The Group’s economic future is global and diverse, with strong prospects for meaningful growth. Murray & Roberts is well positioned to enable and optimise the capital investments that corporations, governments and institutions will need to undertake in order to support sustainable human development, as the world emerges from the COVID-19 crisis. Our strategic choices will be framed by our Purpose, supporting sustainable human development, as we continue to pursue opportunities for growth and shareholder value creation.
Murray & Roberts is emerging from a decade that saw it navigating challenging economic conditions, ranging from the impact of the 2014 oil price crash to the current COVID-19 pandemic, as well as several complex legacy issues such as its exit from the Middle East. The growing prospects in the Group’s international markets will largely determine the Group’s future value for all stakeholders. However, these prospects contrast with dark times for our home country, where images of destruction, anger and desperation filled our streets just two months ago. It was a sombre moment for South Africa and sober reflection is needed on how we got to this point and how we move forward to create a vibrant, growing and inclusive economy.
As a multinational organisation, our exposure to the threat of local social instability is contained. This does not change the fact that our home is in South Africa, as is our allegiance to its fragile but remarkably resilient democratic project. Although our domestic operations are expected to contribute only a minority share of Group revenue in the medium term, mainly attributable to our South African mining business, better earnings from our domestic Power, Industrial & Water business platform remain a feature of our risk/return decisions.
At this worrying time, we take heart from communities of people, young and old, reporting out of their sense of duty to clean up the damage to public facilities and retail infrastructure on which many rely for prosperity. They remind us that South Africans are a resilient and peace-loving nation, and most are committed to restoration and redevelopment. A long period of discontent, due to weak governance and blatant misconduct have challenged our constitutional order, with its dual emphasis on human rights and the rule of law. We are relieved that it is holding firm.
However, restoring the legitimacy of our system of governance and the state that capacitates it, is now critical. As a country, we must accelerate the restructuring of the economy for equity and productivity and include many more people, especially the youth, into gainful economic participation; to address marginalisation and its risk to stability. This must start with far bolder and more enabling structural reform and far swifter and more capable implementation.
Now is the time to leverage the improved cooperation between business, government, labour, and civil society that we have seen during the COVID-19 crisis; to get our economy moving, strengthen our institutions of democratic governance and to harness the country’s diverse strength. To position South Africa for viability and recovery, as a capable state and for competitive investment, will require decisive leadership to make the tough decisions and difficult trade-offs that can no longer be avoided.
As our material issues show, strategic maturity is a primary value driver for the Group.View Managing our material issues
In effect, strategic maturity is a measure of coherence – the degree to which our three business platforms align with the Group’s Purpose, strategy and culture. As discussed in their report, our Group chief executive and financial director assert that the strategic maturity of our business platforms underpins credible expectations for more significant and sustainable earnings growth in the years ahead.View Group chief executive and financial director’s report
The Board shares our executive team’s confidence. The size and quality of the Group’s order book reflects positive prospects for our Energy, Resources & Infrastructure and Mining platforms. Although fixed capital investment cycles in their market sectors have been disrupted by COVID-19, the upswing in many commodity prices, which looks to be enduring, the emphasis on infrastructure-led economic recovery and the decarbonisation of the global economy, provide significant opportunities for the Group.
The need for significantly improved socioeconomic, environmental and governance outcomes are being factored into the capital allocation decisions of the world’s institutions, governments, lenders and investors. It is gratifying to reflect on how well positioned the Group is to optimise such capital commitments. Our market focus includes sectors that more conscious capital investment will favour in advancing sustainable human development, as the world seeks to address severe socioeconomic and ecological imbalances.
Our Power, Industrial & Water platform, however, has suffered the consequence of years of under-investment in fixed capital formation in South Africa. Its viability remains largely in the hands of the public sector, if South Africa’s economic recovery stimulus is to be channelled through state-owned enterprises and investment in public infrastructure projects. However, public private partnerships have been slow to launch and poor procurement practices continue to hamper progress. This is despite the well-documented weakness of the state power utility, Eskom, and its risk to economic development, as well as public sector sluggishness in embracing innovative private sector solutions to fix our failing water infrastructure.
After mandating executive management to assess the earnings potential of this platform according to various scenarios, the Board resolved to retain this business and endorsed the platform’s medium-term business plan. This decision was based on indications of improving prospects in the South African power, water and energy sectors. The water sector continues to present limited opportunity, but the ever-increasing threat of water shortages should galvanise a more decisive and imminent response. We will review the platform’s viability on an annual basis, cognisant of our duty to protect and grow shareholder value in return for the capital they entrust to us.
Our majority shareholder, ATON still owns approximately 44% of the issued ordinary shares in Murray & Roberts, which we believe limits trading liquidity of our shares. The Competition Commission recommended in July 2019 that the 2018/19 proposed acquisition be prohibited.
OUR MARKET FOCUS INCLUDES SECTORS THAT MORE CONSCIOUS CAPITAL INVESTMENT WILL FAVOUR IN ADVANCING SUSTAINABLE HUMAN DEVELOPMENT, AS THE WORLD SEEKS TO ADDRESS SEVERE SOCIOECONOMIC AND ECOLOGICAL IMBALANCES.
The Group’s commitment to supporting the advancement of sustainable human development speaks to the relevance of our market scope and what we do. It also speaks to how we do it, which determines our relevance to our stakeholders.
Sustainable human development is at the centre of the Group’s governance approach; our competitive differentiation in the execution of projects that are safe, efficient, and environmentally benign; our approach as an employer in all our markets; and how we behave as a corporate citizen with international and local responsibilities. As a multinational organisation we work in environments with diverse cultures, needs and expectations. Effectively managing local dynamics and partnering with local service providers improves project delivery and secures the Group’s reputation as a credible global operator and respected multinational. The Group creates value not only for our employees, clients and owners, but also the local companies with whom we work and the communities in which we work.
Any assessment of value creation potential must also include an assessment of corporate culture, which ultimately determines strategic choices and outcomes. The Murray & Roberts culture is tangible; it is rooted in our Values and binds our operations to the philosophy of Engineered Excellence. The Group’s Values, Statement of Business Principles and Code of Conduct guide employees when acting for and on behalf of the Group in the pursuit of our strategic and business objectives. We expect every one of our employees to act within this framework. These pillars are the reference point for our decisions on policy positions, capital allocation, business practices and contracting principles, as well as how we manage performance and set our priorities.
Accessing business opportunities, securing funding and attracting the best people, increasingly demand that our strategic choices serve ESG imperatives. The Group Sustainability Framework conceived and refined over many years, sets clear expectations and its application is tightly governed and mature in most parts of the Group.
We manage ESG with the same ambition as we do everything else: Engineered Excellence, with harm and risk reduction as a priority, and our Values at the centre of our decisions. Our safety record, our standing as a desirable employer, and our care for community wellbeing, are hallmarks of this Group that we are proud of. It is heartening that the next generation of professionals prioritise ESG when they select their employers.
A recent independent benchmark of the Group’s ESG practices showed that we meet, and with some improvements to the measurement and disclosure of our practices, will exceed the global average in ESG performance for our sector. We also compare well to major multinationals within our client base. As international accountability frameworks for reporting are aligned and coalesce around a body of international standards for enterprise value sustainability reporting, we will continue to demonstrate that embracing ESG is very much a feature of who we are as a Group.
Decision-making on ESG matters is not always simple, but we take a considered and pragmatic view to weighing conflicting priorities. In the past year, we formally clarified our position on coal to the market. We will continue to participate in coal mining projects, but only in South Africa, with full cognisance of the increased institutional funding and reputational risk of doing so. Eskom’s dependence on coal-fired power stations, and the South African and regional economies’ reliance on Eskom, make it near impossible to completely withdraw from the local coal mining sector, without creating the potential for unacceptable socioeconomic harm.
Our decision about potential project opportunities in Mozambique illustrates another difficult trade-off. Violent insurgencies forced multinational energy companies to put vast investments on hold in that country’s rich natural gas fields. Those companies were not blind to the risks when they elected to invest in Mozambique and they relied on the promise of good returns on long-term investments to offset the cost of managing those risks. The fact that they, even with all their resources, had to withdraw is chilling. We have chosen not to pursue the opportunities open to us in Mozambique, despite the region’s desperate need for socioeconomic development. We simply cannot subject our employees to the risk of harm that cannot be effectively mitigated or managed.
The Board is cognisant that the unbridled pursuit of opportunities without due consideration of capacity constraints creates risks to project delivery that can be hard to manage. We are aware of the inherent risks of a significant order book, and the compounding risks of large, lump sum projects. To deliver to the standard of Engineered Excellence we set for ourselves, will demand leadership commitment, vigilance, and continuous improvement.
Murray & Roberts recognises that safety is a managed outcome and we will need to be more vigilant than ever to ensure the safety of our employees. As we reported in our previous integrated report, the single fatality which occurred this past year, on the first day of the financial year, was one too many. The Board is confident that the contributing factors have been thoroughly investigated and that appropriate measures have been taken. Even though the Group’s lost time injury frequency rate remains industry leading, fatalities and injuries at work are avoidable and therefore unacceptable. We are comfortable that leadership will continue to invest their best efforts to ensure that Zero Harm to our employees, service providers and communities, even within often challenging project environments, becomes a reality.
We are pleased to report that the Group’s exit from the Middle East is progressing with the sale of the Abu Dhabi and Dubai companies to a UAE-based investment company. Regulatory approval is a prerequisite for the shares to be transferred to the purchaser. Considering the remaining project disputes in each of the two companies, the parties agreed that the consideration for sale would be a nominal amount.
Although the Group will retain certain potential contingent liabilities post the sale of these two companies – which will be appropriately managed – the proposed transaction will significantly reduce the capital required to maintain an office in the UAE.
Quality of leadership is the flywheel of strategic maturity, value creation and corporate culture. The Group has navigated tough times and managed to make significant strategic progress, testament to the depth, calibre and commitment of our Group and platform leadership teams. It is of critical importance to retain and attract high-calibre leaders and managers, to combine their skills into well-rounded management teams and to ensure succession depth. I am particularly pleased that our Group chief executive officer’s term has been extended to August 2024 and that he will lead the Group as it capitalises on new and exciting business opportunities.
I would like to recognise the efforts of our management teams and employees in coping with the impact of the COVID-19 pandemic on our business – it is a business continuity test which I believe we have passed. But the worst impact of the pandemic – the loss of life – could not be entirely prevented. The Board extends our deepest condolences to the teams, families and friends of our 12 Murray & Roberts colleagues who lost their lives to the virus.
The global vaccination campaign has marked a significant turning point in the battle against COVID-19. It is our collective leadership responsibility to encourage all our employees to be vaccinated. Murray & Roberts and our clients facilitate access to the vaccine and we continue to encourage and educate employees on the benefits of being fully vaccinated.
Digital adoption has made a major and ‘forced’ leap forward across the world, however, the nature of our business does not allow the same level of workplace flexibility many other industries could employ. Many among our office-based employees recognised that those colleagues responsible for delivering projects did not have the option to work remotely and it was heartening to see how many of them, in solidarity with their colleagues, chose to return to their offices while observing all required protocols. We mitigated health risks in shared space with adherence to rigorous health protocols and regular communication to maintain operations. In the process, we learned to appreciate the irreplaceable value of interpersonal contact, which will inform our deliberations on the most appropriate workplace model for the future.
An independent assessment during the financial year has again confirmed the Board’s effectiveness.View Board assessment
Noteworthy are that the Board is well constituted, with a suitable balance of relevant skillsets and diverse perspectives. The engagement required to overcome the past years’ challenges strengthened the already strong relationship between the Board and our executive teams. This will serve Murray & Roberts well as we gear up for significantly stronger growth and value creation in the years ahead, which will be contingent on the management of our inherent project risks.
Murray & Roberts exists to engineer and construct infrastructure that improves the lives of people, beyond the duration of the project. Rarely before has the world been in greater need of infrastructure-led growth and sustainable human development than now. COVID-19 has devastated lives and economies around the world. Investment in infrastructure is a proven way to stimulate economic development that can multiply socioeconomic and environmental value throughout economies and across communities.
Our New Strategic Future plan defines the primary drivers of stakeholder value creation for the Group. We need to grow, remain competitive as a contractor and an employer and be known as trustworthy as we align to the global push towards sustainable human development. I am confident that the Group is in a strong position to achieve these aspirations, in answer to our Purpose and as a matter of relevance in the global context in which we are set to thrive.
On behalf of the Board, I convey our thanks to all our stakeholders, specifically our shareholders for their support, and to the Group’s executive teams and employees for their extraordinary commitment to delivering excellence.
I AM CONFIDENT THAT THE GROUP IS IN A STRONG POSITION TO ACHIEVE ITS ASPIRATIONS, IN ANSWER TO OUR PURPOSE AND AS A MATTER OF RELEVANCE IN THE GLOBAL CONTEXT IN WHICH WE ARE SET TO THRIVE.