Construction Australasia Oil & Gas and Minerals

1 Reflected at 100%. Forge is equity accounted at 36% (2011:33%) within the consolidated results.

KEVIN GALLAGHER CHIEF EXECUTIVE, CLOUGH

Construction Australasia Oil & Gas AND MINERALS A SOLID ALL-ROUND PERFORMANCE RESULTED IN TURNOVER RISING 58% TO R8,5 BILLION. OPERATING PROFIT FROM CONTINUING OPERATIONS WAS R286 MILLION, A 6% IMPROVEMENT ON FY2011.

LEADERSHIP

Kevin Gallagher succeeded John Smith as CEO in November 2011. Leadership and oversight were strengthened with the appointment of executive and operating committees

PERFORMANCE

Clough’s drive to continuously improve safety paid dividends this year with the overall lost time injury frequency rate (“LTIFR”) declining for the fifth consecutive year, from 0.21 in FY2011 to 0.13. Notable safety successes were achieved in Papua New Guinea where the PNG LNG upstream infrastructure and EPC4 projects – both being executed for ExxonMobil – respectively surpassed 12 million and 4 million hours worked without a lost time injury.

The company continues to lead the Australian oil and gas engineering and infrastructure construction sectors on safety and its record in this regard is an increasingly important differentiator for the company. This will become particularly significant as Clough ramps up its involvement in Australia’s mining and minerals sector where clients look for suppliers that can replicate the oil and gas industry’s safety standards.

Operating in a competitive high-cost environment, there is considerable on-going pressure on suppliers, including Clough, to constantly address their cost base. Restructuring initiatives this year resulted in sustainable savings of more than R85 million a year. Combined with a sharper company-wide focus on margins, this achievement was reflected in a net profit after taxation of R335 million.

Following an extensive evaluation of the company’s strengths and opportunities for improvement undertaken by the new management, an internal restructuring exercise was carried out and is now well embedded across Clough. This was considered necessary given the company’s extensive range of services and the variety of work carried out. Clough now has in place the appropriate management resources to exploit its leadership in four well-defined business lines: Engineering, Capital Projects, Jetties and Near-Shore Marine and Commissioning and Asset Support.

Project execution highlights in the past year included the ExxonMobil PNG LNG upstream infrastructure project in Papua New Guinea which, at its peak, employed some 2 500 workers. This demanding, large construction project is on track for completion in December 2012. Elsewhere in Papua New Guinea, work on ExxonMobil’s gas conditioning plant (EPC4) was similarly on track with engineering completed and piling and procurement largely finished by year-end.

Work on the downstream engineering, procurement and construction management (“EPCM”) project at Chevron Australia’s giant Gorgon LNG project progressed well with the first pipe-racks being received on the island in June 2012. Clough now has over 700 employees working in the Kellogg Joint Venture to execute the EPCM contract.

In February 2012 Clough was awarded the coveted AUD$350 million hook-up and commissioning contract for Chevron’s Wheatstone processing platform offshore of north-western Australia. Upon appointment, Clough immediately began assembling the project management team, appointing commissioning engineers and undertaking preparatory tasks and planning ahead of the onshore commissioning work. Project duration is some three years. (This year Clough also won an AUD$400 million jetty-construction contract for Wheatstone).

Other significant new business wins this year included EPC work for CSBP’s nitric acid and ammonium nitrate plant number 3 at Kwinana in Western Australia, worth some AUD$100 million, and AUD$250 million integrated project management support contract from INPEX for its Ichthys offshore project. Clough’s Jetties and Near-Shore Marine business won a further two contracts for the Ichthys LNG project later in the year, encompassing the Jetty and Module Offloading Facility.

In Queensland, Clough entered the Coal Seam Gas industry and secured its first significant win, the K128 contract for Santos’ Gladstone LNG project in Fairview. To be executed in joint-venture with Downer Australia, the AUD$600 million contract entails the construction of over 400 km of gas and water transmission pipelines, two compression facilities and an 800-person camp.

The disposal of Clough’s Marine Construction business, effected in December 2011, strengthened the company’s balance sheet which at 30 June 2012 reflected cash holdings of R1 945 million. This will provide Clough with the required flexibility to expand its business and to take advantage of continuing strong investment in both the energy and chemicals and mining and minerals sectors.

This year Clough increased its 33% shareholding in Forge to 36% as this investment continued to deliver solid value. The Clough Forge Joint Venture completed its work on Hancock Prospecting’s Roy Hill Package 3 project, receiving a variation order in February for approximately R130 million, an extension to its initial early contractor involvement work.

PROSPECTS

Despite ongoing commodity price volatility, investment in the Australian energy and resource sectors is set to continue testing record levels over the medium term. This bodes well for Clough with its wealth of experience and well-established brand and is reflected in an order book which stood at R19,4 billion at the end of the year. Of this, some R8,8 billion (excluding Forge) had been secured for FY2013. The order book at year-end was up 82% compared to FY2011.

The business will remain focused on its foundation market sectors of energy and chemicals and mining and minerals and target three geographical regions: Western Australia and the Northern Territory; Queensland and Papua New Guinea.

Current capital investment in Australian LNG projects amounts to some AUD$170 billion. It is noteworthy however that this is confined to no more than seven projects. While a large proportion of Clough’s current revenue is today derived from capital projects, this revenue stream will inevitably decline as projects are built and production comes on stream. Over the medium term it is envisaged that such work will account for no more than 30% of the company’s income.

To address this inevitable trend, Clough management has emphasised commissioning and asset support, a field that will become a growing source of business and that will demand more of Clough’s skills sets. While such contracts tend to be lower risk and therefore generally offer lower margins, they are typically of longer duration than engineering and construction projects.

Continuing access to skills remains the single biggest challenge facing Clough – and its competitors. The Australian oil and gas sector has an estimated shortfall of some 30 000 to 40 000 employees. This situation is being exacerbated by the strong growth of investment in the minerals and mining sector and the relatively easy transferability of skills between the sectors. During the past year Clough’s total employment rose by more than 1 200 people to 4 785. To ensure a continuous supply of talented engineers (the skills that are in the greatest demand and that largely define the company’s value offering) the Clough Scholarship Programme was reactivated this year.

While capital investment in Australian energy is set to peak over the medium term, the country’s investment in mining and minerals processing is approaching AUD$150 billion. Whereas energy spend is concentrated among a few developers, there are more than 40 significant investors in new Australian resources developments.

In the new year a management priority will be to grow the Clough brand across a range of resource segments, notably iron ore, coal, precious and other metals projects. Clough has more than 30 years of experience in mining and minerals and will aim to capitalise on its reputation in the oil and gas space, most notably its enviable safety record. Achieving a sustainable stream of EPC and EPCM mining and minerals work will diversify earnings, mitigate risk and raise overall margins.

Excluding Forge, management is confident of sustaining a minimum Ebit margin of 5% in FY2013, increasing this to 7% over the longer term.

Participating in an expected, significant increase in demand for EPC oil and gas work in various regions of Africa will be prioritised. In particular, Clough will identify opportunities to expand into Africa’s burgeoning LNG sector by working with blue-chip Australasian clients with whom the company has solid track records.

Sustained growth in recent years underscores the belief that Clough is well placed to continue its leadership in engineering, procurement and construction in the fields of energy and chemicals, water and mining and minerals. Vision2017 focuses on giving shareholders superior value and ensuring that the company can compete globally. This will be achieved by consistently delivering excellence in project delivery, improving cost efficiency, diversifying earnings and growing the business by successfully and systematically implementing strategy.

12.3 MILLION HOURS – NO LOST TIME INJURIES The numbers associated with the work that the Clough/Curtain Joint Venture (“CCJV”) team are executing in Papua New Guinea are mind-boggling: 1 500 employees, 200 kilometres of roads, ten bridges, two wharves and eight work sites hundreds of kilometres apart. But the statistic that everyone at Clough is most interested in, is 12,3 million. That is the number of hours the joint venture’s employees have clocked up on Esso Highlands Ltd’s LNG Upstream Infrastructure project since 2009 – without a single lost time injury (“LTI”). The terrain the team members are working on is diverse and challenging, stretching across various landowner boundaries. The workforce is culturally as diverse as the landscape and the work is often hazardous. Yet the fact that in June 2012 CCJV could celebrate the magical mark of 10 million LTI-free hours, and continued this performance to exceed 12 million, shows what can be achieved if everyone takes safety to heart. Joining the team for a celebration in June, Clough chief executive and managing director Kevin Gallagher commented: “It is outstanding to think we have achieved this safety milestone when we have people ahead of the construction crews felling tall trees and clearing jungle, people drilling and blasting as we cut our way through the mountains, and then constructing roads. These are high risk activities; it is an absolute credit to every team member that there have been no lost-time injuries on this project. They have put in a world-class effort.” This project entailed working from eight dispersed worksites, from the River Port at Kopi in the Gulf of Papua New Guinea, through Gobe, Kantobo, and Mendi, to Hides in the Southern Highlands of the country. Recent project activities included construction of facilities and waste management areas and approximately nine kilometres of the well pad access road. Currently bulk earthworks for the Spineline Road and the completion of the cellars are being carried out. A gradual demobilisation is about to start as these activities conclude. The 650-person camp is due to be handed over to Esso Highlands in December, with some personnel remaining beyond to finish the last of the roadworks. CCJV’s safety achievements reflect the disciplined safety culture that is promoted at each of the worksites. It is the result of effective team work, collaboration and communication between all employees to complete the job safely. Elsewhere in Papua New Guinea, CBI Clough’s EPC4 contract to build the Hides Gas Conditioning Plant has achieved a similarly impressive safety milestone: 4 million LTI-free hours. As with CCJV, EPC4 has a culturally and linguistically diverse workforce, one that has grown from fewer than 600 in January 2012 to more than 1 600 today. Every new employee takes part in a rigorous safety induction programme complemented by cultural awareness sessions that strengthen the “one team” approach. At site incident review committee meetings workers and supervisors openly discuss incidents while a stop work authority covers the whole workforce. Visible supervision is strongly emphasised and potential risks are identified and mitigated at fatal risk workshops conducted with LNG project operator, Esso Highlands.