New-look Murray & Roberts coming out of recovery

28-02-2014
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Moneyweb
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M&R will be fishing in international waters.

Construction group Murray & Roberts (M&R) is nearing the end of its three-year growth and recovery phase and will be looking towards international markets for future growth.

CEO Henry Laas, who led the recovery since his appointment early in 2011, said at the group’s interim results presentation on Thursday that most of the objectives of the growth and recovery phase have been achieved.

The group is currently working on a strategy for future growth for FY 2015 and beyond. While it is still “work in progress”, there will be an increased focus on natural resources markets. Geographically M&R will be fishing in international waters, more than in South Africa and the rest of Africa and all platforms will expand in the value chain by growing income from higher margin engineering as well as from operations and maintenance activities.

M&R is now looking quite different from when Laas took over.

In 2011 the group was battling financially and delivered huge losses. Profitability was only restored in 2013.

A R4 billion debt package was negotiated with several banks and early in 2012 R2 billion was raised through a rights issue.

Over the period it disposed of 18 companies, mostly in the construction materials sector, raising R2.8 billion. This will be completed with the expected disposal of Hall Longmore next month.

The proceeds have been used to reduce debt and after the Hall Longmore disposal has been completed long and short-term debt will have been repaid, CFO Cobus Bester told analysts on Thursday.

Almost a year ago M&R also disposed of Clough’s 36% share in Forge for R1.8 billion, replacing that income stream (R67 million in attributable earnings in 2013 H1) in December last year by buying out the minority shareholders in Clough for R4.4 billion.

Clough is a construction engineering group that operates in the oil and gas sector in Australasia.

Laas said the lag between the two transactions showed in the numbers to the extent that headline earnings per share (HEPS) for continuing operations improved by 41% over the first half of 2013. If the contribution by Forge is excluded it improved by 100%.

In the second half of FY2014 the contribution by the newly acquired minority share in Clough will boost earnings, Laas said.

The income streams from the construction materials businesses have yet to be replaced and the group has clearly indicated that it will be considering acquisitions.

Clough was the only one of M&R’s four operating platforms that achieved an operating margin (5%) within the group’s target band of 5-7.5% in the reporting period. Construction Africa and Middle East traded at an operating margin of 3% (2012:1%), Engineering Africa which largely consists of the power programme traded at 2% (2012:1%) and Construction Global and Underground Mining at 3% (2012:2%).

Clough contributed half of the group revenue of R19 billion and 66% of its earnings before interest and tax (EBIT) of R669 million.

The group’s regional platforms contributed only 30% to group revenue and 20% to EBIT. “International business is very attractive to us”, Laas said.

In a group that executes large, complex projects not everything can however be fixed in three years.

Three large claims will most probably only be concluded in FY2015, Laas said.

The delay and disruption claim relating to the late handover of the Gautrain sites has commenced and several legal issues should be settled from now until March next year. “That will give us a good idea of the legal base of our claim,” Laas said. M&R has earlier indicated that several billions of rands are at stake and he said on Thursday that a successful claim will include interest since 2001. “The interest may be more than the claim.”

In November last year the Bombela Concession Company, in which M&R is a major shareholder, was ordered to fix the water ingress problem in the Gautrain tunnel between Park station and Rosebank station. Laas said currently the group does not know what the solution is, but that international experts have been appointed and there should be more clarity by September.

A ruling relating to the Sandton cavern for the Gautrain station in favour of the Bombela Civils Joint Venture, in which M&R is a major shareholder, will be quantified in FY2015.

In the ongoing arbitration relating to the Gorgon Pioneer Materials Offloading Facility (GPMOF) in Australia some rulings were made in the group’s favour, but commercial close-out is only expected in FY2015.

An alternative settlement mechanism is considered for the dispute regarding the Dubai International Airport. If that is not achieved, the arbitration could also drag out until FY2015, Laas said.

He stated that the uncertified revenue relating to these major claims acknowledged in the financial statements are about 40% of what the group believes it is entitled to.

uncertified revenue of R1,8 billion". Sorry, but I just got the number from the CEO