Macmahon Holdings Limited ACN 007 634 406 Annual Report 2009 Level 3, 27-31 Troode Street, West Perth WA 6005 Tel: +61 8 9232 1000 Fax: +61 8 9232 1001 Email: [email protected] www.macmahon.com.au Annual Report 2009 Calendar of events 27 November 2009 Annual General Meeting February 2010 Release of half year results August 2010 Release of full year results Offices and officers Company Secretaries E V Gregoriadis K A Gunellas Principal Registered Office Level 3, 27 – 31 Troode Street West Perth WA 6005 Telephone: +61 (08) 9232 1000 Facsimile: +61 (08) 9232 1001 Location of Share Registry Computershare Investor Services Pty Ltd Level 2, 45 St George’s Terrace Perth WA 6000 Securities Exchange The Company is listed on the Australia Securities Exchange. The Company is listed as “Macmahon” with an ASX code of “MAH”. Other information Macmahon Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Feedback Macmahon would appreciate your feedback on this report. Your input will assist us to improve as a business and develop our report further to suit your needs. To respond, please either email ([email protected]) or mail to: Investor Relations PO Box 198 Cannington WA 6987 www.macmahon.com.au Macmahon Holdings Limited is a leading civil construction and mine contracting company listed on the Australian Securities Exchange (ASX). Operating for more than 45 years, Macmahon has grown to become an ASX/S&P200 company, employing more than 3,000 people across Australia, New Zealand and Asia. Heading Contents Chairman’s address 2 Chief Executive Officer’s report 4 Chief Financial Officer’s report 6 Map of operations 8 Strategy and outlook 10 Construction business 12 Mining business 14 People, safety and health 18 Environment and community 20 Directors’ report 24 Corporate governance statement 40 Auditor’s independence declaration 46 Income statements 47 Statements of recognised income and expense 48 Balance sheets 49 Statements of cash flows 50 Notes to the consolidated financial statements 51 Directors’ declaration 99 Independent audit report 100 Summary of consolidated results 102 ASX additional information 104 1 Chairman’s address Richard (Dick) Carter Chairman 2009 was a challenging year for the Company. The global financial crisis, coupled with declining commodity prices led to reductions in work and a decrease in new business opportunities. I am disappointed to report a net profit after continue to focus on internal efficiencies and Mackenzie’s calibre joining the Board, and tax of $17.2 million for the year, a material strengthening its capabilities to ensure it is in welcome him to Macmahon. decline on the 2008 result and the first the best possible position to benefit from the decrease in underlying earnings in nine upturn in the economy. While we have faced a number of years. hurdles during the year, the Company Macmahon recognises the need for high has responded quickly and effectively to A number of factors contributed to this standards of corporate behaviour and restructure the business to suit the new result, both external and internal to the accountability and as such, the Directors environment. We are a resilient Company Company. support and adhere to the ASX Corporate and I am proud of the way our management Governance Council’s Corporate Governance team has guided us through the challenges Against the backdrop of the global financial Principles and Recommendations. of the past year. crisis, 2009 proved to be a tough year, particularly for our Mining Business. While Additionally, at Macmahon, corporate social The Company remains committed to uncertain times continue to prevail in the responsibility is a key priority. The Company delivering improved returns for shareholders resources sector, 2010 is already showing is committed to upholding key policies and and looks forward to delivering an improved signs of a recovery and it appears that the values relating to the health and safety of operational performance in 2010. worst is now behind us. employees, environment and the way in which we conduct our business activities. I would like to thank our employees and In light of the Company’s weak second half leadership team for their contribution during result, the Directors decided not to declare a With such values in mind, the Board was the period. Their knowledge and dedication final dividend. delighted in August 2009 to agree on a new will drive the Company’s improvement employment contract for Managing Director into 2010 and beyond, and we are highly The interim dividend of 1.5 cents per share and Chief Executive Officer, Nick Bowen. appreciative of the professionalism and represents a payout ratio of just below 50 commitment they have demonstrated per cent, which is in line with the Company’s In these volatile times, stability and strength during a demanding time. dividend guidance. Macmahon expects of leadership is an important factor to to resume dividend payments in the 2010 success. Mr Bowen remains firmly focused I would also like to thank our clients and financial year and continues to believe on the execution of the Company’s strategy suppliers for their ongoing loyalty and a payout ratio of around 50 per cent is and remains committed to the shareholders support and we look forward to continuing appropriate. of Macmahon. Mr Bowen’s leadership skills, these positive partnerships into the future. experience and strategic vision will be pivotal In June the Company raised approximately As previously announced, I will be retiring in ensuring Macmahon’s continued success $60 million of new equity. The raising was from the Board at the upcoming Annual in the coming years. successful, with both the institutional General Meeting. and retail components significantly After five years with the Company, Mr over subscribed. I would like to take this The Board has unanimously agreed that Malcolm Kinnaird AC retired from the opportunity to thank our shareholders for Mr Ken Scott-Mackenzie will be appointed Macmahon Board in May 2009. Mr Kinnaird’s their support in making the equity raising a Chairman, subject to his re-election at the expertise, dedication and knowledge during success. Annual General Meeting. this time were outstanding and I would like The equity raising was a necessary step to thank him for his contribution. I would like to thank the Macmahon towards placing the Company in a stronger management team and the Board for their Mr Ken Scott-Mackenzie was appointed position for the future, with the cash raised support over the past eight years. to the Board in May and brings with him used to pay down debt and increase working capital flexibility. over thirty five years’ experience in the engineering, mining and construction The Company is starting to see positive sectors in both Australia and overseas, signs on the horizon. Prospects for 2010 are including his most recent role as Chief improving with the economic environment Executive Office of Bilfinger Berger Australia. Richard (Dick) Carter beginning to rebound. Macmahon will We are pleased to have someone of Mr Scott- Chairman 2 Rapid Growth Project 5, BHP Billiton Iron Ore, Western Australia 3 Chief Executive Officer’s report Nick Bowen Chief Executive Officer and Managing Director The landscape in which we operate shifted dramatically in 2009, with the changes that followed significantly impacting the Company’s growth profile. Year in review As a result of these project scale backs A key win for the Construction Business and cancellations, a number of employees The past year has seen the Company was the award of the contract to construct unfortunately had to be made redundant faced with a number of challenges. Record the northern rail section of BHP Billiton Iron during the period. This was a difficult time revenue of $1.49 billion was achieved, Ore’s $500 million Rapid Growth Project for the Company and every effort was made however, profit was considerably lower 5 (RGP5) in the Pilbara region of Western to utilise available resources and redeploy than the 2008 result. Australia, in joint venture with Leighton employees where possible. Contractors. This project is pivotal in While the profit result is unsatisfactory, expanding BHP Billiton’s rail capacity in this it was in line with earnings guidance Safety performance region and also highlights the benefits from provided in April 2009 of between $15 While we have experienced a difficult year, it is the Memorandum of Understanding (MOU) million to $20 million. Positively, the last pleasing to note that the Company recorded established with Leighton Holdings. few months have seen a much stronger an outstanding safety performance for the A number of water infrastructure projects operating performance from the Company, period, with a 40 per cent improvement in the were won on the east coast of Australia signalling that we are beginning to turn Total Recordable Injury Frequency Rate and the corner. a 60 per cent improvement in the Lost Time for government bodies, including the Injury Frequency Rate. Wyaralong Dam in Queensland and the A number of one-off issues combined with Blowering Dam upgrade and Nepean Weirs the effect of the financial crisis impacted This is the best safety performance in the upgrade both in New South Wales. our 2009 results, with the Mining Business Company’s 45 year history and reflects hit particularly hard. the Company’s ongoing focus on safety New South Wales is emerging as a key improvement. region for Construction, with several rail Amidst the sharp downturn in the mining contracts awarded during the period, and resources sector, several mining adding to the growing portfolio of work in Order book contract cancellations and deferrals this state. occurred during the period, resulting Positively, we have continued to win in lost earnings and unplanned costs work with $1.1 billion of new contracts, While new contract opportunities in the of demobilisation, redundancy and extensions and scope increases awarded mining sector were limited, approximately restructuring.