GCR has downgraded Murray & Roberts Holdings Limited’s (“Murray & Roberts”) national scale ZAR currency long and short term ratings by one notch each, to A- (single A minus) and A1- (single A one minus) respectively.
The rating decision was taken in consideration of Murray and Roberts’ weak operating performance, having registered a sizeable R819m operating loss in F11. This was further compounded by R666m in losses from discontinued operations, resulting in a R2bn retained loss for the year, which translated into a 28% erosion of the group’s equity value. In addition, the focus on mega projects exposes the group to various operational challenges such as delays, changes in scope and unforeseen complications. These can have significant profit implications, as has been evidenced by the large R2.7bn impairments recorded over the past two years. Further, impairments in excess of R500m are expected for F12.
Positively, gross debt had reduced at FYE11, while the maturity profile of existing debt was lengthened, thereby easing liquidity pressure. Moreover, cash flow pressure has eased notably in F11, due to more effective working capital management and the disposal of working capital intensive non-core assets. Nevertheless, a net geared position is forecast for FYE12.
Murray and Roberts’ earnings will be supported by the robust demand in the mining sector and in Australia, which has seen the order book improve to R55.4bn at FYE11 (FYE10: R44.1bn). This should see revenue increase in F12, while the comparatively higher margin in the sector should translate into firmer operating profits (before impairments). This notwithstanding, operating conditions are likely to remain challenging in the near term, with pricing power in the construction operations being constrained by the limited availability of project opportunities.
Benjamin Schmidt https://globalratings.net/uploads/files/November_2011.pdf
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