BEGIN THE JOURNEY WITH THE GOAL IN MIND
The Group’s New Strategic Future, which the Board approved in 2014, has by design brought about a significant change in Murray & Roberts, from a predominantly South African civil and building contractor, to a multinational engineering and construction Group focused on the natural resources market sectors. The New Strategic Future plan was designed with two phases in mind:
• optimise the Group’s portfolio of businesses; and
• position the Group for sustainable growth and value creation, based on the positive long-term demand drivers for natural resources.
This is the first financial year of a fundamentally redesigned Murray & Roberts. Earlier this year, we commissioned an independent assessment of the New Strategic Future plan by the Boston Consultancy Group, a global management consulting firm, to confirm the long-term viability of the Group’s strategic direction. The review confirmed the relevance of this plan and clarified the growth priorities for our business platforms, in support of our market leadership and performance aspirations as captured in the Group’s Vision.
Another feature of repositioning the Group over the last six years, has been the attention we have given to Engineered Excellence. While the excellence we strive for in every aspect of the business is fundamental to our competitiveness and reputation, it also supports the quality of the Group’s earnings and ultimately investment returns.
The progress made over several years in de-risking the Group, defining its business model and optimising its portfolio of businesses, has allowed our focus to now shift towards
enhancement of the strategic positioning and earnings potential of our three business platforms for the longer term. Whereas their primary focus is to achieve this within their respective core natural resources market sectors, the reality of market volatility and slower-than-expected recovery in some of these markets make it necessary to maintain strategic flexibility by also pursuing opportunities on a selective basis in complementary markets. The portfolio alignment of the last few years, culminating in the disposal of the Infrastructure & Building platform in the previous financial year and our last remaining non-core asset, the steel manufacturer Genrec, during this year, will serve the Group well.
The final legacy matter that we are attending to – the closure of the business in the Middle East - is progressing according to plan. The arbitration ruling of the Dubai International Airport claim that has been in dispute for the past ten years, however, has been delayed to November 2018. We remain hopeful that resolution of this claim will realise value in FY2019.
OFFER TO ACQUIRE MURRAY & ROBERTS BY ATON GMBH (“ATON”)
A significant event that emerged during the financial year, is the initiative by ATON to obtain control of Murray & Roberts, through its formal offer to our other shareholders to acquire all their shares in Murray & Roberts. ATON made an initial voluntary offer of R15 per share in April 2018. An independent committee of our Board, constituted to respond to the ATON offer (“Independent Board”), recommended that shareholders reject this offer as it was below the fair price range for control of R20 to R22 per share, as determined
by the Independent Board.
ATON have since increased their investment in the Group to about 44% from about 30%, triggering a regulatory requirement to make a mandatory offer (a mandatory offer is triggered at 35%) to all shareholders. This offer was made on 2 July 2018 at R17 per share. The offer remains open to shareholders for acceptance, for 10 days after the offer is declared unconditional in all respects.
This offer remains below the fair price range and it is the Independent Board’s duty to advise shareholders accordingly. It is important that our shareholders understand the value inherent in the Group, based on the current strategy.
It is regrettable, that due to the current misalignment between managements’ strategic aspirations and ATON’s objectives with its investment in Murray & Roberts, that the Group’s options in the acquisitions it can realistically pursue and the repurchase of Murray & Roberts shares have been restricted, which has impacted the Group’s longer-term strategic positioning. That said, Group leadership remains open to engage with ATON to clarify their intentions with Murray & Roberts and to seek alignment on the Group’s strategic direction.
POTENTIAL TRANSACTION WITH AVENG
Another noteworthy event to mention was the potential combination of Murray & Roberts and Aveng, which the Group announced in May 2018. The proposed combination of Murray & Roberts’ Oil & Gas and Underground Mining platforms with Aveng’s McConnell Dowell and Moolmans businesses was compelling and would have established Murray & Roberts as a much larger multinational engineering and construction group.
After a time intensive process of obtaining the requisite approvals from the Takeover Regulation Panel and our shareholders to further develop this transaction, ultimately, the Takeover Special Committee overturned the Takeover Regulation Panel approval and ruled that Murray & Roberts may not develop the potential transaction, whilst the ATON mandatory offer remains in place.
As part of Aveng’s recent rights offer, ATON acquired an approximate 25% stake in Aveng, thereby establishing negative control of Aveng. ATON was not supportive of the potential transaction between Murray & Roberts and Aveng, and with its shareholding in Aveng it would have blocked this transaction.
Due to the developments outlined above, the Murray & Roberts Board withdrew from the potential Aveng transaction earlier in August 2018.
ACCELERATING ACQUISITIVE GROWTH
The need to accelerate our acquisitive growth strategy, which includes all the platforms, requires executive capacity, specifically at Group level, to provide support in identifying and assessing prospects and negotiating transactions.
The planned acquisition of a US-based EPC contractor in the oil and gas sector will give the Oil & Gas platform the ability to deliver projects to a rapidly growing market in the United States.
The Power & Water platform is targeting transmission line projects in sub-Saharan Africa, with its joint-venture partners being potential targets for bolt-on acquisitions. A possible bolt-on acquisition in South Africa to strengthen its repairs and maintenance service offering to Eskom is under investigation, whilst the platform is also considering bolt-on acquisitions to secure the required scale and credentials to pursue municipal wastewater treatment opportunities.
Potential acquisition targets for the Underground Mining platform will aim to consolidate its presence in Australia and Canada, the latter specifically in British Columbia and Quebec, where it is under-represented.
CONCLUSION AND APPRECIATION
Each of our three business platforms are at different stages in their strategic development and they continue to diversify their specialist service offerings, to capture growth and margin opportunity and to spread risk across different international regions and phases of the project life cycle. The Group’s robust financial position provides the capacity to support its growth plans.
I want to thank each and every one of our employees for all your hard work over the past financial year, for continuing to live our values and your contribution in pursuit of Engineered Excellence and our New Strategic Future.