Leighton Confident of Sustaining Growth

• Total revenue increased by 22.8 percent to a record level of $4.4 billion.
• A significant increase in forward orders in work in Asia, telecommunications activity and the base load of our long- term mining contracts boosted work in hand at 30 June 2001 to an all time record level of $7.8 billion - up by over 26% on the previous year.
• Organic growth, disciplined acquisitions and the realisation of selected equity stakes in development projects successfully lifted operating profit before tax by $19 million to $197 million – up 10.9 percent.
• Operating profit after tax increased by $22 million to an all time record level of $156 million – up 17 percent.

The Group’s balance sheet remained strong with $400 million of net cash and shareholders’ funds 12 percent higher at $740 million.

Leighton’s return on shareholders’ funds, at 21.1 percent in 2000/2001, achieved a ranking of 11th out of the top 100 companies listed on the Australian Stock Exchange.

This return is around 300 percent better than last year’s 10-year bond rate and more than 90 percent higher than the average return achieved by the ASX’s top 100 companies. Over a 10- year period the Company has recorded an annualised shareholder rate of return of 31.8%

We are pleased to observe the performance in Leighton’s share price since last year’s collapse of the dot-com infatuation with investors now returning to good long-term yielding stocks.

Australia/Pacific Operations
Our Australia/Pacific operations made another good contribution to the Group’s performance in the past year. Profit before tax of $115 million and total revenue of $3.0 billion were both up slightly on the previous year’s result.

Thiess recorded a very good year making a substantial contribution to profitability and again increasing its level of uncompleted work in hand.

Leighton Contractors produced a creditable performance by continuing to develop its telecommunications business.

John Holland continued its recovery process, producing a positive profit contribution for the year.

Leighton Properties produced a satisfactory profit and the strategies it has put in place over recent years are now beginning to yield results.

Revenue from telecommunications was up 23% to $376 million last year contributing 10% of Group revenue for the period and recording an increase in uncompleted work in hand to $1 billion.

Visionstream completed the privately owned $80 million cable network stretching from Brisbane to Cairns during the year and commenced construction of the fully financed $800 million Nextgen Networks optic fibre network which links Perth, Adelaide, Melbourne, Canberra, Sydney and Brisbane.  

While telecommunications is currently experiencing some uncertainty we maintain a positive outlook for the long-term future of this sector.

Engineering and infrastructure remained the Group’s largest source of revenue in Australia generating 34 percent of revenue despite the current downturn in the civil engineering market. Uncompleted work levels were successfully maintained at $1.2 billion at year-end.

A highlight during the year was the successful finalisation of the design and construct contract for the Alice Springs to Darwin Railway by the ADrail consortium of which John Holland is a member. John Holland has commenced work on its share of the project, which is worth $219 million.

Road projects continued to provide the most activity in the engineering market.

Thiess completed the Kwinana Freeway extension in Western Australia and Leighton Contractors was awarded a contract to extend Perth’s Roe Highway.

Leighton Contractors made excellent progress on the construction of Brisbane’s Inner City Bypass during the year. It also continued work on two sections of the Geelong Road in Victoria. John Holland was successful in securing a contract to construct another section of the Geelong Road.

While revenue from mining and resources was down slightly at $685 million uncompleted work in hand increased by 50% to $2.35 billion.

Thiess has continued to consolidate its position in the mining market as Australia’s leading service provider. New work won at the North Goonyella coal mine in Queensland and the Southland Colliery in New South Wales demonstrates Thiess’ success in securing significant new long-term coal mining contracts through its ability to both add value and invest in projects.

 Work continued on Leighton Contractors’ major mining contracts at Yarrie Nimingarra iron ore mine in Western Australia and the Coppabella coal mine in Queensland.

Revenue from building and property activities was up 24% to $715 million despite a subdued market. Uncompleted work in hand was up 35% to $614 million.

Leighton Properties had a profitable year completing the sale of 80 Pacific Highway North Sydney and acquiring a 50% stake in a nearby development site at 100 Pacific Highway. The refurbishment and conversion of AXA’s existing city carpark at 383 Kent Street into a $100 million office tower has advanced and is due for completion in 2002.

In August 2001, Leighton Properties entered into a strategic partnership with PA Property Trust aimed at jointly developing property opportunities and providing a retail investment vehicle for some of their completed developments.

New building projects for Leighton Contractors included Amcor’s new wine bottle plant in South Australia while work on existing projects in Sydney at St Vincent’s Hospital and the new ABC building progressed well.

Thiess was awarded contracts for the construction of apartments in both Victoria and New South Wales as well as the design and construction of the St Kilda Station Development in Melbourne.

New building work for John Holland included a research complex for the CSIRO in Sydney, a shopping centre at Maitland in New South Wales and two new hospitals in Queensland. 

Revenue from environmental services was down 9% to $185 million as a result of tight conditions in the waste market.

Thiess Services’ operations and maintenance work for sewerage, water and gas utilities provided a good contribution during the year and new work was won in Victoria for the provision of services to an electricity distributor.

Asian Operations
An excellent result was reported from our Asian operations with revenue up 70% to $1.3 billion and profit before tax improving by 51% to $83 million.

Contract mining in Indonesia and a strong performance from Malaysia were key contributors to the result.

Thiess’ contracting operations in Indonesia performed well with production on a number of contracts lifted in response to increases in demand. New contracts were awarded to Thiess by PT Prima Coal at the Musang and Pelanduk coal mines in East Kalimantan.

Leighton Asia was also successful in securing a $107 million coal-mining contract at Loa Janan in Kalimantan its first new project since establishing operations in Indonesia in May 2000.

A large increase in activity in Malaysia and an excellent performance on major construction contracts at Manjung Power station and the Teachers’ housing project delivered a strong result for Leighton Asia.

Hong Kong continued to provide Leighton Asia with a good level of infrastructure work. During the year Leighton Asia was awarded a large contract to upgrade and extend the existing light rail system for the Kowloon Canton Railway Corporation. Other contracts underway include three major rail projects, the civil infrastructure for the hi-tech multi-media Cyberport Development, apron works at the Hong Kong airport and the building of a new Australian International School.

South America
Thiess has increased its presence in the resources sector in South America. It was successful in securing $55 million in new work in Peru with contracts for earthworks at BHP Billiton’s Tintaya oxides plant and for mining services at a lead, silver and zinc mine for a local mining company.

Dividend
Based on the results achieved in 2001, directors were pleased to announce a 25 percent increase in the final ordinary dividend – up 5 cents to 25 cents per share. This dividend was franked to the extent of 50% and was paid to shareholders on 28 September 2001. When added to the interim ordinary dividend of 14 cents per share paid in March 2001, the total ordinary dividend for the year rose by 18 percent to 39 cents per share. The total dividend payment was $103.5 million in 2001.  The payout ratio was 66 percent.

In view of the continuing strength of the Group’s balance sheet and its surplus cash position, the Board has decided not to proceed with an issue of shares under the company’s share purchase plan in the current financial year. This position will be reviewed again by the Board next year.

 Prospects
The Group’s record level of work in hand across Australia and Asia should translate into increased revenue and profitability next year.

Activity in the mining and resources sector should stay strong on the back of Thiess’ long-term coal contracts. Group companies now have over $1 billion of uncompleted work from operation and maintenance contracts spread across our key markets. This work is long term and adds further sustainability to earnings.

The traditional construction markets of engineering and non-residential building will remain relatively tight but preparatory work is underway for a number of large infrastructure projects.

Leighton Properties will continue to progress a number of development opportunities along Australia’s eastern seaboard and we expect to see an improved contribution from our property activities in the future.

The Asian operations should have another good year. Indonesia, Malaysia and Hong Kong  will continue to be the major areas of activity with an enhanced performance expected in the Philippines. 

Conclusion
The Group is well positioned to continue delivering enhanced returns to shareholders in the medium term.

Revenue should remain strong due to the Group’s record uncompleted work in hand, a good level of long-term contracts and an improving outlook for the construction and property markets in Australia.

The Group’s existing pipeline of investments and its capacity to further invest in projects and make acquisitions should underpin growth.

In conclusion, on behalf of the Board, I would like to thank our shareholders for their continued support. I also express the Board’s appreciation to members of the Leighton Group’s management team for their excellent work during the year.

Sustaining Growth
A presentation by Chief Executive, Mr Wal King AM to Leighton Holdings 2001 Annual General Meeting

As the Chairman has discussed in his presentation, we are very proud of the Group’s performance this year. While 2001 was another challenging year we have again delivered a strong result for shareholders.

Today I want to talk about how we will continue to grow the Leighton Group in the future, about some of the opportunities we see and why we believe that our recent strong performances can be sustained.

Our Strengths and Strategy
Most businesses profess to have a strategy, both good performers and bad performers. However, people and leadership are what drive performance by successfully implementing the strategy.

The Leighton Group’s strategy has been one of evolution, flexibility and focus. Diversity is central to the Leighton Group’s strategy and evolution. Our strategic triangle, featured in this year’s annual report, captures the Group’s diverse nature - by brand, by geography, by market and by delivery type. Each operating company has its own distinct culture and branding, delivering projects and services through a flexible range of delivery systems. We also leverage our financial strength to invest, develop and grow the business.

Diversity across the Group’s operations helps counteract cyclical downturns that occur in particular markets. Our geographic presence in Asia has made a significant contribution to our overall performance, particularly in recent years when some of our markets in Australia have been difficult. This diversity also creates new growth opportunities where we can develop and apply our core skills. Taking our telecommunications skills into Asia is a natural evolution of core competencies.

The capability of our people is critical to our success. We have some of the best people in the business and it is they who implement the strategy, work with clients and develop projects. We have strength of leadership and experienced management throughout our decentralised organisation. Long service is not uncommon. Many highly skilled employees have been with the Group for over 15 years. A core value of the Group is reward for performance. People perform best when they have clearly defined goals and are allowed to operate – subject to defined management guidelines – with freedom to pursue those goals.

Whilst we encourage autonomous operations and a competitive spirit, the ethical behaviour of our employees is central to our common framework of values. Our Code of Ethics demonstrates our commitment. It requires employees to operate within the law, to act with honesty and integrity, not place themselves in situations which result in divided loyalties, use the Group’s assets responsibly and in its best interests, and be responsible and accountable for their actions. Wherever we operate, the health, safety and well-being of our employees is of paramount importance. Safety remains a critical issue for staff at all levels of the company.

We also recognise that we have a responsibility to the communities surrounding projects where we operate. Wherever possible we try to adopt a consultative approach and operate in such a way that the quality of life and the integrity of the environment is maintained. We also recognise our responsibility to the community extends to corporate social responsibility where we can ‘give back to the community’.

A key element of the Group’s strategy is our financial strength. This allows us to drive growth by taking selective equity stakes, making acquisitions and funding capital intensive activities such as mining. Business partners understand that our ability to deliver goes hand in hand with the financial support we bring. We continue to see opportunities to invest our cash reserves to grow the business and believe this is a more efficient use of shareholders’ funds than one-off special dividends or share buyback programs. The Group will continue to acquire skills that facilitate its core contracting activities. We also see further opportunities to invest in transport infrastructure, mining and resources, telecommunications and property projects.

Outlook in Australia
A great deal has been written and said about the recent tragic events of September 11 in the USA. Whatever the outcome of the attack and subsequent war on terrorism, Australia is well placed to ride through what will be an uncertain period. The Australian economy is in relatively good shape. The Group has huge momentum across Australia with work in hand maintained at $5.5 billion and spread across all major markets. We have a broad footprint in this country and we should continue to win our fair share of work.

Growth in the telecommunications market has slowed from the record levels of the 1990s. The next few years will see moderate but still relatively high growth, driven by new technologies such as WAP (wireless application protocol), third generation mobile phones as well as new digital broadband applications and increasing cable TV penetration rates. Vytel, Leighton Contractors specialist telecommunications subsidiary, has a good level of work for the next few years rolling out the nationwide Nextgen network and upgrading and maintaining other carrier networks. All operating companies are developing their telecommunications capabilities.

The traditional civil construction market has seen a slowdown over the last few years but we are moving through the bottom of the cycle and growth will resume next year. John Holland has commenced work on the Alice Springs-Darwin rail line and Group companies are currently working on a number of road projects around the country. There are some large transport infrastructure projects in planning, particularly in Sydney and Melbourne. Group companies are shortlisted or in the bidding process for some $3-4 billion of projects. In Sydney, these include the Cross City Tunnel, Phase 1 of the Parramatta-Chatswood rail line and the Western Sydney Orbital. In Melbourne there are the regional fast rail links, the Eastern Freeway extension and the Spencer Street station redevelopment.

There are also further major projects such as the Scoresby Bypass in Melbourne and the Lane Cove Tunnel in Sydney which will proceed over the next few years. In Queensland, Leighton Contractors was recently awarded construction of the $112m Port Road in an alliance arrangement and some other major infrastructure projects are on the drawing board.

While overall activity in the mining and resources sector should remain flat during the next year, we continue to see good opportunities in coal. Australia’s competitive exchange rate and the commissioning of new coal fired power stations in Asia should underpin growth for Australian producers and contract miners. Thiess retains its leadership position as a contract coal miner and is the third largest miner of coal in the Asian region after Rio Tinto and BHP Billiton. A large portion of Thiess’ work is made up of long-term contracts, often on a ‘life of mine’ basis.

An emerging sector of opportunity is oil and gas. Australia is set for a major expansion with further extensions underway by Woodside on the North West Shelf and significant developments proposed for the Timor Gap concessions. New projects should drive demand for significant infrastructure work in this sector. Some major greenfield iron ore projects in Western Australia as well as expansions to Portman’s existing Koolyanobbing mine, could offer opportunities for mine development, process engineering and contract mining.

We anticipate an upturn in the non-residential property market towards the middle of the decade. Commercial office markets have been relatively solid, vacancy rates are falling and rental growth has been strong. Leighton Properties has redefined its strategy with a strong emphasis on developing partnerships, focusing on specialised developments and leveraging its capital investment. It is gearing up to meet expected supply demand with a number of developments underway or in planning.

The contract building market will also start to grow again. Health, defence and education have good potential, particularly if State Governments pursue innovative financing arrangements such as public-private partnerships.

The environmental services market continues to grow at or around GDP rates and while it remains very competitive there is a trend towards furthering outsourcing of waste management services to specialists. There will continue to be select opportunities for site remediation, particularly in the major capitals cities, as former industrial properties are redeveloped for other uses such as residential. The maintenance of utilities such as water, sewerage, gas and electricity holds promise.

The Group currently has over $800 million worth of operations and maintenance work providing a stable base of long term earnings. We have operations and maintenance contracts in telecommunications, rail and road infrastructure, defence facilities, waste management and utilities. The outsourcing of these non-core activities is expected to continue as both business and governments seek to reduce costs and improve service delivery through the use of specialist private sector service providers.

Outlook in Asia
The economic outlook for Asia is inextricably linked to the global outlook, which appears less certain than it might have been a few months ago. While exports have driven improved performances in Asia over recent years, economic growth levels are now slowing. We believe that Asia is in better shape now to weather any global downturn than it was going into the 1997/98 financial crisis. The Group has maintained record work levels and there remain selected opportunities across the region.

The resources sector in Indonesia remains attractive due to its huge reserves and cost competitiveness. Indonesia is the world’s third largest supplier of thermal coal, with over 80% going into other Asian markets. The Group has a strong presence in the coal industry, working at 7 mines in Kalimantan. Thiess has in excess of $1 billion worth of work in hand in Indonesia, primarily at the huge Satui and Senakin coal mines. There are further opportunities to provide coal mining services in Indonesia but in the current uncertain times, we will be cautious about increasing our investment in plant and equipment.

While Hong Kong no longer monopolises trade with China since the opening up of Shanghai and other mainland cities, it remains a large and important economy in its own right. Increased economic activity between Hong Kong and mainland China is driving significant infrastructure investment to support development of a regional transportation network. The Chief Executive of Hong Kong, Mr Tung Chee Wah, recently announced a massive new infrastructure programme worth A$150 billion over the next 15 years. The program includes extensions to existing infrastructure, the construction of new rail links and a proposed high-speed railway from Hong Kong to Shenzhen.

Leighton Asia has a strong position in the Hong Kong market having been established there for 26 years. It has four rail projects in construction at present and is well positioned to win further work as it is released.

Increasingly the world is focused on the potential of China, particularly since it was awarded the Beijing Olympics in 2008. Leighton Asia has opened an office in Shanghai and is monitoring prospects, some of which are being progressed through HOCHTIEF’s connections. However, China is a very big and difficult market in which to operate.

Malaysia was a strong performer for the Group last year with a large increase in work done, driven by the very successful Manjung power station and Teacher’s Housing projects. Although the economy is expected to slow, prospects are being pursued for power generation and telecommunications infrastructure.

Leighton Asia has been bolstered in the Philippines by the recent awarding of new projects including a major manufacturing facility for Philip Morris. These projects should provide a base load of work for the next few years in that country. Thailand recorded a profitable year based on its rail maintenance work and expects to win further rail work in the future. Leighton Asia recently won a civil contract at a power station in Vietnam and there continue to be some selected opportunities in Indochina.

The Asian telecommunications market is a potential growth area for us. Some telecommunications projects have been undertaken in the Philippines and Malaysia and we are focused on building a stronger presence across the region through Vytel Asia. It will seek to leverage skills acquired in the Australian market with our local knowledge in Asia. Vytel is optimistic that there will be significant demand for the provision of telecommunications infrastructure, such as the fibre-cable and wireless networks they already construct in Australia.

South America
The major international resources houses are increasingly turning their attention to South America. It now receives the biggest proportion of the world’s minerals exploration budget and should become a much larger player on the world stage in the future. Thiess see good opportunities to provide contracting services in the region. This year Thiess was awarded mining and resources related work in Peru and is encouraged by a number of prospects.

A Sustainable Future
We are positive about the future despite the current global uncertainty. Australia is in a relatively strong position and is well placed to ride out whatever happens in the wider global economy.

Diversity has insulated the Group from the construction downturn in Australia and should provide significant upside potential as that market begins to recover. The record level of work in hand of $7.8 billion across Australia and Asia has been maintained at the end of the first quarter of the 2001/02 year. Revenue is expected to increase to in excess of $5 billion in the year ahead and we are well placed to win a significant level of new work in the next few months. This momentum will translate into an improved financial performance in the year ahead.

The Group’s financial position is solid and with a strong cash balance we are extremely well placed to invest, develop and grow the business. This financial strength allows the Group to shape its own destiny and is a source of competitive advantage. We are confident that we have the people, the management team and the strategy to provide sustainable growth for shareholders into the future.