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| Murray & Roberts has secured a leading role in a number of long term projects associated with South Africa’s infrastructure investment program. |  |
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| Construction SADC
Background The various operations forming the construction cluster in the SADC region incorporate the original Murray & Stewart in the Western Cape dating back to 1902, its initial expansion into the Transvaal gold fields through Roberts Construction in the 1930s and into the rest of Africa from the 1940s, as well as a number of key acquisitions, including Gillis Mason in the 1980s and Concor in 2006. The cumulative and collective pedigree of this group of businesses is formidable, covering almost every aspect of economic and infrastructural development in South Africa and the SADC region over the past century. The Group has undertaken contracts on every continent going back into the 1950s and by the late 1970s had developed a significant global presence, well ahead of its peers anywhere in the world. Although there were many periods of low economic activity during this time, it was the increasing political isolation of South Africa from 1976 that forced the dissolution of this capability, established a 25 year decline in fixed capital formation and brought severe construction industry decline that was finally broken in 2002. The world had in the meantime, moved on. Global competitive forces have driven consolidation in the sector and large international construction groups have emerged with significant capacity to engage ever increasing scale, risk and complexity in major projects. Global economic crisis The regional building and mining construction markets were severely impacted during the year by plummeting commodity prices and increased financing risks in the economy. This was particularly the case in Botswana where the diamond industry was brought to a virtual standstill. The South African government has embarked on a significant capital expansion program, including new power generation capacity; road, rail and pipeline infrastructure; water and sanitation facilities; and others. A combination of capacity constraint and limited access to finance has slowed the process, with some cancellation or deferment of projects now evident. The private sector financed residential and commercial building market has been severely curtailed and there are few new industrial projects in the market. Leadership Following 25 years of construction industry decline in South Africa, experienced indigenous leadership capacity in the sector has been in short supply, especially in a market increasingly characterised by large scale and complex technology based projects. Keith Smith was appointed to lead the Construction SADC cluster as executive chairman of Murray & Roberts Construction in 2006. Keith's mandate was to transform the constituent businesses, integrate Concor into the Group and facilitate the resourcing and engagement of a number of 2010 FIFA Soccer World CupTM related projects, such as Gautrain and Green Point Stadium, in partnership with group executive director Sean Flanagan. Concor managing director Cobus Bester has supported Keith in streamlining the business through the transfer of people, assets and market responsibility between the various operations. Trevor Fowler joined the Group in September 2009 from his previous role as chief operating officer in the Presidency, and will succeed Keith during the year. He will have the additional responsibility to expand engagement into the rest of Africa and will lead a restructure of the cluster to deal with South African fixed investment and construction market growth that is projected to extend beyond 2010 and the current economic crisis well into the 2020s. Murray & Roberts Construction
Murray & Roberts Construction realigned its operations into three focused sectors during the year, each with a dedicated general manager and operational directors. A centralised services capacity supports the operations with specialist expertise in engineering, human resources, safety, quality, finance and commercial management. The company has a market strategy of targeting selected and repeat clients and focusing on major projects in the commercial, retail, hospitality and airport facilities sectors. The business has established systems and processes to ensure project delivery, human capital retention and recruitment, and customer relationship management. It is a major participant in all forms of public private partnership initiatives. BUILDINGS Piet Martins has executive responsibility for building operations in Gauteng and Western Cape, with business development the responsibility of Leon Botha, who recently rejoined the Group following a period in Kuwait. The high-end commercial and retail building market lost its buoyancy during the year as the availability of large new projects declined and competition increased, but work continued on projects that had commenced in 2008. The final residential and retail phase of the Bedford Square project in Bedfordview was completed in December 2008. The Houghton Golf Estate project became a casualty of the global economic crisis when the client experienced severe funding challenges in November 2008. Murray & Roberts has negotiated security on R100 million of outstanding debt and closed the project. The high specification US Consulate in Sandton and the Melrose Arch Piazza projects were successfully completed and additional work at Melrose Arch is proceeding well. The R1 billion ABSA Towers West project commenced in 2008 and is proceeding in three phases, on track for final completion in November 2010. Work is progressing on the Galleria Retail Centre and a Holiday Inn Express in Durban, with completion due in November 2009 and May 2010 respectively. New works secured for this financial year include a R200 million office facility at 1 Protea Close in Sandton. Opportunities include retail projects in Pretoria valued at R400 million and a further R200 million expansion of the Melrose Arch precinct.
WESTERN CAPE Good progress was recorded on the five star Taj Hotel and the four star Crystal Towers Hotel in Cape Town. Both projects commenced at the start of the 2008 financial year and are due for completion in time for the 2010 FIFA Soccer World CupTM. The Artscape project on the foreshore has been secured at R40 million and negotiations have reached an advanced stage with Old Mutual for the R1,25 billion Portside project. This 42 storey office, hotel and retail development will be the tallest building in Cape Town and second only to the Carlton Centre in Africa. The 68 000 seat Green Point Stadium project for the 2010 FIFA Soccer World CupTM has been underway for 30 months since award in March 2007. Construction has proceeded well under the leadership of project director Andrew Fanton and in spite of abnormally inclement weather and industrial action in July 2009 the project is on track for completion in December 2009. About 35% of the company's resources in the region have been allocated to this project and many will be deployed on the new projects as work at the stadium tapers off. CIVILS & INFRASTRUCTURE Anton Botha has executive responsibility for the civil and infrastructure operations which target industrial and mining infrastructure; minerals beneficiation; power generation systems and related infrastructure; water and effluent facilities; and petrochemical infrastructure. A number of water reticulation, purification and reservoir projects were completed in the year. While new project awards were impacted by the downturn in mining activity, the company successfully closed out the Voorspoed diamond mine and work continued on the Amandelbult and Leeukop hard rock facilities and the Natref petrochemical refinery. The company leads a three-way joint venture for civil construction work on the Medupi Power Station. Eskom delays during the start-up of the project in 2008 are being overcome under the leadership of project manager Coenie Vermaak by an acceleration program requested by Eskom, which commenced in July 2009 and requires the deployment of an additional 1 600 employees to the project. GAUTRAIN Murray & Roberts plays a lead role in the Gautrain Rapid Rail Link project, which has been underway for three years following commercial close in September 2006. Phase 1 of the project includes the network between Sandton and OR Tambo International Airport, with stations at Rhodesfield and Marlboro. Despite numerous delays due primarily to the late procurement and delivery of land by Gauteng Province, the contractor has ensured that completion of phase 1 can still be accelerated for the 2010 FIFA Soccer World CupTM. Phase 2 of the system from Park Station to Hatfield via Pretoria Station is being constructed concurrently, but has been delayed by late handover of land and considerable challenges with dolomites in the Tshwane area. Murray & Roberts Botswana
The company has been severely impacted by the almost total collapse of mining activity in the country. Although this caused a decline in revenues, the business maintained its strong profit performance on non-mining work in the commercial and retail markets in Gaborone and Francistown. Murray & Roberts Namibia
Quality workmanship and high levels of productivity contributed to good margins on an increase in revenues. The company enters the 2010 financial year with a strong order book, mainly for civil engineering works for electrification projects and an outfall pipeline in partnership with Murray & Roberts Marine. There is some activity in the commercial sector, including the completion of a R200 million office block for Old Mutual, the tallest building in Windhoek. Murray & Roberts ZimbabweThe Group holds 49% in associate company Murray & Roberts (Zimbabwe) Limited. Despite exceptionally difficult socio-economic and political conditions, the company has continued to trade well, completing the new British Consulate in Harare during the year and maintaining its involvement in a depressed mining sector. A major restructuring commenced during the year to reposition the business for anticipated opportunities in the future infrastructure, commercial and mining sectors. Murray & Roberts has agreed to facilitate the future development of the business by recapitalising it with new plant and equipment, training and development and leadership mentoring.
Tolcon
Toll Road Concessionaires (Tolcon) saw traffic volumes decline in line with the economic downturn. The company operates the entire N3 toll route and the N2 South Coast toll road and has a 33% shareholding in the operation of the N1/N4 Bakwena Platinum highway. Under leadership of managing director Judy Van Es, the company will play a leading role in the management of the Gautrain system through its subsidiary Tollrail, in which Murray & Roberts has a 24% shareholding. The Gauteng Freeway Improvement Program offers new opportunity to Tolcon, which is well positioned to participate in the planned open road tolling system.
Concor
Concor is a major general contractor in South Africa's construction sector and participates in the building, civil engineering, roads & earthworks, structural and mechanical markets and has a small opencast mining business. BUILDING Brad Wantenaar is responsible for this business which is focused primarily in the Gauteng region. The R1,3 billion private public partnership head office complex for the Department of Foreign Affairs in Pretoria was completed at year-end. A number of other projects were also completed, including the four star Holiday Inn in Sandton, a packaging warehouse for Nampak, a factory for Steinhoff in Ugie and the new International Departures Terminal at OR Tambo International Airport. The contract to build Marlboro Station for Gautrain was also completed and work on the Midrand and Hatfield stations is near completion. The building market is increasingly competitive and the availability of large building projects valued at over R500 million has declined, while margins on smaller available projects are under severe pressure. Concor was recently awarded a contract to build a new laboratory for Sasol in Sasolburg and is pursuing opportunities in the power generation, maximum security prison and retail & commercial building sectors. CIVILS Graham Browne is responsible for the civils operation where the main activity has been involvement in the Medupi Power Station civils contract. Completed contracts include the manufacture of New Jersey concrete barriers for the Gauteng Freeway Improvement Program, extension of the Coega container terminal berth and the Caledon River bridge. Concor is the preferred bidder for two contracts involving four chimneys and nine coal silos at Medupi and Kusile Power Station projects, but award has been delayed into the new financial year. A R140 million crusher contract was awarded by Assmang prior to year-end. ROADS & EARTHWORKS Frik Venter is responsible for this operation, which is focused primarily on the construction of major road and rail projects. The bulk of work undertaken during the year was in earthworks for mining infrastructure, dam and rail construction. The division experienced significant growth, and accounted for approximately 40% of total company revenue and 45% of profits. Concor has preferred contractor status on major mining and resource beneficiation programs for Kumba Resources and BKM Assmang in the Northern Cape which have offered a number of opportunities over an extended period. A number of new projects were secured in this area during the year. Another key focus area is railway contracting and a number of railway projects were undertaken, including the Transnet Rail Loops contracts between Saldanha and Sishen and the Coega rail link near Port Elizabeth, both of which increased in scope during the year. Bulk earthworks for Gautrain are nearing completion and good progress was made in the project to upgrade the N2 highway in an environmentally sensitive area of the Tsitsikama Forest at Storms River Bridge. Completion is due ahead of schedule in the new financial year. Towards the end of the 2008 financial year, work commenced on the R1,1 billion joint venture contract to build the Bramhoek and Bedford dams that will supply the Ingula hydro-electric pump storage scheme for Eskom. Concor is a strong contender for the Trekkopje uranium mining contract in Namibia. The opencast mining division had sought larger projects, particularly in the platinum sector. However, these plans were stalled by economic conditions during the year. A number of tenders have been submitted in the coal sector, final preparations are in place to deepen three pits for Lonmin at a contract value of R1,3 billion over five years and new awards include a R100 million Bulk Sample for the Sasol 4 Project Maphutu and two top soil stripping contracts. ENGINEERING Jean Charoux is responsible for this operation, which provides structural erection and mechanical engineering services to the mining sector, where it is a preferred contractor to many clients. The operation completed the PP Rust Concentrator, one of the largest in the world, and installed platinum concentrators for Boyntons at Pilanesberg. Similar work for Eland Platinum near Brits was postponed to 2010. The collapse of platinum prices impacted the operation's order book, but opportunities in the coal sector, including the Douglas Middelburg Optimisation (DMO) project for BHP Billiton, provided some cushioning. Four contracts of Murray & Roberts MEI were handed over to Concor for completion. These include work on the DMO for BHP Billiton, a contract in Mozambique and two tanks, collectively valued at R150 million. Concor will now engage the small to medium project work available in the petrochemical sector previously undertaken by MEI.
Human capital Murray & Roberts Construction is engaged in a comprehensive process of skills development, recruitment and retention and has made significant strides in the re-establishment of a skills base in the business. R33 million was spent on training during the year, including 57 bursary students, 29 graduates on the development program, 32 executives undergoing management development, study assistance for 11 staff members, training of more than 150 junior supervisors, 300 skilled workers and 75 operators, and more than 3 900 skills interventions. The company spearheads the Group's involvement in industry initiatives to develop capacity in the engineering and construction sector and is currently part of an industry agreement with the Department of Education to accelerate the development of construction skills at Further Education and Training (FET) Colleges. The Group is also partnering the South African National Defence Force in an initiative to re-skill artisans and supervisors in the industry.
Concor has an ongoing process of identifying talent and implementing skills development and retention programs which dovetail with Murray & Roberts and industry initiatives. This is a key element of its strategy to create opportunities for growth and advancement. Murray & Roberts Construction regrettably suffered two fatalities (2008: seven) at the Green Point and Melrose Arch projects in the year and recorded an improved lost time injury frequency rate (LTIFR) of 2,7 (2008: 4,4). The STOP.THINK campaign to improve safety awareness and target zero harm is well established throughout the company and 1 071 employees received training in safety, health, environment and quality management during the year. Concor regrettably suffered three fatalities during the year (2008: zero) at the Department of Foreign Affairs Head Office, Beefmaster Road and Sishen South projects, which increased its LTIFR to 0,95 (2008: 0,71). The company has a strong commitment to a safe work environment and has introduced a range of new measures to reinforce this commitment, including a weekly safety inspection on every work site by senior management and an internal survey to determine the effectiveness of the current safety program. Concor Engineering was awarded the 2008 CEO safety award for three million hours worked without an accident on the PP Rust contract and Concor Roads & Earthworks received the Bombela safety award for passing one million man hours worked without a lost time injury on Gautrain. A value-based organisational performance system has been implemented at the Medupi Project. Known as The Medupi Way, it secures high levels of employee engagement, alignment and productivity. Key developments have been a world class safety performance (zero lost time injuries since commencement of the project, based on 2,9 million man hours) and ongoing efforts to recruit the required manpower. At year-end, 65% of labour had been sourced from local communities, exceeding ASGISA commitments. Prospects Murray & Roberts Construction starts the 2010 financial year with an order book of R4,9 billion (2008: R8,6 billion) and is well positioned for growth opportunities in the high-end commercial and retail buildings market in Gauteng and Western Cape, municipal infrastructure projects nationally and social and power infrastructure programs in Botswana and Namibia. The Group has retained its permanent establishments in Botswana and Namibia despite the economic downturn and the resultant reduction in workload. Their order book for the 2010 financial year is R300 million and both operations have capacity to engage the resources sectors when delayed projects are brought back on stream. The decision to retain our presence in Zimbabwe despite the economic turmoil in that country has been a sound one. The business operations are well positioned to engage the infrastructure and resources rejuvenation that is anticipated as the political and economic environment stabilises. The pipeline of construction work associated with the Eskom power station build program indicates 20 years of future work in this market. The longer duration of major contracts associated with the power program will alleviate volatility and allow more scope for investment in people, technology and equipment. Concor commenced the 2010 year with an order book of R3,4 billion (2008: R3,3 billion). The company is likely to continue benefiting from its preferred status with many of its major clients in the power generation, railway and mining sectors but, in line with trends in the construction industry, it is likely to experience margin erosion in the highly competitive building market.
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