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

Good day, ladies and gentlemen. Good day to our stakeholders on the webcast as well as on the call. Welcome to the Murray & Roberts Half Year Results for the six months leading up to 31 December 2021. Just before I hand over to Henry and Daniel to lead us through the presentation, for those on the webcast and the call, I encourage you to please ask your questions through the duration of the presentation. [Operator Instructions] With that, I'd like to hand over to Henry Laas, Group CEO, to lead us through the slides. Thank you, Henry.

Thank you very much, Ed, and ladies and gentlemen, good afternoon, and welcome to our results presentation. I really do hope that when we do the full year results towards the end of August this year, that we can do it in person and that we can host you at our corporate office here in Bedfordview. So I really look forward to that. And hopefully, that will be a positive experience for all of us. Murray & Roberts is a multinational engineering and contracting group. So we've been through a period of quite extensive transformation over the last couple of years. And you will see in this presentation, we've included 3 videos. And the idea with this is just to give you a better feel of the type of project work that we are undertaking within the business. The 3 videos are all from our Energy, Resources & Infrastructure platform, and it covers projects that we are doing not only in Australia, but also in the U.S. [Presentation]

The video was from a project in the U.S.A., just outside of Houston, called Project Traveller and the LNG plant that's under construction. And as I said, that is part of the ERI platform. The presentation we're going to follow more or less is the same format as we normally do, myself to start off talking about the strategy, salient features of the results and a bit more detail around our order book. And Daniel will come in and talk into a lot more detail about the financials. And I will then end off with the presentation take away. I would like to start this presentation by just sharing with you again in a bit more detail about the new strategic future plan for Murray & Roberts. As I said, today, it is a multinational engineering and contracting group. And in 2017, when we sold our infrastructure and building platform in South Africa, it was really the break from the group being the South African construction company. So there's a few key focus areas for us. The first is to be a multinational specialized engineering and contracting group that's focused on the natural resources market sectors. There's a lot of meaning to that statement because, first of all, the differential between a specialist contractor and a general contractor, and we have elected to be a specialist contractor. Secondly, it defines our geographic reach, which is multinational, in our core business, which is engineering and contracting and then our market focus, which is predominantly energy, metals and minerals, power and water and specialized infrastructure. Secondly, we've elected to provide our services across the project lifecycle, in other words, right from the design stage, the engineering phase through the project implementation, commissioning and even operating or operations and maintenance. And we do that because it gives us the opportunity to generate value not only from one aspect of the project lifecycle, but across the project lifecycle. And I also think it contributes to our ability to be more competitive in the market. We do our work through employing a number of contracting models ranging from cost plus to EPC lump sum. Now on these 2 first statements, you'll see we've given it the green rating on the hexagon on the right, which essentially means that we believe we have achieved what we have set out to achieve under those 3 key points. If I move on to the third point, which is Engineered Excellence and that is a standard that we wish to achieve in everything that we do. There is an underwriting because excellence is something that we aspire towards and there's always a room for improvement. But you will see in -- especially when it comes to the health and safety part of the group, we have really done remarkably well in the first 6 months of this financial year. And then we would like to achieve growth through acquisition and also through organic growth. In the past couple of years, we've concluded 4 acquisitions, one of them in South Africa and the other 3 were all in the U.S.A. What we're trying to do is focus on the developed markets, where we believe we can attract higher margins, and also to work in market sectors, where higher margins are possible. Also in amber rating, I think acquisitions will always be a part of Murray & Roberts' future and for that reason, amber rating. And then we would like to enhance shareholder value, which is about financial performance. And ultimately, given the way in which the group has repositioned itself as a multinational business, we have to think about the potential or the benefits of a potential offshore listing or the delisting in time to come. Currently, with our market capital of around ZAR 6 billion, I think that would be difficult to achieve. So it will probably be associated with some other form of corporate transaction. But the strategic future for Murray & Roberts is important, that we understand that Murray & Roberts is a group that has transformed, and it is different to what it's been in the period leading up to about 20 -- 2017. Engineered Excellence is something which is very, very important in the group. It is the philosophy that we apply across all our businesses. And we need to understand that in engineering and contracting business is a business that take on risks and sometimes significant risks. And risk management is for that reason of crucial importance to our business, and it's just not negotiable. So I've got 2 slides on the risk management. And what I'm trying to explain here on the first slide is risk management for us starts from when we're engaging an opportunity to being the successful bidder eventually and securing the contract. And then the second part of risk management is really during the implementation phase. And the specific focus areas during the opportunity management phase and then during the implementation phase. So if you will allow me just a few minutes to spend some time on these 2 slides on the risk management. So first of all, in managing the opportunity, it starts off with a tender that's being issued by a client, and we then receive the tender and pre-tender, there is a decision required as to whether we're going to bid on this opportunity or not. It is a decision to bid decision that needs to be taken. And all these opportunities that we decide to tender on, it gets captured in our opportunity management system, which is a system, which applies across the group. And as I said, all opportunities that we tender on, whether in South Africa and Australia or the U.S., any part of the world, gets captured on the opportunity management system. In the decision, when we decide whether we want to bid or not, there are many considerations, but some of them would include considering our contracting principles. In other words, the commercials that have been proposed with the inquiry document, how big is the gap between that and the principles that we are prepared to contract under. Secondly, the lessons learned on previous projects. How relevant would it be to this tender that we are considering responding to? And then we also have minimum requirements for certain contracts. So there's an assessment that gets done on that opportunity, but the Managing Director of that operating company has got the authority to decide whether to submit a bid or not to submit a bid. If the decision is to submit a bid, as I said, it all gets captured in the opportunity management system. Then I want to move on to the tender block that you can see on this slide. Within the opportunity management system, it is populated with the group's risk tolerance filters. And the risk tolerance is approved by the Murray & Roberts Holdings Board. And it covers variables such as the contract value, the location of the project, the contract law, the revenue basis, the project type, the scope of work, who the client is, who the consultants or potential partners are on a project. So all of this gets captured on the OMS. The OMS then automatically would, against the risk tolerance framework, would assess the rating of a project, which could either be purple, red, amber, green. Now the purple opportunity requires ultimate approval from the Murray & Roberts Holdings Board; red, it's approval from the Murray & Roberts Limited Board; amber it is the CEO of each of the 3 business platforms within the group; and if it is green, it gets approved at the MD level of the operating company. So the purpose of this filter and risk tolerance and categorizing an opportunity through as either purple, red, amber or green, it is essentially to determine where the authority lies to approve a tender for submission. So during the tender compilation, there's a complete and a very thorough risk assessment that gets conducted, and then those risks need to be mitigated and decisions are required on how it will be mitigated. Will the risk be priced? Will there be a contingency set aside for this risk? Or will we contract out of these risks? In other words, say to the client, we're not prepared to accept that risk and pass the risk back to the client? And then on our EPC projects, we require independent reviews on our tenders. In other words, we invite an independent third party in to go through our tender and just to confirm whether the tender is reasonable and correct. And then Murray & Roberts Limited has to approve all the red and purple prospects. And as I said, purple eventually goes on to the Murray & Roberts Holdings Board for approval. Once we get to the stage that the approval was granted and we were successful with our tender, it is important then for the company that's implementing that tender or that is closing out that award to make sure that the mandate in the commercial terms are the [ same ] as the mandate that was provided by the approval body, whether it was Murray & Roberts Holdings, Murray & Roberts Limited, the platform CEO or the operating company MD. And any deviations to that mandate at that stage needs to come back to the appropriate authority level, where the approval was granted for the tender to be submitted. So all of this is part of the process before we get to a stage of including an award in our order book. And that only happens when all the commercial terms have been agreed and signed off. Once that has happened, we move on to the implementation phase, project delivery and closeout. And what happens right at the beginning, there's a handover meeting. The team that put the bid and the tender together hands it over to the team that is going to be responsible for the implementation. And many a time, we include executives or senior management from the implementation team into the bid team so that there is good knowledge of what the project is all about. So this all happens. And then there's also what we refer to as a "know your contract" training session, which is a training session for the implementation team on the detail contract requirements. What is written into the contract? What are the terms and conditions of the contract? Make sure that the project team understands that very well. And once the project gets off the ground, the project team will then present back to the executives in that business through a readiness presentation, their understanding of the project, just to confirm that there's no misunderstanding between the bid team and the execution team on how that project needs to be delivered. We then move into the delivery phase, which can be 1 year, it can be 5 years. But throughout that period, on a monthly basis, there is an operating company project performance review, a look at HSE performance, the financial performance on the project, the schedule performance, whether there are claims, whether there are variations, what is the forecast to completion? These get updated on a regular basis. And then what we also require from our businesses and within each of the relevant business platforms that implement a project at about 20% of -- at the 20% completion stage, there is an independent, but within platform review on that project and on the project performance. It's just another lens through which we look at the project to make sure that everything is in accordance with our expectations. But then there are additional interventions. Should we find that a project for some other reason is starting to show signs of being a project in distress, we've got the process in place with the Murray & Roberts Limited Project Oversight Committee who then consider those opportunities and see whether there's any advice that could be given to the project team, any support, any interaction or any intervention that could take a project that they're showing signs of distress to put it back on to the rails again. And then on a quarterly basis, the corporate team, including myself and the CFO, we'd engage with the platform executives, and we would do an oversight review of all our projects and that is essentially by looking at what we refer to as the margin analysis, and that indicates to us whether there are projects showing signs of distress or not. But hopefully, we closed the projects out successfully or we complete them successfully, but then we get into the closeout period. The closeout period is after we've completed the project. There are lots of things that need to happen. There's residual exposures relating to our accounts, our claims, our bonds, warranties. There are patent and latent effects that we need to attend to, and eventually the project gets closed out. So by us applying this rigorous process does not guarantee that we will never have a problem on a project. But I can tell you, if we don't go through this rigorous process, we will have numerous problems on projects which we currently don't have. But the one thing, I think, which is also important for our stakeholders to understand, in the majority of instances, when we start to build a project, it's only on the first initial period, a week or month, that we may find ourselves in a position where there's no change on the project. But as you know, there's -- in putting a project together, there are many, many assumptions either during the design stage, during the initial tender stage. And the reality is sometimes different to what you have assumed. And this needs to be -- these differences need to be closed out in the commercial process. Now a project value never goes down. It always goes up. It goes up with variations. It goes up for -- with many, many other reasons, but it never goes down. And with clients, if a project value increases, they need to pay us more for completing the work. So it's never an easy conversation with clients. They don't want to part with their money. But we have to be fair and clients have to be fair. And for that reason, it is important that our commercial documents gives us the opportunity to deal with change on the project. But as I said, sometimes you get treated fairly by a client on a project and normally, you will then have a good outcome. Sometimes the treatment is not always fair and then you end up with having disputes and that you need to settle through a legal process. But I want to give you the assurance, all our stakeholders, that the risk management processes that we adopt within the group are rigorous and they have protected us in many, many, many instances of things that potentially could have gone wrong, if it was not for this risk management process that we are following diligently within the group. Operationally, the group is structured into 3 business platforms, and each of these business platforms are really named after the main market sectors that they are focusing on. Our Energy, Resources & Infrastructure platform is currently from an order book perspective, the largest -- got the largest order book within the group, followed by the Mining platform and then the Power, Industrial & Water platform. The first 2, Energy, Resources & Infrastructure and Mining are multinational. They operate in all the selected geographic markets that we are targeting, whereas the Power, Industrial & Water platform is a sub-Sahara-focused business platform. So that brings me to the half year results, just the salient features. Revenue up from ZAR 10.8 billion to ZAR 13.3 billion and continuing EBIT up from ZAR 117 million to ZAR 337 million and diluted continuing HEPS from a loss of ZAR 0.08 a share to a profit of ZAR 0.29 a share. So I think that is strong earnings growth as well as strong revenue growth. The one thing that I need to say is we, at an operating margin level, operating margin at 2.5% is still below our targeted range, which is between 3% and 5% for the consolidated group. But that is due to the continued impact that we are experiencing on our projects, which are impacting [ on our ] efficiencies. And this covers the supply chain as well as labor productivity on our projects. So we are not out of the woods yet as far as COVID is concerned. But I think we've dealt with it in the previous 2 financial years, and we've experienced the largest impact, but it's not that there aren't any ongoing impact. We are still experiencing those impacts. The increase in revenue and increase in earnings was essentially as a result of the improvement that we saw coming from Energy, Resources & Infrastructure platform. And that is the reason why earnings is up. That is the reason why the revenue is up. The Mining platform did very well, marginal increase on the previous -- for the first 6 months of the previous year. And our Power, Industrial & Water platform also came in with a result, no further deterioration relative to what we reported in the comparable period. But the order book of the group is something that we are very pleased about. And it is not an order book that was accumulated overnight. It is hard work that went into securing this order book, especially in the Energy Resources & Infrastructure platform, which had a bit of a market-focused shift. As you know, that platform essentially was focused on a single market in LNG in Australia. And with the sort of period of low investment in that sector over a number of years, we had to broaden the market focus of that business. And for that reason, we've also changed the name to the Energy, Resources & infrastructure business. And that has resulted in a phenomenal increase in order book for that platform. And Peter Bennett, who's the CEO there, has done remarkably to achieve that outcome. And then your net cash position. Our net cash position, ZAR 0.9 billion, it is substantially up on the ZAR 0.3 billion, which it was at December 2021 -- December 2020, December 2020, yes, the first 6 months of the previous financial year. But I must say we do expect some cash outflow in the second half of the financial year. So we do believe that the ZAR 0.9 billion net cash position will come down in the second half. And the reason for that is that with all your large projects, we've got milestone payments. And there's a number of milestone payments that were scheduled to be achieved before the end of June, against which payment would have happened, but some of them have slipped into the financial -- the next financial year, which is financial year 2023. And as a consequence of that, there will be a cash outflow in the second half of the year. Now why did the milestones move out? The milestones move out because of the supply chain disruption that we are still experiencing and with goods, which get manufactured, and equipment in other parts of the world arriving on our project sites later than what the commitments are that we were given by our suppliers, which means there's a bit of a delay in reaching those milestones, and the payment that is associated with those milestones are drifting into financial year 2023. So it's purely a timing issue, round about changes that's going to happen up to -- leading up to our year-end in June 2022. This is a slide that's a little bit busy. So just allow me an opportunity to explain the layout of the slide, and then we will get to the content. What we're trying to depict here is that we believe that we have gone through the worst of the COVID-19 impact, and we were starting to return to -- don't want to use the word normality. We're almost there, but to similar type of business environment that we experienced prior to COVID. So you'll see 3 main columns FY 2020, 2021 and FY 2022, the current financial year towards the right. And each -- for each of those financial years, you see the half year result and you also see the full year result. Now the half year for financial year 2020, that half year was delivered prior to COVID. COVID happened just after that half year result. And you will see what the position was for that half year and then you can make a comparison leading up to the full year 2020, what we experienced during 2021 and then the first half of the current financial year, this reporting period. From a revenue point of view, you will see that before COVID, we were doing about ZAR 11 billion in revenue over a 6-month period. That was maintained during 2021 as well. But the first 6 months of the current financial year, revenue has gone up to ZAR 13.3 billion, and that is starting to show the contribution from this large order book starting to find its way and reflecting into increased revenue. Our EBIT, it was ZAR 419 million for the 6 months in financial year 2020, the first 6 months. And the first 6 months in the current financial year, it is ZAR 337 million. So the margin is down, but I just need to emphasize that in financial year 2020 in the ZAR 419 million, there wasn't -- the fair value adjustment on the Bombela Concession Company was ZAR 95 million once more than what it is in the first 6 months of the current financial year in this reporting period. And it's essentially got to do with the COVID impact on the Gautrain system. So overall, as I said, results are, I think, under circumstances, reasonable. The margins are still not there. And as I said, it is because of the ongoing impact that we are experiencing on our efficiencies on the projects. Order book, ZAR 61.1 billion, really, really something that we are very pleased about. And we believe the share price is starting to reflect the improved prospects that we see for the business. We don't know what it's going to be by full year, currently, ZAR 12.90 around about ZAR 13 a share. that's where our share price is. So the takeaway from this slide is that the worst of the COVID-19 is behind us. We've navigated through that. And I think we've done -- we emerged from it reasonably well. It was a difficult period for us, but we are hopeful that we are now in a different business environment, where the impact of COVID is not going to be as severe as it was in the previous reporting periods. Health and safety. The graph has got -- or the slide shows you 2 graphs. The line graph on the left is our lost time injury frequency rate. And the graph to the right is the fatal incidents in the group. Now we are very, very pleased with the lost time injury frequency rate at 0.42. This is the lowest it has ever been for the Murray & Roberts Group. We have never reported a better lost time injury frequency rate than what we have done for this reporting period to December last year. So we're very pleased about that. We are also very pleased that notwithstanding the risk environment, in which we are building projects, and I think you will have an appreciation of that when you look at some of the videos that we've included in this presentation. We are very pleased that we have reached the point now that we are firmly of the view that we can run this business without people having to lose their lives without any fatal incidents. And we actually believe that we can do it with zero harm. Just a comment about COVID-19. Based on the on the records that we have on vaccinations of our employees, we can comfortably say that about 77% or at least 77% of our employees have been fully vaccinated. And why do we say at least? Because we do know that especially in the U.S.A. and in Canada, that reporting of people that have been vaccinated, the reporting thereof, some people prefer not to report their vaccination status. So the 77% is only for what has been reported to us. And I think that is a reasonable level of vaccination. Just a comment on environment, social and governance, on ESG performance. I want to start off by saying Murray & Roberts is a very responsible organization and ESG has been very important to us and has received considerable consideration and the necessary management attention, and it's not only because ESG is becoming very prominent today, but it's always been pretty important for Murray & Roberts as a group. And we do know that is becoming more prominent today for financiers and investors when they consider whether they're going to participate in swap, providing finance or whether they're going to invest in your company. And over the last couple of weeks, a potential investor out of Finland has engaged with us. And one of the criteria before they finalize or reached finalization on the decision to invest or not is they assess your ESG performance. And we had to complete questionnaire, I don't know, 10 or 15 pages, if not more, detailed questionnaires on ESG. And that just indicates to you that ESG is becoming more and more important for companies today. But having said that, Murray & Roberts has, in the previous financial year, contracted the services of an organization called CEN-ESG, which operates out of London, and what they essentially do is they look at your reporting on ESG and they then score you, but based on your reporting. And we've got a score of 31.5% out of 100. It sounds like a low score, but of all the industrial sector companies that they have scored in their database, the average is 30.2%. So we have done better than the average. And then for the top 100 companies, that score is 57.4%. And I believe that through the knowledge that we have now gained and the reporting or the shortcoming in our reporting, if we more completely report what we are doing in the field of ESG, we will certainly get on your new rating a much-improved score relative to the 31.5%. But for us, as I said, it's not about a tick-box exercise. We are starting to report on ESG now, but it has always been a very, very important consideration for Murray & Roberts as an organization. And I personally believe that we are doing very, very well on the environmental side, the social side as well on the governance side. So 31.5% when we talk again, maybe in the not too far future, maybe we'll be ready then with a new rating and we can share with you how that score has improved. But as I said, it's not about a tick-box exercise, it has to be substance over form. And in the field, we have to demonstrate our ESG compliance and competence. Just a few slides to explain a bit more about our 3 business platforms. The first business platform, as I said earlier on, is a multinational business, Energy Resources & Infrastructure. And from these pictures, you can see these photographs, the top left is a project in Australia. The top right is also a project in Australia. The bottom left is a project in Papua New Guinea. And the bottom right is a project in the United States. And then in the middle of this slide, you will see a number of brands, and these are the brands under which this platform is trading in the market. Multinational business, a solid presence in North America, a solid presence in the APAC region, in Australia and Papua New Guinea. The company has done -- or this business has done enormously well, having grown the order book to ZAR 38.4 billion. And having said that, there is a real potential that, that order book can still grow materially between now and the end of June. And I will get to a bit more detail on that a bit later on. This order book is a multiyear order book. So we're pleased with the growth in revenue and earnings that we are reporting for this business in the current financial year. But if you look at the order book, we are confident that this order book provides great support for at least the next 2 financial years. This is the Mining business platform, again, a multinational business, top left, project in Australia, top right, a project in the United States, bottom left, South Africa and bottom right, a project in Indonesia, and also various brands under which this business is trading. As you can see, a very good presence in North America, very, very well established in the Australia region and then also into Africa. The business with an order book of ZAR 22.2 billion, that order book has grown compared to the comparable period. And I must say that, as you would know, we've communicated that to the market recently. We were in the process of extracting ourselves from the Kalahari contract. That contract has now been terminated, and we have removed ZAR 2.4 billion, ZAR 2.5 billion out of our order book, which was associated with the Kalahari contract and notwithstanding that the order book is up at ZAR 22.2 billion. This business, and you will see from the detailed slides that Daniel will show you a little bit later on, notwithstanding this order book, the timing of this order book as such that it is really going to give value in the 2023 financial year. So in the current financial year, we don't expect that our earnings for this platform will be more than what we reported for the previous financial year, but the order book points to strong growth in 2023 from a timing point of view. Our Power, Industrial & Water platform, sub-Sahara business, one project, the one on the top right is the Golomoti Solar Project in Malawi, where all the electrical balance of power plants are within our scope of work. And that project has been completed now successfully. And the bottom left, there's a photograph of the Organica wastewater treatment plant, which that photograph is when we had the demonstration plant out at Verulam, just outside of Durban. And this plant has now been relocated to the V&A in Cape Town, and commissioning will be in the next 2 to 3 months, after which we will treat water for the V&A over a contract term of I think it's about 10 years. So yes. The Power, Industrial & Water platform and then also trading under a number of brands. And you will see we have Wade Walker Solar, one of the brands in that middle block. We have established a solar business, and that was a couple of months back. We've completed our first projects. It went very, very well. It's still on a very, very small scale, but we are hopeful that this business will grow into the future given the opportunity that we have in South Africa. As I said, it was a sub-Sahara focus. So there's no presence in the Americas. There's no presence in the APAC region, purely South Africa and into sub-Sahara Africa. The order book is ZAR 0.5 billion. It's a very, very low order book, and we have really struggled after we've completed our scope of work on Medupi and Kusile to build an order book for this business and to get this business to a point where it can contribute to our earnings. It's been extremely difficult. But having said that, with the investment that is now happening in the renewable energy space, we are optimistic, really optimistic that we can now turn the corner in this business and return it to profitability in the next financial year. We are in close discussions with a number of independent power producers. And as you know, they in turn are in discussion with government, and they need to reach financial close towards the end of March, end of April, and our scope of work will then commence. Subject to the timing of that work, if we can get an early start in line with our current thinking, this business could have a breakeven period in the second half of the year. But if there's any delay on those projects, it will move out to the new financial year. As I said, financial closures only towards the end of March, end of April, and we can only commence with our work once the IPPs have closed their contracts with government. So we are on sort of tender hooks to see when those projects will start for us, but a real opportunity, and we are pleased about that. And we've got a high level of confidence that this business in the new financial year will contribute to our group earnings. But I have said in some of the interviews I had yesterday after the results, I don't want to create the impression that this business has got the capacity or the potential to contribute equally with the other 2 platforms. The other 2 platforms, they're multinational businesses. They just have so much more opportunity and capacity to contribute. So this business for us, if we can get it to be profitable and maybe contribute between ZAR 50 million and ZAR 100 million earnings before interest and tax, it will be a fantastic contribution. Just to give you a feel in terms of the relative size and the relative opportunity that we have for the 3 business platforms. A bit more detail about our order book. If I start on the far right-hand side, we reported for 6 monthly periods, December '20, June '21 and then December '21. You can see that order book of ZAR 61 billion. And as I said, it really is a phenomenal order book. To the left of that total column, you'll see the breakdown for the ERI platform, the Mining platform and the PIW platform. And as I said, the ERI platform is at ZAR 38.4 billion, with a high level of confidence that, that will grow quite substantially to the end of June. The Mining platform, ZAR 22.2 billion. It now excludes Kalahari. The ZAR 2.4 billion, ZAR 2.5 billion value for Kalahari is now excluded from the ZAR 22.2 billion. And there's also a number of quite substantial prospects, especially the platinum sector in South Africa, which we are hopeful that will find its way into our order book before the end of June. The Power, Industrial & Water, a very small order book. But if the opportunities that we are targeting, if we are successful with those, it is quite possible that, that order book could jump up to about ZAR 4 billion by June of this year. As I said, it's all subject to the timing of the IPPs closing out with government before we can commence with our work. Again, a busy slide, but it will give you some sense of what the future holds for Murray & Roberts. Let me just explain the slide on the left-hand side. We've got the 3 platforms. To the right of that, there's an indication whether that order book value is in the SADC region or in the international space. You see that per platform, but overall for the group. 17% of our order book is in the SADC region. 83% of the order book is in the international market. The columns to the right, you'll see a comparison of the order book December 2021, which is a 6-month reporting period dealing with now compared to the order book in December 2020, adding up to the ZAR 61.1 billion for December 2021. And then to the far right, we took this order book, and we did a bit of a time distribution on that order book. We did it per platform, and we totaled it for the group. Financial year 2022, you'll see that we have in this order book ZAR 16 billion of revenue for the second half of this financial year. Now we've already delivered ZAR 13.3 billion in the first 6 months. So we can quite comfortably say that, for the full financial year, we are looking at circa ZAR 30 billion of revenue. When you look at 2023, there's already ZAR 22.6 billion secured for the 2023 financial year, and we're still 6 months away from the start of that year. So we are confident, again, that financial year 2023 will report growth on the revenue of 2022, which we say is going to be circa ZAR 30 billion. Another slide on our order book, and in engineering and contracting company, the order book is of crucial importance because without an order book, you don't have a business. So we are really putting a lot of emphasis on your order book and on the pipeline. The slide has got detail on the right-hand side under the heading pipeline. Now all the values that you see there for near orders category 1, 2 and 3 is not included in the order book. But just to the left of the pipeline, you'll see a heading, order book, and there you see the breakdown that we already showed on an earlier slide, per platform, totaling ZAR 61.6 billion in the current financial year. Near orders is ZAR 12.8 billion. What that means is tenders that we've been successful with, but we haven't yet finalized the commercial terms. So the agreement has not yet been signed. But a lot of that ZAR 12.8 billion will find its way into the order book before the end of June. Category 1, Category 2 and Category 3 projects, that we are working on Category 1 is for projects where we have already submitted the tender. So there is ZAR 74.3 billion of tenders that we have submitted. It doesn't mean that we will be successful with all of those, but that is the value of tenders that we have submitted. Category 2 is for projects that are a little bit later from a timing point of view. So they haven't reached the tender stage yet. It is in the feasibility stage or budget estimates, but we are doing work on potential projects to the value -- that have a collective value of about ZAR 92 billion. And then Category 3, opportunities which are out there, which we are targeting, where we believe we can compete, but those opportunities are further out and have not come to market yet. It is not at the point that clients are asking for tenders, but we are following it very, very closely to see the progress on those opportunities. So a very robust near order ZAR 12.8 billion. And then in the Category 1 of 74.3 million. There is 1 project to the value of about ZAR 20 billion, which we are negotiating on a sole-source basis. It is within the ERI platform. And that is the one that I said there's a real chance of this finding its way into the order book before the end of June. And with that said, I want to hand over to Daniel, and Daniel will take you through the financials in a bit more detail. Thank you, Daniel.

Thank you, Henry. So what we see on the screen here is the Snowy Hydro project and the tunnel boring machine that's about to enter the portal. So we do have a short video clip as to what the process looks like and how it goes in. [Presentation]

To give you a bit of color as to what these projects look like, now to put it in context, that tunnel boring machine in length is about 180 meters long. So to bring that thing underground and to manage that underground is a tremendous effort. So large complex projects, and how do we simplify those in our financials? What we can see in terms of turnover, as Henry mentioned, increased from ZAR 10.7 billion to ZAR 13.2 billion. So a large increase in turnover. That translates through to EBIT increase from ZAR 117 million to ZAR 337 million. Tax expense, obviously, is a bit higher compared to last year. Your earnings before interest and tax will be higher. And then pleasingly, discontinued operations is coming down and will continue to come down, but there's a separate slide we're going to talk to that. But more importantly, Murray & Roberts is back in the black. When we look at the attributable earnings last year was a loss. This year, we moved into a profit situation. So if you break it down per segment, as we've done as at the end of last year, the ERI platform, we disclosed between North America, EMEA and APAC, North America, we can see an increase in turnover. And I must admit this is quite a lot that happened in the EBIT and operating profit line. So firstly, we acquired J&J (sic) [ JJ ]. There's some integration costs, due diligence costs, all of those costs were eating away at overheads, but we also had COVID impact on that project. So if I have to use 2 individuals to build a house, one individual calls in sick, I have to get a second individual in, still pay all 3 of them. But I get paid for the cost of 1 hour. And it's an oversimplified example, but we had a significant impact on that project scope in the U.S. APAC, we can see significant growth in turnover, that's your Snowy contract, still a healthy operating margin. Pleasingly, there's no more loss-making contracts left in that side of the platform. You can see a profit of ZAR 195 million compared to ZAR 86 million. And the total revenue went up from ZAR 5 billion to ZAR 7 billion, and that's meaning to increase even more in the second half of the year. Order book also remained at 38%, but that can easily go up by between ZAR 10 billion and ZAR 20 billion before the end of the financial year. In terms of Mining, we've got Africa, Australia, the Americas. Africa had a tough start to the year. The prior year numbers did leak some of the Kalagadi claims that were brought to book that were settled, but we're still experiencing cohort on some of the contracts in Africa. The Australian market, we can see as a return to profitability, and we can see the trading conditions in the Australian market have improved. So that's quite pleasing turnaround. Where you'll be expecting or experiencing the worst COVID impact within the group is in the Americas. Not only is the delay in project awards, but there's a number of different impacts, which Henry mentioned, and we can see that the revenue generated is just not enough to cover the operating profit within that entity. There's no loss-making contracts. There's no burning bridges in that company. It's just purely a lack of turnover to cover the operating profit and earnings within that entity. Still reasonable performance by the Mining platform ZAR 184 million versus ZAR 176 million in the prior year, and they're sitting on the order book despite Kalahari coming out, order book of ZAR 22 billion. Now large chunk of that order book sits in the Americas, which is the ZAR 7.5 billion. And the problem with that out of the order book, as we mentioned, that revenue is only going to start towards the end of the financial year and we won’t see a significant impact in the current financial year. PIW is divvied up in different elements. So the power and industrial mainly relates to maintenance work that we’re doing at Medupi and Kusile. The teams are performing really well, on budget, on time, 12% margin. It's a healthy business. The solar transmission and distribution, that's where we're expecting to see the most growth in this platform going forward. Now there's a number of projects that we inherited when we bought the business. Those are coming to an end. And basically, today, we've almost taken zero profit on those contracts, and that's the reason why you don't see a reduced loss in that division. On the other, we see an amount of ZAR 66 million. Of that, ZAR 66 million, about ZAR 13 million relates to commercial costs as well as legal costs. And those costs are to defend historical claims against Murray & Roberts as well as to pursue uncertified revenue and claims in the name of Murray & Roberts going forward. It's a large amount. And until the commercial issues in this platform have been resolved, we will have commercial and legal fees going forward. But overall, a loss of ZAR 65 million. And as Henry mentioned, if things go according to plan, we expect a breakeven in the second half of the year. We can see there in the order book, ZAR 467 million. And in near orders is sitting another ZAR 1.2 billion. So with a bit of a tailwind, we're hoping to get to about ZAR 3 billion to ZAR 4 billion in terms of order book by the end of this financial year. In terms of our investment in the Bombela Concession Company. As we mentioned previously, we got an external party to give a forecast in terms of riderships and patronage. What we have seen throughout the pandemic is going to be the riderships until the end of the concession in 2026. Now at the moment, we're trailing slightly behind the forecast. But that revenue that we're not making up in terms of passengers, we're making up in terms of cost savings, in the model. So at the moment, we're on par. The next difficult period is going to be the next 4 months, where ridership is expected to climb, but a number of items are pointing that way. I think last week, Friday, the ridership numbers came in at 22,700. So at the moment, we're not too concerned about the investment. In terms of discontinued operation, we still incurred a loss of ZAR 37 million in the current year. That's closing out -- commercials is closing out all the office issues. Under other, we've got an amount of ZAR 31 million. That's made up mainly of 2 elements. So we've disposed of the I&E business, and we are busy ramping up the generic contract. And there's some commercial issues and some historical defects that we currently remedying. And then there's another ZAR 12 million of additional cost of businesses and historical elements that we're in the process of closing down. So you'll remember, we’ve got a stake in the Bombela Construction -- sorry, Bombela Civils joint venture which built the Gautrain. ZAR 12 million of the ZAR 31 million relates to closing out defects. That defect period is coming to an end in the next year, so hopefully in the future that ZAR 31 million will come very close to zero. If we look at the balance sheet, and I'm going to start from the top, I'm not going to go line by line, but property, plant and equipment increased. The main increase relates to an increase in PPE that was purchased on Snowy [ River ]. Now the client gave us cash up front. We had to utilize those cash to go and buy the PPE. If I go down directly to the cash line and just skip that over with, we're sitting at ZAR 4 billion, that ZAR 4 billion is expected to reduce towards the end of the year. There's a number of plans that we're busy doing to make sure that we effectively reduce the loss as much as we can. As I mentioned, at least ZAR 500 million, ZAR 600 million of that has already been spent on CapEx, but we are trying to claw back some milestones. There are jobs that where you incur the cost and you're going to get paid on a milestone as long as you keep incurring costs and you don't get the milestone money in, your cash flow will worsen on those jobs. So we've already engaged with clients on those jobs, and we are trying to pull back some of those milestone payments into FY 2022. If you look at shareholders and equity, it's gone up by ZAR 628 million. You will recall your attributable earnings was only ZAR 55 million. So what is driving the additional equity? In your equity line there is an element called your foreign currency translation reserve. Now, because your spot rates in the major currency increased from period to period by about 11%, it increased your foreign currency translation reserve by about ZAR 500 million. And that drove the bulk of that shareholders’ equity increase. On assets held for sale and liabilities held for sale, the bulk of those items relate to the Middle East. Hopefully when I stand here in June these items will be removed and the sale of the Middle East entities would have been concluded. I just want to take 2 minutes on this debt and gearing analysis. Now I want to be very clear as to how we look at it as a company. So we break that out -- up into 3 elements: corporate debt, self-servicing debt and IFRS 16. So corporate debt is debt that we use our profits or the sale of other assets or any other elements that we use to service this debt. And in that we’ve got TNT which is being paid on a quarterly basis. And we’ve got overdrafts and sundry loans sitting at ZAR 1.5 billion. So total corporate debt for the group is sitting at ZAR 1.7 billion. In self-servicing, we've got asset-based finance and the Bombela pref shares. Now when we talk about asset-based finance and I've used the analogy before again by and LHD the -- for our contracts. I get paid on the revenue line for that LHD that reduces my debt, but I still utilize that LHD to make a profit to contribute towards the other debt. So that profit -- that project by itself services the LHD and the debt on the LHD. So if that debt was to double, that would mean my revenue to double, my profit was to double. So I'm not too concerned if self-servicing debt drives up our gearing ratios. The element we look at, and you will see total debt just a bit about halfway on the slide, is sitting at ZAR 3.08 billion versus ZAR 3.012 billion in the prior year. Total equity has increased, and the obvious factor for all of that is that your gearing ratios have decreased. So it's not optics. I've just explained the math to behind why the debt gearing ratios have decreased. So with that said, Henry, over to yourself.

Thank you very much, Daniel. This is a photograph of the Booysendal platinum mine in South Africa, which we have built for Northern Platinum. And I think they are very, very pleased with the asset that we've handed over to them a year or so ago after we've completed all the works and brought the mine production up to a steady-state level. Before I get into the presentation takeaways, there's one video still to comment and then that final slide on presentation takeaways. Just want to maybe add something around our discontinued operations and the business that we have in the Middle East. You will recall we have announced in the previous financial year that we have sold the 2 companies, 1 company in Dubai and another company in Abu Dhabi and that the sale is subject to certain conditions precedent, which includes regulatory approval. We are still not obtained the regulatory approval, although we think it is possible that it could be achieved by the end of June, and that is why Daniel made the comment that he hopes that those 2 assets will be sold -- those 2 companies that would be sold by the end of the financial year. If that was to happen, there is -- and Daniel also explained something about the foreign currency translation reserve. There is a potential ZAR 350 million cost that will flow through the income statement at the time of us transferring the shares to the buyer. Now it is a noncash item. It doesn't impact our equity. It also doesn't impact the net asset value. And we have explained that previously, but I just want to bring it to your attention again. Don't be surprised on the day that we -- that the sale goes through, when you see that foreign currency translation reserve happening. It, unfortunately, has to go through the income statement but it's got no consequence from a cash perspective, equity or NAV. [Presentation]

That was Waitsia, a gas project in Australia, another project under construction by our ERI platform. Ladies and gentlemen, we are getting to the end of the presentation. As Ed said right at the beginning, if you do have some questions, please note your questions, and we will answer them after the presentation. Now in a nutshell, I think importantly, again, the message that Murray & Roberts is a multinational engineering and contracting group. And we've been through a substantial transformation. And I think through the slide presentation, you will also agree and conclude that, that is what Murray & Roberts is today. The second point is the revenue and earnings over the next 3 years, we do expect to grow and it is supported by this order book of ZAR 61.1 billion at near orders of ZAR 12 billion. I mean, this is really a fantastic position for the group to be in. And as I said earlier on, for an engineering and contracting company, the order book is of crucial importance. If you don't have an order book, you don't have a business. And we are very pleased with the ZAR 61.1 billion that we have in order book value. And as I said, we do expect that number to increase towards the end of June, notwithstanding the fact that it will be several billion of revenue in the second half that will come out of the ZAR 61.1 billion, which we already placed with new orders. And on top of that, we will grow. The improvement in the net cash position at the half-year stage up to ZAR 0.9 billion, we don't expect an improvement at the year-end stage. As Daniel has said, there will be an outflow of cash in the second half of this financial year, and it is some of the milestones moving from the '22 financial year into 2023. And where we are paid on achieving certain milestones, that cash with that -- on those milestones will move into the new financial year, so it's purely a timing issue. The ERI platform has significant levels of revenue already secured for next year and the year thereafter. A strong pipeline and we really have high expectations for this business to contribute substantially to earnings over the next few years. Mining, you would have noticed the increase in the Mining order book. But as I said, from a timing point of view it’s all going to really benefit the next financial year, and in the current financial year we don’t expect earnings to really be more than what we reported in the prior year. The Power, Industrial & Water platform, we’ve got sufficient confidence now to say that we believe this business can return to profitability in the short to medium term. There are substantial opportunities in the renewable energy space. We need to secure those, but subject to us being successful we think that this business can now be run profitably. The group as a whole, we are exposed to our select target markets. Our order book is strong. And I think there is real potential for meaningful earnings growth into FY 2022 and beyond. I must admit for the first 6 months of this year, and I think even the financial year to June, you will see that our earnings or that the margin on our earnings is going to be below our target range of 3% to 5%. And hopefully, we can get through that quickly. But unfortunately, we are still troubled with the impact that COVID has on our ability to really operate efficiently on many of our projects. To give you just a simple example, the Americas is the region that was impacted most by COVID, especially in the mining business but also in the ERI platform. As we speak we have a project in the Arctic which we are doing for BHP Billiton, a mining project. That project has been stopped. I’m not sure as we speak here whether it has started working again. But it is an isolated area. People work out of camps. There was an incident of COVID and the mine decided to close completely down. So we can’t progress our work under those circumstances. And that’s just an example of the COVID impact that we are still experiencing today. But the biggest impact is on the supply chain where the supply chain is also experiencing its own difficulties. Some of our suppliers are not able to deliver what they have to deliver within the time frames that we need them to deliver. And also from a shipping point of view, we also have some challenges to get the equipment that we procure delivered in time to our sites. But we will get through that. I think all companies are facing this problem, and we will eventually get through COVID and the impacts of COVID. So thank you very much for participating and listening to us. As I said, hopefully when we do the full year results we will be able to invite you and host you here at the Murray & Roberts corporate office. And with that said I will now ask Ed to facilitate the Q&A session for us.

Thank you, Henry. Thank you, Daniel. We've got a few questions on the webcast that we'd like to get to. Perhaps let's start with the substantial differences in ERI and mining performance between the APAC and North America regions. What led to the lower margins in North America? And how rapid could recovery be?

Look, it's difficult to just give a simple answer because there's many, many factors which contribute to what you eventually achieve as a margin. But you will notice, not only in the ERI platform, but also in the mining platform, the margins in the Americas were lower than what we have recorded elsewhere. And this is essentially due to the impact of COVID. The Americas have -- and you will know that it was in the media all over, substantial, substantial levels of infection that was recorded in the U.S. as well as in Canada. And as I've just mentioned, currently, we have a project in the Arctic, which reports into the Canada region, that has been stopped and that is because of COVID.

And just staying perhaps on the U.S., update on the integration of the U.S. acquisition, background to the latest acquisition and your opportunity there to grow industrial maintenance, update on supply chain or cost inflation?

Yes. The acquisition of JJ White was concluded in October of last year. From an integration point of view, the integration into the group went very, very well. The VP or Vice President that's running that business for us now is a guy that we know well that's worked for us prior to that acquisition, and he is doing very well, and there are no issues with the integration. The JJ White business is based in Philadelphia, whereas the other business that we have in the U.S., which is being the Traveller Project is based in Houston. So the intention is not to combine and consolidate those 2 businesses. They will continue to operate as separate entities. But having said that, the fact that we do have a capability in JJ White, which we didn't have before, we can combine that with the capability that we have in our Houston business and that will enable us to pursue opportunities and projects, which these companies, on an individual basis, would not have been able to do. So we are hopeful that, that will certainly enable us to win more work than what we would be able to do without having concluded this acquisition. It's early days. What we see now at this stage is pleasing. I think Peter Bennett, the CEO of the platform, is very happy with the prospects for that region now that the acquisition of JJ White has been concluded. The question on -- what was the question on...

Supply chain cost inflation.

Supply chain. There is cost inflation in the supply chain, I think we know what happened to steel prices. We know what happened to the prices on other commodities. Luckily, on these large projects, most of our procurement, which normally happens sort of in the early, early stages of projects, most of the procurement was concluded and done before these sort of increases in commodity prices find its way into the market. In many instances, when we price projects on a lump-sum basis, we take a view on what prices would do and what escalation will do, and we will price that into our projects. But within -- in the reality, when the true price increases find its way through, it can be that the way in which we've priced the escalation or the increase in prices is not in line with what we actually see in the market. And I think we're experiencing part of that now where price escalation has exceeded our expectations. But fortunately, as I said, on these large projects, the bulk of the procurement was concluded before the price increase happened.

Thank you, Henry. Staying with ERI, what level of revenue is optimal for the ERI platform from a risk management point of view? And what is your margin expectation?

Look, the -- if you look at an optimal revenue, there's one thing that our stakeholders need to understand. With the order book that we have and the order bit is growing on all these projects, we have to issue guarantees. We have to issue performance guarantees. We have to issue advanced payment guarantees if there are advanced payment guarantees. So from a facility point of view, we are currently engaging quite a broad spectrum of surety providers to assist us to increase our capacity that we have from a facility point of view, which will enable us to take on more work because, in Australia, the Australian government is probably one of the most progressive governments when it comes to investment in infrastructure. It's billions and billions of rand that get invested in the Australian economy, not only in the infrastructure space, but also in the resources space by mining companies. So there is a huge opportunity for the ERI platform. And from a capacity point of view, I think the biggest -- not concern, but the issue that we need to address at this stage is our bonding facilities. Do we have sufficient facilities to support the growth going into the future? From a management point of view, you can always create more capacity to enable you to take on more work. And I think we are able to manage that. And that to me is not the biggest risk. The biggest issue that we need to address is our bonding capacity.

Thank you, Henry. Daniel, a question for you. Can you please expand on the high tax rate?

So the tax rate has got a few elements to it. So obviously, from a low earnings base, you're always going to have a high tax rate. We've got a structural problem within Murray & Roberts, and that's the SA entities, except the mining entities, sit in one entity called Murray & Roberts Limited. Now that generates cost. The PRW platform sits in it. There's not enough revenue that's coming out of there to help us create a deferred tax asset. So we're always going to have an issue where we've got losses being incurred, but we can't raise the asset. The second element is where we operate in foreign jurisdictions. There's always going to be an element of withholding tax when you bring the money back to your normal currency. But those are the 2 biggest contributors to the tax rate.

So Daniel, if I might just add to that, the tax rate for the first 6 months of the year was about 50%.

Yes.

And the expectation over the next 12 to 18 months?

The expectation towards year-end is going to be about 46%. The sustainable tax rate for the group is between 36% and 38%.

Okay. So that's what we're aiming to eventually get to that 36%, 38%.

Thank you, Daniel. Just some questions on LNG. Given that some EU countries are looking to increase LNG import capacity to reduce their reliance on Russian gas, will the ERI platform consider prospects in that jurisdiction? And will ERI platform participate in LNG infrastructure activity in SA and Mozambique as well?

Yes, we will consider that. I think what we will see is probably a more import -- LNG import terminals that will be built in Europe so that they can import LNG from other parts of the world as well. We will consider each of those opportunities on a case-by-case basis. We'll have to see what the competitive landscape looks like, what our opportunity or what our chances would be to be successful in the region. We will certainly not exclude it. I cannot say whether we're going to be actively bidding for those opportunities, but we will certainly consider it on a case-by-case basis to see what our chances of success would be.

And the Mozambique opportunity?