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

“ANALYST BRIEFING: Preliminary Final Results for FY 2007/08”

http://www.brr.com.au/event/49224

 

THURSDAY, AUGUST 14 2008, 10:30 A.M.

 

            LEI       Okay, good morning everyone and thank you for attending the presentation of our 2008 preliminary final results. I must admit this is a little (inaudible)

10                    because I normally do this at 4 o’clock in the afternoon and I always have my trial run with the journalists.  I am not sure whether the journalists are more intelligent than this crowd here today, but anyhow I slip up on my presentation you will know that I haven’t actually had a run with the journalists.  Okay, I think we’ll sort of move ahead.  Obviously that shot there is a shot on the

15                    screen of a project called (business buy) in the Middle East with some 10 or so -- a 60-storey building but just off the equity concept.  Off the left is a shot at the tallest building in the world.  Here is a disclaimer that we have to put before you before we go through today’s results. As you’re aware, if you read this a little bit, it is our entitlement offer and I have to say that this offer is not

20                    for release in the United States so we’ll just get that legal thing dealt with.  First we will provide you an overview of the results; I’ll then give you an operational update and address a few of the current issues that are around. Scott will go though the financial and the entitlement offer that which we announced today.  I will then discuss the outlook and spend some time on our

25                    strategy.  This presentation is being webcasted and there’s also an email question facility.  So when it comes to the time for questions, could you please wait for the microphone to be brought to you so that the questions actually can be heard over the webcast?  We’re very pleased with our results for the full year.  We’ve turned in a record profit after tax of some 608 million,

30                    up 35%.  Leighton Contractors had a very strong year.  They’ve recorded another great contribution on the back of their mining and infrastructure work.  John Holland has also performed very strongly.  Leighton International consolidated its growth and doubled its profit for the year.  And Leighton now is moving ahead of the game as the market in Hong Kong particularly

35                    develops, and Leighton Properties had a great year.  So, just looking at the figures which I guess you’ve been analysing near in some forensic detail, 2008 revenue was up significantly to 14.5 billion.  New contracts and extensions and variations were almost 23 billion.  Work in hand at 30th of June was a record 30.3 billion and I did comment a couple of years ago that I

40                    thought the work in hand would cross 30 billion and a few people thought I was actually sitting under the banana tree smoking pot or something, but it’s actually 30.3 billion at the 30th of June.  And as of today, it actually sits at 34.5 billion with awards that have taken places 30th of June, and there’s probably another 5 billion or 6 billion profit in it plus the five years.  As

45                    everyone knows we only value work for five years and there’s a lot of long term mining contracts that go out.  And I think our longest contract there goes  through something like 2030 and as I’ve commented by a couple of times, by that time, I would probably have left the company.  We are now approximately 90% of 2009 revenues already committed which is a historical high point for us.  In terms of where we are at this point in the year we would normally only expect to have about 70% in historical terms of work committed, but at this point in time, we have 90% of our 2009 revenues committed which is a very -- a great high point as opposed in sort of the future forecasting. Operating profit

5                      before tax and after tax about up substantially.  Dividends have been increased by 32% from 110 cents per share to 145 cents per share with the final dividend of 85 cents per share.  And for this occasion it is fully franked which is a great process, I believe, to return to our fully franked position and we certainly believe that the next dividend will also be fully franked which

10                    Scott will talk about later.  Just graphically representing that, the work in hand, as I said, 30.3 billion at the 30th of June and sitting here today, 34.5 billion, and as I said, it doesn’t include the work over five years which is another several billion dollars sitting out past the five years and that is a great thing, as I’ve commented.  For the long term mining contracts when we finish

15                    a year we just roll another year and so there’s always a lot of work sort of rolling into the company.  Major engineering work for the year includes the $1 billion Sydney desalination plan and later this year we’re going to organize a visit out there and I’m sure you’ll find it a very, very interesting project to have a look at.  It’s right -- if any of you are flying out of Sydney airport as you

20                    come in over Cornell, you can see our escalation and I think you’ll find it a pretty interesting project.  We’re now getting our tunnel boring machines on their way to go out under the ocean.  And whether you agree or not, it’s sort of a pretty interesting project to have a look at.  We’ve also won now $700 million offshore oil pipeline in India.  There’s been major extensions to the

25                    Area C and Yandi iron ore projects in Western Australia.  So, you can see that graphically we’ve got great level of work in hand and new work also includes the $4 billion Airport Link project in Brisbane.  And we’re also in a preferred position from many large projects that we’re negotiating and was actually -- have been out in the map.  There’s probably $2 billion to $3 billion

30                    with the projects we’re in a final stage of negotiating which will in fact come true in the next several weeks.  And of course, that puts us in a great position in terms of looking at our forward workload.  I’m pleased to announce today that we are launching an accelerated pro-rata entitlement offer of some $700 million.  These funds will be used to invest in plant and equipment which will

35                    be primarily used to grow our contract mining activities in Australia, Indonesia and India.  The proceeds will also be used to redeem the Leighton Notes which have a total face value of $200 million and are resettable on the 1st of December 2008 this year.  Showing support for the company, HOCHTIEF has committed to take up its full entitlement which represents 55% of the offer

40                    size.  And Scott will talk about of the entitlement offer in his presentation.  I just like to give you a few words on the operations and how things are actually proceeding.  Our existing infrastructure projects in Australia are all performing very strongly.  Thiess and John Holland completed the East Link project five months early which has just been a fantastic achievement and

45                    over some issues and comments around the traffic which I can talk about later.  And new infrastructure projects have all started up exceptionally well.  Major projects include the North-South Bypass Tunnel in Queensland which is proceeding very, very well.  The Gateway Bridge in Brisbane as you see when you’re flying out of Brisbane airport, Ballina Bypass and Perth to Bunbury Highway all are going way.  In the water areas, the two big desalination plants that we’re doing in the Gulf Coast and Cornell are -- they’re proceeding very well and we are undertaking a significant level of raw work with a number of alliances in Queensland and also in New South Wales. 

5                      It’s significant to note that in the John Holland company, something in the range of 60% of their contracts are in fact carried out on a launch basis and volume of work that we’re doing are right across Australia and the launching basis has increased very, very significantly.  In the resource market, our mining projects are performing very strongly.  A number of large extensions

10                    were awarded this year.  Some of them I’ve mentioned.  However, we did encounter serious wet weather in Queensland through January and February, but I personally accept that that’s part of the environment we work in.  I guess you never hear me minding and grinding when we have very long periods of dry weather so I guess I shouldn’t mind and grind when we have periods of

15                    wet weather, but I was very, very serious, wet weather up and down the East Coast and particularly in our mining projects in Queensland.  In Building and Property, our projects are proceeding also very well, and there are no major issues.  One of the large jobs awarded recently was the $330 million tower in the Eagle Street in Brisbane for GPT.  That was Leighton Contractors. 

20                    Another highlight was the successful completion of the new Defence headquarters in the Canberra, Bungendore as a PPP by Leighton Contractors.  And Leighton Property made a great contribution of some $85 million of profit for the year.  Leighton Properties are progressing a number of property projects with an end value of some $5 billion.  Their share, that is

25                    Leighton shares, being 3 billion.  And Leighton Properties are now the number 1 green builder and green developer in Australia.  I’m sure some of the (greenies) in their company are also great achievements so I’ll have to say it’s a great achievement.  (Whereas pennies) and it’s a great achievement.  Turning our eyes in the Gulf, the contribution from our offshore

30                    markets was stronger this year.  Work in hand was substantially up to 7.5 billion from 3.6 billion a year ago.  Of the 3.9 billion increase in work in hand, 2.4 billion for the Gulf, 800 million for India and 600 million for Indonesia.  Our projects in Hong Kong and Macau are all progressing well and I’m very pleased to report that the City of Dreams in Macau which is a very, very

35                    substantial project, therefore PBL and others, the first day that will be completed in the 2009, for the City of Dreams we now have 7000-8000 people on site and for the first time we crossed the ball, the annual or the monthly turnover on that job cost more than $100 million in the month and bearing in mind that’s all bricks, mortars and the like in concrete.  That’s a

40                    fantastic and so I think, in terms of building turnover on our project, that’s an all time high.  We have that job that have turnover 100 million a month in engineering business, but for building jobs a turnover of 100 million US is a great, great achievement.  We continue to diversify in India and Thiess was awarded their first long-term mining contract.  Indonesia remains the major

45                    Asian market for the group for Thiess and Leighton International.  There is a number of expansions happening in the resource sector particularly in the coal area.  The opportunities in Indonesia are rather difficult to respond to in terms of the volume or the opportunities.  Five companies were awarded contract extensions and are performing well and we expect significant growth in 2009 and 2010.  It’s a rather unusual period we’re travelling through in the resource market right in Australia and Indonesia and in other parts that there is actually probably more, more opportunities that are valuable to the companies than we can sensibly respond to.  The Gulf is burning as everyone

5                      knows.  The major highlight was the Al Habtoor acquisition which was spoken about a number of occasions.  The acquisition has gone well and we’re actually well-ahead of our business case.  We’re putting in place our systems and interest and accounting has now been achieved and we believe that’s a significant milestone.  Our relationship with the Al Habtoor Engineering,

10                    former owners or complete owners and our staff is excellent and the two original owners of that business -- Khalaf Al Habtoor and Riadh Sadik will be down here for our IGM.  So, we’re very pleased with the Al Habtoor business and, again, in the Middle East, there is more opportunities that are valuable to us than we can, I guess, sensibly respond to.  We won a substantial amount

15                    of new work since the acquisition.  A lot of the works been won on a provisional basis, the provisional basis where the risks of inflation and the like, and up -- some of those contracts we’ve been taking on, actually the PC amounts are as high as 80% in the contract which means that the risk for our cost inputs and things like steel, concrete and others is in fact bowling by the

20                    crunch.  Some of the work up there is being done on a complete management basis that we would see.  A lot of it are awarded with -- as high as perhaps 80%, is actually reimbursable.  Turning to the business environment, there’s obviously many challenges at the moment.  And our great challenge -- If you want to use that word again, is we never got our way

25                    through the issues that are around.  The credit crunch is having an impact on the cost of capital and reducing investment values.  However, we see a flat equality by banks and clients with people accounting to us wanting to negotiate.  The (crazy) process paid for assets over recent years are coming back to normality, and of course, this may lead to opportunities for us.  Skill

30                    shortages remain an issue.  People continue to be a key constraint, but we’re managing to recruit people internationally and particularly using the 4-5-7 days of program to fill shortages that we so have.  The work force in Australia is flexible in a way that I never imagined possible.  With the fly-in/fly-out issues in our big mining projects, in fact that people like truck drivers living in

35                    Hobart and working in the (Tovar) which is, if you’ve asked me a few years ago, if that would ever happen I would have said no.  So someone is working probably 3,500 or 4,000 kilometres away from where they live.  And of course, we have the emissions trading coming in near future.  Post 2010 we’re readying ourselves for that, the cost of filling in all of those forms that

40                    we have to fill in over the next couple of years.  In fact, we’ll be about $6 million a year to collect all of the data and of course that’s just really another (tax) on doing business.  There’s a lot of transitional issue to be worked through in terms of emissions trading.  We don’t believe at the end of the day it’s going to have a significant impact on us.  And the extra cost related to be

45                    tax related applies, or in some cases the tax files.  So, as we travel forward now, all of the major projects that we take on will in fact carry qualifications or mitigations that in respect of any additional cost in relation to emissions will in fact be borne by the clients.  Cost escalation is a big issue right across where we’re working.  We see the rise of inflation import such a still concrete aggregate (inaudible) and LIBOR are all up substantially.  It’s interesting that LIBOR is probably the least of the ways.  So how do we manage these inflation aspects?  We get fixed process from our supplies at ten to tens and tendering my understanding of the markets and allowing extra levels of

5                      escalation and contingencies conceptually by having alliances.  Setting the John Holland organization, some 60% of the work is done through alliancing.  In the alliancing models, all of that is in fact protected.  In the PC models of provisional sums like the Middle East where they may catch up, 80% of some contracts are provisional sums so the import costs are in fact passed through. 

10                    So, it’s a big challenge for us in this environment to manage escalation.  I want a contract that’s reimbursed.  We have actually very, very few contracts that have termed cost , but where we do have termed cost contracts, we go all out to mitigate the strategy by buying out upfront or in fact aligning the risk of many of our contracts that have escalation formulas.  In the big mining

15                    contracts where fuel is a big charge, a substantial number of our contracts, the fuel is supplied by the plot or its not supplied by the client.  It’s on a reimbursable basis.  For the financial issues, there’s lots of issues around.  There’s always issues around in our business, so with the escalation inflation and the financial issues, we will beat it some time but we don’t believe it’s the

20                    pain that we’re going to be will affect the continued growth task of the company.  So I’ll now hand over to Scott to give you update on our actual financial details and talk about the capital planning.  Later on, then we can take some questions.  Scott?

            LEI       Thanks, Wal, thanks everyone for coming and everyone who’s listening on

25                    the webcast.  I also would like to - and particularly just say thanks to my colleagues.  Over the last few months it’s been a challenging times as Leighton is going through the annual results, the entitlement offer of the capital finding we’ve done and also particularly my colleagues that have delivered this record result which obviously we’re very excited and proud of. 

30                    What I’d do is I’ll turn to the Appendix and the 4E.  Everyone, I think, got a copy of that and I’ll point out some of the highlights and I’ll provide some additional comments and answer some of the key performance issues.  If I look at the -- first of all on the revenue for 2008, the total revenue is up some 22%, with the group revenue remaining flat and the JV and Associates

35                    revenue up 124%.  This is obviously a reflection of the way we’re doing business now with the JV such as the North-South Bypass Tunnel that Wal talked about, the Gateway project upgrade, our real alliances and our major water projects, and of course, the contribution from the Al Habtoor Leighton Group now comes to the JV line and as an equity accounted investment as

40                    well.  Going forward, our business will continue to rely on the JVs as a way of accessing additional capacity, different skills and importantly, sharing the risk as well.  Turning to the income statement -- two pages later one in the 4E -- EBIT was up some 46% to 902 -- approximately 902 million was a substantial increase from JVs and associates for the reason that I spoke about.  The

45                    contribution for the profits, from associates and the JVs does not include the decaying cost of the corporate level the K or the JVs such as tendered cost, interest taxation and et cetera which shows a lot of -- which increases their perceived contribution of its Canadian head office.  But we’ve managed the business on a consolidated basis for the best results.  Finance costs were up because of the increase in borrowings and particularly to fund the acquisition of the 45% acquisition of Al Habtoor Engineering, our purchase of shares in Macmahon, Devine and in particular the acceleration of major projects and the funding of that underlying or that working capital.  A substantial portion or

5                      these projects and now in the process of reversing that cash position and particularly ConnectEast which was a big user of cash over the last six months given the acceleration.  And you’ll see that’s reflected in the cash flow and some of these projects will also reverse out over the next six months as well.  Income tax is broadly inline with last year with an effective rate of 21%. 

10                    The tax rate is lower than the nominal corporate rate because of the earnings mix and in particular the profit that we recognize on the sale of Gulf Leighton giving us an impact of 608 million in 2008, up 35% on the back of our original guidance given last year of 20% which we think is a fantastic, fantastic result.  Moving on now on the statement of recognized income and expenses, just a

15                    couple of issues there.  You can see the foreign currency translation.  We’ve had a big impact with the A dollar going from 85 cents last year to 95 cents since June ’07.  And then you can see that the other investments and the movements there include some impairment we’ve taken on ConnectEast then from Macmahon, the M7 movements (inaudible).  Then we move on to the

20                    balance sheet on the next page.  Key points I’d like to highlight here on -- with the assets is our gross cash is obviously very healthy at almost 700 million.  Trade receivables are in line with revenue.  A lot of the work is being done in joint ventures.  Our inventories are up to 371.  Some of that is additional charge and consumable for our mining business, but it also recognizes the

25                    increases in Leighton Properties Investment and new assets to be developed and part of that big pipeline as Wal discussed earlier.  There’s obviously big increases in equity accounted investments, to 1.5 billion.  Obviously, Al Habtoor Engineering is a big part of that which is the whole series of JVs that come through that line and, again, including our water well and other JV

30                    projects.  Equity investments include Devine, Sedgman, and Silcar, other investments includes some of our existing and new assets, and other investments includes North Luzon Expressway in the Philippines.  Our investment now, 6% investment in Cross City Tunnel which is performing ahead of budget and the Macmahon acquisition.  Our property, plant and

35                    equipment of -- almost 1.5 billion reflects investment in the mining equipment particularly Thiess Leighton Contractors and Leighton International.  Our total borrowings) including off-balance sheet plants is in the order of $2.4 billion currently.  Goodwill increased from several acquisitions as well as of no significant amount.  Total assets are up, over 1.7 billion to 6.5 billion at this

40                    30th of June.  Turning to the other side of the balance sheet, I’ll just make some quick notes on the liability side.  Trade and payables are 2.9, broadly inline again with growth, self-performed work and importantly good cash management.  Current task liabilities of 163 million and we’ll go to the cash statement as well.  We want to see how the big increase in tax payments this

45                    year and tax liabilities which is broadly inline with the good profits that we’re generating particularly in Australia which allows us to move to 100% franking which we see again as a positive for our shareholders.  Provisions of 393 relates mainly to employees.  For things like leave accruals.  We’ve moved from about 27,000 employees.  If we bring it back to -- we left some employees out I think.  Last year, just as we said, there is probably about 2,000 employees but we should have brought a calculator last year, somewhere around 30,000 employees last year are like-to-like terms and with 37,000 employees this year.  So, a substantial increase in employees and

5                      that will continue to rise.  Interest and liability is up 740 million to fund the infrastructure investments that we have on plants -- Macmahon, Devine and accelerated projects that I discussed.  A recourse debt of cash is effectively break even with the rest of the borrowings being limited recourse borrowing against Habtoor or Indonesia with more than a three-year maturity level.  The

10                    limited recourse debt as I said is about 115 for the Leighton Notes and about 450 now for the borrowings to purchase Al Habtoor.  And then there’s a 200 million of Leighton Notes bringing total liabilities up for about 1.6 billion since 30 June last year.  Of to the cash flow statement, our operating cash flow was at 1.2 billion, less net our net finance cost, tax dividends and interest of 300. 

15                    Our PP&E of 832 million as we gear up some of our contract work and I’ll talk about that a little bit more later.  Proceeds from the sale, 269, that’s largely the transfer of plants to operating leases as we move -- we buy the plant and then we transfer it to our operating leased facility.  Out net proceeds from sale entailments from investment was roughly 54 million.  Payments for other

20                    investments, again, a 1.25 billion carrying to that same list -- Al Habtoor, ConnectEast, Macmahon, Devine and some investment we have to make, in James Fielding and others and gross borrowing of about 1.15 billion to finance the acquisitions, again, that I’ve just discussed.  Then dividends of 345 and small minorities leaving cash of June ’08 at a healthy 687.  And if

25                    you do the quick EBITDA reconciliation, it’s approximately $1.4 billion of EBITDA so it’s a healthy number.  We have some notes with revenue that we discussed in the 4E which I’m happy to take questions on later.  I may just skip on to expenses.  There’s a few issues in there.  The net gain on sale of controlled entities, probably 210 million from Gulf Leighton, (MetLabs) and

30                    other bits and pieces that we sold during the year.  There’s 37 million from the M7 and one of our property development fits in there as well.  We had impairments on assets this year effectively of a 142 million from Leighton Co ConnectEast and another 91 million from James Fielding Infrastructure for total impairment of our assets of $233 million.  So we’ve taken significant lie-

35                    down’s and impairments on those assets, close to where they’re effectively trading now depending on the day you look at it.  We don’t necessarily agree with the value but that’s the accounting standard and obviously we’re going to adhere to that.  I’ll just point out, if you look at -- effectively our net gain on entities and our net sales and impairments, there’s roughly a gain of about 20

40                    million when you met everything up.  So, the underlying operating result is very, very strong.  So, if we look at depreciation, the key points -- plant and equipment on the balance sheet is similar to last year for depreciation and that represents that their average age of the fleet is younger and that’ s why most of that relates to the components of that and that number is always

45                    going to grow with the increase in freight -- in the fleet and we look forward to seeing depreciation grow next year.  Looking at the segment information.  Australian profits in 2008 are up from 516-530.  I’ll come back just to bring this to more normalized numbers after our sort of impairment as well as our gains.  Asian profit is up 65 million to 346 and the results are obviously skewed.  Across the course of Asia includes the profit of the Gulf sale and Australia has observed all its whole losses and impairments.  However, as Wal said, we’re very pleased that Al Habtoor at this point in time is performing ahead of our business (inaudible) and expectations.  Al Habtoor will

5                      normalize the Gulf Leighton profit and some other pieces in there related to sort of abnormal and Australia is sorting its toll office, it brings us back to more historical picture of the underlying performance where Asia has contributed around 20% of the contribution which we expect its contributions to the group to grow in percentage over the next few years on the back of

10                    India, Indonesia and of course Al Habtoor.  Some more in the report.  Some key issues, obviously dividends, as Wal said, 145 cents per share, up 32% fully franked, 85% final payment.  Again, reflecting strong performance to the Australian business.  And at this point in time, we’re seeing franking at 100% for the next two years.  We have seen the total equity reconciliation, liquidity

15                    analysis, NTA, equity account investment and the details on our data sheets which I’m happy to take questions later on.  Leighton has fantastic result for the year and obviously very well positioned going forward with the work in hand and the committed revenue for this year.  Now, I want to address our active capital finding program.  And I know everyone is excited about the

20                    entitlement rights offer.  That’s just part of it which is more than just about the equity.  We’ve been talking about this for quite some time that we want to match our balance sheet capacity to the opportunities that we see coming down the pipeline.  And I think, as Wal said, we see tremendous amount of opportunities coming down the pipeline and this is all about growth for

25                    Leighton, positioning ourselves for the next 3-5 years to take advantage of what we see coming down the (China) pipeline.  Part of our capital planning outside of the entitlement issue includes a new working capital facility which altogether now is approximately 600 million that are syndication by ANZ, (West Bank) and (Cat).  There will be large -- sorry -- ANZ, (CBA) and (Cat)

30                    which will be launched on Monday to syndicate a $450 million facility and then we have 150 million facility from Westside to increase our capability to fund our operations.  And we appreciate all their support in those endeavours.  As well, we have increase in our leases of approximately 60 million.  That come from, again, from our long term lease providers, the (CBA), ANZ and as

35                    well as Cat Finance.  We did increase our borrowing capacity from approximately 2.8-3.6 billion and today’s entitlement of 700 million as well.  So these programs and other capital options will continue to undergo progress and provides us opportunities in the future to act quickly.  I’ll just cover now the outline of the entitlements offer which was announced today

40                    which is a 1 for 14 issue.  Seven hundred million accelerated pro-rata entitlement consisting on an institution and retail entitlement offer.  The offered price is 35. 35 per new share which is a 14% discount to the theoretical price of 41.10 ex-dividends and is a 14.8 in discount to the closing price ex-dividend yesterday.  All of the entitlements can be traded on the

45                    ASX, none otherwise transferred.  Rationale for the entitlement with is our mine and the perspectives we offer there is the investment in plant and equipment which we primarily use to incrementally grow Leighton’s contract mining activities in Australia, Indonesia and India.  We are currently the world’s largest contract miner and are keen to take advantage of the opportunities that are rising from strong global demand for iron or core and other minerals.  And I will show you some graphs later on which shows iron and ore effectively doubling in Australia and at least 50% growth in coal volumes over the next few years.  Our plant fleet will grow substantially over

5                      the next few years and we have to have a balance sheet put in place right to foresee those existing opportunities and the ones that are still yet to be identified.  We’re forecasting to spend approximately 1.2 billion in plant this financial year and most of that is already committed.  As Wal said, when we look at this point in year not only do we look at revenue committed, we look at

10                    our CAPEX committed and hugely we’ll be sitting here right now so that our plant would probably be about 60% committed.  We’re now probably in the order of that same revenue.  We’re probably close to 90% committed for CAPEX this year versus last year where we spent about 700 million.  The net proceeds will also be used though deemed Leighton Notes which have a total

15                    face value of 200 million and are resettable the 1st of December.  I will give its future options with (LIBOR) and other instruments should we then want to tap that market for additional capital.  Going to the investment highlight, obviously we have a track record of strong financial performance and history of creating shareholder value and a market leader in Australia and extremely

20                    strong outlook.  Investing at Leighton provides exposure to emerging markets.  We have a record level of work in hand and we see that thing at those levels at least and the times are attractive with the support of our major shareholder, HOCHTIEF, who are taking out their full entitlement which we’re very pleased about and again showing you their further commitment to the

25                    group, HOCHTIEF have committed to take up several underwriting position of at least - or 75 million -- up to 75 million (inaudible).  So I think -- we thank HOCHTIEF for their support and I think that shows strong position for the company and what they believe where Leighton is going in the future.  Some of the key dates are all there in your pack, I am not going to run through the. 

30                    They’re all in the perspective.  Just a couple of key ones.  The institutional offer closes tomorrow for domestic at 6 pm and Saturday, 6 pm for International and the bookbuild Monday and Tuesday and we will resume trading on Wednesday.  Obviously this is -- the entitlement offer is a key element of our capital paying program which we aim to have the right

35                    financial resources in place to facilitate our strategy.  And I think the most important thing with Leighton is we put the resources in place.  Seeing the opportunities coming we don’t wait until the opportunity is here and then put the capital in place.  We have a lot of options for growth and Wal is going to cover - try to field those in the next sections so I will hand back to Wal and

40                    take questions after he’s finished.

            LEI       Okay.  Thank you, Scott.  So we’re obviously very proud of our treatment of -- I think that’s 43% return on shareholders funds for the year which we think is a very, very good performance.  So now I’d like to talk about some of the opportunities and the strategy to support our continued growth.  This

45                    particular triangle that we put up here many, many times is an asset to demonstrate our strategy which is basically based on geography, brands, delivery systems and the like.  A key element of the strategy is to continue providing competitive efficient services through operating companies in our high markets and overseas and it also provides the model for further extension to our businesses in the various areas.  It’s been a very effective model and we continue to pursue that.  The strategy of the -- sort of works in progress, this was put together a few years ago and I think I presented it to you -- the press last year.  The initiatives in this particular model -- i

5                      numbered it -- first of all the expanding in Asia and around the Gulf, expanding our contract mining internationally, extending our development business by becoming a leader in infrastructure and resource development in Australia and moving into the residential property area.  Most of those objectives have been achieved, but we all continue to push on.  Diversifying

10                    Australian contracting by growing our services business, building a defence services, and continuing acquisitions as in when they appear.  We have obtained very good progress in a number of these areas, but also the reseller areas that I would classify as works in progress.  We are continuing to look at further geographic expansion in Asia or in the Gulf.  We have some 30 years

15                    of operating experience in Asia.  This part of the world is growing significantly, much, much faster than other parts of the world, and perhaps even growing faster than Australia.  Leighton is actively looking to expand its presence in Southeast Asia in places like Vietnam.  I will continue to explore opportunities in other parts of Asia and we have now started fairly detailed discussions with

20                    Basic Elements, a Russian company to look at contact mining opportunities in Russia and Mongolia.  I will classify that as works in progress, but the opportunities in Mongolia we believe in the years ahead will be very significant.  Mongolia is very asset rich is terms of resources.  It’s a very large country with a very small population and there is actually no mining

25                    capabilities there.  With Basic Element in Russia they have a number of operating mines and we are continuing to hold discussions with that organization about working with them in a cooperative fashion in Siberia.  The market in Hong Kong, the construction market and infrastructure market is starting to pick up again after a number of years of what you call relative

30                    stagnation so we are moving forward in the Hong Kong market under the most significant opportunities I’ve seen to some considerable period of time.  And the Al Habtoor expansion was a major step in the Gulf.  We have the potential to expand Al Habtoor beyond the (Emmertz) where they work into other markets in the Middle East and North Africa and really the opportunities

35                    in the Middle East, are in fact more than we can sensibly respond to.  Now, a number of people had a trip out there last year with is and we’ll be arranging another trip next year.  So, anyone that’s interested in coming should put your hand up.  I mean, it will be a fascinating experience to see what’s happening out there.  We want to continue to expand our contract mining and you see

40                    here in the board really the price of commodities -- commodity prices are trading around record highs.  Our contract mining activities continue to be very strong and it’s one of the reasons we’re raising capital to meet the demands for equipment.  We are the largest contract miner in the world by country (mall) and we in fact in the equipment stakes the three big uses of

45                    equipment in the Caterpillar for example, 1, 2, 3, not necessarily in that order of BHP Billiton, Rio and Leighton are all around the biggest users of that caterpillar equipment un the world.  We have a strong presence in Australia and Indonesia and invested heavily either the number of years and we want to invest in the future.  And as I said we see great opportunities particularly in Mongolia in the next couple of years and then further down the track in Russia.  The volumes in Australia are expected to increase strongly over the next few years and we believe it to take advantage of this particular increase.  Indonesia’s coal production is also forecasted to grow strongly driven by

5                      exports and domestic demands.  And this goes very, very well for contract mining opportunities as you can see by the charts there by -- via Shrapnel.  We remain and continue to be a leading infrastructure and developer in Australia and in Asia.  We’re already (palliating) well in Australia and the market has continued to be very strong in the future.  The resource firm and

10                    infrastructure backlog are driven here and across Asia by a whole series of events.  As part of our planning process, we evaluate the potential workload for major infrastructures projects in Australia on a weighted or a valuation basis or a probability basis.  It includes major civil projects of over a billion social infrastructure of over 500 million with a 75% probability.  A snapshot of

15                    the total value of major projects in this category last year was $16 billion dollars.  This increase -- this is an increase in our strategic plan for 2008 with a full cash of 31 billion of major projects in Australia so there’s no shortages of major projects over the next few years as indicated on the screen.  Construction levels are expected to remain very high.  It remains,

20                    construction levels should sky high for the period ahead.  And more broadly, we have the skills right here in Australia and in Asia to be successful in all of the major projects.  If you look at that particular screen, you can see that actually the construction levels have again topped out at a high level, but our forecast during that time that we’re going to have many more opportunities

25                    than we can perhaps sensible respond to.  A key initiative is to develop our presence in the residential property markets.  We think our economy is right to continue to expand our presence in that market.  As you’re aware, we have $4 dollars in the market with a 43.4% stake in Devine.  If the projections are right, now is the time to move up our position with the commercial markets

30                    flattening out and we expect residential demands to be picking up over the next few years in relation to -- depends up on demands.  Current consumer sentiment and housing affordability remains a key issue and if interest rates start to moderate and drop, it should be a trigger for increased supply.  We’ve had the objective of growing our services business.  Our services business is

35                    growing at 20% per annum, but it’s not becoming a larger part of our business mainly due to the fact the strength of our construction and mining business so while services has been growing the rest of our business has been growing very, very strongly also.  We continued to acquire a number of small bolt-on services business.  We acquired Silk Telecommunications during the year

40                    and we’ll combine this with -- next year in operations to expand their broadband capability and we are the third largest fibre optic network operator in Australia now.  We’re also targeting facilities management in the Middle East and there are huge opportunities in Abu Dhabi particularly and we’re engaged with TDIC, the Tourism Development and Investment Corporation of

45                    the Abu Dhabi government, to do major services work on their new areas in Saadiyat Island.  We still see defence contracting as an attractive industry and a potential diversification.  We’re doing a great deal of work in -- actually at the moment in construction and some maintenance work for the defence department.  But the defence work has not come forward as a real opportunity yet and we’ll be looking at that in relation to the issues that are around including Australian ownership requirements.  We did undertake an extensive due diligence of (Tennex) but withdrew from the process as we view that thing is all too expensive.  We will assess opportunities such as

5                      (ASC), Australian Submarine Corporation, depending on the potential range of bidders, the partnering options, our financial capacity and capability, and foreign ownership restrictions.  So we’ll see how all that comes forward in the period ahead.  We’re continuing to pursue a range of acquisition opportunities.  Within our framework we have a (watching brief) on a number

10                    of number of companies and markets.  A strategic rationale is to strengthen our core markets, grow in adjacent and closely related businesses, extend along the supply chain and growing overseas geography.  So, if we can bring all that to a summary, we are very, very pleased with our results for the year with 43% return on shareholders funds.  The outlook ahead is very broad and

15                    we’re in a very, very unusual period where we see more opportunities than we actually can respond to.  We see this sufficient opportunities to maintain work in hand, above where we are driven by extended construction and resources cycles in Australia and growth from various other parts of the world, Asia and the Middle East, we’re in a very strong competitive positive

20                    and the further strengthening of our balance sheet will position ourselves to take advantage of the positive outlook.  As Scott said, we very much believe in having the resources in place -- financial resources, et cetera, ahead of the opportunities.  We have a number of strategic opportunities and initiatives that we’re following and our profit outlook remains strong.  From a revenue

25                    perspective, we expect our revenues to grow 15% in the year ahead and we expect our profit to grow at least 15% in the year ahead.  And I’m sure everyone will be -- trying to work out for at least the millions.  So the 15% on top of these years results are 608 million.  In terms of revenue, our initial budgets -- and obviously as you go out further, there’s a bit more blue sky in

30                    those budgets.  When we say our revenue growth in 2010 being at least 10 to 10, over and above the 15% so when we’re starting our revenue perspective we see 15% and at least 10%.  This year as I said is in a very, very strong position with 90% of the work being committed at this point in time and that’s very, very high level.  So, we’re optimistic and we believe we can continue to

35                    deliver very, very strong shareholder wealth.  And of course, based on a 40% return on shareholders funds we believe that’s a great achievement.  Thank you very much and I’m happy to take questions and I’m sure Scott will be happy to answer all the tricky questions.

            JPM     Hi, Wal, It’s (Allen Reese) from JP Morgan.  A couple if I can and do you mind

40                    if I take Scott on the first question that deal with the entitlement offer.  The plant equipment proceeds, 500 million.  Can you give us a (rasputive) way that speaks to the point in terms of Australia, or India and Indonesia?

            LEI       We use operating leases.  So when we talk as well -- so when you talk as well -- so when you talk about a 1.2 billion of CAPEX you will spend this year,

45                    and so that obviously go into operating lease facilities which we talked about.  We have another 600 million we put in play.  We tend to put post of the plant in places like Indonesia and the Philippines.  We put an operating leases as a risk, but again, we do have some point there.  So some plant will go into Indonesia, some plant will go into India, but a bulk of the company will be for Australian plant particularly iron ore and cooking coal in the (Bowl) basin.

            JPM     Okay.  Thank you.  Probably one for you Wal.  Just when we go to infrastructure developments, are you happy with the existing model that you

5                      have in regards to putting some skin in the game or do you envisage potential changes to that model in the future?  In the large infrastructure project?

            LEI       You’re referring to -- like our operating companies and how we’re structured around overrating companies or...

            JPM     The equity investments.  By putting equity into the projects.

 

10        LEI       Well, I think in sort of this large infrastructure projects that are around there’s a lot of debate going on if you like static you might say on things like the cost of bidding, the number of companies that actually are participating in the market, our exposure, traffic modelling, et cetera, et cetera.  I think the sort of elements of the model are being tested as to whether those models can be

15                    sustained in the future.  If I were to pick say a project like the (M4) East here in Sydney and that’s been the third and the third and the third and it’s being talked about being a $7 billion or $8 billion project.  I mean, to have two or three bids to raise $25 billion in the Australian market would be a big (ask).  There is comment that the cost of bidding are -- is not a real issue here in

20                    New South Wales.  (Inaudible) comment is not an issue, but, certainly we believe it is a big issue in relation to the cost -- the cost of the (BridgeMont Connector) bid was about $30 million to $40 million and tied up to some 200 people for -- and each of the bids for some 18 months.  So I think there’s some elements of the PPP market and infrastructure market we’re not entirely

25                    happy about, but the developments I guess -- the market -- I’m really saying the market needs to evolve and there’s some lack of -- the acceptance of our government, but we’re also (inaudible).

            JPM     Thank you.  And just one last one.  Just to get a sense in terms of how you’re spending your time.  You talked a lot about that things are going well.  A lot of

30                    the areas that you’re focusing on to make sure they perform even better...

            LEI       The big issue...

            JPM     ...domestically.

            LEI       The big issues at the moment are quality approval.  I mean, we’re approval business.  Like all of you guys and ladies sitting around here, I mean, there’s

35                    lots of poor stocks you can buy and there’s lots of poor contracts that you can take on.  So, it’s an issue how we respond to the opportunities in our bidding procedures, how we stop those contracts and stock our short.  We want to play with (inaudible) flows, but sometimes we don’t have (inaudible) we have bigger flows.  And how we respond to these erratic inflation environment --

40                    when I say it’s an erratic inflation environment, we have many contracts and in terms of how inflation risk alliance is dealt with.  Some contracts just relate purely towards CPI adjustment.  Now, if you read the newspapers, the CPs as opposed to the 4.13826% which is based on the price of plasma TVs or some such other ridiculous things, made (well) the cost of steel and the six

45                    month this year cost of steel goes up 50%.  Cost of explosives has gone up 50%.  Cost of fertilizer enough -- (inaudible) if you put --buying fertilizer at 50%.  So how you have managed all of those issues is a very sort of complex thing and it’s just not as simple as saying we have in place procedures to manage inflation because it’s just such an erratic thing.  I mean, everyone thought that cost of fuel going up from a dollar -- petrol from a dollar related to a dollar 60, but equally diesel has gone up in the same -- more in fact even.  It’s gone up more than petrol and we probably burn about 700 million or 800

5                      million litres of fuel a year and some of that is reimbursed, some comes through formulas.  So, all of those issues are really are complex and need to be managed.  So, it’s easy to say and write we have risk management procedure, tick the box but in reality what the hell does that mean in this erratic nature of some thing’s which are gigantically increasing.  I believe

10                    we’re in -- for a period of extended inflation and we’ve got to handle it.  And another big element for us is the cost of spare parts.  Most of our equipment is either -- probably 90% of it’s American-based equipment which is a Caterpillar equipment so spare parts and manufacturers in the Unites States and they would been getting a free ride on the basis of the Australian

15                    currency.  The Australian currency has been strengthening so it’s been moderating the process be it parts or if we were to get a significant drop in the Australian dollar.  I mean, that just comes straight on to the cost of equipment if that equipment goes up and the costs of spare parts go up enormously.  So, we just need to be careful and manage.  And I view the expression sort of

20                    internally and sort of our bidding that we need to be aggressively conservative and people, “So what the hell are you talking about.  How can you be aggressively conservative?”  But what I mean by that is that we need to be aggressive in maintaining our market position but not stupid, but conservative in protecting ourselves for those issues that are likely to burn

25                    our ass in inflation and staffing and programming and our cost netted task.  I’m not -- I continue to say that I’m a person that I believe is a contractor.  We need to work -- walk the extra mile to set us for our clients, but in case you will come across a client that is just -- that you know why that you should be doing business with.  And I’ve used expression, if you sleep with dogs you’ll

30                    get fleas.  And, I mean, that’s the case.  I mean, some of the clients you shouldn’t have anything to do and I’ve no hesitation if you get up against a client and say, “We just don’t want to do business with you.”  You’ve got to have some sort of standard.  There’s a lot of complex issues there that we need to manage, but at the top of that, I’d say, it’s just this erratic inflation

35                    where we -- things on one end are gigantic lean curves, but when you look at the CPIs, as I said 4.128% per annum, which really made nothing in terms of our business.

            JPM     Thanks very much.

            DB       Good morning Scott.  (Tamil Chupra) from Deutsche Bank.  Congratulations

40                    on your strong results.  I have two questions.  One, Scott, if you could tell me you were talking about some of the write-downs you’ve taken, the write-up opportunity.  Please describe to me, how it does -- could you walk us through that again?

            LEI       Sorry, (Tamil), I couldn’t hear you.  If you’ll talk about the -- what was it?

 

45        DB       I’m not sure if the write-down in the write-ups that you spoke about are (inaudible) if they are (inaudible).  Otherwise, could you walk us through it again?

            LEI       We listed the -- I mean, the -- obviously, combined, we don’t go through each single position.  I mean, they’re combined on the page and we note on the expenses on 3 on the net so the gain of sale and  controlled entities and the impairment of investments and infrastructure tolerated companies sort of the

5                      finance and we put a note down to say that, obviously, a further $91 million was taken through JFI for LCT and as well as RiverCity Motorway.  But no, we don’t specify exactly the position we’ve taken on all those different entities.  We’ve been -- well, obviously, it’s the Management’s sentiment that they were at least fair value and we think, in some cases, we’ve had to take

10                    under fair value because of the accounting standards in relation to the current trends in the market.  But we’ve taken a significant hit on our portfolio this year, which, again, we think, (puts) us in a good position going forward.  And more importantly, I think again between the two, the gains we’ve made on things like (MetLabs) and Gulf Leighton and some other things.  The

15                    operating result is really the underlying result.

            DB       Thank you.  My second question is, given access to things like operating leases, building facilities, working capital facilities, can you explain the rationale for raising (XT) as well?

            LEI       Sure.  Well, I mean, as Wal said, we’re positioning for growth going forward. 

20                    We’re going to spend this $1.2 billion in capital and we see more opportunities going forward.  If you look around the market, I mean, there’s different things that you can access hybrids or the debt market or other things.  We’re going to be in a position as well for the strength to take advantage of the opportunity.  We had -- and we’re surprised there was a

25                    rumour I think six to nine months ago, there’s always rumours about Leighton doing something.  A lot is looking at a hybrid raising to increase the balance sheet capability to take advantage of these opportunities.  Obviously, that market is not the most attractive market at this point in time; we may want to come back to that market or the debt markets or whatever.  We believe that,

30                    given all we’ve seen in front of us, that equity is the most appropriate instrument to provide us the opportunity to grow the company in the future.  I mean I know you guys have all sort of short-termed focus, but you have to remember that everything that we’re doing now is positioning the company for two or three years out.  I mean, we’re not going to put ourselves in a position

35                    a lot of construction companies do where they go say, well, we want all this to work, what the hell do we do now.  We see the work coming and we see the mining work coming, and we see the opportunity.  We’re putting the capital in place so that when you come to us in a year’s time or two years’ time and say, “What is the growth profile,” we go, “It looks fantastic.”  Sitting here and

40                    say, “Well, what does the growth profile look like,” “Well, we can’t really grow because we don’t have the capital in place.”  So it’s all about the more opportunities we’re seeing in the future.

            LEI       I think it’s a major, but -- as sort of capital expenditure program we had some 20% of Caterpillar’s build program right up through to 2011.  Now, that makes

45                    Caterpillar nervous, but it makes me even more nervous.

            LEI       And Caterpillar’s really happy to go.

            LEI       That’s a reflection of our capital expenditure program.  I’ve got a couple of questions here on the screens.  We’ve got -- the first one is in two parts.  “So what is your nonprovisioned exposure to BrisConnect?”

            LEI       Well, obviously, BrisConnect was -- didn’t close until August -- oh, sorry, late July.  So BrisConnect wasn’t part of the portfolio in the 30th of June.  So that hasn’t been disclosed.

            LEI       And then what’s -- I’m sorry, “What’s your nonprovisioned exposure to other

5                      infrastructure projects?”

            LEI       Well, I guess what we’re saying is our position is represented on the balance sheet for our total investments.  We’ve taken a fair value accounting and Management’s fair value view of all the assets and taken -- as we’ve said, some -- basically $200 million of impairments and write-downs of the

10                    LaneCove, RiverCity, ConnectEast and the JFI asset.  So, between us and our auditors and the Audit Committee and the Board, we’re very comfortable with the position.  I think it represents a sensible position.

            LEI       Okay, another question here.  Three questions on Australia.  The first one is, “What are your expectations for acquisition in the coming year?”  Well, I

15                    would answer that by saying we have a number of small acquisitions that we’re continuing to look at.  You’d call them sort of bolt-on acquisitions.  And they’re probably in the range of $10 million, $15 million, $20 million.  The area that we’re particularly interested is in the services business.  In terms of sort of large acquisitions, we don’t have anything particularly planned at this point

20                    in time, but there’s a number of companies that we do have a (watching briefs) and obviously, in the last several months as the stock market has taken those hits and companies have taken their hits, so I mean, there are companies out there that you could be interested in.  But we’re really not planning anything major league.  The major issue for us is funding our

25                    equipment program.  The second question comes from the same source.  “What are your expectations on margin change within the business units over the next two years?  And do Australian margins peak as the market slows or off the peak?”  Well, we think, the margin levels are sustainable.  In reality, I don’t think that we would be in the Australian market pushing for too much

30                    higher margins.  I mean, you -- at the end of the day, and particularly in the big mining operations, I mean, you just have to adopt a realistic position -- the realistic position that we want fair returns for our -- if it’s a mining investment.  And I think if you raise it all up to 40% return on shareholders’ funds, I mean, it’s a very, very handsome reward.  I mean, we do have to have trust with the

35                    major clients.  A lot of our open book alliancing top work is done in the range of 12% or 14% and bearing in mind it’s fully reimbursable.  I think that’s personally just enough.  I don’t think you can’t get overly greedy.  But if you do get overly greedy, I think there’s always a pushback.  And the big mining contracts that we have, I mean, we have a number of criteria that we --

40                    objectives that we run in terms of what we want to out of their businesses.  And one of the criteria for funds invested in those big mining jobs is that we want of the order of 25% return on funds employed after any interest charges per annum.  And I think, again, that’s enough.  People like BHP where we produce more than 100 million ton of iron ore a year have the expectations

45                    that we will move up to 150 million ton a year and on up to 200 million ton a year.  Now that’s easy to roll off the tongue, but -- and the amount of resources and equipment that you’d need in moving from 100 million ton a year to 200 million tons is just gigantic.  And we do have to maintain a level of trust and I suppose integrity with our major clients.  So, I don’t think that we would be going after any more margin.  I think we’re comparatively happy.  And -- but on the other hand, we do have some clients that I wish I had never heard of, and we have no hesitation in telling those people they had better get real, otherwise we’ll go somewhere else, that we need a fair return.  So, I

5                      mean, as I say, money isn’t my ground to go around and we expect a fair return for our efforts.

            LEI       Yeah, well, just on the margins, we have to realize the margins that will be coming through in 2008 were mostly bid in 2006.  So, those margins that we’re all talking about, a lot of them sort of have come in from the last year or

10                    so which should manifest itself in the next two years.

            LEI       Okay, the next question is, “Where is your monthly work in hand roll off running at present?”  So I’m not a mathematician.  I have a mathematician sitting over here.  If you took the 14.5 billion -- and (inaudible) thought about 15%; I think you’ll get 16.7 billion…

 

15        LEI       That’s it.

            LEI       I’m sorry?

            LEI       That’s it, divide it by 12, 1.3916666 is what’s going off (inaudible).

            LEI       We -- but you’ll want to put that in there so you could do the mathematics of your question.  If you take 14.5 billion and add the 15% to it our expected

20                    revenues next year are $16.7 billion.  And then if you divide that by 12, you get the monthly (inaudible), there you go.

            MAN     Well, a couple of questions.  Just going through your strategy and outlook.  You talked about Mongolia and you talked about Siberia.  I don’t want to get carried away with it in here, but just in terms of Mongolia, what would be the

25                    approach?  Would it be either a joint venture approach?  How do you enter a market which you’re not familiar with in terms of -- (inaudible) choices.  Now what would be the entry strategy?  Mind if you briefly touch on Siberia and Basic Element?  That would be the first question.

            LEI       Well, Mongolia is a very large country.  I’m not sort of exactly sure, but it’s

30                    probably half the size of Australia.  Or, I mean, not quite half.  Say -- you may say Queensland and New South Wales.  It’s got gigantic mineral resources, in fact huge coal deposits.  And very few people.  I think there’s about there’s about 4 million people in Mongolia.  We do have an office in Mongolia.  There is currently issues there that’s alike to Kenya.  All of the deposits, apparently,

35                    the way the law operates, if you have a, say, theoretically, a coal mine, you don’t get legal right to the coal until you actually mine it.  So you can make all this investment and you have no legal right to the deposit, and you only get legal right when the coal comes out of the ground.  And that’s the -- one of the big impediments in Mongolia at the moment.  There is huge coal deposits

40                    there and, in fact, Basic Element.  So I think they have a big coal deposit there, some billions of tons.  And so, until they resolve these legal issues, I can’t see the investment going ahead, but they’re very hopeful.  I think Mongolia is more of a sort of two to three year program but it’s not within our hands, it’s really in the hands of the Mongolian government to revise the law

45                    so that people are prepared to make the investment in alliance.  In terms of our activities with (Algera Pascus), our Basic Element and what we have offered to the (Algera Pascus) to establish a joint venture mining company to work in our Basic Element and the biggest construction company in Russia Trends which used to be the previous Ministry of Works.  So, in terms of understanding the risks, it has to be absolutely a joint venture with Basic Elements to run the mines.  I mean, we’re not going to go on any other basis, they’re a joint venture in some sort of cost protected position.  We’re not

5                      going to hang ourselves out at all.  A lot of opportunities, but I think it’s -- that’s sort of like a more of a two year program.  The big opportunities I think are in Mongolia because of just the lack of capacity and lack of people and no mining infrastructure and now we need to do the work and it is right alongside China so you’ve got to say its works in progress.

 

10        MAN     But Basic Element presumably as well in Mongolia?

            LEI       Well, Basic Element do have big deposits.  There’s other people who have deposits in Mongolia as well and as far as I know we are the only company offering mining services in Mongolia and that would be run out of their Hong Kong operations.  It’s not in a comparative sense in a long way but it is still

15                    -- that is the place we would run about and say we just need a clear basis.  There are always legal issues in Kenya.  They need to get sorted out now and everyone is hopeful of this sort of outlook.  Maybe the one piece sort of -- in the short term.

            LEI       But it’s not always in the capitalizing and in the view for equipment.  It’s not. 

20                    No impositions.  It’s not in the history of...

            LEI       So we give a joint venture.  I mean, we have to find different ways to invest capital but it is not ongoing.  Siberia is not our...

            LEI       So what would happen, it would be incremental over and above what was we’re forecasting.

 

25        LEI       Absolutely.

            MAN     Just maybe on the actual mining contracts themselves, just a get a feel for the number of new contracts such as rollovers.  What -- for the (great) of the work in hand.

            LEI       There’s an outline obviously in the release.  In the 4E, the work in hand

30                    statement has a pretty significant growth in the working hand and mining.  And as Wal said, we expect some more extensions and jobs for the -- found in Page 12 of the handout.  You can see the work in hand and the resource sector has gone from 9.2 billion at June last year to 12.3 billion this year and we expect that to continue to grow.  So the mining represents a lot of -- still in

35                    that range of 40% of our work in hand.  Construction has grown so strong.  It’s -- as well as set a lot of that just rolls over on an annual basis and we expect more contracts are coming forward.  I mean, as Wal said, water has been around most of the mines in Indonesia lately as of October, a moth ago and you get every mine with BHP and they say “We want this one to double,

40                    we want this one to double.”  The BMA wants the coal out of (Bowl) Basin to double.  There are one set.  I think -- and that’s great for them but there’s only so many people -- do much resource and always so much plan.

            LEI       And these figures are not to be taken as cash and concrete, and (Bill) is sitting there and they’re watching what we’re going to say.  On (build up), I

45                    said, there’s probably more than $5 billion with the mining contracts and offers at this point in time.  It would be probably an under-exaggeration.  It’s not overly stating, now you saw, “Why don’t I just scoop those contracts up?”  I mean, there’s issues about payment terms, there’s issues about contract conditions, there’s issues about equipment.  I mean, you can’t -- I mean, we have, as I said 20% of the Caterpillar build slots tied up through the 2000 and you just can’t -- If someone comes to you now, we did compress formed with

5                      a new contracts, we don’t have any equipment, we can’t get the equipment, we can’t get tired so there’s a two or three big contracts of those so to stop under our nose that are of the order of $2 billion or $3 billion contracts so we’re just looking at them.  And they’re looking at us, but on the other hand, that and activity options are coming -- they can’t (inaudible) the equipments. 

10                    So, I mean it’s a very, very unusual period that we’re travelling through.  We -- and suddenly there is all these sort of opportunity and then just sort of a lock-up capacity to respond to it.  So, we work for those and we’re taking as much equipment as we possibly can from Caterpillar, but some of the projects are just -- are impossible for us to respond to.  The market is there.  It’s all

15                    sort of done in terms of -- sort of ramp up of coal process.  I mean, most of the open-cut mine -- the coal mines for example that we use to run -- we’ll probably order a strip ratio of maybe 6 or 7 to 1 or something like that.  Now, because of the gigantic inclusion coal process, it moves.  The strip ratio is up to 10, 11, 12 to 1.  So, the amount of material has to be moved.  It’s just

20                    gigantic in the same sorts of proportion.  So, we just can’t respond to the number of objects, but there’s -- there will be at least $5 billion worth of contracts that are sitting right here, but people are wanting to negotiate with us and we’re just having difficulty making that in terms of equipment.  And having -- much to do with pricing as we could see valuable resources.

 

25        MAN     Is that India then as well in terms of the ability to grow India?

            LEI       It’s a global issue obviously in equipments so if you can’t get it from him you can’t get it for India or the strip ratio is going to be much better in India so you’re better to pursue those opportunities and -- say 11:1 strip ratio in Australia.

 

30        LEI       We’ll use -- somewhat more difficult in terms of getting these projects off the ground.  I mean, you see companies like (TAFA) investing heavily outside of India, investing in Indonesia.  And (Burmi), they’ve invested in -- which is our project in Mozambique.  And in fact we’re being asked to go to Mozambique to do mining work.  And the reason that those Indian companies are investing

35                    outside India is the difficulties to get the projects up in India.  We in fact have our first long-term mining contracts up there.  The second big mining contract, the bids were opened the other day publicly so it’s public knowledge and we are in fact a lot of bid and that is about 5...

            LEI       Six billion dollars.

 

40        LEI       Six billion dollars.  Now, that’s not in my other 5 million.  I was talking about that.  I know we’re short of -- we’ve a lot of bids and we’re sitting there but...

            LEI       This is the third time we’re -- the third time it’s been bid so it’s the Indian process.

            LEI       I think on the first time they found out that we were low bid before their

45                    envelopes, but I’m not sure how that works (in India).

            LEI       But in fact, it sounded -- well, most of these -- I mean, there’s been some talk in the market about the small miners and I guess they’re the medium sized miners.  I mean, mostly what we’re talking about is BHP, Rio, (Estrada), (Engler).  So they’re all of the -- I mean, they’re all the blue chip colours.  We

5                      don’t -- I mean, given the fads on the scale of what they want to do with our relationship and the opportunity.  I mean, we’re talking about all the blue chips we’ve got.

            LEI       India has very, very large coal deposits.  It’s a question of, you know, how they’ll advance those coal deposits.  So, we’ll just see on the second job that

10                    -- how we pull it together.  I mean, I’m expecting to go show some of the proceed over the next few months and at the end of the day they might be happy and we might be happy, but theoretically we’re sitting there with a (inaudible).  There’s also rules surrounding the tendering process of the -- they’re supposed not to negotiate with anyone other than ourselves.  It was a

15                    public opening so all the people know it’s public knowledge in India that we are sort of (inaudible) on this thing of $6 billion, but I wouldn’t care what it ca get.  There’s a question right here for you, Scott.  What is your expectation for the early completion banners you received previously?  I know the answer but I want him to answer.

 

20        LEI       We will receive an early completion bonus so it’s not payable for some period of time.  We’re going to disclose particularly that number, but I guess we’re comfortable and that’s all we need to (account), so taking up a new account, and we’re comfortable with our position.  So we’re very pleased we completed in time and fairly and able to take advantage of it.

25        LEI       Okay.  I have another question here.  Given the escalation in input costs, how are you managing the big fixed price infrastructure projects?  And is there a risk on losses on those projects?  (Inaudible) I -- really you've talked about the prices of managing escalation.  But on the fixed price contracts, I mean there is probably three distinct categories that you fall into.  I mean the first

30                    category when you’re going through the tendering processes, you endeavor to get as much as the inputs underwritten by suppliers by, (you say), from the concrete supplies, fixed price contracts, and then you make the calculation you get from other people, and the biggest and most difficult area has been steel.  So at the time of tender -- you underwrite as much of the bid as you

35                    possibly can with fixed price contracts on other supplies, you then do a residual calculation of your estimates of inflation.  And there is a calculation of why so enormous and smart coming out of computers and (inaudible) all sorts of (frenzy) analysis and improbabilities and nevertheless then you make a judgment of how much is added to the bid for future costs.  So what are the

40                    first two steps and when you get the contract is awarded, I mean you then go absolutely all out to buy the risk out as quickly as possible, and that might involve forward buying of steel and other products.  In the main, I would like to say we’re perfect but in the main -- I mean the calculations with swings and roundabouts probably work out.  I mean, in certain cases you either run in

45                    certain cases, you underrun.  But in the main, we don’t see any big losses.  The job that’s obviously hop on everyone's (inaudible), Brisbane Connect, we did out a lot of money for future escalation.  And there is some swings and roundabouts at the moment that we’re not overly concerned right at this point in time.  But I mean, they're all judgments and they not (pursued) as calculation and the biggest pie on that side is steel, and we believe we’ve got the steel priced up.  We’ve closed up and we will be buying steel from overseas rather than buying in (inaudible) supplies to close up that risk there. 

5                      It’s three steps.  There’s the underwritten by the supplies and add on to your bid than when you won the bid all out to buy it out as quickly as possible.

            ML       Kevin O'Connor from Merrill Lynch.  Just a question…

            LEI       I can hear you, okay.

            LEI       Okay.  The some things -- at least some things in impact growth, is that

10                    before or after the capital raising?

            LEI       That includes capital raising.  (Inaudible)

            ML       So after raising the capitals, the saving on the data, et cetera.

            LEI       Okay.  They made the outcome.

      WOMAN    (Inaudible) Research.  Congratulations, Wal and Scott.  Some

15                    questions (inaudible).  The first one is around contributions from international businesses.  So before you said you’re sort of aiming for 30% revenue contributions from international businesses, is that still the case and what do you need to go back (inaudible)?

            LEI       Well, I guess, we anticipate our overseas businesses going faster because if  

20                    you look at first growth rate of economy in India, Indonesia and particularly the Middle East.  And now with the Middle East, I mean we’re going ahead obviously a nine-month or ten-month contribution.  We now have two -- from a lower base and there will obviously be much higher base this year when we’ll get a full contribution.  What continues to surprise, I guess, the group is

25                    the strength of the Australian market (inaudible) we get the mining is we’re going to kick in from the volume side.  So I guess we can say we’re disappointed -- happy to be disappointed that the agents are contributing more because on the back of Australia, we continue to show good results.  But given Al Habtoor (inaudible) two group, I would have thought that 30% is

30                    within the next couple of few years if it continues to performing as we forecast.

      WOMAN    And just a second question then.  You said that 9% of revenues in FY '09 committed, can you just elaborate on what that means and how much more capacity you (inaudible) has to achieve additional revenues in the FY '09?

35

            LEI       We have subcommittees (inaudible).  In terms of putting our forward projections, I mean we do very detailed four-year programs and our business plan sitting on the title, I’m sure you'd all like copies also.  You obviously been off the work and you’re adding on the work, so I mean you’ve been off

40                    (unintelligible) like so and you add on the new work.  You know, at this point in time, we would normally be probably around -- about 70% committed.  And for the year, we are around about 90% committed.  And in fact, one of the companies, John Holland, I think, is probably 95% completed.  That indicates that it’s not casting concrete or not to be taken as a promise or anything like

45                    that, that maybe the 16.7 billion is conservative in terms of revenue.  We have a mathematician over hear.  (Inaudible), can you tell me what that mean?

      WOMAN    So just to follow up on that, in terms of the capacity, if you describe the business as having being at full-capacity, at the moment would you say that 90% capacity, is that the equivalent or is that a…

            LEI       We are a little bit -- so at the end of the market with some -- where the growth is going to come in.  In the Australian market, we are running at a very high level capacity so there’s got to be a greater degree of selectivity in what we do.  And then you actually got to get down to the contracts to see what you’re

5                      talking about.  In the mining business, I mean you could add on without even trying a couple of billion dollars worth of contracts, but I have no idea in hell or heaven or any other place how we'd actually do that because we haven’t got the equipment and you can't the equipment, I mean it’s not as saying, I mean we know the equipment lead time for big trucks at least the year, at least the

10                    year in some cases to you.  I mean we’ve got equipment ordered to that at 2011, so we can't respond.  And so, what are the alternatives?  I mean there is other equipment around if you want to buy Indian equipment or Chinese equipment, but that’s not an option we'd like to do so.  So that’s in the Australian context.  In Asia, we are in, particularly, Hong Kong, we probably

15                    below capacity.  Hong Kong has gone through an extended period of low levels of investment, and they do now have a very big infrastructure program coming in Hong Kong, so our anticipation is that Hong Kong is going to pick up quite substantially on the investment in road and rail and social infrastructure.  And of course, then in the Middle East, well, who knows, I

20                    mean you're going to do (inaudible) want to do over there -- and just sort of an amusing.  So Scott (inaudible) telling this story.  I’ll tell of any…

            LEI       We never stopped you before.

            LEI       We had a call the other day and we'd like to build a road in Abu Dhabi in the fall.  And I was imagining like a road from here to North Sydney or something,

25                    and how big is the road, it’s all big and how big, almost 340 kilometers of (inaudible) highway.  And how are we going to do that?  Just another world over there.

      WOMAN    Yeah, I think it’s (inaudible) well, I mean we have to look at the management and we see for $1.5 billion work in hand is a lot of margins sitting in the work. 

30                    So you can -- you have to look at chasing additional work versus driving some very, very good margin out of the existing work, so all of that has to be thrown in the mix of people.  If you want it, you got capacity in Hong Kong.  You’ve got -- and now, Al Habtoor Group is getting close to 40,000 employees in the Middle East, so all of those are just judgments thinking the

35                    best we can.

            LEI       (Inaudible), I’m sorry.

            LEI       Go ahead, Wal.

            LEI       I have another question on the screen.  How long will -- it doesn’t actually read correctly, but I think I know what that mean.  How long will you consider

40                    that the Defence market become attractive enough to Leighton to enter?  Well, I think the question is asking how long was -- we look at it.  Well, I think all of those people that now -- I mean, we -- the patient people.  I mean, we have to just keep watching and watching and watching and watching.  And if it (surges), we’ll move.  But if it doesn’t, so it is -- we would not move.  I mean,

45                    there’s no great pressure on us to anchor that particular market.  I mean the Defence market is potentially, and I just have a fundamental belief in the years ahead that the Defence departments will outsource more on their work.  And we should be positioned to that as I do believe in the aviation business, and we are in the aviation services business in Melbourne.  And that business is now moving into a profit.  I mean, we are the second largest supplier, I think of independent aviation maintenance and I'll distribute the aircraft numbers -- any aircraft we work on I'll distribute.  Some are frenzy, but your (inaudible) numbers.

5

            LEI       We don’t do (inaudible).

            LEI       So the Defence business, we'll just keep watching, and if it’s attractive (inaudible) and the slot opens up, we’ll go.  But if it doesn’t, we would not.  There’s another question here.  Scott, can you explain the rationale behind

10                    the price of the entitlement?

 

            LEI       Well, the price of the entitlement, obviously, the benefit to shareholders we think has tremendous benefit to shareholders.  It’s 35.35 in discounts.  I mean the price is driven by obviously the market price that today we launched the

15                    entitlement, we closed yesterday, and it benefits all the existing shareholders.  So we are quite happy with it.  We suggest that shareholders will be quite  happy with the directors taking up their entitlement after we’ve been taking my entitlement.  So it’s a function of the market price that we think it benefits all the shareholders.

20        MAN     (Inaudible).

            LEI       Well, I don’t have the business -- it was essentially a building business and our Gulf Leighton business was an engineering business.  Scott (inaudible) commented on the percentages that the business seem sort of (inaudible) is near unlimited opportunities in the building market.  In Abu Dhabi, we do have

25                    that very strong relationship with TDIC.  And TDIC is just winding up to do more and more and more work about building and engineering work.

 

            LEI       Yeah.  I mean, it was probably originally we have two businesses with (installed) building, but with Gulf Leighton, I mean it will probably be about

30                    80% -- 85% booming.  But now moving more into the civil and more into, particularly Abu Dhabi because you can see additional work there building up probably, you got 10% of (inaudible) and Qatar, and that’s growing as well in the bidding jobs in Kuwait and some of the other (inaudible) as well.  So it’s becoming more -- moving to a more balanced business.  We also have the

35                    associated businesses.  They are doing very well in mechanical export, (piling) and (inaudible) all the associated businesses because you have to do a lot of self-execution in the Middle East.  So the diversification we have to do by building is occurring in a (inaudible) quite (inaudible).

            MAN     Joe (inaudible) from Macquarie.  Two questions for Scott.  And certainly, just

40                    in terms of looking at the down shape, what measures do you use to assess your down shape (stand)?  Do you have a target range?  And certainly, just thinking about the other opportunities in terms of our position to (inaudible) residential, et cetera, to what extent is getting the funding in place for the property and equipment, the contract mining allow you to fund those other

45                    opportunities?

            LEI       I’ll answer the second one first because that’s an easier one.  As far as, you know, being in a positioning, Leighton's philosophy always should be in a position of strength to the opportunity so that we can take advantage of the opportunities that come our way whether the things like buying plants, Al Habtoor, (HWA) are those list of things Wal went through.  So, it’s (inaudible) back to that position of strength to be able (inaudible) very quick into the opportunities whether acquisitions come along the way, additional plants needed for mining.  I mean, as Wal said, they’re just some massive either it’s

5                      mining or potential acquisitions or whether we (group) on Al Habtoor at the right time.  There’s lot of opportunities out there.  Now, those things are in the near term, some of those give the balance sheet capacity as quickly as things happen.  And in this market, I mean we are getting flooded every day obviously with either calls from companies that are in somewhat distressed or

10                    parties walking through the door particularly investment bankers saying, do this, do that, do this.  It doesn’t sit with Australia environment, but if something happens, we’ll be in a position to act.  So yes, it does give us the ability to tap to different markets and act to that very quickly.  Coming back to our, I guess, skewing ratio, we do have an internal targets, which sometimes

15                    are seen by the market as conservative.  We looked at -- on not only the, I guess, the gearing that we have on the balance sheet.  We also look at what's happening with our operating leases and all the assets that we have employed within the company.  And we always want to be in a position strength and indeed Wal has obviously instilled in me the position that

20                    somebody's construction companies have been in the past and Leighton's work back in the 80s, or we are going to be beholding to with any banks, we are not going to be in a position that if we stumble, that we won't come out of it from a strength position.  So, it might be seen that some is conservative.  We think it’s prudent and at 43% return on shareholder's fund we think is

25                    more equipped for the market.

            LEI       So, on the Middle East, we’ll be organizing a tour up there around March next year, (inaudible) March next year.  I think that September should be a little more bearable, so you should talk to Justin about you’re interested in having a look.  We need to wrap up here shortly.  Are there any last questions?

30

            MAN     (Inaudible).  First of all, Wal, the separate connections, you mentioned that -- have you lost in the supplier of concrete also on this one?

            LEI       (Inaudible) concrete.

            LEI       (Inaudible) concrete -- I think it’s all being -- I know I didn’t go the last

35                    meeting up there.  I had other things (delivered).  I don’t believe there is -- in the totality of our escalation, I think we’re feeling comfortable at this point in time, which would include concrete growth.

            MAN     Okay.  Okay.

            MAN     (Inaudible)

40        LEI       You don’t (inaudible) -- it’s -- there are variations up and down as being reductions and increase.  The big issue is steel.  And the steel issue we now believe we’ve got locked away at under our budgets -- on our budgets.

            MAN     Okay, thanks.  And also the -- you guys mentioned the credit crunch and (inaudible) that certain projects in the pipeline especially infrastructure

45                    projects you might have trouble getting a finance.

 

            LEI       Infrastructure projects getting finance, credit (inaudible).

            LEI       Well, the next major new PPP to come on the drawing board is a project called the Northern Link in Brisbane, which is we believe will be up to ten.  They’re probably around September, October, and that’s -- it’s in that area along the river and connects with the -- in a city bypass, which connects with the Cross City Tunnel over across North-South Tunnel, which connects with the -- Brisbane connects along the river there, and that’s about $2 billion job. 

5                      So you might say the eagles are flying around at the moment, and we’ll see how the eagles land.  Our anticipation, of course, is going to be much more difficult to fund.

            MAN     Okay.

            LEI       We don’t see any of the projects in (inaudible) and that how much the

10                    government has to contribute.  And going -- I think the only (inaudible) that we’re seeing an impact is more in the property sector.

            MAN     Okay.  Two questions for -- first of all, the (inaudible), how much profits did you (inaudible) from Eastlink in the (inaudible)?

            LEI       We don’t disclose individual project profits.

15

            LEI       We don’t make any friends that way.  That’s right.  (Inaudible) 30% profit, you got an enemy.  If you got a (50%) loss, you kind of -- what about a reimbursement, I guess.

            MAN     (Work), okay.  Could you just specifically on the, I guess, the early completion

20                    (inaudible).  Have you recognized any of that?

 

            LEI       We’ve recognized all of the early completions done if the project is finished.

            MAN     How much…

            MAN     So based on our assessment and the discount at level worth of traffic and in

25                    (time value) of money.  But in the scheme of things as we expect any (inaudible) movements on those is very small, very small.

 

            LEI       I think that the previous guidance was $37 million regarding to your early completion.

30        LEI       Yeah.  It’s roughly in that range.

            LEI       That’s in the numbers.  That’s in the numbers.

            LEI       Yes.

 

            MAN     Okay.  Thanks.  And also just the guidance of price for '09 I’ve seen (much

35                    extension), I think Wal has indicated that he does not want to be too greedy.  And I guess, what's the uptake?  So what's (inaudible) of my thinking in (inaudible)?

            LEI       Oh, you have two issues.  One of the -- that is when Wal is talking margins, he is talking about margins we’re bidding now.  So the margins that are

40                    coming through the work were actually bids two years -- most of them were bids two years ago, so he's talking about margins bid in 2006 are now coming through in 2008.  So we have higher margins that we’re bidding now than so we had in 2006.  So at the time value, if the contract is coming through, then you got the contribution from Al Habtoor with the entire margins that Wal is

45                    discussing here and obviously on an architecture basis as well.  So, various things often coupled with -- if we can continue to manage our risk and move into the more alliance contracts, we should be able to manage the risk on the down side on some of our projects as well which then comes through in margin expansion.

            MAN     Thank you.

            LEI       Okay.  Thank you very much for attending, and we hope you found that enjoyable.  Thanks a lot.

 

PRESENTATION CONCLUDED

 

 

 

 

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