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                    INTEGRATED REPORT 2015

Strategy

STRATEGIC OBJECTIVES


VISION

The vision of the group is presented here, followed by our six strategic objectives, which are linked to our underlying strategic initiatives, including explicit metrics and indicators where these are available. For more detailed information regarding our performance in relation to these metrics, please refer to the “Performance” section that follows and, in particular, our “Operational review”. this report. The section concludes with our "Year in review” table, which links our strategic objectives and initiatives to the key circumstances, events and trends affecting us during the year.

To be the leading construction company wherever we operate, being “a pleasure to do business with” by delivering quality solutions every time. We are adaptable and flexible enough to “go where the work is”, even when conditions are challenging, without compromising our standards. We navigate competitive market conditions by being flexible, dependable and hard-working and focus on nurturing strong client relationships by delivering on projects consistently.

FLEXIBILITY AND DIVERSIFICATION

Given that the construction environment is characterised by continually changing market conditions, we believe that flexibility and diversification are key attributes for success. Being flexible means our strategy is fluid and adaptable, thus enabling the proactive alignment of our procurement activities with those markets offering the best value. We strive to maintain a low, fixed cost base in higher risk territories, providing the flexibility to move easily between them in response to prevailing conditions. The implementation of a long-term diversification strategy across different geographies and industry sectors, and a presence across all levels of the construction value chain, facilitates our growth objectives, mitigates risk and reduces earnings volatility. Exposure levels to individual sectors and geographies are carefully managed over the short to medium term.

Strategic initiatives and key considerations
  • Geographic diversification and new markets
  • Segment diversification and new markets
  • Strategic project selection
  • Sale of non-core businesses
  • Right-sizing to market demand
  • Specialised project services and innovation
KPIs
  • Revenue growth
  • Revenue by sector
  • Revenue by geography
  • Order Book by segment and geography

PROCUREMENT AND EXECUTION EXCELLENCE

Procurement and execution are simultaneous, continuous and interlinked processes within the group. The quality of submitted bids has a direct impact on the operational performance of the group. We strive to offer clients the right price at fair margins and an acceptable level of risk for all parties. During the procurement process, we seek to identify and secure those projects that will achieve our strategic objectives and create value for our stakeholders. During the execution or operational phase that follows, the brand and reputation of the group is created. A consistently high-quality experience for clients generates credibility and repeat work, and, in turn, enhances our ability to secure future projects.



Strategic initiatives and key considerations
  • Client and project evaluation
  • Tender evaluation
  • Selective bidding
  • Contract payment terms and hedging
  • Performance management
  • Risk management
  • Quality audits
  • Quality training




KPIs
  • Operating margin
  • ISO 9001: Quality Management System
    • Coverage and audit outcomes
    • Training
    • Cost of rework and waste

REPUTATION AND RELATIONSHIPS

A visible profile in the marketplace and our reputation for reliability, consistency and value-for-money are critical to developing and maintaining close relationships with clients and being able to tender on large projects successfully. Our reputation stems not only from delivering a project to the highest standards, but by providing an all round “quality experience”. This is achieved by our commitment to “Execution excellence” and complemented by entrenching our culture and commitment to doing things “the WBHO Way” amongst our teams. The WBHO Way embodies a set of shared values, including reliability, delivery and a focus on building relationships, which together underpin our motto of being “a pleasure to do business with”.

Strategic initiatives and key considerations
  • Stakeholder engagement
  • Ethics programmes
  • Regulatory compliance programme
  • Corporate governance excellence
  • Relationships with prospective clients prioritised
  • Entrenching culture among new employees
  • Client perception survey ratings
  • % negotiations
  • % repeat work from clients

CAPACITY AND TALENT MANAGEMENT

A key element of construction is people management: as demand fluctuates with economic cycles so to do our resourcing requirements, meaning we are in a constant process of right-sizing our teams either upwards or downwards. Robust recruitment processes and sound working relationships with labour unions are critical in achieving this. Active and new projects seldom end and begin in a linear fashion, while the number of workers needed at different stages of projects varies significantly as well. Handling the resulting lags or overlaps we call “managing the gap”, making sure the right skills and manpower are constantly available.

Providing our employees with tangible career development is crucial in earning their loyalty and commitment to “the WBHO Way” as well as achieving our “Execution excellence” and “Transformation” strategic objectives. Through our bursary schemes, inductions, on and offsite training initiatives and management development programmes we aim to equip our personnel with the requisite knowledge and skills at each of the key stages in their growth and development while at the same time addressing the serious skills shortages faced by the construction industry as a whole.



Strategic initiatives and key considerations
  • Training and skills development initiatives including:
    • Learnerships
    • Bursaries
    • Mentoring
  • Management development programmes
  • Targeted recruitment
  • Careful resource allocation
  • Specialist resources introduced to Projects team
  • Leadership reviews




KPIs
  • Employees by region
  • New hires
  • Retrenchments
  • Employee turnover (%)
  • Training spend
  • Training hours (average)
  • No of employees trained
  • ECSA registration programme
  • No of learnerships
  • Bursary spend
  • No of students receiving bursaries

SAFETY AND ENVIRONMENTAL MANAGEMENT

Construction is an inherently dangerous, high-impact activity. As an international contractor with operations across Africa and Australia, it is imperative that we maintain the very highest health and safety standards, not only to ensure employee and subcontractor welfare, morale and productivity, but also because a proven safety record is essential in procuring work in some of our key markets, such as mining. We also have a moral and legal obligation to minimise our impact on the environment in the areas within which we operate. Non-compliance with environmental legislation could harm our reputation and result in legal and financial penalties.

Strategic initiatives and key considerations
  • Accident and near-miss reporting
  • Visible Field Leadership initiative
  • Medical fitness programme
  • Training and awareness programmes
KPIs
  • OHSAS 18001: Safety management system
    • Fatalities
    • LTIFR
    • Alcohol and drug test results
    • Coverage and audit outcomes
  • ISO 14001: Environmental management system
    • Environmental incidents
    • Carbon emissions
    • Coverage and audit outcomes

LOCALISATION AND TRANSFORMATION

These objectives have become key issues on government agendas across all the geographies in which we operate, in particular the transfer of skills and economic benefits to the previously disadvantaged and local inhabitants, as well as representation within our management structures. In an industry dependent on a significant proportion of public sector spending, we understand this to be fundamental to our long-term sustainability.



Strategic initiatives and key considerations
  • Transformation programme
  • Localisation practices
  • Employment equity plan
  • Construction Industry Charter Council representation
  • Communications and negotiations with Department of labour (DOL)




KPIs
  • BBBEE Scorecard rating
  • Workforce by gender, location and contract type
  • SED spend
  • Employment equity plan

YEAR IN REVIEW

OPERATING CONTEXT
IMPACT ON OUR BUSINESS
STRATEGIC RESPONSE
CONTINUED STRENGTH IN THE LOCAL BUILDING SECTOR
Related material issue:
Market dynamics
Related strategic objective:
Flexibility and diversification
Capacity and talent management
  • Further revenue growth in FY15
  • Sustainable margins
  • Improved contracting environment
  • Healthy order book size and horizon
  • Increased capacity requirements
  • Selective bidding on the right contracts for the right clients at the right price
  • Training and skills development initiatives
  • Targeted recruitment
  • Careful resource allocation
  • Focus on execution
  • Improved productivity
LOW GLOBAL COMMODITY PRICES
Related material issue:
Market dynamics
Related strategic objective:
Flexibility and diversification
  • Limited opportunities from mining sector
  • Increased competition
  • Tendered projects shelved or delayed
  • Impact on overall margins due to change in mix of work
  • Declining order books in certain divisions
  • Capacity of Civil engineering division aligned with workload
  • Focus on markets offering opportunities
  • More smaller projects – revised business model and cost structures
  • Reduced capital expenditure
POOR TRADING CONDITIONS IN CONSTRUCTION MATERIALS MARKETS
Related material issue:
Market dynamics
Related strategic objective:
Flexibility and diversification
  • Significant trading losses and impairments recognised in FY14
  • Low margins in FY15
    FY14
  • Strategic fit of construction materials businesses considered
  • Decision to unbundle non-core business from Capital Africa Steel
    • FY15
  • Sale of quarry business
  • Bidding process initiated in respect of CSS
  • Sale agreement in negotiation
LOW GROWTH ENVIRONMENT
Related material issue:
Market dynamics
  • Limited funding for public sector projects
  • Reduced spending from SOEs and provincial governments
  • Government infrastructure rollout further delayed
  • Seek new markets
  • Focus on EPC projects
  • Focus on road sector which does have opportunities
ONGOING ENERGY CRISIS
Related material issue:
Market dynamics
Related strategic objective:
Capacity and talent management
  • Various private power EPC opportunities
  • Specialist resources introduced to Projects team
COMPETITION COMMISSION UNCERTAINTY
Related material issue:
Compliance
Reputation and culture
Related strategic objective:
Relationships and reputation
  • Civil damages claim received from City of Cape Town
  • Referral of “Stadia meeting” to Competition Tribunal
  • Media reports of potential civil claims by SANRAL
  • Positioning of legal defence
  • Strict adherence to compliance governance processes introduced in prior years
RGENCY REGARDING TRANSFORMATION
Related material issue:
Transformation
Related strategic objective:
Localisation and transformation
  • Responsibility to develop and grow local skills and industry capacity
  • Pressure from government:
    • revised DTI codes and alignment of Construction Sector Charter
    • employment equity plans challenged by DOL
  • Sustained focus on transformation objectives:
    • nurturing, growth and retention of black talent
    • investment in emerging contractors through ED programme
  • Working closely with public institutions:
    • representation on, and input into, Construction Sector Charter Council
    • ongoing communication and negotiations with DOL
OPERATING CONTEXT
IMPACT ON OUR BUSINESS
STRATEGIC RESPONSE
UNCERTAIN CURRENCY POLICIES
Related material issue:
Compliance
Related strategic objective:
Procurement and execution excellence
  • Renunciation of USD in Ghana – subsequently reversed
  • Renunciation of USD in Zambia
  • Concerns over liquidity of local currencies
  • Renegotiation of contract payment terms
  • Discussions with financial institutions
  • Currency hedging
LOW GLOBAL COMMODITY PRICES
Related material issue:
Market dynamics
Related strategic objective:
Flexibility and diversification
  • Limited opportunities from mining sector
  • Impact on overall Roads and earthworks margins due to change in mix of work
  • No anchor project secured in West Africa
  • Strategic presence retained in the region
  • Small works contracts undertaken to preserve existing relationships
GAS EPC CONTRACTORS APPOINTED IN MOZAMBIQUE
Related material issue:
Market dynamics
Related strategic objective:
Relationships and reputation
  • Shorter horizon to projects materialising
  • Heightened enquiries from EPC contractors as to capabilities
  • Bidding on early works has commenced
  • Relationships with prospective clients prioritised
OPERATING CONTEXT
IMPACT ON OUR BUSINESS
STRATEGIC RESPONSE
AUSTRALIAN BUILDING MARKETS REMAIN HEALTHY
Related material issue:
Compliance
Reputation and culture Related strategic objective:
Capacity and talent management
  • In excess of 40% growth in FY15
  • Significant number of new personnel
  • Focus on delivery
  • Targeted recruitment
  • Entrenching culture amongst new employees
ENTRY INTO NEW MARKETS
Related material issue:
Reputation and culture
Related strategic objective:
Capacity and talent management
  • Brisbane (FY14)
  • New Zealand (FY15)
    • v Appointed preferred contractor on a major project in Christchurch
  • Further prospects in Auckland
  • Recruitment of project director for New Zealand
LACK OF OPPORTUNITIES IN TRADITIONAL CIVIL MARKETS
Related material issue:
Market dynamics
Related strategic objective:
Procurement and execution excellence
Flexibility and diversification
  • Increased competition
  • Low margin environment
  • Difficult contracting environment
  • Pressure to secure work
  • Four loss-making contracts between the civil businesses
  • Concerns over exposure by South African financial institutions providing support
  • Rigorous tender controls implemented
  • Right-sizing of civil businesses
  • Ongoing claims negotiations to protect contractual rights
INCREASED PUBLIC SPENDING ON INFRASTRUCTURE
Related material issue:
Compliance
Reputation and culture Related strategic objective:
Relationships and reputation
  • Opportunities in new civil markets
  • Need to secure necessary resources to bid and execute potential projects
  • Working capital and guarantee facilities required to support growth in new markets
  • Repositioning and streamlining of civil businesses, now combined and rebranded as WBHO Infrastructure
  • Appointment of new Managing Director for WBHO Infrastructure to drive strategy
  • Open communication with Australian and South African lending institutions to ensure understanding of the business and support
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