ANNUAL INTEGRATED REPORT 2012 DIAVIK DIAMOND MINE The Diavik Diamond Mine, owned by Rio Tinto and Harry Winston Diamond Corporation, is located in the Northwest Territories of Canada. Our mining business continues to secure significant contracts globally with major international mining houses, on the strength of its innovative application of new methods and experience in challenging locations.
01 TABLE OF CONTENTS THIS REPORT This year our snapshot of performance is plotted against our material issues. Our consolidated introductory pages bring together relevant information such as risk and opportunity, linking it more tightly to strategy. We have combined the Group chief executive s and financial director s reports. This section provide an integrated assessment of how the Group creates and sustains value for all its stakeholders. The remuneration report details the various enhancements made to the Group s remuneration policy during the year, to further comply with the King III governance principles and best practice. 04/PG 16/PG 30/PG 62/PG 92/PG 124/PG 02 Snapshot of the year GROUP OVERVIEW Strategy for Recovery & Growth 07 Structure & capability 08 Overhead initiatives & management capacity 10 Claims on major projects, cash from operations and sale of discontinued operations 13 Purpose, values & vision 14 Looking to growth LEADERSHIP REVIEW 18 Chairman s statement 20 Group directorate 22 Group chief executive s and financial director s report 28 Group executive GROUP PERFORMANCE REVIEW 34 Stakeholder engagement 36 Social performance 48 Environmental performance 52 Ethical performance 54 Economic performance Financial performance 56 Statement of value created 58 Ten-year financial review 59 Ratios and statistics 60 Segmental information OPERATIONAL PERFORMANCE REVIEW 64 Construction Africa and Middle East 70 Construction Global Underground Mining 76 Construction Australasia Oil & Gas and Minerals 80 Engineering Africa 86 Construction Products Africa GOVERNANCE, RISK & REMUNERATION REVIEW 94 Governance report 98 Risk management report 106 Remuneration report 112 Board committee reports 220/PG 236/PG ANNUAL FINANCIAL STATEMENTS SHAREHOLDERS INFORMATION 220 Notice of annual general meeting 232 Shareholders diary 232 Administration 233 Form of proxy CONTACTS 236 International offices
02 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 SNAPSHOT OF THE YEAR MATERIAL ISSUE 1 SAFETY PERFORMANCE MATERIAL ISSUE 2 RETURN TO PROFITABILITY LTIFR OF 1.14 The lowest rate ever recorded by the Group TOGETHER TO ZERO HARM DuPont safety initiatives implemented at all operations FATALITIES Regrettably sustained four fatalities PROFITABILITY Group more solidly positioned to achieve profitability and returns expected by shareholders ORDER BOOK R45 BILLION Despite termination of Aquarius agreement and de-scoping of power programme CE & FD REPORT CE & FD REPORT STATEMENT OF VALUE CREATED 56/PG SOCIAL PERFORMANCE HEALTH AND SAFETY 37/PG INVESTMENT MARGIN AND ASPIRATION TARGETS 27/PG MATERIAL ISSUE 3 IMPROVED LIQUIDITY MATERIAL ISSUE 4 COMPLETION OF CHALLENGING PROJECTS DEBT RESTRUCTURING New debt package of R4,3 billion (previously R3,4 billion) created better alignment between debt repayment tenure and timing of anticipated proceeds of claims RIGHTS ISSUE Successful conclusion of R2,0 billion oversubscribed rights issue STRONG YEAR-END NET CASH BALANCE Group s net cash position improved to R1,2 billion at 30 June 2012 GPMOF Commitments on Gorgon Pioneer Materials Offloading Facility discharged at a cash outlay of more than R2 billion GAUTRAIN Operating Commencement Date 2 achieved CE & FD REPORT CONSTRUCTION AFRICA AND MIDDLE EAST 64/PG CE & FD REPORT REPORT OF DIRECTORS 129/PG
03 MATERIAL ISSUE 5 REDUCED COMMERCIAL RISK MATERIAL ISSUE 6 ABILITY TO IMPLEMENT STRATEGY MEDUPI AND KUSILE POWER STATIONS Resolution of major commercial issues with Eskom and Hitachi GPMOF ARBITRATION UNDERWAY Favourable ruling on first three disputes SUCCESSFUL IMPLEMENTATION OF RECOVERY PROCESS LARGELY COMPLETE Growth strategy formulated and approved by the Board in June 2012 RETURN TO PROFITABILITY AS SOON AS PRACTICALLY POSSIBLE ALIGNING PORTFOLIO OF BUSINESSES WITH MARKET SEGMENTS AND GEOGRAPHY Expanding offshore revenue base CE & FD REPORT CHAIRMAN S REVIEW 18/PG CONSTRUCTION AFRICA AND MIDDLE EAST 64/PG CE & FD REPORT MATERIAL ISSUE 7 ABILITY TO ATTRACT, DEVELOP AND RETAIN TOP TALENT EXECUTIVE REMUNERATION LINKED TO STRINGENT PERFORMANCE CONDITIONS, ENSURING GREATER ALIGNMENT WITH SHAREHOLDERS EXPECTATIONS R133 million spent globally on training Increased focus on leadership development CE & FD REPORT MATERIAL ISSUE 8 ECONOMIC TRANSFORMATION IN THE SOUTH AFRICAN CONTEXT BROAD-BASED BLACK ECONOMIC EMPOWERMENT LEVEL 3 contributor status maintained Preferential procurement as a percentage of total procurement spend increased to 68% CORPORATE SOCIAL INVESTMENT SPEND OF R14 MILLION SOCIAL PERFORMANCE OUR EMPLOYEES 39/PG SOCIAL PERFORMANCE COMMUNITY DEVELOPMENT 45/PG SOCIAL PERFORMANCE TRANSFORMATION AND LOCAL ECONOMIC DEVELOPMENT 42/PG REMUNERATION REPORT 106/PG SOCIAL PERFORMANCE COMMUNITY DEVELOPMENT 45/PG
04 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 MEDUPI POWER STATION Medupi s Boiler 6 was hydraulically tested in June 2012 and was prepared for its chemical clean during August. The first fire of Boiler 6 is scheduled to take place towards the end of 2012. This is a test fire of the boiler with oil, to be followed by the initial full fire with pulverised coal. Despite the many potential hazards involved in such mega projects, Murray & Roberts Projects has passed the mark of three million hours worked without any lost time injuries at Medupi and Kusile.
05 SHAREHOLDERS INFORMATION GOVERNANCE, RISK & REMUNERATION REVIEW ANNUAL FINANCIAL STATEMENTS OPERATIONAL PERFORMANCE REVIEW GROUP PERFORMANCE REVIEW LEADERSHIP REVIEW GROUP OVERVIEW GROUP OVERVIEW Strategy for Recovery & Growth 07 Structure & capability 08 Overhead initiatives & management capacity Claims on major projects, cash from operations 10 and sale of discontinued operations 13 Purpose, values & vision 14 Looking to growth
06 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 STRATEGY FOR RECOVERY & GROWTH RE-ORGANISE AND RE-ENERGISE CHANGES TO BUSINESS AREAS STRENGTHEN OPERATIONAL LEADERSHIP AND OPERATIONAL FOCUS REDUCE OVERHEADS IMPROVE LIQUIDITY AND RESUME DIVIDEND PAYMENT CASH FROM OPERATIONS CLAIMS ON MAJOR PROJECTS SALE OF DISCONTINUED OPERATIONS RE-ALIGN MURRAY & ROBERTS PURPOSE VISION VALUES 01 CONSTRUCTION AFRICA AND MIDDLE EAST 02 64/PG 70/PG CONSTRUCTION GLOBAL UNDERGROUND MINING DEVELOP GROWTH STRATEGY AFRICA ENGAGEMENT STRATEGY GROWTH THROUGH ACQUISITION CLOUGH STRATEGY AFRICA // MIDDLE EAST Construction Africa and Middle East has participated in some of the largest and most significant construction projects in the two regions. These include the Gautrain Rapid Rail Link and Cape Town Stadium in South Africa, as well as the Burj al Arab Hotel and Dubai International Airport in the Middle East. 22% OF GROUP TURNOVER IN THE 2012 FINANCIAL YEAR. COMPANIES MURRAY & ROBERTS CONSTRUCTION MURRAY & ROBERTS MARINE MURRAY & ROBERTS MIDDLE EAST MURRAY & ROBERTS CONCESSIONS TOLCON SEGMENTS Metals & minerals // Industrial // Infrastructure // Building VALUE CHAIN Project development and design Planning and engineering Construction works Maintenance and refurbishment Operations and facility management AFRICA // AUSTRALASIA // AMERICAS Construction Global Underground Mining develops underground mine infrastructure. Its clients commodity exposure include gold, copper, diamonds, platinum and various other minerals. 28% OF GROUP TURNOVER IN THE 2012 FINANCIAL YEAR. COMPANIES MURRAY & ROBERTS CEMENTATION CEMENTATION CANADA & USA RUC CEMENTATION CEMENTATION SUDAMÉRICA SEGMENTS Metals & minerals VALUE CHAIN Planning and engineering Construction works Operations and facility management
07 STRUCTURE & CAPABILITY THE BUSINESSES HAVE BEEN SUCCESSFULLY REORGANISED INTO FIVE OPERATING PLATFORMS, EACH WITH A CLEARLY DEFINED GEOGRAPHIC, SEGMENTAL AND VALUE CHAIN FOCUS GROUP OVERVIEW LEADERSHIP REVIEW GROUP PERFORMANCE REVIEW OPERATIONAL PERFORMANCE REVIEW 03 CONSTRUCTION AUSTRALASIA OIL & GAS AND MINERALS AFRICA // SOUTHEAST ASIA // AUSTRALASIA Construction Australasia Oil & Gas and Minerals consists of the Group s direct (62%) investment in Clough and its indirect investment in Forge Group Limited. Clough is an integrated engineering, procurement and construction contractor focused on oil and gas in Australia and Southeast Asia. Forge provides engineering and construction services to the Australian mining and minerals-processing sectors. 24% OF GROUP TURNOVER IN THE 2012 FINANCIAL YEAR. COMPANIES CLOUGH FORGE SEGMENTS Metals & minerals // Industrial (oil and gas) VALUE CHAIN Planning and engineering Construction works Maintenance and refurbishment 04 05 76/PG 80/PG 86/PG ENGINEERING AFRICA AFRICA Engineering Africa, which is focused on engineering, procurement and construction management projects, is playing a major role in building two of the world s largest coal-fired power stations, Eskom s Medupi and Kusile. 15% OF GROUP TURNOVER IN THE 2012 FINANCIAL YEAR. COMPANIES MURRAY & ROBERTS PROJECTS WADE WALKER CONCOR ENGINEERING GENREC SEGMENTS Metals & minerals // Industrial VALUE CHAIN Project development and design Planning and engineering Construction works Maintenance and refurbishment CONSTRUCTION PRODUCTS AFRICA AFRICA Construction Products Africa consists of a number of companies that manufacture and supply a range of construction products. These include asphalt, steel piping, manufactured concrete products, building and paving cement and clay bricks. It also assembles locomotives and passenger rail cars. 11% OF GROUP TURNOVER IN THE 2012 FINANCIAL YEAR. COMPANIES HALL LONGMORE MURRAY & ROBERTS BUILDING PRODUCTS MUCH ASPHALT ROCLA UCW SEGMENTS Metals & minerals // Industrial // Infrastructure // Building VALUE CHAIN Construction products GOVERNANCE, RISK & REMUNERATION REVIEW ANNUAL FINANCIAL STATEMENTS SHAREHOLDERS INFORMATION
08 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 STRATEGY FOR RECOVERY & GROWTH CONTINUED RE-ORGANISE AND RE-ENERGISE CHANGES TO BUSINESS AREAS STRENGTHEN OPERATIONAL LEADERSHIP AND OPERATIONAL FOCUS REDUCE OVERHEADS IMPROVE LIQUIDITY AND RESUME DIVIDEND PAYMENT CASH FROM OPERATIONS MANAGEMENT CAPACITY THE GROUP HAS SUCCESSFULLY INTRODUCED NEW MANAGEMENT CAPACITY INTO THE OPERATING PLATFORMS AND ENHANCED CORPORATE CAPABILITIES WITH A NUMBER OF KEY APPOINTMENTS 24/PG CLAIMS ON MAJOR PROJECTS SALE OF DISCONTINUED OPERATIONS RE-ALIGN MURRAY & ROBERTS PURPOSE VISION VALUES DEVELOP GROWTH STRATEGY AFRICA ENGAGEMENT STRATEGY CORPORATE CAPABILITIES In the corporate office, the integrated assurance team has been established under the leadership of Ian Henstock, with appointments of: Internal audit executive Regulatory compliance executive Two commercial executives Head of legal A corporate finance executive and head of remuneration and benefits NEW PLATFORM CAPACITY Extensive change and new capacity has been introduced into the platforms. This includes the appointment of: Platform executives supported by financial/commercial executives New Engineering Africa and Construction Africa and Middle East platform executives New chief executive in Clough GROWTH THROUGH ACQUISITION CLOUGH STRATEGY In addition, the Murray & Roberts Limited Board has been re-organised with responsibilities defined
09 GROUP PERFORMANCE REVIEW LEADERSHIP REVIEW GROUP OVERVIEW OVERHEAD INITIATIVES A NUMBER OF OVERHEAD INITIATIVES WILL CONTRIBUTE TO COST REDUCTION ISLE OF MAN CLOSURE FEBRUARY 2012 UK OFFICE CLOSURE JUNE 2013 ENGINEERING AFRICA CONSOLIDATIONS CONSTRUCTION AFRICA AND MIDDLE EAST CONSOLIDATIONS CORPORATE OFFICE HEADCOUNT OPTIMISATION ESTIMATED SAVINGS IN EXCESS OF R60 MILLION A YEAR OPERATIONAL PERFORMANCE REVIEW GOVERNANCE, RISK & REMUNERATION REVIEW ANNUAL FINANCIAL STATEMENTS SHAREHOLDERS INFORMATION
10 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 STRATEGY FOR RECOVERY & GROWTH CONTINUED RE-ORGANISE AND RE-ENERGISE CHANGES TO BUSINESS AREAS STRENGTHEN OPERATIONAL LEADERSHIP AND OPERATIONAL FOCUS REDUCE OVERHEADS IMPROVE LIQUIDITY AND RESUME DIVIDEND PAYMENT CASH FROM OPERATIONS 80% CLAIMS ON MAJOR PROJECTS 50% SALE OF DISCONTINUED OPERATIONS 95% RE-ALIGN MURRAY & ROBERTS PURPOSE CASH FROM OPERATIONS THE GROUP COMPLETED THE YEAR WITH A SUBSTANTIALLY IMPROVED NET 25/PG CASH POSITION OF R1,2 BILLION Cash generated from operations was adversely impacted as a consequence of increased losses at the Gorgon Pioneer Materials Offloading Facility and closure of legacy contracts in the Middle East Successful restructuring of debt facilities VISION VALUES Successful rights issue DEVELOP GROWTH STRATEGY AFRICA ENGAGEMENT STRATEGY GROWTH THROUGH ACQUISITION CLOUGH STRATEGY
11 SALE OF DISCONTINUED OPERATIONS MURRAY & ROBERTS HAS SUCCESSFULLY SOLD IDENTIFIED ASSETS CLOUGH MARINE JOHNSON AND BRC ARABIA VARIOUS PROPERTIES RSC EKUSASA MINING FREYSSINET POSTEN ALERT STEEL POLOKWANE MURRAY & ROBERTS ZIMBABWE GRYPHON LOGISTICS MURRAY & ROBERTS STEEL BUSINESS THE STEEL BUSINESS, INCLUDING CISCO, WAS DISPOSED OF AT BOOK VALUE SUBSEQUENT TO YEAR-END CLAIMS ON MAJOR PROJECTS (REPRESENTING UNCERTIFIED REVENUE OF R2 BILLION) THREE MAJOR CLAIMS ARE BEING PURSUED, WITH THE COLLECTION OF PROCEEDS BEING A CHALLENGING AND PROTRACTED PROCESS GAUTRAIN DELAY AND DISRUPTION CLAIM Claims recovery team is making steady progress Resolution through arbitration is expected by DECEMBER 2014 DUBAI INTERNATIONAL AIRPORT CLAIM Tribunal has ruled that the ultimate respondent is Government of Dubai UAE supreme court to determine which government department is actual respondent Resolution through arbitration expected by DECEMBER 2013 ±R2 BILLION R0,9 BILLION GORGON PIONEER MATERIALS OFFLOADING FACILITY CLAIMS A favourable arbitration ruling on the first three disputes, related primarily to scope changes from the tendered design The commercial process is progressing Resolution through arbitration is expected by DECEMBER 2013 GROUP OVERVIEW LEADERSHIP REVIEW GROUP PERFORMANCE REVIEW OPERATIONAL PERFORMANCE REVIEW GOVERNANCE, RISK & REMUNERATION REVIEW ANNUAL FINANCIAL STATEMENTS SHAREHOLDERS INFORMATION
12 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 STRATEGY FOR RECOVERY & GROWTH CONTINUED RE-ORGANISE AND RE-ENERGISE CHANGES TO BUSINESS AREAS STRENGTHEN OPERATIONAL LEADERSHIP AND OPERATIONAL FOCUS REDUCE OVERHEADS IMPROVE LIQUIDITY AND RESUME DIVIDEND PAYMENT CASH FROM OPERATIONS 80% CLAIMS ON MAJOR PROJECTS 50% SALE OF DISCONTINUED OPERATIONS 95% RE-ALIGN MURRAY & ROBERTS PURPOSE VISION MURRAY & ROBERTS IS A GROUP OF WORLD-CLASS COMPANIES AND BRANDS ALIGNED TO THE SAME PURPOSE AND VISION, GUIDED BY THE SAME SET OF VALUES WITH A COMMON OWNER, MURRAY & ROBERTS HOLDINGS LTD VALUES DEVELOP GROWTH STRATEGY AFRICA ENGAGEMENT STRATEGY GROWTH THROUGH ACQUISITION CLOUGH STRATEGY
13 PURPOSE, VISION AND VALUES...THE LEADERSHIP TEAM REALIGNED EMPLOYEES BY CREATING A NEW COMMITMENT TO OUR PURPOSE, VISION AND VALUES... GROUP OVERVIEW LEADERSHIP REVIEW GROUP PERFORMANCE REVIEW 01 CONSTRUCTION AFRICA AND MIDDLE EAST STOP.THINK: SAFETY FIRST IN EVERYTHING WE DO 02 CONSTRUCTION GLOBAL UNDERGROUND MINING 03 CONSTRUCTION AUSTRALASIA OIL & GAS AND MINERALS 04 ENGINEERING AFRICA VALUES Care Integrity Respect Accountability Commitment 05 PURPOSE Delivery of infrastructure to enable economic and social development in a sustainable way VISION By 2020 we will be the leading diversified engineering and construction group: in the global underground mining market, and selected emerging market natural resources and infrastructure sectors CONSTRUCTION PRODUCTS AFRICA OPERATIONAL PERFORMANCE REVIEW GOVERNANCE, RISK & REMUNERATION REVIEW ANNUAL FINANCIAL STATEMENTS SHAREHOLDERS INFORMATION
14 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 STRATEGY FOR RECOVERY & GROWTH CONTINUED RE-ORGANISE AND RE-ENERGISE CHANGES TO BUSINESS AREAS STRENGTHEN OPERATIONAL LEADERSHIP AND OPERATIONAL FOCUS REDUCE OVERHEADS IMPROVE LIQUIDITY AND RESUME DIVIDEND PAYMENT CASH FROM OPERATIONS 80% CLAIMS ON MAJOR PROJECTS 50% SALE OF DISCONTINUED OPERATIONS LOOKING TO GROWTH THE FINANCIAL YEARS 2013 AND 2014 HAVE BEEN DEFINED AS MURRAY & ROBERTS GROWTH YEARS WITH KEY OBJECTIVES IN THIS PHASE GROWTH PHASE OBJECTIVES: AFRICA ENGAGEMENT STRATEGY Organic growth focus in individual markets from regional hubs Presence in Ghana, Zambia and Mozambique being established Africa growth to be accelerated during the 2013 financial year 25/PG 95% RE-ALIGN MURRAY & ROBERTS PURPOSE VISION VALUES DEVELOP GROWTH STRATEGY AFRICA ENGAGEMENT STRATEGY 75% GROWTH THROUGH ACQUISITION CLOUGH STRATEGY GROWTH THROUGH ACQUISITION Opportunities identified include alternative energy and water Acquisitions will aim to align Group asset base with opportunities to maximise shareholder value Acquisitions being explored in Construction Global Underground Mining and Construction Australasia Oil & Gas and Minerals CLOUGH STRATEGY Increase strategic alignment and positioning Investigate organic expansion opportunities Enhance synergies with Murray & Roberts (e.g. Marine) and look to Africa Expand EPCM capacity with acquisition 01 CONSTRUCTION AFRICA AND MIDDLE EAST 02 CONSTRUCTION GLOBAL UNDERGROUND MINING 03 CONSTRUCTION AUSTRALASIA OIL & GAS AND MINERALS 04 ENGINEERING AFRICA 05 CONSTRUCTION PRODUCTS AFRICA
15 Enhance shareholder value Resume dividend payments Selective market segment re-positioning in support of long term growth objective Increase offshore revenue base in support of long term growth objective Deliver operational, risk and contractual management excellence Enhance the attraction, retention, diversity and performance of our people LEADERSHIP REVIEW GROUP PERFORMANCE REVIEW OPERATIONAL PERFORMANCE REVIEW HISTORICAL FINANCIAL PERFORMANCE Due to slow local market and significant project losses, performance has been poor Well executed capitalisation on growth markets and a challenge to maintain growth 5 YEAR MARKET OUTLOOK Local market to recover in the medium to long term with higher growth in certain segments Global move from opencast to underground mines and growth in active regions GROWTH OPPORTUNITIES Expansion into Africa Segmental expansion and growth Select Middle East opportunities Geographic growth Australia, Africa, Canada, USA and South America GOVERNANCE, RISK & REMUNERATION REVIEW GROUP OVERVIEW ANNUAL FINANCIAL STATEMENTS Poor historical results have been followed by steadily improving performance Strong growth expected in the Australian and South Asia market Increase exposure Segmental expansion and Southeast Asia growth SHAREHOLDERS INFORMATION Power programme impacted EBIT but recently platform performing well Growth expected in certain key segments; power, water, mining and operations & maintenance Segmental positioning and value chain expansion Strong contributor to EBIT and revenue but margins and key ratios under pressure Slow and competitive local market which may pick up on committed government spend Exports and new products Africa expansion
16 MURRAY & ROBERTS ANNUAL INTEGRATED REPORT 12 PORTSIDE Murray & Roberts was awarded the contract for what will be Cape Town s tallest building. The Portside development will be home to FirstRand Bank and Old Mutual and is scheduled for completion in December 2013. The site occupies the city block between Buitengracht, Hans Strijdom, Bree and Mechau Streets in the financial district on the foreshore. The design methodology is strongly focused on durability, low maintenance, energy and water efficiency, material resource management and indoor air quality to meet the Green Building Council of South Africa s specifications for a 4-star building.