Murray & Roberts Holdings Limited, a South African engineering and contracting services provider, has navigated through a turbulent financial year, addressing significant challenges while striving to maintain its industry leadership. The company released its annual financial results for FY2023, shedding light on the struggles and successes it has experienced over the past year.
The FY2023 financial year, which ended on June 30, 2023, proved to be one of the most challenging periods for Murray & Roberts since the global financial crisis of 2008. The primary culprit was the ongoing COVID-19 pandemic, which disrupted operations across the board and led to a material increase in working capital.
The pandemic’s far-reaching impact manifested differently across the group’s multibillion-rand project portfolio. The result was a notable surge in working capital requirements, further exacerbated by the lack of dividends from the Bombela Concession Company (RF) Proprietary Limited (Bombela) and the company’s international businesses during this tumultuous period.
As the financial pressure mounted, the company’s holding company in Australia, Murray & Roberts Pty Ltd (MRPL), found itself in dire straits. On December 5, 2022, the directors of MRPL took the difficult step of placing it under voluntary administration. This move had severe consequences, causing the termination of the group’s ownership in MRPL, as well as its subsidiary companies, Clough Limited and RUC Cementation Mining Contractors Pty Ltd (RUC).
These developments raised concerns about the sustainability of Murray & Roberts, particularly given the company’s level of existing debt.
Despite the significant financial setbacks, Murray & Roberts is making strides to address its debt-related issues, ensuring the company’s long-term viability and stability. The group reported a manageable net debt position of R300 million at the end of June 2023.
One of the key challenges faced by the company was the imbalance between local debt and international cash holdings. With around R1 billion in total debt in South Africa (down from approximately R2 billion after selling its 50% shareholding in Bombela in April 2023), the company’s cash was primarily held in its international operations, where a significant portion of its cash flow was being generated.
This disparity raised concerns among the company’s South African lending banks, prompting Murray & Roberts to take action to reduce its South African debt.
Murray & Roberts initiated a plan to deleverage its South African debt, aiming to bring its local and international financial positions into better alignment. The progress has been notable, with several actions taken to reduce the South African debt burden:
| Initiatives | Expected Reduction |
|---|---|
| Renegotiation of facility agreements | R410 million (January 2024), R140 million (June 2024) |
| Commercial terms on large projects | Circa R180 million (by November 2023) |
The company anticipates that its remaining debt with South African lending banks will decrease to approximately R300 million by June 2024, significantly down from the peak of around R2 billion in March 2023. Furthermore, Murray & Roberts has implemented cost-cutting measures to reduce corporate overhead expenses and will continue to focus on operational efficiencies and liquidity management.
In light of these deleveraging efforts, the board has confirmed that there are no plans for a rights issue for debt reduction in South Africa. Instead, the company is focused on establishing a sustainable capital structure in the coming six months, which will include refinancing the remaining debt.
The loss of ownership in MRPL and RUC did not deter Murray & Roberts from maintaining its presence in the Asia-Pacific (APAC) region. In response to the situation, the company has taken a strategic approach by establishing a subsidiary company in Australia, known as Cementation APAC Pty Ltd.
Cementation APAC Pty Ltd is being developed and resourced to provide engineering and contracting services to mining clients in the APAC region. Leveraging the strong reputation of the Cementation brand, the company aims to target project opportunities in Australia. This move complements Murray & Roberts’ existing mining businesses in North America (Cementation Canada and Cementation USA) and in Sub-Saharan Africa (Murray & Roberts Cementation).
Murray & Roberts’ mining platform has historically been a pillar of strength and a significant contributor to the group’s earnings. Despite the challenges of the past year, this platform continues to hold a prominent position in the company’s portfolio.
The platform is engaged in various mining projects across the globe, including Canada, the USA, Chile, Argentina, South Africa, and other regions in Sub-Saharan Africa. Its scope of work encompasses vertical shafts, equipping and rehabilitation projects, decline shafts, mine lateral development projects, production mining projects, support and construction projects, and major ore handling infrastructure construction projects. Additionally, the platform deploys 30 raise drilling machines on projects worldwide.
As of September 30, 2023, the platform’s order book stood at R14.0 billion, reflecting steady growth compared to June 2023. Near orders also remained strong at R8.6 billion, down only slightly from the June 2023 level of R9.1 billion.
The mining platform is expected to continue to deliver robust growth and earnings, driven by the global emphasis on energy transition. The growing demand for related commodities aligns well with the diverse range of services provided by the platform.
The PIW platform plays a crucial role in providing project services to power generation, primarily in renewable energy, as well as power transmission, distribution, wastewater, and the resources and industrial market sectors. While this platform has faced its share of challenges, it has a clear path to profitability in the near future.
The renewable energy and power sectors are showing promise as new projects begin to materialize, albeit at a gradual pace. Developers are reaching financial close on their projects, offering opportunities for growth. As of September 30, 2023, the platform’s order book was at R1.5 billion, a promising indicator for the future, even if there were no near orders at that time.
The Group believes that there will be a sufficient number of project opportunities, especially in renewable energy and power transmission & distribution, to sustain the platform’s profitability in the foreseeable future.
Despite the loss of its Australian businesses, Murray & Roberts is not giving in to adversity. The company is determined to make the best of the current situation, progressing with initiatives to reduce debt in South Africa and create shareholder value from its current position.
The path forward involves continued commitment to excellence as a leading engineering and contracting services provider in the chosen market sectors. The company’s actions indicate a focus on long-term stability and success.
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