Despite achieving a small operating profit for the first quarter of the current financial year, construction firm Murray & Roberts’ (M&R’s) Africa and Middle East construction platforms continue to experience difficult market conditions and pressure on margins, after emerging from a protracted period of operational, market and leadership instability.

The construction major reported in a business update on Wednesday that the division was further impacted by industry-wide labour strikes in September, while the short-term economic outlook for the local civil engineering sector remained weak.

On the upside, several new awards and variations on existing contracts had strengthened the order book in the buildings sector, leaving the group “encouraged” that the pipeline of opportunity in the roads and earthworks sectors was improving.

“The platform remains well positioned to participate in any projects that come to market. However, at this stage, new tender documents for major infrastructure projects have not yet been issued by the South African government,” the company stated.

AFRICA ENGINEERING

The group’s Engineering Africa division, meanwhile, continued to perform in line with expectations after being reorganised and refocused.

Within this division, the Murray & Roberts Projects business continued to focus on the power and energy sectors and remained largely dependent on the Medupi and Kusile power station projects.

The group’s Genrec Engineering business continued to perform well, while its new business, Murray & Roberts Water, was in the process of finalising a joint venture (JV) with technology provider Hyflux, from Singapore. 

“In the short to medium term, Engineering Africa will continue to position itself for new opportunities in the nuclear and renewable energy, water, minerals and oil and gas market segments,” the group noted.

GLOBAL UNDERGROUND MINING

The Construction Global Underground Mining platform experienced difficult market conditions during the first quarter of the current financial year owing to reduced capital expenditure by mining companies, which manifested in project delays, cancellations and scope reduction.

Despite the slowdown in mining activity, M&R asserted that there were signs that tendering activity was picking up. 

In the African operations, good progress had been made on turning previous loss-making projects around, with only one loss-making project remaining.

Several large tenders were awaiting adjudication, while financial and commercial close on the Venetia project, owned by diamond miner De Beers, were still under way. 

Meanwhile, after several years of strong growth, Cementation Canada and Cementation US were facing more challenging market conditions, although new awards in the US were “imminent”.

With little upturn expected in the Australian market, RUC Cementation was expanding its reach into the Asia Pacific region and new projects had been secured in the Philippines and Indonesia.

Commercial close on these projects were under way, after which they were expected to be converted to firm orders. 

AUSTRALASIA OIL, GAS AND MINERALS

The company further reported that the Construction Australasia Oil and Gas and Minerals platform, comprising Clough, continued to perform well, remaining focused on brownfield capital expenditure, commissioning and asset support and maintenance markets.

In July, M&R announced its intention to acquire all of the outstanding ordinary shares in Clough, in which it was a 61.6% shareholder.

The proposed acquisition remained subject to shareholder approval, but was expected to be concluded towards the end of 2013.

Meanwhile, the recently established Clough Coens Commissioning and Completions JV between Clough (55%) and Coens Energy (45%) had already begun delivering revenue through its specialised commissioning and completions services to the world’s largest fabrication yards in Korea and China. 

Clough would continue to focus on extending the business’ geographic footprint, and was exploring opportunities to leverage the capabilities of associated M&R companies – notably the group’s experience in the field of marine engineering – for liquefied natural gas opportunities in Africa. 

Over the medium term, Clough aimed to re-enter the mining and minerals sector, growing revenue from this sector.

COLLUSIVE TENDERING

Further, in a bid to settle five remaining historical incidents of collusive conduct that did not form part of the Fast Track Settlement Process (FTSP), M&R submitted a settlement proposal regarding these outstanding incidents.

The group had also requested that the Competition Commission provide the company with evidence relating to the collusive conduct of six previous directors of subsidiary companies that had been implicated during the FTSP.

“Together with our legal advisors, we await this information to assess what further action could be taken against these individuals. None of the group’s current executives and employees have been implicated in the FTSP, and the implicated six previous directors all resigned from the group between 2004 and 2010,” the company stated.

DISPOSAL OF NONCORE ASSETS 

Following an announcement in June, M&R successfully disposed of its Construction Products Africa manufacturing businesses on October 31, receiving R1.15-billion of the total consideration.

The outstanding balance of R175-million would be received over 24 months. 

“Negotiations with potential buyers for the sale of the remaining Hall Longmore businesses are at an advanced stage and shareholders will be advised in due course of the outcome thereof,” the company added.

Looking ahead, the board said it expected the group’s positive earnings trend to continue in the medium to long term, driven mainly by its international operations.