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M&R describes past year as its ‘most difficult’ since 2008

Murray & Roberts sign

Photo by Creamer Media

2nd November 2023

By: Darren Parker

Creamer Media Contributing Editor Online

     

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The financial year ended June 30 has been the most challenging period for Murray & Roberts (M&R) Holdings since the 2008 global financial crisis, the company said in a statement on November 2.

In a business update published as part of its annual general meeting proceedings, the company said the pandemic created an exceptionally difficult operating environment, impacting to different degrees the group’s entire multibillion-rand project portfolio, a material outcome of which was a significant increase in working capital.

Exacerbating this outcome was that the company did not receive any dividends from its investment in the Bombela Concession Company or its international businesses, for the entire period of the pandemic.

Ultimately, the group’s balance sheet and funding facilities could not sustain the increased working capital requirements and Murray & Roberts Proprietary Limited (MRPL), the group’s holding company in Australia, was placed under voluntary administration by MRPL directors on December 5 last year. As a consequence, the group’s ownership in MRPL and its two subsidiary companies Clough and RUC Cementation Mining Contractors was terminated.

These developments, combined with the company’s level of prevailing debt, led to stakeholder concern regarding the sustainability of M&R.

As at June 30, M&R reported a manageable net debt position of R300-million. Although the company said the serviceability and amortisation of this level of debt was not a cause for concern, its total debt in South Africa amounted to about R1-billion, down from about R2-billion following the sale of the company’s 50% shareholding in Bombela in April.

Meanwhile, its cash was predominantly held in its international operations where the majority of the group’s cash is being generated.

This imbalance in local debt and international cash was a source of some concern to the company’s South African lending banks, and so M&R embarked on a plan to deleverage the South African debt.

The company said meaningful progress had been made in this regard, with one of the primary actions including Cementation Canada and Cementation USA renegotiating their facility agreement with their Canadian lender, and the revised facility providing for dividends to be paid to the company of about R410-million in January next year, with about R140-million in June, which will be applied to reduce the company’s debt in South Africa.

M&R also reported that it had concluded new commercial terms on one of its largest projects, which together with other actions within its project operations, will allow for about R180-million of debt reduction in South Africa by this month.

It is expected that the group’s remaining debt with the South African lending banks will reduce to about R300-million by June next year, from the high of about R2-billion in March. M&R also said it had meaningfully reduced corporate overhead costs and will continue to focus on operational efficiencies and liquidity management.

Considering the deleveraging progress outlined above, the board is not considering a rights issue for the purposes of debt reduction in South Africa but is working towards implementing a sustainable capital structure over the next six months, which will include the refinancing of the remaining debt.

In recent months, the group has been collaborating with the administrators of MRPL to finalise a deed of company arrangement (Doca). This arrangement was expected to facilitate MRPL's exit from administration and allow the group to regain ownership and control of MRPL and RUC.

On October 4, it was revealed that, during the MRPL creditors’ meeting on that date, a Doca was approved by MRPL's secured creditors. Consequently, the group was unable to regain control of RUC.

M&R said its strategic focus would remain on maintaining a strong presence in the Asia-Pacific (Apac) region, the territory formerly served by RUC. In line with this commitment, the group has recently established a subsidiary company in Australia named Cementation Apac. This subsidiary is actively being developed and resourced to offer engineering and contracting services to mining clients in the Apac region.

The company said it believes its Cementation brand had earned a sufficiently good reputation in Australia, positioning it to pursue project opportunities in-country by leveraging the capabilities of its existing mining businesses in North America (Cementation Canada and Cementation USA) and in sub-Saharan Africa (Murray & Roberts Cementation).

“The mining platform has historically been, and is expected to remain, the primary contributor to the group's earnings. It retains its status as a leading provider of mining services,” the company said.

M&R’s integrated report highlights the platform's ongoing engagements in mining projects across Canada, the US, Chile, Argentina, South Africa and other sub-Saharan African countries.

These endeavours encompass vertical shafts, equipment and rehabilitation projects, decline shafts, mine lateral development projects, production mining initiatives, support and construction projects, and major ore handling infrastructure construction undertakings. Notably, the group has 30 raise drilling machines deployed on projects worldwide.

M&R said the platform continues to meet management's expectations, owing to a robust order book. As of September 30, the order book stood at R14-billion, up from R13.6-billion in June last year, with near orders amounting to R8.6-billion, compared to R9.1-billion a year ago.

Anticipating the ongoing global shift towards energy transition, M&R foresees a surge in demand for commodities linked to this transition. Consequently, the mining platform is poised to experience strong growth and earnings owing to its diverse range of services.

The power, industrial and water (PIW) platform specialises in delivering project services to the power generation, power transmission and distribution, wastewater, and resources and industrial market sectors. Although its primary focus is in South Africa, it also extends its reach to sub-Saharan Africa.

M&R's short-term objective for the PIW platform is to achieve profitability in the fiscal year 2024, and it is confident that this objective will be realised. In the renewable energy and power sectors, new projects are gradually gaining traction as developers reach financial close on their endeavours.

As of September 30, the platform's order book amounted to R1.5-billion compared with R1.8-billion in June, with no near orders, consistent with the position as of June 30.

“We remain optimistic about the availability of project opportunities, particularly in the renewable energy and power transmission and distribution sectors, which will sustain the platform's profitability,” the company said.

Following the divestiture of the businesses in Australia, M&R has emerged as a leaner and more agile group.

“We have made significant progress in reducing our debt in South Africa and remain dedicated to enhancing shareholder value from our current foundation,” the company said.

M&R reported its full-year financial results for the 2023 fiscal year on August 30, accompanied by the release of the yearly integrated report on September 29.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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