Material issues


Material Issues Themes

THEME 1:

EFFECTIVE STRATEGIC DELIVERY

Context

  • A clear business model and strategy, and a focused portfolio of quality assets, positions the Group well for sustainable growth.
  • Strong leadership at Group, platform and business level is fundamental to achieving our strategic objectives, necessitating ongoing succession planning.
  • Our performance management system ensures accountability for team and individual objectives, and aligns these to our strategic objectives through the integrated performance dimensions on which leadership is remunerated.
  • A strategic focus on global natural resources market sectors exposes the Group to cyclicality. As business platforms expand their geographic scope and ability to deliver services across the full project life cycle, this diversification protects profitability.

PG
34
Group chief executive’s and financial director’s report

 

PG
44
Summarised business platform overviews

ONLINE Our employees, transformation and local economic development report

 

ONLINE Full business platform reviews

MATERIAL ISSUE

STRONG LEADERSHIP CAPABILITY

SUB-ISSUE: ONGOING PERFORMANCE AND SUCCESSION MANAGEMENT

GROUP ASPECT

  • Appointed Suresh Kana, a Murray & Roberts Board member, as chairman of the Board.
  • Appointed Daniël Grobler as Group financial director from within the Group.
  • Clarified the governance framework and provided strategic roadmaps for the business platforms, with platform CEOs and CFOs responsible for performance.
  • Recruited, selected and appointed new non-executive directors to succeed retiring directors.

OIL & GAS

  • Robert Radici promoted to the executive committee as head of commercial and risk.
  • Strengthened the business development function, considering its critical importance in growing the order book.
  • Delivered bespoke training interventions for leadership, designed for small group participation.

UNDERGROUND MINING

  • Justin Oleson, previously president of Cementation USA, appointed president of the Americas, effective July 2017, succeeding Roy Slack.
  • Search for new platform CEO underway, to succeed Orrie Fenn who retires end-June 2018.

POWER & WATER

  • Further strengthened the executive committee by appointing new functional executives in human resources, business development, commercial, estimating and procurement.
  • Hired a new country manager in Mozambique.
  • Conducted a talent review to identify potential successors for the executive committee.
  • Reviewed middle management and identified the top 20 high potential individuals.

MATERIAL ISSUE

ACHIEVE BUSINESS MODEL MATURITY IN ALL PLATFORMS AND OPTIMISE GROWTH POTENTIAL

SUB-ISSUE: ACCELERATE PROJECT LIFE CYCLE DIVERSIFICATION

GROUP ASPECT

  • Increased the Group’s investment in Bombela to 50% (diversifying across the project life cycle).
  • Achieve business plan targets with greater focus on organic growth.
  • Expand further into higher margin segments including project development, engineering, de/commissioning, operations & maintenance.
  • Grow niche capabilities of bolt-on acquisitions.

OIL & GAS

  • Grow specialist engineering and asset support capabilities (operations & maintenance), as well as de/commissioning.
  • Secure brownfields opportunities in Australia (specifically) and internationally from FY2019.
  • Focus on organic growth in the bolt-on acquisitions.
  • Maintain positive relationships with clients to secure LNG projects coming onstream in the medium to long term.
  • Explore project life cycle diversification opportunities in complementary markets.

UNDERGROUND MINING

  • Renewed focus on predominantly organic growth, but bolt-on acquisitions will be considered.
  • Focus on growing contract mining portfolio to generate further annuity income.
  • Expand the mine development and engineering service offering.
  • Develop ‘life-of-mine’ relationships with longstanding top and mid-tier mining clients.

POWER & WATER

  • Grow operations, maintenance and shutdown capabilities and business.
  • EPC work in water treatment: borehole, dams and sea.
  • Expand the electrical and instrumentation business offering.
  • Increase business volumes in Aquamarine.
  • Conclude the concession to operate a biomass plant in George, South Africa.

SUB-ISSUE: MANAGE THE CONSTRAINTS TO STRATEGIC DELIVERY AND POSITION BUSINESSES FOR BEST OPPORTUNITIES

GROUP ASPECT

  • Target appropriate gearing and re-invest excess cash in capex and acquisitions to support sustainable growth.
  • Develop client relationships to position the Group to access opportunities as they come to market.
  • Establish a permanent presence and capacity in regions with major opportunities in selected natural resources market segments.
  • Support clients on an ad hoc basis in regions where the Group does not have a permanent presence.

OIL & GAS

  • Identify and conclude the appropriate EPC acquisition in the USA to access LNG projects in the region over the medium term.
  • Secure gas-to-power, marine and water opportunities in Asia, Africa and North America.
  • Secure LNG greenfields projects in PNG and South East Asia.
  • Open an office in Indonesia.
  • Opened an office in Sydney to pursue selected public infrastructure opportunities on the east coast of Australia.

UNDERGROUND MINING

  • Capitalise on the upturn in the commodity cycle.
  • Manage potential resource constraints to position the platform for sector upcycle growth.
  • Capital expenditure required in FY2018 to deliver secured opportunities.
  • Pursue opportunities to grow organically in Australia, Canada, Indonesia, South America and Africa.
  • Explore unrealised opportunities in Mongolia, a market re-entered in FY2017.
  • Grow the Africa footprint and develop the Asia Pacific Rim market.

POWER & WATER

  • Focus on developing and building power generation plants, water treatment services and acid mine drainage solutions in sub-Saharan Africa.
  • Capitalise on the increasing demand for solutions to mitigate the environmental impact of traditional natural resource use.
  • Business development sectors identified: industrial (sugar and paper sectors) power and health sector for water.
  • Actively engage clients developing significant projects.
  • Manage public sector risk in Africa.

MATERIAL ISSUE

ACHIEVE RERATING OF MARKET VALUE

GROUP ASPECT LIMITED

  • Transferred JSE Limited sub-sector listing from ‘Heavy Construction’ to ‘Diversified Industrials’ in March 2017.
  • Communicate the new Murray & Roberts’ positioning to investment community, including relevant international peer group.
  • Secure support for the strategy from long-term shareholders.
  • Maintain dividend policy.

THEME 2:

COMPETITIVE DIFFERENTIATION

Context

  • The Group’s reputation as a leading contractor is fundamental to strengthening our relationships with clients, securing repeat business and negotiating more favourable contractual terms, all of which support profitability and our ability to achieve our strategy. This requires that we understand what matters most to our clients.
  • Safety performance is a differentiating factor for clients in all our business platforms and informs the tendering price. It also directly impacts our reputation as an employer of choice. Our journey to Zero Harm is supported by a range of programmes focused on continual improvement. We benchmark our safety practices against clients and peers, and implement lessons learnt from incidents and audits. Our businesses carry out self-assessments on Group safety initiatives, and are subjected to independent assurance by internal and external experts. These assessments show a maturing level of compliance.
  • We strive to be an employer of choice in all our markets, which enables us to attract and retain top talent and manage our human capital requirements through the cycle, especially in retaining the capacity needed to win work.
  • Our performance management system assists with identifying development needs, which are satisfied through extensive education and training programmes.
  • Our ability to secure JV and sub-contractor partnerships are critical to accessing local business and we ensure that these partnerships align to our Values and principles, and the high standards we set as a responsible employer and corporate citizen. This ensures excellent project delivery and mitigates risk, particularly in respect of safety. In addition, an important aspect of effective project delivery is strong local management teams that understand the commercial and social imperatives, and cultural nuances in the regions in which we operate.

PG
34
Group chief executive’s and financial director’s report

 

PG
44
Summarised business platform overviews

ONLINE Our employees, transformation and local economic development report

 

ONLINE Full business platform reviews

MATERIAL ISSUE

NON-NEGOTIABLE FOCUS ON ENGINEERED EXCELLENCE

GROUP ASPECT

  • Only one loss-making project across all business platforms (excluding Middle East).
  • Continue to improve project management systems and ensure contracting excellence.

OIL & GAS

  • Business processes and the Pursuit of Excellence culture ensure work is delivered to a high standard, limiting rework and creating opportunities for scope growth and additional income.

UNDERGROUND MINING

  • Continued to drive project management excellence through the Project Management Office.
  • The absence of any loss-making projects in FY2017 is evidence of improved project management capability within Murray & Roberts Cementation.

POWER & WATER

  • Implemented more robust project review governance processes and organisational adjustments to strengthen project delivery.
  • Considerable improvement in project delivery with only one loss-making project.
  • Developed an improved Project Management Framework with Critical Controls Assurance for full implementation in FY2018.

MATERIAL ISSUE

ENSURE EMPLOYEE, CONTRACTOR AND COMMUNITY SAFETY AND MAINTAIN BENCHMARK SAFETY PERFORMANCE

GROUP ASPECT

  • Progress in implementing the MAP Programme.
  • Achieved record-low safety performance with an LTIFR of 0.52 in FY2017.
  • Increased focus on wellness initiatives.

OIL & GAS

  • Clough implemented the MAP Programme across all projects in Australia, and is rolling it out to subsidiary companies globally.
  • Achieved 555 LTI free days up to May 2017.
  • A significant milestone achieved with Zero Harm attained for the first time on Clough’s Woodside Karratha Life Extension project.
  • Developed HSSE Leadership Programme for construction leaders, combining the practical application of risk management processes with behavioural safety principles.
  • Continued to implement pre-mobilisation physical assessments, with all project personnel completing detailed medical assessments.

UNDERGROUND MINING

  • Implemented a five-year safety strategy in CCI.
  • Achieved 20 months without a fatality.
  • Continued to implement the MAP Programme, with the injury severity index and number of high potential incidents decreasing compared to FY2016.

POWER & WATER

  • Improved health and safety performance.
  • Implemented the MAP Programme across the power programme with good results.
  • Developing an enhanced Behaviour Based Safety system with Sasol Group Technology.

MATERIAL ISSUE

BECOME AN EMPLOYER OF CHOICE THROUGH BEST PEOPLE PRACTICES

GROUP ASPECT

  • R144 million (FY2016: R121 million) spent on training and development.
  • Continue to align training and development to support excellence in project delivery.

OIL & GAS

  • The need to develop employees in supervisory roles, has resulted in the development of a Construction Management Academy.
  • Reinvigorated the Graduate Programme with an intake of five new graduates.

UNDERGROUND MINING

  • Ensure that human capital resources are sufficient to take advantage of the upturn.
  • Skills development at Murray & Roberts Cementation is delivered through the world-class training facility at Bentley Park, Carletonville, which is accredited by both the Mining Qualifications Authority and British Safety Council.
  • Cementation Canada recognised six times as one of Canada’s Top 100 Employers by Mediacorp, and twice as one of The Financial Post’s Ten Best Companies to Work For.

POWER & WATER

  • Continued to support a successful bursar and graduate programme, which makes young engineers available to the business.
  • A structured internship programme is offered in finance, procurement and human resources.

MATERIAL ISSUE

SECURE APPROPRIATE/REQUIRED PARTNERSHIPS AND DEEPEN SPECIALIST COMPETENCIES

GROUP ASPECT

  • Enter appropriate JVs and partnerships with technology providers.
  • Enter JVs with local contractors to access opportunities in target markets and geographies.
  • Employ new technologies to support differentiated service offerings.

OIL & GAS

  • Maintain strong relationships with JV partners in Australia, with the BAM Clough and the Clough AMEC JVs continuing to deliver value.
  • Continue to work in collaboration with the Underground Mining platform to pursue brownfields EPC opportunities on the Oyu Tolgoi Expansion Project in Mongolia.

UNDERGROUND MINING

  • RUC Cementation Mining introduced real-time tracking of assets which improves decision-making and is providing business development opportunities.
  • CCI is developing a full-scale prototype that uses injection hoisting technology (transporting ore to the surface using a pump-driven pipeline loop).
  • Continue to invest in trackless mechanised mining and other automated mining technologies.
  • Murray & Roberts Cementation is developing rapid access development capability, as well as enhanced systems and skills.

POWER & WATER

  • Leverage agreements with technology partners in areas of desalination and water treatment, which are a differentiator in this market sector.
  • Demonstrate the water treatment technology with a view to building a full-scale water treatment plant in the long term.
  • Signed a strategic cooperation agreement with Shanghai Electric in June 2017, which develops equipment relating to power generation, power transmission and distribution, electromechanical integration, transport and environmental compliance.
  • Explore industrial water opportunities through strategic partnerships with Hyflux, Organica and Osmoflo.
“WE BENCHMARK OUR
SAFETY PRACTICES
AGAINST CLIENTS AND
PEERS AND IMPLEMENT
LESSONS LEARNT FROM
INCIDENTS AND AUDITS.

THEME 3:

LOCAL RELEVANCE

Context

  • As the Group grows its multinational operating base, it is essential that we retain our commercial and social licences to operate in each territory in which we have a presence.
  • The Group’s leadership continues to ensure compliance with the applicable national regulatory frameworks.
  • In South Africa, accelerating our transformation performance is a priority, notwithstanding the constraints of low growth on our ability to drive employment equity.
  • Our contribution as a fair employer to the societies we serve, especially in developing countries, is important in driving socio-economic development and mitigating levels of unemployment and inequality.
  • The Group develops local leadership and skills, and enters into JVs with local contractors in compliance with local contracting conventions.
  • Ethical business practices are of great importance to the Group’s reputation and ability to win work. The Group mitigates the risk of unethical behaviour through its Code of Conduct, internal audit, oversight by a compliance officer and an anonymous fraud reporting and investigating function.

PG
34
Group chief executive’s and financial director’s report

 

PG
44
Summarised business platform overviews

WE BENCHMARK OUR
SAFETY PRACTICES
AGAINST CLIENTS AND
PEERS AND IMPLEMENT
LESSONS LEARNT FROM
INCIDENTS AND AUDITSONLINE
Full business platform reviews
ONLINE
Safety, health and wellness report
ONLINE
Our employees, transformation and local economic development report
ONLINE
Ethical performance
ONLINE
Community development report


MATERIAL ISSUE

ENGAGE, UNDERSTAND AND MANAGE LOCAL DYNAMICS

GROUP ASPECT

  • Mitigate risks relating to:
    • Labour relations.
    • Commercial risk (jurisdictional).
    • Compliance to national laws, standards and codes.
    • Changes to legal requirements.
    • Corruption.

OIL & GAS

  • Clough sits on the Employee Relations – Industrial Relations Policy groups supporting both clients and their service companies.
  • Prioritised direct engagements with labour to resolve workforce matters. This has proven successful, with no projects impacted by industrial action.
  • Diversity initiatives, specifically focused on indigenous engagement, have been implemented at Clough and include a Policy for Indigenous Engagement.

UNDERGROUND MINING

  • Implemented components of the Employee Relations Framework and concluded a threeyear wage agreement with industry unions in South Africa.
  • In Mongolia, RUC Cementation Mining and Clough partnered with a local contracting company to tender on both surface and underground work at Rio Tinto’s Oyu Tolgoi copper mine.
  • Cementation Canada established several partnerships and JVs with First Nation groups in Canada and with local companies in Mexico and certain South American countries.

POWER & WATER

  • Skills transfer and development remain high priority issues for organised labour. Significant investment in training and development is made to build a high performing core group of artisans and supervisors.
  • Instituted a court bid to prevent Eskom from implementing a contract with a Chinese service provider for the Duvha Unit 3 boiler recovery project, which was found to be irregular.

MATERIAL ISSUE

MAINTAIN COMMERCIAL AND SOCIAL LEGITIMACY

GROUP ASPECT

  • Ensure that the following aspects that contribute to our legitimacy and reputation are well managed:
    • Stakeholder management.
    • Local management depth.
    • Employment creation.
    • Diversity relevant to each geography.
    • Social investment.
    • Ethics (Values and contracting principles).

OIL & GAS

  • Scholarships awarded to top engineering students in the Scholar’s Programme.
  • In Australia, a range of polices are being implemented to improve gender diversity.

UNDERGROUND MINING

  • Transformation and diversity are key focus areas in the South African business, which achieved a BBBEE Level 4 rating under the generic codes.
  • 100% of promotions to middle management levels were black (African, Coloured and Indian) employees.

POWER & WATER

  • Achieved a BBBEE Level 3 rating.
  • Transformation is a priority, with an increase in black senior managers from 5% in FY2016 to 18%, including two appointments at executive committee level.
  • The partnership with Raizcorp, a business incubator in Africa, continues to support the development of entrepreneurs in the market.
  • 1 515 learners have been trained on the power programme to date, with 118 learners still undergoing training.

THEME 4:

SUSTAINABLE PROFITABILITY

Context

  • Conditions in FY2017 remained difficult, however we believe that the commodity cycle has turned and that we are moving into a growth phase.
  • We remain responsive to short-term market dynamics, employing tactics that support our profitability and hence our ability to invest in our strategic priorities.
  • The reduction of costs in the corporate office and across our business platforms continues.
  • With margins under increasing pressure, operational excellence in project delivery is essential, and this requires continued investment in productivity and efficiency initiatives.
  • Engineered Excellence is non-negotiable and our focus on contract, risk and project management excellence prevents project losses and margin erosion.
  • Progress has been made in resolving legacy issues and this continues to be a focus. Removing the uncertainty around the settlement of these claims is expected to contribute to the rerating of the Group’s market value over time.
  • Future profitability depends on the size and quality of our order book, which depends on the embedded risk, margin and commercial terms in the projects we secure.

PG
34
Group chief executive’s and financial director’s report

 

PG
44
Summarised business platform overviews

ONLINE Full business platform reviews

MATERIAL ISSUE

MANAGE SHORT-TERM CYCLICAL PRESSURES AND OTHER EXTERNAL FACTORS IMPACTING MARGINS

GROUP ASPECT

  • Remain flexible enough to employ short-term tactics in Oil & Gas and Power & Water, to capture profitable growth opportunities in complementary markets, based on existing competencies and client relationships.

OIL & GAS

  • Employed a business development manager to facilitate selected civil infrastructure development projects in Australia, mitigating against the limited oil and gas opportunities in the short to medium term.
  • Secured its first onshore maintenance project.

UNDERGROUND MINING

  • The major contributor to performance was the platform’s success in securing projects associated with mining companies’ ongoing infrastructure replacement and development spend by mining companies.
  • Maximise higher margin raise boring projects.
  • Enhance commercial and project management skills to protect margins.

POWER & WATER

  • Access downstream opportunities in oil and gas.
  • Committed to securing an order book to replace work on Medupi and Kusile, expected to be substantially completed in FY2019.
  • Obtained preferred bidder status on the George Biomass project, an important achievement as this comprises full project life cycle participation.

MATERIAL ISSUE

MANAGE COSTS AND PROCESS EFFICIENCIES

GROUP ASPECT

  • Continue to streamline the corporate office costs and optimise capacity requirements.
  • Leverage information systems to drive operating efficiencies.

OIL & GAS

  • Enterprise and business risks are actively reviewed and the progress of mitigation actions regularly monitored.
  • Continued to reduce the cost base to preserve gross margins and remain cost competitive in pursuing smaller brownfields and maintenance project opportunities.

UNDERGROUND MINING

  • Re-engineer the overhead structure in South Africa.
  • Manage the depreciation of idle equipment.

POWER & WATER

  • Implemented more robust governance processes with continuing executive oversight on project performance and cost reviews.
  • Reduced overhead costs across all projects.
  • Completion of the power programme in the next 18 months will put pressure on overhead costs.

MATERIAL ISSUE

RESOLVE REMAINING LEGACY ISSUES

GROUP ASPECT

  • Participated in the settlement agreement between the South African Government and seven construction companies, to enhance the relationship with the Government in a geography that remains key, particularly for Underground Mining and Power & Water.
  • Settled all Gautrain development period disputes between BCC and GPG.
  • Completion of the Middle East projects and closure of office by June 2018.
  • Resolve the Dubai Airport claim by May 2018, which is expected to realise future value.
  • Manage retained liabilities following the disposal of the Southern African Infrastructure & Building platform. These liabilities have been provided for and include an opencast mining project for Lonmin and the Grayston temporary works collapse.
  • Divest from Genrec, the only remaining manufacturing business.

POWER & WATER

  • Closed out FY2015/16 legacy projects, with one loss-making project remaining.

MATERIAL ISSUE

INCREASE THE SIZE AND QUALITY OF THE ORDER BOOK

GROUP ASPECT

  • Quality of the order book has improved due to rigorous contracting and risk management.
  • Order book size negatively impacted by deferred or delayed projects.
  • Acquire a full or partial share of an EPC company in the USA to provide access to gas opportunities in North America.

OIL & GAS

  • The LNG market is expected to remain oversupplied until 2022, impacting recovery.
  • Complementary markets such as Australia’s mining and infrastructure markets present significant opportunities.
  • Clough’s strong track record in project delivery will enable it to successfully pursue new opportunities.
  • East coast state governments in Australia are developing many large infrastructure projects. Clough is positioned to pursue selected opportunities and has developed partnering strategies for delivering these projects.

UNDERGROUND MINING

  • Market indicators show that the commodity cycle has bottomed out and demand for commodities is anticipated to grow in the short term.
  • The platform is positioned to take advantage of the large investment pipeline of underground mining projects in countries and regions where current mining activity is high. This is projected to increase in the future.
  • Substantial scope for organic growth will come from mining companies’ ongoing spend in infrastructure replacement to sustain their operations and increased greenfields expansion to meet future demand.

POWER & WATER

  • The platform is positioned to secure work in coal, gas-to-power and solar projects.
  • Investment in the oil and gas operation at Secunda, and recent project delivery success, together with HSE initiatives, have positioned the platform as an important service provider to Sasol.
  • In the water sector, opportunity is expected from the wastewater treatment sub-sector due to increasing pressure to upgrade dysfunctional wastewater treatment plants and to reuse treated effluent.
  • Growth is expected in the industrial sector as companies move to secure water supply and reduce costs through reuse and recycling initiatives.