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

Good day, and welcome to the Murray & Roberts Annual Results for the year ended 30 June 2024. This is our results webcast. Welcome to all our stakeholders on the webcast. [Operator Instructions] I'd like to ask our Group CEO, Henry Laas, to please kick us off. Thank you very much, Henry.

Thank you for the introduction, Ed. Ladies and gentlemen, good afternoon, and welcome to this meeting where we will be presenting to you our report for the financial year ended 30 June 2024. We do this for Murray & Roberts, which is a reengineered, revitalized and refocused group as we move into the new financial year 2025. Daniel Grobler, our CFO, will be co-presenting with me, and Daniel will be taking you through the financials in a bit more detail. As I said, Murray & Roberts is an engineered -- or a reengineered group. It has gone through a process of rightsizing the group cost and management structures, and we look forward to entering the new financial year as a reengineered organization. What we have achieved over the past year or so was to redesign the group's operating model and the management structure, and we have appropriately reduced our overhead costs across the group, including at the corporate office. And you will recall that we previously had an operating model, which comprised of business platforms. And given the truncated size of the group, we are no longer of the view that this is appropriate for Murray & Roberts, and we have done a way with the business platform structure. And through doing so, we have removed a layer of executive management and associated costs. The redesigned structure now incorporates 4 operating companies, and these operating companies are under the leadership of a Managing Director. These managing directors report directly to myself as the group CEO and each of these managing directors are also a member of the Group Executive Committee. So it is -- this new structure has brought a flatter organogram in play, and we believe that this is also more effective for managing the business as we move forward. From a cost point of view, we've given considerable effort to analyzing our corporate cost and we've come through this period by having reduced the cost quite substantially. For the new financial year 2025, we are estimating that our cost will be down by circa ZAR 80 million to ZAR 100 million compared to financial year 2023 and approximately ZAR 70 million less than what the cost was for financial year 2024. You'll also see on this slide, the picture is of the Murray & Roberts building. It is now called the interchange building. It is a building that we lease from Redefine. And we've entered a new lease agreement and that agreement became effective in September this year. And we now occupy 50% less floor space than what we have occupied previously. And this has given rise to a cost saving of circa 33% on an annual basis. Now this building has got 9 floors. We're occupying 2.5 of this, and it is a multi-tenant building and other spaces occupied by other tenants. Just getting back to the corporate cost. You will see on the slide that we've categorized the corporate cost into mainly 4 categories: corporate costs, group shared services, external consulting services and then also extraordinary fees. And when you look at the total cost, you will see that in 2024, we have already achieved a saving relative to 2023 with a cost for 2024 at about ZAR 180 million. And moving into 2025, we expect that cost to reduce further to about ZAR 109 million. The one cost that I would like to emphasize is the extraordinary fees. Now these are costs that we have incurred and which were associated with our voluntary administration in Australia, but also managing the deleveraging plan that we have agreed with our lenders in South Africa. Now at the time that the budget for 2025 was put together, and that's the numbers that you see in the forecast column for 2025, we didn't provide for any extraordinary fees and that was on the assumption that we would have achieved a refinancing of our South African debt by June 2024. Unfortunately, that has not happened at the end of June, and we are still in the process of managing an opportunity to refinance that debt. So there will certainly be some costs in 2025 associated with this process of deleveraging the business. And we're not sure what that cost is going to be. But if we do succeed in achieving a refinancing over the next couple of months, it will be a very small cost relative to what we incurred in 2024. It's a revitalized group, and that really refers to what we have achieved from a deleveraging point of view. Clough and RUC were lost to the group in December 2022, and these businesses were both strong cash contributors to the group as a whole. Now after we've lost those businesses, obviously, there were no cash coming in from them any longer, and that has led the South African group with a highly geared balance sheet and also a high cost structure relative to the reduced size of the group. And it's for that reason that we had to reduce the cost that I've referred to earlier -- on one of the earlier slides. Now as part of this deleveraging process, the Board agreed a deleveraging plan with our consortium of South African banks, and this has been communicated to our stakeholders previously. But what that resulted in is enabling the group to reduce its debt, which peaked at ZAR 2 billion in April 2023 to the current level of ZAR 409 million as of the end of June 2024. That is not the total group debt, but that is the group -- it's a debt that we have with our South African banks here in South Africa. So that is the South African debt. Now part of this deleveraging plan was that by June 2024, this ZAR 409 million of debt had to be refinanced within alternative financial services company. Unfortunately, that milestone was not achieved. But we have announced on the 30th of August this year, that the Board has reached a new agreement with the banking consortium, which provides with that ZAR 409 million debt for the repayment date to move out to 31 January 2026. So we have signed a credit approved term sheet, and we're currently in the process of finalizing the long-form agreements. The Board has further resolved that we will embark on a process to dispose of noncore assets to meet our liability to this banking consortium. And the reason for that is we are not able through our normal trading activity to generate sufficient cash over the remaining period to settle that ZAR 409 million by the 31st of January 2026. The only way we can do that is by selling noncore assets. We are, however, still continuing with our efforts to refinance this ZAR 409 million debt, and we believe we have made good progress in this regard. And should we be successful with the refinancing, it would not be necessary to dispose of any of the assets. But the point I want to make is, as we've moved through this deleveraging period, we've managed the business without any working capital facilities in South Africa. The ZAR 409 million is the remainder that we have on our working capital facilities with the South African banking consortium that is fully drawn. And what that means is we don't have any additional working capital facilities, which has made it extremely difficult to manage our liquidity over the past year or so, and that pressure on liquidity will continue for as long as we haven't achieved a position where we have refinanced the South African debt. So hopefully, we will get there in the not too far future. But the liquidity pressure that we operate under will continue because we're running the business in the absence of any working capital facility until the time that the ZAR 409 million has been repaid to the South African banks. Murray & Roberts is also a refocused group. So at this moment in time, following what happened in Australia, we focus essentially on the mining sector, and that's on the international mining sector. And we do that through our mining company in South Africa, the mining companies that we have in the Americas and also through the mining company that we have in the Asia Pacific region. Now our secondary focus for the group is on the renewable energy and power infrastructure markets in South Africa, and we do that through OptiPower. I think our stakeholders would appreciate that the mining businesses have for many, many years, really been a cornerstone of the group. They have been very, very good in generating cash, contributing to our earnings. And it's a specialized group of companies, and they are highly regarded in the international mining community. OptiPower, again, is well positioned in what we believe is a promising sector here in South Africa, and that is for renewable energy power generation and also for the expected expenditure that will come through Eskom and through the Transmission division of Eskom as it upgrades its transmission lines and create additional capacity to evacuate the renewable energy that will come from these new renewable energy power plants. The group also delivered, as you would have seen, an improved financial performance for the year under review. That was not only for continuing operations, but also at an attributable income level. You will recall in the previous financial year, we had a substantial loss at an attributable income level, and that is because that loss included the impact of the deconsolidation of the businesses that we previously had in Australia. We also managed to reduce our debt quite substantially, increased our earnings and we grew the order book. So when we look at the financial results, just the highlights, as I said, Daniel will get into a bit more detail later on. You'll notice that our revenue increased from ZAR 12.5 billion to ZAR 13.5 billion. And that increase was achieved across the 4 operating companies. Continuing EBIT from -- increased from a level of ZAR 91 million in the previous year to ZAR 170 million, and that growth essentially came from our mining businesses. Attributable loss significantly down to ZAR 0.1 billion. And as I've mentioned, the prior period includes the substantial losses, all extraordinary that were part of the discontinued operations in Australia. Diluted continuing HEPS, a significant improvement from a loss of ZAR 0.71 to a loss of ZAR 0.24. We still have quite a high interest bill in the group tax and the extraordinary fees that we had to incur, but we do expect that, that expenditure will reduce for financial year 2025. The order book, we're very pleased about the growth in the order book around ZAR 15.4 billion to ZAR 17.2 billion. And I think it's worth to note that this was achieved against a background where our client organizations had some uncertainty about the financial stability of the group, as we have communicated our position clearly to stakeholders in the past. But notwithstanding that, the trust and the confidence that our clients have in Murray & Roberts have resulted in the -- is reflected in the increase in the order book from ZAR 15.4 billion to ZAR 17.2 billion. Our net debt position of ZAR 0.3 billion in the prior period improved to a net cash position of ZAR 0.4 billion, and that is quite a significant swing, and that was achieved through the deleveraging plan but also through working capital movements or favorable working capital movements towards the end of the previous financial year. Having said that, we do expect that circa ZAR 475 million of that working capital will unwind in quarter 1 of the current financial year. Just a bit of an overview about our mining businesses. As I said, these are all well-established businesses, focusing on the Americas, Sub-Sahara Africa and also Asia Pacific. In the Americas, we've got Cementation Canada that operates out of North Bay, Cementation USA that operates out of Salt Lake City and then TNT, which operates out of Santee in California. In Sub-Sahara Africa, Murray & Roberts Cementation headquartered in Johannesburg, also with offices in Kitwe and Accra. And then we've recently established Cementation APAC, which operates out of Perth, and that is a new company, and it has been established essentially in the short term to serve as a business development agent for the group's other mining companies. Market conditions, we think, are favorable at this stage for us to at least maintain our order book into the future. And we do expect that opportunities will really come from future-facing commodities. Here we're talking about copper, nickel and the likes, and that is due to the global energy transition that is gathering pace. I've already referred to the order book that is up to ZAR 16.7 billion. And that is due to the large order that was secured by Cementation Americas in Mexico, and Mexico gets -- Mexico is managed out of our U.S. company, quite a big increase in the order book, a USD 200 million contract, but also TNT, which is the company that provides material logistics services, also secured quite a large project in Chile, and each share is a joint venture of that project, but each share of the project is USD 100 million. As far as the South African business is concerned, we believe that Zambia has quite a revival in the Zambian copper market and that should present a strong opportunity for us in the short to medium term to expand or to return our operations back into the copper regions of Zambia. When you look at 2025, the current year that we're in, the order book as at the 30th of June, already included 62% of the revenue that we are planning for this new financial year, and that is quite a good position to be in, and we are quite comfortable that the budgeted revenue for the new financial year is a realistic target, considering that 62% of that has already been secured as at the end of June. And then also near orders at ZAR 7.9 billion and the pipeline of ZAR 30 billion, which I will talk to in a little bit more detail shortly. OptiPower, that was formerly part of the Power, Industrial & Water platform that we had in the group, that business has been rationalized and the only remaining business from the platform is OptiPower. But OptiPower is a leading energy infrastructure projects company in South Africa focused on the Sub-Sahara region, Sub-Sahara Africa. And as I've already mentioned, we believe market conditions are favorable. There is a significant investment that will happen and continue to happen in the renewable energy sector but also in the transmission and distribution sectors. Having said that, the competition in this sector is fierce, and the contractual terms are quite challenging. In the mining business, we don't have lump sum contracts. All the contracts are predominantly on a unit rate basis, which carry less commercial risk. But for this business, the contracts are secured on a lump sum basis. You can't secure it on any other bases but lump sum, and that carries quite a bit more risk relative to what we see for the mining businesses. We did incur a loss in the previous financial year, and that is disappointing, Daniel will elaborate on that. But that loss is largely due to the liquidity pressure that we found ourselves under where we couldn't place orders when we had to. So that delayed some of the orders that we -- or equipment deliveries to site and also delayed completion of those projects. But those losses have been fully accounted for in the current financial year and that does not carry into the new financial year. Post year-end, OptiPower secured in joint venture with Coxabengoa, its first solar power project of about ZAR 1.2 billion and OptiPower share of that joint venture is 50%. So over ZAR 600 million of that ZAR 1.2 billion order book is for OptiPower. What is also significant to note is that Eskom has through its transmission division decided to invite companies to prequalify and to serve on a panel for new tenders that Eskom intends to bring to the market. So some of these tenders will be brought to market on an EPC basis, which is then for a complete service of engineering, procurement and construction services. Others will be brought to market only for procurement and construction. And then there's also tenders that will only require construction activity. And OptiPower has qualified as a panelist for all these categories. For the EPC work, it's 1 of 5 -- a panel of 5, and it's 1 of the 5. On the procurement and construction section, it is 1 of 9 companies. And for the construction scope of work, it is 1 of 17 companies. So I think that positions OptiPower strongly for participating in the rollout of transmission tenders, which we expect that Eskom will accelerate in the near term. Near orders at ZAR 2.1 billion and the pipeline of ZAR 4.7 billion for this business. But as I said, following year-end, there was this project -- this solar project that was secured by OptiPower. And with that, reached the point at 43% of planned revenue for financial year 2025 have been secured. It leaves still a bit of a gap for us to get to the 100%, but we believe that there are opportunities in the market to enable that it's -- the risk is more around the timing of when these opportunities will come to market. Just for a bit more detail on the order book. As I've mentioned, the group order book grew from ZAR 15.4 billion to ZAR 17.2 billion, and that growth is predominantly due to the 23% increase that we saw in the mining order book from ZAR 13.6 billion to ZAR 16.7 billion. The OptiPower order book did go down from ZAR 1.8 billion to ZAR 0.5 billion. But as I've mentioned, taking into consideration the project that was secured just after year-end, a move that secured order book up to ZAR 1.1 billion, and that is a good start to the new financial year. This slide is a busy slide, but let me just explain the way in which it is set out. On the left-hand side of the slide, you'll see the 2 businesses or business sectors, Mining and OptiPower. To the right of that, what we try to depict is how much of that order book for those businesses are in a SADC region and how much of that order book is in the international market. For Mining, it is 34% in SADC, 66% international. OptiPower, obviously, everything in the SADC region. And then for the group as a whole, you see the split 36% SADC and 64% international. To the right of that is just repeating the order book values that you've seen on the previous slide. And to the far right is a time distribution of this order book. So if I take the ZAR 16.7 billion for Mining, the order book as of June 20, you will see of ZAR 16.7 billion, we plan ZAR 8.6 billion to be executed in the current financial year, ZAR 6.5 billion in financial year 2026 and ZAR 1.6 billion after 2026. And the total then for the group, currently for financial year 2025, you will see ZAR 9.1 billion; for '26 ZAR, 6.5 billion; and beyond '26, ZAR 1.6 billion. And just below those numbers, you can see what the position was at the end of financial year 2022 and the end of financial year 2023. For 2025, we don't think that we'll see much growth in the top line. So revenue expected to be similar levels on what we think than what we have reported for financial year 2024. But notwithstanding that, we do expect that the earnings were strong, will reflect strong growth compared to what we have reported in the current year. This is just again a bit more detail, but this part out, we include the pipeline. As you can see on this slide, the order book as at 30 June 2024, while ZAR 17.2 billion, and our pipeline is over and above the order book. And the pipeline is reflected as near orders and we define near orders projects where we are the preferred bidder, and we need to convert that into orders. And you can see the breakdown between Mining and OptiPower. By total near orders for the group ZAR 10 billion. Category 1, tenders that we have submitted or tenders that we are currently working on, and that totaled ZAR 34.8 billion for the group. Category 2 represents budgets or feasibility studies that we are working on. So category 2 projects from a timing perspective, it's further out than category 1, where we're looking at ZAR 68.8 billion. And then category 3 is the projects that we are following, but that are not in the market yet, but that we do expect we'll come to market within the next 36-month period. So the pipeline for engineering and constructing company is really important to understand your pipeline, to understand the market and to see how you're going to be able to secure these opportunities to give a good order book for the business to execute as it moves from one financial year to the next. Before I hand over to Daniel to take you into the financials with a bit more detail, I just want to briefly talk about our safety performance. As an engineering and contracting company, you would appreciate that our employees operate in a business environment that carries more risk. There are many other business environments. It is out in a contracting project built environment. A lot of our work is underground. A lot of our workers in high-voltage transmission lines. So it is a higher risk environment. And our ultimate objective is to work without any fatal incidents in the group. And we are really pleased to say that we were able to do so in financial year 2024, and this is now the third consecutive year that these 4 operating companies in the group have completed the financial year without the fatal incident. Having said that, when you look at the lost time injury frequency rate, you'll see it's up at 1.23. And that is expressed as incidents per million hours worked. Now the increase is not as much because of an increase in the number of incidents. There was a small increase in the number of incidents, but it's essentially due to the significant reduction in hours worked because previously, we recorded high numbers of hours through Clough and RUC, and that is no longer part of the group. So the total hours of work came down significantly, which then translated into an increase in the last time injury frequency rate. Also significant to note that 40 of our projects that we have in the group completed the financial year with 0 incidents, absolutely 0 harm to our employees, and that compares to 32 projects in the prior financial year. So that is really a very good performance, and I would like to thank all our employees for really the effort that goes into the safe operations of the projects because you don't -- you cannot achieve such a result without a dedicated management and employees on our projects. And finally, we did have the unfortunate incident in the previous financial year in September, where 20 employees -- or 20 people lost their lives in the bus accident that happened on the provincial road and 17 of those employees -- or 17 of those people that lost their lives were employees of Murray & Roberts Cementation, and we just want to acknowledge once again and on the memory of all people that have lost their lives in this incident and again, extend our deepest condolences to the families of those people that have lost their lives and also to those that were injured in that incident. So with that said, I would like to hand over to Daniel, who will take you through the financials in a bit more detail.

Thank you, Henry. So we're going to start off with a segmental analysis and then we're going to go into the financial statements and balance sheet income statement, what the impact was. We've got 2 segments remaining in the group. One is Mining, one is OptiPower. Start off with Mining. As Henry explained, we've got the African operations, and we've got the Americas operations. Now African operations compared to prior year, fairly stable in terms of revenue slight growth. But in terms of profitability, they have increased. So in terms of where the increase came from, we had some loss-making contracts in Namibia in the prior year. Those contracts are out of the system. The Venetia contract had a slight improvement, although that improvement was dampened, as Henry mentioned, by the tragic loss that we incurred on the Venetia bus accident. Furthermore, we had an Arnot contract, where the client put themselves into business rescue. We have to impair any debt incurred precommencement of the business rescue. So operating margin for the year is 3%. We can see that growing up to 5% going forward as a sustainable margin. In terms of order book, order book is slightly down from the prior year. But as we've seen, they've got a strong pipeline to deliver. In terms of the Americas, we can see a slight improvement in terms of turnover. They have a consistent margin of 5%. Now there's been a swing in the balance. In the prior year, Canada had a lesser performance compared to the U.S. This year, Canada secured a number of contracts and they're executing quite well on those contracts. And the Americas lost 2 major contracts, which were highly profitable in the prior financial year. The Americas traded close to breakeven in the current financial year. They have, however, secured as we announced since the [ Frisnino ] contract, which is going to contribute and then bring them back into a higher profitable margin. TNT in the prior year had a loss. This year, they came in with a profit. You would have seen on [ sense ] as well, we announced the new contract that we secured in Chile. And -- so we do expect an improved performance. The abilities of the Americas to go between 5% and 7% going forward. In the other column, those were the costs incurred with relation to the platform CEO and CFO and managing the platform. As Henry mentioned, they've removed those costs now, and those costs will not be reoccurring in the new financial year. But pleasing to see at the bottom right-hand corner of the table, the order book has increased from ZAR 13 billion to ZAR 16 billion. And again, that's mainly due to the new contract we secured in Mexico, and the new contract we secured in Chile. Going to the OptiPower division. Now formally, it was known as Power, Industrial & Water. This is the last time we will be reporting in this format. We can see Power and Industrial in the current year, they had turnover, they had operating margin. But you can see the order book has reduced drastically to ZAR 7 million. And as they wind down their contracts on the Medupi Mills and the Komati projects contract, that will disappear going forward. We've got the water division, which is also coming to an end. The only contract that they've got is the OptiPower is the -- apologies, the organogram -- Organica plant that's operating at the V&A Waterfront. We're in advanced discussions in terms of selling that contract to them. So what will be left is solar distribution and transmission. We can see an increase in turnover and subsequent, as Henry mentioned, to year-end. In terms of order book, we have secured a new solar PV contract which will contribute another ZAR 650 million towards the order book. In terms of other, that's overhead costs not allocated to the departments that includes commercial and legal costs that have been incurred and once all outstanding claims have been settled, those will be reduced as well. But overall, it is a disappointing loss of ZAR 98 million. So the loss in solar transmission distribution, as Henry mentioned, we had liquidity constraints on some of the contracts. So that delayed procurement in these contracts. Now a number of the suppliers have been to the cash on delivery basis where we get paid on milestones in the future. So that put liquidity strain on the group and sometimes severe. So we had to find ways to the pay the credits as upfront, but only be paid 30 to 60 days later. So that caused -- because of those delays, it delayed some of the procurement and it delayed our ability to execute those contracts. And then we had a time overrun on those contracts, which means that we had to pay for additional people. We had plant longer on site than expected, and that did impact the performance of that division. But within a week from now, we hope to have resolved the liquidity issues on those contracts, and they should be functioning normally. If we move on to discontinued operations, we've divided that between Australia, Middle East and others. Australia, as we said, that we've accounted for the discontinued or deconsolidation of the Australian operations in FY '23. We had some final costs coming through in FY '24, which related to legal fees, advisory fees, close down fees that we had to incur. That's not expected to reoccur in the new financial year. In the Middle East, we incurred some administrative and legal fees of ZAR 31 million. We are in the process of closing down those entities. The aim is to have them closed down by December. So the cost for the Middle East and the new financial year, we're expecting to be no near than the ZAR 31 million incurred in FY '24. In terms of other, we see the revenue figure of ZAR 117 million, that relates to our generic division, which we discontinued. They finished final work on the power program. They were reimbursed on a cost basis. We had some legal fees that we had to incur and related costs. But in the Bombela Joint Venture company that built the [indiscernible] railway. We had provided in the previous year for future costs to be incurred. Some of those costs haven't realized and there was a ZAR 27 million release of provision in the current year, which brings the other column into a positive number instead of a negative number. But overall, a loss of ZAR 55 million for the discontinued operations. And again, that's expected to reduce in the new financial year. If we go on to the income statement, we've discussed revenue increased by almost ZAR 1.6 billion, driven by the Mining division, ZAR 400 million, driven by an increase in the OptiPower business. EBITDA increased. We talked about the increase in EBIT, both in -- well, mainly in the Mining platform. And if we look at the interest expense, it's almost half compared to the prior year. Now the debt incurred by the group has come down significantly. Accordingly, you would expect a decrease in interest expense for the group taxation, still running at a high effective tax rate. You can see it more or less in prior years, whilst the EBIT have increased. Now once your EBIT number goes above ZAR 400 million closer to ZAR 500 million, your effective tax rate drops down to about 38%. And the higher your EBIT number, the lower your expected tax rate. So the effective tax rate is driven by your level of profitability, which in this year was depressed. If we look at discontinued operations, we've talked through at that number now. We did incur an attributable loss of ZAR 138 million. What items are not going to repeat are the APAC costs that we incurred for the platform overheads, that won't be repeated in the new financial year. The loss in discontinued operations will be significantly less. Corporate overhead costs, as we mentioned, will reduce significantly compared to the prior year. There is an element outstanding as to what will be nonrecurring costs by finalizing debt facilities. But we do expect that number to go into the black in the new financial year with a significant improvement compared to the prior financial year. If we look at the balance sheet, property, plant and equipment, there is about ZAR 900 million of PPE sitting in the Americas. Mining operations is about ZAR 500 million sitting in the African operations, very little sitting in the OptiPower division. If we look at cash, we had a strong cash balance of ZAR 1.6 billion. That has been slightly inflated by advance payments received and early close of contracts. As Henry mentioned, ZAR 475 million of that amount is expected to flow out in Q1, Q2 of the new financial year. So they do have the Mexican contract, which is expected to start ramping up from next month going forward. That contract will be cash negative for the first 3 to 4 months and eating into the working capital, thereafter adjusting and starting to contribute to the cash balance. In terms of assets and liabilities held for sale, that mainly relates to the Middle East operations, assets held for sale have some assets in Cementation Africa, where contracts have come to an end in Namibia and on some of the coal projects, these assets are being held for sale and they're expected to be sold in the near future. All in all, we finished the year with a net cash position of ZAR 378 million. That means that your total levels of debt, and we'll unpack that on the next slide, has been exceeded by the cash in the group and we're sitting with a net cash position for the group of ZAR 378 million and a shareholders' equity position of ZAR 1.559 million. If we unpack the debt and we normally split the debt into corporate gearing, self-servicing debt as well as our IFRS 16, start from the bottom, IFRS 16, ZAR 129 million, that relates mainly to office leases. And that previously was recorded as operating expenses. We've now brought that on to balance sheet. Self-servicing debt relates mainly to asset-based finance. As we mentioned, if you incur debt on an asset that you buy for a specific project, you don't service the debt through the profit on that project. It's a line item in your revenue that you utilize to pay that debt. So we don't see that as using EBITDA to service self-servicing data as best financing. What is being serviced through EBITDA and cash generated through the business is your corporate debt. As we can see, the TNT debt has been repaid in full. We've got overdraft debt in South Africa of circa ZAR 400 million, and we've got additional debt that has been incurred in the Americas operation of ZAR 400 million now. Just to refresh the memories and it's disclosed in our press release is that the Americas agreed new financing facilities with TD Bank, as part of that, they incurred a term loan over a period of 4 years. Some of those loan proceeds have been paid over to South Africa to reduce the debt in the South African operations. But the debt levels in the Americas is now higher than what it's been 5 years ago and pre-COVID, and they've managed to service their debt through COVID through tough times. But the total corporate debt in the group is sitting at ZAR 800 million. So in terms of gearing ratios, corporate debt sitting at 51%. We do expect that to come down. And as we repay our debt, get those debt levels down. But the total gearing ratio is 81%. But as I mentioned, if self-servicing debt increases by another ZAR 300 million, but it's repaid by profits -- by the revenue on the contract, not profits in the group, I'm not concerned. It's the corporate debt line item that we do need to keep an eye on. And that concludes the financial section.

Thank you very much, Daniel. We will shortly get to a Q&A session. But before we do, let me just wrap up this presentation. I think the first point, the first take away is that Murray & Roberts is a different company to what it's been in the past. It has been reengineered, revitalized and refocused, and the Board and the leadership team and all our employees are committed to achieve strong growth for the company moving forward. In terms of our sustainable capital structure, we believe we've made meaningful progress, the corporate debt come down, as Daniel has explained. At the group level, we reported a total net cash position as opposed to a net debt position as per the prior period. We've reached an agreement with the South African lenders to repay the remaining debt of ZAR 409 million in January 2026, and we remain committed to refinance this debt and negotiations with potential funders are continuing. Our financial performance is certainly not at the level where we want it to be, but it is a strong improvement relative to the prior reporting period. The discontinued operation costs are expected to come further down in 2025 other than the accounting for the foreign currency translation reserve, and that is subject to the closeout of the Middle East operations. As we've mentioned before, this is a noncash item. It does not impact equity or net asset value. It is purely a foreign currency translation reserve that needs to work through the income statement, and we will do so when we have exited the Middle East. Now the Middle East assets -- our assets and liabilities are held for sale. We still have a binding sale and purchase agreement in play. But we're getting to a stage that unless that is successfully sold, those businesses, and we will probably move towards a liquidation position. But whether we sell it or whether we liquidate it, it's not going to have any impact on our financial statements other than for the foreign currency translation reserve that will have to be processed. Our order book, up from where it was before, is creating potential for us to improve our results into financial year 2025. And we do believe that we could get to pre-pandemic levels of earnings as from 2027. In other words, not this financial year or the next financial year, but the year thereafter, our estimates indicate that we should be able to return to pre-pandemic earnings levels. Before I hand over to Ed to facilitate the Q&A session for us, I think I would like to make use of this opportunity to thank our stakeholders, and this includes our shareholders, our creditors, our clients and all our employees for their support during these difficult times. And we look forward to relying our support as we move into the new financial year, as I've mentioned earlier on, our liquidity will remain under pressure until we reach a point where we have refinanced the remaining debt in South Africa, and we have repaid the ZAR 409 million to the South African banking consortium. Ladies and gentlemen, thank you very much. I'm going to hand over to Ed now. And Ed, if you could facilitate the Q&A for us, please.

Thank you very much, Henry. Daniel. [Operator Instructions] We received a couple of questions. Daniel, if I can perhaps start with you. The gross cash is ZAR 1.6 billion, net cash circa ZAR 400 million. Given the strong cash position, can't Murray & Roberts pay off SA debt given available cash if the North American business pays a dividend to SA. And if not possible, does that mean that not all cash is available to the group? Thank you, Daniel.

Thank you. So not all cash is available to the group. As I've mentioned, there's about ZAR 475 million cash that will unwind in the new financial year. So there's a few elements that Cementation needs -- Americas needs to cater for. The first is that they've got intra-month movements within the month, which is about CAD 30 million, where you incur expenses but you only get paid later in the month by the client. Then there's additional cash required for the ramp-up of the Mexican -- the Mexican new contract that we secured and they do need cash for new projects, are expecting new contracts other than the Mexican contract to be secured. So they do need working capital to be secured going forward. Now the dividend policy out of the Americas is they pay 50% after tax profit as a dividend back to Murray & Roberts. There's a number of dividends that have been paid to the Murray & Roberts Group to settle their lenders, but there's not much scope left to utilize it. Even though the case is unencumbered, it will be used for growth in the Americas business, which is currently doing quite well, and there are future dividends coming into the group, but it's not immediate. So it's -- the ZAR 1.6 billion is inflated by about ZAR 475 million and then this working capital required going forward.

Thank you, Daniel. Another question to you, please. Free cash flow to equity in FY '24 appears to be around ZAR 1.50 per share. Is this correct? And are there any one-off items that boosted FY '24 free cash flow?

So if you look at free cash flow, we take EBITDA, we deduct or add working capital movements. We've got interest payments, tax and CapEx that has been incurred. Now that comes to about ZAR 1.50, which is correct, that has been, again, inflated in the working capital movement, where some of the cash generated in working capital will unwind in the new financial year. So if you adjust your free cash flow, the number will come down quite significantly to maybe about ZAR 0.50 to ZAR 0.70.

Thank you, Daniel. One final question for you, please. Guidance that the group targets a return to pre-COVID earnings per share. Please, can you provide a target EPS number? Could it be around ZAR 1 per share?

It could be. So pre-COVID earnings, but that included both Clough and RUC were between ZAR 700 million and ZAR 800 million. And then you've got to deduct interest and tax. So it could be close to ZAR 1, slightly north of ZAR 1.

Thank you, Daniel. Perhaps Henry a question for you. Could you please provide some guidance on the OptiPower GP margin?

Yes. The OptiPower GP margin is a function of the first instance, the margins that we tender at. And I don't want to disclose publicly at what level of margin do we submit our tenders. But we do expect the OptiPower business to achieve a margin of around 10%, maybe 11% at the GP level, and that is also taking into consideration the operational risk that needs to be accounted for and deducted from the tender margin.

Henry, perhaps a 3-part question on the Middle East. Can you add more color on the Middle East contingent liability? That's question number one. Question number two, could you please clarify what does the back-to-back arrangement referred to? And three, finally, do you have any update on any core proceedings with regards to the contingent liability?

This contingent liability relates to a project that we completed in Abu Dhabi in 2018, the El Mafraq Hospital. It was commissioned and handed over to the client before COVID. And during the COVID period, it was fully occupied. Notwithstanding that in 2021, the client decided to call our bonds on this project, and the bonds were paid out by a bank that issued these bonds. And obviously, that moved our joint venture account into a deficit and the bank, which paid out these bonds on our claiming that value from the joint venture that built the project. And Murray & Roberts is a 33% partner in the joint venture. Now our position on that is that there was no factual basis for that bonds to be called. The hospital was handed over, and it was operational pre-COVID, and these bonds were called subsequent to that. So there was no factual basis for these bonds to be called. And secondly, we also believe that the bank that paid out these bonds didn't follow the correct procedures in doing so. As far as the back-to-back arrangement is concerned, we believe that this is not a claim against Murray & Roberts. It is actually a claim against a client. The client has been a recipient of this cash, which we believe was not paid out correctly. So the claim is not against Murray & Roberts, the claim must actually be against the client. Now that matter has been brought by the bank that encashed these bonds have been brought against Murray & Roberts Limited here in South Africa in the high court. And the reason for that is that the company in Abu Dhabi, which build this project in joint venture with others, is a subsidiary of Murray & Roberts Limited, and Murray & Roberts Limited issued parent company guarantees against the bonds that were provided by the bank. So they are pursuing Murray & Roberts for each 33% share of the value of the bonds that were paid out. Now we don't believe there's any legal reason or right that the bank has to recover the those monies from Murray & Roberts. That's also on the strength of the legal advice that we've received here in South Africa. In terms of progress with this court case, what we have achieved thus far is to join the client to these court proceedings. In other words, it's not only between the bank and Murray & Roberts Limited, but it's also now the client, which has been joined to these proceedings on the basis that we believe if the money has to be repaid to the bank, it has to be repaid by the client. We believe have called on those bonds incorrectly. We don't think that this matter will be settled in the court soon. We think it will be a drawn-out process, and it may take several years before it is eventually decided.