International units underpin M&R’s current and future growth prospects

14th March 2014

By: Terence Creamer

Creamer Media Editor

  

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JSE-listed Murray & Roberts (M&R), a company synonymous with the South African construction industry, is increasingly deriving the bulk of its earnings from offshore operations, while its future fortunes are also increasingly tied to non-South African prospects, especially in the global natural resources sector.

In the six months to December 31, 2013, nearly 70% of the R19-billion in revenue arose from its international businesses, most notably Clough, of Australia, which contributed R9.6-billion. M&R completed a R4.4-billion buy-out of the Clough minorities in December, after which the company was delisted from the ASX.

The group’s Australian and North American operations also provided the lion’s share of earnings before interest and taxation, with its African and Middle Eastern businesses contributing only 20%.

Globally derived earnings also underpinned a strong rise in attributable profit for the period to R724-million, up from R262-million a year earlier – a return bolstered by profit from the disposal of its construction products businesses in October last year.

Disposals

The disposal of Much Asphalt, Ocon Bricks and Rocla realised R1.33-billion, increasing to nearly R5-billion with the proceeds from various disposals over the last three years. Only the disposal of Hall Longmore remains outstanding, which CEO Henry Laas expects should be finalised during March at around “net book value”, which stands at R444-million.

M&R ended the period with an order backlog of R44.9-billion, which was lower than the R48.3-billion reported at the end of 2012. Again, Clough, whose order book shrank modestly to R20.4-billion, is the largest single contributor, with the collective Africa and Middle East backlog standing at R14.8-billion.

The company is yet to finalise the strategic framework that will follow on from its three-year ‘recovery and growth’ strategy, which expires on June 30. But Laas, who has presided over the recovery of a business that faced serious liquidity challenges in 2011 (stabilised through the raising of bank loans and through a rights issue), indicates that the group’s future growth will be strongly associated with its international oil and gas interests, as well as global underground mining prospects.

He says the aspiration is to have the new-look strategy in place by the start of its 2015 financial year on July 1. However, the board will not be overly schedule driven in determining M&R’s future course.

Nevertheless, both Laas and the group’s new chairperson, Mahlape Sello, insist that Clough is going to be an important future driver, along with the other international businesses and its growing portfolio of African oper-ations.

M&R is pushing ahead with a ‘hub-and-spoke’ growth plan from Africa, with Ghana serving as its hub for West Africa, and Zambia for Central Africa. It is also in the process of opening an office in Maputo, Mozambique, which is likely to draw heavily on Clough’s experience in pursuing the vast oil and gas opportunities opening up in that country and in other East African countries.

“We are really keen to grow our oil and gas interests, which for now is only Clough – we would like to see more than one business in that platform,” Laas outlines, adding that, following the reorganisation of the group, it is once again acquisitive. It ended the period with net cash of R2-billion, up from R1.1-billion.

Another likely shift in strategic emphasis could be an increasing focus on higher-margin construction and engineering opportunities rather than “construction works”, which currently makes up about 80% of the company’s activities.

“It is really very difficult to differentiate yourself in the construction space, it’s like a commodity and is very competitive and very low margin,” Laas noted.

He is particularly keen to grow M&R’s operations and maintenance offering in the oil and gas and mining sectors, but says the new strategy is likely to also emphasise project development and design and planning and engineering.

Outstanding Cases

More immediately, attention is also being given to settling outstanding cases arising from the South African competition authority’s findings of anticompetitive behaviour against M&R and to try and clawback, or settle, large outstanding claims.

Laas says he is hopeful that M&R will be able to settle the five remaining collusive-conduct cases excluded from the Competition Commission’s fast-track settlement process, while also pursuing actions against the six former directors implicated in collusion.

It is also hoping to settle or conclude out- standing cases related to the Gautrain rail project, the Gorgon Pioneer Material Offloading Facility project, in Australia, and the Dubai International Airport, in the UAE. The uncertified revenue associated with these outstanding matters currently stands at R1.8-billion, which Laas says is consider- ably lower than the estimated value of the claims.

Edited by Creamer Media Reporter

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