M&R feels its R26.9bn order book should be on R35bn-plus
MURRAY & Roberts (M&R) believes its total order book of R26.9 billion at end-June is low and the listed multinational engineering and construction group should have an order book of R35bn-plus.
However, Henry Laas, the group chief executive of M&R, said last week that they believed the group had a quality order book with an inherent margin that should enable them to achieve their aspirations of a 5 percent to 7.5 percent profit margin.
Laas added that the group could grow its order book to R40bn, but the it needed to be responsible in how it grew it and the type of opportunities that were introduced into that order book.
“If you lose money on one project, the impact of that is devastating. For one loss making project, you need five or 10 good projects just to make up for it,” he said.
Of the total order book, M&R’s oil and gas platform accounted for R5.2bn, underground mining R17.5bn and power and water R3.7bn.
Laas said the oil and gas and power and water order books were very low, but the underground mining order book very strong.
“That is one of the reasons why we believe that the metals and minerals cycles has turned. We are very excited about the future of the underground mining business,” he said.
Laas said that from a geographic viewpoint, 61 percent of the order book was still in the Southern African Development Community region and 39 percent was international. He attributed this to the strength of the underground mining order book, with a lot of that in South Africa, while the order book still carried the value of Eskom’s power programme. Laas said R13.8bn of the total R26.9bn order book was to be delivered in M&R’s 2018 financial year.
He said they believed they needed to have 65 percent to 70 percent of the group’s planned revenue secured at the beginning of the year, which translated into revenue of about R21bn for the new financial year.
“We think it’s a little bit on the low side, but have budgeted for a higher revenue because we have R7bn in near orders, with about R6.3bn of that in the underground mining cluster. Since the end of the financial year, there was an additional R3.6bn in underground mining in South Africa that must be added to the near order plus R1.6bn in the Americas.
“The near orders are strong. In our definition of a near order, you have secured the work and just need to finalise the T’s and C’s and (terms and conditions) and get the contract signed,” he said. Laas said M&R had a substantial project pipeline of R639.6bn, but the timing of that opportunity remained uncertain.
M&R reported an 8 percent increase in diluted continuing headline earnings a share, excluding the Middle East, to 212 cents in the year to June from 197c in the previous year.
The group’s earnings were dented by a R570 million loss incurred in the Middle East and a R170m net present value charge for its cash contribution over 12 years in terms of the Voluntary Rebuilding Programme agreement with the government. This was partially offset by a R160m profit realised in the Bombela Civils joint venture.
Shares in M&R rose 3.63 percent on the JSE on Friday to close at R13.40.