Power & water
|“THE PLATFORM’S SERVICE OFFERING SPANS THE FULL PROJECT LIFECYCLE, FROM PROJECT DEVELOPMENT TO EPC, WITH A FOCUS ON TRADITIONAL MECHANICAL, ELECTRICAL AND INSTRUMENTATION CONSTRUCTION SERVICES, AS WELL AS OPERATIONS AND MAINTENANCE SERVICES.”|
|STEVE HARRISON | Business Platform CEO|
|The businesses within this platform are:|
|Murray & Roberts Power & Energy, with a primary focus on the Medupi and Kusile power programme, as well as opportunities in the power and other complimentary markets (oil, gas, resources and minerals); and|
|Murray & Roberts Water (including Aquamarine Water Treatment) with a specific focus on water and wastewater treatment (domestic and industrial).|
The Power & Water platform underwent extensive restructuring in the final quarter of FY2015, following substantial losses recorded on several projects. In early FY2016, a further alignment of focus and organisational adjustment was undertaken to enhance the platform’s project delivery and business development capability.
The platform’s service offering spans the full project lifecycle, from project development to EPC, with a focus on traditional mechanical, electrical and instrumentation construction services, as well as operations and maintenance services. The platform’s capacity and capability is complemented by strategic partnerships.
The platform was appointed as preferred bidder for the George Biomass project, under the Small Projects Renewable Energy programme by the South African Department of Energy. While a relatively small project, Murray & Roberts Power & Energy will participate as a developer, EPC contractor and operator, which is of strategic significance. Murray & Roberts Power & Energy also secured a power station refurbishment contract in Botswana. Furthermore, South Africa and the rest of Africa lack water treatment capacity and current infrastructure is ageing, which provides opportunities in the medium to long term.
The platform leads the Group’s focus in West and East Africa with offices in Accra, Ghana and Maputo, Mozambique. Murray & Roberts Power & Energy currently has an EPC fuel storage project in Takoradi Port, Ghana and there are emerging gas-to-power projects that the platform is tracking with its partners in Mozambique.
Revenue increased to R4,3 billion (FY15: R3,6 billion) and the order book was stable at R6,7 billion (FY15: R6 billion). The platform recorded an operating profit of R27 million (FY15: loss R152 million) despite significant write-offs on legacy projects amounting to R230 million. The Medupi and Kusile power projects remain the largest contributors to platform revenue and profit.
Genrec experienced challenging market conditions and recorded a loss of R108 million (FY15: R18 million). Genrec is the Group’s only manufacturing business, following the sale of several construction product manufacturing businesses in prior years. The Group has decided to divest from Genrec and has engaged in a sales process with prospective buyers. Due to the decision to divest from Genrec, these results are reported as part of discontinued operations and not as part of the platform’s results.
Platform overhead costs were reduced and all projects undertaken in the power, water and complementary market sectors returned profits in the year.
The corrective action taken during FY2016, particularly with respect to project and commercial management and the reduction in overhead costs, will position the platform well to increase profitability in FY2017.
The first task of the newly appointed platform chief executive, Steve Harrison, was to stabilise the platform after the restructuring, by ensuring that the strategy was understood by all internal stakeholders and that clear performance targets were set and assuring alignment in management effort. Significant time has been invested in defining and refining the platform’s strategy and putting detailed execution plans in place.
The platform’s objective is to grow its power and water business in sub-Saharan Africa and selected international markets. The strategic intent to provide a more complete specialist project service to clients across the project lifecycle is receiving executive attention. This includes growing the platform’s repair, operations, maintenance and shutdown capabilities across all market sectors. The completion of the Eskom power programme at Medupi and Kusile will create significant opportunity for maintenance services that could be provided by Murray & Roberts Power & Energy’s skilled and experienced workforce, having previously worked on these projects.
During FY2015, brand awareness campaigns and marketing initiatives were undertaken, aimed at increasing the platform’s profile as an EPC and operations and maintenance contractor in the power and water sectors in Africa. This effort has resulted in a number of approaches to the platform with a view to partnership and collaboration.
The platform remains committed to the enhancement of its leadership capabilities and strength. A renewed focus on performance management has been launched together with supporting development programmes. South Africa is experiencing a shortage of skilled artisans and supervisors, and the platform is committed to developing these skills.
A medium-term plan has been implemented to employ national professionals in the African hubs to ensure legislative compliance, adherence to local customs and to grow business. Well-respected national business leaders in the platform’s sectors of operation have been appointed to the respective company boards in non-executive director roles to help facilitate these objectives.
The platform achieved a BBBEE Level 3 rating based on the current code of good practice. It is expected that this rating will move to Level 4 on the new codes and initiatives are underway to improve on this score. Transformation continues to be a challenge in top management, however this year 60% of promotions to middle management levels were from black employees (African, Coloured and Indian). This result is underpinned by the fact that 74% of junior management is black, with many being developed and coached for advancement. Employment equity is the single biggest area for improvement with respect to the BBBEE rating.
|Revenue||3 600||2 827||676||790||4 276||3 617|
|Order book||5 892||5 194||791||804||6 683||5 998|
|Segment assets||1 146||845||556||1 019||1 702||1 864|
|Segment liabilities||886||719||460||469||1 346||1 188|
|People||5 282||4 995||565||1 279||5 847||6 274|
The platform invests significant time and resources in developing relationships to better understand our stakeholder issues, developing business opportunities, obtaining access to selected technologies, entering new project value chain segments and mitigating risk.
Skilled and experienced employees are key to successful project
delivery and in this respect, the platform’s current headcount is around
6 400 employees, of which 213 are head office based, providing operational enablement and shared functional and commercial support.
In the organised labour environment, skills transfer and development remain high priority issues. The platform is responding through training and development, as well as the strategic initiative to build a high performing core group of artisans and supervisors.
Numerous engagements with union leaders were undertaken to prevent strike action, however the Medupi project experienced major unprotected strike action towards the end of FY2015, with the effects continuing well into FY2016.
In FY2016, the platform spent R62 million on skills development. The majority of this investment was aimed at technical upskilling through targeted learnerships and apprenticeships. Merseta continues to provide support and guidance to our training initiatives.
As at end of FY2016, 1 305 (FY15: 1 209) employees on the Medupi and Kusile projects had successfully completed training, exceeding contractual obligations. The platform continues to invest in the development of artisans, with an additional 12 and 178 apprentices currently in training at Medupi and Kusile. To date, a total of 1 305 apprentices have been trained on these projects.
Relationship building with existing and potential partners has been a key focus and has created better awareness of the Murray & Roberts brand and platform service offering. Joint ventures and consortiums are key elements of the platform strategy, both from a growth perspective and to mitigate risk. A joint venture has been developed with an international EPC company operating in the South African market to provide shut-down, operations and maintenance services in the power sector. Several small projects have been undertaken by this joint venture and the platform intends to grow this relationship to expand this area of business.
The platform has engaged with large Asian companies that are increasingly active in South Africa and the rest of Africa, and two power station opportunities in South Africa are being pursued in the Independent Power Producer coal-fired sector, which are close to preferred bidder status.
In the water sector, the partnership with Hyflux has been revisited and positions the platform to participate in large desalination projects. Murray & Roberts Water has recently secured access to a unique wastewater treatment technology, through a licensing arrangement with Organica from Hungary, a global provider of innovative solutions for the treatment and recycling of wastewater. This technology provides a differentiated offering with advantages over traditional technologies, and a targeted approach will be adopted for significant opportunities that are suitable for this type of technology.
At the end of FY2015 the platform integrated Murray & Roberts Resources & Industrial and Murray & Roberts Electrical & Control Systems under the Murray & Roberts Power & Energy business as part of its rationalisation. Major write-offs were taken in FY2015 on projects undertaken in these two businesses. Unfortunately, additional significant and final write-offs were taken in FY2016 on these legacy projects.
As a result of this organisational restructuring, more robust governance processes have been implemented with executive oversight on project performance reviews. Considerable improvement in project delivery was experienced in FY2016.
During FY2016, mechanical boiler construction at the Medupi and Kusile power stations continued in terms of the contract with Mitsubishi Hitachi Power Systems Africa. At Medupi, Unit 6 has been synchronised and is in commercial use; Unit 5 first fired on oil during June 2016, a significant milestone; and Unit 4 has been hydro tested. At Kusile, after successful hydro testing the chemical cleaning process on Unit 1 is in preparation, to be followed by hydro tests on Unit 2.
Business development is committed to securing an order book to replace work on Medupi and Kusile, which will be substantially completed in FY2019. In the power market, the platform is targeting opportunities in the Renewable Energy Independent Power Producer Procurement Programme sector and is well positioned to secure work in the coal, solar and future gas-topower sectors. Obtaining preferred bidder status on the George Biomass project was an important achievement, as it comprises full project lifecycle participation, including equity participation as a developer for Murray & Roberts Limited.
In line with its objective to provide repair, operations and maintenance services to the power sector, the platform secured work as a subcontractor to Korean EPC Doosan Heavy Industries on the Morupule A project in Botswana. This project provides an important entry point into the Botswana power sector, potentially presenting brownfield and greenfield opportunities.
With a mandate to operate in complementary markets, the platform has consolidated its capacity and capability in the oil and gas market with its Secunda facility in its third year of operation, with a primary focus on supporting Sasol’s operations. Electrical and instrumentation services are being provided on projects in Namibia and South Africa.
Aquamarine Water Treatment increased its revenue in FY2016 and continues to grow its sales network into Africa. Aquamarine is offering water chemicals to complement its existing services and received its first orders from Eskom and Sasol.
Geographically, the platform has made inroads into sub-Saharan Africa by leveraging the Murray & Roberts brand and through successful project delivery. In Ghana, the platform completed a small project for Subsea 7 in the port of Takoradi and at the same location, a fuel storage tank project for GOIL is underway, to be completed early in calendar year 2017. The platform has a presence in the Takoradi port and a number of new prospects have been identified that will provide opportunities. A successful electrical and instrumentation project is nearing completion at the Husab uranium mine in Namibia. During the year, the water business successfully delivered projects in Ghana and Kenya.
Safety remains a top priority for the platform and its clients and safety issues are dealt with swiftly and with executive-level support and intervention. Safety plans are openly shared with clients who are also included in platform safety improvement initiatives.
The platform’s health and safety performance proved challenging in FY2016, with the LTIFR increasing to 0.76 (FY15: 0.37) which translates to 12 lost-time injuries with more than 15 million man-hours worked. Kusile achieved a particularly notable safety performance of 10.6 million man hours without a LTI and achieved 98% in the Fatal Risk Control Protocol third party audit. All businesses are OHSAS 18001 and ISO 9001 and ISO 14001 certified.
The platform leadership team is committed to achieving industry-leading HSE results. A pilot programme, based on behavioural concepts, is underway and aimed at modifying behaviours to support HSE improvement initiatives. The Group’s MAP programme has been implemented at Medupi and Kusile, and will be fully implemented on all projects during FY2017.
Improvements have been made with respect to risk and opportunity management through the formalisation of a management methodology, covering project, functional department and platform risk.
The platform has identified a substantial project pipeline of opportunities in sub-Saharan Africa, both in the near and medium term. However, competition in this market is strong.
The Department of Energy’s Baseload Coal Independent Power Producer Programme and the South Africa gas-topower programmes remain a key focus and developing relationship with a view to strategic collaboration opportunities will continue into FY2017. In Mozambique, the platform is actively engaged with clients that are developing gas-to-power projects.
Significant investment in the oil and gas operation in Secunda, to support services to Sasol, and recent project delivery success, together with HSE initiatives, have positioned the business for growth.
As was experienced in the last year, it is likely that emergency water situations will continue to arise. To position itself to respond better to these emergencies, Aquamarine has invested in water treatment plants that can be provided at short notice as ‘off the shelf’ products. The first of these plants will be available during the first quarter of the new financial year, for sale or rental, with water quality and quantity guaranteed. With these water treatment plants in inventory, the rapid deployment of containerised water treatment solutions is a reality.
In the water sector, growth is expected to come from the wastewater treatment sub-sector as there is increasing environmental pressure to upgrade dysfunctional wastewater treatment plants and to reuse treated effluent. Growth is also expected in the industrial sector as industry looks to water security through reuse and recycling to save water and reduce costs. Aquamarine’s containerised water and wastewater treatment solutions are highly transportable and rapidly deployed, providing an opportunity for broader market participation. Acquisition of technology in the industrial water treatment sector, specifically AMD, is being sought for conclusion in FY2017. AMD is an international issue and as such, any viable technology will be in high demand.
Growth will be mainly organic, supported by targeted acquisitions to better position the platform for opportunities in the market, as well as to expand and complement its existing service offering. The platform has identified the need for diversification into international markets and initial assessment of potential mid-tier international power engineering companies as acquisition targets is underway.