Murray & Roberts (M&R) CEO Henry Laas views ATM Holding’s acquisition of a 25.5% shareholding in M&R, as “an opportunity, not a threat”.
“I’m pretty relaxed about what is happening.”
Speaking on Thursday at the company’s financial results announcement for the six months ended December 31, in Ekurhuleni, Laas said M&R was notified of the share acquisition on February 21.
“Other than the formal notification received, we have not received any further communication regarding their investment in M&R.
“I have written a letter welcoming them and asked for further engagement so we can talk about their investment.”
The German ATM Holding, which is now M&R’s largest shareholder, is owned by private investment holding company Aton, which invests in the mining, engineering, aviation and health technology sectors.
M&R is familiar with the company. M&R in 2010 engaged Aton in London on M&R possibly acquiring Aton’s Redpath mining business, noted Laas. Discussions happened again – “with more intent” – in 2015 and 2016, again on combining Redpath and M&R’s underground mining business platform, but also with no success.
An evolving M&R faced a tough six months to the end of December, with revenue from continuing operations declining to R10.7-billion, compared with the R13-billion reported for the same period in 2015.
The group also reported a loss for the period of R60-million, compared with a R376-million profit in the same period in 2015.
The company was hit by a decline in earnings from its Oil & Gas platform (R172-million), a cost increase to close out projects and the business in the Middle East (R130-million) and foreign exchange movements (R244-million).
The group also faced a once-off charge of R170-million in terms of an agreement between seven construction firms and the South African government, following a collusion investigation into the local construction sector. The money will be directed towards a fund set up to accelerate transformation within the South African construction industry.
The group’s order book for continuing operations totalled R24.5-billion, down from the R35.2-billion reported in December 2015.
Other significant developments in what have been an eventful few months for M&R, include the settlement of all outstanding Gautrain construction disputes.
In terms of the agreement, the Gauteng provincial government paid an upfront amount of R980-million, with a further payment to be received over a two-year period of a capped amount of R294-million. M&R’s share in the settlement value is 50%.
The company has also received approval to transfer the company’s subsector listing on the JSE from ‘Heavy Construction’ to ‘Diversified Industrial’. The change in sector will be effective from March 20.
This move comes on the back of M&R’s desire to be a “leading multinational group that applies its project lifecycle capabilities to optimise fixed capital investment”.
Laas said the move should signal that “the investment case around M&R has changed completely. M&R is very different today than what it was a couple of years ago.”
M&R will no longer execute the type of projects the group is typically associated with, such as the Gautrain rail link or Dubai Airport.
These were “fantastic projects, but they did not turn out well for the group”, said Laas.
Post the sale of its Southern African infrastructure and building businesses and steel fabrication unit Genrec, the group will focus on selected global oil and gas, metals and minerals, and power and water market sectors.
As part of this transformation process, M&R last year entered into a R314-million agreement to sell its Southern African infrastructure and building business to a black-empowered entity known as Firefly Investments, led by the Southern Palace Group.
The settlement agreement reached between government and the construction sector also required companies to either develop emerging contractors, or to dispose of a significant share of their local construction business to black South Africans.
M&R elected to sell its Southern African infrastructure and building businesses in full.
M&R’s interests in the Bombela Concession Company, the Bombela Civils Joint Venture, Bombela Operating Company – all to do with the Gautrain – and Murray & Roberts Middle East have been excluded from the sale, along with liabilities for certain contracts.
Competition Commission approval is the only material condition still to be met for the transaction to be completed.
It is expected that the transaction should be completed before the end of the current financial year.
As at the end of December, the group’s uncertified revenue totalled R1-billion (December 2015: R2-billion), and is primarily represented by the group’s claims on projects in the Middle East.
The arbitration process regarding the Dubai International Airport claim have hearing dates scheduled for April to May, and
October to November.
Subject to a change in hearing dates, an outcome is expected by February, next year.
The group will wrap up its last projects in the Middle East and then exit the region.
“The Middle East is the only remaining burden we have remaining in the group,” said Laas.
In November 2015, the Department of Labour instituted a Section 32 Inquiry into the Grayston pedestrian bridge collapse, to determine the cause or causes of the collapse of the temporary works structure.
The Inquiry is due to resume on March 27.
The direct financial impact of this incident is not expected to be material considering the group’s comprehensive insurance cover.
M&R expects the current difficult trading conditions to continue in the short to medium term, with the current financial year turning out to be more challenging than the past year.
The natural resources market sectors are cyclical and the group is well positioned for the upcycle, said Laas.
“I think we are getting to the point where we are building some optimism in the commodities sector. It appears to me the broad consensus is that we are getting to the point where commodities are pulling out of the vortex.”
A recovery in oil and gas will take longer as the liquefied natural gas market is expected to remain well supplied until 2022.