Financial strength

A core principle of the Leighton Group is a disciplined and conservative approach to the use of our financial resources.

The Leighton Group has been very successful in building a strong financial base over a number of years. This financial strength is fundamental for a contracting organisation, which is required to fund bonds and guarantees, working capital and significant investments in plant and equipment.

The Group’s strong financial base is a core element of our strategy, driving growth through selective equity stakes, acquisitions and funding capital intensive activities such as mining. The best business partners are attracted to the Group: they understand that our ability to deliver goes hand in hand with the financial support we bring. Project investors are encouraged by Leighton’s commitment to sharing development risk by taking equity stakes, and clients understand that the guarantee of our financial strength makes us a better partner.

Investing for growth

Leighton is committed to providing a solid return to shareholders and has averaged a very creditable 18 per cent average return on shareholders equity over the last five years. Wherever we see opportunities to invest our cash reserves to grow the business, we will continue to do so. We see this as a more efficient use of shareholders funds than once-off special dividends or share buyback programs. We continue to see opportunities for profitable growth through investment and our track record in this area demonstrates the benefits it brings.

Selective allocation of funds 

Our funds are selectively allocated across the Group’s companies. Allocation is based on the historic performance of the business unit wanting to invest and on careful assessment of the proposed returns. Rewarding managers based on the performance of their capital employed results in effective and often innovative use of capital. A comprehensive investment analysis process is also used to evaluate all potential risk factors.

Plant and equipment

The Group’s resources include the largest fleet of mobile plant and equipment in Australia, much of which is deployed in contract mining. The latest plant is used to maximise our technological advantage and to drive improvements in efficiency and productivity. As of 30 June 2009, the total value of the Group’s investment in owned and leased plant and equipment stood at over $3 billion.

Working capital

As a contracting organisation the Group needs to support significant amounts of working capital, which includes items such as the procurement of construction materials, the payment of subcontractors and employees, plant costs and other operating costs.

Bonds and guarantees
By the nature of its contracting work, the Group is often required to provide undertakings to clients that projects will be satisfactorily completed. Large projects will often require the Group to provide a performance bond, which covers the performance of a particular contract and generally represent a percentage of the contract payable if a project is not completed as specified. Performance bonds are secured by the Group’s balance sheet.

In some cases, undertakings are provided by way of bank guarantee, which provide comfort to a client that a bank will guarantee that any outstanding claim is settled.

Project equity role
The Group is increasingly taking a sponsorship role following the trend towards greater private sector involvement in the provision of public infrastructure. Since an initial investment in the M5 Motorway, Leighton Holdings has applied its financial resources to a number of Australia’s largest projects such as Sydney’s Star City Casino and Eastern Distributor tollroad, the Burton Coal Mine in Queensland, Nextgen Networks’ national fibre-optic cable development, the Alice Springs-Darwin railway, the WestLink M7 and Lane Cove Tunnel in Sydney, the EastLink Project in Victoria, and the North-South Bypass Tunnel in Brisbane.
 
Acquisitions extend capability
The Group is well positioned to acquire businesses that extend our range of capability and the scope of our services. LSE Technologies and Quantum brought specialist telecommunications skills to the Group and extended the range of services we could offer to clients. Other acquisitions, such as John Holland, Transfield's construction business, Fletcher Construction and Henry Walker Eltin's mining assets are more opportunistic whereby our financial strength can refinance a business to enable it to achieve its potential.