LEI - MEDIA BRIEFING: Preliminary Final Results for FY 2007/08 - Mr Wal King, MD and CEO
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WAL KING, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER OF LEIGHTON HOLDINGS LIMITED (LEI)

“Preliminary Final Results for FY 2007/08”

http://www.brr.com.au/event/49223

 

THURSDAY, AUGUST 14, 2008, 12:30 PM

 

            LEI       I understand we have some journalists on the end of panel. I’m sorry, (inaudible). We’re just running sort of a little late here.

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                        So, thanks for attending our presentation for our 2008 Preliminary Results, and we just move on so I work this thing here. We have a disclaimer we have to put up here before we go through today's results in relation to the offer. It’s an entitlement offer, and I need to clarify that this offer is not for release in the

15                    United States.

 

                        So having done the legal bits, we can now sort of move through the presentation. I especially want to thank everyone for their interests.

 

20                    First of all, I'd like to present an overview of the results, then I'll give you an operational update and address a few of the current issues that are around at this point in time. Scott will then go through the financials and the entitlement offer that we announced today. Then I’ll briefly discuss the outlook and spend some time on our strategy.

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                        So if we just look at the highlights. We're just having through what we'd call a very unusual period, and the unusual period is that there is probably more opportunities around than we can sensibly respond to. And so we are very pleased with our results for the full year.

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                        We’ve done in a record profit after tax of some 608 million, up 35%, and that represents 43% return on shareholders funds, which we think is a great result.

 

35                    Leighton Contracts just had very strong year. Thiess recorded another good contribution on the back of the mining and infrastructure work. John Holland also performed quite strongly. Leighton International consolidated its growth and doubled its profit for the year. And Leighton Asia is now moving forward in a more positive manner in Hong Kong, and Leighton Propertied had a great

40                    result.

 

                        So if you look at the figure there for 2008, revenues were up substantially to 14.5 billion. And new contracts and extensions and variations were almost 23 billion. Work in hand at the 30th of June was a record $30.3 billion at 30th of

45                    June. And right at this point in time, we’ve had significant awards since the end of June but were exceeds that 34.5 billion as of today.

 

                        We have now approximately 90% of our 2009 revenues already committed, which is a historical high point. Normally, when we enter the year at this point, we are probably only have about 70% of our work committed and whereas this year, we have about 90%.

 

                        Operating profit before tax and after tax is up substantially. Dividends have

5                      increased and increased by 32% from 110 cents per share to 145 cents per share, and we’ve declared a final dividend of 85 cents fully franked, the fully franking we believe to be a positive, and fully franked for the next couple of periods going forward.

 

10                    So if you look at that from my graphical standpoint, the work in hand, as I said, 30.3 at the end of June, right now, 34.5 billion. We do have beyond the five years and it must be where we only record work for five years.

 

                        After five years, we do have another several billion dollars of work. And that’s

15                    the big thing for us because when we complete the year, well another year sort of rolled into our uncompleted work.

 

                        A major new work for the year included the $1 billion Sydney desalination plant from $700 million of offshore pipeline work in India, and major mining

20                    extensions in Area C and Yandi in Western Australia.

 

                        So the pretty core 0.5 billion really underwrites our performance next year. And new work also includes in that 34.5 billion the award on finalization of the Airport Link project in Brisbane for some 4 billion.

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                        We are also in a preferred position at this point in time on a number of other major projects amounting to actually billions of dollars that’s quite difficult to actually add up because some of them are in a very tentative stage, but we are in a preferred position for many billions of dollars with the work.

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                        I’m pleased to announce that today we’re launching an accelerated pro-rata entitlement offer of some $700 million. These funds will be used to invest in plant and equipment, which will be primarily used to grow our contract mining activities in Australia, Indonesia and India. And the proceeds will also be used

35                    to redeem the Leighton Notes, which have a total face value of some $200 million and are resettable on the 1st of December 2008.

 

                        And showing support for the company, HOCHTIEF has committed to take up its full entitlement, which represents 55% of the offer size. And Scott will talk

40                    more about the offer in his presentation later on.

 

                        If I can just talk about some of the operational issues that we have, all our major infrastructure projects in Australia are performing strongly.

 

45                    Thiess-John Holland completed the Eastlink Project some five months early, and new infrastructure projects have started up very well for us across Australia.

 

                        Major road projects include the North-South Bypass Tunnel, a gateway bridge bound to bypass and the boundary highway.

 

                        And one of the two big desalination plants at the Gold Coast and Kurnell here

5                      in Sydney are both proceeding very well and we’re undertaking a significant level of our work on a number of launch projects in Queensland and also in New South Wales.

 

                        The resource market is very, very strong with lots of significant opportunities.

10                    A number of major extensions were awarded. Some of these I mentioned earlier in the year.

 

                        We also did encounter a very, very significant and serious wet weather in Queensland through January and February, but I accept that this is part of

15                    our environment that we work in.

 

                        In building and property, our building projects are also proceeding without any major issues. One very significant project awarded in Queensland down at the Eagle Street was a $330 million par for GPT done by Leighton

20                    Contractors.

 

                        The highlight was the successful completion of the new Defence Headquarters in Canberra as a PPP by Leighton Contractors.

 

25                    Our Leighton Properties had a great year contributing $85 million profit, and Leighton Properties are progressing a number of major projects around the country with an end-value of more than $5 billion of which they share is some 3 billion.

 

30                    Our Leighton Properties earned the reputation or the accolade of being the number one green builder in Australia, which is really good.

 

                        Turning to Asia and the Gulf, the contributions from our offshore market is stronger this year. Work in hand is up substantially to 7.5 billion from 3.6

35                    billion 12 months ago. Of the 3.9 billion increase work in hand, 2.4 billion came from the Gulf, 800 million from India, and 600 million from Indonesia.

 

                        Our projects in Hong Kong and Macau have all progressed well, and I’m very pleased to report that the City of Dreams Project in Macau, which is a major

40                    project for PBL, is on track for first stage completion mid-2009. And I’m also pleased to report that that particular project turned over last month US$100 million and that is a really, really significant thing on a one single building project to turn over US$100 million. There are some 7000 people working on the project. And there has been a lot of comment in the press about that. I

45                    have review about the project, but I’m very, very happy to report that it is now the momentum is good and the first stage will be completed by May next year. We're continuing to diversify India, and through Thiess, was awarded a very, very large mining contract.

 

                        Indonesia remains a major Asian market for the group through Thiess and Leighton International. There is expansion in the resource sectors with high volumes of coal being requested by our clients and in some case demanded by our clients.

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                        Most companies were awarded some significant extension so their operations are performing well. And there is a number of billions of dollars with the contracts on offer in Indonesia, and the question is how we can sensibly respond to those with equipment shortages, et cetera. So we expected

10                    continued growth in Indonesia in 2009.

 

                        The Gulf, well, everyone knows the Gulf is booming. The major highlight was the Al Habtoor acquisition, which I have spoken about. The acquisition has gone well and is ahead of our business case. We are putting into place our

15                    systems, and we now have different accounting in place in that organization, which we think is a really big achievement.

 

                        Our relationships with the Al Habtoor engineering people and the former 100% owners are excellent, and you probably have the opportunity to meet

20                    those owners. They are coming down from our IGM in November, so we are very happy with the way that’s progressing.

 

                        We were in substantial amount of new work since the acquisition and much of this new work has been won on a basis that includes a very, very large

25                    amounts for provisionals sums. Some contracts have been awarded as high as 80% with provisional sums. And the provisional sums in fact are reimbursable so it mitigates the risk of rising input costs such as steel, concrete, et cetera.

 

30                    By turning to the business environment, obviously, there are many, many challenges out there at the moment and the growth issue perhaps is how we navigate our way through all of these issues in this changed and changing environment.

 

35                    The credit crunch is having an impact on the cost of capital and reducing investment values. However, we see in many cases a flight to quality by bankers and also cost. The crazy prices paid assets over recent years is coming back to normality, and this of course, may lead to opportunities for ourselves.

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                        Our skill shortages continue to be an issue. People are a key constraint and we are managing to recruit internationally and using 4, 5 or 7 (inaudible) (00:11:28) to fill the gaps in our skills. We are going to have to deal with emissions trading environment, which is sort of a tax on business that we

45                    believe that when that comes into affecting 2010, it will not have a significant impact on our business.

 

                        There are a lot of transitional issues to work through and the extra cost will be passed onto our price and/or the taxpayers, but in the meantime, over the next two years, the cost of reporting will be about $6 million a year to the organization to fill all of the forms in.

 

5                      Escalation continues to be a big challenge we see escalation rising input cost such as steel, concrete, aggregates, bids and they’re rolled up substantially. So the question is, how do we manage this inflation?

 

                        There are series of strategies we maintain or put in place such as getting fixed price from our suppliers with input costs by making allowances, you

10                    know, our bids for allowing extra costs through escalation allowances and contingencies contractually by having alliances in some of our companies like John Holland's more than 60% of the work is now carried out on an alliance basis. Our alliance basis, it’s open book and the amounts are in fact vary and transparent by using provisional sums, as I talked about, which are in fact

15                    reimbursable. And also, other contracts have escalation formulas in them that allow it.

 

                        So, the erratic nature of the input cost and escalation like the cost of steel has gone up 40%-50% in the first six months of the year, we are managing to deal

20                    with all of that.

 

                        So there are a lot of challenges out there, and the issue is how we manage those challenges. In certain case, you know, there are some issues and pain that we have to deal with, but we don’t believe that that pain in any way is

25                    going to impede the success and growth of the company in the future.

 

                        So I’ll ask Scott now to work through all of the financial statements and talk about our entitlements offer.

 

30                    Thank you.

 

            LEI       I’m going to talk just quickly about the 4E that was handed out today and a couple of the highlights covered as quickly and then spend some time on entitlement offer, and then obviously taking the questions after Wal finishes

35                    the presentation.

 

                        If you look at the 4E, the highlights on the revenue side, the revenue is up some 22%. Our group revenue is actually flat this year, which in the JV revenue and some associates is up 124%. This reflects the evolving nature of

40                    our business, and that we are doing more work in JVs, the big JVs, North-South Bypass Tunnel, our gateway projects in Queensland, and of course, our favorite new acquisition in the Al Habtoor-Leighton Group, which comes through as a JV.

 

45                    Going forward, the business will continue to see a contribution from JVs increased, which is a way of accessing additional skill and particularly in sharing the risk with other parties.

 

                        Key highlights on the income statement. Our EBIT was up 46% at $902 million with substantial increases from JVs and associates, as I discussed. This contribution from JV does not include the cost at the corporate level to carry all those JVs such as tenure costs, interest and

5                      taxation. So, it looks like a larger contribution for the JV is actually cost that we manage the business on a consolidated basis.

 

                        Finance costs were up because of the increase in borrowings to fund acquisition in Al Habtoor, McMahon, Devine, and of course, the acceleration

10                    of major projects we discussed in December. We have turned around a lot of that cash flow on accelerated projects and obviously our finance cost will be coming down with both the return of that cash as well as the rights issue.

 

                        Income tax broadly aligned with last year at 21% and the tax rate reflects our

15                    earnings of mix and in particular the profit we recognize in the Gulf to come down to an impact of 608 million, up 35% on the back of our original guidance which was 20%, as Wal said, we think a fantastic result.

 

                        And there is a statement there for recognizing income and expenditures. The

20                    only highlight there is the move in the currency translation from 85 to 95 cents since June last year.

 

                        I’ll then go on to the balance sheet and hit a couple of highlights there. We have obviously seen a significant increase in our assets. Cash is healthy at

25                    almost $700 million. Inventories are up basically on the back of consumables such as tires for our plants, as well as new properties for development. And the big increase in equity accounted investment is obviously Al Habtoor Engineering and our JVs. All our JVs come to that equity accounted line, which include again things like the diesel in SPT and gateway.

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                        Our equity investments include Devine, Sedgman and Silcar. And other investments include now the toll road in the Philippines, Cross City Tunnel and our investment that we now have in McMahon.

 

35                    The property, plant and equipment is almost 1.5 billion. It reflects the increase in particularly the mining area with Thiess-Leighton contractors. And if we take our total plant, including all balance sheet plant, our total plant fleet is in the order of $2.4 billion. Our total assets are up 1.7 billion to 6.5, which gives us a great asset base to take the company forward and return off of.

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                        On the liability side, a couple of the highlights, the tax liability is up, which obviously shows the good profits we’re making here in Australia, which has increased both cash payments and liability payments in the future, and that allows us as well to increase our franking to 100% and we expect that to

45                    continue for the next few periods.

 

                        Our employees our up to about 37,000 people now here in Australia, direct employees and that has increased our provisions.

 

                        Liability is up to 740 million, again, to fund all of those investments and plants that I spoke about earlier. Our actually recourse debt to cash is break even with the rest of them being limited recourse debts having more than three years of maturity that we moved down to the Leighton Notes and

5                      total liabilities up about 1.6 billion as of this June.

 

                        A couple of highlights. It’s good to see a turnaround from the cash flow from December, as we said, we had weaker cash flow to the accelerated projects around the year. We ended up with a strong cash flow and operating cash of

10                    1.2. If we just move through there, some of the finance cost, tax dividends, big payment of property, plant and equipment is $832 million as we gear up for more contract mining work.

 

                        Proceeds from sales there the 269 is largely the transfer of plant to operating

15                    leases from the mining work.

 

                        We go through a few things. The big borrowings and other investments again, all of those items I’ve talked about earlier as they move through the balance sheet, dividends and minority leaving us a very strong cash balance of almost

20                    700 million and an EBITDA reconciliation of $1.4 billion, approximately, which is to give a great position for cash flow for the group.

 

                        Depreciation, this is now the expense statement. I’ll talk sort of pass with those notes, but talk maybe a bit now depreciation. It was pretty flat this year,

25                    which reflects the higher depreciation to plant itself but on component parts, it was actually lower, and that reflects the average age of our plant fleet is actually decreasing so we have a much newer plant recalling less the component parts but we would expect that to increase over the coming year as we bring on more plant fleet.

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                        Looking at the contribution from Asia and Australia, here we go. Australian profits are up last year from 16 million to 530 and Asian profits up from 65 to 346. These results are skewed by two issues. We had some substantial write-downs and impairment on our total assets in Australia. On the other side, we

35                    had a substantial gain on the sale of our Gulf Leighton business, which we flagged at the third quarter. And we’re obviously very pleased, as we all said, with the Al Habtoor-Leighton Group as they’re performing ahead of expectations.

 

40                    But if I normalize both the write-offs and the impairment and the sale of Gulf Leighton, you see it brings the Asian-Australian businesses back and to align where traditionally where we’ve been with Asia contributing approximately 20% of the underlying performance.

 

45                    Now, we expect Asia to contribute more over the next few years as both additional contributions come in from India and the Middle East.

 

                        From thereon in, we go through the detail of the ASX reporting including the dividends that Wal will discuss. We’re happy to take questions later. I think that everyone is probably more interested in the way going forward, which is really our active capital planning in the pro-rata entitlements offer.

 

                        There is a lot of focus obviously on the entitlement offer, but from Leighton's

5                      perspective, we’re managing the whole capital of the business in the balance sheet. We’ve been talking about this for quite some time seeing the opportunities that are coming down the track. And on top of the pro-rata entitlement offer, we’ve also put in place a new $600 million working capital facility, which we launched syndication on Monday. We’ve increased our

10                    operating leased facilities by over 600 million, and we’ve increased our mining capacity from 2.8 to 3.6 billion on top of the capital option or capital offer that we’re talking about today. So these programs, another capital options will continue to provide us opportunities to grow.

 

15                    So quickly on the entitlement offer, I apologize for the small plant that we have to put to disclaimer, as Wal said, down at the bottom to keep the lawyers happy. It’s a 700-million accelerated pro-rata entitlement offer consisting of both the institutional and retail offer. It’s 1 for 14. The offer price is $35.35 per new share, which is a 14.8% discount to the closing price

20                    yesterday and a 14% discount to the theoretical price of $41.10. Obviously, both of those are X dividend, so it’s a 1 for 14 net issue.

 

                        The entitlement can now be traded on the ASX nor otherwise transferred, and we think it’s a fantastic opportunity for our shareholders.

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                        The rationale for the entitlement is obviously in the prospectus which has been handed out. Just in summary. A prime area will be used to invest in plant and equipment to incrementally grow our contract mining activities in Australia, Indonesia and India. We are the world's largest contract miner and

30                    we continue to take advantage of the opportunities arising from the strong global demand in iron, ore, and coal. And Wal will show you some graphs in a few minutes to show the volumes in Australia of iron and ore expected to double, and coal to increase by over 50%.

 

35                    Our plant fleet will grow substantially over the next few years and we want to have the balance sheet in the position to pursue the existing in the future opportunities. We’re forecasting to spend over $1.2 billion in plant and equipment in the next year versus around over 700 million we spent this year and the net proceeds will also be used to redeem the Leighton Notes, which

40                    have a total face value of 200 million and not resettable in December.

 

                        So quickly on the investment highlights, they are laid out there in some detail, obviously a strong track record in financial performance. And as Wal said, a 43% return on shareholder's fund is an outstanding performance by any

45                    measure. We have a history of creating shareholder value and we are a market leader in Australia with a very strong outlook.

 

                        Investing in Leighton provides the exposure to the emerging markets particularly India, Indonesia and the Middle East. We have a record level of work in hand now at 34.5 billion and we would expect to stay on that level in the near future and the terms are attractive and we’re very pleased on our major shareholder HOCHTIEF that have not only supported by taking out the entitlement offer, but also committed to take up some underwriting position up

5                      to 75 million should there be a shortfall.

 

                        So for the timing, I’m not going to go through that. And obviously, we’re trading hold now, we’ll commence retrading on Wednesday of next week and (inaudible) (00:24:33) occur over the next few weeks. And I’ll hand it back to

10                    Wal to go to the outlook.

 

            LEI       Okay. Thanks, Scott. We are just sort of turning to some of our strategy. I mean this particular triangle has been set up many times. It’s a way of explaining how our strategy works, how our strategy is based on geography

15                    and market services. And as you can see, we’re in virtually every market service there.

 

                        Delivery systems. We deliver our contracts through a whole range of issues and people quite often ask what's happening with margins in that particular

20                    markets, and I would respond by saying, "It’s not a magical market, it’s the delivery system, and it’s now very significant that we have a huge volume of work being done through alliancing one of our companies. John Holland is about 60% of their work is carried out through alliancing.

 

25                    And in all of that, we have our brands. We believe that that’s a good structure to take a good framework, to take our business forward to further extend our business.

 

                        We put this mixed particular chart up last year. It shows a framework for

30                    progressing our growth initiatives. The initiatives that we presented last year were expanding in Asia and the Gulf, expanding our contract mining business internationally, and further expanding our development business by becoming a leader in infrastructure development and resources in Australia, and moving into the residential property market.

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                        We’re diversifying our Australian construction business by growing our services business and building a defense services business and continuing acquisition. So a lot of that has moved forward, but we still have a number of areas where I would call works in progress.

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                        So first, if I look at we’re continuing to look for further expansion in Asia and the Gulf. We have some 30 years of experience operating in Asia. The Asian part of the world is growing significantly faster than Europe or the US, in some cases faster than Australia.

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                        Our Leighton Asia is actively pursuing expansion opportunities right throughout the Asian area, and we’re continuing to target opportunities elsewhere. We are seriously looking at Mongolia as an area of opportunity. Mongolia does in fact have large minimal resources and it’s a question of how that area comes forward, how they developed those resources.

 

                        We’ve also had been engaged in discussions with the basic elements group

5                      in Russia, Oleg Deripaska, to look at mining opportunities in Siberia.

 

                        So, we’re moving forward. We’re also moving forward in Hong Kong where after a number of years with very low levels in investment in infrastructure, we see that market that are picking up. So we see that sort of area as quite bright

10                    in Asia with possible expansion into Mongolia and Siberia in conjunction with the basic elements group.

 

                        In the Middle East, there was a major expansion opportunity for us. We have the potential to expand at the Al Habtoor Group beyond the immediate area

15                    of the Emirates into other regions of the Middle East and North Africa. The Al Habtoor-Leighton group is the largest contractor in the Middle East now, which is a very, very significant step for us.

 

                        If you look at, you know, the contract mining market, you can see how these

20                    sort of prices have increased. These prices are driving greater demand. So our contract mining activities continues to be very strong, and it’s one of the reasons that we are raising capital. We are the largest contract miner in the world and we want to continue to respond to opportunities, although there is probably more opportunities in Australia and overseas than we can sensibly

25                    respond to. We do have, from a forward order point of view, some 20% of Caterpillar’s entire production in the heavy truck market booked up more so that makes me nervous. We have a strong presence in Australia, in the mining market in Indonesia. We have now one major contract in India in the mining market and there are further opportunities.

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                        So if you look at the volumes in Australia in terms of coal production and iron and ore production, these are very, very large increases over the period. You would see from the '08 to '09 period in iron and ore production and moving from the, say, 300 million ton a year to 800 million ton a year, and you can

35                    see the coal forecast moving from 500 million ton a year up to several hundred million. We are the biggest operator in the contract mining market here in Australia, so we have way reached to this particular growth.

 

                        In Indonesia, coal production is also expected to grow very strongly through

40                    exports, so we believe that there’s also great opportunities, and in fact, there is a number of large contracts in Indonesia that’s in fact on offer to us, some billions of dollars and it’s a question of how we respond to that in terms of availability of equipment and people.

 

45                    In the infrastructure market, we are the leading construction and development group in the region. In Australia, you can see there, on those particular graphs, how this is being sort of gigantic increase in resources and non-resources infrastructure in the region. There is a great backlog here in Australia and there is also a great backlog in the overseas markets. If you look at as part of their planning process, we look at the forward projects and we evaluate basically through a probability or weighted evaluation of what's going to happen and what is likely to happen. It includes major facility engineering projects over a billion dollars and social infrastructure projects

5                      over $500 million, and with a weighted probability of 75%.

 

                        So last year, when we looked at this particular market, we believe that there is something like $16 billion worth of projects to be done in the future. Here we are now, our valuations in May shows that there is some $30 billion worth

10                    of projects to be completed. So the level of activity in the major infrastructure area is expected to be very, very strong in the future.

 

                        In terms of general construction activity, these graphs here really show that the market is coming up to a peak, but that peak you can see is a very, very

15                    high level, some $70 billion from the low point in '01, which was $30 billion. So we are well positioned in terms of footprint. We will position in terms of skill. And as Scott said, in terms of financial capacity, we’re putting into place additional financial facilities to respond to the opportunities that are coming down the track.

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                        From a Leighton perspective, we always believe in putting the financial capability in place ahead on the need for that money so that we are in a position to respond rather than actually having the work and having the company over committed in finding the money. So the process that we’re

25                    going through here is further strengthening our balance sheet to take advantages of the opportunities.

 

                        We move into the residential property market, this was a key initiative. We think our timing is right to expanding the residential market. As most people

30                    are aware, we have a foothold in this market through our 43.4% stake in Devine. We believe Devine is the premier housing and apartment developer in Queensland with a position in South Australia and our projections are for the Devine activity to increase and Devine's separate public company will report in due course, but we believe that their future is very, very broad.

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                        If the projections are right, now is the time to further step our demand or our position in the residential market and consumer sentiments and affordability obviously an issue, but if interest rates start to moderate or drop, we believe that that could be a trigger to increase supply.

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                        Our services business with the objective of growing our services business, our services business is growing at some 20% ground and we had an objective of making it a larger part of our overall business.

 

45                    But with our core construction markets and mining businesses growing very, very strongly, it’s a big (inaudible) (00:34:12) to in fact make that bigger. So if you can see on the graph there, the services business are gone, but the overall business is also growing very substantially. We'll continue to look at small (inaudible) (00:34:28) businesses to augment our activities there. And as of the 30th of June, we did acquire a telecommunication company called Silk Telecoms, which we will combine with our NexGen operations to expand the broadband capability. And the company NexGen is the third largest operator of our fiber optic networks in Australia, and we are continuing to

5                      build on that. We are also targeting services and facilities management in the Middle East and we have a great opportunity both in Abu Dhabi and Dubai to take on wide ranging management of facilities and we expect that we will have some success in the period ahead.

 

10                    We see Defence contracting as an opportunity and a potential diversification. We do a large amount of work in the construction and maintenance area for the Defence Department but are bearing through Defence contactor, we have yet to see the opportunities properly emerge. I do have a belief in the years ahead governments around the world will in fact capture a small area of their

15                    work. We are, of course, in the aviation business in Melbourne through John Holland Aviation Services. It’s the, I think, the second or third largest independent supplier of aviation maintenance services in Australia. And in fact, we do work of military aircrafts there. We did undertake a due diligence process on Tenix when it came for sale, but withdrew from the process

20                    because of it was viewed as being too expensive. And we’re not under any great pressure to do acquisitions if the acquisitions make sense or make a national perspective or a strategic perspective, we will move forward. If they don’t, we will not. We’ve been expecting for a long period of time and expecting and expecting and expecting and expecting.

25

                        I see the Australian Submarine Corporation to come onto the market. I think we’ve now been tracking that for about 15 years. It’s probably like Scott's football team and it’s always one year away from happening and so as with Scott's football, they’re always one year away from being a great football

30                    team. ASC is supposed to happen and we will evaluate that and depending on the range of bidders and partnering options, financial capacity but also defined ownership restriction, there are some talk around that there will be very heavy foreign ownership restriction. So when and if ASC eventually emerge, we will have a serious look at it.

35

                        In the acquisition program, obviously with the downturn in the financial markets, there could be opportunities come available, and we’ll continue to pursue a  range of opportunities with our framework, we have a number of watching brief. Our strategic rationale is to continue to strengthen our cold

40                    markets, growing adjacent markets or closely related markets, extend along the value chain and grow geographically overseas. And the two areas of interest overseas from the geographic expansion are basically Mongolia and Siberia. In Siberia, as I see it, they’re working in conjunction with the basic elements company, Oleg Deripaska. In the Middle East, we’re being

45                    encouraged very much by partners there to move into other areas in the Middle East such as Morocco as the Middle East countries diversify their money.

 

                        To sum all of this up, we are very proud of the EBIT we’ve bearing through producing 43% of return on shareholder funds, which is a great achievement. The outlook is very broad. It’s a very unusual period. We’re travelling through some turbulent. I’ve used the expression that the period is like an aeroplane.

5                      We have great power winds in terms of market opportunities, resources opportunities, opportunities in the Middle East. We do have some degree of head winds. The head winds are related to lack of resources, inability to buy equipment, and erratic escalation in terms of the import. But we believe in the Middle East some turbulence with the company both the financial power and

10                    the management capability, management systems to weather that. And we see sufficient opportunities to maintain workload driven by extended construction cycle and resource-related upswing in Australia, Asia and of course, in the booming oil market or the booming Middle East. We have a very, very strong competitive position and further strengthening our balance

15                    sheet to take advantage of the opportunities, and we’ll evaluate those strategic opportunities as they come along.

 

                        So our profit outlook is strong, and we believe that those revenue growth and profit growth will occur. We’re predicting that revenues will grow by 15%. Our

20                    turnover figure for the year, which is on revenue, is 14.5 billion. If you add 15% to that, you’ll get about 16.7 billion. So the year ahead, we’re predicting revenues of 16.7 billion. In the following year, we’re predicting at least 10% over and above the 16.7 billion. And we can confidently predict that by the level of work in hand that we have, as I said, like as today, we have some

25                    $34.5 billion of work in hand. We have some several billion dollars of work past the five-year period, and we actually have a number of billions of dollars worth of project that we’ve actually shortlisted one of two organised preferred position negotiating. So in terms of profit for the 2009 period, we’re expecting at least 15% to 2008 position, and that will again produce a very, very high

30                    rate of return on shareholder's funds. And those figures are after the capital rising, so the profit that I’m talking about in terms of 15% growth will be after the capital rising.

 

                        So there you go, a very strong story, a very exciting period and that if we’re

35                    traveling through with some degree of turbulence, the turbulence will be dealt with by the company in terms of management and financial capacity.

 

                        Thank you very much.

 

INTERVIEW CONCLUDED

 

 

 

 

Contact brr@brr.com.au for more information

 

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