Murray & Roberts interims to end-December

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SIMON BROWN: I’m chatting with Henry Laas, CEO of Murray & Roberts. Results out for the six months ending December. A lot of moving parts in the results. Perhaps the key number is the [diluted headline loss per share from continuing operations] of 30 cents/share.

Henry, a very, very tough six months. We thought the pandemic with its lockdowns was going to be hard, but [it was] really tough, particularly on Murray & Roberts. How is your liquidity situation, because that’s been fairly critical over the period?

HENRY LAAS: It is quite critical. But I think just for context, during the past three years – culminating in the last six months – we suffered the devastating impact of the pandemic and the war in Ukraine on our portfolio of large-fixed price contracts in Clough [Australia]. The impact was really evident in the disruption in our supply chain, which resulted in delays to project schedules and associated deferral of milestone payments, and then also the impact of global inflation. Now, if you have large fixed-price contracts that are exposed to these impacts it’s going to be very, very difficult to manage that, and ultimately the impact came through in our liquidity. And in October last year it became more evident [as to] what the pressure was on cash flows. We realised at that time that the group was not able to make a capital injection into Clough, which resulted in us placing that business into voluntary administration, and that is now lost to the group.

But yes, we sit with a tight liquidity position and one of our first efforts to reduce that pressure is to sell our investment in the Bombela Concession Company, BCC. That transaction has progressed [well]. It hopefully could be fully implemented towards the end of March and that would bring some relief.

But I think the challenge that we have is with the loss of the businesses in Australia, Clough, and also one of the mining companies that was locked up in the same company structure. The remaining cash-generating units in the group are much smaller than we had before. So we are navigating a difficult time. We think we can manage it, but things are tight.

SIMON BROWN: You’ve got about R2 billion [in] net debt that the sale of Bombela takes down to around R700 million, a back-of-a-matchbox [calculation]. I take your point – tight, but tight and manageable.

HENRY LAAS: Yes. I think it is manageable. The proceeds from the disposal of BCC – if we apply those to reducing our debt we estimate that our annual interest charge will reduce by about R95 million. Having said that, it is manageable, but very tight.

SIMON BROWN: Your key remaining business is the mining platform which Murray & Roberts started moving into a number of years ago. It’s about a R14 billion-odd order book that’s mostly in North America, is it not?

HENRY LAAS: Yes, it is. It’s a very stable business. It is a mature business, and it is a business that has constantly delivered well for the group over many, many years. The international aspects or geographies where we have operated [included] Australia, and that business in Australia we’ve also lost, because it was under the same holding company as Clough in that region. So the remaining businesses are the ones in the US and in Canada. And then we have one in South Africa. So three mining companies in two main geographic regions.

Then we have our power, industrial and water [PIW] business, which is predominantly focusing on the power and energy sector where we have opportunity in the renewable energy space in South Africa. So essentially the bulk of the business is in mining, and we have a small footprint in the renewable energy sector in South Africa.

SIMON BROWN: The mining order book, as I said, is R14.1 billion – that’s the order book and then of course there’s near and other orders coming. That must be fairly stable. You call it ‘mature’. It’s fairly stable. In particular, prices are helping that sector. It must give you a fair bit of visibility.

HENRY LAAS: Yes, I think so. When you look at our continuing operations, our mining company has actually done very well in the first six months of this year, compared to the prior year. And we expect that momentum to be maintained into the second half of the year. And the order book at R14 billion is a little bit down on what it was last year this time. But you win orders, and they don’t come through on a daily basis. They sort of come through from time to time in quite big chunks. So we are not too concerned about that. The new orders at R14 billion for mining [make] a significant number. And for us new orders are essentially work that we have secured that just needs to be concluded in terms of commercial contracts. Once those contracts are concluded, they will find their way into the order book. So that gives us good visibility for that business. We’ll be pretty fortunate, I think, to have such a good business as the mining business to provide some support into the future.

SIMON BROWN: Your power industrial and water platform – we’ve chatted a lot about this over the years – is still very small but certainly moving in the right direction. It’s Sub-Saharan Africa, South Africa has desperate need of both.

HENRY LAAS: Correct. Simon, I think we’ve been challenged many a time on why we haven’t closed this business earlier, and it has been loss-making since Medupi and Kusile. We haven’t really had the opportunity to secure work owing to a lack of investment, but we had a full view of what was coming in the renewable energy space. As you will know, there’s also been some delay in investment in renewable energy. And from Eskom’s side, the investment in transmission lines is also slow. But that is what we are capable of servicing – those market sectors.

We have an order book now of R2 billion in that platform. It is still very, very small, but at least we’ve a strong expectation that that business should now at least return to profitability in the medium term. It is premised on the prospects that we see in the renewable energy space.

SIMON BROWN: That was Henry Laas, CEO at Murray & Roberts with six-month results ending in December. Henry, I always appreciate the time.

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