Report from the Leighton Holdings Limited Annual General Meeting

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02//03 Report from the Annual General Meeting November 2002Key Performance Features for the 3 Months Ended 30 September 2002 (Unaudited)Projects from top to bottom rightSorell Causeway Bridge and ApproachesTasmania – John HollandSt Ives Gold MineWestern Australia – Leighton ContractorsEastern Harbour Crossing Housing ProjectHong Kong – Leighton Asia (Northern)Goodwill BridgeQueensland – John HollandFinancial performance information $’000Revenue– group 1,292,367– joint ventures 75,001Total Revenue 1,367,368Operating profit from ordinary activities before income tax 53,785Income tax expense (16,308)Profit from ordinary activities after tax 37,477Net profit attributable to outside equity interests (2,801)Net profit attributable to members 34,676Financial position informationTotal assets 2,178,999Total liabilities 1,332,916Net assets 846,083Net tangible assets 812,757Net tangible assets per ordinary share ($) $3.00Basic earnings per share 12.9¢Number of employees 15,526Address to ShareholdersA Presentation to the 41st Annual General Meeting ofLeighton Holdings Limited by the Chairman Mr John Morschel
IntroductionOn behalf of the Board of directors, I am pleased to reportthat despite the very competitive operating environmentexperienced during the last year the company hassuccessfully delivered shareholders another strongperformance.Financial HighlightsThe results achieved reflect a strong contribution from theAsian operations, an improved result from our propertydevelopment activities and a solid performance across theGroup’s diversified contracting activities in Australia:•Total operating revenue increased by 20 percent to arecord level of $5.2 billion.•The Group’s success in securing some large-scaleprojects such as the Parramatta Rail Link in Sydney andthe Regional Fast Rail contracts in Victoria boosted workin hand at 30 June 2002 to an all-time record level of$8.4 billion - up by 7 percent on the previous year.•Our strategy of diversification by products, geography anddelivery systems continued to yield results. This diversityreduced the impact of the recent construction downturnin Australia and helped lift operating profit before tax by15 percent to $227 million.•Operating profit after tax increased by 8 percent to an alltimerecord level of $169 million. This increase wasachieved after making a provision of $45 million againstthe future investment in Nextgen Networks. The Boardconsidered this a prudent decision given the currentinstability in the telecommunications market.The Group’s balance sheet remained strong with $524 millionof net cash and shareholders’ funds 7 percent higher at$789 million.Leighton’s average return on shareholders’ funds, at22.1 percent in 2001/2002, achieved a ranking of 8th out ofthe top 100 companies listed on the Australian StockExchange.Australia/Pacific OperationsOur Australia/Pacific operations made a strong contribution tothe Group’s performance in the past year. Profit before tax of$141 million was up by 21 percent and total revenue of$3.9 billion was 29 percent ahead of the previous year’sresult.Thiess recorded another good performance in its mining andresources activities. It made a strong contribution toprofitability whilst again increasing its level of uncompletedwork in hand.Leighton Contractors performed well and continued tobroaden its skills base and engineering capabilities intocomplex process and heavy engineering work.John Holland continued to meet its recovery program targetsand made an increased contribution to Group results for theyear.Leighton Properties maintained a good level of activity in itsindustrial and commercial markets along Australia’s easternseaboard and produced a satisfactory result after completingthe sale of a number of development properties.Engineering and infrastructure remained the Group’s largestsource of revenue in Australia at $1.2 billion, which was up onlast year by 19 percent. Increased activity in the rail sectorboosted by major government initiated infrastructure projectsand a continuing good level of new road constructioncontracts boosted work in hand by 79 percent to $2.1 billionat year-end.Mining and resources made a strong contribution to theGroup’s performance with revenue up 46 percent to$1.0 billion. Thiess, Leighton Contractors and John Hollandwere all active participants in this market sector during theyear with overall work in hand levels rising by 5 percent to$2.5 billion at 30 June 2002.While Thiess maintained its leading position in the coal sector,competitive pressures are making this a tough market inwhich to win new work.Revenue from building and property activities was strongerwith revenues up 28 percent to $916 million. Uncompletedwork in hand was up 2 percent to $626 million although thisfigure has been significantly boosted by the awarding of newwork post year-end.Revenue from telecommunications was up 40 percent to$619 million last year but the level of work in hand fell by45 percent to $522 million. This reflected the good progressmade on the construction of the Nextgen fibre-optic cablenetwork, which is expected to be completed ahead ofschedule early next year.While telecommunications is a market in which the Group willmaintain a presence the lack of new capital expenditure inthis sector is constraining opportunities for new work.Revenue from environmental services remained steady at$186 million. With conditions in the waste market remainingvery competitive, work levels reduced by 9 percent to$379 million.Asian OperationsAnother strong performance was recorded by the Group inAsia with revenue of $1.2 billion and profit before tax of$77 million. The results were down marginally on the previousyear due to the appreciation of the Australian dollar.Contract mining in Indonesia, construction in Malaysia and railwork in Hong Kong were the major contributors to the result.Leighton Asia was recently restructured into two businesshubs with the formation of Leighton Asia (Southern) based inKuala Lumpur and Leighton Asia (Northern) based in HongKong. This restructure will facilitate the continued expansionof the Group’s operations throughout the region.DividendDirectors were pleased to announce an increased finalordinary dividend of 26 cents per share. This dividend wasfranked to the extent of 70 percent and was paid toshareholders on 30 September 2002.When added to the interim ordinary dividend of 16 cents pershare paid in March 2002, which was also franked at70 percent, the total ordinary dividend for the year rose by8 percent to 42 cents per share. The dividend payout ratiowas 67 percent.Leighton’s objective is to provide superior total shareholderreturns and in this regard over the last 10 years the Group’stotal shareholder return has exceeded returns providedby the All Ordinaries Accumulation Index by more than300 percent.Corporate GovernanceI would like to take a few minutes to talk about corporategovernance.Leighton has long recognised the need to have in place acomprehensive corporate governance policy.Now more than ever, being ethical, acting with integrity and,above all, being accountable and transparent, are essentialingredients of any company’s business polices. For this reasonI would like to briefly outline some of the key elements ofLeighton’s corporate governance practices to demonstrate theBoard’s determination to ensure that appropriate and highstandards are maintained in the company.In Leighton, where people play such a fundamental role inensuring the company’s success, one of the prerequisites fora good corporate governance structure is the Board’s role insetting and communicating standards for ethical behaviour.The Leighton Board is committed to maintaining a strongethical culture throughout the Group and has had acomprehensive and realistic Code of Ethics in place since1995. As ethics is an evolving discipline the Code of Ethics isan evolving document. Individual Group operating companieshave adapted and expanded the Code of Ethics into their owncodes, which focus more specifically on the ethical challengesthey face. The enforcement of these codes is overseen by aseries of ethics committees formed at both the holding andoperating company levels. Future developments to assist theBoard in monitoring the Group’s ethical performance includethe establishment of an ethical dimension reporting system.This is being undertaken in conjunction with the St JamesEthics Centre and will place Leighton at the leading edge ofAustralian companies in this area.It is Board policy that the Board should comprise a majority ofnon-executive directors. Currently 10 of the 12 directors onthe Board are non-executive directors. Commencing fromSeptember this year it is also Board policy that all Boardcommittees dealing with corporate governance matters,except the nominations committee, are to be constituted witha majority of non-executive directors.The Board continually monitors the business environment forbest practice in corporate governance and has consistentlyimplemented new initiatives in this regard. For example,Leighton was one of the first companies in Australia toestablish an Audit Committee in 1990 to assist the Board infulfilling its responsibilities under the Corporations Act inrelation to financial reporting, risk management and internalcontrol. More recently amendments were made to the termsof reference for the Audit Committee. Membership of theCommittee now comprises a majority of non-executivedirectors and the non-executive members of the Committeemeet with the external auditors on at least two occasionseach year without management in attendance.KPMG is the Group’s principal auditor and was reappointed tothat position by shareholders at last year’s Annual GeneralMeeting. KPMG’s engagement partner responsible for theLeighton Group audit rotates at least every seven years withthe last rotation occurring in February 2001.KPMG has confirmed to the Board that they have maintainedtheir independence throughout the financial year by enforcingstrict internal rules and policies and that they were free fromconflicts of interest when discharging their professionalresponsibilities as statutory auditor for the year ended30 June 2002.
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Report from the Leighton Holdings Limited Annual General Meeting

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