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| GROUP CHIEF EXECUTIVE REPORT TO SHAREHOLDERS CONTINUED |
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| In view of current market conditions Murray & Roberts
has set its margin target in the range of 7,5% to 10,0%
for the forseeable future. |
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Pre-acquisition core operations in the Group averaged
revenues of about R8,0 billion over the five years between
2001 and 2005. Including acquisitions, average core
revenues doubled to about R16,0 billion over the two
years to 2007 and with Clough consolidated, we expect
average revenues over the three years to 2010 to
quadruple to R32 billion. It is possible the next decade
will start with revenues about five times higher than the
original R8,0 billion, a compound annual growth of more
than 25% since 2004.
We started with an operating margin of 2,2% in 2000,
reaching the lower end of our strategic range of 5,0% to
7,5% in 2004 and in 2007 we have breached that range
at 8,0%. In view of current market conditions Murray &
Roberts has set its margin target in the range of 7,5% to
10,0% for the forseeable future. |
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View revenue and operating margin chart  |
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| STRATEGY |
| Murray & Roberts is now wholly focused on the
construction economy, serving two linked market drivers
through a diverse range of clustered operating
companies. |
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| 1. |
South African gross fixed capital formation (GFCF),
which is expected to drive annual growth of 15% to
25% through to at least 2014 and probably beyond
to 2025; and |
| 2. |
Global demand for natural resources, which will
continue to drive economic development in many
developing markets and growth in demand for
extraction infrastructure. |
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Our plan is to maintain about two thirds of group activity
in our domestic market, where we seek to build sufficient
critical mass in a variety of key sectors and play a
leadership role in the major opportunities that will flow
from the country's infrastructure development agenda.
On the other hand, the majority of group activities are
directly geared to the infrastructure requirements for
accessing, extracting, beneficiating and industrialising
natural resources. This is particularly true of our
operations in South Africa, Canada and Australia, while
our operations in Middle East are geared to deliver
economic infrastructure funded by free cash flows from
buoyant resource demand. |
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| PERFORMANCE |
I am pleased to report the performance of Murray &
Roberts for the year at the top end of third quarter
guidance offered to the market and substantially
ahead of the prospects statements included in the
2006 Annual Report and 2007 Interim Report. It seems
that the construction industry has accepted that
increased levels of fixed investment are probably
sustainable for some time into the future. This should
increase forecasting confidence.
The Group's operating profit increased 100% to
R1,44 billion off a 61% increase in continuing revenues to
R17,9 billion. The operating margin of 8,0% is the highest
ever recorded by Murray & Roberts and has moved
ahead of the strategic range of 5,0% to 7,5% established
for Rebuilding Murray & Roberts.
Headline earnings per share of 325 cents would have
shown an increase of 104% to 376 cents but for the
negative impact of the A$131 million impairment taken
by associate company Clough against the finalisation of
projects that were entered into before Murray & Roberts'
involvement in the company.
Shareholder funds ended the year at R3,6 billion and were limited to 18% growth by the
Clough impairment and disposal of the Group's automotive operations at a discount to NAV.
This resulted in an improved return of 20,9% on average shareholder funds in the year,
which exceeds the strategic Group target of 20%.
The price of the Group's share on the JSE Limited (JSE) increased 152% from 2 540 cents
to 6 400 cents in the year, peaking more than 200% up at 8 150 cents during July 2007. This
rapid growth resulted in the Group entering the JSE Top 40 Index on 7 May 2007 and we
have subsequently become the largest company by market capitalisation in our sector. The
share peaked at 9 200 cents in September 2007, up more than 40% since year end.
Over the past few years, international emerging market
funds increased their percentage holding in the Murray &
Roberts share register to about 50%. In spite of the
recent global financial market correction, the share has
achieved a premium rating of about 25 times historic
earnings for 2007, which compares to an average
20 times for peer shares. |
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| MARKET |
 We have experienced continued growth and high levels
of activity in all the Group's regional and sectoral markets
through the year. In South Africa, government has
targeted gross fixed capital formation (GFCF) at 25% of
gross domestic product (GDP) by 2014. This is
underpinned by its Accelerated and Shared Growth
Initiative for South Africa (ASGISA) which is predicated on
GDP growth of between 4,5% and 6,0% per annum.
Construction spend is nominally targeted at a third of GFCF and breached 5% of GDP this year
on its way to an estimated high of about 10% between 2010 and 2014. This is up from a low of
about 2,5% of GDP (a sixth of GFCF) in 2000. These statistics imply a potential nominal market
growth in construction spend of between 15% and 25% per annum into the future.
In fact, all markets targeted by the Group continue to promise sustainable growth potential and
in particular, major project opportunity. There is strong evidence of capacity constraints in the
sector resulting in a welcome reduction in the high levels of destructive price competition that had
become a worldwide characteristic of the industry through the 1990s.
In South Africa, a regular process of interest rate increases has gradually dampened consumer
appetite for credit and the previously buoyant housing sector has felt a lowering in demand growth.
However, there are strong signs that the Government's promised investment into primary
economic infrastructure has started to deliver the level and nature of major project opportunity
specifically attractive to the Group.
Globally, socio-economic growth and development, driven primarily from Asia, continues to
place increased demand into the natural resources sector. There are strong indications that
this growth will continue for the foreseeable future before the market reaches a new level of
sustainable demand.
The Group's resources driven international markets have remained positive through the year, with
countries forming the Gulf Cooperative Council (GCC) in Middle East continuing to invest the free
cash flow benefit of strong oil revenues into the extension of their regional economic infrastructure.
The Canadian and Australian mining contracting markets
have continued to offer high growth potential, but similar
investment in the South African market has been lagging.
Conditions in the global oil & gas sector remain buoyant,
which bodes well for the future performance of Australian
subsidiary Clough.
The operational review provides more insight into each of
the Group's sectors and markets. |
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Leadership reports