POWER, INDUSTRIAL & WATER

MIKE DA COSTA

STEVE HARRISON Platform CEO

UNCERTAIN TIMING OF PROJECT

AWARDS IN OUR MARKETS NECESSITATED

A FURTHER REDUCTION OF OVERHEAD

COSTS IN ANTICIPATION OF LOWER

REVENUE.THE RESTRUCTURING WAS

UNDERTAKEN WITHOUT COMPROMISING THE

PLATFORM’S CAPACITY TO PURSUE OUR

STRATEGIC OBJECTIVESAND RESPOND TO

BRIGHTER PROSPECTS IN OUR MARKETS.

The platform provides complete project life cycle services from development to engineering, procurement, construction, operations and maintenance in the power (including transmission and distribution), water, oil and gas, petrochemical, resources and industrial markets; primarily in South Africa, but also in sub- Saharan Africa. A new business focused on commercial and industrial scale photovoltaics was established in FY2021.

OUR BUSINESSES

PERFORMANCE OVERVIEW

During the year, the platform concluded its work on the Kusile power station, subject to the delivery of client supplied material and specified improvements to the plant. This ended our participation in the construction of the mega-scale Medupi and Kusile power station projects over the last 12 years.

Murray & Roberts Power & Energy continues to perform maintenance and outage works at Medupi and Kusile, with ongoing and repeat maintenance packages being awarded. Eskom awarded the business a mill maintenance contract at the Medupi power station, which was extended due to Engineered Excellence in delivery.

Securing replacement work continues to be a challenge, with no projects of significant scale awarded during the last few years. The South African government indicated that a considerable increase in infrastructure investment would be key to igniting the economy in the wake of the COVID-19 pandemic, but this did not materialise during FY2021.

Revenue decreased to R1,0 billion (FY2020: R2,0 billion) and order book increased marginally to R0,5 billion (FY2020: R0,4 billion). Given the platform's relatively low revenue base, losses on two, now completed projects, and lack of project awards of scale during the year, the platform recorded an operating loss of R175 million (FY2020: R44 million loss).

We adjusted shift systems and workforce arrangements on our projects to meet COVID-19 protocols, which required careful replanning of daily operations. The mitigation of COVID-19 health risks, which meant a reduction in the number of employees onsite, impacted the progress of some projects.

International travel restrictions limited the mobilisation of specialist artisans, which necessitated the use of a less-skilled and smaller local resource pool. This caused significant delays at the Sappi Saiccor mill project, which were exacerbated by active community influence on the recruitment of employees.

This caused further disruption and highlights the escalating expectations of local participation in the delivery of projects

Wade Walker Solar was established during the year to pursue industrial PV opportunities up to 10MW in scale. This business provides project development, EPC as well as equipment supply services and secured its first projects, albeit at a small scale. With the increase in the self-generation cap from 1MW to 100MW, we are likely to see more opportunity in the power generation sector.

Murray & Roberts Water, in consortium with Lektratek Water Technology, was awarded its first contract by the City of Cape Town. The scope of work is to design and build the mechanical and electrical works for the refurbishment of the Athlone Wastewater Treatment Works. Mobilisation has been delayed due to an objection raised to the tender evaluation process, but we do not expect this to affect the award. This award is significant as it positions the business for similar projects planned by the City of Cape Town in the first half of FY2022.

Murray & Roberts Water is relocating its Organica water treatment demonstration plant from eThekwini Municipality to the V&A Waterfront in Cape Town to supply water on a 10-year contract. This is a significant breakthrough, as it will be the first commercialised application of the Organica Water technology in South Africa.

In Mozambique, despite the potential opportunity for the platform to work on the Rovuma LNG projects, we suspended operations indefinitely due to political instability and security concerns in the northernmost parts of the country. Consequently, we closed Murray & Roberts Mozambique Limitada. We also suspended operations in our chemicals supply business, Aquamarine Water, due to a lack of opportunity in the local market, and goodwill in the business was impaired.

The platform's safety performance deteriorated due to safety challenges encountered at our new acquisition, OptiPower Projects. Our LTIFR deteriorated to 1.01 (FY2020: 0.16) and TRCR to 3.71 (FY2020: 1.12).

MARKET OPPORTUNITY

The platform's market scope aligns with the global imperative to transition to a more sustainable environment.

The platform will continue to support maintenance work on Eskom's ageing coal fleet, as these power stations remain critical to the country's socioeconomic development. However, we will not pursue coal power projects outside of South Africa and have made a fundamental shift towards renewable energy projects, having provided balance of plant electrical works on wind farms and solar PV installations during the financial year. In FY2022, our focus on renewable energy project development will include a minor equity stake in a portfolio of solar projects under development.

Low levels of electrification across sub-Saharan Africa create the need for cross-border connectivity to enable power trade between countries, driving the development of transmission and substation infrastructure. This supports our expectation of significant longer-term potential for OptiPower Projects, considering its capability in high and medium voltage transmission, as well as the distribution and substation sectors.

Green shoots are showing in the South African power, resources and energy sectors. The COVID-19 pandemic has acted as a catalyst for expedited structural reforms and policy certainty, which is essential to encourage public, private and foreign investment. The momentum is apparent in the promulgation of the Integrated Resource Plan, opening the door for procurement on the RMPP programme and Bid Window 5 of the REIPPP programme, as well as other power generating technologies including gas and coal. Associated projects are expected to come to market in calendar year 2021 and 2022.

The water sector in South Africa remains inactive and currently presents limited opportunity. However, at the Sustainable Development Investment Symposium earlier this year, 42 new water projects were identified, including several wastewater treatment plants. This bodes well for project opportunities over the medium to long term.

Of the new projects pledged at the symposium, many have now been gazetted in terms of the new Infrastructure Development Act. These include national water and sanitation projects totalling R106 billion. With the country's ailing water infrastructure and increasing threat of water shortages, we are confident that our Organica Water technology will be utilised on some of these projects.

The mining sector is showing encouraging signs of near-term investment, with prospects for construction opportunities for IPPs expected to come to market in the next six to 12 months.

STRATEGY

In view of these opportunities, we have developed a strategy to ensure the sustainability and growth of the platform.

KEY IMPERATIVES TO ACHIEVE PLATFORM STABILITY AND SUSTAINABILITY IN FY2022 TO FY2024:

01
SUCCESSFUL COMPLETION OF EXISTING PROJECTS

1Increase oversight to ensure projects are closed out without distress.


2Focus on operational delivery and commercial oversight and maintain HSE standards and targets.


3Maximise profit potential.

02
CONVERSION OF NEAR ORDERS

1Strengthen client engagement and negotiation.


2Leverage Group facilitation.

03
SUCCESSFUL DELIVERY OF NEW PROJECTS

1Deliver EBIT targets.


2Leverage projects for extension of work and new contracts.

04
INTENSIFY BUSINESS DEVELOPMENT

Focus on target pipeline opportunities. Develop strong win strategy and ensure opportunity to bid.

FY2022 – FY2024 OPPORTUNITIES

Murray & Roberts Power & Energy

  • Eskom service contracts
  • Selected IPP developments
  • Mining sector SMPEI
  • Petroleum storage terminals

Murray & Roberts Water

  • City of Cape Town drought resilience projects
  • PPP eThekwini Municipality

OptiPower Projects

  • REIPPP Round 5 IPPs
  • Battery Energy Storage programme
  • Eskom transmission lines

Wade Walker Solar

  • Increase market share through full value chain.
05
DIVERSIFY THE PLATFORM
  • Diversify into regions outside of South Africa and sub- Saharan Africa and into more secure, predictable markets.
  • Leverage OptiPower Projects to enter transmission and distribution markets.
  • Enter repair and maintenance markets through strategic partnerships.
06
EARLY ENTRY ON STRATEGICPROJECTS
  • Reposition the platform as an EPC provider and developeron strategic projects and regions leveraging Groupcompanies and local and international partners.
07
ORGANISATIONAL OPTIMISATION

1Streamline organisational structure to align with delivery of platform’s strategic focus.


2Appropriate gearing to reduce overheads.


3Integration of OptiPower Projects and Wade Walker into the platform.

08
CLOSE-OUT PLAN FOR LEGAL/COMMERCIAL CLAIMS

1“End-game” strategy in place for claims.


2Dedicated senior executive on legal matters with supporting resources.


3Provide allocations and close out in FY2022 to FY2023.

Our revised management structure is appropriate for the adjusted platform strategy. Business processes are being redesigned to better suit a smaller and more streamlined organisation. A performance management system with KPIs aligned to the platform’s business objectives, as well as personal development plans, will support our new strategy.

OptiPower Projects, acquired in FY2020, is well positioned to benefit from the expected growth in the South African transmission, distribution and substation sectors. Eskom’s transmission and distribution opportunities are substantial, with projects to the value of more than R2 billion under adjudication.

The commencement of the RMIPP programme, the BESS programme and the REIPPP programme, should provide a solid pipeline of project opportunities on electrical balance of plant, substations and high voltage transmission lines, in the short to medium term. Several high voltage transmission line tenders with Eskom were under adjudication at the end of FY2021, along with two smaller near orders in Botswana also approaching award.

Wade Walker Solar is positioned to provide cleaner energy solutions through the development, engineering, procurement and construction of rooftop and ground-mounted PV solar installations in SADC.

Murray & Roberts Water should secure water and wastewater treatment projects as these come to market. The Organica water demonstration plant at the Verulam wastewater plant has confirmed the benefits of this unique wastewater treatment technology and positioned it favourably with scientists and water consultants. Its relocation to the V&A Waterfront in Cape Town will showcase the technology to a broader audience. The Organica Water technology is now being considered for two PPP opportunities, both greenfield wastewater treatment plants, being developed by the eThekwini Municipality.

We continue to develop our capacity and build strategic partnerships with local and international service providers to offer turnkey solutions. A key differentiator in the sub-Saharan Africa market is the ability to offer funded EPC project solutions. Good relationships have been established with project development finance institutions and commercial lenders, and discussions are underway with energy ministries in several sub-Saharan African countries regarding potential projects. However, these project development opportunities will have long gestation periods.

CONTRACTOR OF CHOICE

Engineered Excellence

The platform provides project services to market sectors characterised by complex commercial relationships between clients and contractors, often leading to disputes and litigation. As part of our commitment to differentiating our services through Engineered Excellence, we continue to engage with prospective clients to explore alternative contracting models. These models include alliance-type contracts, which aim for closer cooperation between clients and contractors to align expectations and enhance project outcomes.

Zero Harm

We lost a colleague on the first day of the financial year. Wilfred Moleofi was employed by OptiPower Projects, and we deeply regret his death. We again extend our deepest sympathies to his family and friends.

The COVID-19 pandemic remains a significant risk and procedures, risk assessments, audits, screening and testing protocols are well entrenched.

The MAP programme is fully embedded at all our projects. Sappi Saiccor, Kusile and the Polokwane SO2 Abatement projects all received Zero Harm safety awards in the year under review. An external audit on a sample of the Group's health and safety standards also concluded that the standards were well entrenched across the platform.

Lead indicators such as near-miss reporting and hazard observations will continue to be an area of focus, building on the improvement in reporting during the period. Requirements for the frequency of reporting on projects will be incorporated into employee performance contracts.

All businesses were assessed and achieved ISO 45001, ISO 9001 and ISO 14001 certification. The platform also maintained the prestigious South African Institute of Welding ISO 3834 accreditation.

The health and wellness of our employees remain a priority. Many of our employees make use of our employee wellness service, for assistance with financial counselling, stress and legal advice. The peer educator training programme equips wellness champions with the skills required to effectively engage with employees about their health and wellness.

Digitalisation

Digital applications will be utilised to improve the quality of safety reports, as well as the real-time recording of data to prevent delays in reporting and hazard identification. This will support a more proactive approach to safety management.

EMPLOYER OF CHOICE

Best people practices

It has been a challenging year for talent management due to the rightsizing of the platform in line with declining revenue and a depressed short-term market outlook. Headcount reduced from 1 661 in June 2020 to 1 104 at June 2021. It was not always possible to retain certain important skills, although some employees were appointed in different roles or transferred to projects as a mechanism to maintain our capability.

Several exiting employees were contracted for a limited duration or on flexitime, to provide a thorough handover to those remaining who assumed expanded roles. This model was successful in ensuring a controlled transition.

As part of the rightsizing, a comprehensive talent review across senior and middle management was undertaken to confirm high-potential employees for participation in mentorship, leadership and management development programmes.

The integration of OptiPower Projects into the platform was concluded during the year. Integration involves more than aligning business processes, but more importantly ensures that culture and people practices are aligned.

The pandemic, compounded by the impact of personnel changes, have contributed to high stress levels across our entire workforce. The platform's executive teams maintain Visible Felt Leadership through open engagement with employees.

The power station outage business has developed an efficient recruitment process to manage workforce requirements. Outage projects have short durations with tight delivery schedules and employees with different skillsets are required for various phases of the project. These employees must be efficiently onboarded and demobilised in accordance with the project schedule. Emphasis is placed on supporting local communities and approximately two-thirds of employees working on current outage projects are sourced from these communities.

The platform has established a core group of highly trained artisans and supervisors and we continue to invest in their career development. Employees with limited duration and project-specific employment contracts, supplement this core group to meet fluctuating human resource needs on projects. During the past year, most of our investment in employee development was focused on technical artisan training.

Diversity and inclusion

As the Medupi and Kusile projects come to an end, there has been a significant reduction in employees across all organisational levels. Unfortunately, this downsizing negatively impacted our ability to maintain our employment equity and skills development credentials.

Our diversity aspirations have been revised in line with the restructuring of the platform and the reality of our current business environment. Some 86% of our employees are black and 11% are women. In middle management, 55% of positions are occupied by black employees, and our objective is to increase this representation going forward.

During the year, we spent R2 million on supplier development, surpassing the platform target of R1,8 million. We were particularly pleased to support Handy Helper Agency, a female-owned business, which achieved Services SETA accreditation as a hygiene and cleaning training company.

CORPORATE REPUTATION

Localisation

Localisation is a strategic imperative for the platform. The platform is aligned with and cognisant of the need both at tender and implementation stage to engage and empower local communities with respect to employment training.

The platform makes use of local SMEs and businesses and we work closely with clients, local community forums and leaders in this respect. We continue to support social investment initiatives in the communities that host our projects.

Ethical business practices

Senior management and key employees receive regular training on ethical business practices. These employees are required to sign a declaration that there was no unethical or anti-competitive conduct in the preparation of tenders. A whistle-blower hotline exists for employees to report any unethical behaviour. Independent forensic consultants investigate all cases thoroughly and findings are actioned.

Stakeholder engagement

The strength of our stakeholder relationships has never been more important than now in the midst of the COVID-19 pandemic, where our sustainability rests squarely on our reputation.

The Group's embedded engagement model supports our relationships with clients, employees and other stakeholders. The stakeholder engagement framework holds the platform accountable for stakeholder inclusion in identifying, understanding and responding to sustainability issues and concerns.

PROSPECTS

The imminent unbundling of Eskom should result in the creation of a separate transmission and distribution company in FY2022. Substantial investment is required to improve South Africa's transmission line infrastructure, and several transmission line tenders are under adjudication. The anticipated Generation Connection Capacity Assessment report and the creation of Eskom's new transmission and distribution company should unlock transmission projects and provide a clearer view of medium- to long-term procurement plans.

The infrastructure plan announced by the South African government to stimulate the economy should present substantial opportunity in the medium term, especially in the power sector. The reforms within the Department of Mineral Resources and Eskom, aimed at establishing market- friendly legislation and strategies to open the sector to greater private participation, are encouraging. This is evident in the procurement roadmap outlined in the Integrated Resource Plan, REIPPP Bid Window 5 and the lifting of the self-generation cap from 1MW to 100MW. This is expected to unlock significant investment in new generation capacity in the short to medium term.

Investment in the South African water sector continues to be alarmingly low, considering the need. Limited opportunity exists with the City of Cape Town and other municipalities, considering the required investment in wastewater treatment infrastructure. The Organica Water wastewater treatment technology positions Murray & Roberts Water well for PPP opportunities in wastewater treatment plants.

The platform's sustainability relies largely on macro-economic market conditions in South Africa and, in particular, on Eskom's infrastructure spend, as well as investment in wastewater treatment infrastructure by metropoles and municipalities. Given more favourable prospects than we have seen in recent years, we are cautiously optimistic that the platform will return to profitability in the medium term.

Project delivery
ANGLO PLATINUM: SO2 ABATEMENT PROJECT

This is a pilot project for a series of emissions abatement projects for Anglo Platinum's fleet of processing plants. Murray & Roberts Power & Energy has successfully erected the abatement plant, which reduces SO2 emissions from the ore furnace via a series of ducts, converters and scrubbers. This plant was commissioned and put into operation toward the end of FY2020.

SAPPI: SAICCOR VULINDLELA PROJECT

The project was built to expand the delivery of dissolving pulp, a key component of modern clothing textiles, through the erection of an additional recovery boiler and secondary recovery plant at Sappi's existing Umkomaas facility. The new plant is being erected without disruption to current operations. Mechanical works are complete, and the project will enter commissioning during the third quarter of calendar year 2021.

This project was directly impacted by the COVID-19 pandemic and related travel restrictions, as well as community related disruption.

GOLDEN VALLEY AND EXCELSIOR WIND FARMS

OptiPower Projects delivered the electrical balance of plant, 132kV overhead lines and substation scopes of work for two wind farms - Golden Valley in the Bedford area of the Eastern Cape and Excelsior near Swellendam in the Western Cape. The 32.5MW Excelsior and the 120MW Golden Valley facilities were commissioned and handed over to the client during the year.