Announcements

GCR affirms Murray and Roberts Holdings Limited rating of A-(ZA); Outlook Stable.

Johannesburg, 31 Oct 2014 — Global Credit Ratings has today affirmed the national scale ratings assigned to Murray and Roberts Holdings Limited of A-(ZA) and A1-(ZA) in the long term and short term respectively; with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Murray and Roberts Holdings Limited (“M&R”) based on the following key criteria:

Revenues increased by 5% to R36bn in F14, reflecting a 5-year compound growth rate of 7%. Although the close out of large loss making contracts saw a return to operating profitability in F13, the operating margin remains under pressure, easing to 3.7% in F14 (F13: 4.1%, inclusive of profit realised on the sale of Forge), versus highs of around 8% achieved prior to F10. M&R’s F14 performance was underpinned by Oil & Gas, which accounted for 49% of revenue and 67% of operating profit (F13: 43%; 91%), on the back of Clough’s regional dominance and the positive impact of securing the minority stake in the company on 2H results. Despite the improvements registered during the year, local operating conditions remain challenging, with subdued demand and intensifying competition impacting the SA construction and engineering businesses, as well as underground mining.

Cumulative proceeds from asset disposals amounted to R7bn over the review period, and given modest capex and conservative distributions, saw cash close FYE13 at a high of R6.3bn. As the R4.4bn Clough transaction was partially cash funded (A$311m), the balance eased to R4.3bn at FYE14, of which 28% was restricted, mainly to JVs (FYE13: 25%). Local overdrafts were largely settled using cash from disposals, and as such, the increase in debt to R2.8bn at FYE14 (FYE13: R2.1bn) was mainly due to a A$156m (R1.5bn) draw down from a bridging facility to fund the Clough deal. As a result, R1.7bn (66%) of interest bearing debt was Australian dollar-denominated at FYE14, while Rand-denominated obligations decreased to R608m (FYE13: R1.7bn). This aided in reducing the liquidity mismatch, with R1.9bn (45%) of cash held in A$ at FYE14 (FYE13: R4.2bn), and R602m in Rands (from R448m previously). M&R therefore remains net ungeared, with sound liquidity metrics. Although the 83% short term debt exposure is noted (FYE13: 74%), management is in the process of securing a medium term facility to roll the Clough bridging loan, while liquidity is further reinforced by R3.6bn in untapped credit lines.

Although the value of the group’s order book reduced to R41bn (FYE13: R46bn), as projects in Australia near completion, the inclusion of more specialised engineering and design offerings, as well as higher value brownfields contracts are expected to support stronger medium term margins. The opportunity pipeline has also been boosted by deploying its oil and gas expertise in other territories.

Upward rating pressure could emanate from a sustained improvement in the performance of local businesses, coupled with a proven ability to profitably broaden the value chain and to execute the rejuvenated strategic plan despite challenges inherent in operating in the various geographies. The rollout of the state’s planned infrastructure programme will also provide a strong baseline of large local contracts for which the group’s operating model is suited. Although M&R’s exposure to the vagaries of operating locally have been considerably reduced, performance could be negatively impacted by punitive regulations, as well as labour and social unrest. An elevation in loss making work, particularly in new territories and sectors would weaken profitability, cash generation and the overall credit risk profile, placing downward pressure on the ratings.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Sep/2001)
Long term: A(ZA); Short term: A1(ZA)
Outlook: Stable

Last rating (Nov/2013)
Long term: A-(ZA); Short term: A1-(ZA)
Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Patricia Zvarayi
Senior Analyst
(011) 784-1771
patricia@globalratings.net

Committee Chairperson
Eyal Shevel
Sector Head: Corporate & Public Sector Debt Ratings
(011) 784-1771
shevel@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, updated August 2014
M&R credit rating reports, 2001-2013

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Murray & Roberts Holdings Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Murray & Roberts Holdings Limited with no contestation of the rating.

The information received from Murray & Roberts Holdings Limited and other reliable third parties to accord the credit rating included the 2014 audited annual financial statements (plus four years of comparative numbers), corporate governance and enterprise risk framework, industry comparative data and regulatory framework and summary of facilities available. In addition, information specific to the rated entity and/or industry was also received.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS REPORT

A$

Currency notation designating Australian Dollars.

Credit Risk

The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.

Gearing

With regards to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds, EBITDA or by the value of investments.

Joint Venture

A project or other business activity in which two persons or companies partner together to conduct the project.

Liquidity Risk

The risk that a company may not be able to take or meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets.

Operating Profit

Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.

Order Book

This refers to the portfolio of confirmed contracts/orders that a corporate entity has at any point in time, and is jargon typically associated with construction and manufacturing companies in reference to their prospective business.

Portfolio

A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.

GCR affirms Murray and Roberts Holdings Limited rating of A-(ZA); Outlook Stable.

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