M&R holds on to shrinking South African unit amid hopes of infrastructure-led recovery

27th August 2020

By: Terence Creamer

Creamer Media Editor

     

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JSE-listed engineering and construction group Murray & Roberts (M&R) is “holding on” to its South African-aligned business unit that focuses on power, industrial and water despite the fact that its contribution to the group’s R54.2-billion order book has slumped to less than one percent, or only R400-million.

By contrast, M&R’s energy, resources and infrastructure platform, which is headquartered in Australia, but also has global activities, reported a record order book of R34.4-billion at the end of June, which helped lift M&R’s overall order book to its highest level in 15 years.

The group’s mining platform, meanwhile, had a backlog of nearly R19.4-billion, down from the R22.8-billion backlog reported in June last year. The sub-Saharan Africa portion of the group’s mining order book helped lift the region’s overall contribution to 24%, with the balance of the backlog associated with projects in Australasia, North America, Europe and Asia-Pacific.

Orders attributable to the power, industrial and water platform, meanwhile, have been shrinking as work related to the giant Medupi and Kusile coal power stations has tapered in recent years.

CEO Henry Laas says questions continue to be asked as to why the group, which has been restructured into a specialised, multinational engineering and construction group and which sold its South African building and construction unit in 2018, continues to retain its power, industrial and water platform, which operates exclusively in the Southern African market.

“My standard answer is that we will hold on to this business for as long as it doesn’t cost us too much money, purely because of the opportunity that we believe exists in South Africa if we can get to a point that there is investment happening again.”

Laas believes there is particular opportunity in the water sector, where billions of rand needs to be spent to repair and expand the country’s water infrastructure.

Likewise, large investments are required across generation, transmission and distribution to address the country’s power crisis.

“In the short-term, however, the only real opportunity that we see is in the overland transmission and distribution sector and you will recall that we have acquired, in the past year, a company called Optipower, which provides this type of service.

“There is quite a big value of work that is out on tender from Eskom that hasn’t been adjudicated yet, but we believe we are well positioned to secure a sizeable portion of that.”

In the medium term, M&R is also positioning itself to participate in the liquefied natural gas (LNG) developments unfolding in northern Mozambique.

Despite serious security concerns, a Total-led consortium is moving ahead with a $20-billion project to develop the Golfinho and Atum gasfields and to build a two-train liquefaction plant with a yearly capacity of 13.1-million tons of LNG. The project is scheduled to enter production by 2024.

“The work we are positioning ourselves for is not going to impact our business before our 2022 financial year,” Laas reports.

M&R estimates its near-term project pipeline in South Africa at R9.8-billion, which remains modest relative to pipelines of R66.4-billion and R45.1-billion across its energy, resources and infrastructure and its mining platforms respectively.

“Nevertheless, we are hopeful that the decision by government to invest in infrastructure as a means of reigniting the South African economy will materialise and that that will present opportunity for this platform,” Laas says.

“Unfortunately, there is limited investment happening in South Africa as we speak, so we do expect that there will be a bit of a dry season maybe for the next 6 to 12 months due to a lack of project opportunity.

“That is reflected in the platform’s order book which declined to R400-million from R900-million in 2019. When you compare that to the other two platforms, it really is just a drop in the ocean.”

Edited by Creamer Media Reporter

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