Although JSE-listed engineering and construction group Murray & Roberts’ (M&R’s) power and water and oil and gas segments’ contributions were 'insufficient' for the six months ended December 31, 2018, the group made an active effort to achieve acquisitive growth to complement organic growth and offset order delays.
The company on Wednesday reported a 17% year-on-year drop in interim revenue to R9.8-billion, while its diluted continuing headline earnings per share fell by 2% to 54c, as a result of oil and gas and power and water contract delays and market conditions.
Since the start of the second half of the 2019 financial year, M&R has acquired a US-based engineering, procurement and construction (EPC) business from Saulsbury Industries, which M&R says has EPC capability for projects of up to $500-million.
“Albeit a small acquisition, valued at $5.2-million, it is strategically significant. This acquisition of an oil and gas EPC contractor, based in Houston, gives the oil and gas platform the ability to deliver projects into a strongly growing market in the US,” notes M&R CEO Henry Laas.
The company also acquired, shortly after the reporting period, South Africa-based Optipower for R37-million.
“This acquisition takes the power and water platform firmly into the transmission, distribution and substation sectors of the power market. Eskom requires extensive transmission work in South Africa, with 300 km of 400 kV overhead line currently out on enquiry.
“Several other transmission opportunities are actively being pursued in sub-Saharan Africa, including Mozambique, Kenya, Ghana, Angola and Uganda,” M&R pointed out.
Moreover, the company announced on Wednesday that its order book rose to R31.7-billion in the reporting period, compared with R22-billion in the prior comparable period, of which its underground mining platform constitutes R25.7-billion.
The underground mining platform is engaged in projects in Australia, Indonesia, Mongolia, the US, Canada, Mexico, Zambia and South Africa. Current projects include 18 vertical shaft sinking and equipping projects, 21 decline shaft and mine development projects, eight contract mining projects and 13 support and construction services projects.
Additionally, the mining platform has 37 raise drilling machines that are deployed in various locations around the world.
In the reporting period, M&R’s capital expenditure was R357-million, compared with R178-million in the prior comparable period, of which R340-million was for expansion and R17-million for replacement.
Meanwhile, M&R expects improved market conditions for the oil and gas platform during the second half of the financial year. The company believes it has a 95% chance of securing the order on tenders where it is the preferred bidder.
Additionally, the company says many opportunities are still in prefeasibility stage and will only realise in around 36 months, but are in the pipeline.
“New opportunities in the liquefied natural gas (LNG) market in Australia remain limited, although, globally, new supply capacity must be developed to meet forecast demand as from 2021/22. The platform is targeting potential LNG projects in the US, Canada, Mozambique and Papua New Guinea,” M&R adds.
Recently, the Clough-Salini joint venture (JV) was selected as the preferred tenderer for the civil work packages on the multibillion-dollar Snowy 2.0 project in Australia.
Clough has a 35% share in the JV. Formal award of this project is expected during the second half of the financial year.
The platform also secured the A$130-million BHP Billiton ore handling plant project, in Australia. The project scope includes structural, mechanical, piping, electrical and instrumentation work, as well as interconnecting conveyors and transfer stations.
These two projects are expected to contribute towards earnings in the 2020 financial year.
For the power and water platform, the scope of work on the Medupi power station has been completed and its work on the Kusile power station will continue into the 2020 financial year.
M&R says the Baseload Coal Independent Power Producer Procurement Programme in South Africa continues to be delayed – in anticipation of the updated Integrated Resource Plan in the next few months – and, as a result, the platform is targeting opportunities in other sectors of the power market.
To this end, the company has submitted several tenders in sectors including power plant repair and maintenance work, as well as high-voltage transmission infrastructure in South Africa and other sub-Saharan Africa countries.
The company notes that investment in the local water sector continues to be limited and fragmented, notwithstanding increasing pressure to upgrade dysfunctional muncicipal wastewater treatment plants.
“Two projects were recently secured in complementary markets, at a combined value of R600-million; work on a sulphur dioxide abatement facility for Anglo American Platinum and the erection of a recovery boiler for Sappi. These were two of the larger projects available, which is indicative of current market conditions,” M&R highlights.
“Currently, opportunities are being pursued in selected complementary market segments, which mitigates the impact of down cycles in core market segments. M&R is committed to drive sustainable growth and remains confident that its growth plans over the medium term are achievable, factoring in the constraints of current market dynamics.”
The company expects takeover certificates for the final four projects completed by its Middle East business by the end April, after which the business will close. The Dubai Airport arbitration panel is expected to make its award by March 31.
Laas anticipates M&R's order book to increase to around R40-billion by June.
Meanwhile, German company ATON’s mandatory buyout offer at R17 apiece for all M&R shares remains subject to certain suspensive conditions. Conditional merger approval has been obtained in Zambia and unconditional approval in Namibia, while merger approval is still under consideration by relevant authorities in South Africa and Canada.
Laas explains that the long-stop date for the offer is March 31, which ATON may elect to extend or make its offer unconditional. Should ATON make its offer unconditional, M&R shareholders have 10 working days to accept the offer, should they choose to accept the offer. He adds it is unlikely that the approvals by the South African and Canadian authorities will be done by March 31, and the company awaits ATON's next announcement.