Murray & Roberts has announced its interim results for the six months ended on the 31st of December 2020, with its results for the six months under review negatively affected by prolonged Covid-19 lockdown restrictions.
However, the company reported significant growth in a record, quality order book of R60.5 billion (FY2020 H1: R50.8 billion), a significant near orders of R19.9 billion (FY2020 H1: R6.4 billion) and a strong category 1 project pipeline of R94.7 billion (FY2020 H1: R70.5 billion). Circa R34 billion is on a sole-source basis.
The group’s lost-time injury frequency rate (LTIFR) improved to 1.00 (FY2020 H1: 1.12) with one fatal accident occurring.
Financial results:
Murray & Roberts’ reported revenue from continuing operations of R10.8 billion (FY2020 H1: R10.8 billion) with earnings before interest and tax from continuing operations of R117 million (FY2020 H1: R419 million).
The company also reported an attributable loss of R167 million (FY2020 H1: R163 million profit) with a diluted continuing headline loss per share of 8 cents (FY2020 H1: 49 cents profit). Cash, net of debt, improved to R0.3 billion cash (FY2020 H1: R0.1 billion debt) with a net asset value of R11 per share (FY2020 H1: R12 per share).
Significant order book growth:
The growth in the group’s order book to R60.5 billion is due to the significant growth in the Energy & Infrastructure (ERI) platform’s order book. Since December 2018, when the ERI platform mainly focused on the liquified natural gas sector in Australia, its order book has grown from R4.4 billion to R42.2 billion at the end of December 2020. This growth follows the award of several multi-million Rand projects in the energy, resources, and infrastructure sectors.
Financial report for the six months ended on the 31st of December 2020:
“During the past three years, the group broadened its market focus to mitigate market cyclicality and subsequently renamed its business platforms to better reflect the market sectors in which they operate as specialist contractors. This decision contributed to significant order book growth for the ERI platform, which reported an all-time high order book. The Group expects the ERI platform to make a significant contribution to earnings in FY2022” commented Henry Laas, Murray & Roberts Group Chief Executive.
Prolonged Covid-19 Impact
The business impact of the Covid-19 pandemic and related restrictions in the second half of the previous financial year has continued into FY2021, although not at the same level as was experienced in FY2020 H2.
Murray & Roberts has largely recovered from the initial and major Covid-19 restrictions impact in FY2020 H2 and the company is well positioned to operate successfully through this short to medium term uncertainty. The relevance of and the group’s exposure to the natural resources, commodities, utilities, energy and infrastructure markets, and its significant order book, support the view of expected growth in group earnings, especially after FY2021.
In terms of the results to 31 December 2020, the comparable prior six-month period (to the 31st of December 2019) ended before the outbreak of the pandemic.
Revenue from continuing operations was maintained at R10,8 billion (FY2020 H1: R10,8 billion). The group reported earnings before interest and tax for continuing operations of R117 million (FY2020 H1: R419 million) and an attributable loss of R167 million (FY2020 H1: R163 million profit). The loss is ascribed to a prolonged Covid-19 restrictions impact, especially in the mining platform, a disappointing result by the Power, Industrial & Water platform, as well as a lower fair value adjustment profit from the investment in the Bombela Concession Company.
A diluted continuing headline loss per share of 8 cents was recorded (FY2020 H1: 49 cents profit).
Cash, net of debt, improved to R0,3 billion cash (FY2020 H1: R0,1 billion debt).
Dividend update
On an annual basis, the board of directors of the company considers a dividend post-year end. As a result of the significant growth in the group’s order book and ongoing uncertainty brought about by Covid-19, the board will prioritise retaining sufficient capacity to deliver the order book.
Operational report
Energy, resources & infrastructure
Revenue increased to R5,2 billion (FY2020 H1: R3,4 billion) and the platform recorded a break-even in earnings before interest and tax (FY2020 H1: break-even). The platform was successful in securing an increased and quality order book of R42,2 billion (FY2020 H1: R30,6 billion). The group expects the platform to make a significant contribution to group earnings in FY2022. The platform’s near orders increased to R5,0 billion (FY2020 H1: R0,1 billion).
Mining
Revenue and operating profit decreased to R5,1 billion (FY2020 H1: R6,2 billion) and R176 million (FY2020 H1: R353 million), respectively. The order book decreased marginally to R17,9 billion (FY2020 H1: R19,6 billion), but is supported by a strong project pipeline. Goldman Sachs recently released a report commenting that a recovery in commodity prices will be the beginning of a much longer structural bull market for commodities and according to JPMorgan Chase & Co, oil and other commodities have probably entered a new super cycle, as a post-pandemic economic rebound and swelling inflation spark expectations of rising demand. The platform’s near orders increased to R14,7 billion (FY2020 H1: R6,1 billion).
Power, industrial & water
Revenue and order book decreased to R0,6 billion (FY2020 H1: R1,2 billion) and R0,4 billion (FY2020 H1: R0,6 billion), respectively. Given the platform’s low revenue base and losses on a near-completed project, the platform recorded an operating loss of R67 million (FY2020 H1: R19 million profit). The platform operates in sub-Saharan Africa, a region which currently presents limited large-scale project opportunity, with available opportunities being delayed. No projects of any significant value were secured during the period and opportunity for new project awards within the next six-month period is limited. The platform has near orders of R0,2 billion (FY2020 H1: R0,2 billion).
Investments
The Gautrain is operating with capacity restrictions and current ridership levels are significantly down. Demand is expected to remain subdued until all Covid-19 lockdown restrictions have been lifted. Current ridership is circa 11 000 passengers per day, compared to about 55 000 passengers per day prior to Covid-19 restrictions.
The estimated impact of the Covid-19 restrictions on the group’s 50% investment in the Bombela Concession Company was accounted for in FY2020 H2. A business interruption claim for losses caused by an infectious disease and the related restrictions has been submitted to the insurers, which currently is under consideration. The impact, if any, of prolonged Covid-19 restrictions on this investment will be re-assessed during FY2021 H2.
A fair value adjustment profit of R107 million was reported for the period (FY2020 H1: R197 million). The FY2020 H1 result included proceeds from the settlement of various claims.
As from the 22nd of March 2021, the group’s classification on the JSE will move from ‘Diversified Industrials’ to the ‘Engineering and Contracting Services’ subsector, a new subsector to be introduced by FTSE Russell and the enhanced Industry Classification Benchmark. This new subsector will be more descriptive of the group’s strategic positioning.
Considering the group’s order book of R60,5 billion and near orders of R19,9 billion, it is well positioned for a return to profitability in FY2022 and to achieve meaningful earnings growth in the short to medium term.
Murray & Roberts is confident that its growth plans are achievable, and it has the necessary leadership, financial and resource capacity to support these plans.
