Murray & Roberts balance sheet in 'a strong position'

CEO Henry Laas takes us through the Murray & Roberts full-year results

BUSINESS DAY TV:

Murray & Roberts has improved profitability and resumed dividend payments. The company reported full year results after the bell last night and revenue is up to R36bn. Diluted headline earnings per share shot up to 67% hitting 205c. CEO Henry Laas joins us now on News Leader.

Henry nice to have a day to digest the results… you paid a dividend for the first time in what‚ four years‚ so you must be pretty chuffed with that. Are you in enough of a cash position to do that now‚ having gone through a very painful experience over the last few years‚ and also the capital raising that you had to go to market for?

HENRY LAAS:

Murray & Roberts was in a very difficult position three years ago. We had net debt of about R5bn in November 2011‚ and today we’re in a net cash position of R1.8bn and this is after an investment of R4.4bn when we acquired the minorities in Clough. So we think that the balance sheet is in a strong position. We’re through the liquidity crisis that we had in the group and our projections looking forward are such that we felt confident to declare this dividend at the end of this financial year.

BDTV:

We were speaking about it earlier… with the company moving from one plan to the next‚ from recovery to growth strategy plan now to a new strategic future plan and very much a part of that plan is specific focus on the oil and gas space. Talk us through that strategy and where you’re currently at.

HL:

I just want to clarify what the recovery and growth plan is all about. It was a short-term plan focused on a three-year period and we divested from a lot of businesses and we also made acquisitions. So the way in which the company is currently structured… we have four operating platforms and we are well positioned in each of these platforms. So in oil and gas it is the investment that we have in Clough‚ and we’re very pleased with the acquisition in December of last year…

BDTV:

…it seems to be doing very nicely for you…

HL:

…and it contributed very well financially in the past financial year. The second focus is underground mining. We’re already in that space with the Cementation group of companies. That is the second largest contributor to our profits. And then we have two other platforms‚ focused on power… or the energy and industrial sector which is more the power space… petrochemicals. And then infrastructure and building‚ which is the traditional civil infrastructure and building work. But for us it is natural resources. So the first three platforms that I’ve mentioned are the oil and gas‚ underground mining and then energy and industrial… that’s where we see the growth will come from. So we’ve already achieved the position at the end of the recovery and growth phase. The plan moving forward is to grow the businesses that we have in the natural resources sector and also to diversify our business model slightly‚ because currently we are very dependent on revenue and income from hard construction work. If you look at the project value chain‚ hard construction work… we want to diversify more into engineering as well.

BDTV:

When you talk about hard construction work‚ do you mean putting the bricks together?

HL:

The physical building or construction work that you would see on the site. So what we would like to do is get more involved in the engineering work which is more upfront‚ before you move into the construction phase.

BDTV:

Why is that? Is that because you’ve got less chance of projects going bad which you’ve had‚ I suppose‚ ample experience with unfortunately through the Gautrain‚ etc… and do you get your money sooner‚ is it less of a risk than what it would be with hard construction?

HL:

It does improve the risk profile of the group… it would do that in the engineering space and also after you’ve completed the construction project‚ if it’s a power station that you’ve built‚ we want to get into the maintenance component as well…

BDTV:

So that is a sort of annuity income that you would get…

HL:

And what you see is that margins in that part of the value chain are slightly better than what you would achieve in the construction space. So it is diversifying our risk as well but also putting us in the position… if you’re engaged in the engineering process you enhance your chances of undertaking some of the construction work that will flow.

BDTV:

Okay‚ so talking about leveraging off opportunity then… 75% of the company’s revenues generated overseas right now. That says a lot about your confidence levels‚ or lack thereof‚ around government infrastructure work here in South Africa. Does it imply that you’ve given up on South Africa?

HL:

Not really. What we have to do is we need to see where we can find the best growth opportunities for our shareholders are in the natural resources sectors that we’ve identified for us. Unfortunately those opportunities from a South African perspective are international… its not as much in South Africa… so the growth potential for us is in the sectors outside of South Africa. It doesn’t mean that we’ve given up hope on South Africa…

BDTV:

Do you‚ if the taps do open up in South Africa‚ have the capacity to actually take up that work?

HL:

Absolutely‚ we’ve got the capacity‚ we’ll participate and we will take up that work.

BDTV:

Are you confident of those taps opening up though‚ and I ask this because one of the CEOs we recently spoke to told me off the record‚ that he’d had all these meetings with various government ministers and the deputy president‚ and they really want to talk to business and he’s feeling really excited… I don’t know if you share that excitement. The construction sector has had a particularly sour relationship with government… are things better and are you confident that work is going to come through?

HL:

I believe it is imperative for South Africa to start to spend significantly more on its infrastructure. Government is talking about these budgets and they’re talking about these plans and we haven’t seen much of that coming through for companies such as Murray & Roberts. A lot of investment went into rolling stock into upgrading the rail systems in the country. It’s not really an area that’s benefiting the construction sector in South Africa. So what we need is we need new major investment in port expansion‚ we need new major investments maybe in dams that need to be constructed‚ new hospitals… that is the type of work that we need in South Africa. So the work that is currently coming through is enabling us to maintain our level of revenue at about R7bn compared to about R12bn about five years ago… and I’m only talking about our infrastructure and building sector at this stage. So we are getting work‚ government work as well‚ but it is just to maintain and sustain a certain level of income. For us to grow and to improve our margins in this space… we need a lot more economic activity coming through‚ and that’s not happening.

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