Chairman’s report
Transfield Services has come through the global financial crisis as a better, stronger and more resilient company and importantly, better equipped to handle any continuation of the downturn.
Our diversity of clients and services across different sectors, industries and geographies has held us in good stead. With the Company’s renewed investment in business development, a significant pipeline of opportunities is being identified and pursued.
Your Company performed well in tough trading conditions. Transfield Services delivered on its earnings guidance, achieved record operating cash flow and now has a strengthened balance sheet with increased capacity to fund our growth strategy.
Net profit after tax (NPAT) was $73.1 million for the period ending 30 June 2010, compared with a loss of $55 million the previous year. Excluding the impact of non-recurring items, NPAT was $96 million, an increase of 2.7 per cent compared with the previous year.
Including the contribution from joint ventures, total Group Revenue declined by 6.2 per cent to $4.1 billion, as a stronger Australian dollar reduced the contribution from the Company’s international operations. Despite the ongoing adverse economic conditions, on a constant currency basis we were able to maintain our revenue.
“The total dividend for the year will be 14 cents per share, up
17 per cent on last year’s 12 cents per share, and represents an increase in the payout ratio to 61 per cent, compared with the previous corresponding period of 53 per cent.”
The Board declared a fully franked final dividend of 9 cents per share, payable on 20 October 2010. The total dividend for the year will be 14 cents per share, up 17 per cent on last year’s 12 cents per share, and represents an increase in the payout ratio to 61 per cent, compared with the previous corresponding period of 53 per cent.
The Dividend Reinvestment Plan (DRP) raised A$1.9 million of additional capital from the interim dividend. Due to the record cash result and improved financial position, the Board has suspended the DRP effective from the 2010 final dividend.
In response to shareholder requests, the Board has introduced a Share Purchase Plan (SPP), which offers eligible shareholders an opportunity to purchase shares in Transfield Services to a value of $1,000, $5,000, $10,000 or $15,000 at a discount and free from brokerage and transaction costs.
The Board has absolute discretion over the amount raised under the SPP. Funds raised through the SPP will be used initially to repay debt, which will further strengthen our financial position. This also provides Transfield Services with greater balance sheet flexibility and allows us to continue to focus on organic and acquisitive growth and other development opportunities.
It will assist our strategy of providing consistency of earnings and the generation of solid and reliable returns for shareholders. The secret of our success in managing diverse sectors and clients is the use of common processes and systems across all our operations. In fact, sharing of skills and processes across different business lines has been a major contributor to the development of your Company.
We continue to focus on improving safety performance and using this priority as a competitive advantage.
In April 2010, the Transfield Services Mandatory Safety Rules were launched with a global stand-down to communicate the rules to every employee around the world.
We have reduced our Lost-Time Injury Frequency Rate from 4.04 for every million hours worked in 2004 to 1.55 in 2010. During this time, we increased our global workforce from 8,500 employees to more than 28,000 employees today.
Our Managing Director and Chief Executive Officer, Peter Goode, has been with us since April last year and is reinvigorating our management team. We have a new Chief Financial Officer, Tiernan O’Rourke, a new Chief Executive, Marketing and Business Development, Nicholas Yates, as well as new chief executives, Larry Ames in the Americas and Philip Wratt in the Middle East and Asia.
Board and corporate governance
Board composition and skills are critical to responsible governance. I have been overseeing the process of Board renewal to ensure the Board remains independent and experienced, and provides the diversity and skills befitting a global services company.
In December 2009, Douglas Snedden was appointed as a non-executive director of the Company. Doug has a wealth of global experience and leadership in managing large-scale business programs, planning and executing corporate strategy and industry and market reform, most recently as Country Managing Director of Accenture in Australia.
Professor Stephen Burdon retired from the Board in July 2010. Steve has been a director of the Company since December 2000 and has made an outstanding contribution over the past 10 years, particularly in the areas of strategy and client relationships.
During the year, we strengthened our governance processes with more emphasis on risk management and the implementation of the Code of Business Conduct. Peter Goode has provided the leadership on the code and on putting more rigour into our management of risk.
Our strategy and risk management
During the year, the Board approved a strategic plan with new initiatives instigated, including a streamlined operational structure, a strengthened executive team and an increased focus on business development.
The Company is focused on broadening its capabilities to build more work with clients across the value chain and to complement existing relationships with joint venture partners. Our strategy is to enhance the range of technical services we currently provide. Your Company will continue to leverage its capabilities so that it becomes a premier provider of whole of asset life cycle operational and maintenance services and a trusted advisor to its customers.
The Board has reaffirmed our strategy of low-risk contracting and carefully managing our exposure to fixed-price, lump-sum contracting work. This approach, which has been in place since the Company was formed, ensures that Transfield Services minimises the potential for a material loss on any of its contracts.
The current order book of contracted revenue for Transfield Services is $11.6 billion, which has grown by five per cent from the same time last year. The Company is investing significantly in business development to ensure that we continue to grow our order book.
Importantly, a disciplined approach to tendering will also ensure future work is of a high quality. This will protect long-term margins and overall returns for shareholders.
Most of our contracts are with blue-chip companies, such as Woodside, Shell, BlueScope Steel and BHP Billiton, or federal and state government departments and authorities including Australian and New Zealand defence forces, the Australian Rail Track Corporation and New South Wales public housing and education departments.
Our underlying strategy is to become an integral part of our clients’ teams, with our outcomes aligned with their outcomes. For example, in our contract with Suncor Energy in the oil sands of Alberta, Canada, we are rewarded against a range of key performance indicators such as efficiency, safety and productivity.
This aligns our goals with our client’s, which are fundamentally to improve the overall output of the asset. The quality of the work we do in Alberta supports Suncor Energy as it continues to produce record levels of oil.
We will seek to build on our leading market position in the hydrocarbons maintenance services sector to secure high value work with existing clients. The Company is pursuing opportunities arising from the planned investment in coal seam methane and liquefied natural gas plants in the north of Australia.
There are ongoing opportunities in the Infrastructure Services sector. Our presence in the North American roads maintenance sector was boosted with US$750 million worth of work secured during the year.
The Company will continue to leverage its presence in the sector, which is set to benefit from promised government expenditure on infrastructure. The power, water, rail and social infrastructure industries continue to achieve robust growth and the Company sees many more opportunities within reach.
We will also continue to pursue opportunities in the Australian public private partnership market as an operator and maintainer.
Another key element of our strategy is to drive discipline across the business. This encompasses a more efficient cost base and improved productivity. This in turn means the costs to our clients are reduced, we become more competitive and improve profitability.
Our global footprint will continue to be:
- Australia and New Zealand
- The Americas – Canada, the United States, Chile, and
- The Middle East and Asia.
There is significant growth potential in the United States in unconventional oil and gas, driven by the country’s strategic intent to be self-sufficient in both and the move to onshore production following the oil spill in the Gulf of Mexico. We also see the shale gas market in North America as promising.
Canada is benefiting from the United States’ drive for self-sufficiency in oil and gas. Our joint venture in Canada, FT Services, continues to build its presence in the oil sands industry and recently secured its fourth major client, Nexen.
Our existing clients in the oil sands business, Suncor Energy and Shell Canada, have recently signalled their intent to start reinvesting in sustaining capital works from which FT Services is set to benefit.
In the Middle East, our business in oil and gas and infrastructure is being positoned to grow. We have an expanding base in Abu Dhabi with a new and experienced Chief Executive, Philip Wratt. The two United Arab Emirate states of Abu Dhabi and Qatar, as well as Saudi Arabia, are making significant investment in infrastructure, giving us new opportunities in project management, operations and maintenance.
Transfield Services Infrastructure Fund
Transfield Services Infrastructure Fund’s capital structure review (TSI Fund) was successfully completed during the year. As a result TSI Fund was able to significantly reduce debt.
Transfield Services invested a further $43.2 million into the TSI Fund and maintains its role as manager, operator and maintainer.
The ongoing national movement towards renewable energy leaves TSI Fund in a good position to benefit from Transfield Services’ portfolio of wind farm development opportunities.
The expertise within Transfield Services and TSI Fund in gas power generation and our existing portfolio, positions us well to take advantage of the inevitable move towards the use of gas for base load power generation.
Sustainability
I am immensely proud of Transfield Services’ commitment to sustainability. This is evident in our safety performance, our training record, environmental initiatives and in our work with Indigenous people and local communities to achieve sustainable outcomes. I am particularly proud of our Reconciliation Action Program in Australia.
The future
Transfield Services has emerged from the global financial crisis in better shape than before.
We have a strong balance sheet, a dynamic Chief Executive Officer and a strengthened management team driving all aspects of our performance. We are also well placed to take advantage of the new opportunities that are emerging in the regions and sectors we service.
I would like to thank the Board, Peter Goode and the Transfield Services team for their energy, hard work and commitment, and also shareholders for your continuing support.
Anthony Shepherd
Chairman