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Murray & Roberts have over 50bn rand of orders for 2020

By Xolisa Phillip, in Johannesburg
Posted on Thursday, 12 March 2020 08:04

A worker sweeps in front of the Johannesburg Stock Exchange (JSE)
REUTERS/Philimon Bulawayo

Oil and gas projects have given South African multinational engineering and construction group Murray & Roberts a strong pipeline of orders for 2020.

The group released its interim results this week for the six months ending 31 December 2019. In the period, Murray & Roberts’ order book grew to R50.8bn (2.78bn euro).

That represents a 60% improvement from the previous comparable period, when the order book had attracted R31.7bn (1.73bn euro) worth of orders.

In the six months to 31 December 2019:

  • continuing operations generated R10.8bn (59m euro) in revenue, representing an 11% rise;
  • the company recorded R419m in operating profit from continuing operations (R365m [19.96m euro]: 2018). This is an improvement of 15%; and
  • attributable earnings dropped to R163m [8.91m euro] (R186m [10.17m euro): 2018).

“The strong order book is expected to support growth from 2021 as the oil and gas platform has secured a baseload of work for the new financial year, which should enable it again to become a meaningful contributor towards group earnings in the medium term,” Murray & Roberts told the market.

Re-engineered business

Less than five years ago, Murray & Roberts was South Africa’s second-biggest construction company on the Johannesburg Stock Exchange (JSE).

Several factors, including the steep decline in major construction projects in its home market, however, forced the group to review its core business operations.

The re-assessment resulted in Murray & Roberts disposing of its infrastructure and building businesses, including its steel operations. The outcome was a diversified construction and engineering business.

  • In March 2017, it transitioned from a heavy construction company to a diversified industrials group, and changed its listing on the JSE from a construction stock to a diversified industrials listing. The company cited the disposal of the infrastructure and building businesses for the change.
  • In April 2017, Murray & Roberts concluded the sale of its infrastructure and building businesses for R314m (17.17m euro).

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Leaning on diversification

Murray & Roberts’ diversification drive encompasses international expansion, partly through acquisitions, “across core and complementary markets, geographies and project life cycle.” The aim is to target high-growth regions underpinned by a counter-cyclical strategy.

In recent years, Murray & Roberts has acquired: Clough USA (USA), Terra Nova Technologies (USA), Boipelo Mining Contractors (South Africa), and OptiPower Projects (South Africa).

Murray & Roberts considers the US a high-growth market. In August 2019, it was proven correct when Clough USA was awarded a $620m (542.28m euro) petrochemical engineering, procurement and construction project in the US.

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Fines fiasco

In the years after the construction of South Africa’s Soccer World Cup stadiums in preparation for the 2010 showpiece, the country has not undertaken more projects of such scale and value.

Furthermore, the country’s big construction companies were slapped with massive multimillion-dollar fines for engaging in anti-competitive conduct during the construction of the World Cup stadiums.

Murray & Roberts was among the companies on the firing line.

In 2016, it paid a R64m (3.5m euro) admission-of-guilt fine to competition authorities.

  • A total of 15 construction companies were collectively fined R1.5bn (82m euro) for collusive conduct in a case referred to as the construction cartel.

In another matter, in 2013, Murray & Roberts agreed to pay a R309m (16.88m euro) penalty for “historically” anti-competitive conduct to South Africa’s competition authorities.

The company has also faced headwinds in Australia and the Middle East.

Fewer platforms, greater agility

Since revising its strategy, Murray & Roberts is structured along three streams or platforms:

  • underground mining, with operations spanning Africa (Accra, Johannesburg, and Kitwe), the Americas, Asia, and Australia;
  • oil and gas, activities are in Africa, the Americas, Asia, Australasia, and Europe; and,
  • power and water, mainly focused on Africa (Cape Town, Johannesburg, and Maputo).

Going for growth

“The sustainability of the power and water platform is dependent on investment in its core market sectors in South Africa, expanding in Sub-Saharan Africa. The platform has taken steps to position itself in market segments with growth potential, such as the power transmission and distribution sector,” said Group Chair Suresh Kana in the 2019 report.

“The government’s intention to unbundle Eskom, combined with the much needed investment in South Africa’s water infrastructure, should open opportunities for this platform,” added Kana.

In its note to the market this week, the company stated: “We remain optimistic about the longer-term outlook for the natural resources markets and the selected infrastructure markets should bring some mitigation to the impact of cyclicality in the natural resources market.”

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