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| Chairman statement
Dear Shareholder Our financial results for the year to 30 June 2009 reflect the impact of global economic turbulence on our business but also the extent to which we were able to maintain a creditable performance in our domestic and international markets. Revenue and operating profits grew by 27% as the diversity of our operations within the construction economy provided resilience and limited the impact in the sectors most severely affected by the downturn. Diluted headline earnings per share grew by 23% to 675 cents. These results exceeded the top end of the range of advice offered to the market prior to the release of our preliminary results. An important indicator of our financial health is the operating margin, which at 8,6% is consistent with the previous year and remains within our strategic framework. The order book for construction and engineering projects was R40 billion at year-end - in spite of the loss of significant projects - and at 157% of project revenue exceeds global best practice. I am pleased to report that the Board has declared a dividend of 218 cents for the full year (2008: 196 cents). Safety
The Board has noted with concern the death of nine (2008: 16) employees on Murray & Roberts work sites in South Africa. We express our condolences to the families of the deceased. The Board has implemented measures to make our operations safer and, to the fullest extent possible, injury-free. A key initiative in this regard is the STOP.THINK campaign which has been implemented in all South African operations to create a safety culture in which all employees take ownership and responsibility for health, safety and environmental matters. The group consolidated lost time injury frequency rate (LTIFR) of 2,87 (2008: 2,44) indicates that much work is still required for the achievement of our group target of zero fatalities and permanent disablement and a LTIFR below 1,0. Business environment The past year has witnessed the decline of the global economy into its first coordinated recession since World War II, following the global financial crisis. World trade and manufacturing production were particularly hard hit, with commodity prices following the downward trend. Global oil prices, for example, at one stage declined to approximately one third of their all-time high reached in the second quarter of 2008.
South Africa did not escape the fall-out from global events, which exacerbated the cyclical economic downturn that was already underway. In line with global trends, the manufacturing and mining sectors suffered the most, but the downward trend in other sectors of the economy, including residential construction, did not ease up in spite of lower interest rates. A number of major long term transport infrastructure and power capacity expansion programs initiated in recent years provided a buffer for the domestic construction industry and will continue to deliver value for Murray & Roberts after the shorter term projects associated with the 2010 FIFA Soccer World CupTM are completed. Most of the sectors and geographic areas targeted by our Group were strongly impacted by the economic downturn. Some countries in the Middle East suffered a severe decline in revenue, making the review of spending plans unavoidable. However, the events also underscored the necessity to diversify these economies which will require the ongoing creation of a supporting infrastructure. Our construction business in the Middle East had four of its major secured projects in Dubai, Bahrain and Abu Dhabi terminated during the year. But, a focused risk management regime and judicious expansion into other markets in the region supported a robust financial performance by this operation. In the global mining sector, the sharp decline in commodity prices caused the postponement or cancellation of a number of capacity expansion projects. Of course this development holds in itself the possibility of sharply higher future commodity prices and a scramble for increased supply as the challenge of growing resource scarcity remains as valid as ever. But, during the year, our mining businesses in South Africa, Canada and Australia were severely impacted by market conditions. All three operations experienced the postponement or cancellation of significant projects. However, ongoing long term projects for key global clients in South Africa and Canada provided a buffer for the performances of these operations. Indications are that economic conditions are stabilising, partially in response to measures taken to address the risk of systemic failure in the financial system and the adoption of exceptionally stimulatory policies. Interest rates have declined sharply and fiscal packages are targeting increased spending on infrastructure development. Strategic positioning Murray & Roberts has undergone significant transformation and growth in recent years and now faces the challenge of maintaining future growth in challenging and rapidly changing domestic and global environments. The Board has approved a new strategic phase referred to as Reframing Murray & Roberts. While retaining the core elements of our strategy, Reframing Murray & Roberts prioritises organic growth and acquisitions required to build the critical mass necessary to remain competitive and maintain future growth in our targeted sectoral and geographic markets.
Human capital Murray & Roberts considers its people and leadership teams as a key source of competitive advantage. An important element of Reframing Murray & Roberts is the continuous development of our human capital resource - from our workforce to our executive leaders - to ensure that we have the stability, capacity and ethical steadfastness required to meet the demands of our business environment. We have engaged in a comprehensive range of strategies to ensure that our human capital is capable of achieving our strategic and transformation objectives. We have strengthened group leadership and facilitated succession planning with key appointments and intensified our focus on the recruitment, retention and development of future leaders by adopting the graduate and leadership pipeline approach. Our investment in formal training and development across the Group amounted to R96 million (2008: R106 million), with R34 million invested in an Artisan Training Centre at Lephalale FET College, where 700 artisans will be trained for the Medupi Power Station. Furthermore, the Group funded 193 bursars at South African tertiary institutions and approximately 10 000 employees undertook skills enhancement and training development. Black economic empowerment Broad-based empowerment is essential for the long term economic and social stability of South Africa and the development of the construction, mining and engineering sectors. Murray & Roberts has achieved important milestones in the implementation of a comprehensive strategy to address the full range of empowerment requirements across its diverse range of operations serving the domestic construction economy. During the year, a review of the Group's empowerment status relative to various industry charters and current legislation concluded that the Group's broad-based black economic empowerment rating improved to level five and we registered 28,4% broad-based black ownership based on dti Codes of Good Practice. The Letsema broad-based black economic empowerment (BBBEE) scheme has created wealth of more than R1,2 billion for an estimated 20 000 employees and community participants and total dividends of R112 million have been paid to the trusts to date. Furthermore, we contributed R45,7 million towards enterprise development and invested R21,1 million in socio-economic development from the dividend gains of the Letsema BBBEE scheme. At a leadership level, the composition of the Board will increasingly reflect the transformation of South African society. Currently, six directors are black, three of whom are women. Murray & Roberts has four black and women managing directors and one black cluster chairman in its operations in the SADC region. Sustainability Murray & Roberts is committed to enhancing the growth of its business and adding value in a responsible and sustainable manner. We recognise that we have a duty to create value for our current stakeholders and future generations. Murray & Roberts has adopted the Global Reporting Initiative (GRI) reporting guidelines to measure and report performance against economic, environmental and social parameters. We apply the principle of zero harm to our company and all aspects of our business - our people, our shareholders, our clients and business partners, the natural and built environment impacted by our operations and broader society. Risk management A critical element of our future sustainability is our ability to manage risk. The Group has adopted the principle that opportunity is derived from acceptance of risk and value from management of risk. A group risk framework governs the management of risk at all levels of the organisation and an enterprise risk management process is applied in all areas of potential exposure to risk, including acquisitions, capital expenditure, projects, health, safety & environment and brand integrity. Competition Murray & Roberts supports free and competitive markets and has adopted a position of zero tolerance towards anti-competitive behaviour and collusive misconduct. In compliance with its legal obligation, Murray & Roberts took an industry lead in initiating internal audits in its operations and conducts a program of communication and training to assist employees in understanding competition law and its implications for the Group. Where any evidence of possible collusion is uncovered, disclosure is made and full cooperation given to the authorities. Murray & Roberts is concerned by and denies recent allegations and statements of widespread and prevalent collusion in the construction industry but acknowledges that the past history of the sector may support this perception. There have also been allegations of a steel producers' cartel. Cape Town Iron & Steel Works (CISCO) is a subsidiary of Murray & Roberts and denies any knowledge of such a cartel being in force. The forensic investigations undertaken by Murray & Roberts consequent to the so-called "dawn raids" by the Competition Commission, indicate that, if anything, CISCO, has for a number of years, been a victim of predatory pricing by the larger inland steel mills. Murray & Roberts does not deny that in insolated instances, individuals in the Group have acted fraudulently in what can be construed as collusive behaviour. These are the independent actions of individuals for personal gain. The Group has forensically investigated all its operations in the context of competition law and where such isolated irregularities have been found, it has engaged with and placed leniency markers with the Competition Commission. Corporate governance The Board is of the opinion that Murray & Roberts complies with the Listings Requirements of the JSE Limited and the Code of Corporate Practices and Conduct embodied in the King Report on Corporate Governance 2002 (King II). Following the release of the King Report on Goverance for South Africa 2009 (King III), the Board will conduct a full review of applicable mandates and committee terms of reference. Internal appraisals of the effectiveness of the Board, its committees, the chairman and individual directors were conducted during the year. The appraisals were benchmarked against the strategic requirements of Murray & Roberts and the need to ensure the capacity to deliver these requirements and strengthen the diversity and sector expertise of directors. The appraisals were positive and their recommendations are being followed through for implementation. An external appraisal will be conducted next year. King III recommends that the independence of non-executive directors be assessed by the Board on an annual basis. The Board, assisted by the nomination committee, conducted a review of the independence of its non-executive directors. All non-executive directors meet the criteria set out in King III for determining their independence in fulfilling their duties towards the company. The average length of service of the non-executive directors was four years and six months during the year under review.
Board of directors Following the retirement of Martin Shaw, Boetie van Zyl and Keith Smith at the 2008 annual general meeting, it has been a great pleasure to welcome two new non-executive directors to the Board this year. Alan Knott-Craig was appointed a non-executive director and chairman of the health, safety & environment committee with effect from 27 November 2008. Alan brings extensive business experience to the Board. He was previously chief executive of Vodacom Group and now consults in the field of telecommunications. Alan is a director of Nedbank Group Limited and a board member of the Council for Scientific and Industrial Research and Right to Care. Adv Mahlape Sello was appointed a non-executive director and member of the audit committee with effect from 25 February 2009. Highly regarded in the legal fraternity, Mahlape serves on the Johannesburg Bar Council and is a member of the South African Law Reform Commission. She is also chairperson of the Advisory Committee on Licensing of Private Hospitals at the Gauteng Health Department and served for six years as a member of the Construction Industry Development Board and its task team. Subsequent to the year-end, we welcomed two new executive directors to the Board. Malose Chaba was appointed an executive director with effect from 1 September 2009. Malose, an electrical engineer, joined the Group as managing director of Murray & Roberts Engineering Solutions in 2004 and was appointed group chief engineer and chairman of the engineering contracting cluster in 2008. In 2009 he was appointed to his current role as group head of assurance. Trevor Fowler joined the Group and was appointed an executive director in September 2009. He will succeed Keith Smith as executive chairman of the Construction SADC cluster during the year and will be responsible for expanding the Group's engagement with the rest of Africa. Trevor is a civil engineer and was previously chief operating officer in the South African Presidency. In addition, Dr Orrie Fenn, chief operating officer of PPC, will join Murray & Roberts and be appointed an executive director in November 2009. Orrie will assume full executive responsibility for all the businesses forming the Construction Products SADC cluster. Appreciation The challenging business environment in which we operated during the year placed significant pressure on our people. I wish to record my appreciation for the wise counsel provided by my fellow board members, the resilience of Brian Bruce and his executive team in a period of extreme challenge and the commitment of every Murray & Roberts employee to our Group. My thanks also go to our clients, our empowerment and commercial partners and our shareholders for their ongoing support. Annual general meeting Shareholders are reminded that the annual general meeting of the company will be held on 21 October 2009. The order of business is set out on pages 196 to 201 of this report. Prospects Murray & Roberts is a resilient organisation with a strong and experienced leadership team. The Group is confident that the current slowdown in fixed capital formation is a temporary correction and that markets remain on course for a long term growth trajectory. While the Group does expect growth in the year ahead, if not in all companies and markets then from the new markets and opportunities it has committed to engage, volatility of the South African Rand against the US Dollar and other international currencies may impact the translation of the Group's 40% international earnings. A business update will be presented at the Group's annual general meeting. The financial information on which this prospects statement is based has not been audited or reviewed by the Group's auditors. Roy Andersen
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