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M&R holds line on resources-focused strategy despite commodity meltdown

M&R holds line on resources-focused strategy despite commodity meltdown

Photo by Duane Daws

27th August 2015

By: Terence Creamer

Creamer Media Editor

  

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Engineering and construction group Murray & Roberts (M&R) says it has no intention of shifting its strategy away from the international natural resources market, notwithstanding the prevailing weak climate for commodities and a bleak immediate outlook.

Speaking to investors on Thursday, CEO Henry Laas acknowledged that the company’s earnings and orders would remain under pressure during its 2016 financial year, owing to a decline in oil and gas investment in particular. But he said M&R’s strategy remained intact and expressed optimism that the commodity cycle would rebound.

During 2015, group revenue fell to R30.6-billion from R36-billion in 2014, while attributable earnings declined to R881-million from R1.26-billion. Its order book also declined to R38.3-billion at the end of June, from R40.9-billion a year earlier – largely the result of a decrease in orders from its oil and gas business platform.

“You have to take a long-term view when you talk about strategy and setting strategy. We believe that, as long as the global economy grows and as long as there is population growth globally and as long as urbanisation happens, there will be a demand for natural resources – it will come back,” Laas said.

The strategy had already resulted in a major shift in the earnings profile of the group, with its internationally-focused business units contributing 63% to group revenue in 2015 and 94% to earnings before interest and tax. The direct contribution from South Africa, by contrast, had fallen to 38% of turnover and 11% of profits.

“We are confident, from a strategic point of view, that our focus is in the right place,” Laas added, arguing that it would have been impossible for the group to replicate its South African general-contractor model in offshore markets.

M&R also reported a surprising rise in orders for its underground mining platform, which rose from R9.9-billion last year to over R16.7-billion at the end of June. By contrast the oil and gas platform’s order book has shrunk over the same period from R16.7-billion in 2014 to R8.4-billion.

The increase was attributed to an uptick in brownfield investments by mining companies in South Africa, which were focusing on stay-in-business capital projects instead of greenfield growth prospects.

Laas stressed that the company also had the financial capacity, with cash on hand of R1.4-billion, to continue to pursue “bolt-on acquisitions” to improve its capabilities in delivering project services across its four chosen business platforms.

Besides oil and gas and underground mining platforms, which were internationally focused, M&R had power and water and infrastructure and building platforms, which were pursuing African opportunities.

It had already bolstered its specialist engineering capabilities through the acquisition of Booth Welsh, of the UK, CH-IV, of the US, Aquamarine Water Treatment, of South Africa and e2o, Australia, with Laas particularly bullish about the near-term prospects for e2o, which offers commissioning and operational support for the Australian liquefied natural gas market.

“Our aim is to be able to offer engineering and construction services across the project value chain in selected natural resources market sectors,” Laas explained, adding that the group expected a rise in brownfield-type activities for its oil and gas platform, including Clough.

However, Clough would also offer the infrastructure services it had hitherto been providing primarily to oil and gas companies in Australia to clients in other sectors, and was currently bidding on a major freeway project in Perth, Australia.

Edited by Creamer Media Reporter

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