Annual Report 2011 Contents Macmahon overview 2 Chairman’s report 4 Chief Executive Officer’s report 6 Chief Financial Officer’s report 10 Safety, people and environment 14 Market outlook 18 Project map 20 Construction business 22 Mining business 24 Directors’ report 28 Corporate governance statement 46 Auditor’s independence declaration 54 Statement of comprehensive income 55 Statement of financial position 56 Statement of changes in equity 57 Statement of cash flows 58 Notes to the consolidated financial statements 59 Directors’ declaration 108 Independent audit report 109 ASX additional information 111 Summary of consolidated results 113 Glossary 115 As a leading contract mining and construction company, Macmahon has operations across Australia and an expanding international footprint. Having built strong relationships with some of the world’s leading resources companies and government sector clients, Macmahon has delivered many of Australia’s largest multi-disciplinary mining and construction projects throughout its 48 year history. Employing more than 3500 people, Macmahon offers the full range of underground and surface mining services and comprehensive construction capabilities spanning roads and bridges, rail, marine, water and resource infrastructure services. 2 Macmahon Holdings Limited Annual Report 2011 Order book 2,500 2,000 1,500 $m 1,000 2,005 2,138 2,215 2,013 1,412 500 0 2007 2008 2009 2010 2011 Safety results 2011 14 12.7 12.9 12 10 8 7.4 6 4.6 3.5 4 Number of incidents 1.9 2.0 per million man-hours worked 2 0.8 0.4 0.2 0 2007 2008 2009 2010 2011 Lost Time Injury Total Recordable Injury Frequency Rate Frequency Rate Group headcount summary 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010 2011 Corporate International Mining Construction Macmahon Holdings Limited Annual Report 2011 3 Chairman’s report “The Board has worked closely with the management team to make changes and implement a range of strategies to improve performance and achieve acceptable profit margins for our shareholders.” Ken Scott-Mackenzie Chairman Introduction The Board has worked closely with the management team to make changes and implement a range of strategies to improve The 2011 Financial Year was certainly a year of mixed performance and achieve acceptable profit margins for our outcomes for Macmahon, with new project wins offset by shareholders. This has included changes to the management the poor performance of a single contract and the impacts of structure of the Construction Business and the appointment of extreme wet weather conditions across Australia. new people to drive its future direction. Further management While the year has not delivered acceptable results for changes have seen a stronger strategic focus for the Mining shareholders, the Board is confident that the work done during Business to ensure Macmahon is well placed to capitalise on 2011 will consolidate our operations and lay the foundations positive market conditions in future years. Already, we are to deliver stronger profitability in the 2012 Financial Year and seeing the benefits of these changes. beyond. We maintained an order book of $2 billion as at June 30 and subsequent to year end we have been awarded a substantial Performance overview value of new work. This reflects the extensive work that has The Board is critically aware of the need to achieve consistent gone into business development in Australia and overseas financial performance year-on-year in order to deliver value to during the year. its shareholders. The reported profit this year fails to do this, The Board is confident these measures will lead to improved however, the outlook for Macmahon is positive. performance in 2012 and ensure better and more consistent While not dismissing the importance of the write-down of the profit growth in future years. RGP5 Rail North contract and the impacts of wet weather conditions, the rest of Macmahon performed strongly in 2011. Outlook Macmahon’s Total Shareholder Returns (TSR) have increased There are numerous positive signs for the Company ahead. over the past 10 years, despite the challenges of the global The continuing growth of the resources sector in both Western financial crisis and market uncertainty associated with the Australia and Queensland will provide what is expected to be proposed mining tax (MRRT) and proposed carbon tax. a strong pipeline of potential projects suited to Macmahon. The Company’s TSR continues to outperform the ASX 200 In addition, emerging international markets offer significant average, reflecting a strong market position in relation to the opportunities for growth and diversification. organisation’s peers. While the Federal Government’s proposed carbon tax legislation is yet to be finalised, the Company’s initial Macmahon share price performance assessment indicates the direct impacts will not be significant. I look forward to reporting improved profitability in the 2012 2500 100) Financial Year. Our balance sheet, coupled with our pipeline of = new work and the structural and management changes made 001 2000 2 during the year hold the organisation in good stead. ne Ju 1500 (30 Changes to the Board e ic Pr Mr John Massey left the Board in February following three and 1000 are a half years of service. I wish to take this opportunity to thank Sh d John for his contribution to Macmahon during this time. xe 500 de In y onthl 0 M Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 MAHASX200 4 Macmahon Holdings Limited Annual Report 2011 Macmahon WAC Workshop, Western Australia Our people I would like to thank our employees and leadership team for their contribution during what has been a difficult year for the Company. Their commitment to achieving improved outcomes across the Company has been a significant factor in delivering the necessary change. I would like to acknowledge the quality of the work our people undertake nationally and internationally. It is second to none and I congratulate our employees on the high standards applied to all that they do. The professionalism and dedication of our people has been further evidenced this year by another outstanding safety result and the Board commends our employees on their commitment to continually improving safety across the organisation. Our clients and suppliers I would like to take this opportunity to thank our clients and suppliers for their continued loyalty and support. We continue to enjoy strong and productive relationships and look forward to continuing this in future years, as we not only look to grow Macmahon but also support them in their aspirations. Our shareholders Most importantly, I would like to recognise and thank our shareholders. It is their investment in Macmahon and continued loyalty which has enabled the Company to work through the challenges experienced during the period. We look forward to delivering just rewards for their patience as Macmahon works to maximise the benefits from its operations. Ken Scott-Mackenzie Chairman Macmahon Holdings Limited Annual Report 2011 5 Chief Executive Officer’s report “This year’s work to restructure our operations will better position the Company for improved profitability, laying the foundations for solid and consistent profit growth in the future.” Nick Bowen Chief Executive Officer Introduction Construction review The 2011 Financial Year delivered a dissapointing financial Following the disappointing result with the RGP5 Rail North outcome for Macmahon. However, there has been a lot of work contract, a review of the Construction Business was completed undertaken to identify and address areas of poor performance to identify strategies for improving profitability. As a result, the and establish the foundation for solid and consistent profit Construction Business has been divided into East and West growth for the future. Overall, the year was one of mixed operations to pursue a more targeted, regional strategy for performance for the Company with the poor performance of winning and delivering work. a single contract and the impacts of extreme wet weather With management changes and a new strategy now in place, conditions in Queensland and the Pilbara leading to an we are already seeing benefits, with the Construction Business unacceptable financial result. winning a number of significant new projects during and subsequent to the end of the Financial Year. Financial performance The Company finished the year with profit after tax of $1.0 Management changes million. This is without question an unacceptable financial Former Chief Financial Officer Ross Carroll was appointed to result for our shareholders. The Board made the tough decision the newly created position of Chief Operating Officer – Mining. at the half year to book the worst case position of writing down The appointment reflected a stronger focus on growing the the RGP5 Rail North project by $48.9 million (before tax). While Mining Business and, in particular, developing a targeted financially this has been a big hit to the Company, Macmahon strategy to build our international operations. Theresa Mlikota has delivered a quality project in a challenging environment was appointed as the new Chief Financial Officer, commencing and work on the project has been completed. The extreme in April. wet weather impacts on the Company’s profit were $9 million (before tax). Ashley Mason was appointed to the newly created role of Executive General Manager Strategy and Development Excluding these factors, the Company’s underlying profit after in February. The position provides a dedicated focus on tax was $38.8 million and this demonstrates the strength of Group strategy, development and improvement across the the Company’s diversification across the other aspects of its Company’s operations. operations. The construction review saw Mark Hamilton appointed as The entire management team recognises this financial Executive General Manager – Construction East and Aidan performance was not acceptable as no profit means no returns Mullan recruited for the position of Executive General Manager to shareholders.