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CEO's Report

WorleyParsons has delivered good earnings growth in 2012 on strong revenue growth. We continue to see an increase in the volume of projects in the unconventional oil and gas market. Our expanding global presence, particularly our increasing presence in the developing world, continues to create opportunities. We are structurally, financially and strategically well positioned for growth. We continue to build our team to meet the increasing demands of our customers.

Worley Parsons CEOs

Introduction - highlights

It is with a sense of continued confidence in the long-term future of the company that I write to you for the final time as Chief Executive Officer of WorleyParsons.

I would like to congratulate Andrew Wood on his appointment as my successor as Chief Executive Officer. I have the utmost confidence that Andrew and our exceptional leadership team have the skills, experience and vision for the future of the company necessary to lead the next phase of WorleyParsons’ growth.

Turning to the year just passed, I am delighted that the Group has delivered good earnings growth for the year despite challenging global macroeconomic conditions and significant volatility across the industries we service. This result was underpinned by strong performances by the Hydrocarbons and Minerals, Metals & Chemicals customer sector groups, particularly in Canada, Australia and the USA. We continue to see an increase in the volume of projects in the unconventional oil and gas market, especially shale gas in the USA, oil sands in Canada and coal seam gas in Australia.

WorleyParsons’ expanding global presence, particularly the increasing footprint in the developing world, continues to create opportunities. This growth is perhaps best reflected by the increase in personnel numbers with more than 5,700 additional people joining WorleyParsons during the year.

Operating out of 163 offices across 41 countries we now have 40,800 people, three quarters of whom are based outside Australia, a testament to the success of our global expansion strategy over many years.

Our focussed strategy to capitalise on opportunities in the developing world continues to deliver on its promise. The developing world continues to provide an excellent pipeline of large project opportunities as countries look to tap into their extensive undeveloped resources and expand their asset bases.

Underlying NPAT increased to $346m, up 16% on the previous year (2011: $299m). This was achieved despite an adverse exchange rate impact of $14.2 million during the period. Importantly, the Group also generated a much improved operating cash flow performance. This outcome is the result of improved global cash management processes and systems along with strong local commitment and focus on cash collection.

Margins were generally lower but particularly in the Hydrocarbons and Power customer sector groups. In our Hydrocarbons sector, margins were primarily impacted by a small number of underperforming contracts. These were finalized or provided for during the second half. The Power sector margins were impacted by continuing softness and competition in the USA market and low margin procurement activity in Brazil.

Following the significant restructure of the business last year, it is pleasing to report that our new 'local/global' business model is being extremely well received by our clients and our people. At its roots, the 'local/global' business model depends on the principles of empowerment, collaboration and putting the customer at the centre of everything we do.

We seek to constantly improve our global capabilities while retaining the personal and entrepreneurial culture which has been the hallmark of the company’s success over many years. We have sought to achieve this by simplifying our systems and business processes, removing overlap across our operations and geographic locations, and developing mutually beneficial customer relationships at both a global and local level.

The tangible benefits of this approach are already being seen. Our large multinational customers are increasingly looking to contract on a global basis, usually in the form of global services agreements. These agreements provide a steady flow of work over a number of years and are often expanded to incorporate additional service requirements, thereby improving our earnings outlook.

We are growing as a result of winning larger and more complex contracts many of which we execute through close collaboration with key strategic partners and we are constantly striving to carry out these projects more efficiently and sustainably. This growth is clearly reflected in our financial performance with the majority of our revenue for the 2012 financial year being earned from our tier one customers. Despite the significant uncertainty in global markets, particularly in terms of the volatility in commodity prices, we remain optimistic that opportunities will continue to emerge for WorleyParsons.

Safety Performance

With great sadness we report three work related employee fatalities this year. Two drivers, one in the Middle East and one in Kazakhstan, died in road incidents and an employee in Brazil died as a result of a bacterial infection. These deaths are tragedies for their families, friends and colleagues and further drives us as we continue to work tirelessly toward our goal of zero harm.

Travel remains one of the most hazardous activities for our people. During the period, we continued our group-wide focus on road safety and to underpin that commitment became a signatory to the UN Decade of Action for Road Safety.

The TRCFR (Total Recordable Case Frequency Rate) for our employees for the 2012 financial year was 0.12 (compared with 0.11 last financial year) and the LWCFR (Lost Workday Case Frequency Rate) was 0.03 (the same as for FY2011). We therefore continue to strengthen our focus on the safe performance of our work, particularly in our field and construction activities.

WorleyParsons Europe was awarded a Gold Award by RoSPA and we received a silver award for our HSE system on the Black Point Power Station Gas Supply Project. WorleyParsons received an award from Kuwait Oil Company for 14 million hours worked without a lost workday case.

WorleyParsons uses the United States Occupational Safety and Health Administration reporting protocol.

People

During the year, we began to see the fruits of a number of streams of work that have been implemented in recent years to further improve our people leadership and capability. For example, we now have in place the first ever global diversity and inclusion policy and have established a group-wide diversity and inclusion council. We have undertaken significant new diversity activities focused primarily on both gender and cultural diversity.

We have developed globally and strategically focused leadership development programs and re-aligned our talent management and succession planning processes to ensure we continue to deliver against measureable goals.

We continue to move a significant number of our people internationally and have finalized a global suite of mobility policies and processes to enhance the mobility experience for our people while improving our cost efficiency.

We continued to see significant recruitment activity and have successfully focused on improving the speed and volume of recruitment while retaining our unequivocal focus on quality control. We further aligned our remuneration practices across the Group to ensure that we continue to achieve both market competitiveness and internal equity.

Underpinning all of this, we have significantly reinforced the operational capabilities of our People group this year. We have a way to go to further improve our position in this area but it is gratifying to see results beginning to emerge.

Financial performance

The results, after excluding fair value gains on acquisition of associates, were:

  • Aggregated revenue of $7,363 million; up 25%
  • NPAT of $346 million; up 16% and in line with guidance
  • EBIT of $530 million; up 12%
  • EBIT margin of 7.2%; down from 8% in 2011
  • Effective tax rate of 24.1%; down from 26.8% in 2011

The underlying results improved in the second half with NPAT up 28% on that delivered in the first half. However, EBIT margin fell from 7.3% in the first half to 7.1% in the second half.

These results were negatively impacted by exchange rate movements in the year to 30 June 2012 compared to FY2011. The net profit translation impact of this rate movement is approximately $14.2 million.

Operating cash flow for the period was $438 million, compared to $294 million in the previous year. Tax paid in the year was $114.1 million (FY2011: $99.1 million). The Group invested $106.3 million in the business in FY2012 (FY2011: $105.8 million) for acquisitions, property, plant and equipment and computer software.

The Group’s gearing ratio at 30 June 2012 (calculated on a net debt to net debt + equity basis) was 19.9%, an improvement from the previous year’s ratio of 21.5%. Interest cover (EBITDA to total interest expense) remained high at 12.4 times (FY2011: 12.0 times). The Group’s cash position at 30 June 2012 was $247.3 million (FY2011: $171.2 million). The Group has available committed debt facilities of $1,444.6 million (FY2011: $1,277.3 million). The committed debt facilities have an average maturity of 3.8 years (FY2011: 4.6 years), with $138.9 million (9.6%) maturing within one year, $736.1 million (51.0%) between one and four years and $569.6 million (39.4%) beyond four years. Facility utilization at 30 June 2012 was 51.2% (FY2011: 53.2%). In addition, the Group has bank guarantees and letter of credit facilities of $787.3 million with utilization of 66.3% on these facilities at 30 June 2012.

The effective tax rate for the Group for the year ended 30 June 2012 was 24.1% (FY2011: effective rate of 26.8%) which was lower due to a refund received upon finalization of the restructure of our Canadian businesses. The contribution from associates represented 7.8% of the Group’s net profit for the year (FY2011: 8.6%).

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