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Year-end results for Murray & Roberts show core operations doing well

Discontinued operations disappointing, but continuing operations went from a loss of R17 million to a profit of R540 million: CEO Henry Laas.

SIMON BROWN: I’m chatting with Henry Laas, CEO of Murray & Roberts. A disclaimer up front – I hold shares in Murray & Roberts. Year-end results for June [are out]: order book at R60.7 billion, near orders at R11.1 billion. Diluted continuing Heps at 16 cents, R1.6 billion unrestricted cash. 

Henry, I appreciate the time today. You’ve still got some discontinued operations dragging down results – R256 million-odd this period. They are working their way through; how much longer until they are largely out of the system?

HENRY LAAS: Simon, thank you very much. Yes, I think the discontinued cost in the past year is the disappointment in the results, and I will comment on that just now. But the pleasing part of it is that continuing operations went from a loss of R17 million to a profit of R540 million.

So we are sort of back at pre-Covid levels, but we’ve got this fantastic order book that will carry us into the future.

Read: M&R: Order book could grow to R80bn (May 2021)

Getting to discontinued operations, you will recall that the group exited the civil construction and building market in 2017. When we sold our business in South Africa, we had a lot of assets and liabilities from that transaction that we had to manage through. At the time the building business in the Middle East, the sale, and what you see in the discontinued line, is all the cost associated with those operations. The financial year that has just gone by should be the last. 

We have actually today signed an agreement to sell the remaining two companies in the Middle East for a nominal amount. But, having said that, in the current financial year, the new financial year, there will be a foreign currency translation reserve that we will have to account for; but it’s not a cash item. It is purely an accounting entry. This is coming to an end for us and I think there will be a lot more predictability in the results going forward now that this discontinued has worked its way through the system. 

SIMON BROWN: You make the point that the core businesses of Murray & Roberts, the continuing operations, are operating well. They are stronger in really strong cash generation from operations, and so forth. It’s an encouraging sign if we look at that core of Murray & Roberts.

HENRY LAAS: Absolutely. Simon, we’ve got three business platforms in the group. The first is the engineering or energy resources and infrastructure business, which is the international business; our mining business, which is an international business; and then Power, Industrial and Water, which is a local business. All our profits come from the two international platforms – the mining business and the energy resources and infrastructure business. Of this order book of R16.7 billion, 80% of that is offshore. 

As I said, our profits essentially come from the two international businesses. The order book, that R60.7 billion, of that about R27 billion is scheduled for delivery in this new financial year to June 2022. If you compare that with the revenue of the previous year, which was R22 billion, it’s already more than we executed from a revenue perspective in the past year.

So revenue for us is certainly going to top R30 billion in financial year 2022.

It just is an indication of the strength that we have in the continuing operations. And with the discontinued ops now coming to an end, we are very, very bullish about the prospects for the group over the next couple of years.

SIMON BROWN: The last couple of times we’ve chatted you’ve talked about that Power, Industrial and Water – that’s the local side. You’ve kind of said you’re keeping it in anticipation. One of those businesses you’ve got in there is Wade Walker Solar; obviously the 100MW self-generation [of electricity that government has now allowed companies to produce without a licence] must play directly into that. You’ve been doing a bit there but this becomes a lot more significant in time, I imagine.

HENRY LAAS: Simon, it does. But, having said that, the Power, Industrial and Water business, our local business, just does not have the opportunity to compete with the other two business platforms. We are struggling to keep it in a profit position. We had a substantial loss in the past year, and even in the year to June 2022 there will be a small loss. 

The issue that we have on the power or self-generation cap which has been lifted (is) it presents a lot of opportunity, but it’s more the international companies that will benefit from this, because as South African companies we are not OEMs (original equipment manufacturers).

We are not technology owners, so the technology around solar or the technology around wind will come with international companies. It will present us an opportunity to do the electrical balance of plant work and the transmission lines, and so forth, but we need a lot more scale. We need a lot more investment for this business to really become a strong contributor to earnings – and we are hopeful that that will happen. For that reason we are holding on to that business. But, as I say, it has to get to a point that it contributes to earnings. We can’t forever live with hope. It is pulling us back now. But the two international businesses are now shining.

SIMON BROWN: I take your point on that. A quick last question – your energy resources and infrastructure are doing exceptionally well in Australia. Picking up some North American, you make the comment that this is going to become a bit of an area of focus in North America?

HENRY LAAS: What we had in Australia – from a strategic point of view we have broadened our market focus. So we are covering broader market sectors than we do in the US.

The US is purely focused on energy at this stage, and we would like to expand the service offering to mirror what we have in Australia.

So it will give us a better opportunity. But we’re very excited about the future of that business, as we are for our mining business. We’re really excited about the future.

Read:
M&R secures R2.3bn Australian gold mining contract
M&R anticipates listing internationally

SIMON BROWN: And commodities currently globally are doing great, which plays directly into that. 

Henry Laas, CEO of Murray & Roberts, I appreciate your time today.

Listen to Thursday’s full MoneywebNOW podcast here.

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