|“IT HAS BEEN A DEFINING YEAR FOR THE
MURRAY & ROBERTS GROUP ON ITS STRATEGIC JOURNEY
TO BECOMING A FOCUSED AND DIFFERENTIATED
MULTINATIONAL PROJECTS COMPANY.”
THE BOARD HAS DECLARED
AN ANNUAL DIVIDEND OF
The proposed sale of the I&B platform and Genrec, the last remaining non-strategic business in its portfolio, reflects the progress made in implementing the Group’s New Strategic Future plan, which the Board approved in June 2014. The completion of these transactions will be the final steps in focusing the business platforms on the global natural resources sectors.
The Board is pleased with the Group’s financial results, which were achieved despite difficult market conditions. In the coming year these difficult conditions will persist, but we look forward to continued progress in the steady implementation of our strategic initiatives. After taking the current economic climate and the strength of the Group’s balance sheet into consideration, the Board has declared an annual dividend of 45 cents, which equates to between three and four times earnings cover, consistent with our dividend policy.
TOGETHER TO ZERO HARM
Underpinning the Group’s strategic journey is its commitment to an industry-leading HSE performance. Sadly, an improved overall safety performance across the Group was eclipsed by the tragic incident in October 2015 at the Grayston project site in South Africa, where a temporary scaffolding collapsed, claiming the lives of two members of the public and injuring 19 others. The Section 32 Inquiry into the cause of this project incident, conducted by the DoL, is ongoing. The Group is cooperating fully with the inquiry and our stakeholders will be kept informed on the outcome. Another two fatalities, an employee and a subcontractor, were recorded in the year under review. The Board conveys its sincere condolences to the families, friends and colleagues of those who died or were injured. Subsequent to year end, the Group experienced a fatality in its I&B platform. The investigation into this incident is underway.
We reiterate our stance that fatal incidents and serious injuries are unacceptable and avoidable, and we assure our stakeholders that the Group will continue to concentrate on understanding and managing the complex interplay of factors that are required to ensure Zero Harm to our employees, service providers and communities.
In this regard, the leadership of the business platforms and the Group, including the Board, continue to analyse each fatal incident and serious injury to determine the causes and to share lessons learnt widely across the operations. The Group’s safety programmes seek to empower employees to identify and report safety hazards, thereby encouraging a culture of care for oneself and for fellow colleagues. Furthermore, the Group’s comprehensive health and wellness programmes focus on preventing the underlying issues that may affect employees’ ability to work safely and productively.
THE NEW STRATEGIC FUTURE
The New Strategic Future plan intends to achieve sustainable growth in profitability, cash generation and returns to our shareholders. It is aimed at diversifying the Group’s business and reducing its risk profile in three ways. The first is to focus on selected market sectors in the global natural resources markets, in which the long-term demand fundamentals are robust. The second is to establish a permanent presence in those geographies that show the highest growth potential in these chosen market sectors. The third is to strengthen the Group’s capability to offer project delivery solutions across the full project lifecycle, by expanding its service offering into the higher-margin, lower-risk segments of the project lifecycle, up and downstream from the construction segment.
The successful integration of the niche engineering companies acquired in the previous year and in the year under review, are highlights of the progress made in this aspect of our strategy. With the disposal of non-core assets and market constraints on organic growth in the medium term, a growth acquisition will be necessary to sustain the Group’s earnings growth profile.
The resolution of the Gautrain and Dubai International Airport claims will support the financial flexibility needed to pursue larger growth acquisitions. Although the arbitral processes are by their nature protracted and time consuming, the Board is satisfied with how these matters are progressing.
The Group is exposed to the macroeconomic dynamics in the global natural resources markets, which again impeded its financial performance in the year. The Board however remains confident in the long-term demand fundamentals of the primary markets, which underpin our strategy.
In the medium term, with global annual GDP growth forecast at 3% to 4% between 2016 and 2020, driven mainly by the growth in India and China, and with the United States economy showing more certain signs of recovery, we expect commodity demand to trend upwards. This will provide the potential for increased earnings from the Underground Mining platform in the years ahead, continuing the strong performance it posted in the year under review. The Board is confident that the improved prospects in the Underground Mining platform, together with a return to profitability in the Power & Water platform, will mitigate the significant impact of the depressed oil price on the Oil & Gas platform’s earnings. The Oil & Gas platform will continue to establish itself in selected international markets in which growth is expected in the next few years.
PROPOSED DISPOSAL OF THE I&B PLATFORM
The Group has evolved into a focused project solutions provider in its chosen natural resources market sectors, with each business platform developing a meaningful global operating base. Considering the New Strategic Future plan, the Group’s civil infrastructure and building business was determined to no longer be a strategic fit for the Group and the Board, after two years of debate and consideration, approved the sale of the I&B platform.
Economic transformation remains imperative to sustainable development in South Africa and we decided to use this strategic opportunity to support the creation of a world-class black-owned civil infrastructure and building business, thereby fulfilling both the Group’s objectives and the national imperative. The proposed sale of this business to a wholly black-owned group, is consistent with the South African Government’s agenda to promote the emergence of black industrialists, as a way of supporting the objectives of economic inclusion, espoused in the National Development Plan and Industrial Policy Action Plan.
Although the South African civil infrastructure and building market
is currently being impacted by low investment in fixed capital
formation and weak economic growth, the
long-term prospects of infrastructure and building activity in the public sector holds considerable opportunity for the business. With the capability and capacity that the I&B platform has developed over decades to deliver large infrastructure projects, it is favourably positioned to secure substantial work.
While the transaction marks the end of an epoch for Murray & Roberts, it represents the beginning of another exciting era. The transaction serves the long-term sustainability of the Group as it achieves the Group’s strategic focus and strengthens its ability to service its clients in the oil and gas, mining and minerals, and power and water markets in South Africa, the rest of Africa and internationally.
BEING A RESPONSIBLE CORPORATE CITIZEN
The Group’s purpose and vision were revised to reflect the strategic focus achieved. In combination with our values, they provide the primary point of reference for what we aspire to, both in terms of the service we provide to our clients, as well as the way we conduct ourselves, which ultimately determines the Group’s reputation and therefore its success. Whether it is maintaining its commercial and social licences to operate, or attracting and retaining the talent required to compete effectively, the Group’s reputation as a responsible corporate citizen, is fundamental to our continued strategic progress.
As the Group expands its operations in its targeted geographies, the Board is cognisant of the importance of ensuring that the business platforms are responsive to national and local requirements. As a multinational company, the Group focuses on adapting its approach to each individual local market in which it operates. This extends to localisation and diversity imperatives, to fulfilling the expectations of the communities in which the Group operates, especially in respect of employing and developing local people. The acquisition of businesses in the Group’s targeted geographic regions will support this responsiveness to local requirements.
|THE GROUP’S VALUES OF INTEGRITY, RESPECT, CARE, ACCOUNTABILITY AND COMMITMENT ARE UNIVERSAL AND REMAIN VALID. AS THE KEYSTONES OF OUR APPROACH TO DOING BUSINESS, THEY COMMIT THE BOARD, MANAGEMENT AND EMPLOYEES, AS WELL AS THE MANY ENTITIES WITH WHOM WE PARTNER IN DELIVERING PROJECTS, TO ACT ETHICALLY AND RESPONSIBLY, AS WE STRIVE TO ACHIEVE A BALANCE BETWEEN THE INTERESTS OF ALL STAKEHOLDERS. THIS BALANCE IS FUNDAMENTAL TO PROTECTING AND ENHANCING SHAREHOLDER VALUE OVER THE LONG TERM.|
TRANSFORMATION AND DIVERSITY
In terms of transformation in South Africa, the process for agreeing a new Construction Sector Charter following the introduction of the new Codes of Good Practice for BBBEE, is still underway. The Department of Public Enterprises extended the deadline for adopting the new Codes to 31 October 2016, which allows the Group to be rated in the year under review according to the current Construction Sector Charter. On this basis, the Group maintained its level 2 BBBEE contributor status with a score of 85,37% (FY15: 86,16%). Given the Group’s drop in BBBEE contributor status to level 5 against the Department of Trade and Industry’s new BBBEE Codes, the Board recognises the need to accelerate the Group’s transformation progress, especially as far as employment equity is concerned. Employment equity remained below set targets, with a charter score of 29,56% (FY15: 34,29%). While it is a reality that the constraints on growth and employment affect the ability to transform, we are intent on ensuring that the South African operations accelerate their progress in transformation as a commercial imperative.
The operations outside of South Africa endeavour to meet gender and diversity targets to create a workforce profile that reflects the demographics and talent of the communities in which they work.
EMPLOYER OF CHOICE
The Group’s people management practices support a high-performance culture that offers employees professional and intellectual challenges, as well as continuous learning and development opportunities. The Group’s comprehensive policies and procedures, which include a Code of Conduct and Statement of Business Principles, ensure consistency across the Group and its performance management and development processes are designed to align performance with the purpose, vision, values and strategic goals of the Group.
To benchmark its effectiveness in this regard, and to inform the Group’s intention to be an employer of choice in all its markets, the business platforms participate in various employee engagement surveys. The South African operations and RUC Cementation in Australia participated in the Deloitte Best Company to Work For survey in the year, which showed that 88% of employees rate these companies as an employer of choice.
BOARD OF DIRECTORS
At Board level, our focus on ensuring that we have the requisite skills and experience to support the Group’s strategy and growth aspirations, has led to a number of non-executive director appointments, in preparation for the retirement of two of our non-executive directors. Although this swelled the Board to beyond its optimal size, this was a function of our succession planning and allowed for an effective hand-over period between retiring and new non-executive directors.
Michael McMahon retires from the Board with effect from 30 September 2016, and Royden Vice with effect from 30 November 2016, having reached the mandatory retirement age. I convey my thanks to Michael and Royden for their immeasurable contribution to the Group’s development over many years. Suresh Kana, Xolani Mkhwanazi and Keith Spence were appointed to the Board in July, August and November 2015, respectively. These directors bring a wealth of business expertise and international experience to the Board.
On behalf of the Board, I extend my appreciation to our stakeholders for their support during this watershed year. Despite the challenges we will no doubt face in the year ahead, we recognise that our continued progress towards the Group’s New Strategic Future is contingent on maintaining your trust and support.