary announcement through SENS on Friday 20 August 2004 advising that the Company has received an offer for its 44% shareholding in Unitrans.

The Group has advised shareholders since August 2000 that its intention was to seek a strategic solution for its investment in Unitrans. The above offer includes black economic empowerment. is subject to pre-emptive conditions over the shares.

Unitrans has subsequently announced its intention to engage in a transaction that if approved by the regulators would have the effect of diluting existing shareholders’ holdings. This decision was made without first seeking specific approval from shareholders. Murray & Roberts advises that it intends to proceed with the sale of its shares, that it is evaluating its options and that a further announcement will be made in due course.

Details of the company’s results are available in the Unitrans preliminary report published on 24 August 2004.

Acquisitions and Disposals

Acquisition of the Cementation mining contracting companies in South Africa and Canada was finalised after the year-end for a total consideration of approximately R160 million. Rights to the name have been secured in Australia.

Prospects

The Group is currently involved in tendering for a number of mega-project opportunities in Middle East and South Africa. These include major building projects and airport expansions, power generation facilities, transport systems and others.

The demand for construction materials in South Africa is expected to remain buoyant through the year ahead. It must still be tested, however, whether the risk of new investment to increase current capacity is justified by future market confidence. The Group has recently invested in upgrading the capacity of its steel mill output.

In addition to the R1,9 billion order book brought by Cementation, the Group is confident that further opportunity will materialise as mining groups expand capacity to meet increased global demand for resources. Expansion is planned for the energy generation capacity of South Africa and transport infrastructure is in need of significant upgrade to meet economic development targets. These will require increased public private partnership activity.

International markets of interest to the Group are expected to grow in line with a resurgence of economic activity in South and Southeast Asia and demand from China. The Middle East follows its own dynamic, driven primarily by energy, with increasing attention on the benefits of diversification into minerals extraction and tourism.

The directors expect that earnings for the year to 30 June 2005 will not show a material change in earnings while the Group reorganises itself to meet the objectives of Globalising Murray & Roberts.

Directorate and Management

Mr Roy Andersen was appointment chairman on I January 2004. Mr Peter Joubert and Ms Brigalia Bam retired with effect from 30 June 2004, having passed the mandatory retirement age. Mr Allen Morgan resigned on 26 July 2004 to avoid potential conflicts of interest.

Mr Roy Andersen was appointed chairman of the Nomination Committee during the year and a new chairman of the Health, Safety, Environment and Corporate Social Involvement Committee will be announced in due course, succeeding Mr Allen Morgan.

The directors have mandated an International Advisory Board to assist the board with strategic guidance in respect of the growing international activities of the Group. Appointments to this board will be notified in due course