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Edited Transcript of MUR.J earnings conference call or presentation 29-Aug-19 10:00am GMT

Q4 2019 Murray & Roberts Holdings Ltd Earnings Call

Johannesburg Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Murray & Roberts Holdings Ltd earnings conference call or presentation Thursday, August 29, 2019 at 10:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Daniël F. Grobler

Murray & Roberts Holdings Limited - Group Financial Director & Executive Director

* Diane C. McCann Radley

Murray & Roberts Holdings Limited - Independent Non-Executive Director

* Ed Jardim

Murray & Roberts Holdings Limited - Group Investor & Media Executive

* Henry Johannes Laas

Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director

* Mike da Costa

Murray & Roberts Holdings Limited - CEO of Business platform

* Steve Harrison

Murray & Roberts Holdings Limited - CEO of Power & Water Business Platform


Conference Call Participants


* Graeme Berry




Ed Jardim, Murray & Roberts Holdings Limited - Group Investor & Media Executive [1]


Good afternoon, ladies and gentlemen. Welcome to the Murray & Roberts annual results for the year ended 30 June 2019. A warm welcome to all of our viewers on the webcast as well as all the callers on the web call.

Just a moment, a safety moment before we get started. In the unlikely event of an emergency, you've got 2 exits off of this floor. The first is to my left. Left again towards where the bathrooms are. There's an emergency evacuation door there. Break the little switch that's there. It will release the door. Please make your way down to the ground floor, out and around the building to the public parking space across from the building. That's the emergency assembly point.

Your second evacuation option off of this floor is once again out these doors to my left towards the left lobby. There's a set of stairs on either side of the lifts. Please make your way down those stairs towards the ground floor, out the main entrance where you came through this morning and across the road to the public parking space. And that's the emergency assembly point. We do not have any emergency drills planned for today, so if there is an alarm, please treat it as real. Thank you very much.

I'd like to hand over to Henry. Thank you.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [2]


Thank you, Ed. Good afternoon, ladies and gentlemen, and welcome to our results presentation. A special word of welcome to our Chairman, Suresh Kana. Suresh is also Chairman of the Independent Board that was constituted to deal with the ATON matter. Welcome, Suresh. The chairperson of the Audit Committee I guess will join us a bit later. I'm not sure, maybe she's caught up in traffic; Diane Radley.

There's quite a few bankers in the room. And I want to put you at ease. This time around, we're not here to borrow money from you.

A couple of years ago when Murray & Roberts had quite a difficult balance sheet, we couldn't get bankers to attend our results presentations. Now that we've got a strong balance sheet, we have a lot of bankers in the room. So we thank you for that, and welcome.

I will briefly talk to the salient features of the past year's results and then I would like to elaborate a bit more about our strategy, how that is unfolding and the significant increase that we've recorded in our order book that we're really pleased about. I will then hand over to Daniel that will take you a little bit deeper into the results and I will wrap up with just a status report on the ATON process and, finally, key presentation takeaways.

Revenue for the year was slightly down on last year. However, we managed to report quite a strong growth in attributable profit, although continuing headline earnings per share was slightly down. Now that is as a consequence of a record performance by the Underground Mining platform. We had a difficult year in Oil & Gas and in Power & Water. And for discontinued operations, there's a significant reduction in the loss that was recorded for discontinued operations. So all in all, a very good result.

You will see that we make a comment about the Middle East, saying that all our construction work in the Middle East now being completed. And we intend to move those operations into discontinued as from the 1st of July this year.

The order book, ZAR 46.8 billion, that's up 55% on where it was June last year. That is a significant increase in the order book. And near orders of ZAR 14.4 billion. And post year-end, ZAR 10 billion of that ZAR 14.4 billion moved into the order book. So if you were to ask me what is our order book today, I would say to you it's approaching ZAR 60 billion, close to ZAR 60 billion. We are very pleased about that.

The other factor that's important to note is that this order book includes a number of projects that covers a number of years. So it is multiyear contracts. And the nice thing about it is it gives us a bit of a runway into the future. So each of these multiyear projects is sort of a layer on a layer on a layer, building a revenue stream that we can then supplement with shorter-duration projects as we secure those. So very pleased with the order book, ZAR 46.8 billion.

Cash net of debt, ZAR 1.8 billion. It's marginally down on last year, but still a very strong cash position. And as you will hear later on in Daniel's presentation, we have, with all the work that we've secured, we've also had some advanced payments on projects moving into our business. So there's ZAR 1 billion of cash that we received as advance payments on projects. But you also need to understand that in the context of the investments that we've made through our acquisitions in the past year, and that was ZAR 0.8 billion. So the 2 almost net each other off.

Dividend of ZAR 0.55 per share, that's up on the ZAR 0.50 of last year. The Board considered our dividend policy and decided to change the policy slightly so we would like to be in a position to pay an annual dividend every year but a stable dividend. In other words, not a dividend that's linked to earnings so that you work on an earnings multiple and that's because of the cyclical nature of our business, but rather maintain a stable dividend and every year, the Board will consider CPI, market conditions, strategic positioning of the group, the balance sheet of the group when they decide on dividend for the year. But the idea is to maintain a stable dividend as opposed to a dividend which isn't based on a multiple of earnings.

Our lost time injury frequency rate improved to 0.71. That's based on 1 million man hours work, and I can give you the assurance that, that is really an outstanding performance.

And what we're also very pleased about, we have concluded the past financial year without recording any fatal incidents. And that is the first time in the history of Murray & Roberts. Our agency executive went back into the records as far as we could get statistics and this is the first year that Murray & Roberts recorded a fatal-free year. And we are very pleased about that. It came with hard work and our platform Chief Executive Officer, Mike da Costa, responsible for Underground Mining; Peter Bennett, responsible for Oil & Gas; and Steve Harrison for Power & Water, I think they've done a fantastic job. And we've got, at any time, more than 100 projects under construction all over the world. And to have achieved this result I think is really commendable and I want to thank the platform CEOs for the great work that they've done in that space.

We've spoken a lot about the New Strategic Future of Murray & Roberts over the past couple of years and we are pleased to say that the implementation of the strategy is starting to show strong delivery. We are positioning ourselves as a multinational specialist provider of engineering and construction services to the natural resources market sectors. So that is our main aim.

Is there a problem with this projector? I see a flickering on the screen. Is it -- here as well? Not.

So we're very pleased with the delivery on the implementation side of this strategy. The fact that the order book has increased to the levels that I've mentioned earlier on gives us a lot of confidence that we are starting to see the momentum of the strategy in action and translating into an increase in the order book.

But I think what I am personally most pleased about is that the prospects for an improvement in earnings or operational performance, those prospects are encouraging. And obviously it is supported by the fantastic order book that we've managed to build in the group.

I will say a bit more about the order book later on, but one thing that I would like to say at this stage is that this order book is a quality order book. The previous all-time high was in 2011, it was ZAR 55 billion. Now I know time value of money, you need to escalate that if you want to yearly compare it with what we're reporting today. But previously, that order book included value still on many projects in the Middle East, and that was a sad experience for us in the Middle East. So we had value in that order book that didn't translate into profits. And I believe that the quality of this order book, this ZAR 46.8 billion, is much better than what we had previously in the group.

The Underground Mining platform, when I refer to the strategic position of this platform, I would say that it is -- the strategy has reached a mature position. And by that, I mean that the positioning that we have from a geographic point of view is sort of complete in the sense that we are in all the geographic regions where we need to be where the mining activity is taking place. We are there. And in the project value chain, we're providing services across the project value chain. And that is what we try to achieve in all of our 3 platforms. But I think Underground Mining is probably the furthest advanced of the 3 platforms in that respect.

So I just want to take you through our international positioning. If we start off in Canada, Cementation Canada operates out of North Bay, Canada. And we've been working I think some -- since about 1997 out of North Bay. In Vancouver, Merit Consultants is a small consulting firm that operates out of Vancouver. In Salt Lake City, in Utah, Cementation USA. And Cementation Above Ground, the AG is for Cementation Above Ground, it's not above ground mining, it is above ground infrastructure, conveyor systems, that sort of thing.

Terra Nova Technologies is in Santee, just adjacent to San Diego in California. It is a project -- or not a project, a company that we acquired in the past financial year and we believe it's a fantastic acquisition, and I will say a bit more about it just now.

In Africa, we've got cementation in Johannesburg, in Kitwe and in Accra in Ghana.

If we we move on to Australia. Perth and Kalgoorlie, that's where we are based. And in Mongolia, Ulaanbaatar, which is the capital of Mongolia. We're based there, undertaking the work on the Oyu Tolgoi project for Rio Tinto.

Our market focus in Underground Mining is a global focus. Globally, we focus on Underground Mining services in the metals and minerals market. Market conditions, commodity prices have been reasonably good over the past couple of years. And we benefited from the capital expenditure which came through from mining houses. But we do expect over the next 3 years that, that capital expenditure will start to level off.

Our order book maintained at about ZAR 22.8 billion, marginally up than what it was last year. Strong order book. About ZAR 100 million of cash. And then the acquisition. Terra Nova Technologies acquisition in the U.S., I think it was about $38 million. It is a company that specializes in logistics solutions for underground and opencast mines. It is about crusher systems, it is about conveyor systems, stacker/reclaimers, that sort of thing. And what is good for us, it's not that we acquired a company that was providing exactly the same services that we've previously had in the group. So this is in addition to the service offering that we had in the Underground Mining space. So it gives us a new source of revenue and a source of profit different to what we had previously.

In South Africa, we've established 49% joint venture, which is called the Boipelo joint venture. And this business is aimed at providing a contract mining service to the coal mining sector in South Africa. We were not able to provide that service previously. We didn't have that capability. We have established it now. We've got quite a significant project under execution. And the second project is lined up. Hopefully, we will be able to secure that within the next quarter or so. So we're very pleased also with that progress that we've made to enter the coal mining sector from a contract mining point of view.

There was a question that was asked by one of the front managers, not today, but outside of the meeting, and you will recall that we are targeting to have in our mining portfolio about 50% of revenue and earnings coming from contract mining projects which are those projects that have long-duration where we actually mine ore on behalf of clients. And Mike just confirmed the statistic before we came into this meeting. And Mike, you said we're at about 45% now?


Mike da Costa, Murray & Roberts Holdings Limited - CEO of Business platform [3]




Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [4]


So 45% of that ZAR 22.8 billion order book for Underground Mining is on contract mining type projects.

And then finally, we made a 30% investment in a company called Insig Technologies, which is a company that specializes in automation technology. It's -- the objective with that is to be in a position that we can automate more of our processes underground, that we can remove more and more people from the work phase. And through that, we intend to achieve an improvement in our safety performance but also in our productivity and ultimately in our competitiveness.

We are in a position today that we are able to operate an Underground Mine on a fully automated basis. All the equipment, all the fans, all the pumps can be automated and we can run that from a control room. We don't have a mine yet which is fully automated, but we've got the capability if we have a willing client to work with us where we could put it to test. Is that correct, Mike?


Mike da Costa, Murray & Roberts Holdings Limited - CEO of Business platform [5]


Yes, I mean we're busy equipping to operate on those tests in Australia.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [6]


So it is good progress. And the intent is once these tests have been conducted in Australia, we will be able to roll that out to other parts of the world.

But Underground Mining platform, as I said, is a mature strategy. It is probably the most advanced of the 3 platforms. And we are very happy with the positioning of this business. And you will see when we get to the results, and Daniel talk to you about the results, an absolute outstanding result for the past financial year delivered by this business.

There's a few common points where we comment on the prospects for the Underground Mining platform. I think the important takeaways is that we had a good run over the past few years as capital expenditure by the mining clients started to increase. Not so many new greenfields mines but quite a lot of expenditure in the brownfield space on existing operating mines. We do expect that to taper off in about 2 to 3 years' time. However, we we're also confident that we will be able to maintain our earnings at the current levels that we've reported last year. So a very, very good position for the Underground Mining platform.

If I move on to Oil & Gas. I think Oil & Gas is very quickly catching up with the Underground Mining platform from a strategic maturity point of view. Although the result for the past financial year from an earnings point of view was not a good result, from a strategic point of view, what was achieved in the Oil & Gas platform is very, very significant. And essentially 2 things: the acquisition in the USA of Saulsbury's EPC division, which we then rebranded as Clough USA, gave us a significant presence in the U.S. market, and that's a positioning that we were trying to achieve for quite a number of years. And we were not able to achieve that. But we have now made this acquisition. It was not a material acquisition, I think about $8.5 million in that region. And shortly after the acquisition and after the year-end, this business secured a $620 million EPC project in the petrochemical space. So it's not in the order book, it was in the near orders and as I said to you, ZAR 10 billion of that ZAR 14.4 billion near orders moved into the order book post year-end. And this project is one of them. So we're very, very pleased from a strategic point of view what we have achieved through this acquisition.

So when you look at the -- at the globe, let me start off in Australia, Clough essentially operates out of Perth, Brisbane and Sydney. We also have an office in Adelaide, a wholly owned subsidiary called e2o. We have an office in Port Moresby in Papua New Guinea. The Clough Coens joint venture operates out of Busan in South Korea. We've got Booth Welsh there in Scotland. And then as far as the Americas are concerned, in Calgary, a company called Enercore, which is essentially engineering services business. But in Texas itself, in Houston, CH-IV, a company that we've had in our portfolio for a number of years, and now Clough USA, the old Saulsbury business.

I don't think that it is really necessary for us. Welcome, Diane. I did make mention at the beginning that the chair -- chair lady of the Audit Committee will also be joining us. So welcome.


Diane C. McCann Radley, Murray & Roberts Holdings Limited - Independent Non-Executive Director [7]




Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [8]


So we are very pleased with where we are positioned globally. And I don't think, Peter, there's any need at this stage for us to really actively seek another major base to work from. I think we are well positioned where we are today from a geographic point of view. So for me, that was a significant achievement in the past financial year.

The market focus for this platform; globally, we're focusing on the LNG market. That includes Australasia. But in Australasia, we're also diversifying into metals and minerals and infrastructure type of work, purely because the LNG opportunity in Australia is not what it was a decade ago. So we had to diversify into other market sectors as well. And that strategy, that diversification strategy, has delivered significant result. The increase in the group's order book to this ZAR 46.8 billion is essentially as a consequence of the increase that was recorded in the Oil & Gas platform order book. And that increase was achieved in that infrastructure and metals and minerals space.

But having said that, there are early signs of the LNG market coming back in Australia. There's a project that we've tendered on, about USD 400 million. And we should know within the next month or 2 whether we've been successful or not. And if we secure that, it would be the first LNG project that we've secured for quite a number of years in Australia. So that's a very positive development. The order book, as I said, ZAR 23.1 billion. Very, very proud about what we achieved.

Subsequent awards. Other than that EPC project, the one in Houston, we have also secured for the first time in many years, a marine project in North America. It's a joint venture with another company. And our share of that joint venture is ZAR 400 million. So it's not a significantly large project, but it is significant in the context of the first time that we -- in many years that we've actually landed a marine project. And Peter confirmed earlier on for Clough, it is the first time actually that we do a Marine project outside of Australasia. And to have that in North America we think is strategically a significant achievement.

This project in the USA, this ZAR 9.4 billion, it's not a project that will be delivered over 5 years or 10 years. That project will be built in 2.5 years' time. So there's going to be quite an aggressive revenue burn. I think that will start in the second half of this financial year. And 2 years, 2.5 years from now, this project will be complete. And the challenge for Peter and his team is to really make sure that we deliver this project well because the Clough brand is now established in that region in Houston and the broader petrochemical space. We need to get something on your CV of a really successful project delivery. And this project that we've secured I think will be the project that will give us that opportunity.

Cash, net of debt, ZAR 2.1 billion. And in the recent acquisition, I've spoken about it already, it is this business in Houston which was rebranded as Clough USA. So from a management point of view, what Peter has done, the businesses in the Americas, in Canada and in North America, for management purposes, that's been put together under a very competent executive team with a Managing Director that's been appointed into that business. And we are soon getting to the point that we have to do something similarly in the Australasian region given the pace at which this order book is starting to grow.

Strategically, as I said, Underground Mining, probably the furthest advanced of all the platforms, but the Oil & Gas platform is really starting to catch up and we're very pleased with that.

Not too much to say about this slide. I've covered most of the content on the previous slide. And what I can say is there's a high degree of confidence that we will return to profitability in FY 2020, and that we will grow profits thereafter.

This morning, we did the same presentation to staff and Peter stood up very, very confidently and said, "Well, that's just no problem. That's a walk in the park." So Peter. I hope that you'll be brave to say it in this audience as well. But yes, Oil & Gas platform, as I said, not such a good year from an earnings point of view. But strategically, I think we've achieved a lot.

The final bullet on that slide is significant. Now we'll talk through that in a bit more detail when we talk about the order book and that is that there's a pipeline of ZAR 158,2 billion in Category 1 projects. Category 1 is tenders that we have submitted or tenders that we're still working on. So it's not pie in the sky, it's not something that's 2, 3 years out. It's active tenders in the market as we speak. But I will elaborate on it a bit later.

The Power & Water platform. Where the other platforms have got a multinational focus or a global focus, the Power & Water platform has got a sub-Sahara Africa focus. It's not a global, multinational business. It's a South Africa and sub-Sahara-focused business. And unfortunately, we're suffering from a lot of lack of investment in the power and water sector. And as a consequence of this, this business has to diversify into petrochemicals, metals and minerals as well as paper and pulp because there's not enough opportunity in Power & Water to ensure the sustainability of this business.

Being focused only on sub-Sahara Africa, you will not expect it to have offices all over the globe. So essentially there's Johannesburg, Cape Town and Maputo, we've got an office there as well, lined up for the LNG opportunity in northern Mozambique.

Cape Town, the company Optipower, operates out of Cape Town. That's the recent acquisition. The effective date of that acquisition is actually the 1st of July, so it's just post year-end.

And I can talk about the acquisition now. It's a company that specializes to deliver projects over a transmission lines on EPC basis. And that is a subsector of the power market where we do see quite substantial growth potential, not only in South Africa, but also in sub-Sahara Africa. So we undertook that acquisition effective the 1st of July. We've been struggling to get all the CPEs in place in time so we just couldn't make it before the year-end. So it's effective the 1st of July, but it's all done and hopefully we are now properly set up to undertake EPC work in the transmission space.

Market conditions, there's still a lack of opportunity in the power market as well as the water sector. But substantial investment is expected in transmission and distribution and therefore the acquisition of Optipower.

The order book is ZAR 0.9 billion. It's down on what it was last year. And subsequent awards, it's not really awards, but it is the order book of Optipower that moved into the group as part of the acquisition. So we reported an order book of ZAR 0.9 billion at year-end. But now with the acquisition of Optipower, we're looking at ZAR 1.4 billion for the platform as a whole. Cash, ZAR 400 million. And then as I said, as far as Optipower is concerned, we believe a good acquisition and that we will be able to grow that substantially. Is that correct, Steve?


Steve Harrison, Murray & Roberts Holdings Limited - CEO of Power & Water Business Platform [9]


That's right, Henry.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [10]


Are you sure?


Steve Harrison, Murray & Roberts Holdings Limited - CEO of Power & Water Business Platform [11]


I'm positive.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [12]


Thank you. Just a few observations. The fourth bullet from the top. The city of Cape Town has announced that it's going to spend or invest about ZAR 14 billion on the water infrastructure. We have 2 tenders that are already in the market. The 1 tender we have submitted and we are busy working on the second tender. But outside of the Cape Town area, there's actually very little happening. There's not too much investment happening in the water space, which is disappointing.

The Optipower acquisition, it's been a good development. And overall, this platform, I believe, has put all the right building blocks in place to position itself strategically to provide the services into the market which is in line with its capability and capacity. It is purely the fact that the market is just not big enough for us to really grow sustainably only in Power & Water.

From an earnings point of view, a small loss recorded in the past year. And we don't -- we will be very glad if we can record a profit in this new financial year but I think it is unlikely. But in the medium term, the objective surely is to return it to profitability and then to grow the platform beyond that. Pipeline, ZAR 5.5 billion. Not a substantial pipeline, but ZAR 5.5 billion in Category 1.

Order book. I said earlier on that the growth in the group's order book is predominantly in the Oil & Gas platform. You can see it from this graph. Mining, sort of maintaining a very, very good order book; Power & Water down to the levels that we've discussed earlier; and Middle East, we will now drop from the slide, we had at the end of last year, ZAR 100 million of order book left in the Middle East. There's nothing left anymore. All the construction work is complete. And as I said, the intention is to move it to discontinued operations from the 1st of July.

Graeme, is that okay? Can we you that?


Graeme Berry, [13]




Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [14]


Graeme is the lead partner from Deloitte doing our audit. A bit more of a breakdown on this order book. You will see 68% of that is in the international market, 32% is in the SADC region. But what is interesting, when you look at this statistic over here, beyond 2021, ZAR 23 billion of the order book will be delivered after 2021. That's what I said earlier on. We've got a multiyear -- an order book with multiyear projects in that order book. And that is nice because it gives us some visibility into the future. And as I said at the beginning of the presentation, it's like having one project providing one layer over a number of years and then another project which is a layer on top. And so you build your revenue stream that will give you some visibility of what the business will be able to do going forward. So we are very pleased with the fact that we have multiyear contracts in this order book.

Now a bit more about this Category 1. Category 1, ZAR 200 billion. It's up significantly on the ZAR 63.8 billion we had at the end of last year. The order book I've spoken about and the new orders as well and remember I said about ZAR 10 billion of that ZAR 14.4 billion already moved into the order book post year-end. And Category 1 are tenders that we are working on or tenders that have already been submitted.

Now we -- from a risk point of view, we analyze many things in the group. And one of the things that we also analyze is the order book, the risk in your order book; our success rate with tenders. And in the past financial year, 2019 financial year, we've achieved, on a value basis, 44%, 45% hit rate on all the tenders that we've submitted. I think there's 2 stories or 2 messages to take from this. We're not tendering each and every project that comes our way. We're selective on what we tender. And of the projects that we have tendered, 45% on a value basis was awarded to Murray & Roberts. That ZAR 200 billion of Category 1 pipeline, within the next 6 to 12 months, we will know which of those projects have been awarded and who was the successful bidder. Now I can guarantee you, part of that ZAR 200 million -- or ZAR 200 billion will not be awarded. Clients may decide that they don't want to continue with the project. But if you assume that ZAR 150 million of that ZAR 200 million will be awarded, and if that success rate is maintained, that 44% to 45%, we could be in a position that's about ZAR 75 billion of orders in that Category 1 pipeline that may be coming our way.

Now this statistic -- we shouldn't play around with these statistics too much because we find ourselves in the bidding market and your market share and your past success rate or hit rate on contracts is not always a good indicator of what the future will hold. Even today, 95, if not more -- 95%, if not more, of projects are awarded to the lowest bidder. And if you're in the bidding market and to find somebody that comes in with a slightly more competitive -- competitor -- competitive bid than you on a project, you may be losing a number of big projects, and all of a sudden your market share will get distorted. But if we maintain what we've achieved in the past financial year, there's a significant opportunity in that Category 1 pipeline for us to create our order book over the next 6 to 12 months.

So I think that brings me to the point that I need to hand over to Daniel. And I can just tell you, Daniel has been fighting a terrible flu since Thursday last week. But he's a strong guy and he will survive. So don't worry too much about that.


Daniël F. Grobler, Murray & Roberts Holdings Limited - Group Financial Director & Executive Director [15]


Thank you, Henry. So if you see me falling down at any point in the presentation, it's not to add a dramatic effect to any of the slides, it's just physical incapability.

So before I move on, on this slide, Henry made a comment to the staff this morning. It's the boring part of the presentation. But I always said to Henry (inaudible) coming on, (inaudible) good being open, so this really is to me, Henry, the meat of the presentation.

So what we got from the staff this morning is -- that went through Henry's part of the presentation. And forward looking at points, it paints a very positive picture. We talk about the order book, we talk about the items that's been put in place in each of the platforms and we're really optimistic going into the future on this business. But what we've got to do now is look at the rear-view mirror.

I think I'll just update of what's gone wrong, what's gone right. And despite what's happened throughout the year, we still ended up with a very strong balance sheet.

So just on a high level, Henry touched on it. Underground Mining, superb performance, record performance. I think the previous high, Henry, was ZAR 650 million in the group.

Oil & Gas and Power & Water, I must say, was a disappointment to the group. They both had a profit forecasted, they came in with a loss. We'll deal with that a bit later on.

Investments is investment in Bombela, still maintaining a very, very high yield of return. In the Middle East, we made a slightly bigger loss compared to prior year. But that was due to arrears as well as legal fees that we incurred. Interest is marginal. Taxation, we said that the effective tax rate increased to ZAR 40 million. But year-on-year, there's a ZAR 1 million difference in the tax rate. So the continuing operations, even though we had a very good year in Underground Mining, it wasn't enough to offset the losses in Oil & Gas as well as in Power & Water. The real kicker for the year when we get to attributable earnings is your discontinued operations. And we'll see on the following slide, I'll go through the details of that.

So when we look at EBIT. EBIT for the year came in for continuing operations of ZAR 791 million. In the prior year, we had ZAR 884 million (sic) [ZAR 864 million]. The item I must emphasize in the prior year number, we had a profit on the disposal of our investment in the Bombela operating company. That profit was ZAR 80 million, and it's included in the ZAR 864 million. So despite the movements in all the platforms we came really close to the number that we had in the prior year where all the platforms made a profit. If I go down to net interest. Net interest slightly up compared to prior year, we had a higher debt profile. We'll get to that.

Taxation, we can see ZAR 297 million versus ZAR 298 million. ZAR 297 million gives us an effective tax rate of 40%. In the prior year, it was 36%. And we'll get into the details. Discontinued operations was a loss of ZAR 91 million. In the prior year, it was a loss of ZAR 278 million and it mainly relates to Genrec where we managed to stem the losses as well as the recoverability of our retained assets and liabilities in the infrastructure and building sector. So overall, attributable profit of ZAR 337 million compared to ZAR 267 million.

If we go into the Oil & Gas department. Again, we say it has been a disappointment to the group. We expected a ZAR 200 million profit, but came in with a ZAR 100 million loss. Now there's a reason to that.

So in the first year -- of the year, in the first half of the year, they made a breakeven position. In the second half of the year -- the story in Clough is twofold: one is they effectively ran out of revenue. You need revenue to generate earnings to cover your profit, that didn't happen. There's a delay in contracts. And we can see in the order book and the order book going forward. And also had 2 loss-making projects in Alcoa and Beenyup. Now Alcoa has come to an end. Beenyup is coming to an end in the month of September. So those items should be behind us. But the pleasing item within Clough is the order book, and we'll see it on the far right-hand side of ZAR 23.062 billion.

Now I've got to put a tape on Henry's promise with Peter and that the projects that are secured is going to take a while from book to burn and start earning a profit. So I think Clough is still in for a tough 3 to 4 months period. And from thereon, we'll see earnings growth but quite at a rapid rate.

The one element we mentioned was marine. So we see 0 revenue in marine. And I was reprimanded this morning to say that we secured this project in North America. And Clough's share of that project was ZAR 400 million. So I can't say anything beyond that. But we are seeing changes coming to the market. About 2 months ago, we reviewed another Marine project, it's about a ZAR 1.2 billion project. So good profit for us and a good project for us to pursue.

Underground Mining, we had a very good performance. As you'll see in all 3 regions, they really fired on all cylinders. The Americas, Australia basically doubled their earnings from prior year, very encouraging. We can see the order book still sitting at ZAR 22 billion versus ZAR 22 billion in the prior year. What you will notice in Africa is earnings were maintained despite profit coming down. It's the same as Clough. What the team does is they go through a project, they accrue for risk and they manage that risk. And when that project comes to an end, there's a process with the client to try and eliminate as much of the risk as you've had accrued for. And the team, I must say, on that job and 2 other jobs have done extremely well to help us release some of those provisions and it helped the 2019 results.

If we go to Power & Water. Henry said I have to talk to this slide. So power is made up of the power element, the power program in Medupi and Kusile as well as in the prior year we had (inaudible).

So we can see the power element. From a turnover point of view, it came on -- down from ZAR 4.1 billion to just over ZAR 2 billion. They've got an order book there for ZAR 419 million. That's purely Kusile. And that order book is expected to be burnt over the next 12 months. So that order book should drop to 0.

And again, as in all the other platforms, they do accrue for risks, they do manage risks and as these risks come to fruition, they manage risks and they're all able to release the provisions as they go.

Water, we can see, is a problem, it's a national problem, it's not a Murray & Roberts problem. We think we've got a very unique service offering in the market and we know that wastewater treatment throughout the country is an issue. And as Henry said, we've seen 2 bids come into the market in Cape Town, but there's a lot more to come. And the water market, potentially, is significant.

I heard a staff the other day, in the prior year, Rand Water had a water budget and they spent 20% of their water budget for the entire year. So it just shows you that there's something wrong in the backlog procurement tendering processes that is stopping that from coming to market.

So overall, the platform had a loss of ZAR 32 million compared to ZAR 134 million. But a huge disappointment to the group as well.

So if you take the Clough results, which was a swing of about ZAR 300 million, we take this ZAR 160 million, we add that to current year earnings, and it could've been a very profitable year for Murray & Roberts.

If we go to Bombela in the Middle East. We see Bombela still contributing strongly to the group. Again, the current year is ZAR 306 million and the prior year was ZAR 277 million. Both years had significant elements and ones-off elements in them. I think the figure to use going forward would be ZAR 220 million on a prudent basis.

And what we can say is in the Bombela investment, the dates that we've incurred as a concession and as a JV will be paid off in 2023. So the dividend streams expected after 2023 is expected to become significantly more.

In the Middle East, we made a loss of ZAR 56 million. I expect that loss to be anywhere between ZAR 30 million and ZAR 50 million for the next 2 years as we go through our expenses and legal fees to try and resolve these projects. The projects have been completed. It's now our process to go and collect revenue. There's a chain of subcontractors that need to be paid and negotiated with so we do think there's a bit of a tail for that. But I think Graeme was the wrong guy to ask. We've got to ask PwC whether or not they're comfortable in terms of moving that down to discontinued in the new year.

If we go into the balance sheet, there's a number of indexes in the back that talk to quite a lot of detail in the balance sheet. So I'm going to focus on the numbers that are really important on the balance sheet.

Henry talked about cash and cash equivalents, said that currently, it's sitting at ZAR 3.455 billion. In the previous year, it was ZAR 2.4 billion. So yes, we've received an advance payment of about the ZAR 1 billion. But even without the ZAR 1 billion, we still would've sat on a pretty strong balance of ZAR 2.4 billion, something which is quite pleasing for us.

Now I just want to pause on that. There's a concern within the market with many analysts that we've got a growing business. Our order book has gone from ZAR 30 billion to ZAR 46 billion and all these projects are going to drain working capital. Murray & Roberts, how are you going to fund that? Do you have the facilities? It's going to be an awful nightmare for Murray & Roberts to grow this business.

So in Clough alone, we've reviewed, I would say, 6 to 8 projects over the past 2 months. And each and every one of those projects have embedded on a cash neutral or cash positive basis. As a contracting principle, we've got through the entire group. So I'm not concerned about growth within the group as long as they bid within the contracting principles. And we see that they diligently apply it within the group.

So of that ZAR 1 billion, we had a long chat at the Clough Board, not a lot is expected to flow out in the next 12 months. And in fact, we are expecting a further advance payment on that project on -- within Clough. So that figure should increase.

Shareholders' equity is sitting at ZAR 5.7 billion. Now there's been many movements, up and down. The biggest movement bringing it down from the prior year's ZAR 6.7 billion is a ZAR 1.1 billion IFRS 15 adjustment that brought the figure down. I spent about 4 hours last year trying to explain IFRS 15 I'm and not going to try and repeat that this year.

Second item we've got to have a look at is our long-term debt. So our long-term debt in the prior year was ZAR 147 million. That went up to ZAR 1.127 billion.

So there were 3 drivers behind the increase in the debt. The first one is we invested an additional 17% in the Bombela Concession Company in FY 2018. Now due to time, we ran out of time. We banked that from cash as well as our withdrawal facilities. But as you know, that's not good long-term business practice. We went through a process to refinance that 17% facility. And we've put that into a purchase scheme, that's now shown as long-term debt.

The second element was the acquisition of TNT, where we took debt onboard to effect the transaction.

And then the third element, and you'll see that in the short-term debt as well, is asset-based finance. So I'll get into a bit more detail on the asset-based finance. But what we see is that, yes, we've had the advance payments, but we've also had a significant increase in debt due to a net number of different items.

So it's the first time that we've shown this slide within the group. And I just want to unpack the group levels and group gearing for those who don't fully understand contracting.

So in terms of debt, we've got total debt of ZAR 1.6 billion. And we divided that between self-servicing debt as well as corporate debt.

So self-servicing debt, if I take asset-based finance, we've got a mining contract, we go to Nedbank Rose for ZAR 100,000 to buy that piece of kit. I then go to the clients and I supply that kit to the clients. And every month, in the certificate, I have a line item for plant. So I get paid through the revenue line for that plant on their contract in a monthly basis and that plant is paid off at the end of the financial year. I still earn a profit on that plant. So effectively, those contracts are servicing their own debt and there's no reason for us to use profit within the organization to service that debt. So we do see that as self-servicing debt.

The second is BCC preference shares. So we said that 17% of our investment in Bombela has been up, (inaudible) SPV. So all the dividends coming out of Bombela Concession Company goes into that SPV. Some of that money flows to us. Some of the money flows to the banks to repay the debt. So again, BCC, that 17% share is seen as a self-service debt.

And then we've got true corporate debt. So we've acquired the TNT acquisition at a value of ZAR 635 million. Of that value, we've got ZAR 319 million debt. So I think the team has done really well in the past 2 months to bring that level of debt down within TNT.

And then we've got corporate overdraft all over the place in all of the areas, a lot sits in the Middle East and we've got bits and bobs all over the place. So really it's a corporate debt that we've got to use and we've got to generate profit from within the group to service that debt. The rest of the debt is self-servicing debt.

If you look at our gearing levels, total equity is sitting at ZAR 5.751 billion. So if we take our total debt and we break that down into the 2 elements, our total gearing on the ZAR 1.6 billion is 29%, taking into account that the equity moved down from ZAR 6.8 billion to ZAR 5.7 billion.

But if you just take the true gearing corporate debt excluding the self-servicing debt, we're sitting at a gearing level of 9%. And hence, we were able to make that statement at the top of the slide saying that the company has got prudent gearing levels.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [16]


Okay. So we are getting to the end of the presentation. And now for an update on ATON and then I will end off with presentation takeaways.

As I said earlier on, our Chairman, Suresh, is a member of the Independent Board so is Diane Radley. I'm not a member of the Independent Board, but I can give you an update of the ATON process. And if there are any specific questions, I will ask Suresh and Diane to respond to those.

You're all familiar with the offer, started off at at ZAR 15 a share, it's now ZAR 17 a share for quite some time. And it is subject to conditions precedent, specifically approved by the South African competition authorities.

The South African competition commission and the South African Competition Tribunal, they are independent institutions. They analyze, investigate and adjudicate on mergers. And in that process, they look at the company, the target company, they look at the acquiring company, get submissions from those. They get submissions from competitors on the market, they get submissions from clients in the market, analyze all the information and come up with a recommendation.

In July of this year, the competition commission recommended to the tribunal, which is the ultimate deciding body, recommended that the transaction should be prohibited. And ATON exercised its right to contest that recommendation. The Competition Tribunal called for a prehearing, which was held in August -- beginning of August. And at that hearing, they decided on the hearing dates. The process leading up to the hearing dates and then the hearing itself will be done on the second week of December this year and the last week of January next year. And the tribunal will, after that process, decide whether the transaction will be approved or whether it will be prohibited.

ATON's offer of ZAR 17 per share is still below the value range that the Independent Board has decided on for control of Murray & Roberts, which is between ZAR 20 and ZAR 22 a share. In June of this year, the Independent Board did undertake a reevaluation of the group and maintained the position that the value range of ZAR 20 to ZAR 22 per share is the correct value range.

Presentation takeaways. You guys get a lot of information being in this meeting, but you need to ask yourself or I have to ask myself what is it that I want you to remember after being here the whole day? Or not the whole day, this hour.

First of all, I think the strategy for Murray & Roberts is starting to work. And if we -- I really feel very, very, very sorry for the companies that are still stuck in the South African construction sector, where we were a couple of years ago, really gone through -- going through a very difficult time. But the strategy that we've adopted for the group, the implementation thereof, are showing strong delivery and we are really very pleased with the way in which the order book has grown and the strategic positioning that we have for all the 3 platforms. The cash position is still very strong and prudent levels of gearing, 9% or 29% depending whether you do it on total debt or only corporate debt.

Order book of ZAR 46.8 billion is a significant order book, and that underscores the Board's confidence that our strategy is starting to yield results. A record earnings for the Underground Mining platform, we expect those earnings to be maintained.

Oil & Gas, expected to return to profitability in 2020. And significantly, the acquisition in the USA from a strategic point of view, has positioned us in a buoyant, buoyant, strong growing market where we can apply our skill. Peter supporting those clients and building their projects for them.

Power & Water platform, targeting complementary markets but we also believe that the acquisition of Optipower is going to give the Power & Water platform a new lifeline to grow and to create a sustainable business moving forward.

And then finally, the prospects for improvement in our earnings and operational performance are encouraging. And we remain confident that the long-term outlook for natural resources is going to be strong enough to provide us with a good market for the group as a whole.

So thank you very much. That brings us to the end of the presentation. What we're going to do now is give an opportunity for questions to be asked. Also after the presentation, we will be around to answer questions that you may have that you did not want to ask in this meeting. And I'm going to ask you, Ed, to facilitate this process and starting off with the people on the webcast and people on the call. And then we will take meetings from the audience in the room.


Questions and Answers


Ed Jardim, Murray & Roberts Holdings Limited - Group Investor & Media Executive [1]


No questions yet online, Henry. So I think let's start in the room.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [2]


Are there questions online?


Ed Jardim, Murray & Roberts Holdings Limited - Group Investor & Media Executive [3]


No questions yet online.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [4]


No questions. All right. Questions in the room?


Ed Jardim, Murray & Roberts Holdings Limited - Group Investor & Media Executive [5]


Any questions in the room?


Unidentified Analyst, [6]


Very encouraging to see the growth in the order book, I think it's by about 45%, 47%. I did notice in your presentation that the dedicated number of the order book for this year is about ZAR 14 billion, ZAR 15 billion. That's substantially lower than the ZAR 20 billion achieved this year. Are you comfortable that the group can still continue to grow top line in this year?


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [7]


Absolutely. The order book is something which is dynamic. It's not a static number. And I can assure you that by the end of this year, the order book will be completely different to what it is today. And that is based on the ZAR 200 billion that we have in the Category 1 pipeline. And a large percentage of that will be adjudicated. And if we maintain our success rate, about 45% of that value should come to us. Does that answer your question?


Unidentified Analyst, [8]


Yes. Can I ask a second question, please?


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [9]




Unidentified Analyst, [10]


That's relating to the outstanding legal wrangles actually with the Dubai airport contract. I believe that the legal authorities haven't come to a decision and now it's back to the 2 parties to find a solution.


Henry Johannes Laas, Murray & Roberts Holdings Limited - Group Chief Executive, MD & Executive Director [11]


Yes. Yes. It's very disappointing what happened there. We've been in a legal process for a decade and the tribunal came out with its decision a couple of months ago. And unfortunately, it's not a conclusive ruling. There were very few items that were ruled on and those items that they have ruled on mostly in favor of Murray & Roberts. But it was more a ruling that gave guidance to the parties of how the final account on the project should be structured and what the sort of entitlements would be that the different parties would have in putting that final account to bear. We are in that process now. But having said that, with the knowledge of the findings in the tribunal, from this tribunal board, and our subsequent reviews, the uncertified revenue on the Dubai airport we believe is recoverable. But it might take us another 12 months to get there. So very, very disappointing.

I spoke to our Commercial Director, Ian Henstock, the other day. I said to him, "Ian, can't we just lock the office door and throw the keys away and come back to South Africa?" Unfortunately, it's not as simple as that. Once you've been in a region and you've worked in a region for a number of years and you've companies established in those regions, if you want to go through a process of wrapping it all up and deregistering those companies, it is an enormous process and the same applies to the Dubai airport. I think we've just had too much in our claim, which we believe are really money that we should recover for our shareholders. We can't unfortunately just walk away from it. We incur these legal costs every year, but we're going to hang in there until it is finally concluded.

It's also the only jurisdiction where you have a -- that I know of, where you have on-demand bond, as we have in our joint venture, on-demand bond on the subcontractor that did not perform. And when you present that on-demand bond, there are processes that intervene and that block that bond from being paid out. So it's a different part of jurisdiction than what we are used to, to conduct our business. Unfortunately, Marc, the tribunal award was not what we expected in that it was inconclusive. But it still gave us sufficient confidence that the uncertified revenue is not at risk.

Any other questions? Are there any questions to the members of the Independent Board on the ATON process?

Nothing? Then what I would like to do finally is ask Deloitte, Graeme Berry. Graeme, can you just stand up; and Nita, please, can you please stand up?

We've had a relationship with Deloitte as our group auditor for more than 100 years. It's actually 117 years that Deloitte have been auditing us. And most recent part of the audit is Graeme and Nita. And they were responsible for the FY '19 audit. Due to auditor rotation, they will now step down, and we've invited PwC to take over from Deloitte and to be our auditor going forward.

Having said all of that, I really can say with a lot of confidence that Deloitte has serviced us with excellent service over so many years, and we are very pleased with the relationship that we had with Deloitte. And if it wasn't for this governance requirement around audit rotation, I don't know, maybe you could have still been our auditor for a few years to come. But Graeme, thank you. Nita, thank you very, very much. Really appreciate your service over so many years. It was outstanding. Thank you.

All right. As I said, we will still be around. If there's something to it, next door is it, please make use of it. Don't rush off. If you want to ask questions, the platform CEOs are available, so is Suresh and Diane and Ian as well. Please feel free to ask your questions. Thank you very much.