M&R to cut costs further with Middle East exit

Murray & Roberts (M&R) expects to eliminate certain costs by selling or liquidating its remaining companies in the United Arab Emirates (UAE) in the 2025 financial year, four years after its Middle East operations were discontinued.

The engineering and contracting services group, which has been reporting narrowing losses, predicts that its earnings will rebound to pre-pandemic levels by the 2027 financial year.

In M&R’s latest annual report, CEO Henry Laas and group financial director Daniël Grobler said significant progress was made in the year, which would lead to a sale of the remaining companies in the UAE.

The Middle East operations were categorised as discontinued operations in the 2020 fiscal year, though a sale agreement, signed in August 2021 experienced a string of delays and fell through.

At the end of June, the firm entered into a new sale and purchase agreement to dispose of M&R Contractors Middle East and M&R Contractors Abu Dhabi, which is subject to several conditions.

The directors told investors the sales would ease the pressure of bearing the cost of its legacy businesses in the Middle East, which has strained profitability and raised investor anxiety.

“The group has shouldered the burden of our legacy businesses in the Middle East for many years, with the expense of protracted legal processes creating a drag on earnings and risk uncertainty among shareholders,” the company executives said. “This exit will remove uncertainty and expense for the group.”

M&R said should the sale of the two businesses not be successful, the companies would be liquidated.

The only outstanding issue in the Middle East is the contingent liability resulting from an ongoing 150-million dirham (about R717.2m) lawsuit Mashreq Bank filed against M&R for the Al Mafraq Hospital, which was finished in 2018.

After the loss of its Australian subsidiaries, Clough and RUC Cementation Mining Contractors in the prior year, M&R was left with a highly geared balance sheet in SA and opted to undertake extensive restructuring.

Interventions to reduce its SA debt, which peaked at about R2bn in April 2023 included selling its stake in the Bombela Concession Company in April last year, the sale of Aarden Solar and the settlement of long-outstanding commercial matters on some of its larger projects. 

It also cut staff at its corporate office and lowered IT costs while the leased office space used by the SA business was reduced. together these saw M&R’s SA debt position cut to R409m.

The group and a banking consortium signed a credit-approved term sheet in August that extended its repayment to January 31 2026.

M&R assured shareholders efforts were continuing to refinance the debt and, if successful, would avoid the need to sell further noncore assets.

Group chair Suresh Kana said the final step in implementing the deleveraging plan was under way, adding that M&R was well positioned in selected market sectors. 

“This will settle the remaining R409m SA debt, down from about R2bn in April 2023, with four SA banks, and improve liquidity to support the delivery of the group’s order book,” said Kana.

The JSE-listed group, which is valued at about R1.2bn, said it anticipated returning to prepandemic earnings levels after three years. The majority of future revenue and earnings would come from its mining operations, which are geographically and commodity-type diversified, it added.

“We see the group reaching and exceeding prepandemic levels of earnings from FY2027,” M&R said. “We expect each of our businesses to optimise operational performance, and to capitalise fully on the organic growth opportunities available to them in their respective regions.”

The Johannesburg-based contractor also said it was looking to bolster earnings and reduce its mining business’s concentration risks by diversifying into Zambia, which presents significant opportunities at copper mines, and Indonesia.

Zambia

“For Murray & Roberts Cementation, there is significant opportunity emerging in Africa, mainly in Zambia, where a surge in copper mining activity is imminent,” Laas and Grobler said.

“Our mining businesses continue to position themselves for opportunities expected to arise from future-facing commodities as the global energy transition gathers pace, and in regions poised for significant capital investment.”

M&R established Cementation APAC, based in Perth, to create growth impetus and serve initially as a business development company for the group’s existing mining companies to pursue opportunities in the Asia-Pacific region.

“Specifically, we are targeting opportunities in Indonesia, a country which previously contributed significantly to RUC earnings,” it said.

M&R’s share price has surged more than 80% since the beginning of the year.

gumedemi@businesslive.co.za