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1 Shareholder Newsletter 2016 On 18 February 2016 Watpac Limited reported an underlying net profit after tax of $6.7 million for the half year ended 31 December 2015 (1HFY16), reflecting a strong performance from the Group s construction businesses, offset by a weaker performance from the civil and mining business. Welcome The continued repositioning of the Group s operations to realign with current market conditions was reflected in its half year results with more than 85 per cent of revenue derived from the construction businesses during this period. A continued focus on strong client relationships and the implementation of sector specific strategies, together with the Group s financial strength, has helped bolster the depth and quality of Watpac s workbook over the past six months. Key highlights for the first half of FY16 included: Revenue of $621.9 million (1HFY15: $595.0 million).»» Contracting Segment revenue of $530.6 million (1HFY15: $450.8 million).»» Civil and mining revenue of $79.3 million (1HFY15: $143.7 million). Statutory net loss after tax of $25.3 million (1HFY15: $6.2 million profit after tax) impacted by $41.7 million in pre-tax civil and mining asset impairments. Contracting Segment pre-tax profit of $20.6 million, a 30.2 per cent increase on the comparative period (1HFY15: $15.8 million). Civil and mining underlying pre-tax loss of $4.1 million after adjusting for asset impairments. Strong balance sheet with a gross cash position of $226.3 million as at 31 December The Group s construction businesses realised a 17.7 per cent increase in revenue for the first half of FY16 and achieved a pre-tax profit margin of 3.88 per cent up from 3.51 per cent in the comparative period. Reduced work volumes and the realisation of large impairments in the civil and mining business resulted in a disappointing performance for this part of the Group over the half year. Despite the challenges in the sector Watpac s civil and mining business is expected to make a positive contribution to turnover and profitability in future reporting periods. Martin Monro and Richard McGruther Solid financial position The Group s cash position remains robust with gross cash and term deposits totalling $226.3 million at 31 December The net cash balance at reporting date was $204 million, driven by strong operating cash flows and after allowing for further equipment finance repayments of almost $9.5 million over the period. In early September 2015 the Group obtained a $20 million increase in its bank guarantee facility limit to $120 million. The syndicated banking facility limit now totals $145 million, comprising the bank guarantee facility and a $25 million revolving credit facility. The latter remained undrawn and fully available for use throughout the reporting period. The Group also had $210 million of available headroom in its surety bond facilities at balance date. The maintenance of substantial bank guarantee and surety bonding headroom is a key priority of the Group, given their importance in supporting growth in Watpac s construction businesses. Following the announcement of the on-market share buy-back in August 2015, 4.15 million shares have been bought back to date. The buy-back is ongoing and the Board continues to consider other strategic capital management options as the year progresses.

2 Mary Lane Brisbane (QLD) Outlook The improved financial performance of the construction businesses and maintenance of a solid workbook provide for a positive outlook for the Group. In addition to delivering net margin improvement, the Group s construction businesses have seen a 28 per cent increase in work in hand over the first half of FY16, with $199.3 million in new contracts and extensions awarded since balance date, including the $188 million Mary Lane hotel and residential precinct contract in Brisbane. While it is disappointing that some unexpected events are anticipated to have an adverse impact on the second half results, prospects for future growth in the Group s construction businesses are nonetheless still positive. The Group s civil and mining business delivered a reduced financial contribution for the first half of FY16 however the Board and management team are confident in this business ability to make a greater contribution to turnover and profitability in future periods. The award of two contracts totalling nearly $90 million during the first half of FY16, in addition to the recent $38 million gold mining contract for Silver Lake Resources is testament to the opportunities still available in this sector. While now comprising a smaller component of the Group s invested capital, the disposal of the remaining $18.6 million in uncontracted property assets remains a focus for the Group. A minimum of $19 million in cash from contracted property asset settlements is anticipated to occur in the second half of FY16. With a diverse workbook and a balance sheet that can support growth, the Group remains confident in its ability to create future shareholder value. The Group s work in hand position of more than $1.6 billion coupled with strong client relationships and operational excellence is expected to underpin continued improvement in the financial performance of Watpac s businesses. The Board and management will also look to utilise surplus capital by exploring future growth through opportunities in adjacent sectors. Martin Monro Managing Director Richard McGruther Chair

3 The results in brief WORK IN HAND BY PRODUCT TYPE WORK IN HAND BY REGION WORK IN HAND BY SECTOR CONTRACTING 91.14% 8.86% 16.41% 8.86% 2.92% 46.45% $318M $103M $53M $43M $546M 25.36% $418M Contracting Civil & Mining Queensland Victoria New South Wales Western Australia South Australia Education Residential & Accommodation Defence/Secure Environments Commercial Health & Science Stadiums TOTAL REVENUE NET PROFIT AFTER TAX Underlying NPAT Underlying NPAT % of revenue $1200M $900M $639.5M $943.9M $614.4M $595.0M $621.9M $8M $6M 1.4% 1.2% 1.0% $600M $4M 0.8% 0.6% $300M $2M $4.9M $5.7M $7.4M $6.2M $6.7M 0.4% 0.2% 1HFY12 1HFY13 1HFY14 1HFY15 1HFY16 1HFY12 1HFY13 1HFY14 1HFY15 1HFY16

4 Across the business Construction A strong industry presence and the conversion of several high-profile contracts ensured Watpac Construction continued to perform profitably over the first half of FY16. A number of significant contract wins for the reporting period include: $291 million Victorian Schools PPP (VIC) $95 million Newstead Series residential project (QLD) $62 million Summer Hill Flour Mill residential precinct (NSW) $56 million Department of Defence project (QLD) $34.5 million expansion of the Frankston Private Hospital (VIC). The Group s contracting business was also announced as Managing Contractor for Stage 1 of the Gold Coast Airport s Project LIFT (QLD). A significant portfolio of work continues to be delivered nationally including: $350 million Queensland Schools PPP (QLD) $140 million Southpoint office tower (QLD) $129 million York & George mixed-use tower (NSW) $84 million ANSTO Nuclear Medicine Molybdenum-99 Facility (NSW) $78 million Pullman Ibis Hotels and conference centre development at Brisbane Airport (QLD) $72 million 333 George Street office tower (NSW) $70 million Central Adelaide residential tower (SA) $51 million Queensland State Velodrome (QLD) $30 million Ronald McDonald House (QLD) $29 million Baptcare Residential Aged Care Facility (VIC). The business has also commenced work on a number of recently awarded projects including the $188 million contract for the Mary Lane hotel and residential precinct in Brisbane, and the $264 million Ryde Garden residential development contract in north-west Sydney. Queensland State Velodrome (QLD) Central Adelaide (SA) Baptcare Residential Aged Care Facility (VIC)

5 Civil & Mining Despite challenging conditions within the resources sector, Watpac Civil & Mining continues to convert new project opportunities, with two new contracts commencing in 1HFY16 an $80 million mining services contract at Hanking Gold s Axehandle Gold Mine and a $9.3 million contract with Main Roads WA to deliver the South Western Highway Realignment project at Burekup. Although not yet commenced, the Group also recently secured a $38 million mining services contract with Western Australia-based gold production and exploration company Silver Lake Resources Limited. The business continues to provide services at a number of projects including the Mt Magnet and Kathleen Valley gold mines for Ramelius Resources, Hanking Gold s Southern Cross Operation, and at Iluka Resources Tutunup South Mineral Sands project. Southern Cross Operation (WA) Mt Magnet Gold Mine (WA) South Western Highway Burekup Realignment (WA)

6 Specialty Services Watpac Specialty Services continues to deliver projects for a number of industry-leading companies requiring construction expertise in live, complex or highly technical environments. Works continue on the major redevelopment of the Brisbane Markets G2 Building in Queensland and the upgrade of the southern retail area for the BAC Domestic Terminal Building at Brisbane Airport. The team is also undertaking works at the Brisbane Grammar School constructing new tennis courts and a raised two-storey Tennis Club House, in addition to significant civil works and alterations to existing facilities. The business completed a number of projects during the first half of FY16 including the Vic s Meat redevelopment in Sydney and the Baiada Poultry Facility expansion at Hanwood. Brisbane Markets G2 Building (QLD) Keeping in touch Receive updates electronically Watpac values a sustainable environment and encourages shareholders to receive communications electronically where possible. Notifications of Dividends, Notices of Meetings, Annual Reports and other important notifications can all be instantly delivered to your inbox. To elect to receive electronic communications please contact Computershare on Share registry contact For general inquiries about your shareholding, dividends, changing your address, or obtaining a copy of the current Annual Report please contact Computershare on You can also update your details online at: Investor Centre Our Investor Centre keeps you informed about financial information across the Group. For the latest information such as company announcements, current and historical share prices, dividend information, key financial dates and contact details please visit: