Murray & Roberts Holdings Limited (MUR) Earnings Call Transcript & Summary

Good afternoon to all our stakeholders on the webcast as well as on the conference call. This is the Murray & Roberts virtual presentation from the Murray & Roberts Head Office. This is for the interim results to 31 December 2020. Welcome to the presentation. [Operator Instructions] With that, I'd like to hand over to our CEO, Henry Laas. Thank you, Henry.

Thank you, Ed, and good afternoon and welcome. A special word of welcome to our Chairman, Dr. Suresh Kana, who is also on the webcast call. As Ed has said, this is the results for the first 6 months of the 2021 financial year, and it is for the period to the 31st of December 2020. I would like to follow this presentation or agenda for the presentation, and you will see it starts off with me trying to create some context around the results for the first 6-month period. Thereafter, I will give a bit more detail and unpack the group's order book, which has grown over time to an all-time high of ZAR 60.5 billion as at the end of December 2020. I will then hand over to Daniël. Daniël will get into the financial results in a lot more detail. And I will wrap up the presentation with a few key presentation takeaways. So let's just create some context around the results for the first 6 months of the current year. As you know, by December 2019, which is the first 6 months of the previous financial year, we didn't know about the coronavirus or COVID-19. So those results were not impacted at all by the pandemic. And then in the second half of the previous financial year, we had a major impact of COVID-19, and that impact continued into the first 6 months of the current year. So we are comparing 2 halves, the first half of the current financial year to the first half of the previous financial year. And in the current year, we had the impact of COVID-19. Whereas in the previous year, there was no impact in the first 6 months. But the group has largely recovered from the quite serious impact that COVID-19 had on us in the second half of the previous financial year. And the best way for me to demonstrate it to you would be to refer you to the earnings before interest and tax for continuing operations. And as you will see on the slide, for the first half of the previous financial year, we showed a profit of ZAR 419 million. That turned into a loss of ZAR 436 million in the second half of the previous financial year, and that was a period that we really experienced a lot of COVID-19 impact. We had projects which came to a complete stop and a huge disruption to your operations. And then in the first 6 months of the current financial year, we moved out of the loss position of ZAR 436 million to earnings before interest and tax for continuing operations of ZAR 117 million for the first half of this year. Now if you want to have a better understanding of how COVID-19 impacted your operations, it's really in a few areas. First of all, in the second half of the previous financial year, it was a hard lockdown when we were not able to do any work on your projects, and many of the projects came to a complete stop. But as I said, that is now behind us. And in the first 6 months of this year, we experienced an ongoing disruption on the operation. And that is because of people going into isolation or quarantine, and it's just disruptive on the operations where you cannot get your productivity up to levels that is required for you to earn a good result from a performance point of view. So that's a one element where we were impacted. But secondly, as an engineering and contracting company, we do make use of resources that we source internationally. And because of the travel restrictions that were imposed on us, several of our projects, we were not able to mobilize the resources that were required to progress the work in accordance with the way in which we have planned it. But as I said, the major impact of the second half of the previous financial year, that's now behind us and you can see the improvement, which came through in the first half of the current financial year. But probably the most significant aspect of our results is this record order book of ZAR 60.5 billion. And as you will see on the slide, it has grown consistently from June '18. With every 6-month reporting period, the order book improved, improved and improved, and it has now reached this figure of ZAR 60.5 billion in December 2020. And for any engineering and contracting company, your order book is of critical importance. If you have an order book, you have a business. If you don't have an order book, you don't have a business. If we look forward into financial year 2022, we are really encouraged by this order book, and we believe that we are positioned for a strong return to profitability in financial year 2022. And after that, we do expect some growth in earnings and that will especially come from the Energy, Resources & Infrastructure and from your Mining platforms. From an operational point of view, the group is structured into 3 business platforms: the Energy, Resources & Infrastructure platform or as we refer to with the ERI platform, which is a platform that provides services to the global market. The Mining platform is also a business that provides services to a global market. And the Power, Industrial & Water platform or the PIW platform is a business that focuses its efforts on South Africa and sub-Sahara Africa. In the following slides, I will give a high-level overview of each of these businesses and then unpack in a bit more detail the order books in each of the businesses. As I've said, the ERI platform is -- it is a global business. Regionally, it is structured into 3 regions: North America, EMEA and the APAC region. And in each of these regions, we have a dedicated and competent management team that manage our business in these regions. And to the left bottom of the slide, you can see where we have our offices where they are located and a few of the brands in the ERI platform. Our market focus globally is in the energy sector. But in the APAC region, it is Energy, Resources & Infrastructure. And the order book, as I said, is this ZAR 42.2 billion, which for this platform is also the highest order book ever. Now I've been asked a question on numerous times whether the group has got the capacity to deliver this order book, whether this platform has got the capacity to deliver this order book. And in anticipation of this growth, and as you've seen on the first slide, the order book has been growing consistently since December 2018 or June 2018, we decided to structure this business into these 3 regional businesses. So this is a recent development. It wasn't always like that. It was always operated out of the Perth office in Australia. But now we have 3 independent management teams that manage these regional businesses. Another important point to understand is you will recall that this platform, predominantly 5 years and even maybe 10 years back, provided its services to the oil and gas sector whilst the major LNG boom in Australia was underway. But it is important to remember that Clough, which is a brand under which this platform trades, is a company that's been in existence for about 100 years. And prior to the LNG boom in Australia, this business did provide services to these market sectors, which is currently, again, important for this business. So Energy, Resources & Infrastructure is not new for this platform. Having said that, when we had the LNG boom in Australia, during that period, its focus was predominantly on the LNG sector. The business in North America, our main office is in Houston, and we're busy developing quite a nice project in that region. So in that market, we are busy establishing partnerships with local companies in that region, which we believe will set us up well for further EPC-type opportunities in that market. The growth in the order book that you will see for this platform is predominantly work that have been secured in the APAC region, large projects, and the majority of them are in joint ventures with other international companies. Just the last bullet on the slide, you'll see that new orders is ZAR 5 billion, and we define new orders as work that have been secured by the business. It is only subject to the contract between ourselves and the client to be concluded. And normally, these new orders move into the order book over a very short period of time. And then we have ZAR 43.9 billion in Category 1. And our definition for Category 1 is tenders that this platform are working on and that they will be submitting in time. So the Energy, Resources & Infrastructure platform, it is a global business. It is a business which has, over time, changed its market focus slightly. That change have yielded excellent results as you can see through the significant improvement in this business as order book. And we are very excited about the contribution that this platform will bring to the group earnings as from financial year 2022. If I unpack the order book and pipeline, the bar on the left-hand side is the order book. As I said, that is ZAR 42 billion. The middle bar represents the new orders, and you will see the table to the left has got heading new orders. The new orders of ZAR 5 billion comprises several projects. Some of them are not disclosed on this slide for reasons of confidentiality. But you will see the first 2 projects, which are shaded in gray, have already moved post-December from near orders into the order book. Another important point, as you'll see that there is a project, an undisclosed project to the value of ZAR 2.6 billion in new orders and the award of this will be announced next week. So new orders find its way into the order book, and it doesn't stay in new orders for a long period of time. On the bar on the right-hand side is for Category 1 opportunities. ZAR 43.9 billion, that's the value of projects that we are currently tendering. And the first 3, shaded in gray, the Baroota Pumped Hydro scheme, a power station project in the U.K. and then the urea fertilizer plant for Perdaman, those 3 are being negotiated on a sole-source basis, which means we are not in a process that we are bidding for a tender in competition with other service providers. We are in a negotiation with a project developer to bring the project to a stage so that it can achieve a final investment decision and then the project will -- the work will commence. On all 3 of those opportunities, we expect that the final investment decision will be taken before the end of June. And if that is the case, then then that value will move into the order book between now and the end of June. So a very, very strong performance by the Energy, Resources & Infrastructure project. And as I said, that order book of ZAR 42 billion is a record order book for this platform. And the ZAR 60.5 billion that I've mentioned earlier on is a record order book for the group. The Mining business, it is a global business. It's been organized in 3 regional business for a number of years now: the Americas, sub-Sahara Africa and the APAC region. And this business is one of the leading service providers to the mining sector. We focus on the underground mining market. But we took a decision that we communicated last year that we would like to explore some open cost opportunities as well. And with the results presentation last year, I indicated to you that we've been invited by a client to undertake an open cost opportunity for them. Those developments have not yet been concluded as some of the funding arrangements on this project will have to be changed. And we're not sure when that project will come back to us again. So we will be very careful the way in which we engage open pit mining. And the bulk of the business, as I said, is really focused on underground as we speak. What ease of significance, you will see a bit later when I look at the order book, the order book for this business have not really grown over the past 18 months period. It's been pretty flat at the level of around ZAR 18 billion, but pretty flat. Now the important point is that commodity prices over the recent past have really gone through the roof. And you've seen the results which have been reported by many of the mining companies, it is a record result from an earnings point of view, cash flow. And we are quite confident that there will be major investment that will flow into the mining sector, which will present new opportunity for this platform. And we do expect that the order book will grow strongly over the next 6- to 12-month period as these projects get approval for development. New orders is ZAR 14.7 billion, which is a strong new order pipeline for this business. And although the order book has sort of been stable over the past 18 months. It hasn't really improved or gone down much. We are encouraged by the new orders and the 42 -- ZAR 44.2 billion of Category 1 opportunities that we are currently bidding. For the Mining platform, as you can see, the order book is ZAR 18 billion. New orders is ZAR 14.7 billion. And the first 4 projects shaded in gray, those projects have already been moved into the order book, which means that the contracts with the clients have been signed. It is now in the order book and that happened after the December period, close of the first 6 months. And then on the right-hand side, you'll see the total Category 1 of ZAR 44.2 billion. And the undisclosed project, which is shaded in gray, is a project that we are negotiating on a sole-source basis with a client. It is an undisclosed project. It is not in the public domain yet, our involvement with this project. This is probably one which will not achieve FID before the end of June. It may. And if it does, the ZAR 8 million will find its way into the order book. But I think it's not sure whether it's going to happen before the end of the current financial year, meaning June, or early in the new financial year. The PIW platform, this is the business that focuses predominantly on sub-Sahara Africa, and this is the business which have completed its construction work on the Medupi Power Station and is about to complete its construction work on the Kusile Power Station. The order book as of the end of December was ZAR 400 million. Now in comparison with the Mining platform and in comparison with the ERI platform, this is a very, very small order book. And as I said earlier on, if you have an order book, you have a business. If you don't have an order book, you actually don't have a business. So we are suffering in this platform due to the lack of investment that we've seen in South Africa over the past number of years. There hasn't been any significant new investment or opportunity for this platform to pursue new work. And this is a bit of a challenge for us. We are committed to this business. We are committed to the water sector in South Africa through this business. We are committed to the power sector in South Africa through this business. But for us to -- to keep on providing services through this business, we do need an order book. We are encouraged by what was said in Parliament last week when the budget was presented and also the President's commitment to infrastructure spend in South Africa, but we haven't really seen anything yet. So there are plans which encourage us. But unfortunately, there are no real significant opportunity for this business. So we haven't seen any recent awards, and we don't expect any awards of any significance over the next 6 months period. Where we are actively pursuing work is through the OptiPower business, which is part of this platform. And as you know, OptiPower is a company that constructs overhead power lines. And there's a number of tenders under adjudication with Eskom at this stage. And hopefully, we will be successful with a number of those opportunities, which will give us a bit of an injection and increase that order book to higher levels than what you currently see. We have spoken with previous results announcements about the LNG opportunity in Mozambique. And we've been asked many a times what the opportunity is for Murray & Roberts. We know about the major LNG developments in the northern part of Mozambique. What I can say is that the main contractors that were awarded work on these projects are Rönesans from Turkey and Daewoo from Korea. So we were not successful as a main contractor on these projects. But what will flow from this now there will be a lot of subcontract work. Now our concern is that the subcontract work will predominantly be a labor-type activity. It will not include an element of procurement, which significantly increases the performance risk for us on projects of this nature. And we're also very concerned about the security situation in Northern Mozambique. And as you know, Total has demobilized its people from its project. And I'm not sure when they will bring them back, but the security situation poses a significant risk. So today, we don't really see the LNG opportunity in Mozambique as a major opportunity for this platform. What we do need, we do need government to start investing in water infrastructure and specifically in wastewater treatment plants across the country. There's a major problem. We all know that the wastewater treatment facilities in all municipalities, whether it is the metropolis or smaller towns in the rural areas, there's a major crisis when it comes to wastewater treatment. We do have the technology. We do have the capacity. We do have the ability to play a major part in upgrading this infrastructure or even building new infrastructure. But we can only do that if there's a commitment by the public sector to start investing in these sectors that create the opportunity for us. So today, PIW is a platform that is struggling. It did really reasonably well whilst the construction at Medupi and Kusile was underway. But this has now come to an end. And as I said, it is just very, very little and limited opportunity for this business. You can also see this on this slide where we talk about the order book. And again, in comparison with what you saw for Mining and for the ERI platform, this is really a very small business. Order book of ZAR 400 million, new orders of ZAR 200 million, of which some of the projects have sort of been awarded post year-end, but it hasn't been disclosed yet. And then Category 1, ZAR 6.6 billion tenders that we have submitted. Some of the tenders are for projects that have been on hold for a long period of time. And we don't know whether -- or what percentage of that ZAR 6.6 billion will actually be awarded and come to market and present an opportunity for this business to grow. When you pull all of this together and you look at the order book for the group, it's very clear that the growth in the group order book, up to the ZAR 60.5 billion, is predominantly due to the growth that we've experienced in the ERI platform. We don't show it on the slide, but in December 2018, the ERI platform had an order book of ZAR 4.4 billion. And it has grown to 30.6% to December '19, and now it's at ZAR 42.2 billion in December 2020. And I want to give you the assurance, we've got the capacity to deliver this order book. And we believe that we've priced the tenders responsibly and that there is sufficient margin priced into these opportunities for us to earn a reasonable return and to see some profit coming through the business in the new financial year. Mining, we're not too concerned about the fact that there has not been growth in that order book. We have seen a number of opportunities, especially again, in the U.S. and Canada, which have not proceeded within the first 6 months of this financial year, and we have relied on those opportunities to go ahead. But it will change very, very quickly. I've mentioned earlier on, I think it is Goldman Sachs and JPMorgan that's talking about a new super cycle in the mining sector, in the commodities markets. And if that is to happen, this Mining platform will certainly see quite a strong growth in order book from the ZAR 17.9 billion that was reported in December 2020. And then for the PIW platform, there you can see the contrast between the ERI and Mining platform and the order book that we have for PIW. Just again, very, very important for us that the South African government spend on infrastructure that, that actually does happen and that we do get opportunity in wastewater, infrastructure and in the power sector to play in those markets and to secure work that will give us -- business the opportunity to grow further. This is a very important slide. It's a very busy slide, but let me explain it to you. On the left-hand side, under the heading platform, you'll see the 3 platforms, the ERI platform, the Mining platform and the PIW platform. To the right of that is an order book split, and we've divided it between the SADC region and international. You'll see the ERI platform, 100% of the order book is international. For Mining, 71% is SADC region, 29% is international. And PIW, 100% in the SADC region, but that order book is very, very small. So all of that then translates to -- 78% of the value in the order book is in the international space and 22% is in the SADC region. And the column to the right, you can just see the movement again between December 2019 and December 2020. And the growth at the group level from ZAR 50.8 billion to ZAR 60.5 billion is predominantly due to the growth that you can see for the ERI platform. Now another important bit of information on this slide is when you look on the far right-hand side, we give a time distribution for this order book. If I explain it for the ERI platform, they've got a ZAR 42.2 billion order book as of December 2020. Of that ZAR 42.2 billion, ZAR 5.9 billion will be -- projects will be executed in the second half of the current financial year. And then there's ZAR 15.9 billion already secured for the 2022 financial year. Now the significance of that is Daniël will show you a bit later. This platform reported revenue of ZAR 5.1 billion in the first half of the year. In the second half of the year, we have secured ZAR 5.9 billion. So you should expect revenue between ZAR 11 billion and ZAR 12 billion for this business in the current financial year. And already, we have secured ZAR 15.9 billion for the '22 financial year. So that order book is creating an opportunity for this platform to really make a meaningful contribution to your earnings in the new financial year. And as I said, the order book does not reflect the 3 very large projects in the ERI Category 1 classification, and 3 of them are being negotiated on a sole-source basis. And we do expect that FID will be achieved for all 3 of them before the end of June. So we -- again, that will then strengthen or further increase that ZAR 15.9 billion, which is scheduled for 2022. And for that reason, we are really, really optimistic about the new financial year. You have the same level of detail for the Mining platform and for the PIW platform. And the important message from this slide if you look at financial year 2022, on the right-hand side, just below the time distribution, you will see that we have ZAR 20.7 billion already secured for the new financial year, financial year 2022 at the group level. That is at the same level of our revenue of the previous financial year. And there's still a number of months to go before we start the new financial year. So very, very bullish about our order book. And as I said, we really believe that it is a good order book. It's a quality order book and that we'll be able to make good returns once we start to execute work on these projects. Just a bit more definition. Again, I don't want to go into much detail, but just draw your attention to the row which is highlighted in bright yellow, December 31, 2020, row. The order book of ZAR 60.5 billion. There's near orders of ZAR 19.9 billion as I said. New orders of work that have been secured, but the contracts with the clients still have to be signed. All of those projects will find its way into the order book very soon. Category 1, ZAR 94.7 billion, of which about ZAR 34 billion are being negotiated on a sole-source basis. Only subject to final investment decision, that ZAR 34.4 billion or ZAR 34 billion will find its way into our order book. There's only ZAR 8 billion which I think will not happen before the end of June, but the balance should find its way into the order book by June this year. Category 2, ZAR 116 billion. This is projects we're working on feasibility studies or will be providing budget estimates. It's not as advanced yet. The clients are asking for firm tenders. And Category 3, the sort of projects that we're keeping on your radar screen. We might be participating in some prefeasibility work. But the category 3 opportunities are further out. But it's important for us to track because if you have an order book of ZAR 60.5 billion, you need to maintain that order book. And you can only maintain that order book if you have market intelligence and if you identify the opportunities. Even though they may be Category 3, but very, very soon, they will find their way into Category 2, Category 1 and eventually into the group's order book. Just a comment on safety. As you know, safety is very, very important for the Murray & Roberts Group. We believe that every day, all your employees choose to return home safely without any injury. And we do have many, many projects in the group that we conclude on a zero harm basis, without any incident to any of our employees. But if you look at the past 6 months, which is the -- in the black line, you'll see the lost-time injury frequency rate, and that is expressed as a rate per million hours worked. And the 2 yellow bars, that is fatalities that we had in the group. So the fatality that's reported for financial year 2021, the first half, unfortunately, one of our employees, Wilfred Moleofi was injured on a project -- within OptiPower project. And subsequently, he passed on. And this is very, very sad for us when we lose one of our colleagues in work-related incident. And the lost-time injury frequency rate, it is 1 for the first 6 months. In the previous period, December 2019, that's the first half of the previous financial year, it was one 1,12. But when you break it down for each of the platforms, the ERI platform is 0.34, the Mining platform 1.28 and the PIW platform 1,2. If you benchmark those statistics with a peer group, for each of these 3 businesses, you will conclude that this performance, although not as good as we would like it to be, it is really industry-leading relative to what other companies are achieving in this space. And then just a final slide from me before I hand over to Daniël, and then I will do the wrap-up towards the end. Revenue, half year on half year, flat at ZAR 10.8 billion. We did report the attributable loss compared to the attributable profit in the first half of the previous financial year. And as I said, it is because of the reasons that I've mentioned, and Daniël will unpack it a bit more when he gives you more detail in the segmental reporting per business platform. Diluted continuing hedge is then a loss of ZAR 0.08. The order book, which is the highlight of these results, at ZAR 60.5 billion. And notwithstanding COVID, notwithstanding the loss that we had in the first 6 months, we have a net cash position of ZAR 0.3 billion, which is an improvement on the net cash position at the end of the first 6 months of the previous financial year. And that is after the IFRS 16 adjustments. If you ignore IFRS 16, the cash position is actually ZAR 0.9 billion, and that compares to ZAR 0.8 billion for the first half of the previous financial year. Thank you. And with that, I would like to hand over to Daniël.

Thank you, Henry. So I'm going to break protocol slightly by starting with a story. As we were compiling the year presentation, we sat in, we said, "Look, this is a hell of a difficult presentation to put together. And how do we go about that?" So a comment was made that we do have sympathy for Tito Mboweni. He's about to present a hell of difficult budget and we almost understand where it's coming from, what he's got to deal with. But the factor that differentiates us from Tito Mboweni is we have a strong balance sheet, we have a strong pipeline, and I don't think, he has got those 2 factors to his benefit when he presented the budget. So with that said, I'm going to jump straight into the financial statements. The turnover and EBIT slide, I'm going to discuss in more detail when we get to segmental. The 2 elements I want to focus on is our net interest expense as well as taxation. Net interest expense is in line with prior ZAR 101 million with ZAR 91 million. We can see the debt stayed relatively the same compared to the prior year. But the one element that keeps nagging me and less everyone that answers the question, your tax -- effective tax rate remains extremely high. Now there's 2 reasons for this high effective tax rate. The first one is Murray & Roberts Limited was designed to carry the full corporate overhead costs within the group as well as the Power & Water platform. The fact that Power & Water made a loss this year did not contribute to this problem. So the corporate losses plus the Power & Water losses, we could not generate a deferred tax asset to compensate for the tax loss. So that brought loss number to the table. The second element was withholding taxes. And when you work in Namibia, Tanzania, GCR, Zambia, when you expatriate your profits from those countries, you have to pay deferred tax on those amounts, and those amounts unfortunately manifest on the tax line. So it is a big focus. We are looking at various ways to bring in more profitable work within the Murray & Roberts Limited time frame. That work's got about 2 months left until we draw and lay an egg on that. We are definitely focusing on that. But as we stand here today, we do have a problem. Discontinued operations, I'm going to talk to you on a separate slide. ERI has got 4 different elements that are operating. I think the most important one is engineering and construction. So what we can see is a significant increase in revenue from ZAR 3 billion to ZAR 4.6 billion. We can see the order book exponentially increase from ZAR 29 billion to ZAR 41.2 billion. The main reasons for that was [indiscernible] as well as the [indiscernible] project that were rewarded. Question is asked why the low operating margin if you've got this increase in revenue relative same overhead base, why the low 3% margin? And that fact is that they were completing 2 loss-making projects. So both projects had their the reasoning. We are busy with a commercial settlement process. If we do settle better, obviously, that ZAR 138 million should be looking better, but it's a process that we've got to go through with these commercial clients to try and put that to bed. If you look at Global Marine and the order book at the bottom, ZAR 382 million versus ZAR 381 million, they've had very little movement on that project. That project scheduled at a marine in Canada. Canada was one of the worst-hit countries in terms of co. That project is only now starting to gain some feet and some traction by the 3 -- or by July 2021, we're hoping to get started on that project. Commissioning & Maintenance. We can see, last year, we had a large margin compared to current year. Those works are ticking along. We were fortunate in the prior year that we had a project that came to an end. We carried a number of risk provisions that we're able to release. That explains the high operating margin rate for that year. And then corporate overheads, there's a big drive within Clough that as a business is differing and putting different structures in place that they've got to drive down overheads. So well done to Clough. So the big question that Henry asked and that we continuously get asked is now you've got an order book of ZAR 42 billion. Last year, it was ZAR 30 billion. Have you got the manpower and the structures to operate successful lump-sum contracts where in the past you worked on traditional cost-plus contracts? And the answer is yes for the many reasons Henry explained in terms of management structures, new people that we brought into the business. Now again, I want to focus on turnover, total turnover for the year. So for 2019, that was ZAR 3.3 billion. For the full year, that went up to ZAR 6.8 billion. In the current year, we've got ZAR 5.1 billion. We've got ZAR 5.9 billion secured. So at best, this year is going to be between ZAR 11 billion and ZAR 12 billion. Already secured for this platform is ZAR 16 billion of turnover for the next financial year. They've got a number of projects which are sole sourcing. They are sitting in new orders. So who knows what the 2022 turnover figure for Clough could be? It could be significant. It could be a game-changer to the group. I'll move to Mining. Mining Africa, a steady performance in terms of revenue, operating profit, order book, overall steady performance. It's not that they've not got the challenges. It's that they're managing their challenges correctly and they're getting things right. And we're hoping for them to at least replicate that EBIT performance or operating performance in the next financial year. In Australia, we can see a reduction in turnover as well as in profit. The reason that happened was the Mt. Morgans contract, which is a contract mining contract, came to a premature end. The new contract Mining projects that were due to start were delayed, and that's got a twofold impact on you. So because of that delay, you're not earning profit on that revenue being burned. And secondly, the equipment that you would have used from Mt. Morgans on this new mine is no longer used, and it generates depreciation that drives on your profit. In the Americas, and I must admit throughout the group, I've got the deepest empathy with this group. They have been hit by COVID like you will not understand. And that manifests in a number of items, in project delays, new award delays, project disruptions where people have to stay at home. And there's just been a number of areas of impact that has happened on them. In terms of new project awards, I don't think there's any projects bar one that we have not won. So what's happening because of COVID delays, these projects are being delayed and delayed and delayed. It's not that we're losing them. It's just the market is shifting to post-COVID or to post-vaccination or whatever the mining giants are waiting for. That's a historical low for this entity. What we are looking for the Americas is normally on an annualized EBIT basis between ZAR 400 million and ZAR 500 million EBIT contribution to the group. So overall, Mining came in with ZAR 176 million, which is about 50% compared to prior year. And the order book is marginally down to ZAR 17.9 billion. But we have mentioned that they've got quite a long pipeline coming out. All these mining companies that are making a lot of money at some point in sight -- at some point, they will have to start spending that money, and we're hoping for the start of an upward cycle in the mining industry. In terms of Power & Water, I'll start with the easy one. Power came down. The revenue came down from ZAR 615 million to ZAR 262 million, and we can see an increase in profit. Why did we have an increase in profit? We had a number of disputes with Mitsubishi Hitachi, and we won some of those disputes. We had risk provisions allocated against those items, and we were allowed to release some of these risk provisions. In terms of Water, they've had no project water that are being generated to help cover the overhead structure. We see they've got an order book of ZAR 114 million. The Athlone project has been awarded a long time ago. But again, for a number of reasons, that's not started to burn revenue. We're hoping that project will start to go in July 2021. Transmission & Distribution, slight reduction in turnover. But yes, they made a loss of ZAR 25 million. Again, that's contributed to 2 projects for clients that are extremely difficult and are in the process of following the commercial rights. Should they come right in following those rights, hopefully, those losses can improve. But the most important thing for distribution and power, they've got a lot of bids on adjudication, both with Eskom and other parties. There's been much publicized about power units that need to be brought across the country. A company like OptiPower will bring, transmit, distribute, build a substation for these powers to be brought to grid. So there's significant upside potentially for OptiPower going forward. In terms of other, that's a combination of a number of projects that we've got. We've got the SEPI contract, we've got the Polokwane contract and a few other ones coming to an end. And one of those contracts made a loss due to a number of reasons. It was budgeted that we bring in specialist welders with -- it's not Stage 2. It's well, COVID prevented us in bringing in the specialized labor that we wanted to bring in. The current labor force that we've got on-site are not able to match the productivity levels of the previous class. And believe it or not, there's a slip in a few months, which brings in additional Ps and Gs and cost and holding costs in running that site. Having said that, we're pursuing our commercial rights, and we're hoping to see where we land and make sure that we contain that loss within that platform. But overall, they've got an order book of ZAR 400 million left, and that ZAR 400 million is nothing compared to the group. And we really have to rethink what's the best way for this group to move forward in order to support the group. In Bombela, we had an operating profit of ZAR 107 million. That screen shot ZAR 101 million this morning. And in the prior year, they had ZAR 197 million. So ZAR 107 million is an annualized figure that you normally would recognize that half year. That ZAR 197 million in the prior year was inflated due to the fact that we managed to secure and agree operating periods dispute that went back for a number of years. Now once agreement is signed, a number of risks within this contract have been derisked and where you've taken provision for future risk you could take that out of your model. And we developed a new model which gave us additional upside of about ZAR 180 million, ZAR 190 million in the prior year, which was booked. What we're also saying is on the Gautrain last year, June, we had to take a view in terms of riderships and what the impact of riderships or the lack thereof would be. That impact has been taken in the previous financial year, and we've got a budget put up for this financial year. And so far, we have been meeting budget. We've had some improvements and other improvements. There's a number of floating elements in that budget, including insurance claims and discount rates. So a full rebudgeting process of this element will be done by the end of June. And hopefully, we can mitigate a potential impact of a prolonged COVID impact on this project. When we get to discontinued operations. So in the Middle East, we carry cost to commercially close out the operations in the Middle East. On top of that, we recorded a foreign exchange loss of ZAR 30 million that's included in that ZAR 68 million. So that loss has come to an end, there will be no future losses on that ZAR 68 million. Included in other are a number of elements, Genrec that we've closed on. But we had an investment in Mooikloof development properties. So when we sold infrastructure business, unfortunately, we were forced to retain that one. And as have gone by, it's become obvious that it's more difficult to translate that asset into cash. We've now struck a deal with [indiscernible], and they will buy the money off us. We're going to take a slight reduction, but at least we're going to get cash in and get the investment of the books. In terms of the balance sheet, there's only 4 or 5 items I want to talk about. So the way to read the balance sheet, we've got December 2020 versus June in the prior year. December 2020, if we go down to cash and cash equivalents, we've got ZAR 3.4 billion in the bank. In the prior year, we had ZAR 3.4 billion in the bank. There's a number of reasons for up and down, but it's still a strong cash number in the bank. Go slightly down to shareholders' equity, we can see in the prior year, it was [560 or 5619.] In the current year, it's [5092.] That's made up of 2 elements. The one is our attributable loss, which will reduce our equity. And the second is FCTR loss, that when certain balances have a foreign currency translation move, it doesn't go through your income statement. It goes through equity. And then the long-term/short-term interest-bearing debt, both came down, which is pleasing. And the last item that I would like to flag, which has not been flagged, is current liabilities went up by ZAR 816 million. Now that relates to 2 contracts where we have received significant milestone payments where costs have been -- where you've achieved progress but the cost hasn't quite followed the progress. So you have to show there's a liability to potentially pay back in future or earn profit on that money. So from our point of view, the balance sheet is quite strong. In the Board meetings, we've been asked guys, have you got a strong enough balance sheet to support your growth pipeline going forward. And the answer is yes, from working capital facilities, what we saw on some of the ERI platform projects, they are all cost cash positive and they should be fine. We've got a -- as a group, put our [indiscernible] there, we've got to put the bonding facilities in place. Once those are in place, I think the group is in a very good position to grow the order book into the new financial year. This last slide I've got up is just to explain the debt structure within the group. So we've got 3 levels of debt, self-servicing, corporate and IFRS. Self-servicing consists of asset-based finance, project-specific finance and the BCC preference share. So from June, on the right-hand, to December, we can see asset-based finance came down, which is correct, as your Mining project is being completed. The preference share scheme in BCC did not move as there were no dividends. TNT reduces as we get quarterly repayments done on that acquisition. The overdraft facility increased marginally. So if we look at total debt, it comes to [3.113 versus 3.5] in the prior year. Equity has also come down from 5.61 in the prior year to 5.19 in the current year. And because of that and the fact that corporate debt slightly increased, we can see in terms of our gearing ratios at the bottom, that the gearing ratio for corporate debt, which is the one that we keep an eye on, increased marginally from 21% to 32%. So in terms of a debt profile for the group, I'm still very comfortable. If there's a significant growth in self-servicing debt means that we're doing quite a lot of work in the mining space that would not concern me. IFRS 16 will continue down as your leases start ramping down. You've got less future liabilities. The one area we've got to keep an eye on is your corporate debt.

Thank you very much, Daniël. Ladies and gentlemen, we've got 1 slide to follow after this divider. [Operator Instructions] We've shared a lot of information with you, and it's always important when you get to the end of the presentation to think about what the important messages are and what the key presentation takeaways are. And the first point is the decision that we took a few years back to broaden our market focus have really bear fruit, and you can see that through the significant growth in our order book, a very, very pleasing development. Although we still had a COVID-19 impact in the previous financial year, that impact is reducing, and we have largely recovered from the major impact that we experienced in the second half of the previous financial year. Daniël spoke about the balance sheet and the cash position. Of your cash, ZAR 2 billion is unrestricted cash, and we have ZAR 2.2 billion of unutilized credit facilities with financial institutions. So that just underscores the point which Daniël has made that we do have the balance sheet and the capacity to deliver the order book, which we are busy building in this business. And then just a takeaway on each of the 3 platforms. Firstly, the ERI platform, a significant increase in order book. Now we don't think that this is something that has just happened. It was planned over time. As I said, the change in market focus started to bear fruit. And we find ourselves in the market today in Australia and the APAC region where the Australian government has committed to significant infrastructure spend over the next decade. So that opportunity will be there for the ERI platform over the next 10 years. And then in the resources sector, what the ERI platform basically does, it undertakes surface infrastructure work on mining projects. And as I said, we at the start, people are predicting a new super cycle and commodities. And we do expect a significant investment in Australia as well over the next number of years in the resources space. So this business is really set up for success. Mining, you will agree with me that this is just a phenomenal business. It has contributed so significantly to our profits over so many years. And notwithstanding the fact that the order book has been flat over the past 18 months, we are encouraged by what the signs are that we see in the market that there is shortly a significant investment that will be made into the mining space. And as I said, you've seen the results of mining companies, the cash that they are generating with the current level of commodity prices. And the cash will certainly find its way into further investment. The PIW platform is an area where we are struggling a bit. There's no projects of any real significance in the foreseeable future. And even if we do secure the project that Daniël have been talking about, it's not ever going to elevate this platform to the same level or scale as ERI and Mining. The importance for us now is to make sure, as I've said before, that we don't lose too much money on this business and that we actually will be ready for when the promise that government has made in terms of infrastructure spend, when that sort of becomes more visible and we start to participate in those developments. From a group point of view, in closing, from my end, ZAR 60.5 billion order book, ZAR 19.9 billion of new orders and well, well positioned for a good profit number in financial year 2022. I don't want to make a forecast at this point. But I just want to emphasize again the significance of what we see happening with the order book. In the first half of the financial year, Daniël explained to you that we had revenue of ZAR 10.8 billion. Now revenue in the second half of the year, we would expect to be slightly more than that. But if you take that off the ZAR 60.5 billion, you can see it would leave you about ZAR 45 billion. This ZAR 19 billion in new orders that must still find its way into the order book and there's all these sole-source opportunities. So if the stars line up correctly, we could be we could be finding ourselves in a position that we have an order book of around ZAR 80 billion by the end of June. But that obviously is subject to the FID decisions on these sole-source opportunities that I've mentioned and that we are able to close out all the new orders and move that into the order book before the end of June. So really, really excited about the new financial year, financial year 2022. We've got a strong business because we've got a strong order book. And without an order book, an engineering and contracting business does not have a business. Our net asset value is ZAR 5.1 billion, and that translates to ZAR 11 per share. So ladies and gentlemen, thank you very much. That's all from me. I'm going to ask Ed now to facilitate a Q&A session, and I will ask Daniël to come forward. And I will ask him to answer the easy questions. I will answer the more difficult questions.

Henry, Daniël, thank you very much. We do have a few questions to get through. I think we're going to start on the webcast because that's where the bulk of the questions are. First one is, you have previously indicated that the order book has an embedded margin of around 10%. Can you reconfirm that your view has not changed on this?

I think the short answer to that is yes, but I need to explain it a little bit. Every rand or dollar that moves through our income statement have been secured on a competitive basis. We tender for work, and we compete against other companies, and we then secure work if we are successful. That means that you cannot price a ridiculous margin into a tender because you will lose the opportunity, you don't have the order book and you won't have a business. So it is competitive. But as a rule of thumb, a 10% the gross level on project, that is the margin that we expect from your projects, and that is how we put your tenders together. And then at the platform level, after overheads, when the business is really doing very well, you should expect between 5% and 7.5% margin. Now I think the other important point to understand is the overhead cost in our 3 business platforms is a cost that is not very elastic with the order book. In other words, we could support higher revenues, higher order book with the same type of overhead cost. So if you find yourself in this position that your revenue is growing, your revenue is growing, then your overhead as a percentage of revenue reduces. And if you price your work at the 10% gross margin level at the project after your overheads, you could be between 5% and 7.5%. And that is a very good performance for an engineering and contracting company. You cannot really do better than that because if you do, chase a higher margin, you will not secure work in a competitive market, and you will lose order book and you will lose market share. So yes, the short answer is 10% is the embedded gross margin at the project level.

Just staying on the topic of margins, specifically now with regards to the increased order book in ERI, we've got 2 questions here asking, what are the gross margins expected on these new projects that we've secured in ERI?

Again, it is in the order of 10%. Some of them, a little bit less, some of them probably just a bit higher. But on average, you look at a gross margin of 10%. Now sometimes, when we report our results, in good times, where we have high revenue and overhead is a small percentage, you don't sometimes see those margins because the 10% is for a portfolio of projects. And as you know, from time to time, we talk about a loss on the project. And we never plan for a loss, but sometimes circumstances change, and there's reasons for a project to go into a loss position, whether it's COVID or any other reason. And sometimes on projects we do better than what we've assumed at the tender stage, and we are able to achieve a better margin. So overall, 10%, and on the ERI platform, certainly 10% at the gross level.

And [indiscernible], just linked to ERI, we've seen what the overhead was in the period. With the increased order book and the delivery of this order book, how can we look at the overhead going forward.

Before I answer that, Ed, let me just get some water, please. The order book or the overage in the ERI platform used to be between AUD 95 million to AUD 100 million per annum. I've mentioned early on that we've restructured this business into 3 regional businesses, and there's a concerted effort that went into the reduction of the overhead cost. Overhead costs in the current financial year is expected to be down to $80 million compared to the $95 million to $100 million of the past. And we are well on track to achieve that number of AUD 80 million in the current year. That order book is efficient to support the growth that we are forecasting for this business.

Thank you, Andrew. Perhaps I've got an easier one for Daniël. A question on depreciation cost. It looks like they've increased. What are the main drivers behind this?

We've had an increase in CapEx in the current financial year, substantial, there has been ZAR 400 million increase in CapEx in the Snowy Hydro project. That was partially offset by the disposal of assets in Mining. And it's a timing issue. If you buy those assets at the start of the year and you dispose of the assets at the beginning of the year, then that balance sheet should be the same.

But essentially, it is on these large projects, the capital spend that's required, especially for those projects, yes.

Especially on Snowy.

Thank you, Daniël. Staying on Snowy. We've got a question asking for an update on Snowy Hydro. How is it going on the project.

The project is progressing well. We had a detailed presentation to the Risk Committee and the Board. I think that was in November last year. And the project is doing well. It is progressing in terms -- in accordance with our plans. And at this stage, there are no red flags.

Two interesting questions. First one is, are you intending to continue with a share buyback?

You can only do a share buyback if you have shareholder approval for a share buyback. And at the current level, buying back shares, it's very, very cheap. You would think that you would like to do it. But you will recall that at the AGM a few years back, that was declined by shareholders. So we're not in a position to do any share buybacks.

Second interesting question. Now looking at Aveng in their current shape, there seems to be less execution risk today than there was in your major initial offer. Would you be interested in looking at Aveng again?

That's not something that we've really given a lot of consideration to at this stage. You will recall at the time that we were pursuing Aveng, the rationale was that we would have retained the 2 assets, Moolmans and McConnell Dowell, which are the 2 important assets from our point of view. And the Board and management in advance have come to the same conclusion, and the business today essentially is the Moolmans open pit mining business and McConnell Dowell. But yes, Ed, we haven't given it really serious consideration. I'm not saying that it will not happen. But at this stage, we're focusing on a few other things.