14
CIMIC Group Limited Annual Report 2016 |
Operating and Financial Review
STRATEGY
OPERATING MODEL
Since 2014, CIMIC’s operating model has been focused on the delivery of construction, mining and mineral processing, PPPs, and
engineering projects through dedicated activity-focused businesses. In FY16 CIMIC consolidated its strategy, following the reorganisation
of its businesses in the prior years around its core activities, and existing and strategic markets. This has assisted the Group to deliver an
improved operating performance.
CIMIC further diversified its existing activities, during FY16, mining new materials markets (e.g. mineral sands) and new geographies (e.g.
Canada), as well as through the strategic acquisitions of UGL and Sedgman. This was achieved by leveraging the Group’s financial
strength, focusing on cash generation and an improved risk profile.
The acquisition of UGL complements and expands CIMIC’s services capabilities and provides a platform to develop and grow our presence
in this strategic sector. Strong growth is expected from services opportunities particularly in road and rail infrastructure, oil and gas,
defence, water and renewable energy. CIMIC is already working alongside UGL in delivering the Melbourne Water Nutrient Removal
Plant, and the Sydney Metro Northwest Operations, Trains and Systems Public Private Partnership, which is a significant part of
Australia’s largest transport infrastructure project.
The Group’s mission is to generate sustainable economic returns for shareholders by delivering projects for our clients while providing
safe, rewarding and fulfilling careers for our people. CIMIC is in an exceptional position to capitalise on growth opportunities and pursue
selective acquisitions to support long-term sustainable growth, both domestically and internationally. The strategic acquisitions during
FY16, and the unconditional takeover offer for Macmahon in FY17, reflect this growth-oriented strategy.
The Group’s objectives are to:
•
continue to strengthen existing capabilities and win a fair share of work in construction, mining and mineral processing, services and
PPPs, by building on the Group’s strong competitive position;
•
develop and expand the Group’s services business by benefiting from complementary activities and securing opportunities in market
growth areas in Australia and select new geographies;
•
further expand in the PPP sector, building on the robust pipeline of opportunities in the Australia Pacific region;
•
achieve growth by diversifying according to commodity and activity in select markets and geographies, e.g. by further exporting
mining skills into North and South America;
•
expand existing capabilities into adjacent markets and services;
•
continue to pursue operational excellence and optimise operations to achieve sustainable profits and improve sustainability;
•
further develop FleetCo, our mining equipment hire business, which is using CIMIC’s existing business resources to gain new
opportunities and provide a flexible service to clients
; and
•
continue to foster a disciplined approach to capital allocation, e.g. the acquisitions of UGL and Sedgman, the share buy-back and the
divestment of Nextgen.
The Principles of Integrity, Accountability, Innovation and Delivery, underpinned by Safety, guide all of the Group’s activities.
ACQUISITIONS, DIVESTMENTS AND GROWTH
On 23 February 2016, CIMIC increased its ownership interest in Sedgman, a resources engineering entity formerly listed on ASX, to 51%
and thereby gained control of Sedgman. The acquisition was made through an unconditional off-market takeover offer. CIMIC
subsequently increased its ownership interest in Sedgman to greater than 90% and exercised its right to compulsorily acquire the
remaining shares and delist the Company, which was completed on 13 April 2016.
On 24 November 2016, CIMIC increased its ownership interest in diversified services company UGL, an entity formerly listed on ASX, to
over 50% and thereby gained control of UGL. The acquisition was made through an unconditional off-market takeover offer. CIMIC
subsequently increased its ownership interest in UGL to greater than 90% and exercised its right to compulsorily acquire the remaining
shares and delist the Company, which was completed on 20 January 2017. CIMIC is currently incorporating UGL into the Group’s stable.
On 5 December 2016, CIMIC completed the divestment of its interest in Nextgen, a network and data centre telecommunications
company. CIMIC sold its 29% holding to Ontario Teachers’ Pension Plan resulting in a profit before tax gain on sale of $70.1 million.
CIMIC’s strong balance sheet enables the Group to continue to evaluate acquisition or investment options that match our capabilities as
opportunities arise.
14
