A long-running success story

By Rebecca Goozee

Having spent 23 years at the helm of one of the world’s premier project development and contracting organisations and 42 years at the company in total, Wal King, Chief Executive of Leighton Holdings, has seen his fair share of ups and downs. Even so, the severity of the global recession that wreaked havoc across the construction sector last year took him by surprise.

“It's like a game of football: everyone knows the rules, but once you're on the field, you have to use your own initiative.”
-Wal King

With project work being cancelled in every geography, it was a tough time for the construction industry as a whole. But while at the time King admitted that "a few of our tail feathers have been singed", the company seems to have weathered the storm better than most, recently announcing an 82 percent rise in profits from US$220 million in 2009 to US$400 million this year. Indeed, Leighton continues to go from strength to strength, winning contracts and acquiring new work - including US$1.8 billion since March 2010 alone. Work in hand, as of 30 September, stood at an impressive US$42.5 billion. And in November, the company announced that for the 2010/11 financial year it expects to report revenue of around US$20 billion and an operating profit after tax of around US$510 million.

For an industry veteran such as King, it just re-emphasizes the cyclical nature of business - and proves that the best firms can still compete no matter what the external circumstances. In fact, his lifetime at Leighton has coincided with a remarkable period of growth for the Melbourne-headquartered firm. King joined the company in 1968, was appointed CEO in 1987, and has seen the company grow from a small Australian construction concern with annual profits of just US$7 million and revenues of US$1.3 billion to become the world's 12th largest contractor.

Here, in an interview given to Asia Infrastructure shortly before announcing his intention to step down as Leighton CEO at the start of next year, King explains why the company has been so successful - and how it plans to build for the onset of what he predicts will be the "Asian Century".

Looking at Leighton's operations, what would you say are the biggest infrastructure challenges in the market at large?

Big infrastructure projects are becoming more complicated in terms of their design, their risk profile and in terms of community engagement. Look back 20 years ago and infrastructure projects were nowhere near as complicated. Increasingly you need to consider the impact of environmental approvals, community approvals, sustainability, none of which were as prevalent in dacades past. The projects are getting much bigger and larger, but they're also becoming much more complicated. In addition, we work in 20 countries around the world and each of those countries has their own particular challenges in terms of culture and work practices; they all have their own unique cultural differences and issues.

Urban planning is an increasingly important subject in infrastructure development. Do you have to work closely with urban planning departments to get the appropriate planning permissions and so on?

Absolutely, and it proves my earlier point: planning processes are becoming much more complicated in terms of new direction with local communities, sustainability, pollution - it's a much more complicated process right down the line than it was. Nevertheless, our strategy is very much one of consultation and working together with the people, so we are well-placed to meet these challenges.

You touched very briefly on the rising role of sustainable thinking, and an increasing number of companies around the world are championing the importance of sustainability. So how is Leighton building a greener focus into the design and development processes?

I would always broaden the concept of sustainability. It doesn't only mean focusing on green issues and sustainability; in its broadest context, it means being able to have a business that goes forward and embraces a number of long-term business issues. For instance, sustainability includes and embraces profitability - after all, if there is no profitability, there is no sustainability.

We need to embrace the environment and recognise the needs of the community wherever we work. If we work in Indonesia or Mongolia or wherever, we need to have a cooperative arrangement recognising the needs of those communities and that includes energy conservation, recycling, energy efficiency, etc. - the list is very long. Too many people talk about sustainability as only issues that relate to the environment and the minimisation of power usage, for example, but it's a much broader subject than that. Sustainability in its broadest context refers to the concept that you have a license to operate that will only continue to be good if you satisfy certain environmental issues, community issues, mutual respect issues and include the needs of the client, as well as long-term profitability for the company itself.

And what are your views on using sustainable materials and resources?

Wherever possible we use sustainable materials and resources, but in some cases, of course, it's dictated by the client. If it's our own developments then we develop to the highest standards in Australia. For instance, we were the first company in Australia to build a structure to the highest-rated green building standards, the Green Square South Tower in Brisbane, which was awarded a five-star Green Star rating for Office Design from the Green Building Council of Australia.

However, quite often these things are dictated not by us but by our clients; alternatively, if we're in a hard-to-reach location - let's say in Central Indonesia or another remote location - sometimes these greener materials are not available. So in Sydney and Melbourne and Brisbane, of course, yes we do use the most effective and sustainable and renewable materials available and we do recycle. We're a big recycler, and we strive to have more energy efficient uses of our equipment in our earth-moving business and the like. It's a complete, all-embracing ecological strategy, but the strategy has to be pretty much in tune with the local situation.

To what extent are building and environmental standards important in driving the sustainability agenda?

They're continuing to evolve in terms of energy and material usage, and it's a matter of keeping in contact with the demands of the community on the one hand, but also validating our license to operate in terms of setting and exceeding our own ethical standards. Our own ethical standards are that we do the best possible job, and the best possible thing for the environment within which we work. Our core values very much dictate that we do the right thing.

Looking at the global economic crisis last year, what impact did that have on you in terms of your projects? Did you have to make any cutbacks, for example?

The biggest area that was affected was our property business, where work came to pretty much a standstill. However, if you went back to the start of the global financial crisis there were dire consequences predicted that the world was coming to an end and of course that hasn't happened and the recovery, particularly in Australia, has been much quicker and more powerful than people predicted.

Yes, we had to adjust our business strategies, but we're always adjusting our business strategies. In our particular case, we're on a continuing journey and that continuing journey requires us to be in tune with the environment. When you encounter a rough period like the global financial crisis, you adjust your business strategy so that the things that you're doing are compatible with the economic circumstances that you encounter; again, we're adjusting now to fit those circumstances. We have a continually evolving strategy and that work is never done and never will be done. It's a matter of continuing to navigate your way through the ever-changing environment; the environment is changing and it's only in the context of looking backwards that you can see the rapid changes that are happening in the community and the world at large.

You say that you're constantly evolving. Is that something that's quite hard to do as such a large organisation? How do you manage that?

We're a very decentralised organisation and our business planning process is all about what I call the rules of racing. The rules of racing set out the financial parameters, and then we delegate to our respective managers in order to plan and carry out the work itself. In this way, they have the rules of how to operate but then the freedom to operate within that. So it gives them that financial and planning discipline but also a certain degree of creativity when operating within those parameters. In simple terms, it's like playing a game of football: everyone knows the rules, but once you're on the field, you have to use your own initiative and you're accountable for your own decisions. We delegate a lot of accountability and responsibility to our senior people, but it's all done within a discipline framework.

And did you feel any impact on operations either during or in the wake of the financial crisis?

I'm a great believer in the idea that we're in a long-term growth cycle, that events need to be taken in the context of the bigger picture and that the world will go on. It's like the stock market - when you look backwards at the stock market, at events like the crash of 1987, for example, these are mere blips on the horizon when taken over the fullness of time.

It's hard to do in practice, of course. There is an old saying that says you shouldn't be too heavily influenced by recent events; but if you've just been beaten up and someone says, 'Don't worry, you'll get over it,' it's still pretty hard to get over at the time. But we are in a long-term growth cycle and in the next 20 years, there'll be another billion-and-a-half people that will enter the middle class and that middle class will drive greater growth across the world.

However, what I will say is that when the global financial crisis occurred, a huge economic earthquake happened, much like a real earthquake, and the economic plates of the world shifted and they're not going back to where they were. So if the last century was the America century, the next 100 years is going to be the Asia century. Not that America will be smaller or poorer, it will be just less important on a global scale, as was the case with Europe before it; the US will not be poorer, it will just be less important.

You're obviously very optimistic about the coming next decade. Where will you predominantly be focusing your work over this time?

Well, we are focusing our work on Asia, the Middle East and India and all of those places where we think growth is important and will happen. Leighton has a magnificent footprint in the world and we have the resources, management and capability to continue to grow. When I joined Leighton in 1968 there were about 200 people; now it's a 40,000 people organisation on close to US$19 billion, and we have an aspiration that within five years, we will have revenue of US$30 billion and US$50 billion worth of work in hand.

Finally, what do you believe to be the biggest challenges facing the industry as it goes forwards?

Well the biggest challenge is the continuing need for human capital and capable people, and we're continuing to recruit and train to meet that challenge. At the end of the day, we only have two things in our business: we have capital and we have people. And assuming that you can get the capital either via equity or through borrowing, your competitive differentiator comes down to people. Good people produce good results. So the greatest challenge for us is to be able to attract and retain and train our people to be effective in the organisation, in order to be well rewarded and produce great results for the shareholders. This is the Asian century and Leighton has a great deal of momentum, a diverse business base and many opportunities.

Ocean Park Redevelopment

Location: Hong Kong 

Discipline: Building and property

Client: Ocean Park Hong Kong

Value: US$178 million

Start Date: August 2008

Finish Date: November 2010

The expansion and redevelopment of the Ocean Park Hong Kong theme park includes the construction of an entry plaza, aquarium, restaurant and retail facilities, lagoons and landscaping. The Entry Plaza will include an elevated landscape plaza on a podium with various facilities such as ticketing, turnstiles, guest relations, banking, food and beverage, and retail outlets. The Grand Aquarium will be a world class marine life exhibition facility with a main tank capacity in excess of 5 million litres and some 20 smaller tanks.

Construction works will involve the fixing of 10,000 tonnes of reinforcement steel and pouring of 65,000 cubic metres of concrete.

Ramanujan IT Park

Location: India

Discipline: Building and property

Client: Tata Reaty and Infrastructure Ltd

Value: A$295 million

Start Date: March 2009

Finish Date: August 2012

The new Ramanujan IT Park in Chennai involves the construction of over 570,000 m2 of built up area that will include a mixture of IT offices, a convention centre, retail, residential, hospitality, entertainment and car park facilities.

Ramanujan IT Park will be developed within a special economic zone that comprises of two distinct elements: a processing zone and a non-processing zone. The processing zone will include four office buildings of approximately 60m in height, arranged around central courtyards located at ground and podium level. The courtyards serve as the centre of activity for the IT complex, providing links between the various amenity functions. The non-processing zone consists of a mixed-use development comprising of a convention centre, retail, residential, hospitality and entertainment facilities along with below ground carparking.

North Luzon Expressway Phase II

Location: Manila, Philippines

Discipline: Civil & infrastructure

Client: Manila North Tollways Corporation

Value: US$27 million

Start Date: April 2009

Finish Date: June 2010

The project involves the construction of approximately 2.7km of four-lane expressway, one overpass, one cloverleaf interchange, a single toll plaza, O&M facilities and associated ancillary works, including fences, traffic signage, pavement markings and lighting. The alignment starts at the existing end of Mindanao Avenue and runs westward until it intersects with the existing North Luzon Expressway. Located along the route are several densely populated communities, factories, grassland/rice paddies, quarry pit excavations and several subdivision road networks and existing underground utilities.