King expects work in hand to reach $15bn

Leighton Contractors' CEO Wal King, expects work in hand for the group to peak at around $15 billion this quarter, following the Mitcham-Frankston Freeway project win, and ease back to $12.5 billion to $13 billion by June 2005.

He said the Mitcham-Frankston Freeway is a $2.5 billion project and the largest yet awarded in Australia. “It takes us well above the long-term trend in work in hand for the group, and that's not to say that from time to time we won't fall below the long-term trend.

“We'd expect our work in hand to fall back to $12 billion or $13 billion, but we're not necessarily concerned about that because to build on a timing peak would be unrealistic. What we're looking to do is continue to increase the diversity and size of the group and build on that $12 billion or $13 billion work in hand over time,” King said.

$6bn to $7bn

He added that revenue, going from $6 billion this year to around $7 billion next year, would increase steadily over the years ahead.

Leighton subsidiaries Thiess and John Holland, will share the $2.5 billion design and construction of the Mitcham-Frankston Freeway. So over the months of December and January the group will be spending money on design and establishment for the project, with onsite construction starting in earnest in early February.

King said: “We have a capital commitment of $260 million equity in the project, which goes in at the end, after we've earned our construction profit. And we have the ability to sell down $110 million immediately and sell the remainder progressively over the following three years.”

Questioned about the problems the group has with the Victorian Government in relation to the Spencer Street Station public-private partnership (PPP) project, and the chance of achieving an adequate return on the fixed-price, fixed-term freeway job, King said the freeway wasn't a PPP but a build, own, operate and transfer (BOOT) deal.

Owner outcome

“So it has an entirely different risk profile. Spencer Street was supposed to be a co-operative arrangement between all the parties involved, to achieve an outcome for the owner.”

King said there was no upside for the franchise operator, Civic Nexus, which has to provide a fixed facility for 36years. But over the life of the Mitcham-Frankston concession, any upside or downside in traffic volume goes to the franchise operators.

“We also have a much higher degree of control over many of the variables in terms of executing the Mitcham-Frankston project. That's not the case on Spencer Street.

“It had what in my experience was a set of unique issues coming together at one point in time. We've said publicly the Spencer Street project was a wake-up call, so there's incredible focus from everyone, from me down, on the Mitcham-Frankston project, including a focus on making sure we don't have a recurrence of the type of issues we saw on Spencer Street Station. And we're confident we've put in place the proper management structure to progress the job.

“We've made progress over recent months. It's still not as good as we hoped, but progress is continuing to accelerate. Obviously the project's extremely weather dependant, and November's been a very wet month in Melbourne. But we expect better weather and an improved construction program,” he said.

Night closures

In late November, the Victorian government agreed to close Spencer Street station from 10pm each evening to allow Leighton better access. As well, the extension of Collins Street across the railway lines was closed to trams and other vehicles at night.

Leighton had wanted to stagger closure times between 8.30 and 9.30pm but had to settle for 10pm when the government said earlier closure would inconvenience too many train travelers.

Victorian transport minister Peter Bachelor said the government had tried to accommodate Leighton since it became apparent in July that rail traffic was seriously disrupting construction.