During the past year, the Group further diversified its market positioning through strategic acquisitions in each of the three business platforms, which will strengthen its earnings potential and resilience against market volatility.
The implementation of the Group’s strategy as a multinational provider of specialised engineering and construction services, primarily in the metals and minerals, oil and gas & power and water market sectors, is showing strong delivery.
With a quality order book approaching record levels, a prudent level of gearing and robust cash position, the Group is well positioned to pursue its growth plans and the prospects for an improvement in earnings in the near term is encouraging. Furthermore, the Group maintained annual dividend payments for the past five years and is intent to be consistent in this regard going forward.
The Group’s focus on Engineered Excellence, underpinned by continuous improvement and innovative approaches, will be the bedrock of its competitiveness, resilience and reputation – the cornerstones of sustainable value creation. Recognition for expert knowledge and competitive edge is the differentiation the Group is working towards in all its business platforms.
The operating performance information disclosed has been extracted from the Group’s operational reporting systems. The Corporate & Properties segment has been excluded from the operational narrative. Unless otherwise noted, all comparisons are to the Group’s performance as at and for the 12 months ended 30 June 2018.
During the year, the Group further diversified its market positioning in each of the three business platforms, which will strengthen its earnings potential and resilience against market volatility. These businesses have increased the Group’s exposure to the natural resources market sectors in selected geographic regions, and to the different phases of the engineering and construction project lifecycle:
Revenue from continuing operations decreased by 7% to R20,2 billion (FY2018: R21,8 billion). Attributable earnings increased by 26% to R337 million (FY2018: R267 million). Diluted continuing headline earnings per share (“HEPS”) decreased by 10% to 101 cents (FY2018: 112 cents). Cash, net of debt, marginally decreased to R1,8 billion (30 June 2018: R2 billion), buoyed by circa R1 billion of project advance payments, partly offset by acquisitions of R0,8 billion. The order book for continuing operations increased by 55% to R46,8 billion (FY2018: R30,1 billion).
Capital expenditure for the year under review was R816 million (FY2018: R436 million), predominantly in the Underground Mining platform, of which R775 million (FY2018: R358 million) was for expansion and R41 million (FY2018: R78 million) for replacement.
The effective taxation rate of 40% (FY2018: 36%) is high, mainly due to withholding tax in foreign jurisdictions, as well as losses incurred in jurisdictions where a deferred tax asset cannot be recognised.
The Board of directors of the Company (“Board”) reconsidered the Company’s dividend policy and decided to maintain a stable annual dividend. This annual dividend will be subject to the Group’s financial position and market circumstances and may be supplemented from time-to-time with a special dividend.
Considering the Group’s strong cash position, the Board resolved to increase the gross annual dividend for the year under review to 55 cents per ordinary share (FY2018: 50 cents). The dividend will be subject to the dividend tax rate of 20%, which will result in a net dividend of 44 cents per share to those shareholders who are not exempt from paying tax on dividends. The dividend has been declared out of income reserves.
The number of shares in issue as at the date of this declaration is 444 736 118 and the Company’s tax reference number is 9000203712.
The relevant dates are:
|Last day to trade cum-dividend||Tuesday, 1 October 2019|
|Shares to commence trading ex-dividend||Wednesday, 2 October 2019|
|Record date (date shareholders recorded in books)||Friday, 4 October 2019|
|Payment date||Monday, 7 October 2019|
No share certificates may be dematerialised or rematerialised between Wednesday, 2 October 2019 and Friday, 4 October 2019, both dates inclusive.
On Monday, 7 October 2019, the dividend will be electronically transferred to the bank accounts of all certificated shareholders where this facility is available. No dividend will be paid to shareholders who have not provided their banking details to the transfer secretary (Link Market Services South Africa Proprietary Limited). Accordingly, for non-compliant shareholders, their cash dividend will remain unpaid until such time as they have provided relevant banking details to the transfer secretary. No interest will be paid on unpaid dividends.
Shareholders who hold their shares in dematerialised form will have their accounts held by the Central Securities Depository Participant or broker credited with their dividend on Monday, 7 October 2019.
ORDER BOOK, NEAR ORDERS AND PROJECT PIPELINE
The Group reported a significantly increased order book and substantial near orders. The order book includes several multi-year contracts. Strong growth has been recorded in the Oil & Gas platform order book and there is opportunity for both the Oil & Gas and Underground Mining platforms to further grow their order books. The lower and declining order book in the Power & Water platform is reflective of the Medupi and Kusile projects nearing completion and prevailing market conditions in South Africa. The Oil & Gas platform’s order book and Category 1 pipeline opportunities are encouraging and reflective of the success of the platform’s strategy of domestic diversification and international oil and gas. Subsequent to year-end, the Oil & Gas platform secured the R8,7 billion project recorded as near orders in the table below:
|Category 1||Category 2||Category 3|
|Oil & Gas||23,1||8,7||158,2||12,7||238,3|
|Power & Water||0,9||0,5||5,5||12,1||23,2|
|30 June 2019 totals||46,8||14,4||200,4||73,2||294,2|
|30 June 2018 totals||30,1||7,9||63,8||125,9||417,4|
OIL & GAS PLATFORM
|R millions||Engineering||Construction||Global Marine||Commissioning
|Revenue||910||971||2 995||504||–||–||2 496||6 894||327||173||6 728||8 542|
|Order book||557||639||21 652||3 552||–||–||853||2 245||–||–||23 062||6 436|
|Segment assets||3 220||2 808|
|Segment liabilities||3 811||2 334|
Revenue decreased to R6,7 billion (FY2018: R8,5 billion) as projects were completed during the year and securing replacement work was delayed. In a competitive market with pressure on margins, the platform recorded an operating loss of R98 million (FY2018: R209 million operating profit). The loss is primarily due to a delay in the progressing and awarding of new projects resulting in insufficient project earnings to cover overhead costs, and losses incurred on two, now largely completed projects. The order book increased significantly to R23,1 billion (FY2018: R6,4 billion). The increase follows the award of several projects in recent months, including Clough’s R18,6 billion share of the Snowy Hydro project. Considering the large and growing order book, the platform is expected to return to profitability in FY2020 and to grow earnings steadily thereafter.
The Oil & Gas platform strategy of domestic diversification and international oil and gas, is now embedded in the business and is delivering positive results in the Australian infrastructure and mining markets, and further, there are early signs of a medium-term recovery in the oil and gas markets.
The International Energy Agency expects a 10% rise in oil consumption, mainly for petrochemicals, and demand for natural gas to grow sharply by 45% in the next decade. Natural gas is forecast to surpass coal to become the second-largest source of fuel worldwide by 2030. Demand for new capacity in North America is expected to result in high capital expenditure growth, which bodes well for Clough USA as demonstrated by the post year-end award of a R9,4 billion petrochemical EPC project.
The platform is targeting oil and gas projects in Australia, Canada, USA, Mozambique, Kazakhstan and Papua New Guinea, with meaningful growth anticipated in the medium term.
UNDERGROUND MINING PLATFORM
|R millions||Africa||Australasia||The Americas||Total|
|Revenue||2 853||3 524||3 148||1 779||4 860||2 701||10 861||8 004|
|Order book||13 812||10 738||3 391||4 799||5 613||6 533||22 816||22 070|
|Segment assets||1 085||879||1 715||1 167||2 780||1 711||5 580||3 757|
|Segment liabilities||1 150||1 007||978||484||1 406||504||3 534||1 995|
The platform delivered an outstanding result in a buoyant market for underground mining services. Revenue increased to R10,9 billion (FY2018: R8,0 billion) and operating profit reached a record R814 million (FY2018: R471 million). The order book increased marginally to R22,8 billion (FY2018: R22,1 billion).
As one of the largest underground mining contractors in the world, the platform has significant market share in its targeted mining jurisdictions. Commodity prices have generally been stable in the last two years resulting in greatly improved balance sheets of many mining companies. Although a few greenfields projects have come to market, many mining houses have mainly invested in brownfields projects extending the capacity and lives of existing mines.
In the context of a recovery in commodity markets, the platform has done well to capitalise fully on its growth potential, substantially growing its regional market shares.
Capital expenditure in the mining and mining services markets is expected to level off over the next three years. Although the Group believes there is still considerable opportunity for the Underground Mining platform, it expects earnings to show measured growth from current levels. Accelerating innovation is a key strategic theme for the platform to ensure that it stays ahead of its competition and retains its leading position as a global provider of underground mining services.
POWER & WATER PLATFORM
|R millions||Power1||Water||Oil & Gas||Electrical &
|Revenue||2 025||4 180||21||95||434||412||37||138||–||4||2 517||4 829|
|Order book||419||1 278||–||–||511||188||5||13||–||–||935||1 479|
|Segment assets||709||1 292|
|1||All power sector projects, including Power Programme (Medupi & Kusile)|
Revenue and order book decreased to R2,5 billion (FY2018: R4,8 billion) and R0,9 billion (FY2018: R1,5 billion) respectively. The platform recorded an operating loss of R32 million (FY2018: R134 million operating profit). The loss is due to reducing levels of revenue with limited new project opportunities in South Africa, as well as a loss incurred on a project for Sasol, which is in dispute.
Strategically, the platform has taken all the right steps to position it well for the future, but there is a lack of project opportunity in the African power and water sectors. The platform is targeting maintenance contracts from Eskom for its aging fleet of power stations. Furthermore, investment in renewable energy and in new fuel storage terminals should also provide complementary market opportunities.
Substantial investment in the short to medium term is expected in the transmission and distribution sub-sector of the power market, for which the recently acquired OptiPower Projects is well positioned. Notwithstanding the ailing water infrastructure in South Africa, investment in the water sector remains very low with few project opportunities coming to market.
Given the depressed state of the African power and water sectors, the platform has also extended its service offering to complementary markets, including petrochemicals, metals and minerals, and paper and pulp.
The commercial close-out on the Medupi and Kusile power projects is likely to be complicated and protracted. However, the accounting position on these projects is considered to be prudent and risk provisions are adequate.
The sustainability of this platform is dependent on the level of investment in the South African economy, which has been disappointing in recent years. The Group expects the platform to return to profitability in the medium term.
|R millions||Bombela Investments||Middle East||Total|
|Segment assets||1 441||1 379||999||1 682||2 440||3 061|
|Segment liabilities||379||36||1 168||1 290||1 547||1 326|
The Group’s investment in the Bombela Concession Company yielded earnings of R306 million (FY2018: R277 million).
MIDDLE EAST BUSINESS
In FY2016 the Board decided to close the business in the Middle East. The final four projects have been completed during the year and the business recorded an operating loss of R56 million (FY2018: R34 million operating loss), primarily due to ongoing legal costs and a small overhead cost. Going forward, the business in the Middle East is expected to be accounted for as a discontinued operation.
Unfortunately, the arbitration outcome of the Dubai Airport claim was inconclusive and the claims and counter claims will have to be finally settled by agreement between the parties. Current deliberations with our legal team are focused on defining the best possible way forward in determining the final account for this project.
As part of the year-end audit, there was an extensive review of our accounting position on the Dubai Airport project and now completed last four projects, and the year-end accounting position was concluded to be appropriate.
|R millions||I&B businesses
|Clough Properties||Genrec Engineering||Total|
|2||Includes Construction Products Africa.|
The operating loss from discontinued operations for the year was R90 million (FY2018: R273 million) and mainly relates to final costs associated with the disposal of Genrec and the infrastructure and buildings businesses.
UPDATE ON THE GROUP’S CLAIMS PROCESSES
Uncertified revenue decreased to R0,7 billion (FY2018: R1,3 billion). This reduction includes an adjustment following the implementation of the new revenue accounting standard, IFRS 15. In terms of IFRS 15, revenue can only be recognised to the extent that it is “highly probable” that a significant reversal will not occur in future. This new standard increases the threshold for revenue recognition, as the previous threshold was “probable”. The Group remains confident that all revenue recorded as uncertified will be certified and paid once attendant commercial matters have been resolved.
The Group achieved an outstanding safety performance in the year. No fatal incidents were suffered and the LTIFR remains at an industry leading level of 0.71 (FY2018: 0.86). This outcome was achieved across a global project portfolio of more than 100 projects.
The inquiry established by the Department of Labour into the tragedy that occurred in October 2015 at the Grayston Pedestrian Bridge project in Sandton, Johannesburg has been concluded, however, the findings have not yet been made available.
Implementation of the New Strategic Future plan gathered momentum in the year, with the Group’s business platforms making headway in consolidating their strategic positions, competitive advantages and growth prospects. A strong, quality order book of R46,8 billion and near orders of R14,4 billion underscores the Board’s confidence that the Group’s strategy is starting to yield the planned outcomes.
The Group is in a strong cash position and debt is within its targeted range. The Group’s financial position, even after a number of years of subdued profits, is robust and sufficient to fund its organic and acquisitive growth plans.
The prospects for an improvement in operational performance are encouraging and the Group remains optimistic about the longer-term outlook for natural resources markets.
Any forward-looking information contained in this announcement has not been reviewed and reported on by the Group’s external auditors.
Implementation of ATON’s mandatory offer (“Mandatory Offer”) to acquire up to 100% of the issued ordinary shares of Murray & Roberts, not already owned by ATON (“Merger”), remains subject to certain suspensive conditions, specifically receipt of the required regulatory approvals. Shareholders are referred to the various announcements released on SENS between 19 July and 6 August 2019.
The Competition Commission of South Africa (“Commission”) and the Competition Tribunal (“Tribunal”) are independent institutions that investigate and adjudicate mergers, taking into consideration a multitude of factors, including the views of customers and competitors of the entities seeking merger approval.
On Friday, 19 July 2019, the Commission recommended that the Merger be prohibited (“Recommendation”) and ATON has followed its right to contest the Recommendation. A pre-hearing conference was held on Tuesday, 6 August 2019, at which a timetable was settled for contested proceedings to be conducted before the Tribunal. The hearing of the matter has been set down from Monday, 9 December 2019 until Friday, 13 December 2019 and Monday, 20 January 2020 to Tuesday, 28 January 2020. The Group has received the expanded report from the Commission regarding its Recommendation and the contents thereof are only available to the affected parties at this stage. The Independent Board will continue to engage with regulators on a factual and objective basis until the conclusion of the process.
Shareholders are reminded that ATON’s cash offer price of ZAR17.00 per Murray & Roberts’ ordinary share is below the independent board’s (“Independent Board”) fair value price range for securing control of the Company, of between ZAR20.00 and ZAR22.00 per share. In June 2019, the Independent Board refreshed its valuation, taking into account the latest market developments and maintained its view of the fair value price range.
The Independent Board will update shareholders as and when required. It accepts responsibility for the information contained in this update and certifies that, to the best of the knowledge and belief of its members, the information contained in this announcement is true and nothing has been omitted which is likely to affect the accuracy and relevance of the information.
On behalf of the directors:
Chairman of the Board
Group Chief Executive
Group Financial Director
28 August 2019