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Leighton HoldingsLimited
Concise Annual Report2001
◊ ∏ ∫
Leighton
Who Are We?Leighton Holdings Limited is the parent company ofAustralia’s largest project development and contractinggroup. Founded in Victoria in 1949, the organisation hasgrown from a small, privately owned civil engineeringfirm into a dynamic group which includes Thiess,Leighton Asia, Leighton Contractors, Leighton Propertiesand John Holland. With over 12,600 employees, theGroup’s operations are spread all around the Asia-Pacificregion on projects in Australia, Hong Kong, Indonesia,Malaysia, the Philippines, Thailand, Vietnam, China and New Zealand. In addition Thiess has established anoperation in South America to provide services to clientsin the mining and resources sector. Leighton Holdings islisted on the Australian Stock Exchange and has its headoffice in Sydney.
What Do We Do?Leighton Group companies offer a broad range ofproject development and contracting services and skillsto public and private sector clients from a wide range ofindustries. Project development skills – communityinfrastructure, property or resources-based – and projectmanagement of construction and propertydevelopments complement the Group’s contractingactivities. These activities include telecommunicationsservices, engineering and building construction, contract mining, environmental services and, operationand maintenance of infrastructure and facilities. Keyresources include an experienced, long-servingmanagement team, a strong balance sheet and thelargest fleet of mobile plant and equipment in Australia.
Why the CD-ROM? In the interest of better communication with ourstakeholders, this year we have provided our readerswith a CD-ROM of the Annual Report material. The CD-ROM includes this document in Acrobat form –colour pages reproduced from the printed pages – andincludes a black and white text version of this report inMS Word for ease of printing, reading and searching.Our aim is to refine our shareholder communicationsprogram and streamline the methods we use todistribute information. Your feedback will help us tounderstand whether delivery by Internet or CD-ROM isacceptable, or even, preferable to a printed document.
Using a CD-ROM allows us to deliver a number ofdifferent formats without use of the Internet. It providesan ‘archive’ copy of the material that doesn’t need to bedownloaded and stored on your computer. The CDmedium also allows us to provide video footage of ourexecutives and projects, which adds another dimensionto presenting the company and its results.
Video This symbol is used in this document to indicatethat additional information on this topic is provided on theCD-ROM in video format. Video files are created usingQuicktime. The CD will initiate the internet downloadprocess if you do not already have this free software.
MS Word© file This symbol appears on the CD-ROMindicating that there are text files available. These areblack and white text documents without graphics.
Acrobat© file This symbol appears on the CD-ROMindicating that there are PDF files available. These arecolour pages replicated from original printed documents.
Connect to the World Wide Web A direct link from theCD-ROM to the Leighton Website has been included foryour convenience.
∞ ∏
Corporate Report
05//06The Year in Review
07//08From the Chairman
09//10Chief Executive’s Report
11//12Financial Management
13//14Operations AnalysisInvestments
15//16InitiativesTechnical Resources
Special Features
17//18Strategy
19//20Diversity
21//22Capability
23//24Integrity
25//26Strength
Review of OperatingCompany Activity
29//30The Group’s OperatingCompanies
31//32Thiess
33//34Leighton Asia
35//36Leighton Contractors
37//38Leighton Properties
39//40John Holland
Financial Report
59//60Shareholder Information
62Directory and Offices
Leighton HoldingsLimited ACN 004 482 982ABN 57 004 482 982Notice of Annual GeneralMeeting 2001
To: The Shareholders
Notice is hereby given thatthe Annual GeneralMeeting of the membersof Leighton HoldingsLimited will be held at TheWestin Sydney, No. 1Martin Place, Sydney, onThursday 8 November2001, at 10.00 am.
A separate Notice ofMeeting and Proxy Formis enclosed.
During the course of themeeting, a shortpresentation on theGroup’s operations will begiven by Wal King AM,Chief Executive Officer. Allpresent are invited to join the Directors for lightrefreshments after themeeting.
∏
Leighton Holdings Limited Annual Report 200103//04
Corporate Report
1
05//06 Leighton Holdings Limited Annual Report 2001
The Year in Review
– Operating profit after tax up 16% to $156 million
– Excellent return on average shareholdersfunds of 22%
– Dividend up by 18% to 39 cents– Work in hand at record $7.8 billion– Balance sheet remains sound with $400 million
of net cash– Another strong result expected next year
4393
3161
3035 33
28 3577
Total Revenue$million
97 98 99 00 01 2000
3000
4000
5000
6000
7000
8000
7825
4235 47
67
4115
6206
Work in Hand$million
97 98 99 00 01
196.
8209.
7
145.
9
171.
5
177.
5
Operating ProfitBefore Tax*‡$million
97 98 99 00 01
132.
1
102.
9 121.
8 134.
1
156.
2
Operating ProfitAfter Tax*‡ $million
97 98 99 00 01
2050
1478
1507 15
76 1729
Total Assets$million
97 98 99 00 01
2001 2000 $’000 $’000 % Change
Total Revenue 4,393,254 3,577,364 +22.8
Operating Revenue 4,272,729 3,445,349 +24.0
New Contracts, Extensions & Variations 5,961,619 5,363,011 +11.2
Value of Work in Hand 7,825,231 6,205,920 +26.1
Profit from Ordinary Activities Before Tax* 196,789 177,517 +10.9
Income Tax (42,312) (43,371) –2.4
Profit from Ordinary Activities After Tax* 156,156 134,080 +16.5
Dividends 103,502 86,685 +19.4
Total Equity and Reserves* 740,170 660,580 +12.0
Total Assets 2,050,160 1,729,321 +18.6
Net Cash 400,017 250,250 +59.8
Undrawn Facilities 152,500 167,500 –9.0
Earnings per Ordinary Share 59.2¢ 51.1¢ +15.9
Dividends per Ordinary Share 39.0¢ 33.0¢ +18.2
*Excludes outside equity interests.‡1997 result included a profit on sale of Welded Mesh.
07//08
From the Chairman“The Group’s record level of work in handprovides tremendous momentum for anotherstrong performance in 2001/2002.” MA (Tim) Besley AO Chairman
Leighton Holdings BoardLeft to right from top:John Morschel Deputy ChairmanDr Hans-Peter Keitel Deputy ChairmanWal King AM Chief ExecutiveDieter AdamsasGeoff AshtonGeoff DixonAchim DrescherIan JohnsonDavid MortimerDr Busso PeusDavid Robinson
Leighton Holdings Limited BoardM A Besley AO ChairmanH-P Keitel Deputy ChairmanJ P Morschel Deputy ChairmanW M King AM Chief ExecutiveD S Adamsas, G J Ashton, G J Dixon, A Drescher, I R Johnson, D A Mortimer, B Peus, D P Robinson
Associate DirectorsJ Faulkner, R J Merkenhof, R S Trundle, V A Vella, W J Wild
Secretary A J Moir
Audit CommitteeD P Robinson ChairmanD S Adamsas, D A Mortimer, W M King AM, Secretary A J Moir
Board Nominations CommitteeM A Besley AO ChairmanW M King AM
Ethics CommitteeM A Besley AO ChairmanG J Ashton, I R Johnson
Executive CommitteeW M King AM ChairmanD S Adamsas, J Faulkner, R J Merkenhof, A J Moir, M J Rollo, R S Trundle, V A Vella, W J Wild
Remuneration CommitteeM A Besley AO ChairmanW M King AM, A Drescher, H-P Keitel
Leighton Holdings Limited Annual Report 2001
See CD-ROM for video interview
OverviewThe Group reports another excellent year, with recordprofit, revenue and work in hand, and another strongreturn on shareholders’ funds averaging 22 per cent.
Dividends have increased 18 per cent to 39 cents pershare and we will maintain this high payout ratio. We arepleased to see that the Leighton share price hasrecovered solidly since last year’s dot-com infatuation asinvestors return to good long-term yielding stocks.
The buy-back of HOCHTIEF’s 20 per cent stake inLeighton Asia, as approved at the last AGM, has beencompleted. The Group will continue to work closely withHOCHTIEF in Asia, and while they have increased theirstake in Leighton Holdings, Australian independence andcontrol will continue to be maintained.
Governance and the BoardA number of corporate collapses across Australia thisyear have refocused many stakeholders on the issues ofgovernance and risk management. Our corporategovernance practices are continuously evolving toensure the processes are delivering the desired level ofmonitoring and guidance of Group activities andoperations. The Group’s corporate governance policy isset out on pages 49 and 50.
Nine scheduled Board meetings were held during theyear and directors attended site visits in Hong Kong,Indonesia, Malaysia and around Australia. The Group’senvironmental performance and health and safety recordremain key areas of Board focus.
All of the Board committees have been active this year.The audit committee met five times. Our independentethics committee has continued its review process andis now moving to introduce ethical dimension reportingacross the Leighton Group. We were pleased to beindependently voted Australia’s most ethical companyby the Good Reputation Index, published in the SydneyMorning Herald and The Age in October 2000.
In line with reporting and continuous disclosurerequirements, the company made 48 announcements tothe Australian Stock Exchange this year. The Board also continued its process of self-evaluation as a meansof measuring performance and identifying areas for improvement.
OutlookThe Group’s record level of work in hand providestremendous momentum for another strong performancein 2001/2002. An improved business environmenttowards the end of calendar year 2002 should result inan upswing in the Australian construction cycle.
In Asia, the very good geographic spread of work andprospects is encouraging. However, the Group willmaintain a watchful eye on the US economy given itscentral role as a market for goods produced in Asia.
I step down after 11 years to make way for a newChairman, John Morschel, who will bring a wealth ofindustry experience to the Board. John takes over asChairman after this year’s AGM. It has been a privilegeto be Chairman spanning a decade in which theLeighton Group has performed so well. I sincerely thankthe Board, my management colleagues and allemployees for their support and hard work during what has been, for me, an exciting and satisfyingprofessional association.
Rod Wylie OBEOn behalf of the Board I wish to record thanks to Rod Wylie,who retired from the Board in August 2001. Rod has been anon-executive director of thecompany for 16 years, 11 of those as Deputy Chairman of theLeighton Holdings Board. Hiswise counsel over the years andhis significant contribution to the growth and prosperity of theLeighton Group is appreciatedand admired by us all.
09//10
Leighton Holdings LimitedCorporate ManagementW M King AM, Chief Executive OfficerD S Adamsas, Deputy Chief Executive Officer, Chief Financial OfficerA J Moir, Company SecretaryP Bingham-Hall, Executive General Manager,CorporateG E McOrist, Executive General Manager,Investment and FinanceM J Rollo, Executive General Manager,Technical ServicesT G Young, Executive General Manager,Financial and AdministrationC L HuonGeneral Manager, Treasury A T MasonGeneral Manager, External AffairsC M Mendes, Group Chief AccountantA J BlakeCommercial Development ManagerJ M GroganManager, Investor and MediaRelationsD G KentGroup Taxation ManagerK L SchulzeManager, Public AffairsT G StewartTreasury Manager
Leighton Holdings Limited Annual Report 2001
Chief Executive’s Report“Our strategy, embedded in the overall businessplanning process, allows disciplined adjustmentto various market conditions.” Wal King AM Chief Executive
See CD-ROM for video interview
OverviewI am pleased to report that this has been anexceptionally successful year for Leighton Holdings. TheGroup delivered another record profit on the back ofimproved revenues and we have a massive $7.8 billionworth of uncompleted work.
Return on equity averaged 22 per cent, placing us in thetop quartile of Australian companies, and our balancesheet remains rock solid with surplus cash. Our recordresults were achieved through a combination of organicgrowth, disciplined acquisitions, and the selective invest-ment of equity to sponsor major project developments.The result has been achieved despite the cyclicaldownturn of the Australian construction market, which isexpected to recover towards the end of 2002.
Group companies now have over $1 billion ofuncompleted work from operation and maintenancecontracts spread across our key markets. This work islong-term and adds further sustainability to earnings.
StrategyThe Group’s successful business strategy is based ondiversity by geography, by the industries in which weoperate and in the ways we deliver services to clients.Critical to this diversified approach is the strength of ourbalance sheet, our autonomously structured operatingcompanies and the capability of our people, all of whichsets us apart from our competitors.
Our strategy, embedded in the overall business planningprocess, allows disciplined adjustment to various market conditions so that continuous transitions aremade without interrupting the Group’s momentum.
Review of operationsThe Group maintained its leadership position in thecontract mining market and now produces over 60million tonnes of coal annually across Australia and Asia.
Thiess recorded a very good year, making a substantialcontribution to profitability and again increasing its levelof uncompleted work in hand. Leighton Asia produced anear record profit and has a very high level of work witha good spread across its core markets within the region.
While telecommunications is currently experiencingsome uncertainty we maintain a positive outlook in the longer term. Leighton Contractors produced a credible performance by continuing to develop itstelecommunications business.
John Holland was successfully integrated into the Groupand continued its recovery process, producing a positiveprofit contribution. Leighton Properties produced asatisfactory profit and the strategies it has put in placeover recent years are now beginning to yield results.
Our IT vision continues to be implemented. We have inplace a platform that allows us to quickly adopt newtechnologies and to develop applications that providecompetitive advantage.
Employees, community and environmentOur people are responsible for delivering this year’sexcellent result and we are pleased to reward them fortheir focus on creating shareholder wealth.
Occupational health and safety remains a primaryconcern for the Group and we are continually reviewingour performance and striving to improve. Similarly weaim to be good corporate citizens, consulting thecommunities within which we operate and applying thehighest environmental standards wherever possible.
OutlookOur financial strength and record level of work in handwill maintain our momentum going forward. We willretain a high level of cash reserves to reinvest in ourbusinesses for organic growth, to sponsor majorprojects and to undertake strategic acquisitions offeringgrowth potential.
We are confident that 2001/2002 will be anothersuccessful year. Our Asian operations expect anothergood year with Indonesia, Malaysia and Hong Kongcontinuing to be the areas of major activity. Increasedinvestment in mining, an upturn in property, and majorinfrastructure projects coming to fruition in 2002/2003will provide opportunities to maintain our momentum.
MA (Tim) Besley AOOn behalf of the executivemanagement team, I wish toplace on record the significantcontribution made by Tim Besleyto the Group over his 11-yearterm as Chairman. Tim clearlyunderstood the role of the Boardin corporate governance,contributing guidance andcounsel in a constructive waythat was supportive of theGroup’s strategic endeavours.From both a professional andpersonal viewpoint, it has been agreat pleasure and privilege towork closely over the lastsuccessful decade with such apositive and constructiveindividual as Chairman. We all willmiss him.
11//12 Leighton Holdings Limited Annual Report 2001
Financial Management“Understanding and managing risk within theGroup is critical to our success.” Dieter Adamsas Deputy Chief Executive Officer, Chief Financial Officer
See CD-ROM for video interview
OverviewThe Group has again delivered a strong financial resultfor shareholders despite challenging conditions in somemarkets. Earnings per share improved by 16 per cent to59 cents and return on shareholders funds averaged acommendable 22 per cent.
Balance sheetWith total assets in excess of $2 billion and net assetsof around $740 million the Group’s financial strengthcontinues to be used as a strategic driver of ourbusiness. Cash flows have generated net cash of around$400 million. This provides a strategic advantageallowing the Group to make acquisitions or take equitystakes in projects as required.
Our BBB+ investment grade credit rating together with our strong balance sheet supports around $1 billionworth of guarantees and bonds that our businessrequires for our operations.
The Group has around $500 million of capital employedin plant and equipment, mainly on mining and resourcesprojects. These capital requirements will continue to be significant, however, we are diversifying our fundingsources by utilising a level of operating leases.
The new accounting standards have renamed theBalance Sheet and Profit and Loss Accounts asStatement of Financial Position and Statement ofFinancial Performance respectively. The Statement ofFinancial Position presents the Consolidated Entity’sassets and liabilities in the order of their liquidity.
Acquisitions, investments and divestmentsThe Group’s Asian earnings base was strengthened bythe $35 million acquisition of HOCHTIEF’s 20 per centshareholding in Leighton Asia. In Australia we acquiredbusinesses specialising in rail maintenance, mechanicalservices and wireless telecommunications.
Investments were made in two coal mines, NorthGoonyella in Queensland and Southland in New SouthWales. Leighton Properties, in a 50:50 joint venture withISPT Pty Ltd acquired a development property in NorthSydney, and also has $33 million in other properties.
Major divestments included a 10 per cent interest inSydney’s Eastern Distributor, an office development atNorth Sydney and Thiess’ Quantum Explosives business.
Risk managementUnderstanding and managing risk within the Group iscritical to our success. We operate within a clearlydefined risk management framework of policies, guide-lines, controls and audits. A key element of the Group’srisk management is project auditing. This includes regularproject reviews by Technical Resources and in certaincircumstances independent reviews by the operatingcompanies. Funds are allocated in accordance with profitexpectations, risk management and earnings diversity.
Foreign exchange risk is mitigated where necessary byhedging of currency exposures.
Shareholder communicationsOur upgraded website enhanced our communicationsfor a growing audience of shareholders, brokers andanalysts, banks and institutional investors by postingdetailed project information, presentations, newslettersand consensus earnings estimates to the site.
DividendsThe final dividend payment was increased to 25 cents pershare, franked at 50 per cent, following an unfrankedinterim dividend of 14 cents. We expect to maintain areasonable level of franking, subject to our earningsstructure and the proportion earned overseas. We aim tomaintain a dividend pay out ratio around the current mark.
OutlookThe Group’s financial outlook is sound, based on anexcellent level of work in hand and good prospects.Financial resources will continue to be invested inacquiring complementary businesses or securing long-term contracting and development income. Applying ourskills and capital to a number of large infrastructure andresource developments, likely to progress over the nextfew years, provides further upside for the Group.
13//14 Leighton Holdings Limited Annual Report 2001
Group Operating Revenue 2001 $4273 millionby Geographic Area
69% Australia $2952m31% Asia $1302m
– Americas $19m
Total $4273m
Group Work in Hand 2001 $7825 millionby Geographic Area
71% Australia $5590m28% Asia $2191m1% Americas $44m
Total $7825m
Operating Revenue 2001 $4273 millionby Market Segment
01 00 99 98 9737% Engineering & Infrastructure 1560 1099 1070 841 79525% Building & Property 1050 927 841 695 97424% Mining & Resources 1040 907 939 972 77510% Telecommunications 437 307 229 283 2924% Environmental Services 186 205 142 116 91
Total $ million 4273 3445 3221 2907 2927
Group Work in Hand 2001 $7825 millionby Market Segment
01 00 99 98 9725% Engineering & Infrastructure 1938 1752 803 1091 118610% Building & Property 810 869 729 1015 64347% Mining & Resources 3651 2808 2164 2411 202913% Telecommunications 1011 385 162 24 1515% Environmental Services 415 392 257 226 226
Total $ million 7825 6206 4115 4767 4235
Group Total Revenue 2001 $4393 million
97% Total Operating Revenue $4273m3% Other Revenue $120m
Total $4393m
Operations Analysis
Investments
Property DevelopmentPA Property TrustLeighton Holdings acquired a 15% share of the units in PA Property Trust in August 2001.
100 Pacific HighwayLeighton Properties holds a 50% share in aredevelopment property in North Sydney.
MacArthur ChambersLeighton Properties holds 50% of a site in Brisbane’s CBD currently being developed in stages for a $200 million commercial property.
MulgraveLeighton Properties owns a suburban office park in Melbourne.
ThomastownLeighton Properties owns a ten hectare site inMelbourne which is proposed for an office/industrialdevelopment.
Star City CasinoLeighton holds a 15% share in the managementcompany.
417 St Kilda RoadLeighton Properties owns a fully leased office tower in Melbourne.
TelecommunicationsNextgen NetworksVytel committed to a 20% stake in Nextgen Networks.The investment will not be made until the end ofconstruction scheduled for 2003.
Reef Networks Pty LimitedLeighton Contractors retains 30% of Reef Networks.
Engineering InfrastructureAsia Pacific Transport ConsortiumJohn Holland committed to a 12.5% stake in theconcession company for operation of the Alice Springsto Darwin railway. The investment will not be made untilthe end of construction scheduled for 2004.
Mining and ResourcesSouthland CollieryThiess acquired a 10% share of the Southland Colliery inthe NSW Hunter Valley. Gympie Gold retains 90%.
North GoonyellaThiess acquired a 40% share of the North GoonyellaCoal Mine in Queensland’s Bowen Basin, in partnershipwith RAG Australia Coal Pty Ltd who hold 60%.
Burton Coal MineThiess maintains a 5% investment in Burton Coal Minein Queensland. The other 95% is owned by RAG.
Portman Mining LimitedThiess has a 14% interest in Portman.
Initiatives
15//16 Leighton Holdings Limited Annual Report 2001
CATS and the IT visionCATS has been developed to provide a consistent and uniformsystem to prepare and analyse tenders across the broad range ofdisciplines now undertaken by Leighton Group companies.Continuously developed over the past 17 years, CATS takes a tenderthrough every stage of the estimating process. The system cananalyse the use of all the resources in a tender and, when a tenderis won, convert the tender makeup to cost codes and download to asite management system. CATS is cutting-edge software, with thelatest client/server technology and a modular design for continuousimprovements. With automated upgrading of the estimator’ssoftware from the server, the system requires an absolute minimumof administration. The system has been designed and developed byGraeme Andrews and Eileen Ferguson, (pictured above) and IvanPauncz and Adrian Veasey of Technical Resources.
Contributing to the development of CITELeighton Holdings has joined with some of Australia’s majorconstruction contractors and project developers to assist in thedevelopment of the Construction Industry Trading Exchange (CITE).This initiative aims to create an online e-commerce site servicing theAustralian building and construction industry. It will provide allstakeholders with the opportunity to procure goods and services,manage projects, and access a range of other services relevant tothe construction industry over the Internet. A true industryexchange, it will allow users to call for tenders, advertise jobs,search for equipment and read industry news. Three Groupoperating companies, Thiess, Leighton Contractors and JohnHolland are also supporting this initiative, along with a ‘Who’s Who’of the construction industry. Mike Rollo, Leighton Holdings’Executive General Manager Technical Services (above right) wasrecently appointed Chairman of the CITE steering committee whileTechnical Resources has provided the project director, Nick Sallustio(above left). Nick’s role involves managing the process of selecting aproponent to deliver the exchange.
Managing risk through project reviewsComplementing traditional management reporting, project reviewsaid corporate governance and aim to improve the Group’s overallproject performance. Project reviews include the assessment ofcurrent and potential project issues, as well as an analysis of projectoperations. Reviews provide an independent view of a projecthelping to manage risk by considering the project from a ‘bigpicture’ perspective, and providing an independent analysis ofperformance. Reviews give management confidence in the reportedresults and identify areas for improvement in time, cost or qualityperformance. Specific aspects of project delivery are analysed indetail focusing, where necessary, on key specific project phasessuch as planning, construction methodology and the use of systemsand controls. Importantly, reviews also identify areas that wouldbenefit from training or technology. Our review processes,developed in Technical Resources by Iain Scoular (above left), rely on experience and three key ingredients – interview,observation and analysis. Paul Williams (above right) and his teamare responsible for conducting reviews of Group company projects.
Technical Resources OverviewTechnical Resources continued to deliver value-addingservices to the Group across its core disciplines ofproject management and controls, technical computingsystems, communications and engineering.
This year’s key focus was on strengthening the Group’sinformation technology and communications capability,which included the upgrading of our internet andintranet skills as well as ongoing development of theindustry-leading ‘CATS’ estimating software system.
Within our project management area, we increased ourplanning and controls capabilities and depth.
Major project involvementThe year saw the launch and roll-out of our new‘Computer Aided Tendering System’ (CATS) following amajor revision and update in 2000. CATS is a powerfulsoftware estimating system designed by TechnicalResources for civil engineering, building, mining,process engineering and telecommunications tenders.The CATS roll-out has achieved almost universal usageacross the Group’s operations.
CATS’ takes the tender through every stage of theestimating process. It also allows the user to assesssub-contractors’ competitiveness, the efficiency of fleetand plant items and calculate a project’s financial valuein different currencies.
We played a key role in development of the industry-wide ‘Construction Industry Trading Exchange’ (CITE) B2B e-commerce initiative, for which TechnicalResources is providing the project director. CITE isproposed as an online e-commerce site servicingAustralia’s construction industry and re-engineering itstrading processes.
Technical Resources implemented a major review and upgrade of the Leighton Holdings website, re-launching the site in February. The new website is amajor element of the Group’s integrated communicationprogram for shareholders, business partners, media and the financial community.
A communications review program has commenced this year specifically looking at the application ofcorporate identity standards in each operating company.
Our project review programs were expanded to includesignificant projects for John Holland, providing anexternal analysis of project performance and compliancewith company requirements. All Group companies now have a review program tailored to their particularbusinesses and cultures.
We performed a specialist role in the preparation ofGroup companies for the GST, including post-implementation reviews in each operating company,which minimised the transitional effects of the new tax system.
Technical Resources also organised and delivered thefive-day New Applications IT Workshop for LeightonContractors, involving staff from all parts of Australia toinvestigate the potential applications of IT across everyphase of their business. We are currently involved in the project management of the action plan to implementthe outcomes.
OutlookCore skills of communications, project review, andplanning and controls will be maintained and enhanced.CATS will continue to be developed and improved, whileCITE will be appropriately promoted.
Through the coming year we will again take a supportrole in key projects and provide top quality resourcesacross the Group to meet each company’s needs.
Technical Resources ManagementI A Scoular Manager, Technical ResourcesG R Andrews Manager, Technical Computer SystemsM K McAuley Manager, CommunicationsN A Sallustio Manager, EngineeringE M Ferguson Senior Analyst ProgrammerJ M Malouf Group Information ManagerJ R Randall Corporate Design ManagerR G Turner Planning and Controls ManagerP B Williams Project Review Manager
Leighton Holdings Limited Annual Report 200117//18
For the first 30 years of its existence, ‘Leighton’ wasessentially one company specialising in one area –construction – and operating in one geographicmarket: Australia.
During the early 70s, the company pushed into Asiaand the property market, creating Leighton Propertiesin 1972 and Leighton Asia in 1975. But thediversification began in earnest in the early 80s withacquisitions, investments, and forays into newgeographic markets.
Leighton acquired Thiess Contractors in 1983 adding acompeting brand to what had been a collection ofLeighton-named entities and gaining HOCHTIEF as amajor shareholder. Investment in companies broughtnew skills into the Group and provided access to newgeographic markets.
However, a combination of rapid growth and over-extension of management resources, coupled withlosses on projects in Australia and poor performance inthe US, saw real pressure placed on the Group.
By 1987, when Wal King was appointed CEO, the focuswas firmly on rebuilding the Group’s financial strengthahead of an inevitable downturn in constructionmarkets at the end of the 80s.
As the 90s commenced the Group’s recovery plan waswell underway, with underperforming assets beingdivested, property development activity cut back, andan exit strategy for the US put in place.
The Group re-focused on its core skills to lay a solidfoundation for future growth aimed at creatingsustainable long-term results. New markets began toopen up driven by governments and corporationsoutsourcing work they previously undertook
projects. This pipeline, supplied by selectivedevelopment of property and resources assets, andtransport and telecommunications infrastructureopportunities, provided an additional stream of Grouprevenue. Having a different cycle to theconstruction/project management or operation andmaintenance activity, the investment pipeline continuesto contribute to our earnings diversity.
Diversity became a strategic advantage and the centraltheme of the Group’s operations: diversity acrossmarkets and industries, in the locations in which weoperate, and in the skills and services we provide.Diversity supported growth, and growth gainedthrough acquisitions brought new or complementaryskills into the Group. In 1999, the John Hollandacquisition added yet another brand to the mix,complete with professional people and an establishedclient base.
The Leighton Group’s strategy has been one ofevolution, flexibility and focus, where diversity,capability, strength and integrity are the key qualities.All of the people across the Leighton Group have made this strategy a reality. A core set of values basedon integrity binds us together across a decentralisedstructure, providing an ethical and responsibleframework for conducting business.
Leighton is not fixed on growth for growth’s sake;rather it seeks to create shareholder wealth whilesatisfying stakeholder needs. It will continue to do thisby pursuing new markets as they develop, andapplying skills and principles in a disciplined andstrategic way to maintain the momentum of the business.
themselves. Build-Own-Operate-Transfer (BOOT)infrastructure schemes emerged. Leighton Contractorsentered this market when it was awarded adevelopment contract for Sydney’s M5 Motorway.Thiess began to develop a significant business in thecoal mining industry, increasing productivity for clients by applying core contracting skills with flexiblework practices.
The Group’s presence in Asia expanded when Thiessreturned to Indonesia, undertaking work for major international resources companies and givingthe Group two respected brands in the region.
Around this time, the Group also saw opportunitiesarising from the pending deregulation of thetelecommunications market. In 1992, LeightonContractors became a strategic partner to Optus,developing its nationwide infrastructure. By 1996Leighton Contractors had acquired Telstra’s contractingarm – Visionstream – again diversifying its skill baseand providing another stream of activity in a newmarket. Since that time, each operating company hasdeveloped a telecommunications contracting businessundertaking a wide range of activity.
As the 90s drew to a close and yet anotherconstruction downturn loomed, the Group’s challengebecame that of maintaining the momentum. Thestrategy now focused on delivering growth through theapplication of a broader range of contracting skills –like operation and maintenance – to the five coremarkets of mining, environmental services,telecommunications, engineering and infrastructure,and building and property.
At the same time, the Group was utilising its financialstrength and cash reserves to build an ‘investmentspipeline’ through an ongoing process of investment,development, divestment and reinvestment in selected
Financial strength. Diversity. Structure.Over the past decade a strategictransformation has created thefinancially strong, diversified anduniquely structured contracting andproject development group that isLeighton today.
Geography
Brands
Markets/Products
Markets/ProductsTelecommunicationsEngineering & InfrastructureMining & ResourcesBuilding & PropertyEnvironmental ServicesOperation & Maintenance
Delivery SystemsHard DollarDesign & ConstructionProject ManagementAlliancingNegotiatedBOOT
GeographyAustralia/PacificAsiaSouth America
BrandsThiessLeighton AsiaLeighton ContractorsLeighton PropertiesJohn Holland
DeliverySystems
Diversity has been a central theme to the LeightonGroup’s evolution, and is the reason for its currentshape and form. Each operating company has its owndistinct culture and branding, delivering projects andservices through a flexible range of delivery systems.Diversity across the Group’s operations helpscounteract cyclical downturns that occur in particularmarkets. It also creates new growth opportunitieswhere we can develop and apply our core skills.
Markets, products and servicesWhile construction remains a core skill, the Group hasdiversified into new markets based on its corecontracting ability. The Group now targets five coremarkets: engineering and infrastructure, building andproperty, mining and resources, telecommunications,and environmental services. In addition to traditionalconstruction and contract mining activities, we areprogressively undertaking more long-term operationand maintenance services in areas such as rail,resources, telecommunications and utilities.
GeographyThe Leighton Group’s geographic diversification began25 years ago with the opening of an office in HongKong. Since that time Leighton Asia has established a
Delivery systemsAs business has changed and clients needs haveevolved, the Group has honed its skills and deliverysystems to continually add value. Where once a project was broken into all of its constituent parts –design, construct, operate, maintain – and put out to competitive tender, we now find that clients are seeking an integrated solution. The Group hasresponded proactively and can be involved at allstages of delivery on projects, even investing seedequity to facilitate in some cases. While hard dollartender work remains an important element of ourbusiness, we are increasingly undertaking design andconstruct work, carrying out project management,entering into alliancing arrangements, negotiatingcontracts and participating in Build-Own-Operate-Transfer or Public-Private infrastructure schemes.
Diversity continues to shape the Group’s growth and it is likely that we will be more diversified in the future.However, this diversity is premised on applying ourcore project development and contracting skills togrow existing businesses or develop new businesseswithin our core markets.
significant presence in that country and extended itsreach to Malaysia, Thailand, the Philippines, Indonesia,Vietnam, Laos and China. Over the past decade, Thiesshas established a major presence in Indonesia focusedon contract mining and infrastructure work across thearchipelago. The Group also undertakes work in NewZealand and elsewhere in the Pacific while Thiess hasestablished a presence in South America.
BrandsThe most obvious sign of the Group’s diversity is thebranding of its operating companies. Thiess, LeightonAsia, Leighton Contractors, Leighton Properties andJohn Holland have distinct identities in the marketplace and compete in some markets. While not atextbook structure, the diversity of the Group’s brandsallows each to develop its own niche positions. Thiessis the pre-eminent contract miner in Australia andIndonesia while Leighton Contractors is recognised asAustralia’s leading service provider to thetelecommunications industry. John Holland has forgeda strong position in the Australian rail sector whileLeighton Asia has an established presence acrossHong Kong and South East Asia.
Geography. Brands. Markets. Products.Delivery systems. Selected opportunities toincrease diversity continue to be exploredthrough both organic growth and acquisitionacross a range of different markets, serviceofferings, and geographic locations.
Leighton Holdings Limited Annual Report 200119//20
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John Holland and building inniche marketsJohn Holland has an enviablereputation in the Australianbuilding sector. The company hasbeen responsible for some ofAustralia’s iconic structures suchas the new Parliament House inCanberra and the Great SouthernStand at the Melbourne CricketGround. John Holland applies its skills to a broad range ofbuilding projects, from retailcomplexes to apartment blocks.Specialised areas such as healthservices, defence facilities,sporting infrastructure andresearch facilities have a strongfocus. Despite a downturn ingeneral construction, thecompany has recently beenawarded a number of buildingcontracts that showcase JohnHolland’s capabilities.
Leighton Contractors andtelecommunications in Australiaand AsiaPart of the Leighton Group’smarket diversification strategyhas been to develop a strongtelecommunications capability.Over the past decade LeightonContractors has spearheaded theGroup’s involvement in thetelecommunications industry byutilising its considerable skills and expertise gained in itsengineering and contractingbusiness. Leighton Contractorsnow has a significant presence in this sector and last yearestablished Vytel as a dedicatedsubsidiary to look after itstelecommunications workload.
Leighton Asia and railinfrastructure in Hong Kong and ThailandThe Hong Kong Government has committed to spending A$25 billion on a program of rail infrastructure projects asannounced in its RailDevelopment Strategy of May2000. Leighton Asia is taking amajor role in this redevelopmentand extension program of HongKong’s rail to help meet itspopulation’s future publictransport needs. Leighton Asia is also involved in rail projects in other countries in which it operates.
Thiess and diversity inenvironmental servicesThe environmental servicesmarket has experienced steadygrowth in recent years due to an increased focus onenvironmental awareness. This has driven the demand formore effective services in wastecollection and management,landfill construction andoperation, recycling, utilitiesservices and the remediation ofcontaminated sites. It is a sectorin which Thiess Services, awholly owned subsidiary ofThiess, has a strong presence.The company is currentlyinvolved in a wide range ofenvironmental services projectsacross Australia.
Thiess and coal mining in Australia, Indonesia andSouth AmericaMining has been a majorcontributor to the Australianeconomy for many decades.Black coal, in particular, continuesto be a source of major revenuefor the nation and Thiess isplaying a significant role in themining of this resource. Withover 60 years experience as acontractor to the coal industry,Thiess has built a strong miningbusiness. Thiess can provideclients with a full complement ofmining services ranging fromestablishing mine infrastructurethrough mining operations todelivering coal for export. Theseservices have been supplied toclients in Australia and SouthEast Asia.
Management strengthCoordinating, managing and developing the array ofskills available across the Group companies is a greatchallenge, but one met by capable, motivatedmanagers. The Group’s strength of management isrecognised as an asset and our management teams,throughout the countries and regions in which weoperate, are the equal of any of our competitors.
Defined autonomyManagement throughout the Group operates withautonomy and is encouraged to innovate and takeresponsibility for their business unit. This autonomyoccurs within a framework of clearly defined guidelinesand financial parameters. Targets for financial returnsare set and strict assessment criteria are used whentendering for work.
While financial rewards are a strong motivator, we also understand that career advancement andcontinual skill development are also important to ourpeople. Many opportunities are available for people togrow and develop across a broad range of vocations,skills and professions. Long service is not uncommon,with many employees having been with the Group for over 15 years. The depth of skills andindustry understanding within the Group reflects their experience.
Employer of choiceAt the Leighton Group we value our people and wantto create a safe, challenging, fun workplace. Recruiting,developing, rewarding and leading people, is part of a structured plan. We are actively trying to make theLeighton Group an employer of choice in order tomaintain and improve our competitive edge.
Broad skill baseAcross the Group, we have a vast array of skills,competencies and experience. Whilst construction hasbeen a core skill, we have progressively grown oracquired skills in industries as varied astelecommunications maintenance, waste recycling, toll-road operation and property development. In order tosupport specialist industry skills we have alsodeveloped competencies in project finance,community relations, information technology, projectdevelopment and corporate affairs. The skills requiredby the project developer and contractor of tomorrowwill evolve and change. We aim to stay at the forefrontby having the right people to best meet those needs.
Reward for performanceOne of the core values of the Group is reward forperformance. We strongly believe that people performbest when they have clearly defined goals and areallowed to operate – subject to certain managementguidelines – with freedom to pursue those goals. Wehave simple ways of measuring the achievement ofthese goals such as ‘return on capital employed’ which,if achieved, also benefits shareholders.
People. Leadership. Skills. Rewards.Strength of leadership and our people’s skills and motivation continue to be crucial to our performance.
Leighton Holdings Limited Annual Report 200121//22
Balikpapan Training Centre At Thiess’ Balikpapan trainingcentre in eastern Kalimantan, 57 mechanical engineeringapprentices are currently beingtrained to Australian TAFECertificate standards. Originallyestablished in 1992 to overcomea shortage of skilled labour inIndonesia, the Balikpapan facilityis now well known throughoutthe region for the quality of itstraining. Thiess is currently theonly Australian company to offeraccredited training in this way.
At the 2001 intake, applicationswere received from all parts ofIndonesia. By December this yearan additional 40 apprentices willhave been accepted for training.The economic benefits of thetraining are being felt throughoutthe communities from whichthese apprentices are recruited.Thiess is proud to be creatingcareer opportunities that will help support the families of ourregional staff for many years to come.
Values. Community. Safety. Responsibility.Whilst we encourage autonomous operationsand a competitive spirit, the ethical behaviourof our employees is central to our commonframework of values.
Leighton Holdings Limited Annual Report 200123//24
Responsibility throughsponsorshipAn active involvement in theprotection of Australia’s naturalassets is of prime importance tous. By its very nature, the workwe do has the potential toimpact on land surrounding ourproject sites. Ensuring that thisimpact remains minimal is amajor component of our drive tomaintain integrity throughout theproject process.
Sponsorship of organisationsthat are dedicated to theprotection of Australia’senvironment is one way webecome actively involved in theconservation of Australia’snatural heritage. Oursponsorship of Landcare sees usworking together to tackle theissue of salinity – one of thegreatest natural resourcemanagement challenges facingthe country.
Salinity is a serious andworsening problem thatadversely affects a great deal ofthe Australian continent.
A number of the Group’songoing projects are beingcarried out in areas that havealready been adversely affectedby salinity and as part of oursponsorship we are setting upmeasures to specifically combatthe problem in these areas.
Battling salinity is about morethan just planting trees. On theNextgen Networks, Mount Owencoal mine, and WestNetmaintenance projects, Groupcompanies are involved in landcare and remediation work, theissues surrounding watermanagement, and the protectionof existing surface waterresources and native flora. Theiraim is to work with the existinginitiatives to assist in the fightagainst salinity in these areas.
Working with Landcare enablesus to give something back to thecommunities we work within, toachieve positive long-termeffects that continue after ourprojects have finished and wehave moved on.
The Leighton Group employs more than 12,600 peopleacross Australia, the Asia-Pacific region and SouthAmerica. Their diverse backgrounds, skills, experienceand roles are brought together by the Group’s corevalues. While we encourage autonomous operationsand a competitive spirit, we insist upon adherence to acommon framework of values that shape who we areand how we operate.
Ethical behaviourThe Group’s commitment to operating ethically isdocumented in our Code of Ethics. Reviewed annuallyby the Board, the Code requires employees to complywith the law, act with honesty and integrity, not placethemselves in situations which result in dividedloyalties, use the Group’s assets responsibly and in itsbest interests, and be responsible and accountable fortheir actions. The ethical behaviour of employees iscentral to the Group’s culture and we are nowimplementing ethical dimension reporting which willplace the Group at the leading edge of Australiancompanies in this area.
provided to organisations including: the Children’sHospital Education Research Institute, National Trust ofAustralia (NSW), Landcare Australia, Salvation ArmyEducation Centre, UNSW (The Scientia appeal) and theRoyal Hospital for Women.
At Leighton our integrity and reputation are veryimportant to us. We believe that doing good inbusiness – by our people, our clients, our partners, the community and the environment – is good for business.
Caring for our peopleWherever we operate, the health, safety and well-beingof our employees is of paramount importance. Whileour safety performance continues to be good werealise that there is always room for improvement.Safety remains a critical issue for staff at all levels ofthe company, be it at a remote Indonesian coal mine oron a building site in CBD Brisbane.
Recognising communities’ needsThe Group’s diversity of operations inevitably meansthat many of our projects may impinge on natural orbuilt heritage. Our aim is to operate in such a way thatthe quality of life of the communities surroundingprojects is protected and the integrity of theenvironment is maintained. Wherever possible we tryto adopt a consultative approach, addressing issuesbefore they become problems. Whilst we are pro-development, we do not pursue development at anycost and are always respectful that the communitygives us licence to operate.
Corporate social responsibilityOur responsibility to the environment and communityextends to corporate social responsibility where wecan ‘give back to the community’. We do this in anumber of ways: through the development of our staff,commitment to select sponsorships, and through a number of donations. Financial support is proudly
Investment. Development. Growth. Partners.The Group’s strong financial base is a coreelement of our strategy, driving growththrough selective equity stakes, acquisitionsand funding capital intensive activities such as mining.
Leighton Holdings Limited Annual Report 200125//26
Strength in coal miningThiess has developed aleadership position in the coalmining market through acombination of innovation, multi-disciplined service capability andfinancial strength. Rather thanjust taking a traditionalcontractor role, Thiess nowundertakes whole-of-mineoperations from design andconstruction of infrastructure,overburden removal, coalextraction and processing. A proven capability in efficientlyoperating mines has enabledThiess to become one of the largest coal miners inAustralia. This capability includes managing industrialrelations, plant, environmentaland community issues.
The Group’s financial strengthallows Thiess to fund the plantand equipment required tooperate these mines as well astake the production risk. It alsoallows Thiess to developpartnerships with mining clientsand take equity stakes inprojects when required. Thiess isin partnership with RAG CoalAustralia at both the Burton andNorth Goonyella coal mines in Queensland’s Bowen Basin.These strategic investments add further strength to animpressive portfolio of long-termcoal projects in both Australiaand Indonesia.
Investing for growthLeighton is committed to providing a solid return toshareholders and has averaged a very creditable 21 per cent average return on shareholders equity overthe last five years. Wherever we see opportunities toinvest our cash reserves to grow the business, we willcontinue to do so. We see this as a more efficient useof shareholders funds than once-off special dividendsor share buyback programs. We continue to seeopportunities for profitable growth through investmentand our track record in this area demonstrates thebenefits it brings.
Selective allocation of fundsOur funds are selectively allocated across the Group’scompanies. Allocation is based on the historicperformance of the business unit wanting to invest andon careful assessment of the proposed returns.Rewarding managers based on their capital employedresults in effective and often innovative use of capital.A comprehensive investment analysis process is alsoused to evaluate all potential risk factors.
Strength is a competitive advantageThe balance sheet strength the Group has is an asset in itself, one that is used to pro-actively drive growth.The best business partners are attracted to the Group:they understand that our ability to deliver goes hand inhand with the financial support we bring. Projectinvestors are encouraged by Leighton’s commitment tosharing development risk by taking equity stakes, andclients understand that the guarantee of our financialstrength makes us a better partner.
Project equity roleThe Group is increasingly taking a sponsorship rolefollowing the trend towards greater private sectorinvolvement in the provision of public infrastructure.Since an initial investment in the M5 Motorway,Leighton Holdings has applied its financial resources toa number of Australia’s largest projects such asSydney’s Star City Casino and Eastern Distributortollroad, the Southland Colliery in regional New SouthWales, and Nextgen Networks’ national fibre-opticcable development.
Acquisitions extend capabilityThe Group is well positioned to acquire businesses that extend our range of capability and the scope ofour services. LSE Technologies and Quantum broughtspecialist telecommunications skills to the Group and extended the range of services we could offer toclients. Other acquisitions, such as John Holland, are more opportunistic whereby our financial strengthcan refinance a business to enable it to achieve itspotential. Where some of our less diversifiedcompetitors are also facing tight trading conditions,there may well be opportunities for further acquisitionsif the potential is evident.
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