CONCISE ANNUAL REPORT

Transcription

1 2011 DECEMBER CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR LEIGHTON HOLDINGS LIMITED ABN

2 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR Leighton is a strong company with an exciting future. Our businesses are in growth markets in many of the fastest developing regions in the world. We are the 11th largest global contractor * and the world s largest contract miner. Our solid track record over more than 60 years has been built on a foundation of core values of discipline, integrity, safety and success, and a policy of empowerment of our people. In 2011, we faced serious challenges. The Leighton Group has since rebounded strongly, demonstrating that we are back on track to deliver attractive returns to our shareholders. We are well positioned to meet the challenges and volatility of the global environment. * Engineering News Record 29 August 2011

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4 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR NOTICE OF MEETING NOTICE OF ANNUAL GENERAL MEETING 2012 LEIGHTON HOLDINGS LIMITED ABN To: The Shareholders Notice is hereby given that the 51st Annual General Meeting of the members of Leighton Holdings Limited will be held in the: The Rocks Circular Quay Grand Ballroom, The Four Seasons Hotel 199 George Street, Sydney, New South Wales on Tuesday 22 May 2012 at am. A separate Notice of Meeting and Proxy Form are enclosed. During the course of the meeting, a short presentation on the Group s operations will be given by Mr Hamish Tyrwhitt, Chief Executive Officer. All present are invited to join the Directors for light refreshments after the meeting. This document is available in PDF format online at Leighton Holdings website Harrington St George St The Four Seasons Hotel Dalley St Cahill Expressway Pitt St Alfred St Reiby Pl Sydney CBD Loftus St Young St Shareholder Updates can also be downloaded from the company s website. Printed copies of corporate brochures can also be obtained on request: Phone leighton@leighton.com.au 2

5 CONTENTS 1 Overview 2 Notice of Meeting 4 A leading international contractor 6 Highlights 8 Chairman s review 12 Vision & values refreshed & energised 16 Chief Executive s review 28 How we operate 30 Operational analysis & investments 32 Board & Senior Management 34 Directors resumes 41 Group Executives 42 Corporate Governance Report 44 Governance at Leighton 44 Principle 1: Lay solid foundation for management and oversight 47 Principle 2: Structure the Board to add value 51 Principle 3: Promote ethical and responsible decision-making 53 Principle 4: Safeguard integrity in financial reporting 54 Principle 5: Make timely and balanced disclosure 54 Principle 6: Respect the rights of shareholders 55 Principle 7: Recognise and manage risk 57 Principle 8: Remunerate fairly and responsibly 58 Directors Report 75 Remuneration Report 113 Concise Financial Report 114 Consolidated Income Statement 115 Consolidated Statement of Comprehensive Income 116 Consolidated Balance Sheet 117 Consolidated Statement of Changes in Equity 118 Consolidated Statement of Cash Flows 119 Notes to the Concise Financial Report 128 Statutory Statements and Shareholder Information 130 Directors Declaration and Auditor s Report 132 Shareholdings 133 Shareholder information Year statistical summary 136 Directory and offices 3

6 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR A LEADING INTERNATIONAL CONTRACTOR The Leighton Group is one of the world s leading international contractors. We operate in more than 25 countries in Asia, the Middle East, Southern Africa and throughout Australia. We aim to be renowned for excellence through our operating brands and the empowerment of our people. WHO WE ARE Leighton was founded in 1949, listed on the Australian Securities Exchange in 1962 and is based in Sydney, Australia. The Group comprises nine brands, our Operating Companies: Thiess, Leighton Contractors, John Holland, Leighton Properties, Leighton Asia, Leighton Offshore, Leighton Welspun, Habtoor Leighton Group and Leighton Africa. Some of these Operating Companies have been in existence since the 1930s. Our people are our business. We employ more than 53,000 people whose activities are underpinned by our values of discipline, integrity, safety and success. To attract, retain and motivate the best people they must be empowered. People perform their best when they are provided with realistic goals and a clear framework in which to operate. When empowered and accountable, people step up, accepting responsibilities and delivering results. This is the Leighton way. This empowerment occurs within a corporate governance framework defined by Leighton Holdings, which sets standards for ethical and financial performance, health, safety and rehabilitation, and diversity, community and environmental matters. 4 WHAT WE DO As a strategic management company, Leighton Holdings provides a robust corporate governance structure, strategic leadership and the financial strength to enable our Operating Companies to compete effectively in the global market place. This role includes: initiatives. The leadership of an experienced management team and a strong balance sheet support the growth of our Operating Companies. The Operating Companies offer a broad range of contracting and project development services and skills to public and private sector clients across a wide range of industries and geographic locations. These skills include construction, contract mining, operations and maintenance and development services to the infrastructure, resources and property markets. Leighton Holdings is focused on sustainability and the pursuit of excellence in creating solutions for our clients, safe, rewarding and fulfilling careers for our people, and superior and sustainable returns for our shareholders.

7 Mongolia Iraq Kuwait Bahrain United Arab Qatar Emirates Saudi Arabia Oman India Sri Lanka China Macau Taiwan Laos Hong Kong Thailand Cambodia Vietnam Philippines Malaysia Brunei Singapore Indonesia Papua New Guinea Botswana Australia WHERE WE ARE The Leighton Group s Operating Companies conduct business in more than 25 countries. While the listed entity is based in Australia, our Operating Companies have been operating internationally for many years. A strategic move into Asia culminated in the formation of Leighton Asia in Through the 1980s, 1990s and 2000s, Leighton Asia continued to diversify throughout East and South-East Asia. In 2004, we opened offices in India and the Middle East. The Group took a major step in 2007 with the acquisition of a 45% stake in the UAE and Qatar-based Al Habtoor Engineering, one of the largest contractors in the Middle East. This was renamed the Habtoor Leighton Group in 2007 and has since expanded to Saudi Arabia, Oman, Kuwait and Bahrain. In 2007, Leighton Asia opened its first office in Mongolia, and by 2011 the Group had ventured into Southern Africa. Leighton s strategy has positioned the Group in prime locations Australia, Asia, the Middle East and Southern Africa through operating brands that are highly regarded. Today, the Leighton Group has the broadest footprint of any international contractor in the regions that are poised to provide the greatest share of the world s economic growth over the next 20 years. New Zealand Leighton Group Operations 5

8 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR HIGHLIGHTS Profit / (loss) before tax 6 months to 31 Dec 2011 $475.4 million Profit / (loss) after tax 6 months to 31 Dec 2011 $340.0 million Total revenue # 6 months to 31 Dec 2011 $12.2 billion Work in hand # as at 31 Dec 2011 $44.6 billion Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec months to 6 months to 12 months to 31 Dec Dec Jun 2011 PROFIT & LOSS ITEMS $million $million Change $million Revenue Group 10, , % 15,561.3 Joint ventures and associates 2, , % 3,815.4 Total revenue # 12, , % 19,376.7 EBITDA (post sales and impairments) 1, % Depreciation of property, plant and equipment (512.7) (448.4) +14% (865.6) Amortisation of intangibles (33.0) n/a (0.6) EBIT % (331.3) Finance costs (90.5) (92.2) -2% (159.6) Profit/(loss) before tax % (490.9) Income tax (expense)/benefit (130.5) (106.2) +23% 85.2 Profit/(loss) after tax % (405.7) Profit/(loss) attributable to minority interests (4.9) (1.5) +226% 3.1 Profit/(loss) attributable to members % (408.8) EPS AND DPS Earnings per ordinary share % (133.1 ) Dividends per ordinary share nil 60.0 NEW CONTRACTS & WORK IN HAND (BACKLOG) New contracts, extensions & variations 10, , % 26,065.0 Value of work in hand at end of period # 44, , % 46,225.8 As at 31 Dec 2011 As at 30 Jun 2011 BALANCE SHEET ITEMS $million $million Change Total capital and reserves 2, , % Total assets 9, , % Cash and cash equivalents 1, , % Interest bearing liabilities 2, , % Undrawn loan and guarantee facilities (excl. Devine) 1, , % Gearing (including operating leases)^ 32% 35% n/a # Includes the Group s share of joint ventures and associates. ^ Gearing expressed as: net debt including operating leases to net debt including operating leases plus total equity. 6

9 Number of fatalities 6 months to 31 Dec Total level 1 environmental incidents 6 months to 31 Dec 2011 nil Corporate Community Investment 6 months to 31 Dec 2011 $2.64 million Number of direct employees as at 31 Dec ,113 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 07/08 08/09 09/10 10/11 Dec 11 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 nil ,113 6 months to 6 months to 12 months to SAFETY* 31 Dec Dec 2010 Change 30 Jun 2011 Fatalities (Australia) % 1 Fatalities (international) 1 1 nil 3 TRIFR (Australia) % 15.6 TRIFR (international) % 3 LTIFR (Australia) % 1.8 LTIFR (international) % 0.6 Potential class 1 (Australia) % 454 Potential class 1 (international) % 100 Actual class 1 (Australia) % 2 Actual class 1 (international) % 7 ENVIRONMENT # Actual environmental level 1 (Australia) % 2 Actual environmental level 1 (international) nil 0 EIFR (Australia) % 0.43 EIFR (international) % 0.05 COMMUNITY Corporate Community Investment $2.64m No data n/a $7.89m WORKFORCE* As at 31 Dec 2011 As at 31 Dec 2010 Change As at 30 Jun 2011 Number of direct employees (total) 53,113 49,802 +7% 51,281 Female participation (Australia) 16.7% 15.0% +11% 16.1% Female participation (international) 7.0% 7.8% -10% 8.0% Indigenous participation (Australia) 1.3% 1.5% -13% 1.5% Local participation (international) % No data n/a No data * Excludes Leighton Middle East & Africa (comprising Habtoor Leighton Group, Leighton Africa and Thiess Services). # Excludes Habtoor Leighton Group. 1 Total recordable injury frequency rate (per million hours worked). 2 Lost time injury frequency rate (per million hours worked). 3 Class 1 risks are those which could cause a fatality or permanent disabling injury. 4 Level 1 environmental incidents are those with highly detrimental impacts on the environment, community and/or company including irreversible and long-term environmental, cultural, heritage or reputational damage, breaches of statutory or approval conditions with serious legal or contractual consequences, or those with total cleanup costs in excess of $100, Environmental incident frequency rate (Level 1 and 2) per million hours worked. 6 Local participation refers to percentage of locally employed staff in our international operations. Local participation rate not measured prior to 1 July

10 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHAIRMAN S REVIEW In my report to you last year, I said that we had tackled the serious challenges we faced head on, and that the business was now well positioned for the next phase of strong growth and development. In this report, you will see that we have delivered on that promise. The Leighton Group has demonstrated its underlying strength by generating strong performances across our core construction and mining operations in Australia and Asia. We have reported a solid operating profit supplemented by a capital gain from the sale of the HWE Mining iron ore business. Stephen Johns Chairman 8

11 The Leighton Group has rebounded strongly to record a net profit after tax of $340 million for the 6 month period to 31 December This result includes a capital gain from the sale of the HWE Mining iron ore business, and impairments to the carrying values of BrisConnections the listed toll road owner in Brisbane and the Habtoor Leighton Group. This result demonstrates the underlying strength of the business, the capability and commitment of our people and the effectiveness of our strategies. During this 6 month period we have: our shareholders, clients and employees as we look to the next following engagement with many of our stakeholders. DIVIDENDS AND RETURNS TO SHAREHOLDERS Investment returns for shareholders are a combination of share price performance and dividends. I am pleased to report that following our return to profitability we have restored the payment of dividends to shareholders. Your directors announced an unfranked final dividend of 60 cents per share for the period. This represents a payout ratio of almost 60% of the Group s reported net profit after tax. While the dividend rate is the same as that paid to shareholders for the 6 months ended 31 December 2010, the total payout is greater as a consequence of the Group s larger capital base following the capital raising in April THE OPERATING ENVIRONMENT While growth in the developed economies of Europe and the United States is likely to be less than 2% this year, in Asia (where the Leighton Group has substantial operations) growth is expected to exceed 7%. This growth continues to be fuelled by urbanisation and industrialisation, creating demand for energy, infrastructure, commercial and domestic buildings, and commodities. Australia, our home market, remains one of the best performing economies in the developed world, with growing global demand for energy, iron ore and other commodities significantly increasing investment in resource projects and accompanying infrastructure. We are well positioned to meet the challenges and volatility of the global environment. FINANCIAL STRENGTH Despite the ongoing uncertainty in the global financial markets, at year end the Group had a solid capital base with $2.8 billion of shareholders equity and $9.9 billion of total assets. At balance date we retained $1.5 billion in cash on hand and had undrawn bank facilities of $856 million. Gross debt, including recourse and non-recourse loans, stood at $2.1 billion at 31 December The maturity profile of this debt has remained relatively long-term in nature. $670 million of loans and other facilities fall due within the next 12 months. Negotiations are well advanced for refinancing the majority of these facilities, with the remainder budgeted to be repaid at maturity. Gearing, including operating leases, decreased from 35% at 30 June 2011 to 32% at 31 December 2011, below the Group s targeted range of 35% to 45%. This additional debt capacity, together with the aforementioned cash on hand, highlights the financial strength of the Leighton Group. During the period Standard & Poor s downgraded our credit rating from BBB/A-2 to BBB-/A-3, and Moody s lowered our corporate credit rating to Baa2 stable outlook from Baa1 negative outlook. It is important to note that these changes do not impact existing credit facilities and we strongly believe that these new ratings are not a true reflection of the Group s credit quality. In September 2011, Leighton successfully closed a US$600 million syndicated Master Lease Facility. The new 6-year facility streamlines our existing Indonesian leasing arrangements and provides the Group s two operating subsidiaries in Indonesia with additional capacity to fund their expanding Indonesian mining activities. 9

12 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHAIRMAN S REVIEW CONTINUED WORK IN HAND Work in hand stands at close to record levels. This reflects continuing strong market conditions which are providing the Group with numerous tendering opportunities. We have adopted a highly considered approach when taking on new work. We are selectively pursuing volume that delivers superior profit through a highly disciplined and structured approach to tendering. Our primary focus is to ensure we bid on projects that are expected to deliver an appropriate risk-adjusted return to shareholders. Work in hand at 31 December 2011 was $44.6 billion, with 64% from the Australia/Pacific region and 36% from international markets. Work in hand is 3% lower than the $46.2 billion recorded at 30 June 2011 and 2% lower than the $45.6 billion reported at 31 December The Group s margin in hand at the project level which reflects the inherent profit in work in hand remains at around 11%, supporting a very positive outlook. During the period, we won around $6.2 billion worth of new contracts and $3.9 billion in extensions and variations. The Group has an additional $12.4 billion worth of work in mining and services contracts extending beyond five years that is not reflected in the aforementioned work in hand. We are currently tendering for around $30 billion worth of work. This demonstrates the strength of our operating environment. SALE OF HWE MINING IRON ORE BUSINESS In September 2011, the Group sold its HWE Mining iron ore entities and assets to BHP Billiton for $452 million, resulting in a pre tax gain of $229 million and an after tax gain of $167 million. The sale reflected BHP Billiton s publicly stated intention to transition to an owner operator model, and the sale of the Pilbara-based iron ore assets represented a positive result for both parties. We have been able to recycle capital with the transaction generating net cash flow of approximately $400 million. SAFETY AND SUSTAINABILITY Safety is a core value that is demonstrated through the Group s commitment to the elimination of fatalities and permanent disabling injuries, and the significant reduction of all other injuries across our operations. We are also committed to zero environmental incidents. I am therefore deeply saddened to report that there were three fatalities in the 6 months to 31 December I would like to acknowledge those of our colleagues who lost their lives. On behalf of the Board, I extend our deepest sympathies to their families and friends. We have stepped up our application of hard engineering controls to seek to ensure that there are no further fatalities and no serious injuries. Further details of the Group s performance and approach to safety are set out in the Directors Report starting on page 58 of this Concise Annual Report. This year we also focused on the following key sustainability areas: In line with the ASX Corporate Governance Council s Principles and Recommendations on diversity, the Board has committed to measurable diversity targets. Further information in relation to the Group s commitment to workforce diversity is contained in the Corporate Governance Report starting on page 42 of this Concise Annual Report. REMUNERATION As I foreshadowed at the Annual General Meeting in November 2011, the Board has conducted a comprehensive review of executive remuneration and incentives over recent months. The review has included consultation with shareholders, external stakeholders and independent advisers. The revised remuneration and incentive scheme is underpinned by a number of principles which include: based on performance, including the forfeiture of unvested so that we can continue to attract and retain the highest quality executives. 10

13 Newly-appointed Non-executive Directors Peter Sassenfeld and Paula Dwyer The details of the revised remuneration and incentive scheme, including certain transitional arrangements, are set out in the Remuneration Report starting on page 75 of this Concise Annual Report. Any necessary shareholder approvals for these plans will be sought at the next Annual General Meeting which will be held on 22 May The Board believes that the revised remuneration and incentive scheme reflects a best practice approach. It achieves our objective of ensuring that we have in place a remuneration and incentive framework to drive performance and behaviours aligned to the long term interests of our shareholders, while providing appropriate rewards for our executives in a competitive environment. THE BOARD AND SENIOR MANAGEMENT In the last Concise Annual Report, I reported on important management and Board changes, including my appointment as Chairman and the appointment of our CEO, Hamish Tyrwhitt. The Board is encouraged by the strategic vision and leadership that Hamish is providing. The Board has moved to fill two vacancies. Mr Peter Sassenfeld, recently appointed as CFO of HOCHTIEF AG, has joined the Board as a Non-executive Director. In addition, Ms Paula Dwyer has been appointed as a Non-executive Director and Chairman of the Audit Committee. Further details of each of their experience and backgrounds are set out on pages 35 and 37 of this Concise Annual Report. The Board has recently established a Tender Review and Risk Committee comprised solely of Non-executive Directors. The Committee is responsible for monitoring and reviewing the integrity, adequacy and utility of the Group s risk management systems, controls and metrics. The Committee has oversight of tenders for all key projects or those projects which are considered `high risk. This is an important initiative for monitoring and reporting on the tendering and risk management practices throughout the Group s operations. CODE OF ETHICS The Board is firmly of the view that the reputation and integrity of the Group will only be maintained if all of its officers and employees observe the highest standards of conduct, and these are set out in our Code of Ethics. It is therefore extremely disappointing that, as set out in our announcement on 13 February 2012, we have reported to the Australian Federal Police a possible breach of our Code of Ethics in relation to payments that may have been made in connection with work to expand the offshore loading facilities for Iraq s crude oil exports. We are fully cooperating with the Australian Federal Police as they conduct their investigation, which is still at an early stage. Observance of our Code of Ethics by all of our people is essential and the Board does not tolerate anything other than the strictest adherence to our Code. OUTLOOK The Group s outlook is positive based on a near record level of work in hand, a solid balance sheet and favourable market conditions. We have rebounded strongly from a disappointing financial year to 30 June 2011 to report a solid level of profitability during the 6 month period to 31 December This establishes an excellent platform for the future profitability and growth for the Leighton Group. I conclude this report by expressing my appreciation to shareholders for their support, and to my fellow directors for their contribution during this time of transition and consolidation for the Leighton Group. I also thank our staff of over 53,000 for their efforts in achieving the profit results for the 6 month period to 31 December 2011 and creating a strong foundation for the future. Stephen Johns Chairman 9 March

14 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR The Leighton Group has evolved and grown to become one of the world s leading international contractors with a proud heritage of delivering iconic infrastructure, resources and property projects across Australia, Asia and the Middle East. As we look to the next exciting phase of our development, we have revisited our vision, strategy and values to ensure they are aligned with the needs of our shareholders, clients and employees. OUR VISION For much of the Group s history, we have defined ourselves by our Australian heritage. We are now one of the top 20 contractors in the world, operating throughout Asia, the Middle East and in Southern Africa, as well as throughout Australia. We need to reflect our new position and the geography of our growth opportunities in clear statements about who we are, where we are headed, and how every one of our people can help us get there. Although we are made up of nine unique and distinctive Operating Companies and people from over 25 countries, we all need to share one vision, one set of values and one roadmap for achieving that vision. The first step was to define who we are. The Leighton Group is a leading international contractor. Our vision is: We aim to be renowned for excellence through our operating brands and the empowerment of our people. Our vision is about aspiring to excellence in everything that we do. It s about pursuing excellence when we: and 12

15 1987 Established decentralised growth strategy 1990 Strategies for the 90s 1993 Code of Ethics adopted by Leighton Contractors an industry first 1995 Leighton Holdings Board adopts Code of Ethics Corporate Governance Policy published in Annual Report 1996 Code of Ethics adopted by each of Leighton Holdings operating companies Ours is a business built on the combined efforts of over 53,000 employees, each of them empowered in their own role, enabled and encouraged to deliver our vision. It might be as an accounts clerk or a quantity surveyor; as an excavator driver or a project director; as a construction foreman or a safety officer. Each of them is encouraged to do their job to the best of their ability so that, as a whole, we are renowned for excellence. They are empowered to set goals, to innovate within boundaries, use their initiative and to celebrate and reward each other s successes. The vision for the Group is a unifying framework that sets out the ideals for the sort of business that we want to be namely one that is renowned for excellence. STRATEGY The Group is delivering on its vision through its strategy. This strategy is to take our core competencies to select markets and deliver projects and value-added services for clients through our diversity, empowered people and financial strength. Our strategy is built on the diversity of our brands or Operating Companies our various geographies, our markets and services, and our delivery systems. Diversification is fundamental to our business model. It acts to moderate the effects of cyclical downturns in certain markets and allows the Group to redeploy its resources to other markets. Diversification is about exporting core competencies to new markets but it is also about extending into related markets as value-adding opportunities arise. The Group has done this on numerous occasions, such as when John Holland acquired an aviation services business, when Leighton Contractors moved into the telecommunications market, and with the recent establishment of a new oil and gas engineering consulting business, Leighton Engineering in Malaysia. 13

16 BUILDING AN ETHICAL FRAMEWORK Many people in business feel ill-equipped to tackle the complex issues that they now have to confront on an almost daily business. How does one strike an appropriate balance between the demands of competing stakeholders? How do you determine the standards that should apply when doing business in a different country with different cultural patterns? How do you make proper allowance for the effect of new technologies on employees, consumers and the wider society in which the company is located? Finally, how do you do this under the increasingly watchful gaze of the media? Fortunately, there are a few relatively simple filters that can be applied by those wanting to road-test their judgement. A brief selection of these follows. TO BE ON THE PUBLIC RECORD? COURSE OF ACTION BRING ABOUT A GOOD RESULT? DID THIS? DID THIS TO ME? OF ACTION DO TO MY CHARACTER OR THE CONSISTENT WITH MY ESPOUSED CHARACTER OF MY ORGANISATION? VALUES AND PRINCIPLES? LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR VISION AND VALUES REFRESHED & ENERGISED CONTINUED 1 WOULD I BE HAPPY FOR THIS DECISION 2 WHAT WOULD HAPPEN IF EVERYBODY 3 HOW WOULD I LIKE IT IF SOMEONE SUSTAINING AN ETHICAL BUSINESS 4 WILL THE PROPOSED 5 WHAT WILL THIS PROPOSED COURSE 6 IS THE PROPOSED COURSE OF ACTION 1998 Established Ethics Committee St James Ethics Centre review 2007 Values book published in Annual Report 2010 Refreshed Group s Code of Ethics Board approves Group Workforce Diversity Policy Leighton Holdings Safety Framework critically reviewed and revised 2011 Series of facilitated workshops engaging staff in the development of behaviours to support Leighton Holdings values In Australia, our diversification strategy is about ensuring our Operating Companies develop distinctive core competencies and highlight points of difference. We encourage Thiess, Leighton Contractors and John Holland to compete when they have the capability, resources and experience to deliver projects that will generate an appropriate return for shareholders. The role of Leighton Holdings, as a strategic management company, will be to become more involved at the pre-tender phase to ensure that an Operating Company s approval to bid is based on an assurance and evidence that it has the skills and resources to successfully deliver the project. The Group has developed world class capabilities in construction, mining, and operations and maintenance. These capabilities are in demand across many developing markets in Asia, the Middle East and Africa. In recent years, this has seen us take our contract mining capability to Mongolia and Botswana, and to consider mining opportunities in the Middle East. Similarly, we are exporting infrastructure construction skills to the Middle East, thereby transforming the Habtoor Leighton Group from a builder to a diversified construction company. We have also encouraged John Holland to partner with the Habtoor Leighton Group to bid for some of the US$40 billion worth of rail investment that will take place in Qatar over the next 10 years. Our strategy includes developing Leighton Offshore into one of the leading international competitors in this market. Underpinning the ability to pursue and deliver work is the strength of the Group s balance sheet. Having a strong financial base is crucial for a contractor such as Leighton as it allows for investment in new plant and equipment, the provision of bonds and guarantees, and supports the working capital requirements of the Group. In addition, a strong balance sheet allows for acquisitions to be made which can further diversify the Group. A key element of the financial strategy is also the recycling of capital. The Group is not just an acquirer of assets but also looks to add value to them and then divest when it makes economic sense. An example of the Group creating value for shareholders by bringing its expertise and financial firepower to an underperforming business is the acquisition, turn around and subsequent sale of the assets of the HWE Mining iron ore business. The Group will continue to pursue opportunities to recycle capital that create value for shareholders. 14

17 2012 Development of a vision statement and refreshed values and behaviours PURPOSE Safe rewarding and fulfilling careers VISION The Leighton Group is a leading international contractor. We aim to be renowned for excellence through our operating brands and the empowerment of our people. STRATEGY To take our core competencies to diverse markets and deliver value-added services and projects for clients, through our empowered people, diversity and financial strength. Geographies DIVERSITY We create Brand Solutions for clients Superior and sustainable returns Market/ activities Delivery systems OUR VALUES VALUES The Group s success ss over many years has been built on a foundation of values discipline, integrity, safety and success and we have revisited ed these values this year to ensure they are aligned with the needs of our shareholders, clients and employees. We have recommitted ed to our four values which have been consistently applied across the Group, but we have refreshed the behaviours which underpin these values to more clearly define what is expected ed of our people ple and the way they should conduct themselves. Having strong values provides a framework within which our people can operate and make sensible decisions. Our values go hand-in-hand with the concept of empowerment, a fundamental principle of the Leighton way. While we can set policies, guidelines, frameworks and codes, ultimately our people need a set of values to guide their thinking, to help them make the right decisions and, ultimately, to create the right outcomes. A company with a strong and clearly defined set of values means that its people have alignment and consistency with the direction of the business. In Leighton s case, this has developed a culture that is performance and results oriented. As we continue to grow, the embedding of our values will be critical to ensuring that we can operate in diverse markets with employees of different religions, ethnicity, political persuasion and gender. Our values provide a common unifying bond as we deliver our vision to be renowned for excellence. DISCIPLINE Take responsibility and deliver INTEGRITY Do what s right and ethical SAFETY Ensure physical, mental and emotional well-being SUCCESS Foster a winning culture

18 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHIEF EXECUTIVE S REVIEW Our people s efforts during this period have demonstrated the strength of the Leighton can-do culture and our values discipline, integrity, safety and success which underpin everything that we do. We are now back on track and I see a very positive future for the Leighton Group and for our shareholders. Hamish Tyrwhitt Chief Executive Officer 16

19 INTRODUCTION The results in this report are a testament to our vision, our values, our strategy and the strength of our business model and its inherent diversification which allows us to pursue opportunities across a range of markets including infrastructure, resources and property. Most importantly, they are a testament to the quality and commitment of our people. The safety, welfare and development of our people is crucial to our continued success. FINANCIAL PERFORMANCE As the Chairman has reported, the Group generated a strong underlying profit for the 6 months to December Revenue for the period totalled $12.2 billion with $10.0 billion generated from the Australia/Pacific region and $2.2 billion from the Group s international operations. Revenue from joint ventures and associates was $2.0 billion, a 14% decrease on the prior comparable July to December period. The major revenue-generating markets for the Group were infrastructure $6.7 billion, resources $4.4 billion and property $885 million. The Group s Operating Companies provided a range of services to these markets including construction $7.3 billion, contract mining $3.1 billion, and operations and maintenance $1 billion. Our financial strength is critical to delivering our strategy and during the period we made good progress on a number of strategic initiatives. The Group continues to assess its capital base and examine ways to recycle capital. The sale of the HWE Mining iron ore business has released $400 million which has been reinvested in the business. We aim to continue to recycle capital to higher value areas of our business. The Group has the funding capacity to finance the replacement of its existing fleet of plant and equipment, and to fund a good level of growth opportunities. This also includes our commitment to fund the completion of Brisbane s Airport Link project and the Victorian Desalination Project. A new performance metric Economic Profit is currently being rolled out and this is driving changes to the behaviour of our Operating Companies. Economic Profit measures the Group s ability to generate real cash profits in excess of the cost of the capital. OPERATIONAL REVIEW The Group s Operating Companies recorded a number of project awards during the period across a diverse range of markets and geographies. Infrastructure In Australia, government infrastructure spending continued to provide a good range of opportunities, particularly in rail construction. The Victorian Government awarded Thiess and Leighton Contractors a share in two packages of work worth $1.34 billion in total to design and construct key sections of the first major new rail line for metropolitan Melbourne in 80 years. The new work includes the design and construction of new track, stations, bridges and other infrastructure. Leighton Contractors has a half share of $505 million worth of the work while Thiess has a 60% share in an alliance worth $835 million. In Queensland, Thiess was awarded another alliance project, the $475 million Stage 2 Richlands to Springfield Project of the Darra to Springfield Transport Corridor. Based on its competency in developing complex urban infrastructure, an alliance including Leighton Contractors was selected to deliver the $240 million final stage of the dedicated 31km Southern Sydney Freight Line. In related work, Leighton Contractors was also awarded a $113 million contract to deliver the main construction phase of the Sydney Ports Corporation s Intermodal Logistics Centre at Enfield. Peter Gregg Chief Financial Officer Our balance sheet is critical to our strategy and we have a number of initiatives underway which can significantly improve returns to shareholders. We are looking at areas where we can recycle capital to improve our returns, and we have already started to do this with the sale of the HWE Mining iron ore business and the Burton coal mine. A number of other opportunities to recycle and redeploy capital are available to the Group. A key focus is working capital. We significantly improved our use of working capital during the period and will continue to focus on reducing outstanding claims, improving our payments terms and seeking ways to have others fund our business. We are also implementing Economic Profit measures in our Operating Companies and assigning a virtual balance sheet to make them more discipline to their business decisions and force them to look at their business holistically. 17

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21 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHIEF EXECUTIVE S REVIEW CONTINUED Thiess approach to relationship-based contracting was reflected in an alliance with Ausgrid, one of Australia s largest energy network providers. The alliance will deliver transmission cable projects for Ausgrid s five year network investment program and is expected to provide work of up to $210 million to Thiess over five years. Thiess tunnelling expertise was rewarded with a further $142 million contract with Ausgrid to deliver vital electricity infrastructure for Sydney. John Holland was selected as the preferred tenderer for the construction of a 136 kilometre buried water pipeline for $400 million in Central Queensland. John Holland has built a strong partnership with the client, SunWater, having delivered a number of successful projects over the last 40 years, and this award consolidates their position as one of the leading contractors in Queensland. Water projects are providing a number of other opportunities and Leighton Contractors was awarded a $146 million contract to deliver phase two of the Ord East Kimberley Expansion Project in Kununurra, Western Australia. The telecommunications sector continues to see significant investments being made by both the private sector and the National Broadband Network for the Federal Government. Leighton Contractors subsidiary Visionstream was awarded a number of contracts worth over $250 million during the period. Visionstream is a leading provider of design, construction and operation of communication solutions for industries such as resources, health and transport. Our two major projects - Brisbane s Airport Link and the Victorian Desalination Project (VDP) - are drawing closer to completion. We remain on track to open the Airport Link toll road to traffic in June At VDP we expect to be producing first water by July 2012 and to complete the project towards the end of Property Leighton Properties recorded a number of successes during the period, achieving some significant sales that have helped in the recycling of the Group s capital. Leighton Properties sold its proposed new office tower in the Ipswich CBD for $93 million. The nine-storey office tower is being developed as part of the $1 billion Ipswich City Heart revitalisation project and comprises 16,000 sqm of commercial office space and is fully pre-committed to the Queensland Government for an initial term of 15 years, with two five-year options. This project is part of the largest CBD renewal project in Australia in more than a decade and draws upon Leighton Properties extensive experience in urban renewal and mixeduse precinct developments. In Brisbane, Queensland, Leighton Properties and Leighton Contractors sold the HQ North Tower, a high quality, prime grade office asset with 28,000 sqm of office space and ground floor retail, for $186 million. Also in Brisbane, Leighton Properties experience has been crucial in their selection as the developer of the next important phase of the Boggo Road Urban Village development. A $275 million investment will transform the former jail site into a vibrant, inner-city mixed-use precinct. In Perth, Western Australia, Leighton Properties commenced the development of Stage One of Kings Square, a 19,000 sqm 11-storey office building with an A-Grade 5 Star Green Star rating. The building is the first in a major urban renewal project that includes the sinking of a rail line bordering the CBD, a $339 million alliance project being delivered by John Holland. Also in Perth, John Holland was announced as the managing contractor to deliver the design and construction of a new, $1.2 billion state-of-the-art children s hospital. The award builds on John Holland s long history of delivering major public health projects both in Western Australia and around the country. Hamilton Harbour Residential Queensland, Australia Leighton Properties Eclipse Tower New South Wales, Australia Developer: Leighton Properties Construction: John Holland 19

22 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHIEF EXECUTIVE S REVIEW CONTINUED Mt Owen Complex New South Wales, Australia Thiess In Sydney, John Holland s reputation for the delivery of highend building solutions and their tunnelling expertise has seen them engaged as contractor to deliver vital upgrade works at the Sydney Opera House. This contract, with an approximate value of just over $100 million, is part of a $150 million upgrade, the biggest building works on the site since the opening of the Sydney Opera House in The majority-owned residential developer, Devine, achieved a number of milestones during the period, including the successful completion of the first two stages of the $500 million Hamilton Harbour project, and settlement of over 200 new owners into the development. Following the success of Hamilton Harbour Stages 1 and 2, commencement of the $70 million Riverside stage was initiated, comprising 189 units. The Hamilton Harbour project is being undertaken in joint venture with Leighton Properties. Resources The continuing growth in demand from Asia for commodities such as gas, coal and iron ore has continued to drive construction and mining opportunities for the Group s Operating Companies. Record investment by energy companies is transforming Australia into one of the leading global suppliers of LNG. The Group is capitalising on the associated civil and building opportunities that this is generating in an area where our Operating Companies have real capability. On the back of an already strong relationship with Chevron from the Gorgon project, John Holland secured a key contract worth approximately $370 million to design and construct a 3,800-bed accommodation village for the Wheatstone gas project near Onslow in Western Australia. John Holland was also awarded a $223 million contract to design and construct a package of 12 permanent buildings including an operations building, laboratory, maintenance centre, vehicle maintenance shop, fire station and plant warehouse. Thiess also has a major role delivering the Gorgon project and was awarded a $60 million contract to construct a 1.2 kilometre long tunnelled shore crossing under the ocean connecting two offshore gas reserves with the new LNG plant. In Queensland, John Holland was awarded a marine subcontract worth in excess of $100 million to design and construct a new product loading facility, comprising a 168 metre jetty and loading platform, for Australia Pacific LNG s proposed Curtis Island LNG facility. Demand for coal from China, India and other parts of Asia remains strong, supporting the contract mining market which is a core part of the Group s business. Leighton Contractors was awarded a $120 million, one-year contract extension for the provision of mining services at the Dawson coal mine. In South Australia, Leighton Contractors subsidiary HWE Mining was awarded a 12-month $240 million contract extension for the provision of mining services at the South Middleback Ranges iron ore operations. HWE Mining has been the major contractor on site since 1998, and its proven track record in iron ore mining was a key factor in securing the contract extension, which has provision for a further four-year extension. In Western Australia, the Leighton Ngarda Joint Venture, an unincorporated joint venture between Leighton Contractors and indigenous contractor Ngarda Civil & Mining, was awarded a $104 million earthworks contract by Rio Tinto. Thiess maintained its position as a leading contract miner with the award of a $185 million, one year extension to a contract to operate the Meandu coal mine in South-East Queensland. Thiess also won a major $100 million contract with Fortescue Metals Group for Phase One development works on the Solomon Hub iron ore mine in Western Australia s Pilbara region. The 18 month contract is for initial pioneering and mine establishment works such as haul roads, stockpile pads and the mining of early ore and waste. The contract represents a return to Western Australia for Thiess mining business and opens up a new market for them. 20 Dharma Chandran Chief Human Resources Officer Leighton Holdings has never had a focused Human Resources (HR) function but, given that our business is all about people, it is appropriate that we dedicate resources to developing their capabilities. We will be focused on providing Groupwide specialist policy, governance, compliance and reporting in the areas of executive remuneration and performance; leadership development and succession planning; and sustainability, safety and diversity. We will also be providing generalist HR support for the employees within Leighton Holdings. We are seeking to create a performance-driven culture at Leighton Holdings. A key initiative has been to work alongside the Board to conduct a comprehensive review of executive remuneration and incentives. Our objective is to ensure that in future we have in place a remuneration and incentive framework to drive performance and behaviours aligned to the long term interests of our shareholders, while providing appropriate rewards for our executives in a competitive environment.

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25 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHIEF EXECUTIVE S REVIEW CONTINUED Asia Thiess maintained a solid presence in Indonesia, signing a US$446 million contract with PT. Bayan Resources, Tbk extending the existing contract by three years for the further development and operation of the Teguh Sinar Abadi and Firman Ketaun Perkasa Coal Mines, near Melak in East Kalimantan. Thiess has forged a strong partnership with the Bayan Group which is further evidence of their ability to build and maintain long-term relationships with clients in Indonesia. In Hong Kong, a major highlight was the award of a $1.0 billion contract to a joint venture including Leighton Asia. The contract involves the construction of the West Kowloon Terminus Station North, part of the Guangzhou-Shenzhen- Hong Kong Express Rail Link (XRL). This is the largest and final XRL civil contract to be awarded and the fifth MTR Corporation contract secured by Leighton Asia in the past two years, giving a total value of projects of $2.4 billion. On completion, the project will provide a world-class rail terminus and serve as an international gateway to the mainland of China with a daily pass-through of over 100,000 passengers. Facilities will include nine long-haul and six shuttle platforms, customs and immigration facilities, departure lounges, and duty free and other retail outlets. A Leighton Asia joint venture has also secured an $88 million contract to provide fire services, plumbing and drainage to the West Kowloon Terminus Station. Leighton Asia will build a new $52 million five-storey school campus in Hong Kong which includes a 20,000 sqm school of classrooms, learning support facilities, an international standard gymnasium and a multi-use performance space containing a 350 seat auditorium and an 80 seat theatre. Although no significant new work was won in Mongolia or Indonesia during the period, contract mining and related infrastructure projects in those countries continued to make good progress. Production at the Indonesian mine sites for the period was much better than the previous year, which had been impacted by extremely bad weather. In Mongolia, output at the UHG and Khushuut mines was in line with forecast. In India, no significant new contracts were won during the period. Good progress was made on the Chenani Nashri road tunnel and the Ramanujan IT Park at Chennai is approaching completion. Middle East The Middle East market has experienced disappointing results over recent years and during the period we took a further impairment to our investment in the Habtoor Leighton Group (HLG). This reflects the slower than anticipated award of new work, particularly in Abu Dhabi, and an ongoing challenge in recovering outstanding receivables. These issues will continue to be closely monitored. The region is still providing a number of attractive opportunities for HLG. In Doha, Qatar, HLG was awarded the construction of Phase 1 of the North Gate Mall and buildings, a US$290 million mixed use shopping mall and office project. Reflecting the success of the strategy to diversify into more civil engineering work, HLG was awarded a US$306 million contract to expand a 75 kilometre section of road from a single, two-lane carriageway to a four-lane dual carriageway between Bidbid and Sur in Oman. The scope of work also includes the construction of nine interchanges and 50 kilometres of service roads and is a significant win in one of the Group s target growth markets. HLG has an established reputation for delivering infrastructure and building projects in the UAE and Qatar but this award represents a significant step forward as the Group expands its operating footprint further afield. Macarthur Wind Farm Victoria, Australia Leighton Contractors Al Shaqab Equestrian Academy Qatar Habtoor Leighton Group Guangzhou- Shenzhen-Hong Hong Express Rail Link (XRL) Hong Kong Leighton Asia Phase 1 Iraq Crude Oil Export Expansion Project Leighton Offshore 23

26 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHIEF EXECUTIVE S REVIEW CONTINUED Airport Link Queensland, Australia Thiess and John Holland In addition, Leighton Offshore was awarded a major contract by Iraq s South Oil Company. The US$518 million contract is part of a program that aims to stabilise and expand Iraq s crude oil export capacity with the development of two offshore platforms, a 75 kilometre pipeline and a Single Point Mooring system. As the Chairman has mentioned, on 13 February 2012 we reported to the Australian Federal Police a possible breach of our Code of Ethics in relation to payments that may have been made in connection with work to expand the offshore loading facilities for Iraq s crude oil exports. We are fully cooperating with the Australian Federal Police as they conduct their investigation. RISK MANAGEMENT Identifying, analysing, treating and continually monitoring risks are essential in the risk management process. In most as the events of last year demonstrated, there is always more that can and needs to be done. As a result of a comprehensive review, we have refined our processes for risk selection, further strengthened our Work Procurement Guidelines and revised our delegations for the negotiation of tenders prior to the award of contracts. As the Chairman has discussed, the Board has established a Tender Review and Risk Committee which will monitor and review the Group s risk management systems, controls and metrics, and oversee all major tenders. The Committee is supported by the Chief Risk Officer and our Risk Management team. This is a positive step in ensuring that we have in place best practice risk management systems and processes to appropriately treat the key risks of the business. PEOPLE AND SAFETY With the appointment of a dedicated Chief Human Resources (HR) Officer during the period, Dharma Chandran, we have taken a significant step forward in the development of our people. Our people are our greatest resource, and Dharma and his team are bringing a professional approach to the way we recruit, performance manage, train, reward and develop our people. This team will be responsible for providing the necessary technical HR advice and assistance to leaders and staff on day-to-day HR matters such as recruitment, identifying development needs and suggesting appropriate solutions, managing performance, setting remuneration and succession planning. The team will also further develop our HR policies and procedures for Leighton Holdings, and provide training to improve the awareness and capability of our leaders in managing our employees. As the Chairman has pointed out, safety is a core value that is an absolute priority for me and my leadership team. I believe in creating a safe, challenging and fun workplace, while striving to ensure employees return home each day in the same health and condition as when they arrived at work. THE OUTLOOK I am pleased to report that the Group continues to enjoy a very positive outlook. Our strategy has us positioned in high growth regions of the world for a contracting organisation Australia, Asia, the Middle East and Southern Africa with brands that are highly regarded. In fact, we have the broadest footprint of any international contractor operating in this part of the world and are focused on making Leighton an even more international Group. Asia s demand for energy and resources remains a dominant driver of opportunities, with demand for energy set to double from 2008 to We are located in markets that are continuing to grow and offering good opportunities for our construction, mining, and operations and maintenance services. We have opportunities to export our competencies into new markets that value the services we can provide. 24 Mike Rollo Chief Risk Officer be working to improve our whole-ofbusiness or enterprise risk. We are keen to ensure that we continue to entrench our recent improvements to managing the project life cycle. We realise that Leighton Holdings must be more involved in the business identification and development phase. Our systems have been improved to incorporate a comprehensive Project Risk Assessment to identify high-risk projects at the expression of interest stage. By assessing projects as `business as usual or `high risk at an early stage, we can avoid committing resources to projects that do not meet our risk profile. We will develop bid strategies appropriate for the tender and ensure that the best capability or resources within the Group are focused on delivering that project.

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29 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CHIEF EXECUTIVE S REVIEW CONTINUED Olivia Newton-John Cancer and Wellness Centre Victoria, Australia Leighton Contractors Kaltim Prima Coal Mine Victorian Desalination Project Victoria, Australia In Australia, we see that the construction market will remain strong, driven in particular by private sector investment in the gas sector. This is an area where the Group has great experience and competency in delivering civil engineering and building work for major LNG and coal seam methane projects such as the Gorgon, Devil Creek and Pluto projects in Western Australia and APLNG in Queensland. Some $140 billion of capital is currently being invested in energy-related projects and our Operating Companies have the experience and skills to bid for a substantial portion of the upcoming work. Government spending on infrastructure is likely to remain at high levels with some major rail projects in New South Wales and Victoria driving opportunities. As the leading rail contractor in Australia, the Group is well placed to take on this work. Government spending on roads and other transport infrastructure will continue to underpin a solid outlook for civil construction work. The telecommunications market and the National Broadband Network (NBN) in particular represent significant opportunities. The Group has substantial expertise in delivering this complex infrastructure and is well positioned as more packages of the NBN are awarded. Contract mining remains a core market for the Group in Australia, Indonesia and Mongolia. While capital intensive, contract mining offers stable earnings and opportunities for growth, fuelled by continual demand growth from Asia for more coal and other minerals. The Group has a strong position as the world s largest contract miner which it is using to gain entry into new markets such as Southern Africa. Additionally, substantial investment in new mine, rail and port infrastructure for coal projects will continue to be made in Australia, underwriting a range of construction opportunities for our Operating Companies. Asia s growth is also providing construction opportunities for the Group. No other contractor has the Group s footprint across Asia and this, when combined with our reputation for delivery, positions us uniquely for growth. Hong Kong, Macau, India and other selected Asian markets are continuing to look for the experience and capability of an international contractor like the Leighton Group. We will target opportunities in these markets where our services are valued and we can create value for our shareholders. In the Middle East, we see a petro-dollar economy driving strong levels of investment in infrastructure, the construction of which is a core competency of the Group. We are bringing this competency to HLG and diversifying the business into new markets such as Oman, Saudi Arabia and Kuwait. While some parts of the Middle East are still suffering the fallout of the global financial crisis, we see the region providing a good range of opportunities in the mid-to-long-term that suit the evolving HLG. I am confident that the Group is positioned in the best possible markets in the world for the foreseeable future. The Australian, Asian, Middle Eastern and Southern African regions are continuing to grow based on the industrialisation and urbanisation of Asia and the region s demand for minerals and energy. These markets have English as a business language and the Group has a long established presence and is well known to many clients. As a contractor, we have access to these markets, both directly by working in them, and indirectly as a supplier of services to clients that are supplying to Asia. Backing these market opportunities is our strong balance sheet which allows us to invest for growth and a near record level of work in hand with a very healthy level of inherent profitability. We also have a workforce of more than 53,000 capable and committed people who are united by a strong set of values of discipline, integrity, safety and success, and they are focused on being renowned for excellence. On behalf of the management team, I thank them for an outstanding contribution during the period. All of this makes me very positive about the future for the Leighton Group and for our shareholders. Hamish Tyrwhitt Chief Executive Officer 9 March

30 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR HOW WE OPERATE LEIGHTON HOLDINGS BOARD AUSTRALIA/PACIFIC Operating companies THIESS LEIGHTON CONTRACTORS Revenue 1 A$3,809m A$3,580m Work in hand 2 A$16,013m A$9,826m Established No. of employees 19,479 10,283 Managing Director Bruce Munro Craig Laslett Scope of operations Integrated mining, construction and services contractor specialising in total mining solutions, civil engineering, process, building, remediation, waste, telecommunications, utilities and facilities management. Project development, construction and services contractor specialising in civil engineering and infrastructure, building, contract mining, energy, telecommunications and facility management. Area of operations Australia, India, Indonesia, New Zealand Australia, New Zealand, Papua New Guinea 1 Operating revenue includes the Group s share of joint ventures and associates revenue. See note 5 Segment information on pages 122 to 123 of the Concise Financial Report for greater detail. Represents revenue for the 6 month period to 31 December Work in hand includes the Group s share of work in hand from joint ventures and associates. Work in hand only includes work for 5 years from the reporting date. The value of long-term contracts running past December 2016 is not included. 3 These amounts include revenue and work in hand for Devine Limited. 4 The number of employees in HLG is excluded from the Group s total number of employees as reported. 28

31 ASIA/INDIA MIDDLE EAST AND AFRICA JOHN HOLLAND LEIGHTON PROPERTIES LEIGHTON ASIA HABTOOR LEIGHTON GROUP LEIGHTON WELSPUN LEIGHTON AFRICA LEIGHTON OFFSHORE A$2,400m A$438m 3 A$1,389m A$330m A$6,928m A$1,342m 3 A$8,171m A$2,280m , ,790 24,678 4 Glenn Palin Mark Gray Robert Cooke (Acting)* Laurie Voyer Multi-disciplined construction and services contractor specialising in civil engineering and building infrastructure, tunneling, communications, energy and resource projects, power transmission, water treatment, marine structures, mining, aviation maintenance services, and construction, operation and maintenance of rail systems. Undertakes large, complex property developments and provides specialist services in development management. Multi-disciplined contractor specialising in civil and infrastructure, mining, industrial, building, offshore oil and gas, and rail. Multi-disciplined contractor specialising in civil engineering and infrastructure, building and mining. Australia, Hong Kong, India, New Zealand, Qatar, Saudi Arabia, Singapore and United Arab Emirates Australia Brunei, Cambodia, China, Hong Kong, India, Indonesia, Iraq, Laos, Macau, Malaysia, Mongolia, Philippines, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam Bahrain, Botswana, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates * On 26 March 2012, Ian Edwards was appointed Managing Director of Leighton Asia, India & Offshore. 29

32 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR OPERATIONAL ANALYSIS & INVESTMENTS GROUP GROUP THIESS LEIGHTON CONTRACTORS By company By market Group Revenue $million Group Revenue $million Revenue $million Revenue $million Thiess 3,809 31% Leighton Contractors 3,580 29% John Holland 2,400 20% Leighton Properties # 438 4% Leighton Asia/India/Offs 1,389 11% Middle East & Africa 330 3% Corporate 231 2% Total 12,177 Infrastructure 6,661 55% Resources 4,400 36% Property 885 7% Corporate 231 2% Total 12,177 Infrastructure 2,413 63% Resources 1,396 37% Property 0% Total 3,809 Infrastructure 1,440 40% Resources 1,947 54% Property 193 6% Total 3,580 Group Work in hand $million Group Work in hand $million Work in hand $million Work in hand $million Thiess 16,013 36% Leighton Contractors 9,826 22% John Holland 6,928 16% Leighton Properties # 1,342 3% Leighton Asia/India/Offs 8,171 18% Middle East & Africa 2,280 5% Total 44,560 Infrastructure 20,180 45% Resources 20,852 47% Property 3,528 8% Total 44,560 Infrastructure 5,871 37% Resources 10,142 63% Property 0% Total 16,013 Infrastructure 6,021 61% Resources 3,268 33% Property 537 6% Total 9,826 6 months to 12 months to Dec 2011 Jun 2011 Dec 2011 Jun 2011 Group operating revenue by activity $m $m Group work in hand by activity $m $m Construction 7,267 60% 12,006 62% Construction 18,407 41% 19,847 43% Contract mining 3,148 26% 5,177 27% Contract mining 17,823 40% 18,479 40% Services 1,003 8% 2,026 10% Services 6,988 16% 6,178 13% Development 528 4% 133 1% Development 1,342 3% 1,722 4% Corporate/Eliminations 231 2% 35 0% Total 12, % 19, % Total 44, % 46, % Operating revenue Australia/Pacific by market Work in hand Australia/Pacific by market Infrastructure 5,640 56% 9,203 58% Infrastructure 16,620 58% 17,054 53% Resources 3,452 35% 6,155 38% Resources 10,033 35% 12,602 40% Property 670 7% 592 4% Property 2,038 7% 2,337 7% Corporate/Eliminations 231 2% 35 0% Total 9, % 15, % Total 28, % 31, % Operating revenue Asia and Middle East by country Work in hand Asia and Middle East by country Middle East % 1,246 37% Middle East 2,515 16% 2,122 15% Indonesia % 1,086 33% Indonesia 8,456 53% 7,109 50% Hong Kong/Macau % % Hong Kong/Macau 1,865 12% 1,409 10% India 103 5% 311 9% India 677 4% 1,185 8% Mongolia 86 4% 102 3% Mongolia 1,487 9% 1,440 10% Other 116 5% 251 7% Other 869 6% 968 7% Total 2, % 3, % Total 15, % 14, % Revenue note: Includes the Group s share of joint ventures and associates revenue. See Note 5 Segment information on pages 122 to 123 of the Concise Financial Report for greater detail. Represents revenue for the 6 month period to 31 December Work in hand note: Includes the Group s share of work in hand from joint ventures and associates. Work in hand only includes work for 5 years from the reporting date. The value of longterm contracts running past December 2016 is not included. 30

33 JOHN HOLLAND LEIGHTON PROPERTIES # LEIGHTON ASIA HABTOOR LEIGHTON GROUP LEIGHTON WELSPUN LEIGHTON AFRICA LEIGHTON OFFSHORE Revenue $million Revenue $million Revenue $million Revenue $million Infrastructure 1,827 76% Resources % Property 39 2% Total 2,400 Infrastructure 0% Resources 0% Property % Total 438 Infrastructure % Resources % Property 32 2% Total 1,389 Infrastructure % Resources 9 3% Property % Total 330 Work in hand $million Work in hand $million Work in hand $million Work in hand $million Infrastructure 4,928 71% Resources 1,842 27% Property 158 2% Total 6,928 Infrastructure 0% Resources 0% Property 1, % Total 1,342 Infrastructure 2,840 35% Resources 5,258 64% Property 73 1% Total 8,171 Infrastructure % Resources % Property 1,418 62% Total 2,280 INVESTMENTS ENGINEERING & INFRASTRUCTURE B AquaSure Thiess has a 5.2% share of the consortium that will finance, design, build, operate and maintain the Victorian Desalination Project. B BrisConnections Thiess and John Holland will invest $200 million in the consortium that will own, operate and maintain the Airport Link Project in Brisbane. B Aspire Schools Leighton Contractors has a 50% share of the consortium that will finance, design, construct and maintain 7 schools in South East Queensland for 30 years. B Cross City Motorway Leighton Contractors has 6% of the company that owns, operates and maintains the Cross City Tunnel in Sydney. B SA Health Partnership Leighton Contractors has a 19.9% share in the consortium that will finance, design, construct and maintain the new Royal Adelaide Hospital for 35 years. MINING AND RESOURCES B Cockatoo Island Project HWE Cockatoo is a 50:50 joint venture partner in an iron ore mine in Western Australia. LISTED ENTITIES B Sedgman Limited Thiess owns 32.35% of the listed resources engineering company. B Macmahon Holdings Limited Leighton Holdings owns 19.45% of the listed engineering and mining contracting company. # Leighton Properties amounts include revenue and work in hand for Devine Limited. 31

34 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR BOARD & SENIOR MANAGEMENT West Gate Bridge Strengthening Victoria, Australia John Holland 32

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36 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS RESUMES The Directors during or since the end of the December 2011 Transitional Financial Year are: STEPHEN PAUL JOHNS (64) Chairman BEc, FAICD, FCA An independent Non-executive Director since December 2009, Chairman since 24 August 2011 and a Director of John Holland Group Pty Ltd since 1 July A graduate in Economics from the University of Sydney. Fellow of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. Appointed an Executive Director of Westfield Holdings Limited in November 1985, Mr Johns held a number of positions within Westfield, including Finance Director from 1985 to 2002 and became a Non-executive Director of the Westfield Group in October Mr Johns is a Director of Brambles Limited. As at 31 December 2011, Mr Johns was a Director of the following other ASX listed entities: Westfield Holdings Limited since November 1985 * and Brambles Limited since December 2006 (formerly Director of Brambles Industries Limited and Brambles Industries plc since August 2004). He was formerly a Director and Chairman of the ASX listed entity Spark Infrastructure Group from November 2005 to 30 September HAMISH GORDON TYRWHITT (48) Managing Director and Chief Executive Officer BEng (Civil), MIE Aust, CPEng., MemIEHK An Executive Director and Chief Executive Officer since 24 August Mr Tyrwhitt holds a Bachelor of Engineering from the University of Western Australia. A Chartered Member of the Institution of Engineers Australia, a Member of the College of Civil Engineers Australia and a Member of the Hong Kong Institution of Engineers. Mr Tyrwhitt is a civil engineer with 26 years experience in the construction industry. Managing Director of Leighton Asia Limited and Leighton Contractors (Asia) Limited from December 2007 to August Former General Manager of Leighton Contractors Victoria/South Australia/Tasmania/ New Zealand and Director of Leighton Contractors Pty Limited from January 2005 to February Appointed General Manager and Director of Leighton Contractors (Malaysia) SDN BHD in 2002 having joined in Mr Tyrwhitt joined John Holland in Western Australia in 1986 and in 1990 was appointed as a Project Manager in John Holland Construction (Malaysia, Laos and Thailand). * The securities of Westfield Holdings Limited are stapled to those of Westfield Trust and Westfield America Trust, the responsible entities of which are Westfield Management Limited (appointed 11 November 1985) and Westfield America Management Limited (appointed 20 February 1996). The three entities comprise the Westfield Group, the stapled securities of which trade as one security on the ASX. 34

37 PETER ALLAN GREGG (56) Executive Director and Chief Financial Officer BEc An Executive Director since 23 December 2010 (formerly an independent Non-executive Director from July 2006 to October 2009) and a Director of each of the Group s Operating Companies. A Director of Leighton Welspun Contractors Pvt Ltd since April 2011 and an Alternate Director of Habtoor Leighton Group for Mr H Tyrwhitt since November Mr Gregg holds a Bachelor of Economics from the University of Queensland. Formerly Chief Financial Officer and Executive General Manager Strategy for the Qantas Group, he was appointed Chief Financial Officer of Leighton Holdings in October A Fellow of the Finance and Treasury Association, and a Member of the Australian Institute of Company Directors. Mr Gregg is a former Director of the following other ASX listed entities: Qantas Airways Limited from September 2000 to September 2008 and former Chairman of the Singapore-based Jetstar, and its parent company Orangestar, Stanwell Corporation Limited from July 2006 until September 2009, Skilled Group Limited and Skilled Rail Services Pty Ltd from March 2009 to February 2011, and QR Limited (Queensland Railways), a Queensland Government owned corporation, from May 2009 to November ACHIM DRESCHER (71) Non-executive Director BEc An independent Non-executive Director since November 1996 and a Director of Leighton Contractors Pty Limited since November A graduate in Economics from Hamburg University, Germany. A former Managing Director ( ) and Chairman ( ) of Columbus Line Australia Limited. A Non-executive Director of Sabre Securitisation Limited and Sword Securitisation Limited, Member of The Advisory Council of Germanischer Lloyd AG-Asia Pacific. In 1997 Mr Drescher was awarded the Cross of the Order of Merit by the Federal Republic of Germany. PAULA JANE DWYER (51) Non-executive Director B.Com., FCA, FAICD, F.Fin An independent Non-executive Director and Chairman of the Audit Committee since 1 January Ms Dwyer holds a Bachelor of Commerce from the University of Melbourne. Ms Dwyer is a Fellow of the Institute of Chartered Accountants in Australia, the Australian Institute of Company Directors and the Financial Services Institute of Australasia. Ms Dwyer had an executive career in finance holding senior positions in investment management, investment banking and chartered accounting with Ord Minnett (now JP Morgan) and PricewaterhouseCoopers. Ms Dwyer is a Member of the Takeovers Panel, a Board Member of the Faculty of Business and Economics at the University of Melbourne, a Member of the Geelong Grammar School Council and Deputy Chairman of the Baker IDI Heart and Diabetes Institute. As at 31 December 2011, Ms Dwyer was a Director of the following other ASX listed entities: Suncorp Group Limited from April 2007 to February 2012 (where she was also Chairman of the Audit Committee) and Chairman of Tabcorp Holdings Limited since June 2011 (Director since August 2005). Ms Dwyer was formerly a Director of Foster s Group Limited from May to December 2011, Healthscope Limited from March to October 2010, Astro Japan Property Group Limited from February 2005 to December 2011, Promina Group Limited from 2002 to 2007, David Jones Limited from 2003 to 2006 and RACV Limited from 2001 to

38 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS RESUMES CONTINUED ROBERT DOUGLAS HUMPHRIS OAM (69) Non-executive Director ARSM, BSc (Eng) Hons, CEng, FIMMM, FAIMM An independent Non-executive Director since September 2004 and a Director of Leighton Asia Limited since 1 November 2011, a former Director of Leighton International Limited from September 2007 to 2 November Mr Humphris is an Honours graduate in Mining Engineering at the Royal School of Mines, Imperial College, London University. Chairman of Ampcontrol Pty Limited. Former Managing Director of Peabody Resources Pty Limited (previously Costain Australia Limited). Former Chairman of Eroc Holdings Pty Limited, New South Wales Mineral Council, Australian Coal Association and Newcastle Coal Shippers Limited. Former Director of Australian Coal Research Limited and Port Waratah Coal Services Limited. As at 31 December 2011, Mr Humphris was a Director of the following other ASX listed entity: Australian Infrastructure Fund Limited since August IAN JOHN MACFARLANE AC (65) Non-executive Director BEc (Hons), MEc An independent Non-executive Director since June A graduate in Economics from Monash University. Previously Governor of the Reserve Bank of Australia from 1996 to 2006 and Deputy Governor of the Reserve Bank of Australia from 1992 to Member of International Advisory Board, Goldman Sachs, CHAMP Private Equity and the China Bank Regulatory Commission. Director of the Lowy Institute for International Policy. As at 31 December 2011, Mr Macfarlane was a Director of the following other ASX listed entities: Woolworths Limited since January 2007 and ANZ Bank Limited since February WAYNE GEOFFREY OSBORN (60) Non-executive Director Dip EE, MBA, FSTE, MIE Aust, FAICD An independent Non-executive Director since November Chairman of Thiess Pty Ltd since October 2008 (Director since October 2005). Chair of the Council of the Australian Institute of Marine Science, Trustee of Western Australian Museum, Fellow of Australian Academy of Technological Sciences & Engineering, Fellow of the Explorers Club New York, Member of the Institution of Engineers Australia and former Chair of Australian Aluminium Council. A Director of Alinta Holdings (formerly Amber Holdings) since March Mr Osborn has 35 years of experience in the Australian mining, resources and manufacturing sectors and was a former Chairman and Managing Director of Alcoa of Australia Ltd. As at 31 December 2011, Mr Osborn was a Director of the following other ASX listed entities: Wesfarmers Limited since March 2010 and Iluka Resources Limited since March

39 DAVID PAUL ROBINSON (56) Non-executive Director MCom, BEc, FCA, FTIA A Non-executive Director since December 1990 and a Director of Leighton Properties Pty Limited since May Alternate Director for Mr P Sassenfeld since 29 November A graduate of the University of Sydney. Registered company auditor and tax agent. A chartered accountant and principal of the firm Harveys Chartered Accountants in Sydney. Adviser to local and overseas companies with interests in Australia. Participates in construction industry affairs. A trustee of Mary Aikenhead Ministries, the responsible entity for the health, aged care and education works of the Sisters of Charity in Australia. A Director of HOCHTIEF Australia Holdings Limited. Mr Robinson was formerly a Director of Valad Property Group (from February 2010 to 29 August 2011). PETER-WILHELM SASSENFELD (45) Non-executive Director MBA A Non-executive Director since 29 November Mr Sassenfeld joined HOCHTIEF in November 2011 as the Chief Financial Officer and prior to this role he was Chief Financial Officer of Ferrostaal AG. Mr Sassenfeld has also worked as Chief Financial Officer at Krauss Maffei AG and in senior finance roles at Bayer AG and the Mannesmann Group. Mr Sassenfeld graduated in 1991 from the University of Saarland, Germany with an MBA (Diplom- Kaufmann). DR FRANK STIELER (53) Non-executive Director Dr. jur. A Non-executive Director since 16 May Chairman of the Executive Board of HOCHTIEF AG since May 2011 and a member since March In addition he is in charge of the HOCHTIEF Europe division and the HOCHTIEF Asia Pacific division as well as the Public- Private Partnerships segment. Dr Stieler studied Law at Johann- Wolfgang-Goethe University in Frankfurt am Main, Germany. After having obtained a doctorate in 1985, he initially held various positions with Lurgi AG, including those of Chief Financial Officer at Lurgi Energie und Umwelt GmbH in 1994 and of Chief Executive Officer at Lurgi Bamag GmbH since mid Dr Stieler was Senior Vice President at Houston based Azurix, a subsidiary of US energy supplier Enron from 1999 to Dr Stieler joined Siemens AG in late 2001 where, under the umbrella of the Power Generation Group, he was responsible for the Industrial Application division. In 2008 Dr Stieler was appointed Chief Executive Officer of the Siemens Oil & Gas Division. 37

40 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS RESUMES CONTINUED Alternate Directors Company Secretaries MANFRED HEINRICH WENNEMER (64) Non-executive Director A Non-executive Director since 6 October Mr Wennemer was appointed Chairman of the HOCHTIEF AG Supervisory Board on 11 May Additionally, he acts as Chairman of the Strategy Committee. Currently, he serves on the Supervisory Boards of Allianz Deutschland AG, Knorr-Bremse AG, NV BEKAERT SA as well as in the position of Chairman of the Board at Springer Science + Business Media SA. He is former Chairman (CEO) of the Executive Board of Continental Aktiengesellschaft, Hanover. He studied Mathematics at the Westfaelische Wilhelms-Universitaet Muenster (University of Muenster), Germany and obtained a Masters degree in Business Administration from INSEAD Fontainebleau, France in ROBERT LESLIE SEIDLER AM (63) Alternate Director LLB An Alternate Director for Dr F Stieler since 16 May 2011 and Mr M Wennemer since 10 November Previously an Alternate Director for Dr H Lütkestratkötter from July 2007 to May 2011 and for Dr H-P Keitel from November 2003 to July Chairman of Leighton Asia Limited since 1 November 2011 and a Director of Leighton Properties Pty Limited since May A former Director of Leighton International Limited from November 2009 to 2 November A graduate of the University of Sydney. Former partner of Blake Dawson. Vice-President, Australia Japan Business Cooperation Committee and Chairman of Hunter Philip Japan Limited. A member of the investment advisory board of the Australian Prime Property Fund, a member of the Australian Government s Corporations and Markets Advisory Committee, and a member of the NSW Multicultural Business Advisory Panel. A Director of HOCHTIEF Australia Holdings Limited since November A former Director of the ASX-listed entity Valad Funds Management Limited from February 2005 to 29 August ASHLEY JOHN MOIR (65) Group Company Secretary FCPA, FCIS, MAICD Mr Moir was appointed to the position of Company Secretary in April He was previously Company Secretary of Australian National Industries Limited. Mr Moir is a former Director and Chairman of Chartered Secretaries Australia (CSA) Limited. VANESSA ROBYN REES (42) Company Secretary Dip Law, FCIS Ms Rees was appointed to the position of Company Secretary in April She has a financial and legal background and has held various Company Secretarial positions the most recent being with Ascalon Capital Managers Limited and previously within the Investa Property Group. Ms Rees is a Fellow of CSA and is on CSA s Legislative Review and NSW Professional Development Committees. 38

41 Retired Directors during the December 2011 Transitional Financial Year are: Former Alternate Director DAVID ALLEN MORTIMER AO (66) Chairman, Non-executive Director BEc (Hons), FCPA An independent Non-executive Director from September Elected Chairman on 1 June Resigned as Chairman and Director on 24 August DR BURKHARD LOHR (48) Non-executive Director Dr. rer.pol A Non-executive Director from May Resigned as a Director on 12 October DR KARL REINITZHUBER (45) Alternate Director Dr. rer.pol An Alternate Director for Dr B Lohr from July 2011 to termination on 22 September 2011 following Dr Lohr s resignation from HOCHTIEF AG. Previously an Alternate Director for Dr Peter Noé from April 2009 to June 2011 and former director of HOCHTIEF Australia Holdings Limited. DAVID GRAEME STEWART (58) Managing Director and Chief Executive Officer BSc, BE, FIE Aus, ATSE An Executive Director and Chief Executive Officer from 1 January Former Chief Operating Officer from 2009 to 2010 with responsibility for Habtoor Leighton Group, John Holland and Leighton Properties. Former Group Managing Director of John Holland from January 2006 to June 2009 and former Managing Director of John Holland Construction Pty Ltd in Former Group Executive Committee Chairman. Ceased as Chief Executive Officer and Managing Director on 24 August

42 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR BOARD AND COMMITTEES LEIGHTON HOLDINGS LIMITED BOARD S P Johns, Chairman H G Tyrwhitt, Chief Executive P A Gregg A Drescher P J Dwyer R D Humphris OAM I J Macfarlane AC W G Osborn D P Robinson P W Sassenfeld Dr F Stieler M H Wennemer Alternate Directors R L Seidler AM Associate Directors M C Gray C A Laslett B A Munro G M Palin L W Voyer Company Secretaries A J Moir, Group Company Secretary V R Rees, Company Secretary BOARD COMMITTEES Audit Committee P J Dwyer, Chairman S P Johns D P Robinson Remuneration and Nominations Committee S P Johns, Chairman A Drescher W G Osborn R L Seidler AM Dr F Stieler Ethics and Compliance Committee W G Osborn, Chairman R D Humphris OAM R L Seidler AM H G Tyrwhitt Plan Committee (until 10 February 2012) S P Johns, Chairman D P Robinson H G Tyrwhitt Tender Review and Risk Committee (from 10 February 2012) R D Humphris OAM, Chairman I J Macfarlane AC W G Osborn R L Seidler AM GROUP EXECUTIVE COMMITTEE H G Tyrwhitt, Chairman D Chandran R R Cooke* M C Gray P A Gregg C A Laslett B A Munro G M Palin M J Rollo L W Voyer A J Moir, Secretary * On 26 March 2012, Mr Ian Edwards was appointed as the Managing Director of Leighton Asia, India and Offshore and to the Group Executive Committee. 40

43 GROUP EXECUTIVES HAMISH GORDON TYRWHITT (48) Managing Director and Chief Executive Officer Leighton Holdings DHARMA CHANDRAN (47) Chief Human Resources Officer Leighton Holdings PETER ALLAN GREGG (56) Chief Financial Officer Leighton Holdings MICHAEL JOHN ROLLO (52) Chief Risk Officer Leighton Holdings ROBERT RITCHIE COOKE (56) Acting Managing Director Leighton Asia, India & Offshore* MARK CHARLES GRAY (59) Managing Director Leighton Properties CRAIG ALLEN LASLETT (50) Managing Director Leighton Contractors BRUCE ALWIN MUNRO (58) Managing Director Thiess GLENN MICHAEL PALIN (54) Managing Director John Holland Group LAURIE WILLIAM VOYER (60) Managing Director Leighton Middle East and Africa 41

44 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT Seaford Rail Extension South Australia Thiess 42

45 43

46 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT GOVERNANCE AT LEIGHTON This Corporate Governance Report discloses the extent to which Leighton Holdings Limited has followed the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations (Principles and Recommendations) during the period between 1 July 2011 and 31 December 2011 (the December 2011 Transitional Financial Year). As required by the ASX Listing Rules, the information in this Corporate Governance Report is current as at 9 March Each of the eight principles and their supporting recommendations are addressed. In summary, we have followed all of the Principles and Recommendations for the December 2011 Transitional Financial Year, other than Recommendation 2.1. An explanation as to why this recommendation was not followed in the December 2011 Transitional Financial Year is set out in our response to Principle 2 on page 48 of this Concise Annual Report. This Corporate Governance Report, the Audit Committee Charter, the Charter of Audit Independence, the Terms of Reference and Procedures for the Remuneration and Nominations Committee and the Ethics and Compliance Committee, the Tender Review and Risk Committee Charter, and each of the policies and codes referred to in this Report are available within the Corporate Governance section of our website at PRINCIPLE 1: LAY SOLID FOUNDATION FOR MANAGEMENT AND OVERSIGHT The Board is responsible to shareholders for the longterm performance of the company and the entities it controls (collectively, the Group) and for overseeing the implementation of the highest standards of corporate governance with respect to the Group's affairs. To assist the Board in discharging its responsibilities, we have adopted a governance framework which provides for the delegation of functions to Board Committees and senior management (under the leadership of the Chief Executive Officer (CEO)). Whilst ultimate accountability rests with the Board, the framework ensures that functions are carried out by the most appropriate person or group and that a tiered system of responsibility and accountability exists throughout the Group. The diagram opposite illustrates the structure and operation of our governance framework at a Board and senior management level. As part of this framework, we set Governance Guidelines and minimum operating standards for our Operating Companies through the Group Governance System, which covers the following six key areas of business activity: Whole of business; Strategy and planning; Financial management; Reputation; Corporate practices; and Operations / projects (pre-contract, contract delivery and whole of contract). Each Governance Guideline is supported by more detailed operational guidelines to articulate the objectives, strategies for management, and control and reporting requirements, which are then incorporated into each Operating Company's individual work procedures and practices. Procedures and practices are also regularly reviewed within each Operating Company to monitor compliance and support continuous improvement. 44

47 BOARD OF DIRECTORS The Board has the following responsibilities: significant business transactions including acquisitions, COMPANY SECRETARIES All Directors have open and direct access to the Company Secretaries who support the effectiveness of the Board in all governance matters. Delegation Accountability STANDING BOARD COMMITTEES 1 SENIOR EXECUTIVES AUDIT The key responsibilities of the Committee include: the auditors, the approval of their remuneration and the terms effectiveness of the external auditors, having regard to the provision of non-audit services. REMUNERATION & NOMINATIONS The key responsibilities of the Committee include: remuneration policies and practices for the Group generally membership of the Board, including proposed new succession planning for the Board, CEO and the CEO s direct reports. ETHICS & COMPLIANCE The key responsibilities of the Committee include: regarding the maintenance of ethical standards and practices regulations in the areas of occupational health and safety, the related to tender approval probity. TENDER REVIEW & RISK 2 The key responsibilities of the Committee include: of the Group s risk management systems, controls and metrics having regard to the Group s overall risk tolerance and for key projects, and approving tenders for key projects or referring them to the Board for approval. 1 Responsibilities of each Committee are set out in the relevant Committee s Charter or Terms of Reference and Procedure available at 2 Established by the Board on 10 February The CHRO commenced employment with the company on 1 January CHIEF EXECUTIVE OFFICER (CEO) The CEO is accountable to the Board for the management of the Group and has the authority to approve capital expenditure and business transactions within the policy and authority levels prescribed in the Group s Business Plan. Specific responsibilities of the CEO include: in accordance with the Group s overall business strategy and with the assistance of the CHRO of all personnel, except for the senior executives reporting directly to him. CHIEF FINANCIAL OFFICER (CFO) The CFO is responsible for the statutory accounting, auditing, treasury/funding, taxation, strategy, corporate affairs and information systems across the Group. Specific responsibilities of the CFO include: financial control guidelines which govern the allocation and CHIEF RISK OFFICER (CRO) The CRO is responsible for the overall management and enhancement of the Group s strategic and operational risk management systems and controls. GROUP GENERAL COUNSEL The Group General Counsel is responsible for the management of the Group s legal affairs. CHIEF HUMAN RESOURCES OFFICER (CHRO) 3 The CHRO is responsible for: compliance and reporting in the areas of: company s employees. 45

48 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT CONTINUED Board Committees As set out in the diagram on page 45, the Board has an Audit Committee, a Remuneration and Nominations Committee, an Ethics and Compliance Committee and a Tender Review and Risk Committee to assist in discharging its duties. Copies of the Terms of Reference and Procedures or Charter for each of these Board Committees are available on the Corporate Governance section of our website. It is the Board's policy that each Board Committee should: be chaired by an independent Non-executive Director (and in the case of the Audit Committee, be chaired by an independent Director who is not the Chairman of the Board); be comprised solely of Non-executive Directors (except in the case of the Ethics and Compliance Committee which must comprise a majority of Nonexecutive Directors); have at least three members; be entitled to obtain independent professional or other advice at the company's cost; and be entitled to obtain such resources and information from the Group, including direct access to employees of and advisers to the Group, as they may require. The members of each Board Committee and their qualifications are set out on pages 34 to 40 of this Concise Annual Report. The number of Committee meetings that were held over the period and the attendance of the Committee members at those meetings are set out in the Directors' Report on page 71 of this Concise Annual Report. A Director may attend any Committee meeting unless they have a material personal interest in a matter being considered. Senior executives and other selected employees are invited to attend Committee meetings as required. Company Secretaries Details regarding the Company Secretaries, including their experience and qualifications, are set out on page 38 of this Concise Annual Report. Senior executives The senior executive team, under the leadership of the CEO, is responsible for the day-to-day management of the Group. Together, the senior executive team form the Group Executive Committee, the members of which are listed on page 40 of this Concise Annual Report. To ensure appropriate oversight of the senior executive team, we have adopted a range of mechanisms which reinforce the accountability of the senior executive team for functions delegated to them and ensure their performance is assessed accordingly. The CEO reviews the performance of all senior executives who report directly to him (direct reports) by way of formal reviews as appropriate throughout the year. As part of the review process, the CEO considers internal feedback, the individual's performance against requisite standards, and actively monitors their contribution to all aspects of the Group's performance and culture. In addition to the CEO's assessment of performance, the Board has in place a number of supporting measures which enable it to closely monitor senior executive performance, including: regular monthly reporting submitted to the Board, and attendance by the CEO, CFO and CRO at all Board meetings; an evaluation of detailed presentations made by the CEO and his direct reports during business planning/strategy review meetings, which are convened annually by the Board and held over a two to three day period; and regular reporting from the Chairman of the Remuneration and Nominations Committee which monitors the performance of the Group's key senior executives to ensure that the level of reward is aligned with respective responsibilities and individual contributions made to the success of the Group. The minutes of each Remuneration and Nominations Committee meeting are circulated to all Directors. The performance of the senior executives was reviewed during the December 2011 Transitional Financial Year in accordance with this process. Independent professional advice In addition to the support the Directors receive from the Board Committees, the senior executive team and the Company Secretaries, the Board has a policy of enabling Directors to seek independent professional advice at the company s expense (subject to Board approval). 46

49 PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE This section outlines the practices and processes applied during the December 2011 Transitional Financial Year in relation to the composition of the Board. We continued to follow the recently introduced Board assessment process that deals with all aspects of Board composition and development as part of an integrated process. This process, which is described on page 50 of this Concise Annual Report, captures relevant information regarding director skills, experience, capabilities and diversity of background and uses this information to guide: Board succession planning; identification and selection of new Directors; and performance assessment and development plans for individual Directors and the Board as a whole. Board composition The Board is balanced in its composition with each Director bringing a range of complementary skills and experience to the Group. Further details regarding the relevant skills, experience, tenure and expertise of each Director are set out on pages 34 to 38 of this Concise Annual Report. The table below sets out each Director s independence status as well as their relevant Board Committee memberships as at the date of this Corporate Governance Report Directors Independent/ nonindependent StephenPJohns 1 AchimDrescher 2 PaulaJDwyer 3 PeterAGregg RobertDHumphrisOAM IanJMacfarlaneAC WayneGOsborn DavidPRobinson PeterWSassenfeld 4 DrFrankStieler 5 HamishGTyrwhitt 6 ManfredHWennemer 7 Nonexecutive Director(Chairman) Nonexecutive Director Nonexecutive Director ExecutiveDirector & CFO Nonexecutive Director Nonexecutive Director Nonexecutive Director Nonexecutive Director Nonexecutive Director Nonexecutive Director ExecutiveDirector& CEO Nonexecutive Director Audit Committee Remuneration and Nominations Committee Independent Member Chairman Independent Member Independent Chairman Nonindependent Ethicsand Compliance Committee TenderReview andrisk Committee Independent Member Chairman Independent Member Independent Member Chairman Member Nonindependent* Member Nonindependent* Nonindependent* Member Nonindependent Nonindependent* * Representing our majority shareholder, HOCHTIEF Australia Holdings Limited. Member 1 Mr Johns was appointed Chairman of the Board and Chairman of the Remuneration and Nominations Committee on 24 August 2011 (formerly an independent Non-executive Director and Chairman of the Audit Committee until 24 August 2011). He replaced Mr David Mortimer who resigned as Chairman and Nonexecutive Director on 24 August Following Mr Johns appointment as Chairman of the Board, he ceased to be Chairman of the Audit Committee but remains a member of the Audit Committee. 2 Mr Drescher was Acting Chairman of the Audit Committee from 1 September 2011 to 31 December Following Ms Dwyer s appointment as Chairman of the Audit Committee on 1 January 2012, he ceased to be Acting Chairman and resigned as a member of the Audit Committee. 3 Ms Dwyer was appointed as a Non-executive Director and Chairman of the Audit Committee on 1 January She replaced Mr Drescher as Chairman of the Audit Committee. 4 Mr Sassenfeld was appointed as a Non-executive Director on 29 November Mr Robinson is the alternate director for Mr Sassenfeld. Mr Sassenfeld replaced Dr Burkhard Lohr who resigned as a Non-executive Director on 12 October Dr Karl Reinitzhuber was the alternate director for Dr Lohr from 5 July until 22 September Dr Stieler was appointed as a member of the Remuneration and Nominations Committee on 5 July Mr Robert Seidler AM is the alternate director for Dr Stieler and is a member of the Remuneration and Nominations Committee, the Ethics and Compliance Committee and the Tender Review and Risk Committee. 6 Mr Tyrwhitt was appointed as a Director and CEO on 24 August He replaced Mr David Stewart who was appointed to that role on 1 January Mr Wennemer was appointed as a Non-executive Director on 6 October Mr Seidler AM is the alternate director for Mr Wennemer and is a member of the Remuneration and Nominations Committee, the Ethics and Compliance Committee and the Tender Review and Risk Committee. 47

50 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT CONTINUED Independence The Board has adopted a definition of independence which is derived from the definition set out in the Principles and Recommendations. In assessing the independence of each Director the Board considers, among other things, whether the Director: is a substantial shareholder of the company (as defined by the Corporations Act 2001 (Cth) (Corporations Act)) or an officer of, or otherwise associated directly with, a substantial shareholder of the company; is or has been employed in an executive capacity by the Group, or been a Director after ceasing to hold any such employment, within the last three years; is or has been a principal of a material professional adviser or a material consultant to the Group, or an employee materially associated with the service provided, within the last three years; is a material supplier or customer of the Group, or an officer of or a person who is otherwise associated directly or indirectly with a material supplier or customer; has a material contractual relationship with the Group other than as a Director; has served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director's ability to act in the best interests of the company; and is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director's ability to act in the best interests of the company. Materiality is assessed on a case-by-case basis with reference to each Director's individual circumstances rather than by applying general materiality thresholds. The Board regularly assesses the independence of its Non-executive Directors. Where the independence status of a Non-executive Director changes, we have procedures in place to provide a timely disclosure to the market of the change. As at the date of this Corporate Governance Report, six of the twelve Directors are independent Directors. The Directors who do not meet the Board's test for independence are: Mr H G Tyrwhitt, the company's CEO; Mr P A Gregg, the company's CFO; and Dr F Stieler, Mr D P Robinson, Mr M H Wennemer and Mr P W Sassenfeld, all of whom are representatives of HOCHTIEF Aktiengesellschaft (HOCHTIEF), being the parent entity of our majority shareholder HOCHTIEF Australia Holdings Limited. Although the Board does not have a majority of independent Directors (and consequently the Board's composition does not comply with Recommendation 2.1 of the Principles and Recommendations), the Board has in place a number of policy measures to ensure that independent judgment is achieved and maintained in respect of its decision-making processes. These include: the Chairman of the Board is an independent Director and has a casting vote at Board meetings in the event of a deadlock; Directors are entitled to seek independent professional advice at the company's expense, subject to the approval of the Board; Directors who have a conflict of interest in relation to a particular item of business must absent themselves from the Board meeting before commencement of discussion on the topic; and Non-executive Directors confer on an as-needs basis without management in attendance. The Board considers HOCHTIEF's Board representation to be reasonable and appropriate given that HOCHTIEF owns a majority interest of 53.4% of the company's shares as at the date of this Corporate Governance Report. Governance arrangements following change of control of HOCHTIEF For many years, Leighton Holdings and its Germanbased majority shareholder, HOCHTIEF, have followed a set of governance principles which have seen us operate with a Board and management structure in which the majority of Directors are independent of HOCHTIEF. In September 2010, Spanish-based company Actividades de Construcción y Servicios, SA (ACS) announced a public takeover offer for HOCHTIEF and has subsequently moved to control of HOCHTIEF. In November 2010, ACS indicated that, to the extent that the arrangements bind HOCHTIEF, ACS would seek to continue the existing governance arrangements. 48

51 Board selection, appointment and re-election The Board s Remuneration and Nominations Committee regularly reviews the composition of the Board to ensure that there is an appropriate mix of abilities, experience and diversity of backgrounds to serve the interests of all shareholders. Any recommendations are presented to the full Board. In considering the selection, appointment and reelection of Directors, the Remuneration and Nominations Committee implements our policy of maintaining a Board with a mix of skills, experience and diversity of backgrounds suitable for our current and future circumstances. Leighton aims to maintain a Board whose membership reflects: experience across relevant industries (including resources, infrastructure and property); involvement in relevant activities (for example, construction, contract mining, services, development and investment activities and offshore activities); experience operating in various geographic locations (including Australia/Pacific, Asia and the Middle East); a variety of technical skills and expertise (for example, engineering, accounting, human resources, legal, risk management, property development and marketing); and a diversity of backgrounds (for example, gender, previous work roles and educational qualifications). In assessing both the performance of incumbent Directors and the suitability of new candidates, we also have regard to the individual capabilities and attributes that contribute to an effective Board dynamic including strategic thinking, strong communication skills, high ethical standards and sound judgment. Independent consultants are engaged, where appropriate, to identify possible new candidates for the Board. The Remuneration and Nominations Committee assesses candidates against a range of criteria developed for the role and in doing so considers their background, experience, personal qualities and professional skills. Following this assessment, the Committee provides its recommendation of the preferred candidates for the Board to consider prior to the Board making the appointment. This process was undertaken for the appointment of Directors during the December 2011 Transitional Financial Year. Recent corporate governance reviews in Australia and internationally have highlighted a lack of diversity among experienced director candidates (and in particular, a low level of female representation on boards). As part of the Board composition review, the Board has identified and is committed to addressing the lack of gender diversity on the Board. In August 2011 the Board committed to a target of appointing at least two female directors to the Board by 2016, with best endeavours to achieve this target earlier. A review by the Remuneration and Nominations Committee of the composition of the Board took place during the December 2011 Transitional Financial Year and resulted in the appointment of Ms Paula Dwyer as a Non-executive Director and as Chairman of the Audit Committee on 1 January Ms Dwyer s experience and qualifications are set out on page 35 of this Concise Annual Report. Term of office The tenure of Directors is governed by our Constitution (clauses 17 to 19) and the ASX Listing Rules, which in general terms provide that: one-third of the Directors, excluding the Managing Director and rounding down to the nearest whole number (Required Number), must stand for election at each Annual General Meeting (AGM); a Director (other than the Managing Director) must not hold office for the longer of three years or three successive AGMs without seeking re-election; a Director appointed by the Board (either to fill a casual vacancy or as an addition to existing Directors) only holds office until the next AGM or general meeting after their appointment; and where additional Directors are required to retire to fulfil the Required Number, the additional Directors to retire will be those who have been longest in office since their last election. Directors required to retire at a meeting, or only hold office until that meeting, are eligible for re-election or election (as appropriate). Where incumbent Directors are to be nominated for reelection, their performance is reviewed by the Remuneration and Nominations Committee. The Committee then makes recommendations to the Board as to their nomination for re-election. The Board then makes recommendations to shareholders in the Notice of Meeting concerning the election or re-election of any Director. 49

52 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT CONTINUED Induction and training Upon appointment, Directors receive an induction pack which includes: a letter of appointment, which refers to and summarises the Securities Trading Policy and the Market Disclosure Policy; a copy of the Code of Ethics and the company's Constitution; a Directors' interests disclosure agreement; and a Deed of Indemnity, Insurance and Access. At this time Directors are also introduced to the senior executive team and receive a briefing in relation to meeting arrangements and the culture and values of the Group. We recognise the importance of providing continuing education to Directors so as to enhance their knowledge of the Group and the industries in which we operate. As part of the Board's ongoing development program, Directors attend an annual off-site planning session which generally includes visits to and briefings on current projects. Directors also have the opportunity to attend other domestic and international site visits with the CEO throughout the year. During the December 2011 Transitional Financial Year, Directors visited operations in various domestic and international locations including Hong Kong, India and the Middle East. (b) Independent review of Board effectiveness A Board effectiveness review facilitated by a specialist external consultant was completed in December The review focused on the interface between the Board, the Board committees and management and sought to identify any areas where the Board could operate more effectively and enhance the contribution it makes to the Group. A Board Performance Action Plan, incorporating the recommendations from the independent review of Board effectiveness and the Board skills and capabilities assessment that took place in late 2010, was initially reviewed and adopted by the Board in February 2011 and progress was reported to the Board in August Following a number of changes to the Board's composition during 2011, the Action Plan was readopted by the current Board in December Each item on the Action Plan has been progressed with a number of initiatives already implemented. The Board proposes to undertake a further skills and capabilities assessment in June Performance review As part of its transition towards a systematic approach to Board composition and Director development, the Board has implemented the following initiatives: (a) Board skills and capabilities assessment process A new Board skills and capabilities assessment process was implemented in July This process involves each Director completing a questionnaire aimed at identifying the skills, experience, capabilities and diversity of background that each Director brings to the Board. The results of the questionnaires are then consolidated and analysed in order to facilitate an assessment of: the Board's collective skills, experience, capabilities and diversity of backgrounds; criteria for identification and selection of new Directors (having regard to the current and expected future needs of the company and the Group); and development priorities for the Board as a whole and for individual Directors. 50

53 PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING The Board is firmly of the view that the reputation and integrity of the Group will only be maintained if all of its officers and employees observe the highest standards of conduct when engaging in corporate activity. Our commitment to ethical and responsible decisionmaking and the Group s shared values are promoted throughout the Group which helps to provide a sustainable business and long-term returns to shareholders. Ethics and conduct We have a Code of Ethics which sets out the principles and standards with which all Group officers and employees are expected to comply in the performance of their duties. The Code of Ethics is built on the Group's values and principles and sets out the Group's core values of discipline, integrity, safety and success. It also provides a practical set of obligations for each Group company and for our people. Under the Code, the Group's obligations are to: be commercially competitive; provide a safe and healthy workplace; act with honesty, integrity and fairness; establish clear lines of accountability; create a fun, challenging and performance driven culture; respect the environment; respect the needs of the communities in which we work; and encourage and support innovation and technological leadership. The Group's employees' obligations are to: work together - hard, smart and in the long-term interests of the Group; respect and look after each other, the people around them and the community and environment we work in; act with honesty, integrity and fairness; speak to their employer whenever something really seems to be wrong; share their ideas for improvements; and assume personal responsibility and accountability for their work. In order to ensure that our employees remain well equipped to identify potentially unethical practices and encourage a culture of openness where concerns can be voiced and addressed, we have recently established the Leighton Ethics Line. The Leighton Ethics Line is an independent service operated by Control Risks, which is an international business risk consultancy that provides independent and confidential reporting lines. All reports made to this service are treated confidentially, and anyone who makes a report in good faith will not be disadvantaged as a result of having made a report. Role of the Ethics and Compliance Committee The Board has an Ethics and Compliance Committee whose principal functions are to: review and make recommendations to the Board regarding ethical standards and practices generally within the Group; review and monitor compliance with laws and regulations in the areas of occupational health and safety, the environment and competition and consumer law; and review and monitor Group standards and practices related to tender approval probity. The Committee reviews incidents resulting in fatalities and, where appropriate, makes recommendations to the Board regarding changes to our Global Safety Standards, practices and legal compliance within the Group's Operating Companies. Under the Corporate Governance System, the Ethics and Compliance Committee regularly examines and makes recommendations to the Board regarding the nature of any changes considered necessary to the Group's Code of Ethics and reviews and monitors the Ethical Dimension Reporting of the Group's Operating Companies. Promotion of ethical and responsible decision-making throughout the Group The Group s main Operating Companies each have their own well-established Ethics Committees which support Leighton Holdings Ethics and Compliance Committee in monitoring and formulating the Group s ethical policy direction and reporting. 51

54 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT CONTINUED The Code of Ethics is actively promoted throughout the Group and is easily accessible to new and existing employees through our website. It is a condition of employment that our employees accept and adhere to the Code of Ethics. The Group has also implemented an Ethical Dimension Reporting system which requires each Operating Company (including Leighton Holdings) to submit a quarterly report to the Board s Ethics and Compliance Committee with a view to ensuring the maintenance of ethical practices within the Group and the achievement of continual improvement in this area. Breaches of the Code of Ethics that are reported through this process or through the Leighton Ethics Line are examined and appropriate action is taken, which may include disciplinary measures. Conflicts All Directors are required to disclose any actual or potential conflict of interest at the time of their appointment and are required to keep these disclosures up to date. Directors who have a conflict of interest in relation to a particular item of business being considered by the Board or Committee must absent themselves from the Board or Committee meeting before commencement of discussion on the topic. Diversity In October 2010, the Board adopted a Group Policy for Workforce Diversity (Diversity Policy) which provides minimum expectations for the Group on workforce diversity (including gender and cultural diversity). These expectations have been reflected in each Operating Company through their own policies, procedures and arrangements to accommodate their operating conditions. The Diversity Policy describes our aspiration to be a global organisation with a leadership and workforce that reflects the diversity of the broader communities in which we operate. The overall objectives of the Diversity Policy are to: increase and retain the number of women and indigenous people employed by the Group within Australia; optimise local talent in senior management and the workforce in established international markets; improve human resources capabilities to manage a diverse workforce; be acknowledged as setting the industry standard for achieving workforce diversity; and establish an effective measurement and reporting framework to enable the achievement of our diversity objectives. We are currently developing a monitoring framework to assess effectively and regularly the Diversity Policy objectives and the Group's progress in achieving them. The Board has committed to measurable diversity targets, including the appointment of at least two female directors to the Board by On 1 January 2012 Ms Paula Dwyer was appointed as a Non-executive Director and as Chairman of the Audit Committee. Further information in relation to: the Group s diversity targets and progress toward achieving them; and the proportion of women employees in Australian operations, women in executive and management positions in Australian operations and women on the Board, can be found in the Directors' Report on pages 65 and 66 of this Concise Annual Report. In order to ensure appropriate leadership of the issues, workforce diversity has also been incorporated as a standing agenda item for the Group Executive Committee meetings. A copy of the Diversity Policy is available on the Corporate Governance section of our website. Dealing in securities In accordance with the law, all officers and employees of the Group who are in possession of inside information are prohibited from dealing in Leighton Holdings securities. They are also prohibited from passing on or communicating that information to other persons, including family members and friends. To further guard against the risk of insider trading, we have adopted a Securities Trading Policy which complies with the ASX Listing Rules. We provide informal briefing sessions on the Securities Trading Policy and securities trading law for Directors, senior executives and relevant employees as part of our continuing employee education initiatives. A copy of the Policy is available on the Corporate Governance section of our website. 52

55 PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING Role of the Audit Committee The Board has an Audit Committee which assists the Board in fulfilling its corporate governance and oversight responsibilities in relation to financial reporting, risk management and internal control. We undertook a review of the Terms of Reference and Procedures of the Audit Committee following the implementation of the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act The review led to the adoption of a new Audit Committee Charter in December The Charter outlines the responsibilities and composition requirements of the Audit Committee. Under the Charter, the Audit Committee is responsible for: monitoring and reviewing the integrity of the Group's financial statements and internal control systems; reviewing and monitoring the objectivity and effectiveness of the internal auditors; overseeing the process for selecting external auditors; making recommendations to the Board on the appointment of the external auditors, the approval of their remuneration and the terms of their engagement; and annually assessing the independence, objectivity and effectiveness of the external auditor, having regard to the provision of non-audit services. All Directors who are not Audit Committee members may attend meetings in an ex officio capacity. Further, the Committee may invite other persons to its meetings as it considers necessary, including senior executives and external advisers. The Committee also regularly reports to the Board on matters relevant to the Committee's role and responsibilities, and the minutes of each Committee meeting are circulated to all Directors. External auditor Our external auditor is KPMG. All Audit Committee papers are available to the external auditor, and they are invited to attend all Audit Committee meetings and are available to Audit Committee members at any time. The external auditor also attends the AGM to answer any questions from shareholders. As our external auditor, KPMG is required to confirm its independence and compliance with specified independence standards. To ensure the continuing independence of our external auditor, we adopted a new Charter of Audit Independence in December The Charter sets out the circumstances in which the auditor can perform non-audit related services and the procedures to be followed to obtain approval for those services where they are permitted. KPMG s independence declaration is contained on page 74 of this Concise Annual Report. The Audit Committee also ensures the rotation of external audit engagement partners every five years as required by the Corporations Act. If circumstances arise where it becomes necessary to replace the external auditor, the Audit Committee will recommend to the Board the external auditor to be appointed to fill the vacancy. Composition of the Audit Committee In accordance with the Audit Committee's Charter and the requirements of the ASX Listing Rules, the Committee: is comprised solely of Non-executive Directors with appropriate technical expertise; is comprised of a minimum of three Directors; has a majority of independent Non-executive Directors; and has an independent Director as Chairman of the Committee who is not the Chairman of the Board. 53

56 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT CONTINUED PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE Market Disclosure Policy and Procedure We are committed to complying with our continuous disclosure obligations under the ASX Listing Rules and the Corporations Act and to ensuring that shareholders and investors have equal and timely access to material information about the company. To ensure compliance with these obligations, we have a Market Disclosure Policy and Procedure (Market Disclosure Policy) that sets out the measures adopted by the Board to ensure our continuous disclosure obligations are met. The Market Disclosure Policy also sets out our policy in relation to periodic disclosures to the ASX and communications with the financial market, stakeholders and the public generally. Under the Market Disclosure Policy, all announcements are to be factual, not omit material information and be expressed in a clear and objective manner that allows investors to assess the impact of the information when making investment decisions. In accordance with the Market Disclosure Policy, the Managing Director of each Operating Company is responsible for ensuring that all potentially pricesensitive information is reported immediately to our Disclosure Officers. In addition to our Market Disclosure Policy, the Group has established comprehensive policies and procedures to identify matters that are likely to have a material effect on the price of the company s securities. Although the Board has ultimate responsibility for ensuring that we comply with our continuous disclosure obligations, the Board has delegated to the CEO and CFO (as the Disclosure Officers) responsibility for overseeing compliance with the Market Disclosure Policy. The Company Secretaries manage communications with the ASX. The Board reviews the Market Disclosure Policy at appropriate times to ensure it is effective and remains consistent with relevant laws and ASX requirements. PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS Communicating with shareholders Our Shareholder Communication Policy requires us to communicate with shareholders and other stakeholders in an open, regular and timely manner so that the market has sufficient information to make informed investment decisions on our operations and results. In addition to complying with our continuous disclosure obligations (as discussed in Principle 5), we use a number of mechanisms and technologies to ensure shareholders are provided with information about the Group on a regular and timely basis. The mechanisms employed by us to achieve this include: providing regular shareholder communications such as Shareholder Updates, Half Yearly and Annual Reports, and the Financial Report; and ensuring shareholders have access to communications through the use of information technology such as: our website, which includes the above shareholder communications as well as newsletters, media releases, ASX announcements, significant group briefings and other presentations to analysts; webcasting of important events including financial results presentations and the AGM; and facilitating the electronic delivery of reports and updates to shareholders through Computershare, the Group's share registry service provider. Participation at AGMs The Board encourages attendance and full participation by shareholders at our AGMs to ensure a high level of accountability and understanding of the Group s strategy and goals. To enhance accountability and understanding, important issues are presented to shareholders at AGMs as single resolutions and proceedings of the AGM are webcast live to maximise communication with shareholders. A video of proceedings at the AGM is also made available on our website for viewing by shareholders for a period of at least 6 months after the AGM. Shareholders who are unable to attend the AGM can lodge their proxies through a number of channels described on the proxy form. 54

57 PRINCIPLE 7: RECOGNISE AND MANAGE RISK The recognition and management of risk is embedded in all activities of the Group and is a core part of the Group s culture. The Group s exposure to risk stems from its broad and evolving business risk profile, which covers areas including operations, safety, reputation, regulation, contract, human resources, finance, information and strategy. It is essential that the Group s risk management and control framework evolves to address anticipated changes to the Group s risk profile, as well as to respond to any issues which may emerge. As part of this ongoing process, steps were undertaken during the period to strengthen the Group s approach to risk management. The Group is also implementing changes to the way it tenders and delivers major projects from a risk management perspective including the recent formation of the Board s Tender Review and Risk Committee. Further details of these changes are set out in the Chief Executive s Review on page 24 of this Concise Annual Report. Oversight and management of material business risks The Board is responsible for the oversight of the Group's risk management and control framework. The Audit Committee assists the Board in fulfilling its responsibilities in this regard by reviewing and monitoring the financial and reporting aspects of the Group's risk management and control framework. Our risk policy framework covers areas such as: tendering and contract negotiation; design and project management; occupational health and safety; environmental management; competition and consumer laws; interest rate and foreign currency exposures; ethical conduct; gathering and release of material information; crisis management and IT disaster recovery; and business continuity planning. Responsibility for control and risk management is delegated to the appropriate level of management within the Group, with the CEO, CFO and CRO having ultimate accountability to the Board for the risk management and control framework. Areas of material business risk for the Group are highlighted in the Business Plan that is presented to the Board by the CEO each year. The Board then reviews and approves the parameters within which significant business risks that have been identified will be managed before it adopts the Business Plan. As required by the Board, management has implemented a policy framework designed to ensure that the Group's material business risks are identified and that adequate controls are in place and function effectively, and for management to report to the Board on whether those risks are managed appropriately. This framework incorporates the maintenance of comprehensive policies, procedures and guidelines which span the Group's diverse contracting and project development activities, including setting financial controls, conducting business audits, investment and acquisition overview, and ensuring high standards in corporate communications and external affairs. 55

58 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CORPORATE GOVERNANCE REPORT CONTINUED Risk management and internal control system Arrangements put in place by the Board to monitor risk management include the following: regular monthly reports are made to the Board in respect of operations, the financial position of the Group and new contracts; regular reports are made to the Tender Review and Risk Committee by the CRO and the risk review team concerning whole-of-business risks; regular reports are made to the Audit Committee by the risk review team concerning the program for, and results of, project reviews and reviews of tenders (with reviews of tenders to also be reported to the Tender Review and Risk Committee going forward); regular reports are made to the Audit Committee by the Executive General Manager, Internal Audit in relation to internal processes and internal control systems; quarterly reports are made to the Ethics and Compliance Committee by the Operating Companies concerning compliance with laws and regulations and Group standards and practices in the areas of occupational health and safety, the environment, competition and consumer law, tender approval processes and ethical practices; reports are made to the Board by the Chairman of both the Audit Committee and the Ethics and Compliance Committee (and the Chairman of the Tender Review and Risk Committee going forward), and minutes of these Committee meetings are circulated to the Board; attendance and reports are made by the Managing Directors of the Group's main Operating Companies at Board meetings on at least a quarterly basis; presentations are made to the Board or Committees of the Board throughout the year by the CRO, Executive General Manager, Risk, and by other appropriate members of the Group's management team (and/or independent advisers, where necessary) on the nature of particular risks and details of the measures which are either in place or can be adopted to manage or mitigate the risk; and any Director may request that financial, operational and project audits be undertaken by the risk review team or by the Executive General Manager, Internal Audit. The Board has also adopted reporting and other procedures which allow it to: monitor the Group's compliance with the continuous disclosure requirements of the ASX Listing Rules (as discussed in Principle 6); and assess the effectiveness of its risk management system and its implementation. In accordance with the systems and procedures outlined above, management regularly reported to the Board as to the effectiveness of the company's management of its material business risks during the December 2011 Transitional Financial Year. In addition to the information provided above, further details on the way we manage risks arising from financial instruments are set out in the Full Financial Report. Role of the Tender Review and Risk Committee In February 2012, the Board established the Tender Review and Risk Committee. The principal objectives and purpose of the Committee are to: monitor and review the Group s overall risk tolerance and strategy; monitor and review the integrity, adequacy and utility of the Group s risk management systems, controls and metrics having regard to the Group s overall risk tolerance and strategy; and approve proposals from management for the Group to tender for key projects, and approve tenders for key projects or refer them to the Board for approval. The Committee is comprised solely of Non-executive Directors. CEO and CFO assurance The CEO and CFO have given a declaration to the Board concerning the Group s financial statements in accordance with section 295A of the Corporations Act and recommendation 7.3 of the Principles and Recommendations. 56

59 PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY Role of the Remuneration and Nominations Committee The Board has a Remuneration and Nominations Committee that assists the Board in reviewing remuneration policies and practices across the Group and ensures appropriate succession planning is taking place. Under its Terms of Reference and Procedures, the Committee's objectives include: reviewing and approving CEO and senior executive remuneration; and reviewing and making recommendations to the Board with respect to: Non-executive Director remuneration; the Group's remuneration policies and practices generally; superannuation arrangements; the membership of the Board, including proposed new appointments; and succession planning for the Board, the CEO and senior executives. The Committee engages the assistance of remuneration consultants from time to time, and further details are contained in the Remuneration Report on pages 82 and 83 of this Concise Annual Report. Composition of the Remuneration and Nominations Committee In accordance with its Terms of Reference and Procedures and the requirements of the ASX Listing Rules, the Committee: is comprised solely of Non-executive Directors; is comprised of a majority of independent Directors; is comprised of a minimum of three Directors; is chaired by an independent Non-executive Director, who is currently the Chairman of the Board; and meets as and when required and at least quarterly. The CEO has a standing invitation to attend all Committee meetings, but cannot be directly involved in determining his own remuneration. The Committee may seek input from senior executives on remuneration policies, but in order to address the potential for a conflict of interest, the senior executive cannot be directly involved in determining their own remuneration. Comparison of remuneration structures As disclosed in the Remuneration Report on pages 75 to 112 of this Concise Annual Report, we have designed our remuneration policy in such a way that it motivates senior executives to pursue the long-term growth and success of the Group and demonstrates a clear relationship between senior executives performance and remuneration. Consistent with the requirements of the Corporations Act and our Securities Trading Policy, senior executives are prohibited from entering into any hedging arrangements or other transactions in financial products that operate to limit the economic risk associated with their entitlements under equity-based remuneration schemes. We ensure that the payment of equity-based executive remuneration is made in accordance with plans approved by shareholders. Details of proposed equitybased remuneration for senior executives for which shareholder approval is being sought at the May 2012 AGM appear in the Notice of Meeting which accompanies this Concise Annual Report. Non-executive Directors receive fees as remuneration for acting as a Director and in some cases as a Director of an Operating Company and/or member of a standing committee of the Board. The amount of each Nonexecutive Director s fees depends on the extent of the Director s responsibilities. Non-executive Directors do not receive shares, options or any performance-related incentives. Further, Non-executive Directors are not entitled to any retirement benefits, other than superannuation in accordance with our statutory superannuation obligations and legacy arrangements for two of the long-serving Non-executive Directors. Details of these retirement benefits as at 31 December 2011 are set out in the Remuneration Report on page 108 of this Concise Annual Report. Further details regarding remuneration of Nonexecutive Directors, Executive Directors and other senior executives are set out in the Remuneration Report on pages 75 to 112 of this Concise Annual Report. 57

60 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT Khushuut Coal Mine Mongolia Leighton Asia 58

61 59

62 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT The Directors of Leighton Holdings Limited present their report for the 6 month financial period ended 31 December 2011 (the December 2011 Transitional Financial Year) in respect of the consolidated entity constituted by Leighton Holdings and the entities it controlled during the December 2011 Transitional Financial Year (referred to in this Directors Report as the Group ). This Directors Report has been prepared in accordance with the requirements of Division 1 of part 2M.3 of the Corporations Act 2001 (Cth) (Corporations Act). In addition, this Directors Report integrates a wider spectrum of non-financial management issues as we move to improve our sustainability reporting standards. the Victoria Desalination Plant reported a loss of $218 million due to cost overruns with late completion expected in November 2012; Stephen Johns was appointed Chairman on 24 August 2011 following David Mortimer s resignation as Chairman and Non-executive Director on that date, and Hamish Tyrwhitt was appointed Managing Director and Chief Executive Officer on 24 August 2011 replacing David Stewart in that role; and an unfranked final dividend of 60 cents for the December 2011 Transitional Financial Year was declared on 13 February 2012 and is payable to shareholders on 30 March REVIEW OF OPERATIONS A review of the Group s operations during the December 2011 Transitional Financial Year and of the results of those operations (as at 9 March 2012) is contained on pages 8 to 31 of this Concise Annual Report. SIGNIFICANT CHANGES Significant changes in the state of affairs of the Group during the December 2011 Transitional Financial Year were as follows: the sale of HWE Mining operations and assets to BHP Billiton IO Mining Pty Ltd resulting in a gain of $229 million before tax ($167 million after tax) and a reduction of work in hand of approximately $1.2 billion; the restructure on 1 July 2011 of the overseas operations into Leighton Asia, India & Offshore (LAIO) and Leighton Middle East & Africa (LMEA); a significant increase in LAIO results, particularly from Hong Kong, Indonesia and Mongolia; the sale of Wickham Street and Ipswich developments together with completions and settlements of Hamilton Harbour Resident JV which reduced the Leighton Properties result to a small loss; an impairment of $50 million was taken on the investment in Habtoor Leighton Group (HLG) together with a trading loss of $79 million mainly due to provisioning against legacy project receivables; an impairment of $70 million was taken on the investment in BrisConnections held by Thiess and John Holland; the Brisbane Airport Link project confirmed the target toll-road completion date of June 2012 in line with previous forecasts; Further details regarding these significant changes in the state of affairs and the activities of the Group are provided throughout this Concise Annual Report and the Full Financial Report. FINANCIAL RESULTS Total revenue, including joint venture and associates revenue, for the Group for the December 2011 Transitional Financial Year was $12.2 billion, compared to $19.4 billion for the 12 month period ended 30 June The profit after tax and minority interests attributable to members of the company for the December 2011 Transitional Financial Year was $340 million, compared to a loss of $409 million for the 12 month period ended 30 June Further details regarding the financial results of the Group are set out in the Chairman s Review, Chief Executive Officer s Review and the Concise Financial Report. DIVIDENDS An unfranked final dividend of 60 cents per share was announced on 13 February 2012, representing the total dividend payment for the December 2011 Transitional Financial Year, and will be paid on 30 March PRINCIPAL ACTIVITIES During the December 2011 Transitional Financial Year there were no significant changes in the nature of the Group s principal activities which were and continue to be building, civil engineering, construction, contract mining, telecommunications, environmental services, property development and project management in Australia, the Gulf region and selected parts of Asia. A project has also commenced in Botswana. The Group also performs offshore work in oil and gas. 60

63 EVENTS AFTER END OF TRANSITIONAL FINANCIAL YEAR The Directors are not aware of any specific developments, not outlined in this Concise Annual Report, that have arisen since the end of the December 2011 Transitional Financial Year and that have or may have a significant effect on the Group s state of affairs, its operations or the results of those operations in future financial years. Note 9 of the Concise Financial Report on page 127 of this Concise Annual Report outlines events which have occurred since the end of the December 2011 Transitional Financial Year, and states that subsequent to reporting date the Group: declared an unfranked final dividend of 60 cents; provided a further $13.6 million in cash collateral for amounts drawn by HLG on a loan facility; and provided a further interest bearing loan of $20.4 million to HLG under the same terms as the loans provided at the reporting date. FUTURE DEVELOPMENTS Likely developments in the operations of the Group in future financial years, and their anticipated results, are referred to on pages 8 to 27 of this Concise Annual Report. Further information on likely developments in the operations of the Group, including the expected results of those operations in future financial years, would, in the Directors opinion, result in unreasonable prejudice to the Group and has therefore not been included in this Directors Report. This Concise Annual Report contains the information that shareholders would reasonably require to make an informed assessment of the Group s operations, financial position, business strategies, environmental, social and governance performance and prospects for future financial years (other than any information relating to the Group s business strategies and prospects for future financial years which would, in the Directors opinion, result in unreasonable prejudice to the Group). Consistent with our operating model, each Operating Company incorporates the Group guidelines into its own internal systems and controls, supplementing the Group guidelines where necessary (but not derogating from them) so as to align them with the individual Operating Company s operating framework and commercial context. The Group Governance System and the guidelines which underpin it provide management across the Group with a clear and consistent framework for the incorporation of risk management processes and procedures which are considered appropriate into operational activities. Supported by specialist risk management professionals where appropriate, they constitute a key source of assurance for the Board. It must be recognised, however, that risk is an inherent element of the Group s operational activities. No risk management framework can guarantee that risk-related issues will not arise, and these may on occasions be significant. The Group s risk management framework is therefore intended to minimise, but cannot eliminate, the potential for significant or unacceptable risk. A significant proportion of our operating business is concerned with contracting activities, the principal Group guidelines for which are known as the Group Work Procurement Guidelines. The Group Work Procurement Guidelines address such matters as authority levels, project selection criteria, requirements with respect to limitations of liability, equity participation, tender preparation and review, financial parameters and approvals for entry into a new country or new business. Key risk control activities carried out include: reviews of tenders; project reviews; and quarterly operational and financial reviews. These are discussed in more detail overleaf. OPERATIONAL RISK MANAGEMENT Operational risk management activities throughout the Leighton Group are conducted in accordance with the Group Governance System, as described in the Corporate Governance Report. The Group Governance System is supported by detailed guidelines which are updated on a regular basis. These guidelines establish risk management and governance standards which the Operating Companies are required to observe. Each guideline details the activities required for compliance in a particular area, a reporting framework and a periodic review schedule. 61

64 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED Reviews of tenders The Group s procedures require a formal review of every tender offer. Tender risk registers and detailed checklists are used during tender preparation. This is designed to ensure that areas of concern are addressed with appropriate levels of pricing for accepted risks, and that measures are implemented to transfer or reject risk where appropriate. If the value or risk profile of a tender exceeds the delegated authority limits of the Operating Company Managing Director, the tender will require approval from Leighton Holdings senior executives (and for certain projects the Board or the Tender Review and Risk Committee) prior to submission. Project reviews All projects above set values are reviewed at the Group level at least once during the life of the project, generally when they are about 20% complete. Other projects involving higher or unusual risks are reviewed on a more regular basis. The purpose of these reviews is to assess the progress of the contract in relation to its operational and commercial risks, including safety, environmental and community aspects. The review report includes a financial forecast and key recommendations for performance improvement with action plans and a timetable to implement. The Board is informed of the review outcomes through regular reports to the Audit Committee. In the December 2011 Transitional Financial Year, 51 project reviews were undertaken with a combined value of over $13.5 billion. Quarterly operational and financial reviews The senior management team of each Operating Company carries out a detailed review of its projects and operations every month. Every three months this review (which lasts several days) is also attended by Leighton Holdings senior executives. Probity Our operating model allows and encourages the Operating Companies to act independently of, and in competition with, each other in the provision of services in the Australian market. Strict probity procedures are implemented in order to provide assurance that confidentiality and integrity of information is maintained. In March 2009, the Board appointed the Hon. Michael McHugh QC as independent Counsel to advise them and to oversee the probity procedures in regard to Operating Companies tendering activity. Risk management continuous improvement The Board views the Group s risk management practices as a source of competitive advantage as it permits informed decisions to be undertaken with regard to the nature of risks involved in tendering and contracting activities. The Corporate Governance System provides for a regime of regular management reviews and reports. Review outcomes contribute to continuous improvement and upgrade of the Group s processes and procedures from corporate governance through to project performance. Similarly, at an operational level, there is a strong culture of incident reporting which ensures that lessons learned are captured and form part of a continuous improvement process. SUSTAINABILITY We recognise that creating shared value with our employees, society and the environment is essential for our continued growth and profitability. In order to achieve this, we engage with a diverse range of internal and external stakeholders to identify the areas that may impact our ability to deliver on our strategy. In 2011 we continued to focus on the following four areas: 1. safe workplace and practices; 2. workforce diversity; 3. efficient use of natural resources; and 4. community investment. Each focus area has clear objectives, governance, targets (as appropriate), and a monitoring and reporting framework. We recognise that we are at the beginning of our sustainability journey and intend to improve the integration of these issues over the medium-term, so that sustainability continues to be considered in our business strategy and management decisions. 62

65 SAFE WORKPLACE AND PRACTICES Safety is a core value that is demonstrated through the Group s commitment to the elimination of fatalities and permanent disabling injuries (class 1 injuries) and the systematic reduction of all other injuries across our operations. This is achieved through the Leighton Holdings Global Safety Standards which places an uncompromising emphasis on hazard identification, risk assessment and risk management. In 2011 we adopted a strong advocacy position on industry-wide safety, which included the submission to Safe Work Australia regarding the adoption of the lifesaving features in the United Kingdom Construction (Design and Management) Regulation. The UK approach broadens the responsibility for safety by imposing legal obligations on all construction project participants, including designers and clients. We believe that all participants in the construction procurement chain (including clients, designers, contractors and employees) should play a role in ensuring workplace safety, and that only through collaboration and cooperation can class 1 injuries be entirely eliminated. We continued to closely manage our key performance indicators (KPIs) and undertook initiatives and improvements throughout 2011 to achieve our safety objectives. Dec 2011 # Jun 2011 Jun 2010 Jun 2009 Jun 2008 Fatalities* Australia International Total Millionhoursworked* Australia International Total * Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). # The current financial year of the company is the 6 month period from 1 July 2011 to 31 December 2011, and as such the information presented above is not entirely comparable. During the period, the Group did not meet its objective of eliminating fatalities, with three fatalities in the 6 months to 31 December 2011 as described in the table below. Two of these occurred within the Group s Australian operations and one occurred within the Group s international operations. The fatalities that occurred during the period are highly distressing to the Board and additional strategies and actions have been initiated to seek to eliminate class 1 injuries and where possible apply hard engineering controls to prevent reoccurrences. Operating Company Thiess&John Holland(JHG) jointventure Thiess JohnHolland Projectname Geography Workertype/ description Brisbane AirportLink Project SatuiCoal Mine PerthCityLink RailProject Queensland, Australia South Kalimantan, Indonesia Western Australia, Australia JHGEmployee Plant/vehicle interaction Subcontractor Trafficaccident JHGEmployee Plant/vehicle interaction 63

66 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED Similarly, the Group did not meet its objective of eliminating class 1 injuries with five class 1 injuries in the 6 months to 31 December 2011 compared to nine class 1 injuries in the 12 months to 30 June This class of injury is a continuing priority for the Group. As a leading indicator, the Group monitors potential class 1 incidents. As the data in the following table shows, there were 200 potential class 1 incidents in the 6 months ending 31 December 2011 in our Australian operations compared to 454 in the 12 months ending 30 June In our international operations, there were 49 potential class 1 incidents in the 6 months ending 31 December 2011 compared to 100 in the 12 months ending 30 June Group class 1 incidents* Dec 2011 # Actualclass1injuries Jun 2011 Jun 2010 Jun 2009 Jun 2008 Australia International Total Potentialclass1incidents Australia International Total * Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). # The current financial year of the company is the 6 month period from 1 July 2011 to 31 December 2011, and as such the information presented above is not entirely comparable. The Group s Total Recordable Injury Frequency Rate (TRIFR) measured per million hours worked was 14.4 in the 6 months ending 31 December 2011 in our Australian operations compared to 15.6 in the 12 months ending 30 June In our international operations, the TRIFR was 3.2 in the 6 months ending 31 December 2011 compared to 3.0 in the 12 months ending 30 June The Board recognises that Lost Time Injury Frequency Rate (LTIFR) is a lag indicator where lower rates do not necessarily equate to a safer workplace. Rather, the Board believes that the promotion of a reporting culture where a higher number of incidents are reported can be positive, reflecting openness and enabling greater learning across the Group. Although not a key internal indicator, we have chosen to report LTIFR as it is a recognised industry benchmark. The Group s LTIFR in Australian operations (measured per million hours worked) was 1.6 in the 6 months ending 31 December 2011 compared to 1.8 in the 12 months ending 30 June In our international operations, the LTIFR was 0.4 in the 6 months ending 31 December 2011 compared to 0.6 in the 12 months ending 30 June * LTIFR is an indicator of the number of occurrences of lost time, injury or disease for each million hours worked. Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). During 2012, we intend to undertake the following initiatives to improve Group safety performance: safety performance will be directly linked to Group executive remuneration; safety KPIs will be revised to include a broader range of leading indicators that provide a clearer picture of performance and encourage an open culture of reporting; Board review of all class 1 risks to ensure effective strategies are in place to manage and reduce these risks; a new safety verification program will commence to identify and address gaps in the implementation of the Leighton Holdings Global Safety Standards; and increased initiatives to share safety lessons across the Group, with a focus on actual and potential class 1 incidents. * TRIFR is an indicator of injuries (comprising class 1 injuries, lost time injuries, medical treatment injuries and alternate work injuries) for each million hours worked. Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). 64

67 WORKFORCE DIVERSITY We recognise that workplace diversity is essential to the sustainability of our workforce. It is our objective that a strong culture of diversity is established across the Group where each employee is respected for who they are and valued for their skills and experience. Our Group Diversity Policy and diversity initiatives focus on demographic diversity which includes gender, ethnicity, age and ability. In line with our Diversity Policy, we have established the following targets in relation to female participation across the Group: increase the number of women in executive and senior management positions at Leighton Holdings to 40% by 2016; increase female representation on the Australian Operating Company boards to 20% by 2016; and undertake a remuneration review of executive and senior management positions across the Group and implement corrective action if required. * Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). Over the December 2011 Transitional Financial Year, our progress towards achieving these targets was as follows: at Leighton Holdings, female participation at the executive and senior management level slightly decreased, from 32% at 30 June 2011 to 29% at 31 December 2011; female participation in the Australian Operating Company Boards has decreased slightly to 16% at 31 December 2011 due to an increase in the total number of Directors, although total female participation in Australian operations increased to 17% during the period; and the review of gender-based pay forms part of the ongoing remuneration review. No.of women Dec2011 No. of women Jun2011 % % LeightonHoldings Board Executiveandmanagement TotalLeightonHoldings Australianoperations OperatingCompanyBoards Executiveandmanagement TotalAustralianoperations 4, , * Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). # This information is not currently collected by some Operating Companies, but collection of this data will be improved going forward. In 2011 we have focused on gender diversity, especially in senior management positions. A significant portion of our workforce are in engineering-related job activities which has presented a challenge for our gender diversity targets given the relatively low level of females entering the profession. Regardless, gender equity continues to be a focus and we have a strong commitment to supporting women entering the workforce, equity in promotion and initiatives to enhance female retention. 1 Non-executive Directors only. 2 Executive and management at Leighton Holdings comprises the CEO, his direct reports and functional heads, and at the Operating Companies comprise Managing Directors and their direct reports, Business Unit Managers, Executive General Managers and Branch General Managers. Indigenous participation remains a continued focus for the Group. In those areas of our operations with a high aboriginal population, it is our objective to continue to invest in employing indigenous persons in our workforce. We currently employ 1.3% of Aboriginal and Torres Strait Islanders in our domestic workforce. 65

68 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED We understand that participation needs to be accompanied by cultural awareness and support programs, such as the Jawun program that we have supported since This program provides Group employees with an opportunity to work with Indigenous communities and businesses in order to transfer skills and capabilities. We have continued our partnership with the Australian Indigenous Minority Supply Council (AIMSC), which provides a direct business-to-business purchasing link between companies, government agencies and Indigenous-owned businesses. During 2012, we will undertake the following initiatives to improve our commitment to diversity: understand gender pay equity across Group executives and senior management and undertake rectification actions as required; strengthen our Diversity Policy to reflect our evolving diversity objectives; strengthen human resources data, systems and processes to better monitor and manage diversity issues; and develop appropriate diversity KPIs for the Board and Group executives. EFFICIENT USE OF NATURAL RESOURCES Environmental management Our key environmental objective is to avoid any pollution or degradation that severely impacts on the community or environment and to appropriately manage all other risks to the environment across our operations. To support this objective, we have an Environmental Framework to maintain and improve our leadership in encouraging environmentally sound practices. The Framework provides guidance to the Operating Companies by setting minimum environmental management standards for all projects, even if not specifically required by the client. The Framework was updated during 2011, including tightening of the incident classifications, to reflect the regulatory environment and improve governance requirements. In 2011, each Operating Company continued to deliver on the Group s long-term strategy of: managing environmental risks in accordance with the Group's Risk Management and Control Framework; establishing and/or maintaining ISO14001 certification in operations; embedding a culture of reporting and managing environmental incidents with training and awareness programs; and regularly reviewing environmental impacts and performance of operations. In both our Australian and international operations it is pleasing to report there were no Level 1 incidents during the period. Additionally, the number of Level 2 incidents has reduced in comparison to the 6 monthly equivalent figures. The Environmental Incident Frequency Rate (EIFR), the frequency of Level 1 and 2 incidents occurring on projects under the control of an Operating Company per million hours worked, decreased during the period from 0.43 to 0.28 in our Australian operations. The EIFR in our international operations decreased during the period from 0.05 to We continue to focus on improving our reporting of environmental incidents. While there has been an increase in minor (Level 3) environmental incidents reported (on an annualised basis), this can be attributed to an increase in the scale of our projects and an emphasis on reporting minor occurrences rather than a deterioration in performance. Going forward, we will continue to encourage an open reporting culture as this is key to continuous improvement. Further details regarding our environmental management performance, including incidents reported by level, can be found on our website. * Operating Companies utilise a Group-wide Environmental Incident Classification and Severity Standard which categorises incidents as high (Level 1), medium (Level 2) or low (Level 3). The severity rating is measured according to specified criteria relating to the nature of the incident, breaches or non-compliance with statutory requirements or approval conditions, reputational impact and cost thresholds. # Excludes HLG. 66

69 Group environmental incidents* Dec 2011 # Jun 2011 Jun 2010 Australia Jun 2009 Jun 2008 Level Level Level ,343 1, EIFR International^ Level Level Level EIFR * Operating Companies utilise a Group-wide Environmental Incident Classification and Severity Standard which categorises incidents as high (Level 1), medium (Level 2) or low (Level 3). The severity rating is measured according to specified criteria relating to the nature of the incident, breaches or non-compliance with statutory requirements or approval conditions, reputational impact and cost thresholds. # The current financial year of the company is the 6 month period from 1 July 2011 to 31 December 2011, and as such the information presented above is not entirely comparable. ^ Excludes HLG. Energy efficiency and carbon emissions We recognise that climate change is a significant issue and the Group's Environmental Framework requires that Operating Companies consider energy efficiency and carbon emissions within client requirements. We aim to integrate and report robust and accurate greenhouse gas (GHG) emissions and energy data to establish a strong baseline of the Group's footprint to: meet regulatory requirements; enable forecasting; and inform energy efficiency and sustainability strategies. Our medium to long-term strategy is to develop a GHG emissions and energy reporting framework which encompasses both domestic and offshore operations. A research paper was drafted internally during 2011 to inform the development of this reporting framework. The objective of the paper was to propose options for: developing a consistent and robust reporting approach across our domestic and international operations; selecting appropriate carbon intensity metrics to allow performance analysis; setting GHG emissions and energy targets; and identifying Group-wide opportunities for energy and cost efficiencies. The paper was distributed to the Operating Companies in September 2011 and was discussed at a Group workshop in March Agreement was reached between the Operating Companies for a common approach to reporting moving forward. Additionally, we achieved agreement in relation to the Group's water and waste reporting. Within Australia, we are subject to reporting requirements under the National Greenhouse and Energy Reporting (NGER) Act 2007 (Cth) and the Energy Efficiency Opportunities (EEO) Act 2006 (Cth). In October 2011, we submitted our third NGER report for the 12 months ending 30 June The report includes scope 1 and 2 GHG emissions and energy data for Australian facilities where the Group has operational control. While the Group is a large energy user, much of our energy and emissions footprint in Australia is reported through to our clients who have operational control and report to government accordingly. Our short-term strategy has focused on improving the quality of the Group's GHG emissions and energy data within Australia to meet regulatory requirements. In light of this, in 2011 we engaged Net Balance to undertake an external audit to provide limited assurance of our reported data for the 12 months ending 30 June We intend to transition to a higher level of assurance (reasonable assurance) over the next two years for the GHG emissions and energy data reported for the 12 months ending 30 June

70 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED Energy and emissions as reported under NGER Act 2007 Jun2011 Jun2010 Jun 2009 No.offacilitiesunder operationalcontrol Emissions(tCO 2 e) 963, , ,229 Energyuse(millionGJ) Uncertainty 7.88% Levelofassurance 2 Limited Nil 3 Nil 3 1 The June 2009 information has been adjusted to account for changes to the Group s entity structure between the June 2009 and June 2010 reports, where we consolidated 21 facilities into 4 facilities. 2 NGER Regulations specify three levels of third party assurance nil for no assurance, limited which assesses 60% of Group energy and emissions, and reasonable which assesses 80% of Group energy and emissions. 3 Assurance was not required under the NGER Act for these years. Total emissions for which the Group had operational control under NGER continue to increase. This is attributed to an increase in energy use as a result of both more intense project activity and an increase in the amount of work undertaken. For EEO, we transfer our reporting obligations onto two of our Operating Companies, Leighton Contractors and Thiess. The public reports for the first 5 year EEO cycle were submitted in December 2011 and can be found on our website. The second 5 year EEO cycle commenced on 1 July Changes to EEO include alignment with NGER and the energy coverage rule increasing from 80% to 90%. As a consequence, John Holland will be required to report going forward. Whilst energy efficiencies are managed at an Operating Company level, we will be undertaking analysis in 2012 to identify any Group-wide opportunities that may deliver energy savings across the Group. The Clean Energy Legislative Package (CELP) was passed through Federal Parliament on 8 November A key element of this package is the Carbon Price Mechanism (CPM), to be introduced on 1 July 2012, which effectively places a price on the emission of certain GHGs (carbon dioxide, methane, nitrous oxide and perfluorocarbons from aluminium smelting) by covering sectors of Australian industry. Whilst the Group is a large diesel user, the omission of liquid fuels from eligible GHG emissions means the majority of our operations are unlikely to trigger the 25kt CO2-e threshold for direct permit liabilities. Exceptions to this are fugitive emissions from coal mining and non-legacy waste emissions from landfill operations. However, for the majority of these operations the permit liability has been contractually managed through the application of the definition of operational control and passed through to our clients. Of the 264 facilities from which the Group reported for the 12 months ending 30 June 2011, we have retained operational control of two that meet the threshold for a direct permit liability. Using this reported data, we have estimated that our retained liability for these two facilities will be approximately $4.8 million (at $23/t). During the period, the Group commissioned PricewaterhouseCoopers to undertake modelling of the price impact of the CPM on key operational inputs such as electricity, concrete, steel and asphalt over the period from July 2012 to June The modelling suggests the impact from the CPM will be modest compared to other price increases such as inflation and tax changes. This information will be used by the Australian Operating Companies to inform tender pricing. In 2009, the Australian Operating Companies reviewed existing contract provisions and provided assurance of the ability to pass through costs arising from the CPM. Now with the CELP confirmed, a further review of contracts is currently being undertaken to ensure pass-through provisions relating to the direct and indirect impacts of the CPM are adequate. Other expected impacts of the CELP include additional assessment and verification of both NGER and EEO programs, and tax breaks for green buildings from 1 July 2012 for eligible businesses. Preliminary analysis of the CPM suggests that the largest impact on the Group will be from cuts to fuel tax credits (FTCs), which are currently worth more than $110 million per year to the Australian Operating Companies. However, the reduction in FTCs is not expected to be financially material. 68

71 RESPONSIBLE AND ACCOUNTABLE The Group engages with the community at many levels and the relationships it has with its stakeholders are fundamental to the ongoing success of the Group. The Group's key stakeholders are our shareholders, clients, suppliers and the communities in which we operate. Some of these stakeholders, such as current and potential shareholders and employees interact primarily with Leighton Holdings. However, the broader community and clients primarily interact with the Operating Companies. Dealing with certain issues, such as a major legislative change, therefore requires a level of cooperation and coordination across the Group. The Group uses a range of mechanisms to engage with stakeholders including employee surveys that shape human resources policies and practices, community relations strategies to respond to concerns or create opportunities in projects, and government relations campaigns that shape policy and legislation. As a publicly listed company, we communicate with shareholders, regulators, the financial community, the media and other stakeholders in an open and timely manner to ensure that financial markets have sufficient information to make informed investment decisions. Further information in relation to our Shareholder Communications Policy is set out in the Corporate Governance Report on page 54 of this Concise Annual Report. Governments at local, State and Federal levels are important clients and our reputation and standing with government and other groups within the political process has the potential to impact on our operations. Our government relations strategy is to develop positive relationships with members of Parliament at the State and Federal level, their staff, departmental officials, and others involved in the political and policy development process. Key principles include: monitoring, influencing and responding to public policy and political issues which may impact on business opportunities or major projects; and maintaining a transparent and bipartisan approach to political expenditure within approved budgets. PoliticalExpenditure:JulytoDecember2011* Coalition(LiberalandNationalParty) AustralianLaborParty Total $ 5,255 40,350 45,605 * This information represents the current financial year of the company which is the 6 month period from 1 July 2011 to 31 December Political expenditure is spread evenly across government and opposition parties over a 12 month period. As attendance at these events delivers a commercial benefit, this expenditure does not meet the strict definition of a political donation. However, given the ambiguity of the various definitions in State and Federal legislation and in the interests of transparency, the Group reports all such expenditure to the Australian Electoral Commission on an annual basis. COMMUNITY INVESTMENT Our corporate community investment objective is to give something back to the communities within which we operate, and to achieve positive long-term effects that continue after projects are finished. Operating Companies contribute money, time, products, services, leadership and other resources to the communities in which they operate. Strategic corporate community investments are directed to proposals that build the Group s future skills base, protect the environment and promote excellence through arts and culture. In the December 2011 Transitional Financial Year the Group contributed $2.64 million to the community through a mix of major partnerships with community organisations, sponsorships, charitable donations and workplace giving. Major partnerships focused on five priority areas during the period, with an emphasis on education and supporting the Group s Indigenous Participation Policy through targeted investment. Political donations The Group does not make direct political donations. We retain the flexibility to attend targeted fundraisers that build relationships and offer opportunity to participate in policy dialogue. Expenditure reflected in the following table includes payment for attendance at business forums, budget speeches, policy announcements and discussion forums and is spread evenly across government and opposition parties over a 12 month period. 69

72 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED Building skills through training and education The Group has a long-term strategy to provide access to training and education to promote employment in construction, resources and services. This aims to reduce the impact of skills shortages across the Group, particularly given the challenges of Australia s ageing population. Our education strategy supports students at all levels in the development of technical skills. Our long-term partnership with the University of New South Wales supported 11 engineering scholarships during the period. Our support of Primary Science Matters and its Science in a Box program provided science resources and teacher training to schools in the Northern Territory and regional New South Wales. In 2012, we will increase the program's presence in the Darwin area and the Tiwi Islands. We are also a gold sponsor and long-term supporter of Robogals, which is an international student-run organisation dedicated to promoting engineering to women, and was founded by Marita Cheng, the 2012 Young Australian of the Year. We also continued to support Engineering Aid Australia's Indigenous Australian Engineering Summer Schools in Sydney and Perth. These schools enable Indigenous students across Australia to spend a week living on a university campus, attending lectures and site visits. The program is aimed at inspiring students to consider engineering as a career. Each Operating Company has its own corporate community investment program that suits its own business needs. For example, Leighton Contractors supports innovative education programs including: 70 providing mentoring opportunities for more than 50 employees to disadvantaged youth through the Beacon Foundation's 'No Dole' program involving 15 New South Wales schools; and educational scholarships, training and placements for Indigenous students through the Australian Indigenous Education Foundation, the Clontarf Foundation and Garnduwa. Promoting excellence through arts and culture We have continued our nine year partnership with the Sydney Symphony, renewing a commitment for a further three years to In addition to being the Presenting Partner of the Sydney Sinfonia mentoring orchestra, since July 2011 we have been the Presenting Partner of the Sinfonietta, a national composition project that gives talented high school music students the opportunity to have their original compositions performed by the Sydney Sinfonia. Through the Australian National Academy of Music, we supported scholarships for talented music students from across Australia during the period. John Holland is also a proud sponsor of the Victorian Opera. Protecting the environment Consistent with our Code of Ethics, a significant portion of our corporate community investment budget is directed towards community organisations that aim to protect the environment. We have continued our partnership with Landcare Australia as a major sponsor of the National Landcare Awards, sponsoring the Leighton Indigenous Landcare Award which will be awarded in Thiess also continues to sponsor the Thiess International Riverprize which is awarded annually for excellence in river management. DIRECTORS AND DIRECTORS INTERESTS The Directors in office at the date of this Directors Report are listed below together with details of their relevant interest in the securities of Leighton Holdings at that date. Director No.ofordinary sharesheld No.of options/rights overunissued ordinaryshares StephenPJohns 14,112 HamishGTyrwhitt 1, ,032 1 PeterAGregg 3,652 38,466 2 AchimDrescher 12,045 PaulaJDwyer 3 0 RobertDHumphrisOAM 15,000 IanJMacfarlaneAC 5,795 WayneGOsborn 3,673 DavidPRobinson 1,489 PeterWSassenfeld 1,858 DrFrankStieler 4 1,192 ManfredHWennemer 4 2,745 1 Further details about the options held by Mr Tyrwhitt are set out on pages 110 to 111 of this Concise Annual Report. 2 Further details about the share rights held by Mr Gregg are set out on page 112 of this Concise Annual Report. 3 During the period between Ms Dwyer s appointment as a Director on 1 January 2012 and the date of this Directors Report, the company was in a trading blackout period. Ms Dwyer will acquire the minimum shareholding required by the company s Constitution during the next trading window. 4 Robert L Seidler AM is the Alternate Director for Dr Stieler and Mr Wennemer, and holds 100 ordinary shares and 0 options over unissued ordinary shares.

73 In addition, the Executive Directors are entitled to receive Long-Term Incentive (LTI) grants under their employment agreements. Details of these entitlements are set out in the Remuneration Report on pages 94 to 95 and 100 to 102 of this Concise Annual Report. Shareholder approval for the LTI grants to the Executive Directors will be sought at the May 2012 Annual General Meeting as set out in the Notice of Meeting. BOARD AND COMMITTEES Details of the membership of the Board and the Board Committees, as well as relevant officers of the company, are shown on page 40 of this Concise Annual Report. Details of the qualifications, experience and special responsibilities of each Director and Company Secretary, including the period for which they have held office and their directorships of other listed companies, are also disclosed on pages 34 to 40 of this Concise Annual Report. In addition, details of all Directors who retired during the December 2011 Transitional Financial Year are set out on page 39 of this Concise Annual Report. COMPANY SECRETARIES Full details of the Company Secretaries are set out on page 38 of this Concise Annual Report. DIRECTOR AND SENIOR EXECUTIVE REMUNERATION Details of our remuneration policy in respect of the Group s Key Management Personnel (KMP) are detailed in the Remuneration Report on pages 75 to 112 of this Concise Annual Report. The Remuneration Report includes details of the remuneration paid to each Director and each senior executive. CEO/CFO DECLARATION The CEO and CFO have given a declaration to the Board concerning the Group s financial statements in accordance with section 295A of the Corporations Act and recommendation 7.3 of the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations. DIRECTORS MEETINGS The number of Directors meetings (including meetings of Committees of Directors) and number of meetings attended by each Director during the December 2011 Transitional Financial Year are set out in the table below. There were no Due Diligence or Special Tender Review Committees formed during the December 2011 Transitional Financial Year, and there were no meetings of the Plan Committee during the December 2011 Transitional Financial Year. The Tender Review and Risk Committee was formed after the end of the December 2011 Transitional Financial Year. Director Directors Meetings AuditCommittee Remunerationand NominationsCommittee EthicsandCompliance Committee Attended Held* Attended Held* Attended Held* Attended Held* AchimDrescher PeterAGregg 8 9 RobertDHumphrisOAM StephenPJohns DrBurkhardLohr IanJMacfarlaneAC 9 9 DavidAMortimerAO WayneGOsborn DavidPRobinson PeterWSassenfeld 1 1 DrFrankStieler DavidGStewart HamishGTyrwhitt ManfredHWennemer 3 4 * Reflects the number of meetings held during the time the Director held office during the December 2011 Transitional Financial Year. 1 Three Directors meetings were attended in person and three by his alternate. 2 Seven Directors meetings were attended in person and two by his alternate. 71

74 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED LEIGHTON SENIOR EXECUTIVE OPTION PLAN (LSEOP) The LSEOP was approved by shareholders at the 2006 AGM. Options over shares in the company were first granted under the LSEOP in 2006 (2006 Options) and subsequently in 2008 (2008 Options) and 2009 (2009 Options). Each option entitles the holder to one fully paid ordinary share upon exercise (subject to satisfaction of exercise conditions). The total number of options over unissued ordinary shares in the company outstanding under the LSEOP at the date of this Directors Report is detailed in the table below. Plan LSEOP LSEOP LSEOP Calendaryear 2006Options 2008Options 2009Options ofgrant No.of executives participating Dateofgrant 15Dec Jan2008 4May2009 Exerciseprice $ $ $ Expirydate 15Dec Jan2013 4May2014 No.of options No.of options No.of options Originalgrant 5,410,000 1,461,000 4,833,500 Onissue 797, ,035 4,635,500 5Sept Exercised 572,000 since 5Sept Vestedsince 5Sept Lapsedsince 225, , ,500 5Sept Onissue 13Feb ,351 4,031,000 Details of the exercise conditions of options under the LSEOP are contained in the Remuneration Report on pages 94 to 95 of this Concise Annual Report. The names of the persons who currently hold options under the LSEOP are entered in the register of options kept by the company pursuant to section 170 of the Corporations Act. These options do not entitle the holder to participate in any share issue prior to exercise. There are no unissued shares in the company under option as at the date of this Directors Report, other than those issued under the LSEOP referred to in the table on this page. No options have been issued since the end of the December 2011 Transitional Financial Year over unissued shares in the company. AUDIT The declaration by the Group s external auditor to the Directors in relation to the auditor s compliance with the independence requirements of the Corporations Act and any applicable code of professional conduct for external auditors is set out on page 74 of this Concise Annual Report. No person who was an officer of the company during the December 2011 Transitional Financial Year was a director or partner of the Group s external auditor at a time when the Group s external auditor conducted an audit of the Group. 1 The LSEOP Rules, approved by shareholders on 9 November 2006, require that in the event of a pro-rata issue of shares the exercise price of options on issue be reduced in accordance with the ASX Listing Rules. With effect from 1 July 2011, the amended exercise price for the 2006, 2008 and 2009 Options granted under the LSEOP is as follows: Grant Date Original Exercise Price Adjusted Exercise Price due to 1:14 Entitlement Offer 18 Aug 2008 Adjusted Exercise Price due to 1:9 Entitlement Offer 11 Apr Dec 2006 $20.42 $19.89 $ Jan 2008 $46.06 $45.53 $ May 2009 $19.49 N/A $ Date of the 2011 Concise Annual Report for the financial year ended 30 June

75 INDEMNITY FOR GROUP OFFICERS AND AUDITORS Constitution Our Constitution includes indemnities in favour of persons who are, or have been, an Officer or auditor of the company. To the extent permitted by law, we indemnify every person who is or has been: an Officer against any liability to any person (other than the company or a related entity) incurred while acting in that capacity and in good faith; and an Officer or auditor of the company against costs and expenses incurred by that person in that capacity in successfully defending legal proceedings and ancillary matters. Officer for this purpose means any Director or Secretary and includes any other person who is concerned, or takes part, in the management of the company. The current Directors and Company Secretaries of the company are set out on pages 34 to 38 of this Concise Annual Report, and our current auditors are KPMG. Directors Deeds Consistent with the shareholder approval obtained at the 1999 AGM, we have entered into a Deed of Indemnity, Insurance and Access (Directors Deed) with current and former Directors. These Directors Deeds formalise the arrangements between us and the Directors as to indemnities, insurance and access to board records. Under each Directors Deed we indemnify the Director to the extent permitted by law against any liability (including liability for legal defence costs) incurred by the Director as an Officer or former Officer of the company or any Operating Company or while acting at the request of the company or any Operating Company as an Officer of a non-controlled entity. No claims under the Constitution, Directors Deeds or Deeds of Indemnity have been made against the company during or since the end of the December 2011 Transitional Financial Year. INSURANCE FOR GROUP OFFICERS During and since the end of the December 2011 Transitional Financial Year we have paid or agreed to pay premiums in respect of contracts insuring persons who are or have been a Group Officer against certain liabilities (including legal costs) incurred in that capacity. Group Officer for this purpose means any Director or Secretary of Leighton Holdings or any subsidiary and includes any other person who is concerned, or takes part, in the management of the company or any of its subsidiaries. Under the above mentioned Directors Deeds or Deeds of Indemnity, we have undertaken to the relevant Officer or former Officer that we will insure the Officer against certain liabilities incurred in his or her capacity as an Officer of the company or any subsidiary or as an Officer of a non-controlled entity where the office is or was held at the request of the company or any subsidiary. The insurance contracts entered into by us prohibit disclosure of the specific nature of the liabilities covered by the insurance contracts and the amount of the premiums. Deeds of Indemnity for certain Officers We have entered into Deeds of Indemnity with particular Officers or former Officers of the company or an Operating Company. These Deeds give similar indemnities in favour of those Officers or former Officers in respect of liabilities incurred by the Officers while acting as an Officer of the company or any Operating Company or while acting at the request of the company or any Operating Company as an Officer of a noncontrolled entity. The Officers who have the benefit of such a Deed of Indemnity are, or were at the time, a Secretary of the company, Directors of an Operating Company or a General Manager or Senior Manager within the Group. 73

76 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED NON-AUDIT SERVICES Details of the amounts paid or payable to our external auditor, KPMG, for non-audit services provided during the period to entities within the Group are set out below. The Board has considered the position and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of the nonaudit services during the December 2011 Transitional Financial Year is compatible with the general standard of independence for auditors imposed by the Corporations Act. The Board is satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act for the following reasons: all non-audit services have been reviewed by the Audit Committee and the Committee believes that they do not impact the impartiality and objectivity of the auditor because of the nature of the services provided during the period and the quantum of the fees which relate to non-audit advisory services compared to the overall fees; and the Directors believe none of the services undermine the general principles relating to auditor independence, including reviewing or auditing the auditor's own work, acting in a management or decision making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and rewards. The non-audit services supplied to entities within the Group by the Group's external auditor, KPMG, and the amount paid or payable by type of non-audit service during the December 2011 Transitional Financial Year are as follows: Nonauditservices Directandindirecttaxcomplianceand advisoryservices Otheradvisoryservices Total Amountpaid/payable $ 000 1, ,682 LEAD AUDITOR S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT To: the directors of Leighton Holdings Limited: I declare that, to the best of my knowledge and belief, in relation to the audit for the 6 month period ended 31 December 2011 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG A W Young Partner Sydney, 13 February 2012 ROUNDING OFF OF AMOUNTS As Leighton Holdings is a company of the kind referred to in ASIC Class Order 98/100 dated 10 July 1998, the Directors have chosen to round off amounts in this Directors Report and the accompanying Concise Financial Report to the nearest hundred thousand dollars, unless otherwise indicated. 74

77 REMUNERATION REPORT Zuellig Building Philippines Leighton Asia 75

78 76

79 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT (AUDITED) MESSAGE FROM THE BOARD The review of executive remuneration As indicated at the November 2011 Annual General Meeting, we have undertaken a comprehensive review of our approach to executive remuneration. The review revisited the link between our business strategy and remuneration, and considered the feedback we received from our shareholders. The revisions to our approach (described below) are intended to support our strategy, enable us to hire, retain and motivate the high calibre of executives our business requires, and to better align the remuneration that executives receive with the interests of our shareholders. A revised short-term incentive plan with deferral Our past short-term incentive plan focused primarily on profit. In the case of Leighton Holdings executives, this was measured at the Group level, while, for the Managing Directors of the Operating Companies, it was measured at the Operating Company level. Individual executive performance against a range of non-financial objectives was also considered. The revised short-term incentive plan is set out in detail in section 3.4 of this Remuneration Report and incorporates the following key changes: the Leighton Holdings executives will have a portion of their short-term incentive determined by Group financial performance and a portion determined by non-financial measures relevant to their role; the Managing Directors of the Operating Companies will have a portion of their short-term incentive determined by Group financial performance, a portion determined by their Operating Company s financial performance, and a portion determined by non-financial measures relevant to their role; the relevant financial measures and targets will be selected and set each year by the Remuneration and Nominations Committee in consultation with management. Whilst the Group financial measure will be profit for the financial year ending 31 December 2012 and is expected to remain so, the Operating Companies will be assessed on the financial measures relevant to the specific Operating Company. These measures will be selected from a set that include profitability, the effective use of capital, achievement of cash flow targets and adherence to applicable funding limits; the non-financial measures and targets will be set each year and tailored to the role of the executive. The non-financial measures will typically focus on safety and the management of our people. The measures may include such matters as the total recordable injury frequency rate, achieving nil fatalities, succession planning, employee turnover, engagement survey results and demonstration of behaviours aligned with the Leighton values; and a portion of the short-term incentive earned in each year will be deferred into share rights for two years starting at the end of the short-term incentive performance period. During the deferral period dividends will be accrued and will be paid at the end of the deferral period to the extent that the share rights vest. The Remuneration and Nominations Committee will have the ability to reduce the number of deferred share rights that vest if subsequent events show such a reduction to be appropriate. A new long-term incentive plan In the past, our long-term incentive plan was used to periodically make grants of share options to selected executives. In light of the review, we have decided to make regular grants each year. A new plan, as outlined in section 3.5 of this Remuneration Report, has been developed that provides flexibility to determine the nature of the grant (ie shares, options or share rights) and its terms. For 2012 the plan will operate as a grant of share rights (ie a right to receive a share in three years time if specific performance measures are met). The performance measures will be total shareholder return measured over the three year period against a group of comparator companies and achievement of predetermined compound average annual earnings per share growth targets over the same three year period. Fifty percent (50%) of the 2012 grant will be tested against each performance measure. Unlike our former plan, the new plan will not permit re-testing (ie if the targets are not met when first tested, the share rights will lapse). It is anticipated that, unless there is an identified business or market need to change, subsequent grants will have similar terms to the 2012 grants. 77

80 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Discontinuing the medium-term incentive We historically operated a medium-term incentive that periodically rewarded executives with cash payments (part of which was deferred and subject to reduction) based on year-on-year profit growth. As a result of the revised short-term incentive plan and the annual awards under the new long-term incentive plan, the cash-based medium-term incentives have been discontinued. Revised contracts and discontinuing service and retention arrangements New standard executive contracts are being put in place. These new contracts are based on contemporary best practice. In developing these new contracts, we will cease the former practice of incorporating service or retention arrangements into individual contracts. However, we recognise that, from time to time, special arrangements may need to be considered. Existing service and retention arrangements, where appropriate, are being paid out, or replaced with a grant of deferred share rights. In such cases, the agreed terms will enable the recovery or reduction of the amounts in specific circumstances where the individual leaves the Group prior to the original intended payment dates. Shareholder approval The relevant approvals for the above arrangements will be sought at the May 2012 Annual General Meeting. KEY MANAGEMENT PERSONNEL REMUNERATION IN THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR The new arrangements take effect for the financial year ending 31 December As such, this 6 month period to 31 December 2011 was one of transition. The remuneration arrangements in place during the 6 month period from 1 July 2011 to 31 December 2011 (the December 2011 Transitional Financial Year) are summarised below and further detail is contained in sections 4 and 5 of this Remuneration Report. Changes to remuneration No changes occurred during the December 2011 Transitional Financial Year to the remuneration of incumbent executives or to the fee policy that applies to the Chairman and Non-executive Directors. As disclosed to the market on 9 February 2012, Mr Tyrwhitt s remuneration was changed as a result of his promotion to Chief Executive Officer (CEO). Section of this Remuneration Report contains the key terms of Mr Tyrwhitt s new service agreement. An adjustment was also made to the remuneration of Mr Munro upon his promotion to Managing Director of Thiess and to the remuneration of Mr Cooke upon his promotion to the role of Acting Managing Director of Leighton Asia, India and Offshore. Short-term incentives For the December 2011 Transitional Financial Year, a transitional short-term incentive plan was in place for the CEO. The short-term incentive award was determined based on the Group s financial performance compared to a net profit after tax target. As a result of the Group s financial performance, the CEO earned 78% of his maximum short-term incentive. For Managing Directors of Operating Companies, shortterm incentives were determined utilising the principles underpinning the new short-term incentive plan which will be implemented for The application of these principles resulted in the award varying subject to financial performance of the Group or Operating Company, as well as factors specific to the senior executive. For Leighton Holdings senior executives, other than the CEO, short-term incentives for the December 2011 Transitional Financial Year were determined in accordance with their existing contracts. As explained earlier, it is intended to replace the shortterm incentive arrangements in these existing contracts with the new short-term incentive plan. Section 4.5 sets out details on the operation of the shortterm incentive plan and how short-term incentive payments link to performance. Long-term incentives The 2008 long-term incentive grant was first tested in July Half of the grant was subject to an earnings per share measure and, while a portion vested on this first test date, the remainder of the earnings per share component lapsed. The half of the 2008 grant subject to a total shareholder return measure was retested in January 2012 in accordance with its terms. This test showed that Leighton Holdings total shareholder return was below the median company in the comparator group. As a result no further vesting of the 2008 grant occurred. The tranche will be retested on 25 July Mr Gregg had a 2011 long-term incentive grant approved during the December 2011 Transitional Financial Year that may vest in 2014, subject to meeting the specified performance measures. This 2011 grant was made in accordance with his contract, and was approved by shareholders at the November 2011 Annual General Meeting. 78

81 Mr Stewart had a 2011 long-term incentive grant approved by shareholders during the December 2011 Transitional Financial Year as part of his termination payment. In accordance with his contract, 75,423 shares were granted. The remainder of his 2011 award lapsed. No other long-term incentives were granted to executives. Other remuneration No new medium-term incentives, service or retention arrangements were put in place during the December 2011 Transitional Financial Year. OTHER MATTERS Mr Tyrwhitt was appointed CEO on 24 August In order to put a new service agreement and remuneration arrangements in place, Mr Tyrwhitt s existing mediumterm incentives and service and retention benefits were paid out subject to the Remuneration and Nominations Committee s ability to seek repayment of these payments in certain circumstances. Further details on the new executive remuneration approach and the remuneration for the December 2011 Transitional Financial Year are set out in this Remuneration Report. I invite you to read the December 2011 Remuneration Report and look forward to answering any questions you may have at our Annual General Meeting in May Yours faithfully, Stephen Johns Chairman of the Remuneration and Nominations Committee 13 February 2012 TABLE OF CONTENTS Section Title Description 1 Introduction DescribesthescopeoftheRemunerationReportandtheindividuals disclosed. 2 Remunerationgovernance DescribestheroleoftheBoard,theRemunerationandNominations CommitteeandthePlanCommitteeandthemattersconsidered (includingexternaladvisers)whenmakingremunerationdecisions. 3 Introducingthenewexecutiveremunerationframework Outlinestheremunerationframeworkapplyingtothefinancialyear ending31december ExecutiveremunerationduringtheDecember2011 TransitionalFinancialYear Outlinestheprinciplesappliedtoexecutiveremuneration,including theperformanceandremunerationlinkages.italsoincludesa summaryofservicecontracttermsforseniorexecutives. 5 NonexecutiveDirectorremuneration ProvidesdetailregardingthefeespaidtotheNonexecutiveDirectors. 6 Additionalstatutorydisclosures Providestheadditionalstatutoryremunerationinformationas requiredbythecorporationsactandapplicableaccountingstandards. 79

82 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 1. INTRODUCTION This section describes the scope of this Remuneration Report and the individuals disclosed. 1.1 SCOPE This Remuneration Report sets out, in accordance with the relevant Corporations Act 2001 (Cth) (Corporations Act) and accounting standard requirements, the remuneration arrangements in place for the Key Management Personnel of the Group during the December 2011 Transitional Financial Year. As discussed earlier in this Concise Annual Report, the Group has changed its financial year-end to 31 December. As a result, this Remuneration Report discusses the 6 month period ended 31 December The comparative information presented in this Remuneration Report relates to the prior 12 month financial year ended 30 June KEY MANAGEMENT PERSONNEL FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR For the purposes of this Remuneration Report, the Key Management Personnel are referred to as either senior executives or Non-executive Directors. The senior executives and the Non-executive Directors as at year-end are listed in table 1.1. Table 1.2 outlines the departures during the December 2011 Transitional Financial Year. Since the end of the December 2011 Transitional Financial Year: Paula Dwyer has been appointed as an independent Non-executive Director. The appointment of Ms Dwyer was effective 1 January 2012; and Dharma Chandran has been appointed as Chief Human Resources Officer effective 1 January In addition to providing details regarding the December 2011 Transitional Financial Year, this Remuneration Report summarises the changes being made to the remuneration approach that take effect for the financial year commencing 1 January The information provided in this Remuneration Report has been audited. 80

83 Table 1.1: Key Management Personnel (as at year-end) Name Title(atyearend) ChangeduringtheDecember2011Transitional FinancialYear NonexecutiveDirectors SPJohns ChairmanandindependentNonexecutiveDirector AppointedChairmanoftheBoardon24August2011 ADrescher IndependentNonexecutiveDirector RDHumphrisOAM IndependentNonexecutiveDirector IJMacfarlaneAC IndependentNonexecutiveDirector WGOsborn IndependentNonexecutiveDirector DPRobinson NonexecutiveDirector PWSassenfeld NonexecutiveDirector Appointed29November2011 DrFStieler NonexecutiveDirector MHWennemer NonexecutiveDirector Appointed6October2011 Seniorexecutives HGTyrwhitt CEO,LeightonHoldings,ExecutiveDirector AppointedCEOofLeightonHoldingson24August2011. MrTyrwhittwaspreviouslytheManagingDirector, LeightonAsia,IndiaandOffshore RRCooke ActingManagingDirector,LeightonAsia,IndiaandOffshore Appointed24August2011 MCGray ManagingDirector,LeightonProperties PAGregg ChiefFinancialOfficer,LeightonHoldings,ExecutiveDirector CAvanderLaan ChiefRiskOfficerandGroupGeneralCounsel, LeightonHoldings CALaslett ManagingDirector,LeightonContractors BAMunro ManagingDirector,Thiess AppointedActingManagingDirector,Thiesson5August 2011andManagingDirector,Thiesson14September 2011 GMPalin ManagingDirector,JohnHolland LWVoyer ManagingDirector,LeightonMiddleEast&Africa Table 1.2: Key Management Personnel (departures during the December 2011 Transitional Financial Year) Name Title ChangeduringtheDecember2011Transitional FinancialYear Departuresduringtheperiod DAMortimerAO ChairmanandindependentNonexecutiveDirector ResignedasindependentNonexecutiveDirectorand ChairmanoftheBoardon24August2011 DrBLohr NonexecutiveDirector Resignedon12October2011 DGStewart CEO,LeightonHoldings,ExecutiveDirector CeasedtobetheCEO,LeightonHoldingsandExecutive Directoron24August2011andceasedemploymenton 19November2011 SMSasse GeneralManager,OrganisationalStrategy, LeightonHoldings Ceasedemploymenton30September2011 DKSaxelby ManagingDirector,Thiess CeasedtobetheManagingDirector,Thiesson5August 2011,andceasedemploymenton1October

84 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 2. REMUNERATION GOVERNANCE This section describes the role of the Board, the Remuneration and Nominations Committee, the Plan Committee and the matters considered when making remuneration decisions. 2.1 ROLE OF THE BOARD AND THE REMUNERATION AND NOMINATIONS COMMITTEE The Board is responsible for the Group's approach to remuneration. Consistent with this responsibility, the Board has established a Remuneration and Nominations Committee. The Remuneration and Nominations Committee comprises a majority of independent Directors. The role of the Remuneration and Nominations Committee is to: review and approve the remuneration of the senior executives; review and approve the remuneration policies and practices for the Group generally, including incentive plans and other benefits; and review and make recommendations to the Board regarding the remuneration of Non-executive Directors. In making its decisions, the Remuneration and Nominations Committee considers advice from the CEO, other members of management and external advisers. Further information on the Remuneration and Nominations Committee's role, responsibilities and membership is contained in the Corporate Governance Report on pages 45 to 49 of this Concise Annual Report. 2.2 ROLE OF THE PLAN COMMITTEE For the December 2011 Transitional Financial Year, the Plan Committee was responsible for the administration of equity-based incentive plans after awards had been granted. At the conclusion of each relevant performance period, the Plan Committee requests an external assessment of performance against the relevant performance targets. The Plan Committee considered and applied this assessment, which resulted in the relevant proportion of the grant vesting or lapsing in accordance with the plan rules and any other relevant company policies and procedures. The other key responsibility of the Plan Committee during the December 2011 Transitional Financial Year was to determine the treatment of equity awards when a senior executive ceases employment. The Plan Committee considered the reason for ceasing employment and the terms of the relevant plan rules, offer letter and the individual's contract to make the appropriate determination. For the financial year ending 31 December 2012, the role and membership of the Plan Committee will be revised. The Plan Committee (which will be a management committee) will be responsible for: approving all proposed equity-based incentive participants (excluding senior executives, which is the responsibility of the Remuneration and Nominations Committee) and quantum. The Plan Committee will also make determinations regarding the treatment of equity awards when participants (excluding senior executives) cease employment; for all equity based incentive plan participants, the Plan Committee will seek an external assessment of performance against the relevant long-term incentive performance targets and will then consider and apply this assessment, which results in the relevant proportion of the grant vesting or lapsing in accordance with the plan rules and any other relevant company policies and procedures; reporting to the Remuneration and Nominations Committee, on a quarterly basis, the aggregate amount of any equity-based incentive grants made in the quarter; and any other tasks delegated by the Remuneration and Nominations Committee related to the equity-based incentives. The determinations of the treatment of equity awards when a senior executive ceases employment will be made by the Remuneration and Nominations Committee. Any retention grants will need to be approved by the Remuneration and Nominations Committee. 2.3 USE OF EXTERNAL ADVISERS The Remuneration and Nominations Committee seeks and considers advice from external advisers when required. Such advice will typically cover Non-executive Director remuneration, senior executive remuneration and advice in relation to equity plans. With effect from the December 2011 Transitional Financial Year, the Corporations Act requires us to disclose specific details regarding the use of remuneration consultants. The mandatory disclosure requirements only apply to those advisers that provide a "remuneration recommendation" as defined in the Corporations Act. 82

85 2.4 EXTERNAL ADVISERS IN THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR The Remuneration and Nominations Committee appointed Egan Associates to provide remuneration advice in the December 2011 Transitional Financial Year. During this period Egan Associates provided a remuneration recommendation in relation to the appropriate remuneration framework for the CEO, and advice on the matters to be addressed in relation to his existing contractual arrangements. The Remuneration and Nominations Committee is satisfied that the recommendations were free from undue influence based on the following reasons: the CEO was not involved in the selection and appointment of Egan Associates; the CEO was not involved in any aspect of the development of the advice in relation to his role; and Egan Associates provided written confirmation that the recommendations were free from undue influence. The following key services were provided by Ernst & Young: advice and assistance to finalise and communicate the details of the CEO remuneration arrangements; advice and assistance with the design and implementation of the incentive plans (including tax and accounting advice); market practice and governance information; financial modelling and assistance with transitioning senior executives from existing arrangements to the new framework; and assistance to draft this Remuneration Report. During the December 2011 Transitional Financial Year no remuneration recommendations, as defined by the Corporations Act, were provided by Ernst & Young. During the December 2011 Transitional Financial Year, advice was also provided in relation to Chairman fees and various other matters. This additional advice did not include a remuneration recommendation. As required to be disclosed by the Corporations Act, within the context of the work described above, the fees paid to Egan Associates for the recommendations were $4,725 (excluding GST), and the fees for other advice were $11,760 (excluding GST). In addition, the Remuneration and Nominations Committee appointed Ernst & Young as the lead adviser to assist with the broader review of executive remuneration and to assist with implementation of the recommendations. Ernst & Young were engaged by, and reported to, the Remuneration and Nominations Committee. 83

86 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 3. INTRODUCING THE NEW EXECUTIVE REMUNERATION FRAMEWORK This section discusses the outcomes of the review and the new executive remuneration framework for 2012, including an overview of the redesigned short-term incentive plan and the new long-term incentive plan which were approved by the Remuneration and Nominations Committee. We are in the process of negotiating new service agreements with senior executives that will reflect the new executive remuneration framework. 3.1 OVERVIEW Figure 3.1: Executive remuneration framework for 2012 Businessstrategy Ourstrategyistotakeourcorecompetenciestodiversemarketsanddelivervalueaddedservicesandprojectsforclientsthroughourdiversity, empoweredpeopleandfinancialstrength.ourstrategyisbuiltonthediversityofourbrandsoroperatingcompaniesourvarious geographies,ourmarketsandservices,andourdeliverysystems. Remunerationframework Fixed Shorttermincentiveplan remuneration Reviewedannually. Definedpeer groupsfor comparison. Adefinedpolicy regardinghow remuneration shouldcompareto thosepeergroups. TheLeightonHoldingsexecutiveswillhaveaportionoftheir shorttermincentivedeterminedbygroupfinancial performanceandaportiondeterminedbynonfinancial measuresrelevanttotheirrole. TheManagingDirectorsoftheOperatingCompanieswillhavea portionoftheirshorttermincentivedeterminedbygroup financialperformance,aportiondeterminedbytheiroperating Company sfinancialperformance,andaportiondeterminedby nonfinancialmeasuresrelevanttotheirrole. Partofthe shortterm incentive willbepaid incash. Aportionoftheshorttermincentiveearned (50%fortheCEOandgenerally40%forallother seniorexecutives)willbedeferredintoshare rightsfortwoyearsstartingattheendofthe shorttermincentiveperformanceperiod. TheRemunerationandNominationsCommittee willhavetheabilitytoreducethenumberof deferredsharerightsthatvestifsubsequent eventsshowsuchareductiontobe appropriate. Longtermincentiveplan Annuallongtermincentivegrantswillbemadeunder anewplan. ThenewplanprovidestheRemunerationand NominationsCommitteewiththeflexibilityto determinethenature,termsandconditionsofeach granteachyear. The2012grantwilloperateasanawardofshare rights(iearighttoreceiveashareinthreeyears timeifspecificperformancemeasuresaremet). The2012awardperformancemeasureswillbetotal shareholderreturnoverthethreeyearperiod measuredagainstagroupofcompaniesand achievementofapredeterminedcompoundannual earningspersharegrowthtargetoverthesame period. Itisanticipatedthatunlessthereisanidentified businessormarketneedtochange,subsequent grantswillalsobesharerightswithsimilartermsto the2012grants. Outcomes Market competitive remunerationto attractandretain thehighestquality executivetalent. Shorttermincentivesshouldencouragetheachievementofour annualtargetsandbusinessstrategybyfocusingona combinationofgroupfinancialperformance,operating Companyfinancialperformanceandnonfinancialperformance measuresovera12monthperiod. Deferralofaportionoftheshorttermincentiveearnedinto sharerightswillfurtheralignrewardwithgroupperformance, assistwithretentionandprovidetheremunerationand NominationsCommitteewiththeabilitytoreducethedeferred amountifappropriate,withthebenefitofhindsight. The2012grantwillfocusongrowingGroupearnings andshareholderreturnsoverthenextthreeyears. Onanongoingbasis,alignmentwithshareholders andretentionwillbeenhancedthroughannual grants.theseannualgrantswillresultincontinuing exposuretothegroup ssharepriceandafocuson rollingperformanceperiods. 84

87 3.2 TIMING FOR INTRODUCTION OF NEW EXECUTIVE REMUNERATION FRAMEWORK Executive remuneration for 2012 will be a mix of fixed remuneration and variable remuneration. Variable remuneration can be earned through short-term and long-term incentives. The different elements of remuneration reflect a focus on both short-term and longer-term performance, and delivery of these elements occurs over different time frames. As outlined in figure 3.2, the process and timing for determining executive remuneration for 2012 is as follows: over the course of December 2011 and January 2012, a review of existing remuneration relative to market and financial modelling of potential transition approaches was undertaken. The changes to individual remuneration arrangements and contracts to give effect to our revised remuneration approach are being put in place; short-term incentive targets are being set for the period from 1 January 2012 to 31 December 2012, with performance to be assessed in early 2013: performance will be assessed and the cash portion, if any, will be paid in February 2013; and deferred share rights, if any, will be granted around February 2013, subject to a two year deferral starting at the end of the short-term incentive performance period, being December 2012 to 31 December 2014; and long-term incentive awards will be made in May 2012 (subject to shareholder approval at the May 2012 Annual General Meeting). Performance will be assessed over the period from 1 January 2012 to 31 December Figure 3.2: Delivery of total remuneration for 2012 Year1 Years2and3 Jan 2012 May 2012 Dec 2012 Jan/Feb 2013 Feb 2013 Dec 2014 Fixed remuneration Shortterm incentive Performancemeasured(oneyear) Deferredshorttermincentive(twoyears) Longterm incentive Performancemeasured(threeyears) Shorttermincentiveandlong termincentiveperformance measurementstartsandnew fixedremuneration effective Longtermincentive sharerightsallocated (followingshareholder approval) Shortterm incentive performance periodends Shortterm incentiveaward determined Shorttermincentivecash paidandshortterm incentivedeferred shares /sharerightsallocated 85

88 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Retention of executives is assisted by means of the deferred component of the short-term incentive (if any) and the annual award and multi-year performance period of the long-term incentive. The annual awards of equity instruments under the long-term incentive plan and the potential annual deferred awards under the short-term incentive plan result in senior executives having ongoing exposure to the company s share price. Figure 3.3 outlines the layered retention effect created by the design of the remuneration framework and the annual award cycle. Figure 3.3: Creation of layered retention effect Year1 Year2 Year3 Year4 Year5 Fixedremuneration 2012 Shorttermincentive cashopportunity Shorttermincentivedeferral opportunity Longtermincentive grant Fixedremuneration 2013 Shorttermincentive cashopportunity Shorttermincentivedeferral opportunity Longtermincentive grant Fixedremuneration 2014 Shorttermincentive cashopportunity Shorttermincentivedeferral opportunity Longtermincentivegrant 3.3 APPROACH TO SETTING REMUNERATION LEVELS AND MIX Remuneration levels are reviewed annually and upon change of position. Individual remuneration is determined by the new policy remuneration mix, referencing available market data and consideration of individual factors. The new policy remuneration mix is outlined in table 3.1 opposite. As discussed earlier, new contracts are currently being put in place. In most cases the new policy mix set out in table 3.1 will be applied. However, individual circumstances may result in some individuals having a mix that differs from that set out in table 3.1. The market data referenced in reviewing remuneration is for comparable roles in similar-sized Australian listed companies based on market capitalisation, Group revenue and Operating Company revenue, as relevant. Consideration is also given, where appropriate, to employee numbers and scope of international operations relative to the peer companies. Fixed remuneration and total target remuneration will typically be positioned at around the 75th percentile of the relevant market. The objective of this target positioning is to facilitate the attraction and retention of the best talent in an extremely competitive market driven by the mining boom and high growth in Asia. Actual market positioning for each individual may deviate from (above or below) the positioning policy due to consideration of internal relativities, experience, tenure in role, individual performance and retention considerations. 86

89 Table 3.1: New policy remuneration mix Role ChiefExecutiveOfficer and ChiefFinancialOfficer ManagingDirectorsofOperatingCompanies Fixedremuneration 33.3% 40.0% Newpolicyremunerationmix(%oftotalremuneration) Targetshorttermincentive (includingdeferral) 33.3% (ie100%offixedremuneration) 30.0% (ie75%offixedremuneration) Longtermincentive (grantvalue) 33.3% (ie100%offixedremuneration) 30.0% (ie75%offixedremuneration) ChiefRiskOfficerandGroupGeneralCounsel and ChiefHumanResourcesOfficer 45.4% 27.3% (ie60%offixedremuneration) 27.3% (ie60%offixedremuneration) 3.4 REVISED SHORT-TERM INCENTIVE PLAN The revised short-term incentive plan is designed to encourage the achievement of our annual targets and business strategy by aligning short-term performance measures with Group and Operating Company key business objectives over a 12 month period. Each executive has a target short-term incentive amount (described in table 3.1) that can be earned each year, subject to performance against financial and nonfinancial performance measures. They will also have a specified threshold (for minimum acceptable performance against targets) and maximum (for achieving stretch performance targets). Threshold shortterm incentive will be 60% of target short-term incentive and maximum short-term incentive will be 150% of target short-term incentive. By way of example, this means that for a Managing Director of an Operating Company with a target short-term incentive of 75% of fixed remuneration, their threshold short-term incentive would be 45% of fixed remuneration and their maximum short-term incentive would be 112.5% of fixed remuneration. Financial measures For the financial year ending 31 December 2012, 70% of the amount which could be earned as a short-term incentive will be based on performance against financial measures and targets. The Managing Directors of the Operating Companies will have this financial component based on Group financial performance and their Operating Company s financial performance. For the 2012 short-term incentive, each Manager Director of an Operating Company will have 30% of the amount which could be earned as a short-term incentive based on Group financial performance and the remaining 40% based on relevant individual Operating Company financial targets. The relevant financial measures and targets will be selected and set each year. The Group financial measure will be a profit measure. The Operating Company financial measures will be relevant to the specific Operating Company. These measures will be selected each year from a set that include those that focus on pre-tax profitability (Return on Revenue), the effective use of capital (Return on Funds Employed and/or Economic Profit), achievement of cash flow targets and adherence to applicable funding limits. The measurement approach (through the performance measure selection) will ensure that the appropriate measures of Operating Company performance are considered and rewarded along with Group performance. The Leighton Holdings executives will have this financial component based on Group financial performance. 87

90 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Non-financial measures For the financial year ending 31 December 2012, 30% of the amount which could be earned as a short-term incentive will be based on performance against nonfinancial measures and targets. The measures and targets will be set each year and tailored to the role of the executive. The non-financial measures will typically focus on safety and the management of our people. The measures may include such matters as the total recordable injury frequency rate, achieving nil fatalities, succession planning, employee turnover, engagement survey results and demonstration of behaviours aligned with the Leighton values. Payment A percentage of the amount which is earned as a shortterm incentive will be paid in cash and a percentage will be delivered as share rights, vesting of which is deferred for two years (starting at the end of the short-term incentive performance period) without any additional performance measures. Fifty-percent (50%) of any amount earned by the CEO as a short-term incentive, and generally 40% of any amount earned by other senior executives, will be converted into share rights which cannot vest for two years. However, as mentioned earlier, there may be some individual differences from this policy as contracts are finalised. At vesting, the share rights will convert to shares. The Remuneration and Nominations Committee has the ability to settle the awards in cash if appropriate. During the two year deferral period the participant will not receive dividends and will not have voting rights. However, if the participant is entitled to receive shares at the end of the two year deferral period, the participant will be entitled to an amount equal to the dividends that would have accrued during the two year period on the shares if they had vested at the commencement of the two year period. The intention is to pay these dividends in cash, but the Remuneration and Nominations Committee has the ability to provide shares if considered appropriate. The methodology for deferring the amount earned as a shortterm incentive may differ for executives employed in jurisdictions other than Australia depending on the legal and tax regimes operating in such jurisdictions. The Remuneration and Nominations Committee will have the ability to reduce the number of shares to be issued under share rights if subsequent events show such a reduction to be appropriate. In making this determination, the Remuneration and Nominations Committee may consider material changes or reversals in the Group s financial position or profitability from one period to the next, any issues that are likely to have affected Leighton s financial soundness, misrepresentations, material restatements due to errors or omissions (eg not a change to accounting standards), major negligence, or reputational damage. 3.5 NEW LONG-TERM INCENTIVE PLAN A new long-term incentive plan has been developed that provides flexibility to determine the type of equity instruments to be granted and the terms and conditions of any such grant. For 2012 the plan will operate as a grant of share rights with a three year performance and vesting period (ie a right to receive a share in three years time if specific performance measures are met). The 2012 grant performance measures will be: 50% based on a relative total shareholder return measure: tested against entities in the S&P / ASX 100 Index defined at the start of the performance period. 50% of this portion of the award will vest for ranking at the 51st percentile, 100% will vest for ranking at the 75th percentile or above, with straight-line vesting between these two points; and 50% based on an earnings per share measure: 50% of this portion will vest for achieving compound annual growth in earnings per share of 8%, 100% will vest for achieving compound annual growth in earnings per share of 13%, with straight-line vesting between these two points. Unlike our former plan, the new plan will not permit retesting (ie if the targets are not met when first tested, the awards will lapse). It is anticipated that unless there is an identified business or market need to change, subsequent grants will have similar terms to the 2012 grants. The performance conditions are aligned with the longerterm direction and strategy of the Group as they will encourage a focus on earnings per share growth and the achievement of top quartile shareholder returns over an extended period. 3.6 SHAREHOLDER APPROVAL The relevant approvals for the new equity arrangements will be sought at the May 2012 Annual General Meeting. 88

91 4. REMUNERATION DURING THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR As outlined in section 3, a new executive remuneration approach will take effect from 1 January For the December 2011 Transitional Financial Year an interim approach has been adopted. This section describes the remuneration approach that applied during the December 2011 Transitional Financial Year and the performance and reward linkage. 4.1 REMUNERATION PRINCIPLES THAT APPLIED DURING THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR The review of our approach was conducted over the course of the December 2011 Transitional Financial Year. As such, for the December 2011 Transitional Financial Year, the existing remuneration principles remained in place. As described in the 2011 Remuneration Report, the Remuneration and Nominations Committee s overall objective was to ensure that remuneration provided to the senior executives is competitive in each of the markets in which the Group operates, and provides executives with appropriate reward for achieving the performance expectations set for them. The key remuneration principles in place during the December 2011 Transitional Financial Year were: provide competitive rewards to attract, motivate and retain highly skilled executives willing to work in foreign jurisdictions; reward executives based on performance measures that support the execution of the Group s business strategy; provide a balance between short and longer-term, cash and equity, and fixed and variable remuneration; and align the interests of executives, the Group and shareholders. During the December 2011 Transitional Financial Year, the remuneration mix of the senior executives consisted of fixed remuneration and short-term incentives only. The target short-term incentive was 100% of fixed remuneration for Mr Tyrwhitt and Mr Gregg, 50% for Mr van der Laan, and 80% for all other senior executives. For the December 2011 Transitional Financial Year, each senior executive could earn a prorata short-term incentive to reflect the 6 month performance period. Mr Gregg had a long-term incentive grant equivalent to 100% of fixed remuneration, which was in accordance with his contract and was approved by shareholders at the November 2011 Annual General Meeting. Mr Stewart had his 2011 long-term incentive grant, which was in accordance with his contract, approved as part of his termination payment at the November 2011 Annual General Meeting. Mr Gregg s and Mr Stewart s long-term incentive grants were disclosed in the 2011 Remuneration Report. 4.2 APPROACH TO SETTING REMUNERATION The Remuneration and Nominations Committee obtains external market advice on market practice and movements to ensure remuneration is aligned with comparable roles in companies of similar complexity and size and with reference to the individual senior executive s responsibilities, location, performance, qualifications and experience within the Group. 89

92 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 4.3 OVERVIEW OF EXECUTIVE REMUNERATION COMPONENTS The components of remuneration for senior executives are shown in table 4.1. Table 4.1: Components of total remuneration Summary ApplicableduringtheDecember2011 TransitionalFinancialYear Continuingin2012 Fixed remuneration Basesalary,nonmonetary benefitsandsuperannuation. Continuetoapplyin2012. Shortterm incentives Mediumterm incentives Longterm incentives Other remuneration (serviceand retention awards) Annualvariableremunerationwith quantumsubjecttoannual performancemeasures. Deferredcashpaidafterthree years,subjecttoconditionsthat includeyearonyearprofitgrowth. Longertermequitybasedaward. Additionalremunerationin accordancewithemployment contracts. Transitionalshorttermincentive. Nonewmediumtermincentivesduring thedecember2011transitional FinancialYear. Grantstotwoparticipants,asdisclosed inthe2011remunerationreport,were approvedinthedecember2011 TransitionalFinancialYear(MrGregg andmrstewart). Nonewserviceandtermination arrangementsputinplaceinthe December2011TransitionalFinancial Year. MrTyrwhitt slegacycontractualservice andretentionawardswerepaidout duringthedecember2011transitional FinancialYear. Futureshorttermincentivestobe providedundernewapproachdescribed earlierinthisremunerationreport. Discontinued,withsomelegacyamounts stilldueforpayment. Newlongtermincentivegrantstobe madeusingtheapproachdescribed earlierinthisremunerationreport. Existing2008shareoptiongrantswere subjecttoretestinginjanuary2012and existing2009shareoptiongrantsare duetobetestedinmay2012. Legacycontractualarrangementsareto bepaidoutorreplacedwithrestricted shareswhereappropriate. 4.4 FIXED REMUNERATION Fixed remuneration received by senior executives comprised base salary, superannuation and other benefits and was subject to approval by the Remuneration and Nominations Committee. Base salary No changes were made to the base salary for senior executive roles compared to the previous period. Mr Tyrwhitt, Mr Munro and Mr Cooke all received increases due to their promotions to new roles. Mr Tyrwhitt s base salary was set at the same level as his predecessor, Mr Stewart. Non-cash benefits Non-cash benefits provided as part of fixed remuneration may include one or more of company motor vehicles, car allowances, novated vehicle leases, voluntary superannuation contributions, salary continuance premiums, fringe benefits and other salary sacrificed benefits agreed from time to time. Expatriate benefits were provided to senior executives in overseas locations. Retirement/superannuation benefits Retirement benefits were provided under various superannuation plans or retirement arrangements for senior executives. The superannuation plans provided for specified contribution amounts for employees in accordance with government regulations and Group policies. Members of the various superannuation plans may be provided with life insurance and/or total and permanent disability insurance and salary continuance insurance. Where salary continuance insurance is not provided through the superannuation plan, the relevant employer may provide such cover directly to the senior executive. 90

93 4.5 SHORT-TERM INCENTIVE PLAN December 2011 Transitional Financial Year short-term incentives Table 4.2 summarises the approach to short-term incentives for senior executives (excluding the CEO) during the December 2011 Transitional Financial Year. The principles underlying the new approach to shortterm incentives, as outlined in section 3.4 of this Remuneration Report, were used during the December 2011 Transitional Financial Year for Managing Directors of Operating Companies. For Leighton Holdings senior executives, short-term incentives for the December 2011 Transitional Financial Year were determined in accordance with their existing contracts. As explained earlier, it is intended to replace the short-term incentive arrangements in these existing contracts with the new short-term incentive plan. The CEO s short-term incentive for the December 2011 Transitional Financial Year was based on a transitional short-term incentive arrangement which is outlined beneath table 4.2. Table 4.2: Summary of December 2011 Transitional Financial Year short-term incentives for senior executives (excluding the CEO) Whoparticipated? Howmuchcouldexecutivesearn underthedecember2011 TransitionalFinancialYearshort termincentive? Overwhatperiodwas performancemeasured? Whatweretheperformance conditions? Whywerethoseperformance measureschosen? Whoassessedperformance againsttargetsandapprovesthe payments? Howweretheshortterm incentivespaid? Allseniorexecutives(excludingtheCEO). MrGregg stargetshorttermincentivewas100%offixedremuneration,andhismaximumwas125%of fixedremuneration.mrvanderlaan stargetshorttermincentivewas50%offixedremuneration,and hismaximumwas100%offixedremuneration.formanagingdirectorsofoperatingcompanies,target shorttermincentivewas80%offixedremuneration,andthemaximumwas120%offixedremuneration. FortheDecember2011TransitionalFinancialYear,seniorexecutivescouldearn50%oftheirtarget shorttermincentivestoreflectthe6monthperformanceperiod. TheDecember2011TransitionalFinancialYearfrom1July2011to31December2011. ShorttermincentivesintheDecember2011TransitionalFinancialYearwerelinkedtoperformance againsteithergroupand/orindividualoperatingcompanyfinancialtargets.theremunerationand NominationsCommitteealsotakesintoaccountanyotherfactorthatitdeemsrelevantinthe determinationoftheyear sshorttermincentives. ForManagingDirectorsofOperatingCompanies,30%oftheshorttermincentivewascalculatedon GroupfinancialperformanceandthebalanceontheirOperatingCompany sfinancial(40%)andnon financial(30%)performance. ForLeightonHoldingsexecutives,otherthantheCEO,performancewasassessedagainstareturnon averageshareholders fundsemployedfinancialmeasure,inaccordancewiththeircurrentcontract. Shorttermincentivetargetwaspayableif20%returnonaverageshareholders fundsemployedwas achievedandmaximumshorttermincentivewaspayableif25%returnonaverageshareholders funds employedwasachieved.forthechieffinancialofficer,theshorttermincentiveawardwassubjecttoa 5%penaltyduetofatalitiesduringtheperiod. Theperformancemeasureschosenensurethatasignificantproportionoftotalremuneration(described insection4.3)isdeterminedbyperformanceagainstrelevantfinancialobjectives.thisalignsexecutive interestswiththegroup sandoperatingcompany sfinancialperformance. TheCEOreviewsthecompanyandseniorexecutive sperformanceandrecommendstheshortterm incentivepaymentforeachseniorexecutivetotheremunerationandnominationscommitteefor approval. TheshorttermincentiveswerepaidincashoncethefinancialstatementsoftheGrouphadbeen finalisedandauditedforthedecember2011transitionalfinancialyear. CEO short-term incentive For the December 2011 Transitional Financial Year, the CEO s short-term incentive was based on a transitional short-term incentive plan that covers both the December 2011 Transitional Financial Year and the financial year ending 31 December 2012 (refer to the CEO contract summary in section for details of the short-term incentive arrangements for the financial year ending 31 December 2012). For the December 2011 Transitional Financial Year, threshold and target levels of financial performance were set. If the threshold level of performance was achieved, 30% of fixed remuneration could be earned as a short-term incentive. If the target level of performance was achieved, a maximum of 50% of fixed remuneration could be earned as a short-term incentive. There was no additional short-term incentive opportunity for exceeding target performance. The target and threshold short-term incentives represent a pro-rata amount to reflect the 6 month performance period. 91

94 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED For the December 2011 Transitional Financial Year, performance was assessed against Group net profit after tax excluding the effect of the sale of the HWE Mining Iron Ore business (HWE) and the impairments relating to BrisConnections and Habtoor Leighton Group (HLG). The Remuneration and Nominations Committee also had discretion to consider Group net profit after tax and determine the extent to which it considered that, in substance, the target had been met. The CEO s shortterm incentive target was for the Group to achieve $300 million in net profit after tax excluding the effect of the sale of HWE and the impairments relating to BrisConnections and HLG, and the threshold was for the Group to achieve $250 million in net profit after tax excluding the effect of the sale of HWE and the impairments relating to BrisConnections and HLG. The Remuneration and Nominations Committee reviews the company and the CEO s performance and approves any short-term incentive payment to the CEO. Link between short-term incentive payments, Group and Operating Company performance Short-term incentive payments for the December 2011 Transitional Financial Year were determined based on senior executive performance against financial targets and non-financial targets (where applicable). For Leighton Holdings senior executives, short-term incentives were based on performance against Group financial targets. For Managing Directors of Operating Companies, short-term incentives were based on performance against Group and Operating Company financial targets. For each senior executive, table 4.3 provides the percentage of the maximum short-term incentive for the December 2011 Transitional Financial Year that was paid. The table also provides a brief summary of how each senior executive s short-term incentive was determined. Table 4.3: Percentage of available short-term incentive paid and link to performance Seniorexecutive Shortterm incentive earned (A$) Percentage ofmaximum shortterm incentive Linkbetweenshorttermincentiveawardandperformance HGTyrwhitt $931,200 78% Groupnetprofitaftertax,excludingtheeffectsofthesaleofHWEandtheimpairments relatingtohlgandbrisconnections,wasbetweenthethresholdandtargetlevelsof performance.theshorttermincentivewascalculatedonastraightline,proratedbasis from30%to50%offixedremuneration. RRCooke $290,206 73% TheOperatingCompanyfinancialtargetandGroupfinancialtargetwereachieved. However,theshorttermincentiveawardwasproratedgiventhatMrCookehasonlybeen inhisroleforpartoftheperformanceperiod. MCGray $100,000 18% WhiletheOperatingCompanyfinancialtargetwasnotachieved,theGroupfinancialtarget was.mrgraywasawardedashorttermincentivebasedongroupfinancialperformance andbecausehiscontributionduringthedecember2011transitionalfinancialyearhasled totheprospectsforthefutureofleightonpropertiesimproving. PAGregg $867,000 82% TheGroupfinancialtargetwasachieved.Theshorttermincentiveawardwasincreasedto reflectmrgregg soutstandingcontributiontothegroupduringthedecember2011 TransitionalFinancialYear. CAvanderLaan $307,000 65% TheGroupfinancialtargetwasachieved.Theshorttermincentiveawardwasadjustedto recognisemrvanderlaan scontributiononanumberofregulatoryandcompliance initiatives. CALaslett $800, % TheOperatingCompanyfinancialtargetandGroupfinancialtargetwereachieved.The shorttermincentiveawardwasincreasedabovethemaximumshorttermincentivein recognitionofmrlaslett scontributiontothenegotiationandcompletionofthehwesale. BAMunro $300,000 59% WhiletheOperatingCompanyfinancialtargetwasnotachieved,theGroupfinancialtarget wasachieved.mrmunrowasawardedashorttermincentivebasedongroupfinancial performanceandinrecognitionthathecommencedinhispositionpartwaythroughthe performanceperiodandgeneratedastrongfinancialresultwithinthethiessmining businesswhichheledforasignificantpartofthedecember2011transitionalfinancial Year. GMPalin $300,000 44% WhiletheOperatingCompanyfinancialtargetwasnotachieved,theGroupfinancialtarget wasachieved.mrpalinwasawardedashorttermincentivebasedongroupfinancial performanceandthefactthattheairportlinkperformanceandoutlookimprovedand underlyingprofitwasstrong. LWVoyer $ % MrVoyer sshorttermincentive,ifany,forthedecember2011transitionalfinancialyear hasnotyetbeendeterminedatthedateofthisremunerationreport. 92

95 4.6 MEDIUM-TERM INCENTIVES - LEGACY PLAN CLOSED TO NEW PARTICIPATION The medium-term incentive plan is closed to participation and there were no new awards of mediumterm incentives during the December 2011 Transitional Financial Year. However, as a result of medium-term incentive participation in previous financial years, the following payments were made during the December 2011 Transitional Financial Year or are due to be paid in future financial years: Mr Tyrwhitt s 2009 and 2010 medium-term incentives were both paid out to settle the company s obligations under his existing service agreement. These payments were $108,000 and $564,706 respectively. The medium-term incentives were paid out subject to the Remuneration and Nominations Committee s ability to require repayment of these payments if the CEO discontinues his employment prior to the date on which he would have been entitled to receive these payments under his previous service agreement (being 31 July 2012 and 31 July 2013 respectively); and the following individuals have 2010 medium-term incentives that are payable on 31 July 2013: Mr Palin, Mr Munro and Mr Voyer. The amounts payable are $75,000, $300,000 and $300,000 respectively. Table 4.4 describes how the 2009 and 2010 mediumterm incentives operate. Table 4.4: Summary of medium-term incentives for senior executives Whoparticipatedinthemedium termincentives? Overwhatperiodisperformance assessed? Whatweretheperformance conditions? Whywerethoseperformance measureschosen? Whoassessedperformance? Whathappensifasenior executiveceasesemployment? TheManagingDirectorsandDeputyManagingDirectorsoftheOperatingCompanies,andothersenior membersoftheirteams,aswellasotherleightonholdingsseniorexecutives. Overaoneyearperiodtodeterminetheaward.However,asnotedbelow,subsequentyears performanceduringthethreeyeardeferralperiodcanreducethesizeoftheaward. IfanOperatingCompany(ortheGroup,forthosewhoareLeightonHoldingsseniorexecutives)achieves ayearonyearincreaseinprofit,apoolof5%oftheprofitincreaseisavailableforallocationtothe relevantexecutives.thesizeoftheprofitincreasethereforedeterminesthetotalbonusopportunity. SeparateincentivepoolsarecalculatedforeachrelevantindividualOperatingCompanyandtheGroup. Theactualproportionofthepoolthatanindividualisawardedisbasedontheirlevelofresponsibility andindividualperformance.20%ofeachpoolisallocatedtotherespectivemanagingdirectorofthe OperatingCompany,andtheythenallocatetheremainderoftheirpool.Themaximummediumterm incentiveanyindividualcanbeawardedis80%offixedremuneration.itisnotmandatorytoallocatethe entirepoolthatisavailable.paymentofanyamountallocatedisdeferredforthreeyearsandissubject tothereductiondescribedbelow. If,inanygivenyear,yearonyearprofitgrowthisnotachieved,noawardswillbeallocatedforthatyear. Inaddition,ifthatyearfallswithinthethreeyeardeferralperiodforapreviousaward,anydeferred incentivepreviouslyawardedbutasyetunpaidwillbereducedbyupto50%,althoughtheremuneration andnominationscommitteeretainsdiscretioninappropriatecasestomitigatethereduction. Accordingly,themaximumamountpayableattheendofanythreeyeardeferralperiodis100%ofthe originallydeferredamountandtheminimumpayableis12.5%oftheoriginallydeferredamount. Themediumtermincentiveanditsassessmentofperformanceprovideanincentiveforsenior executivestoincreasetheprofitresultsoftheiroperatingcompanyorthegroup(asthecasemaybe), onayearonyearbasis. Performanceismeasuredandthepoolsquantitativelydetermined. TheRemunerationandNominationsCommitteeapprovestheawardsandmaymakeadjustments.Such adjustmentsmaybemadeasaresultofunderoroverachievementsagainsttheperformancetargets andmaytakeintoaccountnonfinancialindicatorsofperformance. SeniorexecutiveswhoresignfromtheGrouppriortothedatethatthemediumtermincentiveispayable forfeitanyunpaidincentive,exceptwheretheseniorexecutiveismaderedundant,retires,diesor resignsduetoseriousinjuryorillhealth,inwhichcasetheawardispayable. Ifthecompanyterminatesaseniorexecutive semployment,theremunerationandnominations Committeecandeterminethataproratapaymentmaybemadeinexceptionalcircumstances. 93

96 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 4.7 LONG-TERM INCENTIVES - LEGACY PLAN CLOSED TO NEW GRANTS Details of existing long-term incentive grants The legacy 2008 and 2009 share option grants remain in place and will be tested at their respective performance measurement dates. During the December 2011 Transitional Financial Year, a long-term incentive grant to Mr Gregg was approved by shareholders at the November 2011 Annual General Meeting. As part of Mr Stewart s termination payment, approval was given at the November 2011 Annual General Meeting for his 2011 long-term incentive grant. These grants were previously disclosed in the 2011 Remuneration Report. Table 4.5 outlines the terms of unvested 2008 and 2009 share option grants and the 2011 long-term incentive grant to Mr Gregg. Mr Stewart s 2011 long-term incentive grant is discussed beneath table 4.5 on the following page and also in section and table 6.2. Table 4.5: Summary of long-term incentive plan grants 2008and2009shareoptiongrants 2011longtermincentivegranttoMrGregg Whatisgranted? Grantsweremadeintheformofshareoptionsthatvest afterthreeyearssubjecttoperformanceagainstthe relevantperformancemeasures.uponexerciseofthese options,ordinarysharesinthecompanywillbeprovidedto theparticipant. Thegrantwasmadeintheformofsharerights.Theshare rightsaregrantedfornocostandentitletheparticipantto receiveonefullypaidordinaryshareinthecompanyper right,subjecttothetermsandconditionsdeterminedby theremunerationandnominationscommittee,including vestingconditionslinkedtoserviceandperformanceover thethreetofiveyearperformanceperiod.thisgrantwas disclosedinthe2011remunerationreport. Whatarethe performance measures? ParcelA(50%)willbetestedagainstarelativetotalshareholderreturnhurdle. ParcelB(50%)willbetestedagainstagrowthinearningspersharehurdle. Howistotal shareholderreturn performance measured? Thetotalshareholderreturnofthecompanyismeasuredasapercentilerankingcomparedtoacomparatorgroupof listedentitiesovertheperformanceperiod(fromgrantdatetotestdate).thecomparatorgroupistheentitiesinthes&p /ASX100Index(andforthe2011longtermincentivegranttoMrGregg,thecomparatorgroupistheentitiesintheS&P/ ASX100Index,excludingfinancialorganisationsandrealestateinvestmenttrusts). Awardsvestbasedontherankingagainstthecomparatorgroupcompaniesinaccordancewiththefollowingschedule: Company stotalshareholder returnrankinginthecomparator group Below50thpercentile At50thpercentile Between50th&75thpercentiles Atorabove75thpercentile %ofparcelavesting Nil 50% Between50%and100%increasing onastraightlinebasis 100% Howisthe earningspershare performance measured? Thecompany sannualcompoundearningspersharegrowthismeasuredoverthethreeyearperformanceperiod. Awardsvestbasedonthegrowthinearningspershareinaccordancewiththefollowingschedule: Earningspersharegrowthper annum Below8% Equalto8% Between8%&12% 12%orgreater %ofparcelbvesting Nil 20% Between20%and100%increasing onastraightlinebasis 100% 94

97 Table 4.5: Summary of long-term incentive plan grants (continued) 2008and2009shareoptiongrants 2011longtermincentivegranttoMrGregg Whywerethese performance measureschosen? Whenwill performancebe tested? Dotheshare optionsandshare rightsattract dividendsand votingrights? Whathappensin theeventofa changeincontrol? Whatifasenior executiveceases employment? Canparticipants hedgeagainstthe riskunderthe longterm incentivegrants? Totalshareholderreturnwaschosenbecauseitprovidesadirectlinkbetweenseniorexecutiverewardandshareholder returns.seniorexecutiveswillnotderiveanybenefitfromthatportionofthegrantsunlessthecompany sperformance isatleastatthemedianofthecomparatorgroup.inaddition,thishurdleprovidesarelative,external,marketbased performancemeasureagainstthosecompanieswithwhichthecompanycompetesforcapital,customersandtalent. Earningspersharewaschosenasitprovidesadirectlinktoincreasingtheearningspersharereceivedbyshareholders. Therearefourtestdatesfortheshareoptions,being3, 3.5,4and4.5yearsafterthedatetheshareoptionswere granted. Theshareoptionshavemorethanonetestdateasthe participatingseniorexecutivesgenerallydidnot participatemoreoftenthanonceeverythreeyears. Shareoptionsdonotcarryvotingordividendrights. Sharesallocateduponexerciseofvestedshareoptions rankequallywithotherordinarysharesonissue. Ifachangeofcontroleventoccurs,theshareoptionsvest andbecomeexercisable. Shareoptionswilllapseifeither: theseniorexecutive semploymentceases(otherthan duetospecialcircumstances,whichincludesdeath, totalandpermanentdisability,normalretirementor redundancyorsuchothercircumstancesastheplan Committeemaydetermine);or iftheseniorexecutiveisdismissed. Whereaseniorexecutive semploymentceasesdueto specialcircumstances,theexerciseconditionsattachingto theshareoptionsmaybereducedorwaived. Shouldaseniorexecutiveretire,generallyanyunexercised shareoptionsheldatthedateofretirementwillnotlapse; andunvestedshareoptionswillcontinueonfootfollowing theseniorexecutive sdepartureandwillremainsubjectto thesameperformancemeasures(ievestingoftheshare optionswillonlyoccuriftheperformancemeasuresare satisfiedatthetestdate). TestingofbothParcelAandBwillfirstoccuron31 December2013. Iftheperformancemeasuresarenotmetonthatdate, 25%oftheawardlapses,andtheremaining75%istested againafter6months. Iftheperformancemeasuresarenotmetontheretest date,afurther25%oftheawardlapses,andtheremaining 50%istestedagainafter6months. Anysharerightsthatremainunvestedon31December 2014willlapse. Thesharerightsdonotcarryanyrightstodividendsor votinguntilandtotheextentthatvestingoccurs. Sharesallocateduponexerciseofvestedsharerightsrank equallywithotherordinarysharesonissue. Ifachangeofcontroloccurs,therewillbenoaccelerated vestingofthesharerights. Ifemploymentceasesforanyreasonotherthandueto retirement,resignation,forcauseorintheeventofdeath, andthecessationoccursonorbefore31december2012, anyunvestedsharerightswillvestinfull. Ifemploymentceasesduetoretirement,resignationorfor cause,allunvestedsharerightswilllapse. TheCorporationsActandtheGroup ssecuritiestradingpolicyprohibitsseniorexecutivesfromenteringintohedging arrangementsregardingbothvestedandunvestedsecurities,whichincludeslongtermincentivegrants. As part of Mr Stewart s termination payment, approval was given at the November 2011 Annual General Meeting for his 2011 long-term incentive grant. In accordance with his contract and the approval of shareholders, no performance hurdles attached to the grant of shares made to Mr Stewart and therefore they vested immediately. 95

98 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Link between long-term incentive grant outcomes and Group performance The 2008 long-term incentive grant was retested in January This test showed that Leighton Holdings total shareholder return was below the median company in the comparator group. As a result no further vesting of the 2008 grant occurred. The tranche will be retested on 25 July As required by the Corporations Act, table 4.6 sets out the 5 year performance of the Group in Australian dollars. Table 4.6: Year-on-year performance snapshot Opening share price 1 ($) Closing share price ($) Shareprice appreciation (%) Dividend p/share paid ($) Total shareholder return 2 (%) Earnings per share ($) Profit before tax ($m) Net profit aftertax ($m) Return on equity (%) Cashflow from operations ($m) Gross debt equity ratio (%) December 2011 Transitional Financial Year (9.3) 0.00 (6.8) (25.5) 0.60 (50.6) (1.33) (491) (409) (17) 1, (7.4) , (52.9) , , , The opening share price takes into account trades after market close on the last day of the financial year. 2 Total shareholder return is determined over a rolling three year period. 3 The December 2011 Transitional Financial Year relates to a 6 month period and, as such, the information presented above is not entirely comparable to the 2007 to 2011 full financial year information in this table. 96

99 4.8 SENIOR EXECUTIVE TOTAL REMUNERATION Table 4.8 on pages 98 and 99 of this Remuneration Report details the Group s senior executive remuneration in accordance with the Corporations Act and accounting standards. The Remuneration and Nominations Committee is aware, however, that the required format to present this information may make it difficult for shareholders to form an understanding of the value senior executives derived from the various components of their remuneration in the December 2011 Transitional Financial Year. Table 4.7 therefore sets out the value of the total remuneration (fixed remuneration, short-term incentive earned, the value of any long-term incentives that vested during the December 2011 Transitional Financial Year, and any other payments received in the period) for the Group s current senior executives during the December 2011 Transitional Financial Year (including prior year awards where the executive realised value from these awards in the December 2011 Transitional Financial Year). This table has been included to assist shareholders to understand the value derived from the various components of remuneration for those executives that remained in employment at year-end, and as such the senior executives who had ceased employment prior to 31 December 2011 have not been included in this table. Table 4.7 has not been audited. Table 4.7: Total remuneration for senior executives during the December 2011 Transitional Financial Year in Australian dollars (Unaudited) Name Fixed remuneration 1 Shortterm incentive earned (andpaidin early2012) 2 Longterm incentives (valuevested duringthe December2011 Transitional FinancialYear) Other 3 Total remuneration forthe December2011 Transitional FinancialYear Transitional paymentsin December 2011 Transitional Financial Year 4 HGTyrwhitt 5 1,383, ,200 37,563 2,352,111 3,897,417 RRCooke(from24August2011) 276, ,206 24, ,436 MCGray 453, ,000 2, ,057 PAGregg 830, ,000 1,697,385 CAvanderLaan 518, , ,282 CMLaslett 545, ,000 18,533 1,364,342 BAMunro(from5August2011) 483, , ,236 GMPalin 605, ,000 3, ,132 LWVoyer 6 523,614 94, ,549 1 This amount represents fixed remuneration, being cash salary and superannuation. 2 This amount represents cash short-term incentive payments to the senior executive for the December 2011 Transitional Financial Year to be paid in March Includes the value of fringe benefits but excludes the costs associated with spouse travel where the Group has specifically requested the attendance of spouses. 4 Payments made in the December 2011 Transitional Financial Year to close out previous service agreements. 5 Mr Tyrwhitt received transitional payments totalling $3,897,417 relating to his previous service agreement and relocation and expatriate allowances. Details are itemised in section of this Remuneration Report on page Mr Voyer s short-term incentive, if any, for the December 2011 Transitional Financial Year has not yet been determined at the date of this Remuneration Report. 97

100 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Table 4.8 provides full details of total remuneration for the CEO and other senior executives in Australian dollars. Table 4.8: Statutory senior executive remuneration table Shorttermemployeebenefits Postemployment Subtotal Currentseniorexecutives Formerseniorexecutives Cash salary Bonuses (a) Non monetary benefits (b) Other Superannuation benefits Termination benefits HGTyrwhitt 1 December2011TransitionalFinancialYear 1,304, ,200 37, ,000 79,109 3,152,111 FYJune2011 1,107, ,000 93,646 81,104 2,122,629 RRCooke 2 December2011TransitionalFinancialYear 258, ,206 24,714 17, ,436 FYJune2011 MCGray December2011TransitionalFinancialYear 428, ,000 2,500 25, ,057 FYJune ,180 5,000 71, ,850 PAGregg December2011TransitionalFinancialYear 822, ,000 7,890 1,697,385 FYJune2011 1,731, ,000 15,204 2,496,769 CAvanderLaan December2011TransitionalFinancialYear 505, ,000 12, ,282 FYJune , ,207 CALaslett 3 December2011TransitionalFinancialYear 520, ,000 18,533 25,000 1,364,342 FYJune , , ,975 36,465 1,614,184 BAMunro 4 December2011TransitionalFinancialYear 475, ,000 7, ,236 FYJune2011 GMPalin December2011TransitionalFinancialYear 580, ,000 3,000 25, ,132 FYJune2011 1,118, ,704 40,989 1,261,033 LWVoyer 5 December2011TransitionalFinancialYear 523,614 94, ,549 FYJune2011 1,070, ,735 1,255,184 DGStewart 6 December2011TransitionalFinancialYear 997,128 19,359 2,400,000 3,416,487 FYJune2011 2,065,546 50,000 2,115,546 DKSaxelby 7 December2011TransitionalFinancialYear 302,494 78,200 20, ,500 1,158,593 FYJune2011 1,621,453 28,641 50,000 1,700,094 SMSasse 8 December2011TransitionalFinancialYear 158,555 7, , ,000 FYJune , , ,000 8, ,216 1 Mr Tyrwhitt was appointed Managing Director and CEO of Leighton Holdings on 24 August Contractual arrangements under his contract as Managing Director of Leighton Asia, India and Offshore were paid out (as discussed in section 4.9.1). Mr Tyrwhitt received a relocation and expatriate allowance of $800, Mr Cooke was appointed Acting Managing Director of Leighton Asia, India and Offshore on 24 August The amounts in the table reflect payments made after this date. 3 Mr Laslett s FY June 2011 comparative in the table above is a 10 month period starting 1 September Mr Munro was appointed Acting Managing Director, Thiess on 5 August 2011 and Managing Director on 14 September The amounts in the table reflect payments made after 5 August Mr Voyer s short-term incentive for the December 2011 Transitional Financial Year is still being quantified by the Remuneration and Nominations Committee. 6 Mr Stewart ceased to be Managing Director and CEO of Leighton Holdings on 24 August 2011 and ceased to be an employee on 19 November Mr Stewart s termination payment was as per his contractual terms as disclosed in the Notice of Meeting for the November 2011 AGM and transitional arrangements are summarised in section of this Remuneration Report. The Termination Payment for notice being $2,400,000 has not been paid at the date of this Remuneration Report. 7 Mr Saxelby ceased to be Managing Director of Thiess on 5 August 2011 and ceased employment on 1 October Mr Saxelby s termination payment was as per his contractual terms and are summarised in section of this Remuneration Report. 8 Mr Sasse ceased employment on 30 September Mr Sasse s termination payment was as per his contractual terms and are summarised in section of this Remuneration Report. 98

101 MTI Longtermemployeebenefits Mediumterm incentive deferred (c) Sharebased paymentsfair value (d) Contract/retention accruedin December2011 Transitional FinancialYear (e) Totalpayments& accruals Contract/ retentionto31 December2011 (f) Percentageof variablebonuses (shortterm incentive+ mediumterm incentive) (g) Percentage variablelong termincentive (h) 87,938 1,624,515 4,864, % 2.8% 630, , ,773 3,542, , % 8.8% 10, , % 1.8% 31,453 93, , , % 5.7% 144, ,927 1,253, , % 15.6% 196,306 1,893, % 11.6% 96,165 2,592, % 3.9% 825, % 0.0% 47, % 0.0% 15, ,804 1,493, , % 1.2% 52, ,042 1,822, , % 3.2% 15,781 67, , , % 2.0% 31, ,986 1,204,681 1,156, % 3.5% (100,000) 101, ,676 1,969, , % 8.1% 31, , ,263 1,401, % 5.1% 145, ,808 1,610,273 1,058, % 11.6% 238, ,564 4,182,886 2,400, % 7.0% (200,000) 351, ,938 3,216,417 2,372, % 16.6% (333,318) 246,756 1,072,031 2,318, % (28.8%) 239, ,246 2,374,434 2,071, % 14.1% (41,031) (34,995) 748, % (5.0%) 50,013 34, ,224 34, % 0.0% (a) This amount represents cash short-term incentive payments to the senior executive for the December 2011 Transitional Financial Year to be paid in March (b) Includes the value of fringe benefits but excludes the costs associated with spouse travel where the Group has specifically requested the attendance of spouses. (c) Deferred incentives represent the value under the medium-term incentive deferred incentive plan (as discussed in section 4.6). This plan was discontinued and there were no new awards made in the December 2011 Transitional Financial Year. Negative amounts in the FY June 2011 line represent a reduction in the accrued but unpaid amounts for the 2008 medium-term incentive awards. (d) In accordance with the requirements of the Accounting Standards, remuneration includes a proportion of the fair value of equity compensation granted or outstanding during the December 2011 Transitional Financial Year (ie options awarded under the LSEOP that remained unvested and grant of awards under executive contracts as at 31 December 2011). The fair value of equity instruments is determined as at the grant date and is progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that senior executives may ultimately realise should the equity instruments vest. The fair value of options and equities at the date of their grant has been determined in accordance with AASB 2. The negative value disclosed in the share based payment column reflects the reversal of share based payment charges due to forfeited or lapsed options. (e) The amounts shown for contract/retention benefits are the amounts accrued during the period for benefits due under each senior executive s service contract, assuming the senior executive remains an employee for the whole retention period and earns their full benefit entitlement. However, if the senior executive is paid out their contract/retention, the full accrual is accounted for in the December 2011 Transitional Financial Year. (f) The amounts shown for contract/retention benefits to 31 December 2011 are the amounts accrued to 31 December 2011 from contract commencement date. A nil balance indicates that the contract/retention has been paid out and there is no further cash contract/retention component. (g) Percentage calculation is based on the variable short-term incentive and medium-term incentive bonus awarded in the December 2011 Transitional Financial Year. It excludes any claw-back of previously disclosed medium-term incentive awards and also excludes sign-on (Mr Sasse $200,000 in June 2011) and guaranteed contract awards (Mr Gregg $750,000 in June 2011). (h) The percentage of each senior executive s remuneration for December 2011 Transitional Financial Year that consisted of equity. 99

102 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 4.9 SUMMARY OF EXECUTIVE SERVICE AGREEMENTS Remuneration and other terms of employment for the Key Management Personnel who were senior executives as at 31 December 2011 are formalised in service agreements. We are in the process of negotiating service agreements with senior executives to standardise the terms of these agreements. Details of those revised contracts will be disclosed in next year's Remuneration Report. A summary of the current executive contracts is set out in table CEO APPOINTED DURING THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR Mr Tyrwhitt was appointed as Managing Director and CEO of Leighton Holdings on 24 August This section outlines the key terms of Mr Tyrwhitt's new service agreement as well as the treatment of historical financial benefits under his previous service agreement with Leighton Asia Limited. The following specific remuneration arrangements exist under Mr Tyrwhitt's new service agreement as disclosed to the ASX in February Fixed remuneration Mr Tyrwhitt s fixed remuneration is $2,400,000 (including superannuation contributions). Fixed remuneration will be reviewed annually. Transitional short-term incentive An 18 month transitional short-term incentive arrangement will apply to accommodate the company's move to a 31 December year-end and to ensure that the measures of financial performance in this period are properly assessed. The total target short-term incentive opportunity for the 18 month period represents one and a half times the CEO's annual short-term incentive opportunity. The transitional short-term incentive will apply for the following periods and performance will be assessed at the end of the relevant period: Period 1: The 6 months ending 31 December 2011; Period 2: The 12 months ending 30 June 2012; and Period 3: The 12 months ending 31 December Under the transitional short-term incentive, performance during Period 1 and 2 will be assessed against Group net profit after tax, excluding the effects of the sale of HWE. The Remuneration and Nominations Committee also has discretion to consider Group net profit after tax and determine the extent to which it considers that, in substance, the targets have been met. Performance during Period 3 will be assessed against a combination of financial and personal objectives that are yet to be determined. For Periods 1 and 2, performance at the target level will achieve the maximum amount of short-term incentive. The performance measures and targets are as follows: 100

103 Period 1 (test and payment): Target short-term incentive (50% of fixed remuneration) will be awarded if $300 million Group net profit after tax, excluding the effect of the sale of HWE and any other matters the Remuneration and Nominations Committee takes into account, is achieved. Threshold short-term incentive (30% of fixed remuneration) will be awarded if $250 million Group net profit after tax is achieved; Period 2 (test but no payment): Target short-term incentive (100% of fixed remuneration) will be awarded if $600 million Group net profit after tax, excluding the effect of the sale of HWE and any other matters the Remuneration and Nominations Committee takes into account, is achieved. Threshold short-term incentive (60% of fixed remuneration) will be awarded if $540 million Group net profit after tax, excluding the effect of the sale of HWE and any other matters the Remuneration and Nominations Committee takes into account, is achieved; and Period 3 (test and payment): If threshold performance is achieved, 25% of fixed remuneration will be awarded. If target performance is achieved, 50% of fixed remuneration will be awarded. If maximum performance is achieved, 100% of fixed remuneration will be awarded. The short-term incentive for Period 1 will be paid in cash shortly after the end of the December 2011 Transitional Financial Year. The short-term incentive amount for Period 2 (which will be reduced by the shortterm incentive amount paid for Period 1) will form part of the short-term incentive payment made after the conclusion of Period 3 (ie after the financial year ending 31 December 2012). The short-term incentive payment for Period 3 will be determined based on: the Period 2 short-term incentive amount (as described above); performance against financial measures for the second half of Period 3; and performance against personal objectives for Period 3 as a whole. Fifty-percent (50%) of the Period 3 short-term incentive amount will be paid in cash shortly after the financial year ending 31 December Fifty-percent (50%) of the Period 3 short-term incentive amount will be deferred as share rights, subject to shareholder approval. Short-term incentive plan for the financial year ending 31 December 2013 For the financial year ending 31 December 2013, the new short-term incentive plan (described in section 3 of this Remuneration Report) will apply; however, the financial and non-financial performance measure weightings may differ. At threshold level of performance, Mr Tyrwhitt's short-term incentive is 60% of fixed remuneration, at target level of performance his short-term incentive is 100% of fixed remuneration and at maximum level of performance his short-term incentive is 150% of fixed remuneration. Fifty-percent (50%) of any short-term incentive awarded will be paid in cash and 50% will be deferred as share rights for two years starting at the end of the short-term incentive performance period. The deferred share rights will accrue dividends as if the shares were vested at the commencement of the two year period that will only be paid if and when the share rights vest. The deferred portion will be subject to reduction or forfeiture in certain circumstances as described in section 3. Long-term incentive plan Mr Tyrwhitt is eligible to participate in the new longterm incentive plan on terms determined by the Remuneration and Nominations Committee, subject to receiving any required or appropriate shareholder approval. The first grant will be made during the financial year ending 31 December 2012 and will vest subject to performance conditions measured over a three year performance period. These awards will be equivalent to 100% of Mr Tyrwhitt's fixed remuneration at the date of the grant. 101

104 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Treatment of previous service agreement Under Mr Tyrwhitt's previous service agreement with Leighton Asia Limited, he had the potential to receive certain financial benefits if he remained employed under that agreement. These benefits do not form part of the Group's ongoing approach to remuneration and in the interests of finality, the Remuneration and Nominations Committee took the view that these benefits should be paid out subject to reduction or forfeiture in certain circumstances. The details of these benefits and the circumstances in which they will be reduced or forfeited are outlined below: Mr Tyrwhitt's 2009 and 2010 medium-term incentives were paid out on 9 November 2011 and were $108,000 and $564,706 respectively. Mr Tyrwhitt will be required to repay these amounts if he ceases employment prior to the original vesting dates (31 July 2012 for the 2009 medium-term incentive and 31 July 2013 for the 2010 mediumterm incentive); Mr Tyrwhitt's retention compensation of $1,555,845 was paid out. This will be repayable in the event that Mr Tyrwhitt resigns or is dismissed for cause before the original payment dates being 1 January 2013 (60% is repayable at this date), 1 January 2017 (50% is repayable at this date) and 1 January 2022 (40% is repayable at this date); Mr Tyrwhitt was paid out his service payment of $868,867. This will be repayable in the event that Mr Tyrwhitt resigns or is dismissed for cause before the vesting date (1 January 2022), or if Mr Tyrwhitt fails to observe the post-employment restraints provided for in his contract; and Mr Tyrwhitt was paid a relocation and expatriate allowance of $800,000. Other key terms Other key terms of Mr Tyrwhitt's service agreement include the following: Mr Tyrwhitt's employment can be terminated by either party giving 6 months' notice or payment in lieu of notice; the consequences for unearned short-term incentive payments or unvested share rights on termination will be in accordance with the short-term incentive plan and the long-term incentive plan; and Mr Tyrwhitt will have post-employment restraints for up to 12 months, and if he complies he will receive a payment equivalent to the relevant proportion of his then applicable fixed remuneration for the actual period of the restraint less any payment made to him in lieu of notice as described above. Details of Mr Tyrwhitt's prior contract with Leighton Asia Limited (that remained in place during the December 2011 Transitional Financial Year) are set out in table

105 4.9.2 DEPARTING SENIOR EXECUTIVES DURING THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR The following arrangements applied to outgoing senior executives. All payments were in accordance with individual contracts and shareholder approval was sought where required. Mr Stewart Mr Stewart ceased to be Managing Director and CEO of Leighton Holdings on 24 August 2011 and ceased employment with the Group on 19 November Mr Stewart's termination arrangements were in line with his service agreement and, where required, shareholder approval was obtained at the November 2011 Annual General Meeting. The termination arrangements comprised payment in lieu of notice of $2,400,000, an award of 75,423 fully-paid shares in Leighton Holdings Limited (in relation to the first tranche of his 2011 long-term incentive award), a payment of $1,000,000 if he complies with restraint obligations, a one-off compensation payment in relation to retention provisions of $480,000 and a one-off service compensation payment of $1,920,000 which is equal to 80% of his fixed remuneration. Mr Stewart also received accrued statutory entitlements of $466,732. As at the date of this Remuneration Report, Mr Stewart has not received payment in lieu of notice, his payment for complying with restraint obligations and the 75,423 fully paid shares in Leighton Holdings Limited. Mr Sasse Mr Sasse ceased employment on 30 September Mr Sasse's termination arrangements were in line with his service agreement and comprise payment in lieu of notice (equal to 3 months' fixed remuneration) and accrued statutory entitlements totalling $671,055. In addition we entered into a consultancy agreement with Mr Sasse commencing on 1 October 2011 and will end on 30 September 2012, under which total payments of $887,500 will be due FINALISATION OF TERMINATION ARRANGMENTS FOR FORMER CEO As previously reported, Mr Wal King retired as an Executive Director and CEO on 31 December 2010 after 43 years of service within the Group with his contract of employment ceasing on 31 January Details of Mr King's termination arrangements were disclosed in the 2011 Remuneration Report. At the November 2011 Annual General Meeting it was announced that the Remuneration and Nominations Committee had determined, in accordance with the contractual agreement, not to make payment of the transition bonus (previously detailed) in relation to the transition to a new CEO and senior executive team. Mr Saxelby Mr Saxelby ceased to be Managing Director of Thiess on 5 August 2011 and ceased employment with the Group on 1 October Mr Saxelby's termination arrangements were in line with his service agreement, comprised payment in lieu of notice (equal to 6 months' fixed remuneration) and accrued statutory entitlements totalling $1,832,564. He was also entitled to service compensation of $1,712,000 and payment in relation to retention awards of $606,000. In addition we entered into a consultancy agreement with Mr Saxelby, which commenced on 1 October 2011 and will end on 31 March 2012, under which total payments of $566,000 will be due. 103

106 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Table 4.9: Terms of senior executive service agreements in place at 31 December 2011 Name Position Dateof commencement HGTyrwhitt RRCooke MCGray PAGregg CAvander Laan CALaslett BAMunro GMPalin ManagingDirector LeightonAsia,Indiaand Offshore PromotedtoCEOof LeightonHoldingsin August2011.New contractagreedon 9February2012and disclosedinsection ActingManagingDirector LeightonAsia,Indiaand Offshore ManagingDirector LeightonPropertiesPty Limited ChiefFinancialOfficer LeightonHoldingsLimited ChiefRiskOfficerand GroupGeneralCounsel LeightonHoldingsLimited ManagingDirector LeightonContractorsPty Limited ManagingDirector ThiessPtyLtd (from14september2011) ManagingDirector JohnHollandGroupPty Limited 1December2007 4years service 21years previous service ( ) 18June2007 4years service 2March years service 14October2009 2years service 15June2011 <1years service 12September years service 10February years service 4October years service Terminationdateof currentagreement Fixed remuneration at31dec2011 (A$) Notice 1January2022 $2,400,000 6monthsbyeither party Evergreen $664,024 3months byeither party 30June2014 $930,000 6monthsbyeither party 30June2015 $1,700,000 12monthsbyeither party Evergreen $950,000 6monthsbyeither party Evergreen $1,130,000 6monthsbyeither party 30June2015 $850,000 3monthsbyeither party 31August2019 $1,130,000 3monthsbyeither party LWVoyer ManagingDirector LeightonMiddleEast& Africa 21February years service 30June2012 (2x12monthoptions toextendtojune2014) $1,050,000 6months byeither party 104

107 105 Terminationbenefits Restraint Other Paymentonterminationofemploymentofa servicebenefitof80%offixedremuneration (whereterminationoccursotherthanfor causeorresignation). 12monthsunpaid AnnualExpatriateBenefits. Paymentovertheperiodtotheterminationdateoronearly terminationofemploymentbytheemployerofaretentionbenefitin3 parts:40%offixedremunerationon1january2013,50%offixed remunerationon1january2017and60%offixedremunerationon1 January2022(otherthanifterminatedforgrossmisconduct). None. None AnnualExpatriateBenefits. Participationintheshorttermincentiveandlongtermincentive arrangements. Paymentonterminationofemploymentofa servicebenefitof70%offinalfixed remuneration(otherthanifterminatedfor grossmisconduct). 12monthsunpaid Paymentontheterminationdateoronearlyterminationof employmentbytheemployerofaretentionbenefitof70%offinalfixed remuneration(otherthanifterminatedforgrossmisconduct). Longtermincentiveawardwilllapseifretire orresignbeforevesting. 12monthsunpaid $750,000retentionpaymentpaidon15January2011. Shorttermincentiveupto125%offixedremunerationiftargetsare exceededbasedonmeasures70%financialand30%kpi s. 2011longtermincentivegrantofsharerightsequalling75%offixed remuneration,splitinto2equalpartswithvestingafter3years,subject toearningspershareandtotalshareholderreturnperformance measures. Futureyear slongtermincentivegrantsof75%fixedremuneration issuedannuallyinsecurities,subjecttoperformancemeasurestobe determinedbytheremunerationandnominationscommittee. Acceleratedvestingoflongtermincentive whereterminationoccursbeforedecember 2012otherthanforcauseorresignation. Longtermincentiveawardwilllapseifretire orresignbeforevesting. 6monthsunpaid Shorttermincentiveupto100%offixedremunerationiftargetsare exceeded. From2012,longtermincentivegrantofsecuritieson1Januaryannually of50%fixedremunerationsubjecttoperformancemeasures determinedbytheremunerationandnominationscommittee. Statutorybenefits. Silent Retentionpaymentof100% of basesalaryon3september2012. Paymentonterminationofemploymentofa servicebenefitof75%offinalfixed remuneration. 12monthsunpaid Aproratashorttermincentiveandlongtermincentiveamountwillbe payableinthecaseofterminationotherthanforcause. Paymentonterminationofemploymentofa servicebenefitof80%offinalfixed remuneration(otherthanifterminatedfor grossmisconduct). 12monthsunpaid Retentionbenefitinthreepaymentsoneachof50%offixed remunerationon1july2011,25%offixedremunerationon1july2012 and25%offixedremunerationon1july2013. Paymentonterminationofemploymentofa servicebenefitof100%offixedremuneration (whereterminationoccursotherthanfor causeorresignation);inclusiveofprevious accruedserviceless$410, monthsunpaid AnnualExpatriateBenefits. Paymentontheterminationdateofaretentionbenefittothemaximum of100%offixedremuneration(being60%tojune2012,80%tojune 2013or100%toJune2014). SpecialBonusforBusinessPlantargetstoJune2012$1,000,000, 30June2013$500,000,and30June2014$500,000.

108 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 5. NON-EXECUTIVE DIRECTOR REMUNERATION This section explains the remuneration for Nonexecutive Directors. Details of the Non-executive Directors for the December 2011 Transitional Financial Year are set out in table 5.1. In addition, Ms Dwyer has been appointed as an independent Non-executive Director and Chairman of the Audit Committee. The appointment of Ms Dwyer was effective 1 January Table 5.1: Non-executive Directors Director Position BoardCommittees(asat31December2011) SPJohns 1 ChairmanandindependentNonexecutive Director Chairman RemunerationandNominations Chairman Plan Audit ADrescher 2 IndependentNonexecutiveDirector Chairman Audit(Acting) RemunerationandNominations RDHumphrisOAM IndependentNonexecutiveDirector EthicsandCompliance DrBLohr 3 NonexecutiveDirector* IJMacfarlaneAC IndependentNonexecutiveDirector WGOsborn IndependentNonexecutiveDirector Chairman EthicsandCompliance RemunerationandNominations DPRobinson 4 NonexecutiveDirector* Audit Plan PWSassenfeld 5 NonexecutiveDirector* DrFStieler NonexecutiveDirector* RemunerationandNominations MFWennemer 6 NonexecutiveDirector* RLSeidlerAM 7 AlternateDirector* RemunerationandNominations EthicsandCompliance * Representing our majority shareholder, HOCHTIEF Australia Holdings Limited. 1 Mr Johns was appointed Chairman of the Board, Chairman of the Remuneration and Nominations Committee and Chairman of the Plan Committee on 24 August Following his appointment as Chairman of the Board, Mr Johns ceased to be Chairman of the Audit Committee but remains a member of the Audit Committee. 2 Mr Drescher was appointed Acting Chairman of the Audit Committee on 1 September 2011 and retired from that position on 31 December 2011 prior to the appointment of Ms P J Dwyer as an independent Non-executive Director and Chairman of the Audit Committee on 1 January Dr Lohr appointed Dr K Reinitzhuber as his alternate Director on 5 July 2011 and resigned his directorship on 12 October Mr Robinson was appointed as Mr Sassenfeld s alternate Director on 29 November Mr Sassenfeld was appointed a Non-executive Director on 29 November 2011 and appointed Mr Robinson as his alternate Director on 29 November Mr Wennemer was appointed a Non-executive Director on 6 October 2011 and appointed Mr Seidler AM as his alternate Director on 6 October Mr Seidler AM is the alternate Director for Dr F Stieler (appointed 16 May 2011) and Mr Wennemer (appointed 6 October 2011). 106

109 5.1 SETTING NON-EXECUTIVE DIRECTOR REMUNERATION Remuneration for Non-executive Directors is designed to ensure that the Group can attract and retain suitably qualified and experienced Directors. Fees are based on a number of factors including requirements of the role, size and complexity of the Group and market practice. In recognition of the additional responsibilities and time commitment of Committee Chairmen and members, additional fees are paid to Committee members. Non-executive Directors do not receive shares, share options or any performance-related incentives. Directors are also entitled to be remunerated for any travel and other expenses reasonably incurred when attending meetings of the Board or in connection with the business of the company. The Remuneration and Nominations Committee reviews and makes recommendations to the Board with regard to Non-executive Directors fees and committee fees annually. Table 5.2: Board and committee fees in Australian dollars (pro-rata fees for the 6 month period were paid) Deputy Chairman 1 Chairman Member Board 620, , ,000 AuditCommittee 46,000 23,000 EthicsandCompliance 40,000 20,000 Committee Remunerationand 40,000 20,000 NominationsCommittee PlanCommittee SpecialCommitteeFee 3 3,850 3,850 1 The Chairman of the Board, who is also the Chairman of the Remuneration and Nominations Committee and a member of the Audit Committee, receives no standing committee fees in addition to his Board fees. 2 Currently there is no Deputy Chairman of the Board. 3 This fee is payable to all Non-executive Directors for each day of service on a Special Committee. The Remuneration and Nominations Committee may seek advice from independent remuneration advisers in forming their recommendations including information regarding the level of fees paid to Non-executive Directors of other companies of similar size and complexity. 5.2 CURRENT FEE LEVELS AND FEE POOL The fees are determined by the Board after considering the recommendations of the Remuneration and Nominations Committee. The last fee increase was effective from 1 July The aggregate annual fees payable to the Non-executive Directors for their services as Directors are limited to the maximum annual amount approved by shareholders. The maximum annual amount is currently $3,500,000 (including superannuation contributions) as approved by shareholders at the 2007 Annual General Meeting. For the December 2011 Transitional Financial Year, total Non-executive Director fees paid were $1,383,996 which equates to 79% of the pro-rata approved maximum annual amount. Table 5.2 sets out the fees paid to Directors for the December 2011 Transitional Financial Year. In addition to these fees, superannuation contributions will be made to the benefit of all Non-executive Directors capped at the maximum amount required under the Superannuation Guarantee Legislation. 107

110 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 5.3 DIRECTORS OF OPERATING COMPANIES Non-executive Directors may receive additional fees for acting as a Director of one or more Operating Companies of the Group. Roles held by Non-executive Directors as Directors of Operating Companies at 31 December 2011 are set out in table 5.3. Table 5.3: Operating Company appointments (as at 31 December 2011) Director OperatingCompany Role ADrescher LeightonContractorsPtyLimited NonexecutiveDirector RDHumphrisOAM LeightonAsiaLimited NonexecutiveDirector SPJohns JohnHollandGroupPtyLimited NonexecutiveDirector WGOsborn ThiessPtyLimited NonexecutiveDirectorandChairman DPRobinson LeightonPropertiesPtyLimited NonexecutiveDirector RLSeidlerAM(AlternateDirector) LeightonPropertiesPtyLimited LeightonAsiaLimited NonexecutiveDirector NonexecutiveDirectorandChairman 5.4 ALTERNATE DIRECTORS The Group does not pay Directors fees to alternate Directors. Financial arrangements for alternate Directors are a private matter between the Nonexecutive Director and the relevant alternate Director. Mr Seidler retired as a partner of Blake Dawson during 2010 and is now a consultant to that firm. He is a Nonexecutive Director of Leighton Properties Pty Limited and Leighton Asia Limited for which he receives Director s fees directly from the relevant Operating Company. Mr Seidler received committee membership fees of $22,000 for the December 2011 Transitional Financial Year. 5.5 NON-EXECUTIVE DIRECTORS RETIREMENT BENEFITS The Company previously operated the Non-executive Directors Retirement Plan which was approved by shareholders at the 1996 Annual General Meeting. On 5 November 2003, the Board resolved to remove retirement benefits for Non-executive Directors appointed after that date and all Non-executive Directors appointed from this date were paid increased Board fees to compensate them for the removal of the retirement benefits. On 1 July 2008, the Board resolved to close the plan from that date with the effect that there was no further increase in benefits payable to the Non-executive Directors remaining in the plan. As at 31 December 2011, two Non-executive Directors remained in the plan, namely Mr Drescher and Mr Robinson. Each of these Directors will receive a maximum benefit on retirement limited to their entitlement under the plan as if they had retired on 1 July Mr Mortimer resigned as Chairman on 24 August 2011 after 14 years of service. Mr Mortimer received Directors fees of $93,922 for the period from 1 July 2011 to retirement date. On 2 February 2012 Mr Mortimer also received a defined retirement benefit of $590,866 (being $693,750 less $102,884 previously contributed) which had been previously accrued and disclosed to shareholders. 108

111 . 5.6 NON-EXECUTIVE DIRECTOR TOTAL REMUNERATION Details of Non-executive Directors remuneration in Australian dollars for the financial year ended 30 June 2011 and the December 2011 Transitional Financial Year are set out in table 5.4. Table 5.4: Non-executive Director remuneration Current Former Board& Committee fees Shorttermbenefits Postemploymentbenefits Total Other Subsidiary Boardfees andextra service fees Non monetary benefits Superannuation contributions Termination benefits Remuneration forservices asanon executive Director SPJohns 1 Dec2011TransitionalFinancialYear 252,534 31,422 10, ,674 Financialyearended30June ,000 3,801 11, ,204 ADrescher 2 Dec2011TransitionalFinancialYear 112,833 51,136 13, ,973 Financialyearended30June ,000 81,818 23, ,204 RDHumphrisOAM Dec2011TransitionalFinancialYear 95,500 17,500 14, ,890 Financialyearended30June ,079 74,813 32, ,017 IJMacfarlaneAC Dec2011TransitionalFinancialYear 92,500 7, ,390 Financialyearended30June ,000 15, ,204 WGOsborn Dec2011TransitionalFinancialYear 122,500 68,250 14, ,390 Financialyearended30June , ,500 28, ,617 DPRobinson Dec2011TransitionalFinancialYear 104,000 7, ,890 Financialyearended30June ,000 6,850 15, ,054 PWSassenfeld 3 Dec2011TransitionalFinancialYear 17,077 1,537 18,614 Financialyearended30June2011 DrFStieler Dec2011TransitionalFinancialYear 129,308 10, ,611 Financialyearended30June2011 MHWennemer 4 Dec2011TransitionalFinancialYear 44,115 3,945 48,060 Financialyearended30June2011 DrBLohr 5 Dec2011TransitionalFinancialYear 51,942 7,890 59,832 Financialyearended30June ,000 15, ,204 DAMortimerAO 6 Dec2011TransitionalFinancialYear 91,591 2,331 93,922 Financialyearended30June ,000 15, ,204 1 Mr Johns was appointed Chairman of the Board, Chairman of the Remuneration and Nominations Committee and Chairman of the Plan Committee on 24 August Following his appointment as Chairman of the Board, Mr Johns ceased to be Chairman of the Audit Committee but remains a member of the Audit Committee. 2 Mr Drescher was appointed Acting Chairman of the Audit Committee on 1 September 2011 and retired from that position on 31 December Mr Sassenfeld was appointed a Non-executive Director on 29 November Mr Wennemer was appointed a Non-executive Director on 6 October Dr Lohr resigned as a Non-executive Director on 12 October Mr Mortimer resigned as an independent Non-executive Director and Chairman on 24 August As detailed in section 5.5 Mr Mortimer received Directors fees of $93,922 for the period from 1 July 2011 to retirement date. On 2 February 2012 Mr Mortimer also received a defined retirement benefit of $590,866 (being $693,750 less $102,884 previously contributed). 109

112 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED 6. ADDITIONAL STATUTORY DISCLOSURES This section provides additional statutory remuneration information as required by the Corporations Act and applicable accounting standards. Table 6.1: Movement in long-term incentives Name 110 Dateofgrant Number granted/ awarded Adjusted ExercisePrice (A$) 1 Vested (firsttestdate) Balanceshare options 30June2011 Numberof shareoptions vestedin December2011 Transitional FinancialYear 2 Shareoptionsgrantedon15December2006,theexercisepricewas$19.89,thefirsttestdatewas15December2009,andallunexercised shareoptionslapsedon15december2011 HGTyrwhitt , RRCooke MCGray , ,000 CALaslett , BAMunro , ,500 GMPalin , LWVoyer , DGStewart , ,000 SMSasse , DKSaxelby , ,500 Shareoptionsgrantedon25January2008,theexercisepricewas$45.53,thefirsttestdatewas25January2011,andallunexercisedshare optionswilllapseon25january2013 HGTyrwhitt , ,032 RRCooke , ,006 MCGray , ,016 LWVoyer , ,016 DKSaxelby , ,049 Shareoptionsgrantedon4May2009,theexercisepricewas$19.49,thefirsttestdateis4May2012,andallunexercisedshareoptionswill lapseon4may2014 HGTyrwhitt , ,000 RRCooke , ,000 MCGray , ,000 CALaslett , ,000 GMPalin , ,000 BAMunro , ,000 LWVoyer , ,000 DGStewart , ,000 SMSasse , ,000 DKSaxelby , ,000 TOTAL 739, The exercise price for the options was amended as at 1 July 2011 as per the ASX Listing Rule formula and notified to the ASX on 24 June This table represents the exercise price as at 31 December The total shareholder return tranche of the 2008 option grant did not meet the hurdles on the first or subsequent test dates being 25 January 2011, 25 July 2011 and 25 January The tranche will be retested on 25 July The options in this column represent the portion of the 2008 option grant earnings per share parcel that vested being 20.13%. The lapsed 79.87% were previously reported. On the exercise of each option, by paying the exercise price (being $19.27 for the 2006 grant; $44.91 for the 2008 grant; $18.87 for the 2009 grant), the holder received one fully paid ordinary share in Leighton Holdings Limited. These represent options granted that lapsed during the December 2011 Transitional Financial Year due to a failure to fully satisfy performance conditions or failure to exercise the options, and/or unvested options held that were forfeited upon cessation of employment with the Group. The amount is based on the weighted average closing market price on the date the options were exercised less the exercise price per option (which is based on the Volume Weighted Average Price (VWAP) over 20 trading days up to and including the date the grant was made) multiplied by the number of options exercised. This amount is the weighted average closing market price on the dates the options were exercised or lapsed. The ultimate value to the executive will depend on the actual market price on the ultimate date of sale. The amount is based on the weighted average closing market price on the date the options lapsed less the exercise price per option (which is based on the Volume Weighted Average Price (VWAP) over 20 trading days up to and including the date the grant was made) multiplied by the number of options lapsed.

113 Numberofshare options exercisablein December2011 Transitional FinancialYear 3 Numberofshare optionsexercised indecember 2011Transitional FinancialYear 4 Numberofshare optionsforfeited /lapsed 5 Balanceshare options 31Dec2011 Valueexercised indecember 2011Transitional FinancialYear (A$) 6 Closingshare priceonexercise date (A$) 7 Valueforfeited/ lapsed(a$) 8 65,000 87, ,500 74, (100,000) (94,000) 42,500 18, ,032 30,032 1,006 6,006 2,516 15,016 2,516 15,016 7,549 (45,049) 80,000 18,000 35,000 25,000 50,000 25,000 35,000 (50,000) (15,000) (50,000) 18, ,000 (260,049) 334, ,625 (94,000) 111

114 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORS REPORT CONTINUED REMUNERATION REPORT CONTINUED Table 6.2: Performance rights granted to Executive Directors Name Dateof interest award Number nominated VWAPat dateof award (A$) 1 Valueat dateof award (A$) Firsttest date Balanceof interest 30Jun2011 Balanceof interest 30Dec2011 PerformancerightsawardedtoExecutiveDirectorssubjecttocontracttermsandshareholderapprovalattheNovember2011AGM FairValueof grantin December2011 Transitional FinancialYear (A$) 2 PAGregg , ,275, ,466 38, ,235 DGStewart , ,500, ,423 75, ,082 Total 113,889 3,775, , , ,317 1 The Volume Weighted Average Price of Leighton Holdings Limited securities over 15 trading days up to and including 15 December 2010 was $ The fair value of equity instruments is determined as at the date of interest granted and is progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that senior executives may ultimately realise should the equity instruments vest. The fair value of equities at the date of their grant has been determined in accordance with AASB 2. 3 Mr Gregg was appointed as Chief Financial Officer on 14 October 2009 and an Executive Director on 23 December He is entitled to an annual award of securities under his executive contract based on 75% fixed remuneration divided by $ (VWAP). Shareholder approval was received at the November 2011 AGM. 4 Mr Stewart was entitled under his executive contract to three annual tranches of 75,423 shares in Leighton Holdings Limited. On termination of his employment on 19 November 2011, Mr Stewart is entitled to receive the first tranche of 75,423 shares, and shareholder approval was received at the November 2011 AGM. The remaining two tranches lapsed on termination. The Leighton Holdings Limited Directors Report for the December 2011 Transitional Financial Year is signed at Sydney on the 13th day of February 2012 in accordance with a resolution of the Directors. S P Johns Chairman H G Tyrwhitt Chief Executive Officer 112

115 CONCISE FINANCIAL REPORT Devil Creek Development Western Australia John Holland 113

116 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT for the period ended 31 December monthsto 12monthsto December2011 June2011 Note $m $m Revenue 2 10, ,561.3 Expenses 3 (9,365.5) (15,363.2) Financecosts 4 (90.5) (159.6) Shareofprofits/(losses)ofassociatesandjointventureentities (237.8) (529.4) Profit/(loss)beforetax (490.9) Incometax(expense)/benefit (130.5) 85.2 Profit/(loss)fortheperiod (405.7) Attributableto: Membersoftheparententity (408.8) Minorityinterest Profit/(loss)fortheperiod (405.7) Dividendspershare Final* nil Interim* 6 n/a 60.0 Basicearningspershare (133.1 ) Dilutedearningspershare (133.1 ) * The effect of the change in the financial year to a 31 December year end date is that a dividend declared in respect of a 6 month period ended 31 December is a final dividend and a dividend declared in respect of a 6 month period ended 30 June is an interim dividend. The Consolidated Income Statement is to be read in conjunction with the notes to the Concise Financial Report. 114

117 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period ended 31 December monthsto 12monthsto December2011 June2011 $m $m Profit/(loss)fortheperiod(beforeminorityinterest) (405.7) Othercomprehensiveincome: Foreignexchangetranslationdifferences(netoftax) 68.5 (269.2) Effectiveportionofchangesinfairvalueofcashflowhedges(netoftax) Changeinfairvalueofavailableforsaleassets(netoftax) (6.7) Changeinvalueofequityreserves(netoftax) (0.8) (7.1) Netgain/(loss)recogniseddirectlyinequity 98.1 (280.0) Totalcomprehensiveincome/(expense)fortheperiod (685.7) Attributableto: Membersoftheparententity (688.8) Minorityinterest Totalcomprehensiveincome/(expense)fortheperiod (685.7) The Consolidated Statement of Comprehensive Income is to be read in conjunction with the notes to the Concise Financial Report. 115

118 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONTINUED CONSOLIDATED BALANCE SHEET as at 31 December 2011 December2011 June2011 Note $m $m Assets Cashandcashequivalents 1, ,414.7 Tradeandotherreceivables 2, ,484.0 Currenttaxassets Inventories:consumablesanddevelopmentproperties Property,plantandequipment Totalcurrentassets 4, ,732.9 Tradeandotherreceivables Inventories:developmentproperties Investmentsaccountedforusingtheequitymethod ,003.6 Otherinvestments Deferredtaxassets Property,plantandequipment 2, ,614.5 Intangibles Totalnoncurrentassets 5, ,067.3 Totalassets 9, ,800.2 Liabilities Tradeandotherpayables 4, ,639.3 Currenttaxliabilities Provisions Interestbearingliabilities Totalcurrentliabilities 5, ,250.2 Tradeandotherpayables Provisions Interestbearingliabilities 7 1, ,555.2 Totalnoncurrentliabilities 2, ,230.1 Totalliabilities 7, ,480.3 Netassets 2, ,319.9 Equity Sharecapital 2, ,016.2 Reserves (209.3) (305.7) Retainedearnings Totalequityattributabletoequityholdersoftheparent 2, ,236.7 Minorityinterest Totalequity 2, ,319.9 The Consolidated Balance Sheet is to be read in conjunction with the notes to the Concise Financial Report. 116

119 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2011 Share Capital $m Reserves $m Retained Earnings $m Attributable toequity Holders $m Minority Interest $m Total Equity $m Totalequityat30June2010 1,232.9 (40.5) 1, , ,568.1 Totalcomprehensiveincome (280.0) (408.8) (688.8) 3.1 (685.7) Transactionswithownersintheir capacityasowners: Contributionsofequity Dividends (437.3) (437.3) (437.3) Sharebasedpayments Other Totaltransactionswithowners (437.3) Minorityacquisitionofcontrolled entity Totalequityat30June2011 2,016.2 (305.7) , ,319.9 Totalcomprehensiveincome Transactionswithownersintheir capacityasowners: Contributionsofequity Dividends Sharebasedpayments (1.7) (1.7) (1.7) Other (5.3) (5.3) Totaltransactionswithowners 11.0 (1.7) 9.3 (5.3) 4.0 Totalequityat31December2011 2,027.2 (209.3) , ,766.9 The Consolidated Statement of Changes in Equity is to be read in conjunction with the notes to the Concise Financial Report. 117

120 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONTINUED CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31 December monthsto 12monthsto December2011 June2011 $m $m Cashflowsfromoperatingactivities Cashreceiptsinthecourseofoperations(includingGST) 11, ,040.5 Cashpaymentsinthecourseofoperations(includingGST) (10,672.8) (15,340.6) Cashflowsfromoperatingactivities ,699.9 Dividendsreceived 0.1 Interestreceived Financecostspaid (66.9) (128.4) Incometaxespaid (50.8) (274.2) Netcashfromoperatingactivities ,321.3 Cashflowsfrominvestingactivities Paymentsforintangibles (30.8) Paymentsforplantandequipment (502.3) (1,378.5) Proceedsfromsaleofproperty,plantandequipment Paymentsforinvestmentsincontrolledentitiesandbusinesses (5.0) (8.7) Cashacquiredfromacquisitionofinvestmentsincontrolledentitiesandbusinesses 22.8 Proceedsfromsaleofinvestmentsincontrolledentitiesandbusinesses Cashdisposedfromsaleofinvestmentsincontrolledentitiesandbusinesses (108.5) Proceedsfromsaleofotherinvestments Loanstoassociates (122.3) (300.6) Netcashfrominvestingactivities (156.3) (1,600.7) Cashflowsfromfinancingactivities Proceedsfromshareissues Proceedsfromborrowings Repaymentofborrowings (199.5) (207.6) Repaymentoffinanceleases (68.8) (62.3) Distributionstominorityinterest (5.1) (0.3) Dividendspaid (437.3) Netcashfromfinancingactivities (39.4) Netincrease/(decrease)incashheld Netcashatthebeginningoftheperiod 1, ,313.7 Effectsofexchangeratefluctuationsoncashheld 50.0 (92.1) Netcashatreportingdate 1, ,414.7 The Consolidated Statement of Cash Flows is to be read in conjunction with the notes to the Concise Financial Report. 118

121 NOTES TO THE CONCISE FINANCIAL REPORT for the period ended 31 December 2011 NOTE 1 BASIS OF PREPARATION OF THE CONCISE FINANCIAL REPORT Leighton Holdings Limited (the Company ) obtained approval from the Australian Securities and Investments Commission ( ASIC ) to change its financial year end date from 30 June to 31 December. As a result the current financial year of the Company is the 6 month period 1 July 2011 to 31 December As such, the amounts presented in the financial report are not entirely comparable. Effective 1 January 2012, the financial years of the Company are for twelve month periods ending 31 December which aligns with the financial year of its major shareholder, HOCHTIEF Australia Holdings Limited ( HOCHTIEF ) and its ultimate parent, Actividades de Construcción y Servicios, SA ( ACS ). The concise financial report has been prepared in accordance with the Corporations Act 2001 and Accounting Standard AASB 1039 Concise Financial Reports. The financial statements and specific disclosures required by AASB 1039 have been derived from the Consolidated Entity s full financial report for the financial period. Other information included in the concise financial report is consistent with the Consolidated Entity s full financial report. The concise financial report does not, and can not be expected to, provide as full an understanding of the financial performance, financial position and financing and investing activities of the Group as the full financial report. Further financial information can be obtained from the Consolidated Entity s full financial report which is available free of charge on request. The concise financial report is presented in Australian dollars and has been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale assets that have been measured at fair value at reporting date. All financial information presented in Australian dollars has been rounded off to the nearest hundred thousand dollars, unless otherwise stated. The Consolidated Entity s accounting policies have been consistently applied by each entity in the Group and are consistent with those in the previous year. A full description of the accounting policies adopted by the Consolidated Entity may be found in the Consolidated Entity s full financial report. NOTE 2 REVENUE Note 6monthsto December2011 $m 12monthsto June2011 $m Constructioncontractingservices 5, ,159.7 Miningcontractingservices 3, ,177.0 Propertydevelopmentrevenue Otherservicesrevenue ,118.3 Revenuefromexternalcustomers 10, ,531.5 Interest Relatedparties Otherparties Unwindingofdiscountsonnoncurrentreceivables Relatedparties Otherparties Dividends/distributions 0.1 Otherrevenue Totalrevenue 5 10, ,

122 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONTINUED NOTES CONTINUED NOTE 3 EXPENSES Note 6monthsto December2011 $m 12monthsto June2011 $m Materials (2,369.4) (4,369.9) Subcontractors (2,364.8) (3,777.2) Plantcosts (779.3) (1,166.2) Personnelcosts (2,292.0) (4,100.8) Depreciationofproperty,plantandequipment 4 (512.7) (865.6) Amortisationofintangibles 4 (33.0) (0.6) Netgain/(loss)onsaleofassets Netgainonacquisitionofcontrolledentities Impairments 4 (123.9) (301.1) Propertydevelopmentandpropertyjointventureswritedowns (0.6) (80.1) Propertydevelopmentcostofgoodssold (548.7) (78.1) Foreignexchangegains/(losses) (8.7) 2.8 Operatingleasepaymentsplantandequipment (151.3) (324.8) Operatingleasepaymentsother (46.2) (84.7) Professionalandconsultancyfees (150.6) (245.5) Otherexpenses (229.1) (394.6) Totalexpenses (9,365.5) (15,363.2) 120

123 NOTE 4 ITEMS INCLUDED IN PROFIT / (LOSS) BEFORE TAX Financecosts Interest 6monthsto December2011 $m 12monthsto June2011 $m Relatedparties (1.2) (4.2) Otherparties (52.0) (108.2) Financechargeforfinanceleases (9.6) (10.3) Facilityfees (16.3) (26.0) Impactofdiscounting Relatedparties (10.5) (9.3) Interestrateswapcloseouttransferredfromequity (0.9) (1.6) Totalfinancecosts (90.5) (159.6) Depreciationofproperty,plantandequipment Buildings (1.4) (3.0) Plantandequipment (505.5) (849.5) Leaseholdland,buildingsandimprovements (5.8) (13.1) Totaldepreciationofproperty,plantandequipment (512.7) (865.6) Amortisation Intangibles (33.0) (0.6) Netgain/(loss)onsaleofassets Controlledentitiesandbusinesses Otherinvestments 49.0 Landandbuildings 0.2 Plantandequipment Totalgain/(loss)onsaleofassets Netgainonacquisitionofcontrolledentities Controlledentities Impairments Investmentsininfrastructuretollroadcompanies (70.0) (4.0) Investmentsaccountedforusingtheequitymethod (50.0) (296.4) Otherinvestments (0.8) Intangibles (3.1) (0.7) Totalimpairments (123.9) (301.1) 121

124 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONTINUED NOTES CONTINUED NOTE 5 SEGMENT INFORMATION 6monthsto Leighton December2011 Thiess Contractors $m $m Leighton John MiddleEast Holland &Africa $m $m Leighton Asia,India& Commercial Offshore &Residential $m $m Corporate $m Eliminations $m Total $m Revenue Segmentrevenuebefore 3, , , , (108.5) 12,146.9 interest Interestrevenue Segmentrevenue 3, , , , (108.5) 12,176.9 Intersegmentrevenue (108.5) Segmentjointventureand associaterevenue ,007.7 Externalrevenue 3, , , , ,169.2 Result Segmentresultbefore (71.1) (41.2) interest,gainsonsaleand impairments Interest (16.5) (7.9) (32.8) (9.8) (17.3) (6.2) (90.5) Segmentresult before gains on sale and impairments (103.9) (47.4) Gainonsaleofcontrolled entitiesandbusinesses Impairments (37.8) (0.3) (35.0) (50.0) (0.8) (123.9) Segmentresult (153.9) (48.2) Incometax(expense)/ (130.5) benefit Profit/(loss)fortheperiod Other Shareofprofit/(loss)of associatesandjointventure entities (170.0) (28.3) 20.0 (78.2) (237.8) Depreciation (221.8) (156.9) (41.7) (90.0) (0.5) (1.8) (512.7) Othermaterialnoncash expenses (37.8) (32.2) (35.0) (50.0) (0.6) (2.0) (157.6) AssetsandLiabilities Reportablesegmentassets 1, , , , , ,568.4 Reportablesegmentliabilities 1, , , , ,

125 NOTE 5 SEGMENT INFORMATION CONTINUED Leighton Leighton 12monthsto Leighton John MiddleEast Asia,India& Commercial June2011 Thiess Contractors Holland &Africa Offshore &Residential Corporate $m $m $m $m $m $m $m Revenue Eliminations $m Total $m Segmentrevenuebefore 6, , , , (14.6) 19,347.0 interest Interestrevenue Segmentrevenue 6, , , , (14.6) 19,376.7 Intersegmentrevenue (14.6) Segmentjointventureand associaterevenue 1, ,815.4 Externalrevenue 4, , , , ,561.3 Result Segmentresultbefore (316.8) (243.8) (176.7) (71.7) (85.3) (390.6) interest,gainsonsaleand acquisitionandimpairments Interest (39.9) (11.2) (28.8) (27.9) (21.5) (30.3) (159.6) Segmentresult before gains on sale and acquisitionandimpairments (316.8) (255.0) (205.5) (93.2) (115.6) (550.2) Gainonsaleofcontrolled entitiesandbusinesses Gainonacquisitionof controlledentities Impairments (0.7) (4.0) (286.9) (9.5) (301.1) Segmentresult (317.5) (255.0) (492.4) (93.2) (24.1) (490.9) Incometax(expense)/ 85.2 benefit Profit/(loss)fortheperiod (405.7) Other Shareofprofit/(loss)of (486.3) (155.7) (1.4) (529.4) associatesandjointventure entities Depreciation (367.3) (304.9) (83.4) (105.2) (0.4) (4.4) (865.6) Othermaterialnoncash expenses (0.7) (4.6) (286.9) (80.1) (9.5) (381.8) AssetsandLiabilities Reportablesegmentassets 1, , , , ,664.0 Reportablesegmentliabilities 1, , , ,

126 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONTINUED NOTES CONTINUED NOTE 6 DIVIDENDS 2011finaldividend Centspershare $m SubsequenttoreportingdatetheCompanyannouncedanunfrankedfinaldividendinrespectof theperiodended31december2011.thedividendispayableon30march2012.thisdividendhas notbeenprovidedforinthebalancesheet Dividendsrecognisedinthereportingperiodto31December NofinaldividendwasdeclaredbytheCompanyinrespectoftheperiodended30June2011 nil nil Dividendsrecognisedinthereportingperiodto30June interimordinarydividend100%frankedpaidon31March finalordinarydividend100%frankedpaidon30September

127 NOTE 7 INTEREST BEARING LIABILITIES December2011 June2011 $m $m Current Interestbearingloans Financeleaseliabilities Interestbearingliabilitieslimitedrecourseloans Totalcurrentliabilities Noncurrent Interestbearingloans ,152.2 Financeleaseliabilities Interestbearingliabilitieslimitedrecourseloans Totalnoncurrentliabilities 1, ,555.2 Totalinterestbearingliabilities 2, ,826.5 Interest Bearing Loans Syndicated Loans On 10 October 2008, Leighton Finance Limited, a wholly owned subsidiary of the Company, entered into a syndicated bank facility for $520.0 million, maturing on 10 October On 8 December 2010, the syndicated bank facility was amended and restated to $600.0 million, maturing on 8 December Carrying amount at 31 December 2011: $nil (30 June 2011: $nil). LMENA No.1 Pty Limited, a wholly owned subsidiary of the Company, has a syndicated bank loan for US$368.2 million which is guaranteed by the Group. Carrying amount at 31 December 2011: US$312.3 million (30 June 2011: US$331.6 million) equivalent to $312.3 million (30 June 2011: $309.9 million), of which all is due for repayment within twelve months of the reporting date. Guaranteed Senior Notes On 15 October 2008, Leighton Finance Limited, a wholly owned subsidiary of the Company, issued a total of US$280.0 million Guaranteed Senior Notes in three series: Series A Notes: US$111.0 million Guaranteed Senior Notes at the rate of 6.91% maturing on 15 October 2013 Series B Notes: US$90.0 million Guaranteed Senior Notes at the rate of 7.19% maturing on 15 October 2015 Series C Notes: US$79.0 million Guaranteed Senior Notes at the rate of 7.66% maturing on 15 October 2018 Interest on the above notes is paid semi-annually on the 15 th day of April and October in each year. Carrying amount at 31 December 2011: US$278.9 million (30 June 2011: US$278.5 million) equivalent to $278.9 million (30 June 2011: $260.3 million). 125

128 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR CONCISE FINANCIAL REPORT CONTINUED NOTES CONTINUED NOTE 7 INTEREST BEARING LIABILITIES - CONTINUED On 21 July 2010, Leighton Finance (USA) Pty Limited, a wholly owned subsidiary of the Company, issued a total of US$350.0 million Guaranteed Senior Notes in three series: Series A Notes: US$90.0 million Guaranteed Senior Notes at the rate of 4.51% maturing on 21 July 2015 Series B Notes: US$145.0 million Guaranteed Senior Notes at the rate of 5.22 % maturing on 21 July 2017 Series C Notes: US$115.0 million Guaranteed Senior Notes at the rate of 5.78 % maturing on 21 July 2020 Interest on the above notes is paid semi-annually on the 21 st day of January and July in each year. Carrying amount at 31 December 2011: US$348.6 million (30 June 2011: US$348.4 million) equivalent to $348.6 million (30 June 2011: $325.6 million). Medium Term Notes Leighton Finance Limited, a wholly owned subsidiary of the Company, issued a total of $280.0 million Medium Term Notes on the following dates: 28 July 2009: $230.0 million 12 August 2009: $50.0 million The Notes bear interest at the rate of 9.5% paid quarterlyand mature on 28 July Bilateral Loans On 4 August 2011, Leighton Finance (USA) Pty Limited, a wholly owned subsidiary of the Company, entered into a bilateral bank facility with The Hong Kong and Shanghai Banking Corporation Limited for US$110.0 million, maturing on 31 July Carrying amount at 31 December 2011: US$110.0 million (30 June 2011: US$nil) equivalent to $110.0 million (30 June 2011: $nil). Other Unsecured Loans Other unsecured loans outstanding as at 31 December 2011: $44.6 million (30 June 2011: $45.0 million). Other unsecured loans expected to be settled more than twelve months after reporting date: $6.5 million (30 June 2011: $7.8 million). Finance Lease Liabilities The Group has leased mining plant and equipment in Indonesia, Mongolia and Australia under finance leases that expire within five years of the reporting date. Limited Recourse Loans The Group has limited recourse property development loans secured against certain property development assets of the Group. Carrying amount at 31 December 2011: $195.2 million (30 June 2011: $261.7 million). 126

129 NOTE 8 CONTINGENT LIABILITIES Bank guarantees, insurance bonds and letters of credit Contingent liabilities under indemnities given on behalf of controlled entities in respect of: December2011 June2011 $m $m Bankguarantees 2, ,550.4 Insurance,performanceandpaymentbonds Lettersofcredit Letters of credit include those provided for the Group s capital commitments totalling $315.3 million (30 June 2011: $275.2 million) and those provided to HLG totalling $40.0 million (30 June 2011: $37.4 million). Other contingencies i) The Company is called upon to give, in the ordinary course of business, guarantees and indemnities in respect of the performance by controlled entities, associates and related parties of their contractual and financial obligations. The value of these guarantees and indemnities is indeterminable in amount. ii) There exists in some members of the Group the normal design liability in relation to completed design and construction projects. iii) Certain members of the Group have the normal contractor s liability in relation to construction contracts. This liability may include litigation by or against the Group and / or joint venture arrangements in which the Group has an interest. It is not possible to estimate the financial effect of these claims should they be successful. The Directors are of the opinion that adequate allowance has been made and that disclosure of any further information about the claims would be prejudicial to the interests of the Group. iv) Controlled entities have entered into joint venture arrangements under which the controlled entity may be jointly and severally liable for the liabilities of the joint venture arrangement. v) Under the terms of the Class Order described in the Leighton Holdings Financial Report 31 December 2011, note 37: Leighton Holdings Limited and controlled entities, the Company has entered into approved deeds of indemnity for the cross-guarantee of liabilities with participating Australian subsidiary companies. vi) On 13 February 2012, the Company announced to the Australian Securities Exchange that it had reported to the Australian Federal Police ( AFP ) a possible breach of its Code of Ethics that, if substantiated, may contravene Australian laws. The possible breach related to payments that may have been made by a subsidiary company Leighton Offshore Pte. Limited in connection with work to expand offshore loading facilities for Iraq's crude oil exports. At this stage it is not known whether there has been any wrongful or illegal conduct, or whether there will be any adverse financial consequences for the Company. The AFP investigation is at an early stage and, accordingly, the Company is not in a position to make any further comment. NOTE 9 EVENTS SUBSEQUENT TO REPORTING DATE Subsequent to reporting date the Group: declared an unfranked final dividend of 60 cents; provided a further $13.6 million in cash collateral for amounts drawn by HLG on a loan facility; and provided a further interest bearing loan of $20.4 million to HLG under the same terms as the loans provided at the reporting date. The Directors approved the financial report on 13 February

130 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR STATUTORY STATEMENTS AND SHAREHOLDER INFORMATION Zayed University United Arab Emirates Habtoor Leighton Group 128

131 129

132 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR STATUTORY STATEMENTS DIRECTORS DECLARATION In the opinion of the Directors of Leighton Holdings Limited, the accompanying concise financial report of the Consolidated Entity, comprising Leighton Holdings Limited and the entities it controlled, for the 6 month financial period ended 31 December 2011 set out on pages 113 to 127: a) has been derived from, or is consistent with, the full financial report for the financial period ended 31 December 2011; and b) complies with Accounting Standard AASB 1039 Concise Financial Reports. Signed for and on behalf of the Board in accordance with a resolution of the Directors: S P Johns Chairman H G Tyrwhitt Chief Executive Officer Dated at Sydney this 13th day of February

133 KPMG INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF LEIGHTON HOLDINGS LIMITED Report on the concise financial report We have audited the accompanying concise financial report of Leighton Holdings Limited (the Company ) which comprises the Consolidated Balance Sheet as at 31 December 2011, the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows for the 6 month period then ended and related notes 1 to 9 derived from the audited financial report of Leighton Holdings Limited for the 6 month period ended 31 December The concise financial report does not contain all the disclosures required by Australian Accounting Standards and accordingly, reading the concise financial report is not a substitute for reading the audited financial report. Directors responsibility for the concise financial report The directors of the Company are responsible for the preparation and presentation of the concise financial report in accordance with Australian Accounting Standard AASB 1039 Concise Financial Reports and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the concise financial report. Auditor s responsibility Our responsibility is to express an opinion on the concise financial report based on our audit procedures which were conducted in accordance with Auditing Standard ASA 810 Engagements to Report on Summary Financial Statements. We have conducted an independent audit, in accordance with Australian Auditing Standards, of the financial report of Leighton Holdings Limited for the 6 month period ended 31 December We expressed an unmodified audit opinion on the financial report in our report dated 13 February The Australian Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report for the period is free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the concise financial report. The procedures selected depend on the auditor s judgement, including the risk of material misstatement of the concise financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the concise financial report in order to design procedures, that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Our procedures included testing that the information in the concise financial report is derived from, and is consistent with, the financial report for the year, and examination on a test basis, of evidence supporting the amounts and other disclosures which were not directly derived from the financial report for the year. These procedures have been undertaken to form an opinion whether, in all material respects, the concise financial report complies with Australian Accounting Standard AASB 1039 Concise Financial Reports and whether the discussion and analysis complies with the requirements laid down in Australian Accounting Standard AASB 1039 Concise Financial Reports. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act Auditor s opinion In our opinion, the concise financial report of Leighton Holdings Limited for the 6 month period ended 31 December 2011 complies with Australian Accounting Standard AASB 1039 Concise Financial Reports. Report on the Remuneration Report We have audited the Remuneration Report included in pages 75 to 112 of the Directors Report for the 6 month period ended 31 December The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor s opinion In our opinion, the Remuneration Report of Leighton Holdings Limited for the 6 month period ended 31 December 2011, complies with Section 300A of the Corporations Act KPMG A W Young Partner Sydney, 13 February

134 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR SHAREHOLDINGS Information as to shareholdings on 9 March 2012 is as follows: SUBSTANTIAL SHAREHOLDINGS The names of the substantial shareholders and the numbers of equity securities in which they have a relevant interest, as disclosed in substantial holding notices given to the company, are: Name HOCHTIEFAustraliaHoldingsLimited Thefollowingcompaniesholdarelevantinterest intheseshares: HOCHTIEFAsiaPacificGmbH(theparent companyofhochtiefaustraliaholdings Limited) HOCHTIEFAktiengesellschaft(theultimate holdingcompanyofhochtiefaustralia HoldingsLimited) CariátideSA(theparentcompanyof HOCHTIEFAktiengesellschaft)whichhasalso lodgedasubstantialholdingnoticewiththe company ActividadesdeConstrucciónyServicios,SA (theparentcompanyofcariátidesa) No.ofshares 163,844,626 SHARE CLASSES AND DISTRIBUTION SCHEDULE As at 9 March 2012, the company had 337,087,596 ordinary shares on issue, and had no other class of shares on issue as at that date. The distribution of shareholders on that date was as follows: Sizeof shareholding No.of shareholders Ordinary sharesheld 2 %ofissued capital 1 1, ,613 15,139, ,001 5,000 13,464 27,129, ,001 10,000 1,322 9,027, , , ,203, ,001andover ,587, Total 63, ,087, There were 1,304 shareholders with less than a marketable parcel (22 shares), based on the market price of $23.49 as at 9 March The voting rights for ordinary shares are as follows: On a show of hands every member present in person or by proxy or attorney or duly appointed representative has one vote and on a poll every member so present has one vote for every fully paid share held by that member. TWENTY LARGEST SHAREHOLDERS 9 MARCH 2012 The percentage of the total holding of the 20 largest shareholders, as shown in the company s Register of Shareholders, is 79.75% and their names and number of shares held are as follows: Name No.ofshares %ofissued capital HOCHTIEFAustraliaHoldings 180,101, Limited HSBCCustodyNominees 22,607, (Australia)Limited JPMorganNomineesAustralia 20,808, Limited NationalNomineesLimited 15,951, JPMorganNomineesAustralia 11,236, Limited<CashIncomeA/C> CiticorpNomineesPtyLimited 9,967, CogentNomineesPtyLimited 1,336, CiticorpNomineesPtyLimited 1,238, <ColonialFirstStateINVA/C> MiltonCorporationLimited 717, GwynvillInvestmentsPty 683, Limited AMPLifeLimited 611, ArgoInvestmentsLimited 583, NavigatorAustraliaLtd<MLC 473, InvestmentSettA/C> EquityTrusteesLimited<SGH20> 440, UBSWealthManagement 421, AustraliaNomineesPtyLtd MFCustodiansLtd 412, CogentNomineesPtyLimited 395, <SLNonCashCollateralA/C> QueenslandInvestment 345, Corporation BondStreetCustodiansLimited 278, <MacquarieAlphaOpportA/C> NulisNominees(Australia) 271, Limited<NavigatorMastPlan SettA/C> Total 268,882, Totalsharesonissue 337,087,

135 SHAREHOLDER INFORMATION REQUEST A COPY OF THE DECEMBER 2011 FULL FINANCIAL REPORT A copy of the Group s December 2011 Full Financial Report, including the independent Audit Report, is available to all shareholders, and will be sent to shareholders without charge upon request. The December 2011 Full Financial Report can be requested by telephone from our Public Information Coordinator on (02) and is available on our website at ENQUIRIES If you have any questions about your shareholding, dividend payments, tax file number, change of address or any other enquiry, you should contact our Shareholder Enquiry Line at Computershare Investor Services Pty Limited: by phone on (local) or (international) by fax on (local) or (international) by at in writing to: Computershare Investor Services Pty Limited GPO Box 2975 Melbourne VIC 3001 Australia DIVIDEND PAYMENT The final dividend payment of 60 cents per share will be paid on 30 March 2012 and will be unfranked. DIRECT DIVIDEND DEPOSIT INTO BANK ACCOUNTS If you are an Australian resident shareholder, any dividends will be paid directly into your nominated bank, building society or credit union account in Australia on the dividend payment date. Details of dividend payments will be confirmed either by an advice mailed or ed to you on that date. TAX FILE NUMBERS Since 1 July 1991, all companies have been obliged to deduct tax at the top marginal rate from unfranked dividends paid to investors, resident in Australia, who have not supplied them with a tax file number or exemption particulars. Tax will not be deducted from the franked portion of a dividend. If you have not already done so, a Tax File Number Notification form or Tax File Number Exemption form should be completed for each holding and returned to our Share Registrar, Computershare Investor Services Pty Limited. Please note you are not required by law to provide your tax file number if you do not wish to do so. SECURITIES EXCHANGE LISTINGS Leighton Holdings is listed on the Australian Securities Exchange (ASX). The home branch is Sydney. SHAREHOLDING INFORMATION Information regarding substantial shareholders, twenty largest shareholders and the distribution schedule is on page 132 of this Concise Annual Report. SHARE BUY-BACK We do not have a current on-market buy-back program. OTHER AVAILABLE PUBLICATIONS In addition to the Concise Annual Report we distribute Shareholder Updates to all shareholders who have indicated their preference to receive publications. Other interested parties wishing to receive publications should contact the Public Information Coordinator on (02) FINANCIAL CALENDAR A current financial calendar is available on our website. Please note that timing of events can be subject to change. If you have not provided your bank account details you will not receive your dividend until you do so. You can provide your bank account details by contacting the Share Registrar, Computershare Investor Services Pty Limited. If you subsequently change your bank account details, please promptly notify the Registrar in writing quoting your old bank account number as an added security check. 133

136 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR 5 YEAR STATISTICAL SUMMARY Summaryoffinancialposition December 2011 # June2011 June2010 June2009 June2008 Sharecapital 2, , , , Totalequityattributabletoequityholdersoftheparent 2, , , , ,485.0 Totalequity 2, , , , ,485.2 Totalliabilities 7, , , , ,979.0 Totalassets 9, , , , ,464.2 Summaryoffinancialperformance RevenueGroup,jointventuresandassociates 12, , , , ,542.2 Profitbeforefinancecostsandtax (331.3) 1, Profit/(loss)beforetax (490.9) Incometax(expense)/benefit (130.5) 85.2 (227.5) (146.0) (158.9) Profit/(loss)fortheperiod (405.7) Profit/(loss)fortheperiodattributabletomembersof (408.8) theparententity Financialstatistics Dividendsperordinaryshare Earningsperordinaryshare basic (133.1 ) diluted (133.1 ) Returnonaverageequityattributabletomembersofthe 13.8% (17.0%) 25.0% 23.0% 42.9% parententity Returnontotalassets 3.4% (4.2%) 7.0% 5.7% 9.4% Profitbeforefinancecostsandtaxtototalrevenue 4.7% (1.7%) 5.5% 4.1% 6.2% Profitfortheperiodattributabletomembersofthe 2.8% (2.1%) 3.3% 2.4% 4.2% parententitytototalrevenue Dividendtimescovered 1.7 (2.2) Dividendpayoutratio 59.4% (45.1%) 73.3% 77.9% 66.3% Interesttimescovered 6.3 (2.1) Nettangibleassetsperordinaryshare $7.41 $6.43 $8.13 $7.43 $4.91 Currentratio Totalequitytototalassets 28.0% 23.7% 29.3% 30.4% 23.0% Totalequitytototalliabilities 38.8% 31.0% 41.4% 43.7% 29.8% Grossborrowingstototalequity 77.5% 78.7% 65.0% 54.7% 103.6% # The current financial year of the company is the 6 month period from 1 July 2011 to 31 December 2011, and as such the information presented above is not entirely comparable. 134

137 December June2011 June2010 June2009 June # Safetystatistics Fatalities(Australia) Fatalities(International) TRIFR(Australia) TRIFR(International) LTIFR(Australia) LTIFR(International) LTISR(Australia) LTISR(International) Potentialclass1(Australia) Potentialclass1(International) Actualclass1(Australia) Actualclass1(International) Workforcestatistics Numberofemployees 53,113 51,281 45,340 39,327 37,112 Femaleparticipation(Australia) 17% 16% 15% 18% 16% Indigenousparticipation(Australia) 1.3% 1.5% 1.6% * * Environmentstatistics ** EIFR(Australia) EIFR(International) Scope1and2emissions 6 N/A 7 963,328t CO 2 e 928,246t CO 2 e 593,229t CO 2 e * Communitystatistics CorporateCommunityInvestment $2.64m $7.89m $4.64m $5.21m $3.81m # The current financial year of the company is the 6 month period from 1 July 2011 to 31 December 2011, and as such the information presented above is not entirely comparable. * Data not collected. Excludes LMEA (comprising HLG, Leighton Africa and Thiess Services). ** Excludes HLG. 1 Total recordable injury frequency rate (per million hours worked). 2 Lost time injury frequency rate (per million hours worked). 3 Lost time injury severity rate (per million hours worked). 4 Class 1 risks are those which could cause a fatality or permanent disabling injury. 5 Environmental incident frequency rate (Level 1 and 2) per million hours worked. 6 Direct and indirect greenhouse gas emissions for Australian operations for which Operating Companies have operational control as reported under the National Greenhouse and Energy Reporting Act Data to be reported on a 12 month basis from 1 July 2011 to 30 June

138 LEIGHTON CONCISE ANNUAL REPORT FOR THE DECEMBER 2011 TRANSITIONAL FINANCIAL YEAR DIRECTORY AND OFFICES LEIGHTON HOLDINGS LIMITED Principal Registered Office in Australia Leighton Holdings Limited ABN HeadOffice 472PacificHighway StLeonardsNSW2065 Australia T: F: LEIGHTON GROUP OPERATING COMPANIES Board of Directors StephenPaulJohns HamishGordonTyrwhitt PeterAllanGregg AchimDrescher PaulaJaneDwyer RobertDouglasHumphrisOAM IanJohnMacfarlaneAC WayneGeoffreyOsborn DavidPaulRobinson PeterWilhelmSassenfeld DrFrankStieler ManfredHeinrichWennemer Alternate Directors RobertLeslieSeidlerAM Associate Directors MarkCharlesGray CraigAllenLaslett BruceAlwinMunro GlennMichaelPalin LaurieWilliamVoyer Company Secretaries AshleyJohnMoir VanessaRobynRees Principal Bankers Australia and New Zealand Banking Group Limited Level1,20MartinPlace SydneyNSW2000Australia Commonwealth Bank of Australia 48MartinPlace SydneyNSW2000Australia National Australia Bank Limited 255GeorgeStreet SydneyNSW2000Australia Auditor KPMG TheKPMGCentre 10ShelleyStreet SydneyNSW2000Australia Share Registrar Office Computershare Investor Services Pty Limited Level4 60CarringtonStreet SydneyNSW2000Australia T: (local) T: (international) Australia/Pacific Leighton Contractors Pty Limited ABN HeadOffice Level8,Tower1 495VictoriaAvenue ChatswoodNSW2067 Australia T: F: Thiess Pty Ltd ABN HeadOffice ThiessCentre 179GreyStreet SouthBankQld4101 LockedBag2009 SouthBrisbaneQld4101 Australia T: F: John Holland Group Pty Ltd ABN HeadOffice 70TrenerryCrescent AbbotsfordVic3067 Australia T: F: Leighton Properties Pty Limited ABN HeadOffice 472PacificHighway StLeonardsNSW2065 Australia T: F: Asia/India/Offshore Leighton Asia Limited Leighton Welspun Contractors Pvt Ltd Leighton Offshore HeadOffice Level23ThreePacificPlace 1Queen'sRoadEast HongKong T: F: Middle East and Africa Al Habtoor Leighton LLC Leighton Africa POBox10869 AirportRoad,Rashidiya Dubai UnitedArabEmirates T: F:

139 Cape Lambert Port B Expansion Western Australia John Holland 137