| 25-02-2004 |
| Murray & Roberts Results for the six months to 31 December 2003 |
SALIENT POINTS
In an environment of challenging market conditions, Murray & Roberts has delivered healthy results for the six months to 31 December 2003. The Group has maintained headline earnings on lower revenues and operating profits. Demonstrating an ongoing focus on the performance commitment contained in its Rebuilding Murray & Roberts strategy, the Group says it is confident that the progress achieved to date provides sufficient impetus to engage the current challenges. Furthermore, the Group states that it is on track to maintain a return above 20% on average shareholders’ funds in the full year to 30 June 2003 and it has maintained an interim dividend at 15 cents per share. Adverse market conditions have slowed the pace of Rebuilding Murray & Roberts in the period under review, with the strong SA Rand a major cause of the 20% reduction in revenues to R4,2 billion (2002: R5,2 billion). The operating margin of 4,5% (2002: 5%) reflects pressure on manufacturing profits and challenging market conditions in international construction. Headline earnings have been maintained at 71 cents per share (2002: 71 cents per share) off an operating profit (EBIT) of R187 million, which is 28% down (2002: R261 million), and a significant improvement of R66 million in net interest received, compared with the same period in the previous year. Commenting on the results, Group CE Brian Bruce said: “We have maintained focus on our performance commitment in what has become a challenging year for Murray & Roberts and our associated industries. “The general level of construction activity in South Africa has remained buoyant but new investment in major projects has stalled under the local impact of a weakened US Dollar and domestic investment uncertainty. “Manufacturing from South Africa has become relatively expensive for global markets, intensifying our internal focus on product and process improvement. International engineering and construction markets still offer focused opportunity but local country conditions increasingly dominate project risks. We are cautious on the rest of Africa, positive on Australasia and have increased our market capability in the Middle East. “With China set to dominate trade and investment affecting our sector over the next decade at least, Murray & Roberts is actively seeking new opportunities to access the potential of this growing market.” Surplus funds in the Group’s international treasury were redeployed to strengthen the balance sheets of selected offshore operations with effect from 1 January 2003. No loss arose in the income statement during the period under review, compared with an unrealised currency loss of R49 million during the same period in the previous year. Operating cash flow was a positive R94 million compared to R23 million negative in the previous corresponding period. Included in the working capital increase of R156 million (2002: R359 million) is the settlement of a troublesome property headlease at a cost of R42 million, which had been provided in a previous period. Performance In the Business Update presented to shareholders at the annual general meeting in October 2003, Murray & Roberts defined the environmental framework for its performance in the current financial year. It was noted that order books were under pressure in some sectors and that specific international contracting risks had increased. The average exchange rate for the period under review was R6,99 to the US Dollar, a reduction of 33% compared with the corresponding period last year. The Group’s project order book stood at R4 billion at 31 December 2003, down 12% in real terms in the first six months of the year. Almost half of this reduction is the result of awarded projects being terminated in the South African mining sector. Rationalisation and cost reduction measures continued throughout the projects sector, enabling the Group to remain selective in its pursuit of quality opportunity. A reversal in operating profit of R8 million in the roads sector and R30 million in the Middle East compared with the same period last year reflects the extent of problems experienced in these international contracting markets. As a result, construction operations delivered a reduced operating profit of R32 million (2002: R68 million) on revenues of R1,75 billion (2002: R2 billion) at a margin of 1,8% (2002: 3,4%). Continued buoyancy in the domestic general construction economy allowed the construction services and material supplies sector to deliver operating profits of R118 million (2002: R112 million) on revenues of R1,33 billion (2002: R1,51 billion) at a margin of 8,9% (2002: 7,4%). Demand for various forms of steel product is under pressure, with pricing issues impacting comparative affordability in the sector. Improved performance from mechanical, electrical and instrumentation contracting enabled the engineering contracting and services sector to deliver operating profits of R46 million (2002: R 44 million) on revenues of R337 million (2002: R511 million) at a margin of 13,6% (2002: 8,6%). The dearth of new project opportunity in this sector represents one of the Group’s critical challenges in the immediate future. The relative strength of the SA Rand against currencies in the Group’s
principal export markets has impacted severely on domestic manufacturing
competitiveness. The manufacture and supply of automotive and transport products
delivered lower operating profits at R24 million (2002: R60 million) on revenues
of R484 million (2002: R670 million) at a margin of 5% (2002: 9%). The tank
container market has suffered particular distress, inflicting a reversal of R40
million compared to the previous year. Foundries operations are hedged and have
maintained performance. Cash on hand is R1,08 billion, again reflecting the conversion impact of a stronger SA Rand and the first-half increase in working capital. Approximately half of the Group’s cash is denominated in hard currencies, which are required to support the performance bond and guarantee requirements of international contracting activities. Associate Unitrans Limited, in which the Group has a 44,7% interest, delivered headline earnings up 15% at R138 million (2002: R120 million) on revenues of R4,4 billion (2002: R3,7 billion). Attributable earnings grew to R131 million (2002: R112 million) Details are available in the Unitrans interim report published on 24 February 2004. Exceptional Items Trading in the property headlease portfolio has been within budget through the current period and no additional provision is necessary at this stage. Acquisitions and Disposals Completion is imminent on transactions to dispose of the Elgin and Pefco industrial services companies based in Durban. These transactions will be concluded at net asset value. Following due diligence, Murray & Roberts is finalising an offer for the acquisition of 79,13% of the shares of The Cementation Company Africa Limited and 100% of the mining contracting business of Cementation in Australia and Canada. The transaction remains subject to approval by the South African competition authorities and the JSE Securities Exchange South Africa. Prospects Rebuilding Murray & Roberts remains an absolute focus for the Board and executive management of the Group. The directors are confident that the work to date provides sufficient impetus to engage the challenges presented by difficult market conditions. Of particular emphasis will be a focus on market development and order book to secure the Group’s commitment to sustainable earnings growth and value creation. The prospects statement in the annual report and the business update at the annual general meeting cautioned investors of current uncertainty in the Group’s markets. In this respect, the domestic mining and industrial sector continues to offer limited major project opportunity. Manufacturing for export will remain marginal through the remainder of the financial year, whereas the general construction economy shows signs of sufficient activity to support current levels of activity in the Group’s supplies and services business. Headline earnings for the full year to 30 June 2004 are not expected to be significantly different to the prior year. Directorate Roy Andersen became chairman of the board on 1 January 2004 following the retirement of David Brink and, in terms of the JSE listing requirements, will replace Peter Joubert as chairman of the Nominations Committee. Boetie van Zyl suceeds David Brink as chairman of the Remuneration and Human Resources Committee.
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