A quarterly project review process by JSE-listed construction and engineering group Murray & Roberts (M&R) has found that two projects in its energy, resources and infrastructure (ERI) platform are more costly to complete than previously estimated and require certain claims-related adjustments to be made.

This will result in lower profit margins for both projects and, therefore, drag significantly on the group’s financial results for the six months ending December 31.

The impact from this margin deterioration is that profits recognised on these projects in previous financial years would have to be reversed, which would lead to the group’s next set of financial results to be more than 100% down on the prior comparable period.

The reversal of previously recognised profits also impacts on working capital.

M&R confirms it continues discussions with the clients related to the two problem contracts, Traveler alkylate and Waitsia gas plant, in the US and Australia, respectively, which should both be completed by the end of June next year.

Further, the ERI platform continues to experience disruption in supply chain delivery and delays in project milestone payments on several projects.

This has had a material impact on project profit margins and has put pressure on working capital requirements.

The company is considering several strategic options to address the ERI platform’s ongoing and urgent cashflow needs, but raising new capital is not being contemplated at the moment. 

Moreover, M&R has advised of its ERI platform’s order book having reduced to R35.4-billion as at the end of September, compared with R37.3-billion at the end of June.

However, the company’s mining platform recorded an increase in its order book to R22.2-billion at the end of September, compared with R21.9-billion at the end of June.

M&R’s power, industrial and water platform also took a knock to its order book, reducing to R300-million at the end of September, compared with R400-million at the end of June.

The company explains that, given the fast-changing operating environment globally, it is in the process of reorganising and restructuring its mining platform to drive greater collaboration with common systems, global metrics, shared resources and centres of excellence.

M&R says the price outlook for most major commodities remains strong in the medium term, which should drive growth in mining investment – particularly brownfield expansion, production optimisation and the restart of operations.

The company’s order book will also benefit from price increases of commodities as decarbonisation-related demand for minerals increases.

The power, industrial and water platform continues to face challenging market conditions, but M&R is confident that several work packages will be secured in the near term.

“The current emphasis on increasing investment in utility-scale renewable energy projects is expected to enable the platform to return to profitability in the near term,” M&R states.

The company also affirms that the disposal of its 50% non-strategic shareholding in the Bombela Concession Company is progressing well, with several parties having expressed an interest in acquiring the shareholding

The proceeds from the disposal will be used to reduce the group’s debt in South Africa.