"Structure
influences behaviour. Dominant cultures by default, keep
reproducing the same non-solution, which is why the experience
with corporate transformation is fraught with frustration.
The implicitness of the organising assumptions residing
at the core of the organisation’s collective memory,
is overpowering. Accepted on faith, these assumptions
are transformed into unquestioned practices that obstruct
the future. They function like self-fulfiling prophecies.
Unless the content and implications of these implicit
cultural codes (which function much like DNA) are made
explicit and dismantled, the nature of the beast will
outlive the temporary effects of the [transformation]
intervention, no matter how well intended."
Gharajedachi |
Brian Bruce, Group Chief Executive. During the past year,
Murray & Roberts strengthened its leadership team
which now comprises a group of individuals strongly committed
to the Rebuilding Murray & Roberts strategy. Quick
CV |
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The Murray & Roberts
share
price performance during the year under review reflects
the improved confidence of investors in our group, our leadership
team and our Rebuilding Murray & Roberts strategy. We have
engaged a number of interventions during the year that have
attacked both cultural and structural impediments to our commitment
to sustainable growth and value creation.
The first performance reward of the Rebuilding Murray &
Roberts strategy has been delivered in the financial
result to 30 June 2001. Headline earnings of 76 cents per
share is more than double last year’s performance, but
still only 67% of our target of a 20% return on average shareholders’
funds.
In partnership with key advisors, we have designed the fundamental
blueprints based on which we will face the challenge of Rebuilding
Murray & Roberts as the strategy moves into its next phase
during the current year. More than the delivery of a further
improvement in financial performance, our challenge is to ensure
a deeper understanding of and commitment to the strategy itself,
amongst the broader group of Murray & Roberts leadership
and management.
Transformation is our fundamental challenge. There will be no
compromise in this respect. The concept of a Unitary Murray
& Roberts underpins the consolidation of our corporate office
and directs the way forward based on internal synergy, common
values and the application of a universal business model in
the management of risk.
The transformation and strengthening of our corporate leadership
team has continued throughout the year.
| • |
John
Stanbury joined the group in January 2001. He and
Keith Smith were appointed
directors of Murray & Roberts Holdings Limited in
February 2001. |
| • |
Sean
Flanagan was appointed to the board of Murray &
Roberts Limited in February 2001. |
| • |
Dan Modzelewski joined the group in
June 2001. He will lead the development of our enterprise
systems supporting group procurement, logistics and innovation. |
| • |
We also welcomed Henry Laas, who joined
the group in February 2001 as managing director of RUC
Holdings, and Allan Holloway, who was appointed managing
director of Harvey Roofing Products in May 2001. |
The global environment into which Murray & Roberts must
deliver its value proposition is transforming significantly.
A primary element of group strategy is a leadership team with
the capacity to meet this challenge and to grow with the success
and complexity that will follow.
To facilitate this capacity and unlock the inherent potential
in the group, a series of corporate-driven intervention projects
have been engaged over the year. Some of these projects will
continue into the coming year.
| • |
A review of the business and overhead
structure will ensure the appropriate framework, competence
and sizing for the corporate office and each operating
company, relative to market potential, strategy and internal
synergy. |
| • |
The development of an enterprise-wide
strategy for group procurement and logistics will enable
the significant procurement potential of the group to
deliver cost benefit, empowerment and client value. |
| • |
An audit of existing group-wide enterprise
systems, infrastructure and skills capacity and the development
of the fundamental platform and service capability will
enable strategic connectivity between all elements of
the group, its customers, partners and suppliers. |
| • |
A programme of targeted leadership
mentoring and personal coaching will assist key executives
through the challenge brought about by the significant
strategic and transformation process that has been imposed
on group leadership and operating company management. |
| • |
The review of remuneration practice
across the group and the design of a unitary system will
align remuneration with business strategy. |
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| 2001 in Review |
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A Unitary
Murray & Roberts
| • |
Divisional structures
eliminated |
| • |
Corporate office consolidated |
| • |
Remuneration aligned with
business strategy |
| • |
Leadership team strengthened |
| • |
Knowledge businesses acquired |
| • |
Non-core businesses disposed |
| • |
New brand identity adopted |
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Shareholder
value
| • |
Net asset value |
597 cents |
+20% |
|
| • |
Market value |
630 cents |
+91% |
|
| • |
Cash flow |
164 cents |
+613% |
|
| • |
Return on equity |
13,6% |
|
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Share repurchase
| • |
14 074 921 shares repurchased
at R3,07 per share |
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| Business Proposition |
Murray & Roberts chooses to engage the
competitive landscape in the market arena defined by the extraction,
beneficiation and industrialisation of natural
resources. A number of companies in the group offer both
direct and indirect access into this value chain, primarily
as implementers of projects, where design and fulfilment functions
are synergised.
There is no standard model for the Murray & Roberts of the
future. We build on our advanced skills and experience in engineering
and contracting garnered over the past 100 years of our history.
Enhanced through our core competence in industrial design, we
deliver world class fulfilment in our solutions to meet the
performance and delivery expectations of our market.
Our market is embodied in the entire scope of opportunity possible
within the context of the extraction, beneficiation and industrialisation
value chain. We do not wish to own the source of natural resources,
nor the destination for final products. These are the principle
domains of our clients and customers.
We seek to service as much of the selected value chain as appropriate,
leveraging off our skills and core competence. Our premise is
that the extraction and beneficiation of natural resources occurs
primarily in the developing world, and that the products of
industrialisation are destined primarily for the developed world.
We offer our core competence and expertise to implement major
project solutions directly into the developing economies of
the world and combined with our South African competitiveness,
to supply engineered products under contract, into the developed
economies of the world through third party partnerships.
We have built our business on long-term strategic relationships,
through which we crystallise targeted project opportunities
for growth and value creation. |
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| Engineering
Excellence |
| |
Murray & Roberts recognises
industrial design as its core competence. The group’s
operating companies are continuously challenged
to elevate the engineering discipline to:
| • |
Innovate
Outmanoeuvre the competition by finding new
market and technology combinations. |
| • |
Benchmark and improve
Surpass the competition by being better, faster
and cheaper. |
| • |
Choose the right technologies
Partner whenever we are unable to deliver
the best world class solutions alone. |
| • |
Be in control of our
engineering destiny
Actively lead the development of designs and
processes that drive our operations. Understand
the interfaces and pro-actively fill the gaps. |
| • |
Think, plan and do
Develop and plan projects up-front on paper
at low cost, rather than downstream in operations
at high cost. |
| • |
Adhere to industry
norms and standards
Apply the highest possible standards of quality,
employee health and safety and environmental
responsibility. |
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| Performance |
Our headline earnings performance of 76
cents per share is an improvement of 111% on the previous year.
Although total earnings reflects a non-operating cost of only
two cents per share for the year, this is the net result of
a number of losses and gains related to the further restructuring
of the group and its balance sheet.
An important feature of the year’s performance is that
for the first time in many years, all operating companies traded
profitability, apart from our construction operation in KwaZulu-Natal.
Credit is due to my executive colleagues and their company management
teams who have set this as a key target going forward.
The building and civil engineering operations performed better
than expected, but at a lower level than in the previous year.
Improvements from our Industrial, Middle East, Cape and Botswana
operations more than offset the problems experienced in our
KwaZulu-Natal, Mauritius and Roads & Earthworks operations
during the year.
There is a great deal of work still to be done to settle these
businesses into the new strategic framework for Murray &
Roberts. The performance promise for the coming financial year
is disappointing relative to the other business clusters. Investment
activity in our traditional construction markets remains at
a low level, placing pressure on margins and costs. New geographic
areas of activity offer promising potential, but carry business
and performance risks.
The N3 Toll Road project, of which Murray & Roberts is a
partner in the construction consortium, experienced performance
difficulties during the year. The now well-publicised problem
of heavy vehicle overloading continues to impact on road maintenance
scheduling. An industry task group has been established under
the leadership of Murray & Roberts to develop a national
strategy for this problem.
Despite a difficult year, with major curtailment in mining and
industrial investment, the companies serving this sector delivered
credible growth and performance. Booker Tate and JCI Projects
delivered maiden financial contributions, boosting performance
in the year.
Murray & Roberts was well positioned to participate in the
implementation of various mining and industrial projects that
were recently postponed due primarily to the global economic
slowdown. Notwithstanding, we expect companies in this cluster
to deliver an improvement in performance for the 2002 financial
year.
The companies manufacturing engineered products turned in solid
performances for the year, with an EBIT turnaround of R54 million
on the losses incurred in the previous year. Following the liquidation
of its Canadian operation, AWI returned to profitability. The
remainder of the business is currently under disposal. Foundries
moved back into profitability after three years of losses and
Union Carriage made an operating profit for the first time in
five years. Consani recorded an improved performance in a challenging
global market.
This cluster is expected to deliver improved results in the
year ahead.
The expected reduction in total profit contribution from the
Supplies & Services cluster following the disposal of Main
Pipesystems, was compensated by improved performances across
the board from other companies in the cluster. Harvey Roofing
and Hall Longmore returned to profitability, Much Asphalt produced
a record performance and Rocla reported good growth in a flat
market.
All these companies are offering good performance upside for
the year ahead.
The disposals of Woodline and the Harvey Fielders operation
have been confirmed post year-end. The small company disposal
programme is all but complete. It is in the context of these
small companies that the concept of “Return on Management
Time” has been tested to the full. |
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| Extraction, Benefication
and Industrialisation value chain |
 |
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| Unitrans |
Unitrans delivered an 18% return on our
investment during the year as well as an increase of 9% in market
value. We continued to engage proactively with the company during
the year and commend management for their continued performance
growth under challenging market conditions. Full details are
available from the annual report of the company.
We have announced our commitment to exit from our investment
in Unitrans. This will be on terms that are in the best interest
of Murray & Roberts and its shareholders, which will dictate
the timing of the process. |
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| Procurement |
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Murray & Roberts is developing
a strategy and plan that will enable the group’s
significant procurement potential to deliver cost
benefit, empowerment and client value. The scope
of this intervention includes:
| • |
Analysis and benchmarking
of the group’s spending; |
| • |
Procurement competencies
and skills; |
| • |
Systems and processes
to enable leveraging of group spending; |
| • |
Supplier relationships
and development requirements; |
| • |
Sourcing strategies for
specific commodities; |
| • |
Linking suppliers directly
to business processes; |
| • |
Supplier performance management;
and |
| • |
Information management. |
Our expectation is that this intervention will elevate
the importance of procurement within our organisation,
thereby enhancing our competitive position in the
sourcing process. |
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| Information
Technology |
In line with the Rebuilding
Murray & Roberts strategy, our group is reviewing
its business models and practices to ensure that
strategic objectives are met.
A strategic management team has been appointed to
fulfil this task and, where necessary, change the
way that we do business in order to improve operational
efficiency and profitability.
An important part of this process will be a review
of our information technology infrastructure in
order to identify opportunities to achieve the following
objectives:
| • |
Enable innovation; |
| • |
Accelerate and improve
decision-making; |
| • |
Share information and
knowledge; |
| • |
Improve planning and execution
processes; |
| • |
Reduce costs by consolidating
effort; |
| • |
E-enable our business
community; |
| • |
Enhance the transparency
of supply chains; |
| • |
Access real time information; |
| • |
Improve asset management; |
| • |
Automate business processes
and
workflows; and |
| • |
Add value for customers. |
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| Corporate |
Murray & Roberts will have only one
corporate office in the future which is consistent with our
approach to be a unitary business. Divisional head offices have
been disbanded and all corporate overhead will be reported and
managed as a separate cost centre.
Our corporate office includes the executive directorship responsible
for engaging the operations of the group and the knowledge and
functional executives and staff that provide group services.
The overhead for the 2001 financial year included a number of
one-off costs related to consultancy fees and restructuring
costs. We face the challenge of controlling our overhead and
ensuring that it justifiably adds value to group operational
and strategic activities.
Cost control and reduction remains a challenge and we will review
the total overhead of the group in this context. We have commenced
this process with a review of our building and civil engineering
companies. |
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| Health,
Safety and the Environment |
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Murray & Roberts continues
to strive towards a healthier and safer environment
for all of our employees and the communities in
which we operate.
Our group is committed to the Occupational Health
& Safety Act of 1993, to the health and safety
of its employees and to protecting the public against
hazards associated with our activities. Adequate
resources are provided to ensure the understanding,
implementation and maintenance of effective health,
safety and environmental actions.
Murray & Roberts recognises its interdependence
with the communities in which we operate and is
committed to managing the impact of our activities
on natural, work and social environments in a responsible
manner. Environmental assessments are conducted
in accordance with international standards with
the assistance of recognised institutions. |
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| Prospects |
There are many challenges ahead for the
management and people of Murray & Roberts. Building on the
success of the past year, we can expect the turnaround to deliver
further value in the year ahead.
The South African economy and market appear sound, but fixed
investment is under pressure. Major investment projects in the
pipeline have been postponed, including Gamsberg Zinc (US$850
million) and Premier Mine (R1,2 billion). Platinum investment
appears intact, but project commencement has been slow. Copper
and cobalt are also demanding investment and activity has accelerated
in Zambia. Aluminium remains a solid opportunity in the short,
medium and long terms.
The refurbishment of the national rolling stock asset appears
to be a government priority and the Motor Industry Development
Plan is attracting high levels of investment interest into the
automotive sector. Civil engineering infrastructure is in greater
demand, having attracted both public and private investor interest,
but residential and non-residential buildings cannot find economic
support at present.
The slowdown in the global economy is starting to impact on
our markets. We are concerned that the recent terrorist attack
on financial and military symbols of the free world will impact
on trade and investment activity in the short to medium term.
We had expected the USA to start to lift from its economic doldrums
in the first quarter of 2002. The Middle East has been showing
good signs of activity based on long-term sustainability in
the current price of crude oil.
Southeast Asia remains in malaise, with the Australian economy
suffering the consequence of Japanese recession and Indonesia
struggling to break free from the consequences of its political
transformation. There are many potential opportunities for Murray
& Roberts in the region, hence the decision to continue
supporting a representative office in Jakarta.
Africa remains a difficult market, with aid-funded infrastructure
and mining development projects the only real opportunities
of value. Nigeria and Angola appear to offer significant opportunity
based on projected oil revenues, but their business environments
are extremely challenging. |
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| Acknowledgements |
My board and executive committee colleagues
have engaged in a great deal of hard talk and rigorous debate
over the past year. There has been limited opportunity for compromise
in the process of Rebuilding Murray & Roberts and we will
be challenged to maintain the momentum of change in the year
ahead.
I thank my executive and corporate colleagues for the strong
support they have shown the company over the past year. We have
had to face difficult decisions together and will continue to
challenge the status quo into the future.
Our chairman, David Brink, has provided solid and wise counsel
and support, especially in respect of the executives who faced
personal challenges with the transformation and changes during
the year. He has continued to play a leadership role in the
engagement by big business in South Africa of national socio-economic
and political development.
Finally, I wish to express my appreciation to the members of
the board and the remuneration and audit committees of Murray
& Roberts Holdings, for the trust placed in myself and the
executive team, the support for our strategy, the difficult
decisions on performance and operational matters, and their
commitment to the future of Murray & Roberts. |
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Brian Bruce
Group Chief Executive |
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