Managing Director and CEO's report

The last financial year has been one of change for the long term.

This year we successfully completed our major strategic priorities. We privatised the Transfield Services Infrastructure Fund, acquired Easternwell and sold our US facilities maintenance business, USM.

We may eventually redeploy funds from the sale into business growth initiatives in a manner consistent with our strategy.  

Investment in business development, account management and upskilling operational and marketing positions is part of an ongoing focus on competitively pursuing profitable organic growth. Our strengthened business development capabilities continue to proactively identify and selectively pursue opportunities for growth within our targeted markets. It is delivering results; the total pipeline of opportunities at the end of the financial year was $28.5 billion.

An important ingredient of increasing our competitiveness is to continually drive towards a more efficient cost-base. Augmenting this we are seeing benefits from streamlining our procurement, upgrading enterprise resource planning systems, simplifying our overhead structure and optimising our shared services.

Financial review

Total Group revenue declined modestly by 1.9 per cent to $4 billion, although there was a six-month contribution from Easternwell of $110 million.

The result was impacted by a strong Australian dollar that has decreased the contribution from our international operations and by continuing subdued trading conditions, resulting in reduced volumes across many sectors.

Net profit after tax (NPAT), normalised to exclude one-off impacts from non-recurring items including the sale of USM, the sell-down of TSIF and the acquisition costs of Easternwell, grew by 4.3 per cent to $100.1 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 14.9 per cent to $232.3 million, attributable to benefits from ongoing business streamlining initiatives and the six-month contribution from Easternwell. As a result, Group EBITDA margin grew to 6.3 per cent from 5.4 per cent. Excluding Easternwell, margins for the Company still achieved growth of 5.7 per cent.

The Company has a strong balance sheet and 18 per cent gearing at 30 June 2011.

Review of operations

A highlight during the period was the acquisition and integration of Easternwell. It is consistent with the expansion of our services and capabilities into adjacent sectors to pursue higher value work.

Easternwell deepens our exposure to growth opportunities within the iron ore, conventional oil and gas, and coal seam gas markets. It enhances our existing suite of operations and maintenance services to include higher margin technical services.

Easternwell, while being more capital intensive than many of our traditional activities, is still largely a service business with high long-term utilisation of its rig fleet. The capital requirement is modest given our strong cash flow and funding headroom. 

Easternwell also boosts our ability to secure incremental downstream work and offer our clients a more integrated end-to-end service capability across the entire lifecycle of their assets.

While extreme weather events across Australia affected some work volumes, Easternwell is delivering to expectations and secured key opportunities during the period, necessary to meet our growth ambitions through FY12 and into FY13.

Australia and New Zealand

The Australia and New Zealand business was restructured into two key divisions of Resources and Energy, and Infrastructure. Both divisions have a Chief Executive that report to me. Importantly, the resources under the previously combined Australia and New Zealand business have been reallocated without incurring any additional overhead.

Strong growth was seen in the power and telecommunications sectors in Australia and New Zealand. This growth, together with a six-month contribution from Easternwell, more than offset subdued conditions across other sectors. 

Key highlights across the region during the year included a new long-term contract secured with SA Water, a new five-year contract with long-term client NSW Department of Services, Technology and Administration, and an eight-year contract to operate and maintain part of Adelaide’s metropolitan bus network. 

In New Zealand we secured two major contracts with network providers Enable Networks, which forms part of the New Zealand Government’s commitment to invest NZ$1.5 billion over 10 years to rollout the Ultra Fast Broadband (UFB) network, and UltraFast Fibre Limited (UFL) – a subsidiary of WEL Networks.

Our enhanced business development function continues to improve pipeline growth across all sectors.

The Australia and New Zealand business has a quality order book of long-term contracts with blue-chip clients and a strong track record of renewals, which will underpin future earnings for the region. 

Americas

The Company undertook significant operational restructuring in the Americas during the last financial year. This included the formation of a Resources and Energy division, encompassing TIMEC, FT Services and InserTS joint ventures, to align with the structure of our Australia and New Zealand businesses. The Americas Resources and Energy division will link into global strategic assets in upstream production and global account management initiatives.

Other than USM, each of the key businesses in the Americas region saw growth in local currency terms, although this growth was not sufficient to offset the currency impact on translation to Australian dollars.  

As mentioned, we announced the sale of USM for a total cash value of US$255 million. USM was strategically a poor fit due to its sub-optimal scale, low-margin, and high client and contractor turnover in what continue to be stifled US retail and property sectors. 

The sale provides Transfield Services with capital to invest elsewhere at better capital returns, lower risk and better alignment with our strategy of higher value/higher technology work.

Key contract wins during the period included FT Services’ extension of its contract with Suncor Energy with an estimated value of more than C$2 billion over five years. As well, a three-year contract was signed with Nexen in Canada. The Resources and Energy division secured contracts with Valero San Antonio and Dow Chemical Pittsburgh. Our infrastructure roads business continues to expand its footprint in Canada and secured more than US$240 million of new work during the period, as well as new and renewed contracts with long-term clients Florida Department of Transportation, Alaska Department of Transportation and Public Facilities, and the Ontario Ministry of Transportation.

Our strategic cost-saving initiatives across the region helped to ensure stable margins. A streamlined business and enhanced business development function better positions the Americas business to absorb further economic uncertainty, sets it up for growth when conditions improve and targets growth sectors.

Middle East and Asia

The Middle East and Asia region’s contribution was softened by the stronger Australian dollar as well as reduced volumes across the region. Project activity in the region remains slow with constrained economic conditions expected to continue, particularly in the United Arab Emirates.

Despite these challenging conditions, the region secured more than $90 million in wins and renewals with clients including Gasco (Abu Dhabi Gas Company) and Takreer (Abu Dhabi Oil Refining Company).

Increased shutdown activity through our joint venture Transfield Emdad Services helped to partially offset generally lower volumes in the region as well as the impact of a strengthened Australian dollar. 

Increased activity in the oil and gas sector has driven solid organic growth from Intergulf in the United Arab Emirates. Our Transfield Worley New Caledonia joint venture continues to perform well on the Vale Goro nickel project.

We are reviewing new markets and forming strategic partnerships to pursue infrastructure operations and maintenance projects in the Middle East, with a primary focus on the strong oil and gas sector. The goal is to ensure we are prepared for increased activity when market conditions improve and we are better placed for opportunities when they arise.

Executive Team

The safety of all our employees and subcontractors and quality of our services remain essential priorities for us. This year we appointed a Chief Executive of Health, Safety, Environment and Quality,  Eion Turnbull (visit the Senior executive team section for more information).

Reflecting the criticality of information technology to executing our strategy, we also added a new Chief Information Officer, Stephen Phillips.

Finally, I’d like to thank our global Transfield Services team for their contribution during the year. Your ongoing commitment and hard work has ensured another successful year and will continue to support our future growth aspirations. I would also like to thank our shareholders for their continuing support in volatile and challenging times.

Peter Goode
Managing Director and Chief Executive Officer