Release Date: September 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Murray And Roberts Holdings Ltd (STU:LDYA, Financial) has successfully reengineered its organizational structure, reducing overhead costs and improving management efficiency.
- The company achieved a significant reduction in corporate costs, estimating a decrease of ZAR80 million to ZAR100 million for the financial year 2025 compared to 2023.
- The order book increased from ZAR15.4 billion to ZAR17.2 billion, reflecting strong client trust and confidence.
- The company reported an improved financial performance with revenue increasing from ZAR12.5 billion to ZAR13.5 billion.
- Murray And Roberts Holdings Ltd (STU:LDYA) achieved a net cash position of ZAR0.4 billion, a significant improvement from the previous year's net debt position of ZAR0.3 billion.
Negative Points
- The company is still facing liquidity pressures due to the absence of working capital facilities in South Africa.
- There are ongoing costs associated with the voluntary administration in Australia and the deleveraging plan in South Africa.
- The OptiPower division incurred a loss in the previous financial year due to liquidity constraints, delaying procurement and project completion.
- The company has not yet refinanced its ZAR409 million debt, which continues to exert financial pressure.
- The effective tax rate remains high, driven by the level of profitability, which was depressed in the current year.
Q & A Highlights
Q: Given the strong cash position, can't Murray & Roberts pay off SA debt given available cash if the North American business pays a dividend to SA? And if not possible, does that mean that not all cash is available to the Group?
A: Not all cash is available to the Group. About ZAR475 million cash will unwind in the new financial year. The Americas business needs cash for intra-month movements, ramp-up of new contracts, and future projects. The dividend policy is 50% of after-tax profit, but immediate dividends are limited. The ZAR1.6 billion cash balance is inflated by ZAR475 million and working capital requirements.
Q: Free cash flow to equity in FY24 appears to be around ZAR1.50 per share. Is this correct? And are there any one-off items that boosted FY24 free cash flow?
A: The ZAR1.50 per share is correct, but it has been inflated by working capital movements. Adjusting for these, the free cash flow would be around ZAR0.50 to ZAR0.70 per share.
Q: Guidance that the Group targets a return to pre-COVID earnings per share. Please, can you provide a target EPS number? Could it be around ZAR1 per share?
A: Pre-COVID earnings included both Clough and RUC, which were between ZAR700 million and ZAR800 million. After deducting interest and tax, it could be close to ZAR1, slightly north of ZAR1.
Q: Could you please provide some guidance on the OptiPower GP margin?
A: The OptiPower GP margin is expected to be around 10% to 11%, considering the operational risk and tender margins.
Q: Can you add more color on the Middle East contingent liability? What does the back-to-back arrangement refer to? Any update on core proceedings?
A: The contingent liability relates to the El Mafraq Hospital project in Abu Dhabi. Bonds were called by the client in 2021, which we believe was incorrect. The back-to-back arrangement means the claim should be against the client, not Murray & Roberts. The matter is in the South African high court, and the client has been joined to the proceedings. It is expected to be a drawn-out process.
Q: To what extent does Murray & Roberts expect improved political stability in terms of the government of National Unity and any expected uplift in construction or infrastructure projects to benefit the Group?
A: Murray & Roberts is no longer a construction company, so it won't benefit directly from infrastructure projects. The opportunity lies in the investment through Eskom for renewable energy and transmission lines.
Q: Is the total working capital drag expected to be the ZAR400 million swing that Henry mentioned earlier? Or is there more?
A: The expected swing is ZAR475 million. Operations in South Africa are bid on a cash-neutral or cash-positive basis. The Americas operations are cash-negative for the first few months of new contracts but return to profitability thereafter. On a normalized basis, working capital should be neutral to slightly positive.
Q: Can you provide any commentary on OptiPower's ability to improve its order book?
A: OptiPower has been selected to serve on Eskom's panels for transmission lines and substations, which should provide opportunities. The Group's refinancing of South African debt will also improve chances of securing projects.
Q: Can we assume that the delayed refinancing and restrictions on liquidity have affected Murray & Roberts' ability to provide guarantees and secure renewable energy and transmission line projects? When is the tax issue expected to be resolved?
A: The bonding capacity is not an issue; the challenge is day-to-day liquidity. Liquidity constraints have delayed procurement, but this should be resolved soon. The tax rate should come down in FY25 and normalize by FY26.
Q: Can you provide a target EPS number for the Group's return to pre-COVID earnings per share?
A: Pre-COVID earnings were between ZAR700 million and ZAR800 million. After deducting interest and tax, the target EPS could be close to ZAR1, slightly north of ZAR1.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
