Murray & Roberts : Business Platform Presentation 22 June

Conference call transcript

22 June 2022

Murray & Roberts Business Platform Presentations

Ed Jardim

Good morning and good day, good afternoon to all of our stakeholders on the call. Welcome to the Murray & Roberts investor day. Thank you for your time in joining us today. Most of our viewers I think are on the webcast. We'd like to encourage questioning throughout the presentation. You will see that you have a questions tab on the webcast that you can ask your questions through. I encourage you throughout the morning to please ask your questions during the presentation so we can have a constructive Q&A session towards the end.

First up we're going to have our Group CEO, Henry Laas, to talk us through the opening. Thereafter we'll have Peter Bennett, platform CEO of the Energy, Resources & Infrastructure business. After that Mike da Costa, the platform CEO for the Mining platform, and finally Steve Harrison for the Power, Industrial & Water platform. Henry will close off the morning for us. Once again, please ask your questions throughout. What's interesting today is that we do have Peter via Zoom presenting in Australia, and we also have Mike presenting from Canada. With that I'd like to ask Henry to please open for us. Thank you very much, Henry.

Henry Laas

Thank you, Ed, and good morning, ladies and gentlemen. Welcome to Murray & Roberts' investor day. Ed was very cool and collected when he opened the meeting this morning. I can assure you he has been running around this morning testing the technology and making sure that everything will work well. So, I hope the technology will not give us any problems this morning and that we will be able to have a very successful investor day. As you all know, Murray & Roberts' year end is on the 30th of June, so we're about a week away from our year-end. And we would like to do this investor day today so that we can have an opportunity to engage before we move into the closed period.

Murray & Roberts is a very capable organisation. Or should I rather say, it is an excellent engineering and contracting group. We provide our services to the market through three business planforms, and each of them are targeting very specific market sectors. And the platforms are named after these market sectors which they are targeting. I would like to take a minute to talk about the purpose of Murray & Roberts as a group. Why do we exist as an organisation? It is to enable fixed capital investment. In other words, to build the projects that we are building. And we do that to support the advancement of sustainable human development. Now, when we talk about sustainable human development, I also want to say a word about ESG. It will feature also in some of the other presentations that will follow after my presentation this morning.

Murray & Roberts as a service provider don't own operating assets which are polluting the environment. Our carbon footprint is indeed very small. But we take ESG very seriously in the group. And the reason we do so is because we believe when we talk about the environmental side that the move towards greener energy will be presenting opportunities to all three of our business platforms. So, ESG in Murray & Roberts is important from an opportunity point of view more so than from a risk point of view. As I said, our carbon footprint is really insignificant.

In 2015 we designed the strategy for the group that we named the new strategic future plan. And that strategy essentially stands on five pillars, and we have on this slide rated our performance relative to what we set out to achieve in these five pillars. And you will notice that the first two pillars have been rated as green and the last three pillars have been rated as

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amber. So, we believe that we have achieved what we set out to achieve when we said we want to be a multinational specialist engineering and construction group. And we also believe we have achieved what we have set out to achieve when we said that we would like to provide services across the project lifecycle. And I will explain a little bit more about that in a short while.

The last three pillars, engineered excellence, it is a philosophy within the group. Engineered excellence is a philosophy within Murray & Roberts. What we are saying is we would like to achieve excellence in whatever we do. In the safety discipline, in the human resources discipline, the way we manage our finances, the way we deliver our projects, we want to achieve excellence. And engineered excellence means that this excellence is not something that happens by chance. We need to first of all appreciate what excellence looks like in a specific context. And then we need to plan for that outcome. And that process of planning for that outcome is what engineered excellence means. So, we need to do a bit more work on that because we're setting ourselves a very high standard of excellence, and I cannot say that we are achieving excellence in everything that we do at this point.

Grow through acquisition and organic growth. We are still in the phase of growing the business, and you will see it shortly when we talk about our order book. And then to enhance shareholder value. It is very frustrating to me that we have not yet reached the point that our shareholders get value for the patience that they've demonstrated in being with Murray & Roberts for many years as we were implementing our strategy that we call our new strategic future plan.

As I said, Murray & Roberts is a multinational engineering and contracting group. I mentioned earlier on that we've achieved what we wanted to achieve. By that I mean that our footprint that we have, our global footprint is now well established, and we don't envisage to expand on this footprint in the near term. What you see on this slide is the world map and the corporate office in Johannesburg where you see the black dot. Then the Mining is represented by the yellow dots. You will see a number of offices in North America, in Africa, in the APAC region, in Australia and also in Mongolia.

The ERI platform represented by the green dots, you will see there are quite a few of them in North America, quite a few of them in Australasia and one in Scotland as well in the EMEA region. Power, Industrial & Water is not a multinational platform, whereas the other two are multinational businesses. The PIW platform is headquartered here in Johannesburg, but we also have an office in Cape Town. Our global footprint we believe is now at a point that we believe we are operating, and we've got a permanent presence in the main markets which we are targeting through our three business platforms. And there is no plan in the short term to expand on this footprint.

A comprehensive service offering across the project lifecycle. You will see for each of the three platforms when you look at the middle column, it starts off from detailed engineering all the way through to commissioning of projects and also maintenance once projects are in operation. The only platform where we do undertake operations as well is in the Mining platform. As you may know, we are operating mines on behalf of our clients. So, we actually do the mining on behalf of clients. So, we also undertake mining operations in the Mining platform. Very soon in the PIW platform we will have a small water treatment facility that Steve will talk to that we will operate for a period of about ten years. So, we will also have an element of operations in the PIW platform.

The three CEOs that head up these platforms, the ERI platform is Peter Bennett, Mining, Mike da Costa, Power, Industrial & Water, Steve Harrison. I can assure you that each of these executives are well respected in their respective industries and they are doing an excellent job in managing those parts of the group that they are responsible for. So, this was the second pillar of the strategy where I said we wanted to provide this comprehensive service offering, and I think we have achieved that as well. We are providing a complete project service to our client organisations.

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Just a few words about revenue and order book before I hand over to the other speakers. On this slide what we're trying to show is how the revenue has shifted more towards international revenue than revenue from southern Africa. The yellow bars represent revenue from southern Africa and the grey bars represent revenue from the international operations. And you can see from about 2017 the revenue from southern Africa started to decline sharply and the revenue from our international businesses started to grow strongly.

What you see on the far right-hand side is only revenue for the first six months of the current financial year, in other words up to December 2021. And at that stage we had revenue of R13.3 billion total revenue for the group. And at the half year results we indicated that we would expect revenue to exceed R30 billion by the end of June, and we think that is more or less where our results will be. So, the lack of opportunity that we've experienced in southern Africa for many years now has really resulted in our international footprint to grow strongly and for us to have a diminishing contribution from southern Africa. Ladies and gentlemen, over the next three years when you look at our business plan, we expect that less than 10% of our revenue will be from southern Africa. So, Murray & Roberts really is a multinational engineering and contracting group. It is no longer a South African civil engineering and building contractor.

A few words about our order book. I mentioned earlier that we're a services organisation. In other words, we don't own a lot of assets as a group. For an engineering and contracting company your business opportunity is really underpinned by your order book. If you have an order book, you've got a business. If you don't have an order book, you don't have a business. What you see on this slide is the yellow bars represent the ERI platform order book, the grey bars the Mining platform order book and the blue bars the PIW platform order book. And as you can see from about 2017 or 2018 you will see the steep increase in the yellow bar.

That is the ERI platform. That is a result of the strategic change that was implemented at that time under the leadership of Peter Bennett. Up to then that business predominantly was providing services into the LNG market in Australia. And when that market started to taper off and with the collapse of the oil price in 2014 the business had to refocus itself onto new market sectors. As I said, under Peter's leadership that strategic shift was implemented very successfully. That is demonstrated by that very strong growth in order book, those yellow bars as you can see from 2017 starting to increase.

The Mining platform has always been a substantial business within the group, and we do expect as the whole world is transitioning towards greener energy that there is significant opportunity for our Mining business in the medium term. The PIW platform, the blue bars, I mentioned earlier on very limited opportunity in South Africa. And up to about 2017 the blue bars really represent the work we were doing at Medupi and Kusile. When our scope on those projects was delivered, the order book tapered off and basically disappeared.

But I am really encouraged by what is happening in the renewable energy sector in South Africa. Although the projects are much later than what we expected - we expected some breakthroughs in the current financial year in the renewable energy projects in South Africa, but the financial close has drifted out and has drifted out - we are confident that we will secure a significant portion of especially the electrical balance of plant work on the renewable energy projects in South Africa between July and December of this calendar year.

When you look at the far right-hand side, the order book there in FY2022, that was the order book at the half year stage compared to an FY2021. That was the order book at the full year stage. So, the order book at the half year stage this financial year is around R61 billion. And you will see an asterisk next to FY2022 in that table. And what we have communicated to the market several weeks back is that the ERI platform was successful in being awarded the Perdaman contract in Australia. And

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our platform's share of that award value is R22 billion. So, where we had an order book at the end of last year of about R60 billion and at the half year stage this financial year, we do expect the order book to grow to about R80 billion by the end of this month, by the end of June. Back to you, Ed. Thank you.

Ed Jardim

Henry, thank you very much for that opening. We're now going to start with our platform presentations. The first up is Peter Bennett, platform CEO of the Energy, Resources & Infrastructure platform. Peter is presenting via Zoom out of Australia. Thanks, Peter. Over to you. At about quarter to we will look at what questions we have for you, and I will facilitate those for you. Thank you, Peter.

Peter Bennett

Thank you, everybody. I really appreciate the opportunity to present our platform to you here today. You're an important part of our business, and it's great to be able to share the story of the ERI platform with you and how we fit within the Murray & Roberts group. On the second slide we've got the agenda that I'll cover today, an overview of the business, who we are and where we've come from. We'll talk about the strategy and how it's evolved, and how recent world events have been incorporated within that strategy. We'll view some of our current projects just for information in terms of where we're currently at. We will touch on some of the key risks to the business going forward. Then of course we've got some presentation take-aways to go with you. Slide three is the headline slide for the business overview and it just has a photograph there of part of our Snowy Hydro project.

As we move on to slide four and we talk about the background to Clough, as I think many of you know, back in the end of 2019 we really started to see the benefits coming through and be more visible in the business of all of the hard work that we've made to really diversify the platform away from its focus on LNG related work in Australasia. As we all know, there was a period of massive investment here at that time, and Clough was well positioned and took a key role in many of those developments. It was a very successful period for the company, but when those investments were completed, the oil & gas price collapsed. We needed to diversify the business into a broader range of sectors that were continuing with project investments.

So, we've been on that track now for the past six years. And we really started to see the results of that coming through in 2019. As Henry pointed out earlier, we feel confident that that strategy has been successful. We've got the strongest order book that Clough as a business has ever seen, and we've got a strong pipeline, and as Henry mentioned, some near term prospects that will continue to grow that order book from where it is today. In 2020 when the pandemic hit certainly a lot of the perspectives around the globe have changed and certainly priorities have changed. Really the thing that has been very comforting here is that the resilience of our strategic plan has remained intact.

Frankly, we haven't had to alter it. In many areas some of the changes that we have been seeing in the market were accelerated through that process, and that really just underpins what we're doing with our business and the strategy that we're pursuing. As I point out in the first bullet there, we're unlikely to see things go back to the way they were pre-pandemic time. What it has done is facilitated some changes in things around energy transition and waste reduction. And some of the other technological advances that we're seeing coming to market today were really part of what we were building our strategy around initially. What we're enjoying at the moment is probably a bit of a head start in that space.

We are seeing a much stronger emphasis today too on the ESG side of the business. We spend as much time talking to financial institutions about our ESG philosophy as we do about our financial components these days. They really are a key factor in determining where investments are going to be made. So, all of our clients, the lending institutions, even current

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and potential new employees have a much larger interest in ESG related issues. And if you can't articulate a clear strategy around where you are in ESG and what your plans are going forward, then you're behind the eight ball. So, we really can't afford not to be paying attention to this. I think we have been, and we've made some great progress in that space, and that has been recognised certainly here locally and within our industry. So, it gives us a good platform to continue to build from.

On slide five we talk about where we are today. Alluding to Henry's earlier comments, we're an engineering and construction company and we provide sustainable, high-performing assets to the energy, resources and infrastructure industries. That's a very important point. The high-performing assets across these industries is quite key. Our core capability is unchanged, and that's really project delivery. We have certainly within the Australasian market a fairly unique ability to do that. That is self-performed engineering, self-performed procurements and large parts of the construction including the commissioning and start-up phases. So, those core capabilities will remain unchanged, but we are putting a much stronger focus around our ESG obligations and commitments. Our relevance in the market and our ability to be attractive in the markets that are accessing that sort of capital investment now is a key part of what we're doing.

So, drivers and opportunities for us remain with our clients in supporting their energy transition. Certainly, the net zero expectations remain. I think the timeline has probably shifted out a little bit, and I think the focus on the transition energy has been brought much more into the realm. As we talk though some of the projects you will get a sense that Clough is relevant and has active work in hand at the moment that is part of this energy transition process. So, in that regard we're quite pleased with where we're positioned in this market. Those complex energy resources and critical infrastructure projects are really what we specialise in, and we have a current regimen of work and projects to be ablet o demonstrate that expertise in.

Having the new work is one part of the equation, but as you will see in our strategy, there are two real key drivers. One is the growth mechanism. That is being in the right markets with the right skills sets. But equally and particularly important to our shareholders is the ability to deliver those projects profitably. Excellence in project delivery is a key part of our commitment and a key part of the journey that Clough has been on and will continue on. In APAC our growth is going to come through delivering these capabilities into these growth markets, and we are well represented in them already. Power, power storage, transmission, complex infrastructure and the new renewable energy platforms are really going to be key areas that are seeing quite a bit of investment here in the APAC region, and we have a great portfolio of work currently in hand, also key prospects that we have in fairly well developed form with our clients today.

North America is a market that strategically we made the decision to enter that North American market about five years ago. And we have had a structured approach to that market. We had not anticipated the global collapse of the oil price and clearly, we missed the fact that COVID was coming. So, that has changed our strategy a little bit and accelerated our need to diversify in that North American sector. You will see when we talk about the family of companies that make up the Clough group now, the acquisition we made of JJ White in Philadelphia was part of that diversification strategy. And we're quite pleased with that acquisition and the opportunity that brings to the business.

There has in recent months been a bit of a resurgence of the traditional oil & gas markets in North America, and certainly the energy security concerns arising out of Eastern Europe at the moment are driving investment in export capability and capacity in North America right now, which is feeding into opportunities for the business there. In the normal gestation of those project opportunities that will be a few years before they transition from their current studies into EPC contracts and visible revenue, but certainly we're seeing some opportunities and investment return to that market giving us good encouragement there for the continued delivery in North America in the long term.

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