M&R chairman on the R1.5bn headline loss

incredibly complex to sort out contracts, legal and accounting issues.

johannesburg - murray & roberts took losses on five major contracts totalling r1.97bn in the year to june but has claims on contracts of a similar amount.

the hope is that these claims will be settled under arbitration and enable write-backs in the future but the legal, accounting and engineering issues are hugely complex, says chairman roy andersen (pictured).

“when it came to presenting the results” he told moneyweb, “we used the top outside consultants in engineering, accounting and law. these contracts are immensely complex. the gautrain contract, for instance, involved 30 building sites and 30 contracts.”

andersen’s message is that the profit write-downs were properly considered, not ill-advised or designed to help the new management team stage a great comeback.

shareholders will be delighted to receive anything out of contract claims but even if they are paid in full, it means the contracts were only break even.

the bombela consortium did well to open the sandton-or tambo line in time for the world cup. it is a bit late on the rest of the gautrain, which will be completed by december. as a result, there will be significant penalties. there is also a water ingress that needs to be rectified.

these will result not only in further losses but in m&r’s liquidity deteriorating after improving by r1bn from december to june. legal costs have also been horrendous.

andersen felt it inappropriate to comment too much on the results. he said this was normally the responsibility of the ceo but henry laas has been ceo only since july and much of the drama that has unfolded was on andersen’s watch.

it is one thing to have contract losses on gautrain but what about losses on the dubai airport, the gorgon pioneer materials offloading contact (loss of r582m), the dubai airport and construction products, where r79m was written off? the gpmof gas project on barrel island off australia was undertaken by m&r marine at a loss of r75m.

i asked andersen if bruce and rees jumped or were pushed.

“we mutually agreed that it was the right time for them to take retirement.”

why were henry laas and cobus bester chosen as ceo and cfo respectively?

henry ran cementation, the most successful subsidiary. he has extensive experience in sa, canada, chile, australia and other countries. cobus came out of concor, another great operation.”

andersen stepped down as chairman of sanlam only a few months ago. his task in the past few months at m&r has been “hard and extremely complex”.

interviewed by alec hogg on safm (naa 6887), laas said the gauteng contract was at a fixed price. problems started early when access to the site was delayed.

he explained that “loser’s fees” were the main transgression of competition law. the winner of a tender would pay the losers on the grounds that losers did not recover tender costs. still, said laas, it was a terrible thing that should never have happened. he did stress that the competition transgressions date back a decade. neither he nor andersen would volunteer a figure on the possible fine.

one consolation is that m&r continues to win contracts. the order book is up to r55bn from r44bn. a vital part of laas’s recovery and growth programme is to handle risk management more professionally.

in his last ceo’s report bruce wrote that “murray & roberts ends the first decade of the 21st century significantly different and in better condition than through the 1990s, perhaps in its history.”

he pointed out that the order book had increased 14 times to r42bn, revenues four times to r32bn and operating profit 26 times to r2.4bn. he did acknowledge the challenge of accounting for revenues earned relative to cash received.

a study of the 15 year track record largely bears him out. under the former administration m&r was in and out of profit from year to year. losses were sustained in 1997, 1999 and 2000 and the best taxed profit was only r518m in 1998.

bruce’s administration had the benefit of a huge construction boom until 2008 not only in sa but also in the middle east, australia and other theatres. revenues rocketed from r10.7bn in 2006 to r32.7bn in 2009. from 2002 to 2006 taxed profit ranged around r500m a year before soaring to r1.7bn in 2008 and r2bn in 2009.

the r1.5bn loss just published underlines that construction is highly cyclical. it also suggests that in some cases revenue earned was published before cash was received. the share price hardly flinched on thursday, suggesting that the new administration is expected to repeat the improvement in m&r’s future fortunes. the prospect of recoveries from arbitration in the next three years and the order book of r55bn also appear to underpin the share at the moment.

david carte