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About us
Contact Person

Pieter van Dam
Group executive responsible for risk management
+27 11 456 1004
pieter.vandam@murrob.com

Pieter  van Dam

Risk Management

Although a level of risk awareness and response is embedded in daily management and operational activities, a large and complex Group faces corresponding risks. This in turn requires of management to design and implement a planned and structured approach to understand, identify, report, price, manage, mitigate and close out the Group’s large and complex risks. This includes governance structures (such as the Board risk management committee, the executive committee and the operating platform risk structures), organisational leadership, strategic planning and effective management to ensure that the appropriate operational and functional capacities, controls, systems and processes are in place to manage risk. Underpinning this is the Group Integrated Assurance Framework.

The Group risk management framework comprises one of three building blocks that make up the Group Integrated Assurance Framework, and aims to:

Align strategy with risk tolerance
Improve decision-making which improves the Group risk profile
Promote the strategic and coordinated procurement of quality order book
Ensure equitable commercial terms and conditions are contracted, and the rational pursuit of commercial entitlement
Promote rigorous project reviews, and timeous response to contracts in distress
Promote continuous improvement through the application of key lessons learnt
Reduce operational surprises, improve predictability and build shareholder confidence
Build robust organisational risk structures and facilitate timeous interventions, to promote long-term sustainability
Promote the efficient and proactive utilisation of opportunities.

REGULATORY COMPLIANCE

With the growth of the Group over time, in new geographies and disciplines, regulatory compliance is a large and complex area to understand. This in turn requires a structured approach to evaluate exposure and ensure adequate responses are initiated timeously to mitigate and avoid any negative impact on the Group’s performance through regulatory non-compliance. The regulatory compliance function provides specific focus on regulatory compliance risk within the context of the Group Integrated Assurance Framewo

The implementation of the Group regulatory compliance framework focuses on the seamless integration of regulatory compliance in conjunction with risk management and internal audit into business planning, execution and management.

The context within which the Group identifies, assesses and responds to risk and opportunity is described below in terms of its prevailing strategic, corporate, operational and project environments:

Group Risk Management Framework

01   02   03
ORGANISATIONAL RISK STRUCTURES
In addition to the various Group operating boards’ responsibilities, organisational structures have been created and tasked with risk governance and include the risk committee, the Murray & Roberts Limited risk committee and the Murray & Roberts Limited project oversight committee.
  STRATEGIC RISK MANAGEMENT
Strategic risk is evaluated as a hurdle to achieving the Group’s long-term strategy. Direction is set for organic and acquisition growth to access new markets and create new capacity, and applies to acquisitions, disposals, new business development and timely and needed leadership intervention.
  FUNCTIONAL SUPPORT 
Dedicated functional support for risk management has been created at Group level and within operations, including enterprise functional leadership, risk management monitoring, risk-based audit programmes and operational and risk focus.
04   05   06
OPERATIONAL RISK MANAGEMENT
Operational risk is evaluated as a hurdle to achieving planned profits within the Construction Africa and Middle East, Engineering Africa, Construction Global Underground Mining, Construction Australasia Oil & Gas and Minerals operating platforms.
  PROJECT RISK MANAGEMENT 
Project risk is evaluated as a hurdle to delivering contracted scopes against cost, time and technical performance targets, while maintaining health, safety and environmental performance at acceptable levels. A Project Management Implementation Manual sets the minimum standard for project management required in the delivery of projects across the Group. A Project Management Development Programme will be launched in FY2014 to enhance project management skills across the Group. The manual will be the programme’s main reference work. The manual also provides internal audit with a consistent set of processes and controls against which assurance of project performance is tested. Project risk management activities include the Group risk tolerance filters, lessons learnt register and schedule of contracting principles, project reviews and project dashboards.
  CORPORATE RISK MANAGEMENT 
Corporate risk management relates to a range of portfolios within the corporate office which address various forms of risk including risk management standards and procedures, the Statement of Business Principles, regulatory compliance, commercial and legal oversight, integrated assurance, IT business continuity and disaster recovery, treasury, bonds and guarantees, insurance, crisis communication and forensic investigation.

 

STRATEGIC RISK

NO.
TREND
RISK
MITIGATION
01
Industrial unrest

Continued industrial unrest in South Africa is causing project delay and disruption, as well as discouraging investment in new capital projects, particularly in the mining sector. There are indications of a structural shift in the local labour market, which will negatively impact both project and business performance. A number of organised union structures are no longer effective in reaching negotiated settlement with regard to project labour agreements, with resultant unprotected strike action and violent protest continuing.


Employee/industrial relations specialist appointed to assist with developing a broad-based mitigation strategy for the volatile labour environment.
Contract and commercial management on projects has been enhanced to ensure early and comprehensive pursuit of commercial entitlements.
Focus on growing footprint in less risky markets and sectors.
02
Macro economy

Global demand for commodities is primarily driven by economic growth in China and India. A slowdown in these economies could dampen the commodity run, which would impact negatively on businesses servicing the mining industry.

Europe’s stagnation has forced European-based contractors into new markets, with an increased appetite for risk and competition in Africa and the Middle East.

Declining business confidence in South Africa, as well as the volatile labour market and increased power costs, could lead to reduced foreign investment and may further constrain opportunities in the local mining markets.

Insufficient South African Government infrastructure spend in the Murray & Roberts area of focus impacts negatively on a number of business areas within the Construction Africa and Middle Middle East operating platform, in particular civils and roads & earthworks.


Focus on key client relationships to promote negotiated contracts with equitable terms, focusing on value creation rather than lowest price.
Focus the Group’s local capacity to align with anticipated Government spend.
  Develop African growth strategy focused on Ghana, Zambia, Kenya and Mozambique.
Grow further in non-traditional mining commodities such as oil & gas.
03
Successful integration after acquisition of Clough minorities

Full ownership of Clough may not deliver the benefits and synergies priced into the transaction. This includes how Clough is perceived by its clients (as non-Australian) as many Australian companies and entities want to do business with an Australian contractor.


Focus on retaining the Clough leadership team.
Retain and promote the Clough brand.
Execute a clear integration plan to extract duplicate costs and drive value and opportunity, especially in growth areas.
04
Construction Products Africa operating platform 

The construction products business in South Africa is highly sensitive to local market conditions, and is generally not able to adapt product ranges, or relocate plant to meet changing market market dynamics.


The disposal of the Construction Products Africa businesses has been made during the year, and is nearing completion.
05
Group liquidity 

Losses and severe working capital demands from projects, in particular GPMOF, Dubai International Airport and Gautrain, created significant liquidity stress for the Group.


Disposal of a number of construction products businesses has released additional capital through the year.
Successful debt restructuring has been concluded.
Pursuit of claims on GPMOF, Dubai International Airport and Gautrain is in progress.
06
New growth markets 

Oil & gas is needed to fuel energy demands from global urbanisation. Clough is strategically placed to benefit from the oil & gas outlook and become a meaningful player and facilitator in the growing African gas market, in addition to its traditional Australasian markets.


Offer to buy out the Clough minority shareholders has been made.
07
Transformation 

Lack of transformation (employment equity) and a low Broad-Based Black Economic Empowerment (BBBEE) rating could reduce Murray & Roberts’ chances of being successful with South African public sector tenders or incurring client sanction or penalties on current South African projects if contractual BBBEE obligations are not met.


Focus on improving BBBEE rating.
08
Leadership capacity to support growth strategy 

The Growth strategy continues to place demands on leadership capacity.


All key positions across the Group have been filled, and the Group is well resourced for its Growth strategy.
A new remuneration policy is in place focusing on performance and retention of key talent.
Performance management and development as a leadership tool has been embedded within the Group.
Regular succession reviews are held to identify potential talent retention risks and apply appropriate career planning strategies to individuals.

COLOURS: YELLOW – HIGH, DARK GREY – MEDIUM, LIGHT GREY – LOW
RISK TREND: ARROW UP – INCREASING, ARROW DOWN – DECREASING, ARROW RIGHT – STABLE
OBJECT:   OPPORTUNITY ,   NEW RISK


OPERATIONAL RISK

NO.
TREND
RISK
MITIGATION
09
Health, safety and environmental exposures 

The Group has made significant progress in managing the safety risk, with a record-low LTIFR of 0.82 achieved in the reporting period and fatalities at a decade low of 2. However, anything more than Zero Harm remains a concern.


The majority of operating companies in the Group are OHSAS 18001 (health and safety) and ISO 9001 (quality) certified. Good progress is being made to achieve the same level on ISO 14001 (environmental) certification.
Good progress has been made in implementing the Zero Harm through Effective Leadership programme which is aimed at establishing a high-performance culture that will ensure sustainable improvement in health and safety
An enhanced employee health and wellness programme has been rolled out to improve health and wellness standards and performance across the Group.
Environmental reporting standards have been enhanced to ensure consistency and improvement of the quality of environmental data. Qualitative environmental improvement targets were developed at Group level and form the basis for further improvement of the environmental programme.
10
Competition law 

Murray & Roberts’ disclosures to the Competition Commission relevant to its Fast-Track Settlement investigations into historical anti-competitive practices resulted in an administrative penalty of R309 million being imposed. The residual risk of third-party claims and damage to reputation still remains.


Prior provision for the administrative penalty had largely been made, which is payable in three instalments, one of which has already been made.
The Group chief executive has engaged with the media and issued a press release to ensure that reporting is balanced and accurate.
Although damages and quantum are difficult to prove, Murray & Roberts is well prepared for any third-party claims which may arise.
The Group’s Statement of Business Principles, which include the prohibition of anti-competitive practices, is being proactively entrenched across the Group.
A system of tender declarations and bi-annual executive declarations, covering the prohibition of unethical and unlawful practices, has been implemented across the Group.

COLOURS: YELLOW – HIGH, DARK GREY – MEDIUM, LIGHT GREY – LOW
RISK TREND: ARROW UP – INCREASING, ARROW DOWN – DECREASING, ARROW RIGHT – STABLE
OBJECT:   OPPORTUNITY ,   NEW RISK


PROJECT RISK

NO.
TREND
RISK
MITIGATION
11
Project performance 

A number of projects within the Group’s portfolio delivered losses during the year under review. The primary causes included (i) inability to secure labour rates at tender prices and achieve the tendered production rates, (ii) escalating labour unrest and (iii) scope variations with outstanding claims (which have not been taken to account).


Management regularly reviews underperforming projects to establish the cause and extent of project difficulties, and develop recovery plans and programmes.
Clients are engaged to find common cause around the recovery plans.
Oversight committee to continue reviewing projects in distress and provide guidance until improvements are embedded.
12
Lack of formalised project management discipline 

Internal audit findings indicate that there was a general lack of formalised project management discipline (such as risk registers, cost controls and forecasting, as well as schedule and change management) on a number of projects. This introduces risk of cost overruns, late delivery and unpredictable profitability on projects.


A project management implementation plan, setting out formal project management processes, systems and controls, has been developed by the Group and is in final testing by KPMG.
Operating platforms have actively implemented the formalised project management processes, systems and controls, on which the project management plan is based, with the necessary skills capacity.
I nternal audit will continue to test that the formalised project management processes, systems and controls on which the project management implementation plan is based, are implemented and applied across all critical and high-risk projects.
13
Risk at tender stage and commercial close 

Compromises during the tender stage due to pressure to win work may introduce risks which are outside the defined risk tolerance.


Murray & Roberts Limited risk committee reviews high-risk bids, and sets formal negotiating mandates.
All projects presented to the risk committee are evaluated against past lessons learnt and agreed Group contracting principles.
Managing directors confirm that contracts are closed out in full compliance with the mandates given.
Group commercial reviews all contracts for red-rated projects to ensure that they are in line with the mandate given, and do not deviate from the schedule of contracting principles.
14
Medupi (civil works) 

Following wide-scale and prolonged industrial action in South Africa, there is a risk of not being compensated for losses due to lost time and disruption.


Rigorous contract management and administration is being exercised.
Uncertified revenue claim on this project has been agreed by the client.
15
Medupi and Kusile (mechanicals) 

Murray & Roberts’ contracts on the Medupi and Kusile boilers were renegotiated as cost plus. The terms of the new contracts have effectively protected Murray & Roberts from incurring losses which would otherwise have been incurred under the original contracts. However, the recent labour unrest experienced in the relevant construction areas has placed pressure on the underlying contractual relationships.


Engage client early, urgently and regularly to ensure the labour unrest does not give rise to unplanned difficulties or disallowed costs.
Rigorous contract management and administration are exercised at all times.
16
Lonmin opencast mine 

An addendum to the contract was signed, which included production incentives, plant inefficiencies and labour productivity. However, the project has been plagued by ongoing industrial action and unprotected strikes, which levied significant pressure on the ability to perform within the contract allowables.


Discussions are being held with the client to renegotiate the contract.
A parallel dispute resolution mechanism is being pursued to remedy current hardship experienced under the contract.

COLOURS: YELLOW – HIGH, DARK GREY – MEDIUM, LIGHT GREY – LOW
RISK TREND: ARROW UP – INCREASING, ARROW DOWN – DECREASING, ARROW RIGHT – STABLE
OBJECT:   OPPORTUNITY ,   NEW RISK


CORPORATE RISK

NO.
TREND
RISK
MITIGATION
17
Uncertified revenues 

Uncertified revenues taken to book on GPMOF, Dubai International Airport and Gautrain, must still be realised through protracted claims processes. This creates the risk of a write-back of revenues accounted for in prior financial years if the outcomes are less favourable than anticipated.


Favourable arbitration ruling received on design changes for GPMOF. Formulation of the claim is progressing.

An oversight mandate has been concluded in relation to the

Dubai International Airport dispute, and renewed effort is being committed to this process.

Gautrain delay and disruption claim formulation is progressing.
Uncertified revenue claim on Medupi civils works has been agreed by the client.

COLOURS: YELLOW – HIGH, DARK GREY – MEDIUM, LIGHT GREY – LOW
RISK TREND: ARROW UP – INCREASING, ARROW DOWN – DECREASING, ARROW RIGHT – STABLE
OBJECT:   OPPORTUNITY ,   NEW RISK