As briefings goes to press, five specially built Multiplex cranes have almost completed raising a gigantic, 1700 tonne steel arch, inch by inch, into its final position over London’s hallowed Wembley soccer pitch.
Suddenly, the illuminated Wembley arch - standing 133 metres high and 315 metres long - has become the most prominent landmark on the London skyline, visible from all over the city.
In business, it usually helps to have some profile. In the UK, the new $1.2 billion Wembley football stadium is giving Multiplex, the Australian property construction, development and management group, profile plus.
In Australia, Multiplex has gradually developed a presence over many years as one of the country’s major construction and property operators. Since its highly successful IPO in December last year, the company has also become a major listed investment vehicle, offering an integrated approach to property construction, development and ownership through the $1.6 billion Multiplex Property Trust.
In the UK, the company’s rise to recognition has been more swift. The dramatic appearance of the Wembley arch on the rather flat London skyline symbolises what Multiplex CEO Andrew Roberts calls the company’s suddenly increased “visibility” in this market.
But it’s not only the Wembley arch that is transforming the London skyline: a loosening of the city’s traditional planning restrictions is unleashing something of a building frenzy in the city. According to the Royal Institution of Chartered Surveyors, the first quarter of 2004 saw the biggest rise in business-led construction activity in London for more than 10 years. And Multiplex is in the thick of it.
The change in the company’s standing in the UK market has been rapid. In a recent far-ranging discussion with PricewaterhouseCoopers national managing partner Rob Ward, Andrew Roberts remarked: “We were pretty much unknown when we started in the UK a few years ago. But now there’s a fair measure of respect for what we’ve accomplished in the UK as well as elsewhere.”
The company’s urban activities in Australia over the past couple of decades have certainly been an ideal preparation for the London market.
“We have a track record of having constructed literally hundreds of large, high-rise buildings,” Andrew Roberts said. “You just don’t have companies in the UK or Europe with anywhere near our degree of experience in that area. We can now point to a list of projects and general experience that is far more extensive.”
Wembley is not the only high-profile project now associated with the Multiplex brand in the UK. The company’s leadership in the burgeoning London tower market is also symbolised by the “Shard of Glass”, a controversial, 66-storey skyscraper over London Bridge station that is still in planning stages but that seems likely to become Europe’s tallest tower.
The “Shard of Glass” is opposed by heritage lobbyists and some London boroughs, but has been granted planning approval with the support of a key Blair Government architecture council and London mayor Ken Livingstone.
Signs that Multiplex innovation is transforming the booming construction business in the UK have been there for some time. Late last year a somewhat awe-struck Financial Times article commented on the “cutting-edge techniques” that had enabled the company to build an apartment block at London’s Canary Wharf at a rate better than a floor a week - a rate hitherto unheard of in the UK.
As if that wasn’t enough, the FT also reported that in Dubai the Australian company had achieved a construction rate of a floor every three days. The paper warned that the UK building trade was “on notice that it will need to play in Multiplex’s capital-intensive league and break out of the mould…”
Financial innovation
While the company’s reputation for technical innovation in construction issues is understandable enough, what is perhaps more remarkable is the reputation it has won in the City for an innovative flair with financial issues as well.
Andrew Roberts told Rob Ward: “It’s fair to say that we played a very significant part unlocking the financial situation for the FA (the UK Football Association), which made the Wembley project possible. We assisted them with a financing model that was going to be acceptable to capital markets, and were instrumental in the structuring and arrangement of financing for them as well. That hasn’t gone unnoticed in the City.”
Andrew Roberts still sees “plenty of opportunities” for new business in Australia. But UK prospective growth is especially strong in all areas of the company’s activities: not only in construction, but also in property development, property investment and facilities management.
The figures tell the story. In the half-year to December 2003, the overall Group sourced 30 per cent of its construction earnings before interest and tax (EBIT) from the UK and Europe, and 70 per cent from Australia and New Zealand. But results for the year to June 2004 are expected to show that about 50 per cent of its construction EBIT is now sourced in UK/Europe.
The increased offshore emphasis is likely to continue into next year as well. For the 2005 fiscal year, the UK/Europe proportion of the company’s total construction earnings is forecast to jump to 65 per cent of the total. In other words, within just two years, Multiplex’s old 70:30 work ratio between Australia/New Zealand work and UK/Europe will have been nearly reversed.
Indeed one Multiplex UK retail and “mixed use” project is actually bigger than Wembley. This is a huge, $1.48 billion development in White City, a long-neglected area close to Shepherd’s Bush in west London. The 40-acre White City project is bringing major new road and rail transport infrastructure to an area that includes one of the most run-down public housing developments in Europe.
As at February (2004), the Group’s UK construction pipeline contained about 40 projects, ranging from office towers to retail, hotel and residential projects, valued at some $10.3 billion. The Group’s development division at last public count had around $6 billion of work in hand and a pipeline of potential projects valued at around the same amount. All this explosive expansion is using controls and procedures that have been successfully honed in Australia over more than 40 years.
“Scaling up”
The Wembley arch and the “Shard of Glass” seem a long way from an effluent pipeline across the Bunbury estuary south of Perth, which was Multiplex’s first project. That was back in 1962, when Andrew Roberts’ father John Roberts founded the company. But according to Andrew Roberts, even now the company culture remains “fundamentally unchanged… true to the core”.
A key element in the Multiplex culture referred to by Roberts - one that has had a notably decisive influence on its history - is a high level of personal responsibility. A memorable early example of that occurred some 20 years ago in Andrew Roberts’ own career, when he travelled to Sydney from Perth with Ross McDiven - now the company’s deputy managing director - to scout the NSW market.
Roberts and McDiven had a small project to look after but were also keen to “scale up” the business. “That was a pretty important trip for us,” Andrew Roberts recalled. “Within a decade, we were the major contractor in the Sydney market.”
For the decade after that, the Multiplex business kept growing at a similar rate across Australia and then abroad as well. But as Andrew Roberts noted, “it was building Stadium Australia for the Sydney Olympics that really scaled up the size and the complexity of the projects that we’d been involved in to that time.”
Multiplex’s experience building Stadium Australia - now Telstra Stadium - obviously gave it ideal credentials to win the Wembley project. (The British Football Association, the FA, now boasts in its publicity material that the new Wembley will be “bigger than Stadium Australia” - and bigger than Stade France, as well.)
Large-scale projects in the Middle East have also helped. Only a year after completing the Olympic Stadium in 1999, the company finished the spectacular, $156 million Emirates Tower in the United Arab Emirates. This project had a dramatic regional profile-raising effect that led to other major projects in the Gulf, including a $385 million, two-stage marina residential project in Dubai. The company continues to see good growth prospects in the region and is involved in preliminary discussions on a number of developments, including the Dubai Burj tower, projected to be the tallest building in the world.
This pattern of “scaling up” reflects the company’s strategic approach to particular markets. As Andrew Roberts explained: “If a market appeals then we tend to grow the business off the back of a specific project or projects, using those to drive the building of a company infrastructure and the necessary marketing effort.
“A market may be attractive, but if we don’t feel the business can be scaled up there, that will affect our decision-making as to whether we will undertake what may just be a one-off project.
“You need to be open to opportunities as they emerge, but you also need to address them in a strategically structured fashion.
“For example we’re not presently active in either China or the US, which are obviously huge markets. But that doesn’t mean we’re not researching these markets, so that if opportunities do arise, we’ll be able to properly assess them from our strategic perspective.”
Roberts’ observation on China in particular points to a fairly high degree of strategic optimism: “Whether or not the current boom there is slowing,” he said, “is going to be irrelevant in a decade or two, when the market will be even bigger.”
The possibility of wider international diversification is not the only kind of diversification that Andrew Roberts is keeping an eye on. The company’s engineering arm, which recently won a $310 million joint venture contract (with Dutch company Bateman BV) on a mineral sands project in Mozambique, is also looking to increase its involvement in Australian natural resource projects.
In addition to existing work on the Bayu Undan Gas Platform and the 500 kilometre Darwin offshore gas pipeline, the company is bidding on $1.3 billion of new work including the Yabulu Refinery extension, the Trans Territory Gas Pipeline and the Aldoga Aluminium Smelter.
Meanwhile, in all areas, personal responsibility remains a touchstone of Multiplex culture: “While we put a lot of effort into our reporting and management systems,” said Roberts, “if you’re a project or development manager for Multiplex, then you’re empowered to make decisions quickly and with authority.”
At the same time, risk management is also a crucial element of the Multiplex culture and operating style. “We’re certainly not an organisation that has been afraid to take on risk in our activities,” Roberts said. “But we go to a lot of trouble to make sure that we understand what the risks are.
“That way we can mitigate the risks to some extent, and the residual risk that we retain will be manageable. It means that even if events don’t proceed in the way that we’ve planned, we can be sure that they won’t have any life-changing effect on the group.
“This really is a cultural issue. There’s a lot of talk about risk management and its role in a general sense. But if a risk management system is to be effective, it can’t be something that’s created independently or is just imposed from the top down. It’s got to work hand-in-hand with operational management.”
Energy is another key success factor: “We also bring a certain high level of energy to all our work. It’s the right mix of personal responsibility, risk management and energy that produces the very strong record of consistent performance and project delivery that is now underpinning our success. You can have a great marketing spiel, but if you don’t have consistent performance, it just isn’t going to get you very far.”
And while managers are empowered at Multiplex, if they don’t perform they can expect to hear about it: “A very open and straightforward manner of dealing with people is also part of our culture,” he told Rob Ward. “We’ve always had a strong view that you’re only as good as your last project. And you’re also only as good as your worst project. As far as we are concerned, every project across the board has to perform.”
This kind of candour is not only part of the company’s internal style - it applies externally as well: “Sometimes it means conveying a message that a potential client may not want to hear,” says Roberts. “There are people who’ve decided they don’t want to pursue our services because of some particular approach we’ve taken. But overall it’s certainly worked very well for us: a great deal of our work is repeat business.”
Exceeding expectations
A major milestone in the history of Multiplex was the company’s successful IPO in December 2003. According to Andrew Roberts, the transition from a private to a public company had been a smooth one: “There are additional reporting requirements of course, and some of the processes are a little more formalised,” he said. “But for many years we’ve benchmarked ourselves against best practice in the leading public companies, so we haven’t found a need for any dramatic change. Most importantly, we haven’t found any need to stifle the operating culture that has underpinned our success.”
As one of the true heavyweights of the Australian commercial building and property development markets, with an average annual turnover in excess of $1.5 billion over the previous five years, Multiplex was one of the most sought-after floats of the year.
Investors were attracted to its reputation for quality, innovation and the successful delivery of major projects; its highly diversified revenue base, including commercial, retail, industrial, residential, health and entertainment sectors; and a geographic spread of operations that reduces reliance on any one market.
Stapled to Multiplex Limited is the Multiplex Property Trust, now containing a well-diversified, landmark portfolio of 20 commercial, retail and industrial properties with a completion value of around $1.6 billion. The geographical spread of the properties covers Sydney, Melbourne, Brisbane, Perth, Canberra and Auckland. While the emphasis is on the commercial property sector - currently representing 78 per cent of the portfolio by value - the sector weightings are shifting toward retail as well as industrial properties (currently 17 per cent and five per cent respectively).
Andrew Roberts says: “Quality commercial assets will continue to be a feature of the Trust, reflecting the capabilities of our construction and development divisions to deliver landmark buildings into this vehicle. In the short to medium term, however, it is intended to increase the portfolio’s weighting in both the retail and industrial sectors.”
He notes that the objective has been to keep the Trust’s commercial properties focused on A-grade buildings, securely let or substantially pre-committed in established markets. “It’s fair to say we’ve achieved this,” he observes. “The leases average 8.5 years, with a high quality mix of tenants across the portfolio. The average tenancy pre-commitment on leases for developed properties is around 13.6 years.”
A number of Trust properties are currently under development and being constructed by Multiplex itself. These include such landmarks as Southern Cross in Melbourne and Latitude at World Square in Sydney. Also in the Trust is part of Sydney’s King Street Wharf: a 5 hectare Darling Harbour retail development that ingeniously mixes commercial space with serviced apartments, restaurants, a hotel and contemporary entertainment, as well as charter vessel and ferry wharf facilities.
Since its listing in December 2003, investors have certainly not been disappointed. The half-year Multiplex result announced in February showed that the Australian construction and development divisions had both contributed results that were ahead of budget for the six months to December. The formation of the Multiplex Property Trust had also created some “excellent” opportunities for the facilities management division.
Meanwhile, UK operations were living up to their promise of strong growth and what the company calls “significant strategic opportunities”. The company also observed that growth prospects in the Middle East and New Zealand remained “sound”, with a “substantial pipeline” of construction projects.
The company’s international diversification is also now reflected in its share register: Andrew Roberts told Rob Ward that about 25 per cent of the company’s institutional shareholders are now offshore investors.
Andrew Roberts said: “I think it’s fair to say that the group’s stapled structure is giving investors a consistent income stream, while also allowing them to benefit from the profit upside of a diversified, fully integrated property business with interests in construction, development, facilities management and funds management.”
