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M&R sees 2020 as ‘a year of consolidation’

M&R sees 2020 as ‘a year of consolidation’

Following several acquisitions in the prior financial year, the 2020 financial year will be “a year of consolidation for all three business platforms”, with the focus on growing the order book and on successful project delivery, multinational engineering and construction services provider Murray & Roberts (M&R) said in a business update to shareholders on Thursday.

The group reported that its underground mining platform’s order book had decreased to R20.9-billion, as at October 31.

Nevertheless, the platform continued to perform well, M&R said, noting that it had capitalised fully on its growth potential by “substantially increasing its share of the regional markets in which it operates”.

Commodity prices had generally been stable in the last two years, however, M&R said it appeared as if the global mining cycle had reached a plateau. Capital expenditure in the mining and mining services markets was expected to level off over the next three years, and M&R believed there were still sizable opportunities for the platform but expected short- to medium-term earnings to show measured growth from current levels.

The oil and gas platform, meanwhile, is recovering from a low base and client timeframes for the award of new projects continue to be highly variable. However, the order book increased substantially to R33-billion as at October 31.

This increase since June is primarily owing to the award of a R9.4-billion petrochemical engineering, procurement and construction project to M&R subsidiary Clough USA, for which the notice to proceed was received in November.

This award is expected to substantially increase revenue during the second half of the 2020 financial year.

The platform’s strategy of diversification into the Australian infrastructure and mining markets and expanding its oil and gas business internationally is further delivering positive results, especially considering that the Australian infrastructure and mining markets are said to present significant opportunity.

According to M&R, the platform was targeting oil and gas projects in Australia, Canada, the US, Mozambique, Kazakhstan and Papua New Guinea.

The power and water platform order book, meanwhile, remained stable at R900-million as at October 31, mainly owing to the inclusion of transmission orders following the acquisition of Optipower.

Owing to a lack of project opportunities in South Africa, M&R lamented that it would take time to re-establish the business post completion of the Medupi and Kusile power station projects.

Substantial investment in the short- to medium-term is, however, expected in the transmission and distribution subsector of the power market and the platform is hoping to secure maintenance contracts from State-owned Eskom for its ageing fleet of coal-fired power stations.

According to M&R, investment in the local water sector continued to be fragmented and limited, notwithstanding the “increasing pressure to upgrade dysfunctional municipal wastewater treatment plants”.

However, M&R acknowledged that the City of Cape Town’s drought resilience plan was being implemented with several wastewater treatment plant improvement and expansion projects coming to the market.

The platform has extended its service offering to complementary markets, including petrochemicals, metals and minerals, and paper and pulp.

Gas projects in Mozambique were also gaining momentum and would provide potential project work opportunities from the 2021 financial year, M&R commented.

Further, investment in new fuel storage terminals should also present opportunities in the medium term.

Commenting on the closure of business in the Middle East, M&R said that exiting this region “remains a complex challenge” with many risks to be managed and longstanding commercial matters to be resolved.

However, the accounting position taken to book for this business was considered prudent, the company said, adding that as all remaining construction work on the residual projects had been completed, this business was expected to be reclassified as a discontinued operation for the 2020 financial year.

Overall, M&R said its New Strategic Future plan was gathering momentum and bearing results.

The group had built “a quality order book” of R54.8-billion, with near orders of R5.1-billion as at October 31, and the company was “confident that its growth plans over the medium term are achievable”, alongside having the necessary financial capacity to support these plans.

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