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

Good afternoon to all our stakeholders in the room with us. Good afternoon to stakeholders on the webcast as well as on the conference call. Welcome to the Murray & Roberts Interim Results for the 6 Months Ended December 31, 2022. Just before we kick off with the presentation, just some housekeeping in terms of health and safety. In the unlikely event of an emergency, you have 2 exits off of this floor. The first one is out these doors to my left, left again towards where the bathrooms are. There's an emergency evacuation door there. You depress the box, which you release the door. Please go down to the ground floor. The ground floor is marked, depress that box as well, and that door will release out and around the building to the emergency assembly point across from the building in the public parking space. Your second option is once again out these doors to my left, towards the lift lobby. There are a set of stairs on each side of the lifts. Please do not use the lifts. Please make your way down the stairs down towards the ground floor, out the main entrance where you would have come in this morning and across the road to the emergency assembly point. Our HSE staff and security staff will assist in the unlikely event of an emergency. We are not doing any drills today. So if you do hear an alarm, it is real. Just on bathrooms, once again, like I said, out these doors to my left and left again it's unisex bathrooms. Then just for questions after the presentation today, we've got questions in the room. We've got questions on the webcast as well as questions on the call. [Operator Instructions] May I please ask that you ask your questions throughout the course of the presentation, which will enable us to have a constructive Q&A session towards the end. Thank you very much. Henry, over to you.

Good afternoon, ladies and gentlemen, and welcome to our presentation. Also, welcome to the people on the web, but especially the people in the room are known nowadays, many companies only do webcast presentations. For us, it's nice to see people in-person. So I'm very glad for those of you that made the time to be with us today. As you can imagine, we'll be sharing with you a very difficult set of results today for the first 6 months of the financial year 2023 for the period up to December 31. So we will go through the numbers, and hopefully, we'll be able to explain in sufficient details as it is better understanding. As always, Daniel will share the bulk of the presentation with me, but we will also ask Mike and Steve that's heading up our 2 platforms to share the segmental analysis results with you. Just for background to the voluntary administration of Murray & Roberts Pty Limited and Clough the structure that we have -- that we had in Australia, our company structure comprised of Murray & Roberts Pty Limited as a Holding company. And then we had 2 subsidiary companies below Murray & Roberts Pty Limited, one being Clough and the other one RUC. Now RUC always used to be part of our mining platform. So it's a mining company. And Clough is a company that was really the Holding company for your ERI platform. Now we have in Clough secured quite a nice order book during 2017, 2018, 2019 of large fixed price contracts. And we were very pleased with the progress that we've made at that stage, branching into new market sectors and accumulating that order book, which at the time was fixed price contracts was the only commercial model of the commercial arrangement that was available to companies in that market sector if you wanted to secure projects. And as you know, a fixed-price contract is a contract where most of the risk is carried by the contractors, and there's very little risk that's carried by the employer. Under normal circumstances, with fixed price contracts, you really need to manage them exceptionally well to make sure that you do achieve on completion that you do achieve your margins that you've planned for during the tender stage. So when we entered the COVID period in 2020 and 2021 specifically this entire portfolio of projects were exposed to the impacts of COVID. Now normally, if you have a portfolio of projects, you can deal with an issue maybe on one or 2 projects. But if you have your entire portfolio of projects exposed to the impact of a pandemic over a 2-year period in 2020 and 2021, then you must understand that you will be in for a difficult time. I think we have managed the impact of COVID as well as we could during the period, but our liquidity position became increasingly more challenging for us as a group, not only in Clough or in our international businesses, but also in South Africa. For those of you that are familiar with our sort of cash management within the group, in South Africa our corporate cost traditionally was sort of covered by the dividends that we received from our investment in the Bombela Concession Company. And during 2020 and 2021, the Bombela Concession Company didn't pay any dividends. And the system was really operating with a very, very low ridership levels and it wasn't generating sufficient cash for dividends to be paid. And also we haven't received during that period, dividends from our businesses -- our international businesses. So in South Africa, our liquidity position became a bit more difficult and came under pressure. And the same applied especially to the ERI platform. And we were managing that reasonably well. About this time last year or maybe 2 or 3 months later on around about June of last year we recognized that there was a funding gap of about $50 million required in Clough in November of last year. So the cash flow forecast based on the information available to us at that stage, showed that in November, there would be a dip and there was a cash flow or a funding gap of about AUD50 million required in Clough's business. And we've made plans to meet that obligation and to support Clough with that AUD50 million in November of last year. And as we always do in our business on a quarterly basis, we do in-depth analysis of all our projects. We do -- we refresh our forecast to completion from a revenue point of view and from a cost point of view, and we assess the progress on the project -- on the portfolio of projects. But at that stage, late September when that work was undertaken, it was realized that on 2 of the projects, Traveler in Houston, in the U.S.A. and the Waitsia project in Australia, that those 2 projects is going to require more cash to complete and it's for several reasons. On the Traveler project in Houston, we had a very sizable COVID claim, which eventually, we had to accept a very, very compromised settlement in order to get cash released onto the project, but that resulted in a significant loss to the Group but also the compounding impact on supply chain on that project, especially during the 2022 calendar year, indicated to us that the completion date, which is scheduled for June of this year, that this completion date will not be met. And if we were to overshoot that completion date, we would be in for damages. So we had to accelerate on the project, and that acceleration cost was quite substantial in the order of about $20 million. Very similar situation occurred on the Waitsia project. So the forecast at that stage indicated that both the Traveler project and the Waitsia project would be completed more or less at the breakeven position where previously we've recognized margins of about 8% -- between 6% and 8% on those projects. So what we had to do then in the current financial year, with the knowledge that those projects will complete on a breakeven position, we had to adjust our profit take on those projects and essentially the profits that were previously recognized had to be reversed in the current period and together with that was the cash implications as well. So when that was realized early in October, we as a Group, we were not able to meet that cash requirement within Clough. We were ready for the AUD50 million that we thought was the cash call in November. But with the latest news on Waitsia and Traveler, it became very clear to us that we would not be able to meet the cash requirement to fund Clough and to allow it to trade through this position. And the difficulty of that was that at the time, the options that we considered a range across many options, but one of them which appear to be the most attractive at the time was to do a transaction with Webuild. And that was communicated to the market. And unfortunately, that transaction never closed. And at the time that, that transaction failed, we had no option but to put Clough into voluntary administration. So that was a decision taken by the Board of Clough and the holding company in Australia, Murray & Roberts Pty Limited also had to be put into voluntary administration at that time. And the reason for that is there was an inter-company loan between Murray & Roberts Pty Limited, a Holding company in Australia and Clough and with Clough going into voluntary administration, that inter-company loan would be called. And as the Group didn't have the ability to actually meet that call, MRPL or the holding company had to be put into voluntary administration at the same time. So that is a very -- had a very devastating impact on the group. But I think the most strategic part of that is that how do you see our mining company, which is also a subsidiary of MRPL was then caught up in this administration. And when MRPL and Clough went into administration, we essentially lost control as a group of the entire cluster of companies that we had in Australia. So as part of the administration process and when that loss of control occurred, these companies had to be deconsolidated from the group and you will see the impact of that just now. Now the current status of that voluntary administration is that in February, the administrators running the Clough process called a Second Creditors Meeting and the entities within Clough that were in voluntary administration were then taken out of voluntary administration through a deed of company arrangement with Webuild. So Webuild the company that initially was engaged in the acquisition of Clough in negotiation with Murray & Roberts they then stepped in during the voluntary administration and acquired the entities from the administration process that they were interested in. So those entities are no longer in voluntary administration, and that brought an end to that. There are other subsidiaries in Clough that was not put into voluntary administration, but because it's part of the Clough Group and ultimately of the MRPL Group, we have also lost control of those entities. So what the administrators are currently focused on now is the voluntary administration of Murray & Roberts Pty Limited or MRPL, a Holding company in Australia, and they are realizing the remaining assets within that company structure I think to meet the creditor position within the Clough administration. Now the Clough administration did not have a big creditor deficit. But what happened, there were a substantial amount of project bonds that were provided on to projects that were secured. And the secured bond providers insisted that the security be backed in cash. So whether a bond has been called or not, it had to be cash-backed. And that gave rise to quite a large deficit in Clough's creditor trust and because of that, all these other assets now need to be realized and RUC is part of those assets, which is currently in the process of being sold off by the administrators. So we, as Murray & Roberts are keen to regain ownership of RUC we think the possibility of that happening is remote. And the reason for that is if you want to extract -- or for us to retain ownership of RUC, we have to essentially acquire it out of the administration process. And the difficulty that we have, our lending banks in South Africa is not willing to support us with a transaction where the cash that is required would be utilized for a business in Australia. I think the banking groups in South Africa are hesitant to advance funds that eventually will end up in Australia. So that is a bit of a problem. So if we want to succeed in regaining ownership of RUC, it can only happen on the strength of the asset itself of RUC and its own cash-generating capability. And I think that is making it a bit difficult for us because we cannot cast a net a bit wider in terms of the arrangements that we have with our local banks in South Africa. So the bidding process is still ongoing. The offers need to be submitted by March 17. That's the date for binding offers to be submitted. I am not sure whether we will be able to put the funding package together that we believe will support a competitive offer. We are about halfway there to where we think we should be. But I think there is a gap at this stage, which we just finding very difficult to close. So [indiscernible] giving it our best shot I think the chances of us retaining or regaining ownership of RUC is probably a little bit on the low side. So the impact on Murray & Roberts is that the -- when you lose control of entities, you need to deconsolidate it from the Group. So this deconsolidation happened with effect December 5. But those companies or assets then moving down to discontinued operations mean that for the reporting period from July 1, it reported under discontinued operations. Now there's quite a substantial reduction in our equity as a consequence of this of about ZAR 3.5 billion, and Daniel will explain a little bit later on what the breakdown of that is because part of it relates to the losses in Clough. As I said, the profits previously recognized on Waitsia and on Project Traveler had to be reversed in the current year, which gave rise to a trading loss in the current period. But it is also -- it is deconsolidating the assets and liabilities of those companies taking it off the balance sheet, which had a large impact. For reporting purposes then, we report continuing operations and with the businesses in Australia now being lost to the Group being part of discontinued operations we had to restate our prior reporting period or comparative reporting period results, and you will see that in the detail that will follow. So operationally, the group is now proceeding with 2 business platforms: a mining platform that's slightly reduced. I think we've lost about a third of the platform in RUC, which operated in the APAC region. We are continuing with our business in South Africa, Murray & Roberts Cementation, which is servicing predominantly the South African market, but also into Sub-Sahara Africa. And then in the Americas, we've got Cementation Americas, which comprises the business in the UK -- sorry, in the U.S. and the business in Canada. And in South Africa, we have the Power, Industrial & Water platform, which is focused on Sub-Sahara Africa and predominantly in the energy and power sector. So that is the Group moving forward. If we look at the results, as I said, financial year 2022, the first half of the year, we had to restate and that is what you see in the grey column. And in the yellow column, under FY '23 H1 is the results for the 6 months up to December. So revenue up from ZAR 4.2 billion to ZAR 5.9 billion, a nice movement on the revenue line and earnings before interest and tax up from ZAR 18 million, 1-8 to ZAR 80 million, also a nice movement. But as you can see from this, the group is now a lot smaller than what it was before. Attributable loss of ZAR 2.5 billion and that includes the loss of ZAR 2.3 billion attributable to MRPL, Clough and RUC and the deconsolidation of these businesses. Diluted continuing HEPS, a loss of ZAR 0.30 compared to a loss of ZAR 0.25 in the prior period and the order book at ZAR 16.1 billion, a little bit down to what it was last year, but really nothing that we are concerned about. Our net debt position is ZAR 2 billion net debt, and compared to ZAR 0.9 billion net cash in December 2021. Now at that time, Clough had ZAR 2.7 billion cash on its balance sheet. So when you remove the ZAR 2.7 billion cash from the ZAR 0.9billion that we had in December 2021, you get very close to the ZAR 2 billion, which is the closing balance that we had at the end of December. And our net asset value per share today is ZAR 5 per share and down from the ZAR 13 a year ago. So as I said, it's a very, very difficult set of results to present and very, very unfortunate set of circumstances that we had to deal with over the last 6 months. And I'll be honest with you, we are still absorbing the impact of what has happened to the Group, but we believe that the full impact has now been recognized in our accounts. If there's any residual impact from the administration in Australia, I think it will be insignificant. I think the impact has been fully recognized and reported in this set of results. Over to Mike. Thank you, Mike.

Thanks, Henry. So I'll just give you a quick update on the mining platform as it stands now. So following the deconsolidation of our business in Australia, we're now delivering our services through the 2 regional companies that we have. So the one is Cementation Americas based in Salt Lake City in Utah, in the U.S.A. The addressable market is basically North America. So Canada, U.S. into South America from time-to-time we do, do work in Chile and Peru through that business as well. Then based here in Johannesburg I think most of you know we have Murray & Roberts Cementation. Murray & Roberts Cementation, the addressable market is really Sub-Saharan Africa. Just a quick update on the market; I think as far as commodity prices are concerned, we've seen a fairly sustained period now of reasonably elevated commodity prices and particularly when it comes to the commodities feeding into the energy transition and commodities feeding into feed security. So I'm talking copper, nickel, lithium, PGMs, potash. Those commodities seem to be quite resilient. The gold price has been fairly resilient over the last 18 months so all of that has led to fairly good earnings for the mine operators. Most of them are sitting on fairly strong balance sheets. I think still a little bit tentative to invest, but we have started seeing investment coming through now and certainly seeing many of the operators starting to push through, especially on sort of brownfield investments, expanding off existing operations, replacing production capacity on existing mines. And we're starting to see a couple of greenfields projects coming through now as well so all of that has been pretty good for our order book. We've got a fairly strong order book. That order book is supported by some fairly -- a really strong near order pipeline. And that, in turn, is supported by quite a good Category 1 pipeline too. So as you can see on the slide there, our order book at the moment is standing at ZAR 14.1 billion. We have an equivalent number of near orders so our near order is also in the order of ZAR 14.2 billion at the moment. We expect those near order or the majority of that should convert in the next 6 to 9 months. So I think we'll keep our order -- we'll see some order book growth over the next 6 months or so. That having an order book and being in -- having a fairly decent order book position has then fed into a growth in revenue and a growth in earnings for the platform for this half year when compared to the prior period. So I think in general, we've had a fairly strong performance for the mining part of the business for the first half of FY '23. Just to show you that performance in numbers. If you look at the African business, as you can see there, the revenue is pretty much equivalent for 2022 -- for the period in 2022 and 2023. So that's all good. Where we do have a bit of an issue in the African business -- they've been under some pressure in the first half of the year. You see that the margins have been under pressure, and that's translated into some lower earnings for that business. The main reason for the margins coming under pressure is some underperformance on the Venetia project. We have encountered some operational challenges there, which the team are working through. And I think we're fairly confident that we're making progress as far as that's concerned. And then we have a coal mining project at Arnot, where that client has gone into business rescue. They don't have sufficient funding to fully fund the project. And because of that, it's creating difficulties in us meeting the efficiencies and the output that we planned on that project. So that is also feeding through and creating some margin pressure for the African business. As far as the Americas is concerned, you can see by the numbers there that they've had a really, really strong recovery from the prior period into this current half year period. And that's really on the back of a good order book that was built up over the last 18 months. And we've got some major projects that we've been able to bring into that order book, and those major projects are starting to implement and gain traction and feed into revenue and earnings. So in that business, again, a good recovery in margins, and I think we'll see further recovery in their margins, and that will feed into better earnings for that business so all of that translates into a pretty strong performance with the mining platform over this period. Strong growth in revenue compared to the prior period and earnings, and we see the margin starting to recover as those earnings feed through. So yes, I think that's it for me. I'll hand over to Steve and he can tell you about the Power, Industrial & Water Platform.

Thanks Mike. This picture, I think, for 10 years, I showed you guys pictures of boilers at Medupi and Kusile, so I'm quite pleased, I'm showing you some new pictures now of renewable energy projects. And I think these pictures will probably be around with us for probably 10 years. And as you see, as I go through the couple of slides that I'm presenting, you'll see renewable energy is a huge opportunity for us and a huge focus area for us as a platform now, specifically the OptiPower business. So yes, we operate in Sub-Saharan Africa. Based in Johannesburg, we've got offices in Cape Town, where the OptiPower projects operate. That's quite convenient as well because a lot of the renewable energy developers are based in the Western Cape. So that's quite convenient that we've got those offices down there so very much power and energy focused in Sub-Saharan Africa, as Henry said. In terms of the market conditions, again, for us, renewable energy and power transmission, distribution projects are offering us all the best opportunities. As I say, our order book is -- we've got ZAR 2 billion order book and the bulk of that is in the renewable energy sector and some transmission projects. So that's where we see our opportunity right now. We are -- we did record a reduced operating loss compared to this time next year. And my expectation is based on that order book and based on the fact that we are now executing these [indiscernible] execution on 3 wind farms and a main transmission substation that the loss position will improve to year-end and hopefully turn into a profit and contribution to the group in the following year. So yes, so we do have a constrained transmission network, as you guys all know. It was really disappointing in the round 6 renewables that no wind farms were awarded. And the simple reason the wind farms were awarded is because we can't evacuate the power in the areas where those bidders had to put their development into the REIT program. So that was really disappointing. So we know that transmission will have to be a huge focus area for South Africa and for Eskom. I'd like to say that, that will be happening in the near-term or short-term. My feeling is it's not going to happen until the medium term. We've currently got 2 projects for Eskom, 400 kV lines under adjudication, but there is a lot more to come as we realize. So we -- as I said, we've secured in the lead up to year-end. We've been working on 2 wind farms in MTS and another wind farm for another developer for probably onwards for a year. We've had L&TP on that. So we ordered some key items. We've done a lot of engineering. We secured those projects. Luckily for us they were the first projects to close. It was EDF's projects. They closed in November. We got notice to proceed towards late November. And then Wolf Project -- the Wolf Project for Red Rocket, it closed in -- in fact it closed financially on Friday so that's really good news for us. So that's a good solid order book that we now need to execute. You'll see at the bottom of it, there's a company called Wade Walker Solar. It's quite a small business. It does C&I PV, so on kind of industrial rooftops and the like. So it's not a huge business for us, but it can make a contribution, and we think it will grow during the course of this year and into next year as well. So we're looking forward to that. On the Murray & Roberts Water side, we've completed the V&A Project. That's passed its performance test, the Organica Project, which again, I've spoken to you guys about many times. That's been handed over to operations. We're going to do a 10-year O&M on that, but our Water business has really, really been downscaled. And it's not a material impact on my overhead. It's manageable as it is. What we will do is we will probably pursue Organica type. We'll be technology led in that. We'll pursue Organica Wastewater Treatment type opportunities, and then we'll scale up as we need to. We've still got the license for that technology. So yes, near orders ZAR 200 million, that's the second phase of the Koruson MTS that we're doing for EDF so we're expecting to secure that order any day one and then we will order a second 500 MVA transformer. They're expanding that MTS in that [indiscernible] cluster so that they'll be able to evacuate the power for the work that they're going to be doing with Anglo American as part of Anglo's renewable program. The numbers, we split the numbers between Power and Industrial Water and Solar Transmission and Distribution. You can see Power and Industrial, low revenue numbers compared to -- there were low revenue numbers this time last year. There's still low revenue numbers. The only work really that the parent industrial team have got is maintenance work for Eskom, which is going along quite nicely, but that work will run out in September this year. It's about Medupi unless we can renew that contract. So we'll be looking to do that, but not a major contribution to the platform. I'm really, really pleased to be able to say that we've reached the full and final settlement with Mitsubishi Atashi on the power program relating to our contracts at Medupi and Kusile. We've got some remaining works that we need to execute. That's been capped ZAR 80 million. It is reimbursable, and we need to complete that work by November 30 this year. And there is a big focus from the MRP team to be able to do that. Order book is low. As I said, it reflects the work that we're doing at Medupi. Water, as I've mentioned, it's not making a major contribution to the platform at the moment. But it is not a huge burden. In fact, it's a very, very small burden with respect to my overhead. So we will continue with the operation through the operations phase of the Organica plant. And then we'll see where opportunities arise for us on the Organica technology, and we will ramp up as and when required in that regard. So the standout performer and the standout prospects sit on the solar transmission and distribution, which is ostensibly the OptiPower business. Again, I think I was standing here at year-end, and I was telling you guys that the projects were coming, the projects are coming. They came probably 6 months later than we thought they were going to come, but they are here now. So that gives me confidence that we can deliver our numbers and as I say, improve on a year-end number and carry a good order book into the following year. So ZAR 1.9 billion worth of work in that project. And as I said, that work is 3 wind farms. It's MTS. I think the important thing as well, which was on the previous slide, we've got about ZAR 9 billion worth of Cat 1 prospects. So those Cat 1 prospects for us are we've either put a bid in or we're busy putting the bid together, it's under adjudication. That is meaningful for us. And again, the bulk of that Cat 1 opportunity sits in renewables with some transmission work as well. The other is basically our overhead. I think we've been -- I've been a little bit burdened with some legal costs over the last couple of years and obviously closing out the Medupi and Kusile contracts with Mitsubishi Atashi enables me to not have to pay some of those legal costs specifically in that area. So we expect that -- we still got a couple of other issues that we're sorting out, but we expect that overhead to normalize going into the new financial year, which I'm really pleased about. So yes, that translated to a GBP37 million loss at a platform level, again, from me disappointing, but I really feel that we're in a position now with the order book that we have and the work that we're executing to improve that towards year-end and then make a contribution to the group into the new financial year and obviously into the future. As I said at the start, when I showed you that picture, I think me and whoever the next CEO is after I retire, will be showing you guys pictures of -- proudly showing your pictures of renewables plant into the future. So that's me, Henry. Daniel, the numbers.

Thank you, Steve. Maybe just going back on slide to Steve's presentation, you talked about settlement of the Power Program. So what you'll see in the financial statements is a reduction in potential liabilities going forward. So the potential liabilities going forward was about ZAR 5.3 billion. That's now been reduced to ZAR 2.3 billion. And it's contingent liabilities. And the main reason for that is the settlement of the Power Program. So I don't think we should take it likely what the impact of the settlement of the Power Program mean for us as a group and as a company and that the contingent liabilities have been settled and reduced so significantly for the group. So I know that was one of the questions that we were asked. If I move on to Bombela investment so if we look at the Bombela investments, and now we normally account for that. So we do a fair value adjustment, we take dividends going forward. We discount them to a rate. And as you come closer to the end of the concession, you get a bigger value that you've got to recognize. So in the prior year, we had ZAR 102 million fair value adjustment. Because we're in the process of selling the Bombela Concession Company, we had a fixed price, which is book value in the accounts. And in the share purchase agreement, we said that's going to be the value that we're going to sell it at. So the fair value adjustment of 17 is a small adjustment just getting into book value to make sure that there's no profit or loss on disposal of our investment in Bombela Concession Company. We did mention before that there are administrative CPs. So a number of the big CPs have been fulfilled. And we expect to close that and to receive proceeds on the disposal by the end of March, maybe early April. If we're going to discontinued operations so we broke it up into the Australian operations, the Middle East operations and others. So before I go into the Australian operations, maybe let me talk on a broader scale. We account for entities lost to the group. So on December 5, the Australian entities went into voluntary administration. That means that we lost control of those entities. From an accounting point of view, what that means is we've got to account for the loss or profit incurred in those entities from July 1 up until December 5 as point one. Point 2, we've got to calculate what was the assets, what were the liabilities of those entities. We've got to take them off the books. And obviously your assets exceeds your liabilities, so that creates a loss in deconsolidation of the entities. And because these are foreign entities, there's a foreign currency translation reserve impact on the books now. In your shareholders' equity there's a number of line items. So your assets exceeds liabilities and the difference is your shareholders' equity. And part of that is your results from the income statement, part of that is your share premium. Part of that your share capital? And another part is your FCTR reserve that we disclosed off. So I'll get to the later stage of it. So if we look at the MRPL Clough and RUC deconsolidation, the operating loss in Clough, up until December 5 was ZAR 1.3 billion. As Henry mentioned that related to the U.S. program or Project Traveler as well as the Waitsia project and there was an operating profit in the RUC entity of ZAR 130 million. So let's call it a net ZAR 1.2 billion loss in terms of trading results. Then you get up until December 5, now you have to deconsolidate, remove the assets, remove the liabilities of these entities. And the net difference and the net loss we made on that was the ZAR 2.3 billion loss on the deconsolidation or deconsolidation of the assets and the abilities of the balance sheet. So the ZAR 1.3 billion plus or the ZAR 1.2 billion plus the ZAR 2.3 billion means that the value of the group, the shareholders' equity or the net asset value of the group decreased by that amount, which is ZAR 3.5 billion. And that's the loss to the group as part of this transaction. Now the last element that I mentioned was a foreign currency translation reserve, which is FCTR. Now because those are 2 line items included in your shareholders' equity, it washes through, through the income statement as a profit, but it reduces your FCTR reserve in your shareholders' equity. So in terms of NAV impact on the company, it's got a zero impact. If you look at Middle East, in the Middle East, we still have a number of contingent liabilities. And those are liabilities that we are in legal processes that we've got to incur legal costs to make sure that we don't actually get the liability at the end of the process. Those legal costs plus, I think we've got 4 employees still in employment, came to ZAR 10 million for the period. In the other column, we've got 2 items. One is generic, which is a company that we sold, and we're currently busy remediating some of the works on the [indiscernible] contract. In the first 6 months, that cost us about ZAR 12 million. Now as part of Steve's settlement agreement on the Power Program, they said that between now and the end of November, it will be on a cost-plus basis that they remediate us or repay us our cost in incurring what you call it, the defects, yes, in remediating the defects on the project, and that will be up until a cap of ZAR 80 million. So about ZAR 12 million of that is not expected to recur in the next 6 months. And we had some costs in the Bombela Civil joint venture, which is the company that actually built the Gautrain. Now there are minor latent defects that we are incurring. If something breaks on a station here or a station there that we have to incur costs to remediate, we've got a small construction crew, and that cost was also about ZAR 12 million. If we go into the income statement, so when you deconsolidate a company based on loss of control, you've got to restate the prior year number. So revenue in the current year and revenue versus the prior year is after deconsolidating and restating the prior year numbers. So we can see an increase in revenue from -- sorry, ZAR 4.2 billion to ZAR 5.9 billion. That's mainly related, as Mike pointed out to the Cementation Americas, and that translates through into EBIT. What we see in the interest expense line item is an increase of ZAR 54 million. Now in South Africa, the SA debt in South Africa increased a bit. But more importantly, the interest rate in South Africa increased more -- and the combined effect of those 2 elements was a ZAR 54 million increase in the interest expense. Now our taxation, if you translate taxation into effective tax rate is a high amount. And the example I used before was, let's say, in the mining platform, being 2 separate legal entities, Africa and the Americas generates ZAR 200 million in profit. If you apply a 30% tax rate to that, it gives you a ZAR 60 million tax to be paid on that profit. Now those are genuine taxes to be repaid on those profits. But now we've got corporate costs in South Africa. And in the current year, it's, let's call it, ZAR 180 million on an annual basis or ZAR 90 million in the half year. You've got interest expense that you've got to deduct as well. So by taking the profit of those 2 entities and deducting the SA expenses that do not generate a deferred tax asset or a tax benefit, it actually moves up your effective tax rate. And it's a structural problem which we are working on. And going further down the slide, we talked about the discontinued operations of ZAR 2.4 billion. If we go into the balance sheet now when you deconsolidate your December numbers versus June numbers are not comparable because you don't restate your June 2022 numbers. So wherever you see a reduction, the main reason for the reduction is that the RUC as well as the Clough activities have been deconsolidated and removed. We can see cash as at the end of December, dropped from ZAR 2.2 billion to ZAR 682 million. And we can see the shareholders' equity dropped by the ZAR 3.5 billion, which was a trading loss of ZAR 1.3 billion and the NAV value of the other 2 entities of ZAR 2.2 billion that reduced your shareholders' equity value. I just want to spend 2 minutes on this slide. So this is our debt analysis. And as per usual, we classify it between corporate debt self-servicing and IFRS 16. Now corporate debt is classified as debt that you've got to use profits generated by the company to service their debt and to repay the debt in future. So our servicing debt is project-specific debt that gets paid in the revenue line of those projects. And then you've got IFRS 16, which is your normal operating leases on a building and similar likes of items. Now once we've received the proceeds of the BCC transaction, on the right-hand side of the slide, you'll see the pro formas. So we'll see that total debt reduces from ZAR 2.648 billion to ZAR 1.391 billion. So it's a significant reduction in debt. If you look at the corporate debt goes from ZAR 1.9 billion to ZAR 800 million. So if you translate that down to the bottom of the slide, your gearing ratio just for the corporate debt reduces from 86% to 36%. Now we are working off a very low shareholders' equity base of ZAR 2.2 billion. So 36% is not terrible. It can be improved, and Henry will touch on some of the initiatives in play to try and reduce that. But post the receipt of the BCC proceeds, the corporate debt gearing were reduced to 36%. Gearing after corporate self-servicing is 57%. Just want to make a point, and that's another question that came out. If your self-servicing debt or your asset-based filing goes up or down, how does it influence the Group? And in my view, it doesn't. So if you win new projects and your self-servicing debt means that you've got to go and buy new machines of another ZAR 500 million, it means that you've secured a large contract and that contract will service that debt going forward. So the gearing ratio to me of incurring additional self-servicing debt isn't that important versus the gearing ratio to the corporate debt. So I think that's it.

Thank you, Daniel. Just a few more slides towards the end of this presentation. The order book, we've touched on a bit earlier, ZAR 16 billion. It is down on what it was in December 2021, but we are not concerned about that. The order book is not something that you replenish on a daily basis. It is a bit lumpy when you secure new work, it comes in and you see a big jump in that value. But there's 2 things that I would like to point out on this slide. The first is the increase in the order book for the PIW platform. That is a business that haven't -- hasn't had an order book for many, many years now. And it is the first time that we see that the renewable energy sector is now a new opportunity for this business, and that ZAR 2 billion order book is essentially all in the renewable energy space. The second point I would like to emphasize is the type of commercial arrangements that we have in these 2 business platforms. In the mining order book, that ZAR 14 billion, there's no fixed price contracts in that order book. It is very, very rare in the mining sector that you are invited by a client to tender on a project on a fixed price basis. It happens by rare exception. And if it does happen, it is for very small and specific defined scopes of work. So it's not common in the mining industry. So the commercial arrangements that we enter into are not onerous on the contractors. I think it is a fair commercial arrangement. And the risk that we carry in our business is really our ability to meet the productivity targets that we have assumed in our tender, because on a unit rate basis, it means you get paid a certain amount of money for a unit of work. And for you to complete that unit of work below that unit rate, it means you have to achieve a certain minimum level of productivity. So when you have an issue, operational challenge, as Mike has mentioned, at Venetia, operationally we are a bit under the WIP. We're not really achieving the productivities that we were aiming for, for many reasons, the margin comes down. So that's the type of risk that we're managing in that business. In the renewable energy sector in South Africa, you cannot secure ZAR 1 of work, which is not on a fixed price basis. So all contracts, all contracts in the renewable energy sector in South Africa is on a fixed price basis. So you cannot participate in that opportunity unless you do it on a fixed price basis. So that's the only commercial model, which the project developers invite you to tender on. Now from a risk perspective, I think we must also emphasize that these projects sort of 18 months, that's sort of the duration 18 months to 24 months. So when you have a fixed price contract that runs over multiple years like we had in the ERI platform, for the durations on a -- duration on a project, you are exposed to external risks for an extended period of time that can impact your business. If you have a fixed price contract that runs for 18 months, I think it is a more manageable risk, although a fixed price contract is still an onerous -- or a onerous commercial basis or commercial terms as far as the contractor is concerned because the contractors -- the contractor carry most of the risk in a fixed price contract. And it is not a model that we would like to tender around it, but you don't have the option. So in some market sectors, that is the model that you need to work on if you want to participate in that sector. So just those 3 points. Again, just to summarize, mining is really -- is rates type contracts or reimbursable-type contracts, not fixed price. It is different in the renewable energy sector or in our PIW platform, the market that we are now focusing on in the renewable energy. And then the pleasing fact that the PIW platform for the first time in many years managed to get some order book together. If you look at the split of the order book, if you could start off with mining of that order book of ZAR 14.1 billion, ZAR 4 billion of that will be executed in the remainder of the current year, ZAR 4.4 billion in 2024 and ZAR 5.7 billion after 2024. So from that, you can see the mining contracts are long-term contracts. So what we currently have in the order book continues to beyond 2024. So it's long-term, long-duration contracts. Just contrast that with what you see for PIW. So there we have a ZAR 2 billion order book, and that order book really was secured towards the end of the reporting period, around about end November and December 2022. And if you look at the order book distribution, of that ZAR 2 billion, ZAR 800 million will be delivered in the second half of this year and ZAR 1.2 billion in 2024. There's nothing beyond that. So that order book only has got an 18-month horizon, that ZAR 2 billion. So it's a big contrast between the 2 platforms and the type of -- or the scale of the projects and the duration of the projects that we're doing. So the secured order book, if you look at these numbers that we have on this slide, we believe that our revenue for the current year will be circa ZAR 12 billion, and we are confident based on the pipeline and the near orders that we should be able to report revenue growth into financial year 2024. The definition that we use for near orders is, it's work that we essentially have secured, but which the client hasn't awarded to us yet or it is work that we have secured that is still subject to entering into commercial arrangements. So of that ZAR 14.2 billion near orders in mining, ZAR 7 billion of that relates to the Venetia contract. So we know we're going to do the work, but every 12 months, 18 months, the client just awards another slice of that contract value. So it's not all awarded in one go. It gets awarded over time as the project progresses. And I said to Mike earlier on, you made a comment, you stated that ZAR 14.2 billion, the bulk of it over the next 6 months to 9 months, and we said we only heard the first part. We did in the other 9 months. So we're all in the first 6 months, please. But all of it is not under our control. But I think it is a healthy pipeline. I think what is also worth noting, especially for the PIW platform is that ZAR 9 billion in Category 1. Now Category 1, we define as projects that we have submitted tenders for, which are under adjudication or tenders, which we are busy preparing, tenders which are in preparation. And what Category 1 really means, it is an indication of the status of a specific project, when will that project come to market. So projects that we are tendering on under Category 1, those projects have advanced to the stage that the client wants to start working on that project, start to develop the project and calling for tenders that the adjudication can happen. In Category 2, those are projects that we are providing budgets for or doing some work on a feasibility study, which means it's still further out in the pipeline. It is not as near term as what a Category 1 opportunity would be. And Category 3 would be opportunities that we have identified that we are targeting in the market, but it hasn't advanced to the stage that the client is working on a feasibility study or inviting budgets. So it's not in Category 2. It's in Category 3 for that reason. We need to talk to another matter which is very important for all engineering and contracting companies, and that is our safety performance. On the right-hand side, where you see the bar graphs, you will note that we had the fatal incident in October of this year. Very sadly, one of our colleagues in Australia working on a project for RUC was fatally injured in an incident. But unfortunately, we cannot share with you much more at this stage because the investigation is ongoing. And since the administration process, which commenced on the 1st of December, we've got no access to management. We've got no access to information. And you -- and that is just the way in which administration processes work, you cannot access the business to get any information, not even as far as this fatal incident is concerned. The lost-time injury frequency rate at 0.49 is a very, very good rate, and we are very pleased of that result, which is an indication of the hard work that our teams are doing onsite. And as you know, the type of work that we do, many a time, it is in high-risk environments, and we really aspire to deliver our projects with zero harm to people, communities and the environment. So a few -- just a few points, presentation takeaways. I think the first point to recognize is that, yes, what happened to us in the past 6 months, it's quite devastating. So the Group now is much smaller following the loss of the businesses in Australia. And given our smaller footprint as a business, there are fewer cash-generating units. From a debt perspective, we are challenged. I think the debt position, as Daniel has explained, although the debt-to-equity ratio for corporate debt is down at 36%, the debt itself is about ZAR 890 million -- ZAR 790 million, and that is a figure that we need to work down. The second point is just to mention that we are considering further options to delever the balance sheet. Now when a company finds itself in a difficult liquidity position, the first thing that you do, you sell noncore assets, which we have initiated through the sale of BCC. It was a very good investment, but an investment that would have run it, of course, by March, April 2026 at the end of the concession period. So to us, it was the obvious asset to sell, and that will realize the ZAR 1.3 billion cash sometimes towards the end of March, maybe early April, and that enabled us to reduce the debt down or it will enable us to reduce the debt down to the ZAR 790 million. We don't have any other noncore assets or nonstrategic assets that we could sell. So what we need to look at, we need to look at the ways in which we can reduce our working capital, get cash released through better working capital management. There are quite a few long outstanding claims that we need to finally get over the line and hopefully settle. That could bring in a couple of million rands or -- a couple of hundreds of millions of rands. So that would be good for us. And the cash flows that we have done to date, and we've run cash flow models up to June 2024. Currently, we're running cash flow models up to June 2026. So it indicates that we are generating sufficient cash to meet all our obligations, and we can continue and trade through this, but we would like to reduce our debt further. And as I said, we don't have any further assets to sell, so it will have to come through more -- being more efficient as a business and reducing our working capital. And in this regard, I must say we are working very closely with our banking group on that, and we will find a way forward and come through this difficult period. From a Group structure point of view, the 2 platforms that are remaining, I think Mike has explained that well, and Steve has also, you understand what the business currently is going forward. And then the corporate cost, we've reduced corporate cost already by ZAR 40 million, that's per annum. And we won't see the benefit really in the current period, but you'll see the full ZAR 40 million benefit in the next financial year. So cost-saving initiatives are also an important part of the way in which we are focusing on delivering the balance sheet. So the mining platform is a business that's been performing very, very well over a very long period of time for Murray & Roberts. It is very sad that we've lost RUC. We are trying really our utmost to regain ownership of that business. But as I said, the probability of us being successful is low, but we're going to give it our best shot. And if all the stars line up, we might have a good outcome. But we will have certainty about that towards the end of March, early April. The PIW platform, first time in a very long time, Steve, that you have got visibility of the market sector that is presenting the opportunity, and we haven't had that for a long time in South Africa. So that's a very good, at least prospect for the PIW platform. And then finally, the order book at ZAR 16 billion, it is -- it is a -- it's a good order book, considering the reduced scale or size of the business. And the near orders of ZAR 14.4 billion is also, I think, a good figure. And the majority of that sits in your platform, Mike, I think it's ZAR 14.2 billion of the ZAR 14.4 billion. So ladies and gentlemen, that is the end of the presentation. We're now going to open up for questions. And please feel free, Ed is going to manage the Q&A session for us. And I think there's questions on the web, and there will be in the room, but let's hand over to you, Ed.

Thank you very much, Henry. Perhaps let's start with questions in the room. Any questions for Henry, Daniel, Mike or Steve?

Yes. There's at back.

Well, bring your microphone.

My name is [indiscernible]. My question is directed towards Steve, his business, particularly the renewable business. I think the name, it's the -- okay, I forgot the name. But the types of renewable projects that you're doing, is it -- is your model more on the EPC side or do you also do design, build, finance, operate and manage?

So not -- we're not doing any design, build, finance at the moment. We probably look at that at a smaller scale with the Wade Walker Solar business. But in terms of the type of work we're doing at the minute, the developers have 2 models. The wind model is the developer appoints a turbine supply agreement. So he appoints a turbine supplier and then he appoints a balance of plant contractor, that balance of plant contractor then does all the unnecessary works from those wind turbines. So that's where we're positioned in the wind sector of renewables. We do the electrical balance of plant with a civil partner. So we do all the cabling. We do all the grid works. We do all the substations on the IPP. We do the transmission line that ties into Eskom. So that's the type of work that we do in. And that's lump sum work, as Henry said. But in that space, the -- all the lump sum work, the majority of that work is we're not relying on a supply chain outside of the country. It's all internal to South Africa. We can get all of that equipment. And the program actually demands that we get most of that equipment from South Africa. The only thing that we didn't in the work that we're currently doing is that 500 MVA transformer I spoke about. And we manage that with our client. Our client -- we managed the ForEx risk with our clients, and we managed the pricing up to the point of the validity when they appointed us. So that was well managed. In the PV model, which we're currently bidding, can either be a sub EPC, but we're also looking at being the main EPC with an international partner. So we've got international partners who are engaging with. What do those international partners bring for us? They bring the track record, they bring the experience. They bring the detailed engineering and the performance and the yields and they also bring the supply chain. So these are international companies who have obviously muscled in terms of the supply chain. And what is the potential risk in the supply chain? That risk is modules, it's inverters and it's trackers. So our international partners are well versed in that and they're well tuned into the supply chain. And then we do the balance of plant work similarly as we do to -- on a wind farm. We pull the cables. We do the substation. We do the transmission line. We do the IPP sub and the Eskom sub as well. So there are 2 different models, but more often not the client, the developer demands that the PV is an EPC wrap. Our model is do it with a large reputable international partner that we -- they do what they do well and we do what we do well and we manage that risk.

It's Rowan Gollan from Kronos Research. Steve, another question to you. Transmission lines across country, which we hope Eskom will be coming out to tender with, sometime. Would you be interested in that, given that it's going to be extensive work over large areas going through multiple local communities, et cetera, et cetera, which in the construction world throws a whole bunch of red flags, but your business is perfectly positioned to take on work like that. Is it an opportunity?

Yes. We definitely see it as an opportunity, but we're eyes wide open to those risks. So we're currently doing a transmission line in KZN, where we've got exactly those issues, Rowan, and we're dealing with those issues. We've got community issues. We've had security issues on that line, and we are dealing with those. But to me, it's vitally important that from a contractual point of view, when we enter into those contracts with Eskom because those contracts are with Eskom, we know who's doing what and who's responsible for what. They have to secure that servitude. They have to make sure that the landowners who are on that servitude have been compensated and moved from that servitude, and then we have to manage the rest, and we have to manage that -- those community issues as well. On all of these projects, we've got a -- we've normally got a senior HR employee relation community manager, and that manager will have 2 or 3 CLOs or Community Liaison Offices reporting to them. So it's in the fabric of what we do. We understand it. We think we can manage that risk, but it is not without its challenges and issues do arise, we have to deal with those issues. But it's too big a market for us to say we're not going to take that risk. OptiPower has been built in transmission lines for 20 years. It's -- those issues are coming a little bit more prevalent now, but we can -- we feel we can deal with it. And Eskom, we've got to build 4,000 kilometers of 400 kV line. We can do that work. We're a certified vendor for Eskom, OptiPower is. And we want to do that work for sure, but eyes wide open.

And then a question for Daniel. Can you just run us through the term loan? I think that was renegotiated in November, but just the profile and the tenor of the term loans and when it's due and how the proceeds of BCC will pay that off? And then just the outlook on cash and debt...

So the term loan total is ZAR 1.35 billion. Of the BCC proceeds, we're going to utilize ZAR 1 billion to reduce that. There's a further ZAR 50 million due in September 2023. And we've negotiated with the banks that the remainder ZAR 300 million stub is extended to August 2024. So it's been renegotiated. But for me, the biggest item we need to renegotiate covenants on the term loan because that's -- when we actually agreed the terms of those loans, it was a completely different landscape to where we are now. Based on the cash flow forecast, we're confident that we can meet our obligations as they fall due. But we've got to sit down with our lenders before August 2024 to see what we do, do we fully repay, do we renegotiate them or how to go about that.

Marc Ter Mors of SBG Securities. A question relating to the cash flow. So it looked like in the first half, there was quite substantial working capital absorption by the core businesses. What do you expect that picture to be for the second half, particularly because in Steve's business, a couple of large projects are starting, and it looks like in mining in South Africa, there's a number of issues, challenges in some of the projects? And sorry if I may, second question would be any exit risk on the Middle East?

Yes. I'll give you my answer while Daniel thinks about the correct answer. So the work that Steve is doing those projects all come with nice advanced payments and the cash flow profile on those projects, it's always cash positive from the start to the end. So that's not going to impose any working capital demands on the Group. What we saw in the first half of this year, working capital went up in the mining business in the Americas. You can see the growth in the revenue that Mike referred you to. And that business -- those projects tend to turn cash positive early after about 4 months to 6 months. So there is working capital outflow associated with that. So that would be my guess. Daniel, what's the right answer?

So I'm going to supplement you, I guess. So in the ERI platform, which is Clough, obviously, in the first 5 months, there was a working capital outflow due to losses and monies being repaid. That was a significant number. But as I said before, the PIW platform better on a cash neutral to positive basis. So we don't expect working capital outflow. The Cementation in Africa is similarly but on a cash neutral to cash positive outflow. And then it's only in Cementation in Americas. And we have seen that in the first 6 months, where there was a smaller amount, it's not a large amount, but a working capital outflow, but that will reverse in the next 6 months turning into working capital positive inflow.

Marc, you had a further...

Second question relates to any further exit risks from the Middle East region?

Yes, I think we -- as far as the Middle East is concerned, the current status is that the entities that we have in Dubai and in Abu Dhabi, both those entities are entities which are held with sale. Now we entered into a sale agreement, I think it's might -- maybe 2 years ago already, but we haven't been able to transfer the shares and exit the Middle East for the simple reason that in Abu Dhabi, there's an attachment order on our trading license. And because of that attachment order on the trading license, we cannot transfer the shares. Now the reason the attachment order is on the trading -- on your trading license, it is a consequence of the Mafraq Hospital Project, where you will recall our bonds were called on that project by Mashreq Bank, and it is the Mashreq Bank that's got the attachment order on the trading license. So we believe that those bonds were called unlawfully, and there was no reason for those to be -- bonds to be called. That position was upheld by an earlier Court of First Instance. It has later been reversed by a Court of Cassation. But even Mashreq Bank in the early days were fighting tooth and nail, not to pay out those bonds that were called because they were of the view that the bonds were called it unlawfully. But they're under the pressure of the Central Bank, they were forced to pay it out. So that is the risk that we have in the Middle East. And if you have to quantify that, our share of the bonds that were called is AED150 million. If you convert it to rands, it's about ZAR 650 million. So those bonds were called. We've got a legal opinion that the chances of Mashreq being successful in recovering those funds from Murray & Roberts is remote, and that is a contingent liability that we carry there. Apart from that, there's no other residual risk in the Middle East. It is just that bond, which has been called. I just want to check with the auditors, did I answer that correctly?

Yes.

Thank you. But that is the extent of the risk.

Henry, perhaps if we can move to questions on the webcast. Steve, for a couple of presentations, you didn't get questions, now all of the questions are coming your way. Is PIW considering or shifting into private renewable energy projects, what has PIW's experience been with the private renewable energy market, perhaps one on the strategy for PIW in renewables?

Yes. Sure. So obviously, there's 2 elements to renewables. There's the REIT program, which is currently the projects that we have are in the REIT program, but there's been a massive, massive, massive increase in activity in the private sector. And we have been bidding into specifically EDF and Anglo's opportunities in the private sector. So yes, we are -- we haven't secured anything in the private sector yet, but I'm optimistic that we can secure it. And that pipeline of work is huge in the private sector as well. And the interesting thing is in the private sector, they seem to be a bit more nimble and a bit more streamlined in their ability to get their cost estimate letters from Eskom. I think one of the problems in Round 6 with the wind guys was they can't finalize their grid requirements until they've got a letter as a preferred bidder from the IPP office, and there's a gap between those things, whereas with the private sector, EDF can go to Eskom and they've got a power purchase agreement already signed by Anglo American. So I think that space is going to accelerate dramatically. And we're definitely tuned into that in terms of solar and wind because you're going to get solar and wind. So there's going to be 2 kind of sections to it. One section will be kind of on mine or adjacent to mine and the other will be wheeled opportunities where they'll develop a site in the Eastern Cape or the Northern Cape and wheeled into the grid for the benefits of a private user. So to answer the question simply, yes, there is opportunity in the private sector and we're engaged in it.

Steve, a follow-up perhaps please, margins on solar and transmission and distribution in your order book and that yet to come. What kind of margins do you see?

So margins that suggest the margins in wind for us are better than in solar. Solar margins are probably going to be somewhere around about 10.5% to 11.5% and maybe 12% if we're lucky and people start to get really busy. On the wind side, our margins are better in that regard by a couple of percentage points. So yes, that's where we are. The interesting thing with solar is even though the margins are tighter, half of the project is procurement. So Henry spoke about the duration of the projects. We've done cash flows on some of the projects we're bidding at the moment. And we're invoicing and generating revenue on about 50% of the project in the first 10 months. So it's a very -- it's a different model, but yes, it's in that sort of region, Ed.