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M&R says order book remains healthy, despite delayed projects

25th May 2020

By: Marleny Arnoldi

Deputy Editor Online

     

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JSE-listed engineering and construction group Murray & Roberts (M&R) says few of its projects have continued with little or no disruption as a result of Covid-19-related suspensions and restrictions.

As a result, the company is reasonably certain that its earnings per share (EPS) for the financial year ended June 30 will decrease by more than 20% year-on-year, compared with the EPS of 83c reported for the prior year ended June 30, 2019.

The group says support from clients has varied from compensation for costs incurred and time lost, to only allowing extensions of time for the delay as a result of Covid-19 regulations.

“It is expected that the commercial close out of all Covid-19-related impacts will take some time and only after some level of normality has returned,” M&R states.

Fortunately, the company entered the period of disruption with a strong balance sheet and it took early action to preserve its financial position.

At the end of March, M&R had R1.7-billion in cash available and R1.1-billion in unused credit facilities, while its net asset value was around R5.6-billion, or R13 a share.

“Looking ahead, the 2021 financial year is expected to be a tale of two halves, with the first half still having experienced effects of Covid-19 and the second half delivering a much stronger earnings response, supported by the current order book,” M&R says.

As at the end of March, the company had an order book of about R51.5-billion, with near orders of about R6.6-billion.

M&R has several tenders under adjudication and believes clients will go ahead with the award of many of these projects, despite some delays as clients are considering the effects of Covid-19 on their investment decisions.

MINING

M&R reports that Covid-19 has also had an adverse impact on demand for commodities and producers may delay capital investment decisions well into the 2021 financial year; however, the company forecasts growth from the 2022 financial year onward.

The company adds that the underground mining platform continues to increase its market share and to expand into new regions, and is focused on effective project delivery and increasing the relative contribution of its contract mining business.

Integration into the regional Americas mining businesses of Terra Nova Technologies (TNT), the international provider of above and underground materials handling solutions, acquired in the previous financial year, is complete.

Good opportunities exist to expand TNT’s services to other mining territories, such as Africa and Australasia, where the underground mining platform is well established.

Platform leadership is making good progress with the implementation of digital mine automation solutions, which are expected to create a leading advantage in underground mining in the near to medium term.

The platform order book as at end-March 2020 was about R18-billion, compared with an order book of about R22-billion in June last year and R20-billion in December last year.

OIL & GAS

M&R says a large number of new oil and gas projects are being planned globally, but are expected to be delayed owing to the prevailing weak oil price.

“The depressed situation is likely to recover in line with the pace of the post-Covid-19 economic recovery. Natural gas, renewable energy and hydropower are expected to increase as a percentage of the primary energy market, and combination power generation facilities are predicted to dominate future gas and renewable energy projects.

Nonetheless, M&R says the oil and gas platform has successfully positioned its business for strong and growing resources and infrastructure markets in Australia, which provides substantial opportunities.

Engineering and procurement services are progressing on the multibillion-rand Snowy Hydro project, in Australia and Next Wave projects, in the US.

Over and above the Covid-19 impact, the oil and gas platform results for the current financial year will be impacted by losses incurred on the multinational miner BHP non-process infrastructure concentrate handling project, in Australia ,and the now completed Enterprise project in the US, which was taken over by Clough USA, as part of the acquisition of Saulsbury’s engineering, procurement and construction (EPC) business, acquired in the previous financial year.

M&R confirms that commercial processes are under way to settle claims on both these projects.

The oil and gas order book as at the end of March was R32.9-billion, compared with an order book of R23-billion in June last year and R30.5-billion in December last year.  

POWER & WATER

The power and water business platform is experiencing a lack of work in South Africa as there have been no new project developments of scale in recent years following the Medupi and Kusile power projects.

“Structural reforms and policy certainty have been established through the issuing of the Integrated Resource Plan 2050 and Round 5 of the Renewable Energy Independent Power Producer Procurement Programme, although the timing of the underlying projects remains uncertain,” M&R says.

The company further explains that the power transmission and distribution sector in both South Africa and sub-Saharan Africa presents a large pipeline of prospects.

OptiPower, which M&R acquired in the current financial year, is well positioned to take advantage of these opportunities.

The business platform has been awarded the Athlone wastewater project, in Cape Town, and continues to focus its efforts on securing additional work out of the City of Cape Town’s water resilience pipeline of projects.

“The successful performance of the Organica wastewater treatment demonstration plant at Verulam has positioned this technology favourably in the local market, with an in-principle agreement to relocate the facility to the V&A Waterfront.

“Meanwhile, the Mozambique Liquid Natural Gas Area 1 project has entered its execution phase, presenting the largest opportunity to the platform. The main EPC contractors have been appointed and the business platform is well positioned to respond to tenders for selected work packages. The first awards are expected towards the end of the 2021 financial year,” M&R points out.

The power and water platform order book at the end of March was R600-million, compared with R900-million in June last year and R600-million in December last year.  

M&R continues with a concerted effort to close all outstanding commercial matters related to its business in the Middle East, which was classified as a discontinued operation during the current financial year.

“The two remaining significant matters to be settled are the commercial close-out of the Dubai International Airport project and the Shaikh Shakhbout Medical City (Mafraq Hospital) project, in Abu Dhabi.

“It is expected that final commercial outcomes will support the group’s adopted accounting position,” M&R concludes.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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