LEIGHTON HOLDINGS LIMITED FIRST QUARTER UPDATE 10/11 In this Issue First quarter highlights The AGM: Chairman and CEO s addresses Feature Articles: Leighton and the NBN; Renewable Energy; Hong Kong infrastructure; Infrastructure needs of cities; Ethical business; and Indigenous Participation
Leighton First Quarter Update 10/11 Leighton Holdings Limited is the parent company of one of the world s major project development and contracting organisations. The Group s companies provide construction, mining and operation and maintenance services to the infrastructure, resources and property markets. The Group is the world s largest contract miner and its companies are active in Australia, Asia and the Middle East region. Produced by Communications, Leighton Holdings Limited Designed by Frost* Principal Photography by Kraig Carlstrom Print Management by MixInc Printing by Geon Leighton Holdings Limited ABN 57 004 482 982 Head Office 472 Pacific Highway St Leonards NSW 2065 Australia T +61 2 9925 6666 F +61 2 9925 6005 www.leighton.com.au leighton@leighton.com.au After a record year in 2010/11, the year has started somewhat disappointingly. Our result for the quarter has been negatively impacted by a combination of difficulties on the Airport Link project in Brisbane, the strength of the Australian dollar, which reduced the contribution from overseas operations, and a write-back of Leighton Contractors joint venture rail project with Macmahon in Western Australia. Total revenue for the first quarter to 30 September 2010 was up by 4% to $4.7bn while work in hand at 30 September stood at $42.5bn, up by 2.4% since 30 June 2010 although this figure was negatively impacted by approximately $1.8bn due to currency. The September results reflect a deterioration of $85m, primarily due to Airport Link, and we have therefore recorded a profit after tax for the quarter of $48m. A summary of financial information for the first quarter of the 2010/11 financial year is set out on page 3. For the 2010/11 financial year the Company expects to report revenue of around $20bn and an operating profit after tax of around $510m. Negotiations for the sale of a stake in the Group s Indian business are progressing and when finalised should allow the Company to report a full year profit result in line with market expectations and above last year s record profit of $612m. While the performance of the Airport Link project is disappointing, the rest of the Group had a strong quarter. Looking forward, we remain confident about the prospects for the business, based on very high levels of work in hand, a strong competitive position and the underlying strength of most of our major markets. David Mortimer AO Chairman
WELCOME TO West Gate Bridge Strengthening John Holland Victoria, Australia Contents 3 Financial Highlights 4 News and Media Releases 6 49th Annual General Meeting 8 Address to Shareholders 14 A Look to the Future 20 Leighton and the NBN 22 Renewable Energy 24 Hong Kong: Planning for Prosperity 28 The Increasing Infrastructure Needs of Cities 30 Sustaining an Ethical Business 32 Indigenous Participation: Supporting the National Conversation 1
Leighton First Quarter Update 10/11 2
Bulk Water Alliance John Holland Australian Capital Territory Q1 FINANCIAL HIGHLIGHTS # 30 Sept 2010 30 Sep 2009 % A$ 000 A$ 000 Change Revenue Group 3,423,783 3,500,904 (2) Joint Venture and Associates 1,307,714 1,031,176 27 Total Revenue 4,731,497 4,532,080 4 Value of Work in Hand 42,482,999 38,225,516 11 Profit before tax 66,811 174,621 (62) Income tax expense (19,041) (43,835) (57) Profit after tax 47,770 130,786 (63) Profit attributable to minority interests 88 114 (23) Profit attributable to members 47,858 130,900 (63) Balance sheet information Total assets 8,283,371 7,467,668 11 Total liabilities 6,058,543 5,254,683 15 Net assets 2,224,828 2,212,985 1 Net tangible assets 2,100,201 2,088,707 1 Net tangible assets per ordinary share (A$) A$6.98 A$7.01 ( ) # Unaudited key performance features for the 3 months ended 30 September 2010 Total Revenue $4.7 billion Work In Hand $42.5 billion Profit Before Tax $67 million Profit Attributable to Members $48 million 18.0 67 48 2.9 3.1 4.1 4.5 4.7 23.5 35.4 38.2 42.5 102 126 130 175 76 98 105 131 06/7 07/8 08/9 09/10 10/11 06/7 07/8 08/9 09/10 10/11 06/7 07/8 08/9 09/10 10/11 06/7 07/8 08/9 09/10 10/11 3
Leighton First Quarter Update 10/11 4 NEWS AND MEDIA RELEASES J 1 JULY 2010 MAJOR ROAD TUNNEL AND PORT PROJECTS AWARDED TO LEIGHTON INDIA Leighton India was awarded two major infrastructure projects worth US$550 million. The Chenani Nashri tunnel in Jammu, Northern India is a 2 lane, 14 metre diameter tunnel approximately 9 kilometres long, and will be one of the longest road tunnels in Asia. Leighton India is also a member of a consortium with Sterlite that was awarded the Vizag Port expansion. Leighton will undertake the construction work, which includes widening the existing 350 metre long general cargo berth by 21 metres for coal unloading, as well as providing foundations for 2.5 kilometres of conveyor gallery and the construction of a new stockyard and administration building. 12 JULY 2010 LEIGHTON INDIA WINS US$40M PARADIP PORT PROJECT Leighton Contractors India won its second port project in recent months, acknowledging its extensive expertise in marine construction. Paradip Port Trust has awarded the consortium of Sterlite Industries and Leighton Contractors India the contract to develop a multi-purpose berth to handle clean cargo. Leighton India will undertake the EPC civil works contract to construct the wharf and associated facilities, valued at approximately US$40m. 15 JULY 2010 CONTRACT EXTENSION FOR LEIGHTON CONTRACTORS HWE Mining, a wholly owned subsidiary of Leighton Contractors Pty Limited, announced that it has agreed with BHP Billiton Iron Ore to extend the term of the Mining Area C contract mining works for a further six months while the parties complete negotiations to extend the contract until 30 June 2015. ADDITIONAL WORK FOR UHG COAL MINE IN SOUTHERN MONGOLIA Leighton Asia secured a A$700 million contract adjustment to increase production at the Ukhaa Khudag (UHG) coal mine in southern Mongolia. Energy Resources LLC has requested Leighton Asia to expand the production capacity at its UHG coal mine in the South Gobi region of Mongolia. The contract adjustment will ramp up production rates from current levels to 15 million tonnes per year by January 2013. Leighton Asia was awarded the mining contract for the UHG mine in February 2009 and coal production commenced in April 2009 with total production of 1.8 million tonnes in the year ended 31 December 2009. 23 JULY 2010 LEIGHTON COMPLETES US$350 MILLION DEBT PLACEMENT Leighton Holdings Limited successfully completed the issuance of US$350 million of Guaranteed Senior Notes in the United States. The Private Placement had a mix of maturity terms ranging from 5 years (US$90 million) to 7 years (US$145 million) to 10 years (US$115 million) and was taken up by 18 US based institutional investors and 1 Australian institutional investor. 26 JULY 2010 LEIGHTON ASIA AWARDED 5 YEAR MINING CONTRACT IN INDONESIA Leighton Asia secured a A$172 million contract for the provision of mining services at the Martabe Gold Mine in North Sumatra Province, Indonesia. The Martabe gold mine is recognised as a world class gold/silver asset; containing a resource base of 6.5Moz of gold and 66Moz of silver. Located in North Sumatra Province, Indonesia, it is part of G-Resources Group Ltd s operations. 29 JULY 2010 THIESS SERVICES SECURE 5 YEAR CONTRACT WITH ERGON ENERGY Queensland s Electricity provider, Ergon Energy, selected Thiess Services to provide network construction and maintenance services to its growing Central and Northern regions, under a five-year agreement valued at up to A$100 million. This recent contract win extends the long standing relationship between Ergon Energy and Thiess Services.
16 AUGUST 2010 13 SEPTEMBER 2010 12 AUGUST 2010 LEIGHTON CONTRACTORS AND VESTAS CONSORTIUM AWARDED A$1 BILLION CONTRACT FOR THE MACARTHUR WIND FARM DEVELOPMENT Leighton Contractors, in consortium with Vestas, was awarded a contract by the AGL and Meridian Joint Venture for the A$1 billion Macarthur Wind Farm development in the Western Districts of Victoria. Proposed as the largest wind farm in the southern hemisphere, the farm will generate up to 420 Megawatts of electricity enough energy to power around 220,000 average Victorian homes each year. It is expected the first section of the wind farm will be complete in May 2012, with a total project completion date scheduled for early 2013. 16 AUGUST 2010 THIESS HUNTER EXPRESSWAY CONTRACT FINALISED AT A$825 MILLION Preliminary design and construction costing has been completed on the eastern section of the Hunter Expressway Project in NSW with the contract finalised at A$825 million. The eastern section will be constructed by Thiess in alliance with Parsons Brinkerhoff and Hyder Consulting. The completed Expressway will cut travel times between Newcastle and the Hunter by 28 minutes. At 13.3km long, the Alliance section will include a four-lane divided highway from the end of the Newcastle Link Road to Kurri Kurri in the Hunter Valley. LEIGHTON ANNOUNCES RECORD PROFIT OF A$612M AND WORK IN HAND OF A$41.5BN Leighton Holdings Limited today announced a 39% increase in profit after tax and minorities to A$612m (A$440m last year) and a pre-tax profit of A$843m for the 2010 financial year. The return on shareholders funds averaged 25% for the year with a record net operating cash flow of A$1.7 billion. A fully franked final dividend of 85 cents per share was also announced by the directors bringing the 2010 full year ordinary dividend to a total of 150 cents per share (up 30% from 115 cents per share last year). 18 AUGUST 2010 ANOTHER RAIL PROJECT AWARDED TO LEIGHTON ASIA MTR Corporation has awarded Leighton Asia, acting in a joint venture, a A$409 million contract to construct the West Kowloon Terminus Approach Tunnel and Track Fan Tunnel section of the Guangzhou Shenzhen Hong Kong Express Rail Link (XRL). This is the second XRL project contract to be awarded to Leighton Asia, following the award of a A$463 million contract in March this year for the construction of tunnels and a ventilation building in the Tse Uk Tsuen to Shek Yam section. 24 AUGUST 2010 LEIGHTON OFFSHORE AWARDED US$66M TANZANIA SPM PROJECT Leighton Offshore was awarded a US$66m contract by the Tanzania Ports Authority to install a single point mooring (SPM) and pipelines in Dar Es Salaam Tanzania. Leighton Offshore s scope of work includes engineering and procurement, project management, pre & post installation surveys, supply and installation of the SPM system, as well as testing and commissioning. Leighton will also install a 28 pipeline (3.6 kilometres offshore and 4.3 kilometres onshore) and a 24 pipeline (3.6 kilometres offshore and 4.3 kilometres onshore). 1 SEPTEMBER 2010 AL HABTOOR LEIGHTON GROUP AWARDED A$220 MILLION BUILDING PROJECT IN DUBAI Al Habtoor Leighton Group (HLG) was awarded a A$220 million (AED 700 million) building project in Dubai by Daman Investments. The project involves the completion of Daman s Buildings by Daman project at the Dubai International Financial Centre. The project has already commenced HLG will be responsible for completing its delivery. The development comprises three towers a 20-storey office block, a 60-storey hotel, and a 60-storey apartment block with an intricate steel inter-connection between two of the towers. 13 SEPTEMBER 2010 DAVID STEWART TO SUCCEED WAL KING AS CEO AT LEIGHTON Leighton Holdings Limited announced that in accordance with the succession strategy commenced some 2 years ago, Mr Wal King will retire after 23 years as Chief Executive Officer and Managing Director, effective 1 January 2011. Mr David Stewart, currently Chief Operating Officer of Leighton Holdings, will assume the role of CEO effective from that date. JOHN HOLLAND WINS A$276 MILLION CONTRACT FOR NEW PORT FACILITY IN WESTERN AUSTRALIA John Holland was awarded a A$276 million marine contract which forms part of the early works for Rio Tinto s Cape Lambert Port B Project in Western Australia s north-west. The contract package involves the construction of a 920-metre jetty and two-berth wharf, new shiploading facilities and associated piping works. The project, to be delivered as a collaboration between John Holland s Energy & Resources and Western Region businesses, will increase capacity at the Cape Lambert port by 50 million tonnes per annum. 22 SEPTEMBER 2010 LEIGHTON ASIA HAS SECURED A A$180 MILLION CONTRACT TO CONSTRUCT THE CENTRAL INTERCHANGE OF THE CENTRAL TO WAN CHAI BYPASS The contract comprises two bridges totalling 305m in length, 224m of cut and cover tunnel and a 116m approach ramp as well as the realignment and reconstruction of existing roads and landscaping works. The interchange links the existing elevated highway in the west to the tunnel already under construction on Leighton Asia s Central Reclamation Phase III contract. 23 SEPTEMBER 2010 LEIGHTON CONTRACTORS AWARDED SECOND SIGNIFICANT CONTRACT AT GORGON PROJECT Leighton Contractors was awarded a contract by Chevron Australia to deliver the civil and underground works package for the Gorgon Project valued at more than A$800 million. The contract win is in addition to the company s current work at the Gorgon Project where Leighton Contractors is delivering the 2.1 kilometre LNG jetty and marine structures in consortium with Saipem. 5
Leighton First Quarter Update 10/11 6 ANNUAL GENERAL MEETING Leighton Holdings Limited recently held its 49th Annual General Meeting at the Sydney Convention and Exhibition Centre at Darling Harbour A gathering of approximately 550 shareholders, current and former employees, and other interested parties listened to presentations from the Chairman, David Mortimer and Wal King, who addressed his 24th and last AGM as CEO. The assembled crowd heard from the Chairman about the Company s record performance in 2010/11 and also how the 2011/12 year has started. Wal King looked back over his long history with the Company, describing the factors that had led to Leighton s many successes before introducing a video of the Company s managing directors describing the outlook for their respective businesses. A number of resolutions were put to the Meeting and all were carried by a show of hands. A summary of the proxy instructions received in relation to each resolution in the Notice of Meeting is set our below. At the end of the Meeting, the Chairman asked long time shareholder, Jack Tilburn, to present a cake to Wal King in recognition of his stellar career with Leighton. The assembled crowd gave Mr King a standing ovation before moving out to the terrace to enjoy refreshments and some of the cake. Among the attendees at the AGM were former CEO and Chairman, Stewart Wallis, former Chairman Tim Besley, and former directors Peter North and Ian Johnson. They were joined by Riad Al Sadik, Chairman of the Habtoor Leighton Group and co-founder of Al Habtoor Engineering, and Rashid Al Habtoor, representing the Habtoor Group, and son of Mr Khalaf Al Habtoor, co-founder of Al Habtoor Engineering. Former Leighton employees in attendance included Charles Coomer, Eleanor Gardner, Penny Bingham-Hall, Graeme McOrist and John Faulkner. Other notable attendees were Thiess director Ros Kelly, John Holland Chairman Janet Holmes á Court and Executive Director of the St James Ethics Centre, Dr Simon Longstaff. Resolutions For Against Open Abstain 1: Annual Financial Report and Directors and Auditor s Reports 198,756,414 288,121 2,319,656 3,950,345 2: Remuneration Report 179,301,867 23,034,991 2,281,671 704,986 3.1: Election of Directors Mr R D Humphris 202,445,150 296,915 2,348,263 206,740 3.2: Election of Directors S P Johns 200,947,254 1,825,652 2,351,534 214,632 3.3: Election of Directors Dr H H Lütkestratkötter 201,979,128 795,265 2,347,855 229,655 3.4: Election of Directors Mr I J Macfarlane 202,485,014 311,664 2,350,424 202,711 3.5: Election of Directors Dr P M Nöe 200,359,940 1,679,095 2,352,442 960,426 3.6: Election of Directors Mr D P Robinson 199,014,926 3,759,331 2,388,686 188,934
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Leighton First Quarter Update 10/11 8 ADDRESS TO SHAREHOLDERS A presentation to the 49th Annual General Meeting of Leighton Holdings Limited by the Chairman, Mr. David Mortimer AO. On behalf of the Board of Directors, I am pleased to report that your Company has recorded another successful financial year in 2009/2010. Financial Highlights The year s results were strong on a number of measures. Highlights for the financial year include: Total revenue, including joint ventures and associates, of $18.6 billion up by 2%. Profit after tax was $612 million up by 39% to a new record level. Work in hand at 30 June of $41.5 billion up by 12% also a new record. The Group continues to maintain a strong balance sheet with shareholders equity of $2.6 billion up 10%, gross cash of $1.3 billion and available debt facilities of around $670 million. Our average return on equity was 25% placing the Group 15th on the list of top 100 listed Australian companies by market capitalisation. Returns to Shareholders Generating value for shareholders remains an absolute focus of the Board. We measure this value creation as Total Shareholder Return (TSR), which is a function of share price appreciation and the dividends that we pay. This year, the Board has elected to pay a fully franked final dividend of 85 cents bringing the total dividends for the year to 150 cents per share. This represents a 30% increase on last year s dividend of 115 cents per share and a payout ratio of 73% which is broadly in line with the practice of paying out between 60 70% of profits after tax. The Company s share price has recovered significantly during the year from an opening at 1 July 2009 of $22.40 to close at $29.00 at 30 June 2010 and around $33.10 as of yesterday, 3 Nov 2010. While we are pleased with this share price recovery, our TSR is measured over a rolling 3-year period and therefore the TSR was -7.4%. However this figure includes write-down s brought on by the Global Financial Crisis and we believe this period is well and truly behind us now. Over a five year period our TSR has averaged 28% per annum. This means that $1,000 invested in your Company 5 years ago would be worth $3,436 today. Operating Company performance Major infrastructure and contract mining projects, together with a solid level of new work, formed the basis of a record result for Thiess. They earned a segment result of $425 million from revenue of $6.6 billion. Work in hand rose by 10% to $16.3 billion at 30 June. Construction, particularly transport infrastructure, contract mining and telecommunications were the primary drivers of Leighton Contractors revenue and profit. Leighton Contractors had a record segment result of $271 million from revenue of $5.3 billion. Work in hand stood at nearly $10 billion as at 30 June. John Holland reported another strong result with good performances from its construction, tunnelling, energy, water and rail businesses. John Holland earned a segment result of $180 million from revenue of $3.6 billion. Work in hand rose by 7% to $5.3 billion.
Strong performances from the Hong Kong and Indonesian operations were the major drivers of a record result from Leighton Asia. The segment result was $88 million from revenue of $1.1 billion. Work in hand rose by 89% to $6 billion boosted by $1.6 billion of new contract mining work in Mongolia and new work in Indonesia. Stronger performances from operations in India and the offshore oil and gas business delivered an improved result for Leighton International. However this was offset by conditions in the Middle East where the Al Habtoor Leighton Group experienced a challenging year. Leighton International, including the Gulf, earned a reduced segment result of $24 million from revenue of $1.8 billion. Work in hand, excluding the Gulf increased by 18% to $1.2 billion while work in hand in the broader Middle East region was down by 24% to $2.4 billion, driven by an evaporation of new work in Dubai. Non-residential property markets in Australia remained subdued, affecting sales and development in the commercial, industrial and tourism sectors in particular. Leighton Properties recorded a segment loss of $73 million for the year to 30 June 2010. We have experienced some difficulties in the Middle East and in property but the strength of the Group, and our diversity, has allowed us to absorb these setbacks while still being strong enough to report a record result. Governance and the Board The Board recognises that good corporate governance is a dynamic concept. We are continually seeking ways to improve our performance in this area. In line with this focus on continuous improvement, this year the Board has been working on enhancing a number of policies and practices, including: refreshing the Company s Code of Ethics; enhancing the Board s performance evaluation processes; and providing a framework to further support workforce diversity initiatives across the Group. Recently the Board approved a Group Workforce Diversity Policy which aims to enhance productivity and team performance; reflect the diverse communities in which we operate; and to underpin the sustainability of our business. A key initiative under this policy is to increase and retain the number of women and Indigenous people employed by the Group. Traditionally much of our industry has been male dominated but this should not automatically continue to be the case. We can and are attracting more women to our workforce and each operating company has plans to increase participation. At the Board, we have not yet seen a change in the participation level however let me assure shareholders that your Board is well aware of this issue. Whilst we have always sought the best person for the job, regardless of gender, the Leighton Board is committed to diversity. I m confident that we will see women on the Board in the not too distant future. The Group also has an Indigenous Employment Policy under which we are actively engaged in improving Indigenous employment outcomes. Additional information on these initiatives and the extent to which the Company has followed the Australian Securities Exchanges (ASX) Corporate Governance Council s Corporate Governance Principles and Recommendations, can be found in the Corporate Governance Report, on pages 24 to 35 of the Annual Report. On behalf of the Board I would like to welcome Mr Stephen Johns as a Director of the Company and Chairman of the Audit Committee effective from December 2009. Mr Johns was formerly Finance Director and Chief Financial Officer of the Westfield Group for almost 20 years until 2002 where he remains a Non Executive Director. Mr Johns replaced Mr Peter Gregg who stepped down from the Board after being appointed Chief Financial Officer of Leighton Holdings in October 2009. I congratulate Stephen on his appointment. We also note the retirement after this meeting of Mr Dieter Adamsas who has served Leighton as a senior executive and as a director for nearly 40 years. Dieter has made an invaluable contribution to Leighton over that time and his wise counsel will be missed by the Board. We do however look forward to retaining Dieter in his current consulting role in the future. In discussing corporate governance I also note the recent takeover bid by Grupo ACS of Spain for our major shareholder HOCHTIEF AG. While this is a matter for the two companies your Board is taking action to protect the interest of minority shareholders.» 9
Leighton First Quarter Update 10/11 10 ADDRESS TO SHAREHOLDERS CONTINUED We have recently made application to the Takeovers Panel to commit ACS, if they are successful, to a governance regime that protects Leighton minority shareholders or to otherwise make a downstream cash bid for Leighton at an appropriate price. We have had a long relationship with HOCHTIEF who have been a supportive shareholder. They have encouraged the independence of Leighton and we strongly believe that it is in the best interests of the Company to maintain that independence, whatever the outcome of the takeover bid. Mr Peter Gregg will be invited to join the Board at the next board meeting. Again I would also like to thank my colleagues on the Board for their support, counsel and contribution over the course of the year. Our people At Leighton we have a wonderful team of loyal and dedicated people. It is through their efforts that bridges are built, trucks are loaded, infrastructure is maintained and projects are delivered. I congratulate our direct workforce of more than 45,000 people across Australia, Asia and the Middle East for the efforts this year and thank each and every one of them.
In recognising the contribution of our people, the Board has again approved a free issue of $1,000 worth of Leighton shares to employees with more than three years of service. It is intended that these shares will be bought on market and therefore the issue will not have a dilutionary impact on existing shareholders. Workplace safety When talking about our people it is critical that I discuss workplace safety. Safety is an absolute focus in this Company, from the Board to Management to the worksite. Leighton has a good record of safety as measured by safety statistics such as Lost Time Injury Frequency Rate (LTIFR) and Lost Time Injury Severity Rate (LTISR), and the Company is continually working hard to achieve better results. But these sorts of statistics are not the most important measure. Our key safety objective is to eliminate fatalities and permanent disabilities Class 1 Damage and systematically reduce all other injuries across our operations. We strive to ensure that each of our employees returns home each day in the same health and condition as when they arrived at work. Last year was a bad year for fatalities and this is deeply regrettable. Each incident has been fully investigated, and the Board is focused on ensuring each operating company has taken the appropriate measures to prevent a recurrence. Leighton Holdings Safety Framework sets out the minimum standards and expected performance for Group operating companies, and has been critically reviewed and revised during the year. It has an increased focus on eliminating the risks of Class 1 personal damage. A culture of Focused Risk Management is at the heart of the Safety Framework. Focused Risk Management starts in the design and planning of projects as decisions made when the project is being planned, designed and established can affect safety during construction. Focused Risk Management requires a critical assessment and treatment of all risks. Where certain risks can t be eliminated, by changing design or using alternate construction methods, it is a Group requirement to use hard engineering controls in preference to procedural or soft controls to reduce the residual risks to an acceptable level. It has been suggested that our company should link safety to our manager s remuneration. Well it is and has been for a long time. Safety is entrenched in our remuneration framework and forms a key component of every business plan, every project, and every operation. Part of the remuneration for managers and executives is a bonus opportunity for outperformance and this is assessed on the achievement of their business plan objectives as well as other measures. When safety targets are not met, a manager s performance assessment and therefore remuneration is significantly impacted. And any safety incident that impacts project performance will directly impact on a manager s performance based remuneration. That leads me to the Company s management. Company Management After 23 years as Chief Executive Officer (CEO) and Managing Director, and 42 years with the Leighton Group, Wal King has decided to retire from those roles, effective 1 January 2011. Mr David Stewart, currently Chief Operating Officer of Leighton Holdings, will assume the role of CEO from that date. Wal King has made an extraordinary contribution to Leighton over the course of his career. During Wal s leadership, Leighton has risen from being a middle ranking Australian construction company to a global leader as a contractor and the world s largest contract miner. Just recently, Engineering News Record ranked Leighton as the 12th largest contractor by revenue in the world. Wal s time as CEO has seen Leighton grow from revenue of $1.3 billion and a profit of $7 million in 1987 to this year s record result of $18.6 billion worth of revenue and $612 million of profit after tax. Over his tenure as CEO, Leighton has averaged an annual Total Shareholder Return of 21.8%. This means that a $1,000 invested in Leighton in February 1987 would be worth almost $103,000 today. Wal s performance and longevity mark him as one of Australia s truly great business leaders and we look forward to retaining his services in the future. The Board has agreed with Wal that he will retire as an executive of the Company from 1 February 2011 after completing a handover to David and that he will stand down as a Director, but he will remain engaged in a consultancy role so that we can retain access to his skills and experience. The Board is delighted to have someone of David Stewart s capability to step into the role of CEO. The transition from Wal to David is the result of a detailed succession strategy that has been underway for the last 2 years. The Board undertook a comprehensive review and was very pleased with the quality of the management talent that was available to succeed Wal. David (57) has served as one of Leighton s Chief Operating Officers since July 2009 and prior to that was Managing Director of John Holland Pty Ltd for 3.5 years. He is a Leighton Group veteran of 24 years, having been a senior manager with Leighton Major Projects and Thiess for 14 years before moving over to John Holland in 2000. David brings a comprehensive knowledge of the business, a wealth of contracting experience and a disciplined can do attitude that is central to Leighton s culture. He is committed to maintaining the Company s growth and continuing to build a sustainable business, which we see as delivering consistently excellent shareholder returns, and meeting or exceeding the needs of our operating companies clients whilst maintaining good relationships with the communities in which our companies work. In continuing to grow the business David is also committed to the Group s strategy of diversity by market, by brand, by geography and delivery systems financial strength and people. It is these elements, working in conjunction, that have helped deliver the Group s growth. David brings the same values that have made Leighton so successful in the past. These values are discipline, integrity, safety, and success and they are values that will continue to be central to the Company going forward. David has the complete confidence of the Board and the full support of Wal. I congratulate David and wish him well. I m sure that he will do a terrific job as CEO and I look forward to working closely with him in the future.» 11
Leighton First Quarter Update 10/11 12 ADDRESS TO SHAREHOLDERS CONTINUED The terms and conditions of David s contract of employment are currently being finalised and the key elements of these will be disclosed before he takes up the role. In addition, the long term incentive plan will be entirely equity based. And a meaningful component of David s short term incentive is being based on safety and the Company s core values. In closing, I would like to thank Wal, on behalf of the Board, all Leighton Group employees and our many shareholders for his wonderful contribution to the Company and we wish him all the best for the future. We look forward to continuing to tap Wal s knowledge and experience in a consulting role with the Company. Let me now turn to the outlook and to our current position. Conclusion As we announced to the market on Tuesday, the year has started somewhat disappointingly. Our result for the quarter have been negatively impacted by a combination of difficulties on the Airport Link project in Brisbane, the strength of the Australian dollar, which reduced the contribution from overseas operations, and a write-back of Leighton Contractors joint venture rail project with Macmahon in Western Australia. While revenue is up by almost $200 million to $4.7 billion, the September results reflect a deterioration of $85 million when compared to last year, due primarily to the Airport Link project. Our reported profit after tax (unaudited) for the quarter is therefore $48 million versus last year s $131 million. For the 2010/11 financial year, the Company expects to report revenue of around $20 billion and an operating profit after tax of around $510 million. Negotiations for the sale of a stake in the Group s Indian business are progressing and when finalised should allow the Company to report a full year profit result in line with market expectations and above last year s record profit of $612 million. While the performance of the Airport Link project is disappointing, the rest of the Group had a strong quarter. Looking forward, we remain confident about the prospects for the business, based on the Group s very high levels of work in hand, a strong competitive position and the underlying strength of most of the Group s major markets. Work in hand at 30 September stood at $42.5 billion, up 2.4% since 30 June. This figure has been negatively impacted by the strength of the Australian dollar since June 2010 and would have been $1.8 billion higher, but for the currency. As of today, work in hand stands at nearly $43 billion, even after adjusting for the strong currency. The Group is also preferred tenderer on over $4 billion worth of work, of which approximately $2 billion is expected to be awarded in the next few weeks. The work that has recently been awarded demonstrates that the Company is well placed to continue to deliver strong returns to shareholders over the next few years. In Wal King s last address to shareholders he will outline some of the opportunities that the Group is seeing and describe the great position that the Company is in. In closing this address, I wish to again thank all of our shareholders for their continued support during the 2010 financial year. We appreciate your ongoing support and look forward to sharing in the rewards of success from this great Company. The webcast of Mr Mortimer s presentation can be viewed at the Leighton website.
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Leighton First Quarter Update 10/11 14 A LOOK TO THE A presentation to the 49th Annual General Meeting of Leighton Holdings Limited by the CEO, Mr. Wal King AO. Thank you for those kind words Mr Chairman. And thank you to the many shareholders, colleagues and friends who are here today for the opportunity to address my 24th and the last Annual General Meeting as Chief Executive Officer (CEO). I would like to make a special mention of two guests who are here today. Mr Riad Al Sadik, Chairman of the Habtoor Leighton Group and co-founder of Al Habtoor Engineering, and Mr Rashid Al Habtoor, representing the Habtoor Group, our other shareholder in the Middle East. Rashid is the son of Mr Khalaf Al Habtoor, co-founder of Al Habtoor Engineering. Gentlemen, welcome to you and those of your family and colleagues who are here today, it is a pleasure to have you with us. After 42 wonderful years with Leighton it is time to make way for a new generation of management. It has been a privilege to have led the Leighton Group as CEO and I know that I leave this role with the Company facing an exciting future. In delivering this address today, I wish to reflect on: where Leighton has come from; where we are today; the importance of our values in that journey; and some of the opportunities that Leighton has in the future. Where we ve come from Leighton has grown from humble beginnings. When I joined the Company in 1968, it had revenue of $19 million and made a profit of $525 thousand. It was hard to imagine then that the Company could grow to be a world scale construction and contracting Group. In the early years, Leighton had its ups and downs. The 1970 s credit crunch, the boom in the early 1980 s, the property crash in the late 1980 s and the 1990 s recession. But through it all the Company grew and prospered. That s a testament to many people including Stewart Wallis, our former CEO, who is here today. To people like Dieter Adamsas, Keith Bennett, John Faulkner, Vyril Vella, Martin Albrecht, Bill Wild, Peter McMorrow, Roger Trundle and many others. Where we are Today Leighton is a vastly different business to the one that I started in. It s a multi-dimensional company, operating across 20 countries. It s diversified in ways that I couldn t have imagined 40 or even 20 years ago. To me, a great strength of Leighton is this diversity by markets, by geography, by brands and by delivery systems. It is this diversity that has allowed us to successfully navigate our way through the turbulence of the global financial crisis. Diversity ensured that even when some of our markets slowed like property and the Middle East others were able to keep growing. This portfolio effect has been so important to the Group in delivering solid returns to shareholders. Today the Leighton Group is a key player in the infrastructure, resources and property markets. Across Australia, Asia and the Middle East our operating companies are active in the construction of a range of major infrastructure projects including: roads and bridges; railways; airports; ports and»
South Walker Creek Coal Mine Thiess Queensland, Australia Gateway Upgrade Leighton Contractors Queensland, Australia West Gate Bridge Strengthening John Holland Victoria, Australia 15
Leighton First Quarter Update 10/11 16 A LOOK TO THE FUTURE CONTINUED Top: Kingsgrove to Revesby Rail Quadruplication Leighton Contractors New South Wales, Australia Middle: Upper Hunter Valley Alliance Leighton Contractors New South Wales, Australia
Corinda to Darra Rail Upgrade Thiess Queensland, Australia Above: Silcar Fixed Plant Maintenance & Services Telecommunications Thiess Australia-wide harbours; resources-related infrastructure; water storage and supply; sewerage and drainage; electricity generation, transmission and supply pipelines; and telecommunications. We are also the world s largest contract miner with work in hand exceeding $17 billion in mining. Our companies provide a range of contract mining services to around 45 mines in Australia, New Zealand, Indonesia, the Philippines and Mongolia. The Company operates some of the largest and most modern earthmoving equipment anywhere in the world. The Group s operating companies are also highly regarded builders in the nonresidential property market, which includes: commercial offices; manufacturing and processing facilities; defence facilities; correctional facilities; medical and health facilities; retail precincts; hotel and leisure complexes; and entertainment and sporting facilities. We have diversity through our brands. We own or invest in seven diverse and independent operating companies: Thiess, Leighton Contractors, John Holland, Leighton Asia, Al Habtoor Leighton Group, Leighton International and Leighton Properties. But we also have other brands such as Hunter Valley Earthmoving, Visionstream, Silcar, Nextgen Networks, etc which are established players in their respective markets. Leighton has geographic diversity, operating in more than 20 countries from headquarters in Australia, Hong Kong, Kuala Lumpur and Dubai. This geographic coverage leverages us to the faster growing economies of the world which I ll talk more about in the opportunities. And finally we have diversity through our delivery systems or variety of procurement methods. No longer are we a contractor that just tenders for fixed price work. We design and construct, we have alliance and negotiated contracts, we undertake Public- Private-Partnerships (PPP s) and we provide management services. The way that the Company now delivers work is much more sophisticated than it was when I started. Sustained by our values What has sustained our growth and success has been our core values. Our people are guided by this set of shared values. Leighton is today still very much a family company complete with the values and shared goals that characterise family endeavours. The only difference is that Leighton is now a family of companies. Royal North Shore Hospital Redevelopment Thiess New South Wales, Australia We have differentiated ourselves by having a family of companies which have an enormous amount of autonomy in terms of freedom to operate and individual responsibility and accountability. I believe that this has created great initiative and has allowed our Group to be intelligent in that individual companies have to be very inventive to take their business forward. It is not a hierarchical structure. One of my issues is that when people either inside or outside talk about the enterprise it is not simply the holding company, it is several enterprises that have their own freedom and culture. We set the rules at Leighton Holdings but do not race ourselves. We provide a constructive overview but we are not like an anxious parent at a school sporting event running up and down the sidelines shouting advice. We foster a performance driven culture throughout the Group and reward performance against stated objectives through various incentive schemes. Our people operate through a decentralised management structure that allows a high level of autonomy.» 17
Leighton First Quarter Update 10/11 18 A LOOK TO THE FUTURE CONTINUED Metro Trains Melbourne John Holland Victoria, Australia
Northern Sewerage Project Stage 2 John Holland Victoria, Australia One One One Eagle Street Development Leighton Contractors Queensland, Australia I strongly believe that people perform best when they have clearly defined goals and are allowed to operate subject to certain management guidelines with freedom to pursue those goals. Our Code of Ethics which includes our core values, the Group s obligations and those of our employees provides a framework for how we go about our business. This Code provides minimum expectations to be met by all of our people on the core values, principles and ethical obligations that should inform policies, procedures and arrangements developed and implemented by them to suit their unique operating conditions. The Code is really the glue that binds the Group together. invest. And of course we are on the edge of Asia, leveraged to its growth. This will be the Asian century and Leighton is exposed, both directly and indirectly, to the tremendous growth that Asia will be bring. At this point Mr King played a video of the Leighton Group s Managing Directors discussing their thoughts on the outlook. This video can be found at http://www. leighton.com.au/shareholder_centre/annual_ general_meetings/agm_archive/2010_agm_ archive.html There are a multitude of opportunities facing the Leighton Group. It continues to be an exciting time for the Company and I look forward to watching these opportunities emerge. The opportunities So looking forward, what are the opportunities that are going to present themselves? Well there are many. In fact there are more opportunities across our business than we can realistically take on. We are blessed in Australia with our position in the world. We have a wealth of resources and we have a growing population. Our government and companies are in a strong financial position with a capacity to Conclusion This is the Asian century and Leighton has a great deal of momentum, a diverse business base and many opportunities. Today the uncompleted work stands at around $43 billion with a further $5 billion in long term work. But its greatest asset is its people and I know that the culture and values of the Leighton Group will continue to provide strong rules of racing for how the Company goes forward. I congratulate David Stewart on his appointment and wish him well. David is an extremely capable manager having led John Holland to record levels of revenue and profitability, and he continued to expand the diversity of that company. I look forward to remaining closely associated with the Company in the future and thank shareholders for the valued support over many years. I hope to have the opportunity to thank and farewell many of you personally at the conclusion of the AGM. The full webcast of Mr King s presentation can be viewed at the Leighton website. Airport Link Thiess John Holland JV Queensland, Australia 19
Leighton First Quarter Update 10/11 20 The Leighton Group has a strong presence in the telecommunications market providing network design, construction and maintenance services. The National Broadband Network is likely to offer the Group a range of opportunities over the next few years. Leighton s Telecommunications Business Leighton has been an active player in the Australian Telecommunications sector for almost 25 years with Visionstream and Nextgen Networks providing a strong base for the Company s telecommunication business. Visionstream currently provides network construction, maintenance and engineering services across wireline, wireless, equipment installation, relocation and integration, as well as operational and maintenance related services. Nextgen Networks completes the picture; specialising in high capacity, carrier grade services. Nextgen owns and operates Australia s third national optic fibre network which extends from Brisbane to Perth via Sydney, Canberra, Melbourne and Adelaide. Thiess Services through its 50:50 joint venture with Siemens, Silcar, has been providing telecommunications services to the likes of Telstra and Optus for 10 years. Today Silcar is at the forefront of network design, construction and maintenance. In addition, John Holland has a track record of successfully delivery of telecommunications projects throughout the country. They have the experience and expertise to provide total turn-key solutions.
On 11 September 1940, American mathematician George Stibitz, successfully used a teletype to send commands from a conference he was attending in New Hampshire to a Complex Number Calculator in New York over the telephone line. It was the first time a computing machine had ever been used remotely over a phone line, and it marked a new era in telecommunications. Fast forward 70 years, and the transmission of information (now via the Internet) has become part of everyday life for more than a quarter of the global population. Today, most forms of traditional communication including telephone, music, film, and television have been reshaped or redefined by the Internet. Indeed the worldwide-web has spawned a multitude of new ways for people to interact through tools such as instant messaging, Internet forums, and social networking. Australia s National Broadband Network In order to ensure Australia s global competitiveness, the Federal Government announced on 7 April 2009 that it would significantly improve Australia s communications infrastructure by implementing a new high speed National Broadband Network (NBN) across Australia. The new fibre-to-the-premise (FTTP) network will connect 90 per cent of all homes, schools and workplaces with optical fibre, providing broadband speeds of up to 100 megabits per second. Heralded as nation building, the NBN is expected to transform services in the education and health sectors while boosting business productivity and creating thousands of additional jobs. At a projected cost of $43 billion, the NBN is the largest single infrastructure investment in Australia s history. In December 2009, the Federal Government awarded Leighton-owned Nextgen Networks a $250 million contract to build, operate and maintain backbone transmission links under the Regional Backbone Blackspot Program (RBBP). A key component of the NBN, the RBBP will provide approximately 395,000 people along the routes with alternative fixed access broadband arrangements and deliver competitive broadband infrastructure to over 60 regional towns. To achieve this, Nextgen will install more than 6,000 kilometres of new optical fibre networks between Toowoomba and Darwin; Perth and Geraldton; Shepparton through Mildura to Adelaide and Mildura to Broken Hill; Sale to Wonthaggi; and Adelaide through to Victor Harbour and on to Mount Barker. What is optic fibre? An optical fibre is a thin glass or plastic strand that carries light along its length. Light from lasers is shone down the fibre and is detected by a receiver at the other end of the fibre. Optical fibre is capable of transmitting information at a practically unlimited rate over very long distances. The kind of optical fibre that NBN Co is deploying can assure speeds of 100 megabits per second and higher, in the future. How fast will the NBN be? The NBN will connect at least 90 per cent of premises with fibre optic technology providing speeds of 100 megabits per second, 100 times faster than many of us experience today. The remaining premises will be connected through next generation wireless and satellite technology with speeds of 12 megabits per second or more and average data rates at least 20 times higher than most people get today. This means everyone will have faster access to websites to conduct searches and undertake online transactions. The NBN will also significantly reduce download times for content with high bandwidth requirements, like television programs, documentaries and movies. Downloading an average compressed movie (1 GB of data), can currently take between 8 and 24 hours. At a speed of 12 megabits per second, people will be able to download the same movie in around 11 minutes. If the speed is increased to 100 megabits per second, the movie could be downloaded in as little as 80 seconds. Opportunity for Leighton Rolling out the NBN will be an enormous undertaking, estimated to take 8 years to complete. NBN Co, the Company established by the Government to deliver the NBN, has sought out construction partners that have the capability and capacity to design and deliver telecommunications infrastructure projects of significant size and complexity. Leighton Contractors, with its broad range of telecommunications expertise has already been selected as a major partner, and is currently delivering the foundations for the NBN under the Regional Backbone Blackspot Program. Senator Stephen Conroy with a Nextgen cable layer Over the life of the project NBN Co will be calling for tenders from established companies who can assist with detailed design and construction services for the project. With a successful track record in managing Nextgen Networks, Australia s 3rd largest telecommunications network, and a depth of knowledge and expertise in network design, construction and maintenance, Leighton is well placed to assist NBN Co in its delivery of this important project. For more information on the NBN please visit www.nbn.gov.au or www.nbnco.com.au 21
Leighton First Quarter Update 10/11 22 By the middle of this century, the global middle class (defined as those capable of purchasing consumer products such as cars, appliances and electronics goods) will increasingly be located in developing economies, placing huge demand on the provision of energy.
The World Bank forecasts that by 2030 the number of middle class people in the developing economies will be 1.2 billion a rise of 200 per cent since 2005. This means that the developing world s middle class will be larger than the total populations of Europe, Japan and the United States combined. As a consequence, the International Energy Agency (IEA) reports that more than 80 percent of global electricity growth will occur in developing countries, mainly in India and China. Currently, India has an estimated 500 million people without access to electricity, while China is adding the equivalent of nearly the entire U.K. power grid each year in power generation. In its World Energy Outlook report, the IEA reported that global electricity demand is set to increase by 2.5 percent per year between now and 2030, making electricity the world s fastest growing energy source. ExxonMobil has echoed this forecast noting that power generation is not only the largest energy-demand sector, but will represent 55 percent of the total growth in world energy demand by 2030. This incredible growth clearly highlights the urgent need to develop alternative renewable energy solutions globally. It s generally accepted that the fossil fuels used to generate the majority of the world s energy are depleting and are becoming harder to retrieve, resulting in rising energy prices. In addition, their use is damaging to the environment. As such, a slow shift away from fossil fuels has begun and in recent years there has been increasing investment from both the private and public sectors in new energy technologies. Reflecting this investment, worldwide renewable energy capacity has grown steadily over the past 5 years. In contrast to fossil fuels, renewable energy is derived from natural processes that are regularly replenished or constantly available. The IEA includes in its definition of renewable energy, electricity and heat generated from solar, wind, ocean, hydropower, biomass, geothermal resources, and biofuels and hydrogen derived from renewable resources. According to the Renewable Energy Policy Network (REN21), in 2008 approximately 19% of global final energy consumption came from renewable sources, with 13% coming from traditional biomass (which is mainly used for heating) and 3.2% from hydroelectricity. New renewables (small hydro, modern biomass, wind, solar, geothermal, and biofuels) accounted for another 2.7% and are growing rapidly. Australia s response Driving the push towards renewable energy in Australia is the Federal Government s Renewable Energy Target (RET) scheme, established in August 2009, which aims to ensure that 20% of the nation s electricity supply will come from renewable sources like solar, wind and geothermal by 2020. From January 2011, the scheme will be redesigned to accelerate renewable energy use beyond the existing 45,000 gigawatt-hour target in 2020. More than $10 billion has been set aside by the Government to fund programs such as the Carbon Capture Storage Flagship Program and the Solar Flagships Program. A new body, Renewables Australia (RA), has also been established to promote the development, commercialisation and deployment of renewable technologies, through a commercial investment approach. As a major developer of alternative energy solutions, the Leighton Group is well positioned to assist the Government in delivering a wide range of renewable energy solutions. Earlier this year Leighton owned subsidiaries Thiess and John Holland (as part of respective consortiums) submitted project proposals to the Government for consideration under the Solar Flagships program. The John Holland / Parsons Brinkerhoff Solar Flair Alliance was subsequently shortlisted by the Government and is now completing a detailed feasibility study into the project s viability. The project involves the construction of a 150 MW solar thermal parabolic trough power plant expected to be located at Chinchilla in Queensland. Leighton Contractors is also exploring solar thermal power solutions, and has teamed up with MAN Solar Millennium to investigate options to develop solar thermal power plants capable of producing dispatchable electricity in the range of up to 250 MW. Thiess remains a leading player in the sector, having successfully delivered a number of large energy and renewable projects. Some recent examples include the Darajat Unit III 110MW Geothermal power station project in Java, Indonesia and the Swanbank Waste Management Facility in Queensland, the second of its kind in the world to capture gas for electricity generation. The Leighton Group is also a strong supporter of wind power, reflecting the company s commitment to becoming a leading contractor in this emerging sector. There are currently 33 wind farms in operation in Australia, most generating between 1.5 and 3 megawatts (MW). By the end of this year it s estimated that wind power will account for more than 1.5% of Australia s national electricity demand. In August 2010, Leighton Contractors, in consortium with Vestas, began work on the $1billion Macarthur Wind Farm development in the Western Districts of Victoria on behalf of its client AGL. Proposed as the largest wind farm in the southern hemisphere, the farm will generate up to 420 Megawatts of electricity enough energy to power around 220,000 average Victorian homes each year. Leighton Contractors is also exploring wave power solutions and in 2008 partnered with Ocean Power Technologies (Australasia) to develop and commercialize OPT s unique, ocean tested wave power technology in Australia and New Zealand. OPT s PowerBuoy has the potential to harnesses ocean wave resources to generate reliable, clean, and environmentally-beneficial electricity. As we move forward renewable energy will play an increasing role in lowering Australia s emissions and ensuring the nation s energy security. The Leighton Group looks forward to working alongside Government and Industry to develop and implement new renewable energy solutions as quickly as possible. 23
Leighton First Quarter Update 10/11 24 Over the past 60 years, Hong Kong has grown to become one of Asia s major regional and international trading and financial centres. A post-wwii success story, Hong Kong embraced an export-led recovery. Population growth and strong competition amongst trading companies fuelled an almost unprecedented rate of economic growth and development. Industry diversification enabled the economy to expand beyond exporting consumer goods and electronics to become an international financial centre. Although it was then a British colony, Hong Kong prospered from its proximity to China. From 1960 to 1990 the economy boomed; GDP grew at over 8 percent per annum three times the rate of US growth. Hong Kong took its place beside Singapore, Taiwan and South Korea as one of the four Asian Tiger economies. The construction of highways, tunnels, reservoirs and high-rise buildings drove both transportation and urbanisation development at a rapid rate. To many observers, Hong Kong s recipe for enduring economic success is based on continued investment in world class infrastructure. The 1970s and 1990s were characterised by massive infrastructure projects that provided the momentum for Hong Kong to develop and expand over the decades that followed. However, Hong Kong was not immune to economic, social and political challenges. Urban development crucial to Hong Kong s success In Hong Kong, rapid population growth, and limited availability of usable land, place immense strain on limited housing and social infrastructure resources. Industrial and residential construction in the New Territories has helped ease population pressure in Kowloon and Hong Kong Island, but nevertheless, since Hong Kong s population of 7 million people occupies a mere 250 square kilometres, mobility in this densely populated city is crucial. Transportation and urban housing development have therefore gone together hand in hand. While much of the early public housing was Government funded, progressively over the years more and more is constructed by the private sector. Conversely and because that was how the Government allocated its available funds some of the early road tunnels and harbour crossings were privately funded, while nowadays most public works are directly funded by the Government. In 1975, Hong Kong laid the foundations for its world-class public transport system. The Mass Transit Railway Corporation»
HONG KONG PLANNING FOR PROSPERITY One of Asia s original Tiger economies, Hong Kong s economic growth since reunification with China in 1997 has been challenged by the Asian Currency Crisis, Avian Flu, SARS and the Global Financial Crisis. But true to form, Hong Kong is looking to make up for lost time and has implemented an ambitious infrastructure program designed to keep one of the world s most open economies at the front of the pack. 25
Leighton First Quarter Update 10/11 26 HONG KONG PLANNING FOR PROSPERITY CONTINUED HONG KONG S 10 MEGA PROJECTS Kai Tak Development The redevelopment of the old airport including construction of a new cruise terminal. Construction commenced in 2009 and the first berth is expected to be operational in mid 2013, with all works completed by 2014. Hong Kong section of the Guanzhou Shenzen Hong Kong Express Rail Link An underground express rail service. Construction commenced in 2010 and is due for completion in 2015. Sha Tin to Central Link An MTR link due to commence in 2012. Hong Kong Zhuhai Macau Bridge A transport corridor including a 9km sea viaduct in Hong Kong waters, the reclamation of an island to house border crossing facilities, a 6km sub-sea tunnel, another 10km of tunnels and grade roads. Construction of the main bridge commenced in 2009 and completion of all works is scheduled for 2016. West Kowloon Cultural District A development to support local cultural and creative industries. Phase 1 is expected to be completed from 2015. South Island Line An MTR extension due to commence in 2011 for completion in 2015. Tuen Mun Chek Lap Kok Link and Tuen Mun Western Bypass Preliminary design and site investigation studies will be completed in 2011. Lok Ma Chau Loop The initial scoping study is scheduled for completion in 2012. Rail connections between Hong Kong and Shenzen airports North East New Territories New Development Areas (NDAs) and Hung Shui Kiu NDA Construction works are expected in start in 2016 following completion of all planning and engineering studies. Total PUBLISHED VALUE HK$ 81 billion 67 billion 60 billion 40 billion 22 billion 10 billion 280 billion Source: 2008/09 Budget Address by Sir Donald Tsang, Chief Executive of Hong Kong
(MTR) identified the need to enhance mobility and respond to the rising population pressures. To address this need, the MTR built 10 major lines. This remarkably efficient system still services the public transport needs of a population that has increased from some 4 million in the 70s to more than 7 million today. The early 1980s was a difficult period for contractors seeking to participate in the Hong Kong market. More and more companies saw its potential and work became scarce as competition from both local and expatriate firms increased rapidly, and salaries and wages followed suit. However, the period from the late 1980s until reunification in 1997, saw infrastructure spending and activity soar as a series of massive infrastructure projects were implemented. Projects such as the new International airport gained world attention, and business and consumer confidence reached new high levels. Many of the spectacular bridges and roads that criss-cross the city and harbour were built at this time. One country, two systems, many challenges Since reunification with China in 1997, the Hong Kong Special Administrative Region has been governed under the Basic Law, a mini-constitution drafted by representatives from Hong Kong and China. It promises to preserve Hong Kong s unique way of life and capitalist system for 50 years, and gives the territory a high degree of autonomy under its one country, two systems framework. The Basic Law and Hong Kong s system of government have provided a high level of stability in the face of a number of economic and social challenges. The Asian Currency Crisis of 1997 and the subsequent outbreaks of Avian Flu and SARS which devastated tourism and trade post-2000, illustrated just how vulnerable a globally focussed economy such as Hong Kong is to forces outside its control. Recognising this vulnerability the Government, together with Hong Kong s extremely efficient and capable bureaucracy, has demonstrated a willingness and ability to react positively and effectively when such challenges arise. The Global Financial Crisis (GFC) had a devastating effect on Hong Kong s economy which plunged into recession recording negative growth of 3.1 percent in 2009. This was compounded by the rapid and vast economic transformation of mainland China, with growth rates exceeding 10 percent. Following the GFC, the Hong Kong Government announced it would deliver a massive economic and social infrastructure program comprising 10 mega projects. In addition, it committed to an economic development plan that will consolidate Hong Kong s status as a centre for financial services, trade and shipping while maintaining its leading position in tourism, logistics and aviation, and maritime services. 10 mega projects in 10 years In his budget address of 2008/09, Sir Donald Tsang, Chief Executive of Hong Kong, said, We will promote economic development through infrastructure projects, which will create more jobs and stimulate wage increases. Over the next few years, we will vigorously implement various infrastructure projects... The Hong Kong Governments estimates that annual expenditure on capital works has increased from HK$20.5 billion in 2007-8 to almost HK$49.6 billion this financial year and will exceed HK$50 billion for each of the next few years. The infrastructure pipeline for the next six years has also grown to HK$338 billion (major projects only). As a result of this program, the unemployment rate in the construction industry has dropped from a peak of 12.8 percent to a recent low of 7 percent (4.3 percent for the whole economy). The Government is also keeping pace with social needs and announced plans to increase healthcare spending from 15 percent of recurrent expenditure to 17 percent by 2012. Hong Kong has also accepted the challenge of transforming itself into a knowledge-based economy by developing six industries where it enjoys a competitive advantage: education services; medical services; testing and certification; innovation and technology; cultural and creative industries; and environmental industries; with an emphasis on integrating these industries with the mainland market. Vision and commitment In the face of significant global challenges, Hong Kong has cleared bureaucratic obstacles in order to accelerate a huge stimulus program of expenditure for public transport, roads and airports over the next five to ten years. It has used the Global Financial Crisis as a springboard to launch 10 mega infrastructure projects and a long-term industrial development plan that will transform its economy. This massive investment is typically audacious and visionary, and based on past experience, will underpin the Hong Kong economy for years to come. Top: Harbour Area Treatment Scheme (HATS) Stage 2A Leighton Asia Hong Kong Above: Lai Chi Kok Transfer Scheme Leighton Asia Hong Kong Opportunities for Leighton Specific projects such as the new MTR metro lines, the Express Rail Link, the deep water and the sewage scheme projects, which require serious technical and management demands, have effectively been reserved for only those contractors that have a solid track record on similar projects in Hong Kong. Foreign contractors can only be prequalified when they bring some particular skill and then only in joint venture with local firms. Safety is considered an important element in the successful delivery of these projects and contractors with poor safety records have been excluded from prequalification. With over 35 years experience in Hong Kong, and a sound safety record, Leighton Asia is seen as a local company that has achieved all prequalification requirements. The company has been awarded contracts on a number of mega projects, including two contracts for the Express Rail Link. 27
Leighton First Quarter Update 10/11 28 THE INCREASING INFRASTRUCTURE NEEDS OF CITIES Australia s population is projected to reach more than 35 million people by 2056. With most of this increase in the capital cities, planning and delivery of infrastructure will be key to whether the nation can capitalise on and sustain growth without jeopardising community lifestyle. Populations of Australia s major cities Source: State of Australian Cities 2010, Infrastructure Australia, March 2010 Sydney 4,399,722 Melbourne 3,892,419 Brisbane 1,945,639 Perth 1,602,559 Adelaide 1,105,841 Gold Coast 558,888 Newcastle 531,191 Canberra 345,257 Wollongong 284,169 Sunshine Coast 237,562 Hobart 209,287 Geelong 172,300 Townsville 162,730 Cairns 142,001 Toowoomba 125,339 Darwin 105,990 Launceston 104,649 Fast Facts Australia s 17 major cities of 100,000 people or more contribute nearly 80% of the national Gross Domestic Product and employ 73% of the workforce. They are the principal location for about 70% of Australia s businesses, including nearly two thirds of its small and medium sized businesses and nearly 80% of large corporations. These major cities are home to just over three quarters of the Australian population more than 16 million people. By 2056, this number will grow by 72% or more than 10 million people to over 26 million people. Perth and Brisbane are projected to more than double in size by 2056, to 3.4 million and 4 million people respectively. The largest capital cities Sydney with 4.4 million people and Melbourne with 3.9 million people will not grow as rapidly but their populations are projected to approach seven million people each.
Half of the world s population lives in cities in Australia just over three quarters of the population lives in 17 major cities of 100,000 people or more. They are a powerhouse of economic and employment growth, where people congregate to study, work, live and play. According to Infrastructure Australia s State of Australian Cities 2010 report, the major cities have: A high concentration of people with tertiary qualifications; A significantly higher proportion of people living in semi-detached and terrace housing, and an even greater proportion in apartments; A substantially higher median and mean average income; and Significantly lower car ownership rates than the rest of Australia. Yet population growth and demographic change are putting increasing pressure on Australia s quality of life with looming challenges in terms of transport congestion, living affordability, infrastructure development, productivity growth, climate change and ecological sustainability. Australian cities will need to respond effectively to these challenges in order to sustain the high quality of life enjoyed by urban communities into the future and to remain globally competitive, Infrastructure Australia says. Treasury and the Australian Bureau of Statistics forecast that by mid-century more than 35 million people will live in Australia, based on trends in fertility, net overseas migration and life expectancies. This includes an increase of more than 10 million people in Australia s major cities. It is no surprise the projections led to a public debate earlier in the year about just how big the country should be. With chronic underinvestment in infrastructure and an inconsistent approach to city planning nationally, people who live in the major cities are contending with urban sprawl that pushes their homes further from their places of work, at the same time that petrol prices are rising and there is limited growth in public transport options. The level of car dependency in Australian cities has increased at a faster rate than population growth, creating traffic congestion problems as infrastructure and public transport have failed to keep pace with population growth, Infrastructure Australia says. Congestion will continue to grow as a serious negative not only for lifestyle but also for economic impacts. The Bureau of Infrastructure, Transport and Regional Economics estimates the avoidable cost of congestion for the Australian capitals was $9.4 billion in 2005. by 2020 this cost will rise to $20.4 billion. The Business Council of Australia (BCA), of which Leighton Holdings is a member, has called for reform to alleviate current constraints with better planning and improved utilisation and investment, and to provide the capacity to sustain strong economic and population growth. Infrastructure quality and capacity plays a vital role in determining economic growth, the BCA said in its Economic Success, Community Prosperity report published before the 2010 Federal election. It determines whether and where we can source goods and services and at what cost; what markets our businesses can supply and with what reliability; and the ease and predictability with which people can get to and from work each day. Population growth must be accompanied by appropriate infrastructure planning and investment to ensure that community amenity is preserved, the BCA report said. Issues such as housing affordability, and access to quality public transport and other services, are important to quality of life and can all be adversely affected by increases in population that are poorly planned for. With the right policy settings and investments, future immigration, population and economic growth can and should contribute to higher productivity and be achieved in a way that enhances quality of life and living standards. The forecast population growth and current state of infrastructure in Australia s cities means there will continue to be many opportunities for the Leighton Group. Rail projects, government-funded roads and social infrastructure projects are expected to remain at high levels and increased spending on telecommunications and electricity projects is also forecast. State Government budgets include $175 billion for capital works over the next four years, with the majority to be spent in New South Wales and Queensland. This significant budget for infrastructure investment is expected to provide Australia with a strong foundation for population growth. In the cities, future rail and road projects include: the $1.7 billion M5 tunnel duplication and $5 billion North West Rail Link in Sydney; the $4 billion stage one of the Melbourne Metro and $5.4 billion Metropolitan Ring Road Missing Link in Melbourne; and the $6 billion Brisbane City Inner Rail. Major planned social infrastructure projects include the $1.2 billion Queen Elizabeth II Medical Centre in Perth and the $1.4 billion Royal Adelaide Hospital. Infrastructure Partnerships Australia (IPA) estimates that an investment of more than $120 billion is required in Australia s energy, freight and passenger transport networks to deliver a low-emissions economy. The IPA commissioned a report in 2008 which found that unless lower carbon emission infrastructure is encouraged, the consequences of carbon and energy intensive investment decisions made today commit those emissions for decades. But the cost of this infrastructure is still prohibitive and there is the conundrum. Reducing Australia s emissions by 60% of 2000 levels by 2050 will require a fundamental shift in the economy and investment in infrastructure that: supports cleaner and greener sources of energy generation; preserves precious natural resources such as water; enhances Australia s export driven economy; and withstands the predicted extreme weather events and increased temperatures. In the same year, Professor Ross Garnaut identified the impact of climate change on critical infrastructure water supply infrastructure in major cities, electricity transmission and distribution networks, buildings in coastal settlements, ports operations and maintenance. He predicted: a need to change building design to protect against warmer temperatures; more port closures and downtime from an increase in severe weather events meaning larger ships and ports will be required; reduced water availability from dams and aquifers for urban users therefore necessitating alternative supplies from desalination and water recycling; shifts toward below ground power transmission and distribution infrastructure; and an increased rate at which roads and related infrastructure degrade. Australia s road network is large, Professor Garnaut s Climate Change Review said. For example it covers 81,000km and comprises over 37,000 bridges. If the cost of maintain the road network were to increase by 25% GDP might be reduced by around 0.25%. 29
Leighton First Quarter Update 10/11 30 BUILDING AN ETHICAL FRAMEWORK Many people in business feel ill-equipped to tackle the complex issues that they now have to confront on an almost daily business. How does one strike an appropriate balance between the demands of competing stakeholders? How do you determine the standards that should apply when doing business in a different country with different cultural patterns? How do you make proper allowance for the effect of new technologies on employees, consumers and the wider society in which the company is located? Finally, how do you do this under the increasingly watchful gaze of the media? Fortunately, there are a few relatively simple filters that can be applied by those wanting to road-test their judgement. A brief selection of these follows. 1 WOULD I BE HAPPY FOR THIS DECISION TO BE ON THE PUBLIC RECORD? 2 WHAT WOULD HAPPEN IF EVERYBODY DID THIS? 3 HOW WOULD I LIKE IT IF SOMEONE DID THIS TO ME? SUSTAINING AN ETHICAL BUSINESS 4 WILL THE PROPOSED COURSE OF ACTION BRING ABOUT A GOOD RESULT? 5 WHAT WILL THIS PROPOSED COURSE OF ACTION DO TO MY CHARACTER OR THE CHARACTER OF MY ORGANISATION? 6 IS THE PROPOSED COURSE OF ACTION CONSISTENT WITH MY ESPOUSED VALUES AND PRINCIPLES?
As society has become more cynical about the role of business, the fundamental question; What ought one to do? becomes even more important to employees in providing a frame of reference to how they operate. Few will be surprised to learn that the basic question of ethics has an ancient pedigree. The St James Ethics Centre s executive director, Dr Simon Longstaff, explains. Indeed, it can be traced back to the Greek philosopher Socrates who lived and taught in Athens during the fifth century BC. Socrates asked: What ought one to do? It should be obvious that this is an immensely practical question which confronts all of us whenever we have a choice or decision to make. Across the Leighton Group our people are guided by a set of shared values, our Code of Ethics. This Code provides minimum expectations to be met by all of our people on the core values, principles and ethical obligations that should inform policies, procedures and arrangements developed and implemented by them to suit their unique operating conditions. The Leighton Group s workforce has grown exponentially in recent years, just like its revenue. Based on current trends, the Leighton Group s workforce is forecast to grow from around 45,000 to more than 65,000 direct employees in 2015, with almost two thirds employed internationally. One of the challenges of this growth will be to sustain the Group s culture and ethical values, with a common approach but tailored interpretation across brands and geography. In a globally connected world it is no longer sufficient for projects to be delivered on time and on budget employees, clients and investors have an increasing interest in the how and why of the business too. In October 2010, the Leighton Holdings Board approved an update of the Group s Code of Ethics which includes core values, the Group s obligations and those of its employees to guide employee behaviour. The Board also adopted a Group Workforce Diversity Policy which describes its objective to be a global organisation with a leadership and workforce that reflects the diversity of the broader communities in which it operates. Both provide minimum expectations of the policies, procedures and arrangements that Leighton Holdings and the Group Operating Companies develop and implement to suit their unique operating conditions. Both policies underpin the Group s culture which Leighton Holdings CEOelect David Stewart believes has allowed the business and the people to flourish. Leighton has an enviable record of being an employer of choice, Mr Stewart said. It s a fantastic company to work for and, to me, it s made that way by the attitude of management and the attitude of our staff and our employees. That comes from having an enormous freedom to operate but within a structured framework of accountability and responsibility that goes right through the Group from the highest level through to our workforce on projects across Australia and overseas. To me that s a fundamental Leighton recipe for success we should do nothing that ever disturbs that model. The revised Code of Ethics distils the Group s values into four simple words discipline, integrity, safety and success and describes what is expected of the organisation and its employees in delivering these values. It has been developed as a working tool that has the capacity to guide decision making on a day-to-day basis. It is not a code of conduct or set of strict rules which must be followed; rather it describes the company s values, principles and purpose. The new Workforce Diversity Policy embodies this approach and encourages the Group to consider diversity of perspectives, skills, experience, relationships, ethnicity, gender, age, sexual preference and disability as measure of business sustainability. Dr Longstaff worked with an executive committee at Leighton to develop the revised Code. Cynics may see business ethics as something of an oxymoron; a bit like military intelligence or airline food or fat-free ice cream. But Dr Longstaff says business can and does do a lot of good. How it should do it is the question. Most companies have an awareness of the need for ethical codes and practices, but only a few have publicly established a framework that explicitly builds these policies or frameworks into decision making at all levels of the organisation including the Board, Dr Longstaff said. Leighton Holdings has taken this development path. Having worked in this area for a considerable period, I can understand why people in business are reticent to engage seriously with the challenge of ethics. (But) one of the greatest enemies of ethics is unthinking custom and practice even when that practice is basically good. Organisations face real dangers as long as they rely on people who do things because everyone does it or because that s just the way we do things around here. Ethics require people to think and make choices. But Dr Longstaff also warns, Codes of Ethics and Codes of Conduct are not magic bullets. The fact that an organisation has a written Code will not, by itself, guarantee that its personnel are especially ethical. Even so, good managers will realise that, if approached with the proper degree of care and sophistication, the very process of developing these codes can have a profoundly positive effect on the culture of an enterprise. The development of a Code of Ethics, and all that goes with it, is not a discrete process. It is more like a journey of refinement and continuous improvement. As Leighton s business grows and changes, the Code will evolve. As more people come into the organisation they will all be expected to adopt the Code of Ethics which provides a practical set of principles for employee s right across the Leighton Group. Their commitment to the Code Ethics and to the Company s shared values will help to ensure that Leighton has a sustainable business capable of continuing to provide a good return to shareholders. 31
Leighton First Quarter Update 10/11 32 INDIGENOUS PARTICIPATION SUPPORTING THE NATIONAL CONVERSATION The Leighton Group aims to be the leading employer of Indigenous people in the Australian contracting market. A broad Indigenous participation policy is driving change in the business. Since the national apology to Indigenous Australians, the business community has re-doubled its efforts to embrace Indigenous people and provide greater opportunities through employment, cultural awareness and support for Indigenousowned businesses. The Business Council of Australia s 2010 Common Ground, Uncommon Results report confirms that many of the top 100 ASX-listed companies are showing real leadership in helping to close the gap on Indigenous disadvantage in Australia with a raft of policy approaches. Leighton Holdings commitment to Indigenous participation is multi-tiered and aims to: Increase employment of Indigenous people to 5% of the Group s Australian workforce; Use more Indigenous-owned businesses as suppliers or sub-contractors to deliver the Group s business needs; Improve employee awareness of Indigenous culture and history; and Reinforce the Leighton Group s industry leadership in Indigenous engagement and workforce participation. Leighton Holdings Chief Executive Officer, Wal King, said the policy would help to address disadvantage in Indigenous communities particularly in the regional areas in which the Group worked while also assisting the operating companies to win more work. Two years ago we embraced a change in Australia, a change towards promoting Indigenous employment and Indigenous participation, Mr King said. It is the right thing to try and promote Indigenous employment but I also think going forward it will be good business. Economic participation is one of the building blocks in the Closing the Gap strategy, agreed by the Council of Australian Governments (COAG) in 2008, setting a target to halve the gap in employment outcomes between Indigenous and non-indigenous Australians within a decade. The Australian Government s Indigenous Opportunities Policy, due for implementation on 1 July 2011, will set specific requirements for organisations bidding for Australian Government construction projects valued at over $5 million in regions with significant Indigenous Australian populations. Businesses will be required to have a Department of Education Employment and Workplace Relations approved Indigenous Australian Training, Employment and Supplier Plan in order to be awarded large Government contracts. The Leighton Group is committed to closing the gap on Indigenous disadvantage by providing real and sustainable jobs to Indigenous people. To date, 200 Indigenous people have been employed by Thiess, John Holland and Leighton Contractors under the Group s commitment to the Australian Employment Covenant. A key factor in transitioning Indigenous Australians from welfare to employment is through the establishment of Indigenous-owned enterprises. Indigenous-owned enterprises are more likely to employ Indigenous staff, have built in mentors and build the economic development of whole communities through the provision of sustainable employment and culturally appropriate workplaces. Leighton Holdings is a founding member of the Australian Indigenous Minority Supplier Council (AIMSC) and major sponsor of the AIMSC Connect 2010 conference in November.
AIMSC s own research revealed that the Indigenous employment rate is 72% across its 58 certified supplier companies. AIMSC s focus is to encourage, facilitate and promote business between Indigenous-owned enterprises and corporate and government members. Leighton Holdings contributed more than $60,000 in business-to-business transactions with AIMSCcertified Indigenous businesses in 2009-10. One of the major contracts is to supply tele-conferencing services through Message Stick. Supporting the commitment to improving Indigenous participation is a concerted effort to teach Group employees about Indigenous culture and history. Leighton Group staff are currently undertaking targeted cultural awareness sessions in what will become an ongoing and evolving part of training and staff development. Additionally, the Group s support of the Jawun Indigenous Corporate Partnership programs provides an opportunity for staff to be seconded to regions such as Redfern, East Kimberley, Cape York or Shepparton where they are immersed in culture and community to share skills and build capacity of Indigenous organisations in these areas. The final element of the Indigenous participation policy is to promote the Leighton Group s efforts. Leighton Holdings has promoted Indigenous policy development and discussion through the sponsorship of the Committee for the Economic Development of Australia s (CEDA) Indigenous Engagement Series sessions which focussed on Indigenous education and entrepreneurship over 2 days in September and November 2010. For 50 years, CEDA has informed, influenced and raised the standard of discussion about the issues shaping Australia s economic and social development. This was evidenced during the Indigenous Engagement Series with speakers and participants coming together from government, the not-for-profit sector, employment providers, educators, indigenous business owners and large Australian corporations to knowledge share, build relationships and further drive momentum in this space. Over the past two years, Leighton Holdings and its companies have embarked on a significant journey in the area of Indigenous Participation. To date the business has made small but significant steps and the progress is being measured and tracked so that mistakes are identified, successes are celebrated and the momentum continues to drive the initiatives required to succeed in reaching the Group s own ambitious targets. Leighton Group businesses operate in regional, remote and urban areas and are making a significant contribution to ending Indigenous disadvantage through the provision of sustainable jobs as well as opportunities for Indigenous-owned enterprises to work with the Group s operating companies. Photos courtesy of CEDA 33
Hinze Dam Stage 3 Thiess Queensland, Australia