Leighton Holdings Half Year Report 14 February 2008

Transcription

1 Leighton Holdings Half Year Report 14 February 2008 Good afternoon everyone and thank you for coming to the presentation this afternoon which is our Valentine s Day presentation so from a Valentine s Day presentation there should be something in it for everyone, in one way or another. I will run through the overview and a few of the highlights and then Scott will talk about the results in detail. We do have this presentation being webcast and there s also an facility so when we come to question time which we ll hold right to the end if you just wait for the microphones so the people sitting on the other end of the web can hear what s being said. So just stepping through this we re very pleased with the results for the period. We ve turned in a profit after tax of $250m it s up some 32% and speaking of our various operating divisions Leighton Contractors performed well for the period ahead of budget, Thiess Contractors performed more or less on budget for the period, John Holland performed exceptionally well and it s interesting to note now with the John Holland order book about 50% of their work, their future work their work in hand is in fact an alliance type basis so obviously being a lower risk and hopefully higher margins and Leighton International is on track with Al Habtoor giving them a kick for the period and I ll talk more about that. Leighton Asia is being restricted with a new MD Hamish Tyrwhitt starting up there, we call him miracle man an interesting guy and Leighton Properties have a lot of opportunities and quite a strong period. So over the period total revenue was up to $6.5bn, new contracts and contract extensions etc topped $12bn and that included a contribution, our share of $1.5bn from Al Habtoor in the Middle East and bring the work in hand to a record $26.7bn I did comment probably 12 or 18 months ago that I thought in this cycle that the work had crossed $25bn people looked at me very strangely, I think the momentum is for higher levels of work in hand. Operating profit before and after tax was up by more than 30% and dividend was increased by 33% 45 cents per share to 60 cents per share and I commented to Scott there s a lot of 30 s down that column there 33, 32, 31 etc so interesting result which we are quite pleased about. The work in hand is at an all time high of $26.7bn and this doesn t include work that goes beyond a 5 year period, we only value as everyone knows the work out to 5 years and there s probably several billion dollars worth of work sitting past the 5 years and in fact some of our long term contracts go out to around \ Major new contracts awarded in the period was the $1bn Sydney Desalination plant which in view of the rain in the recent weeks was probably glad we got that underway, been flooded in the last few weeks but I m sure the floods will be over. The $625m Sugarloaf Water Supply Pipeline in Victoria and in the Middle East $560m highway on Saadiyat Island in Abu Dhabi, many major awards in addition to that are mining contracts and contract extensions. Leighton Holdings Limited ABN Page 1 of 17

2 So just to comment on some of the operational highlights of some of our major jobs. All of our existing infrastructure projects in Australia are proceeding more or less in line with expectation, the North South Bypass Tunnel in Brisbane and this is a shot of the first TBM underway and the first TBM is in some 20 or 30 metres, the Gateway Bridge is also performing well in Brisbane. So both of those big major projects in Queensland the Gateway project any of you that fly into Brisbane Airport if you look out the window as you approach over the land you will see the corridor. Both the projects up there are proceeding quite well. In Western Australia the Perth to Mandurah Railway Line was subject to a lot of press from time to time was opened before Christmas. In Victoria, the Thiess John Holland joint venture on the Eastlink the $2.6bn Eastlink project is nearing completion and physically the roadworks will be completed in several weeks and the road will open shortly thereafter and you can see from the slide there on the areas that are completed it s all in good condition. A lot of the testing on the tolling is going on and I think we subcontracted some of the toll testing to the police and the test for whatever reason you have to identify cars at 180km or 200km an hour so the police had a little bit of fun there burning up and down the road. Water is the large source of infrastructure work at the moment, John Holland was awarded the $1bn Desalination Plant in Sydney and in Queensland good progress has been made on the $1bn Gold Coast Desalination Plant which is right along Southport Airport, you can see there and out to sea you can see the rig that s involved with vertical shafts, one of the tunnel boring machines has completed the work out to sea, the second one will complete in a few weeks time, those machines are worth $8m to $10m so they actually drill past the shaft and left in place and abandoned, hopefully we allowed all that in the bid, there s no way of recovering the machines so they re left there, so if the martians come here in a billion years dig down and find this tunnel machine concreted in they ll thing these people that occupied this planet must be completely crazy. And the same in Sydney our tunnel boring machines go out past and are just left behind. So that s all proceeding extremely well and should be completed as a great project. And just before Christmas John Holland was awarded as I said a big project Sugarloaf Pipelines in Victoria. In the resource market that obviously continues to boom along, there s been many big new projects awarded including Tarong just outside of Brisbane, Sonoma Lake Vermont Coal mines in Queensland and very significant mining contracts being extended and awarded in West Australia in the iron ore business, at Yandi, Area C and also other coal mines in Queensland South Walker Creek and Challenger Gold project in south Australia. Resource revenue construction was down somewhat due to the completion of some projects but we do have a substantial momentum in this particular business and we see our revenues in contract mining extending over the period and increasing. In the property market our buildings are proceeding particularly well Leighton Properties have a great pipeline of work and are progressing developments in excess of $2bn in Brisbane, Leighton Properties presold 400 George Street it s basically straight opposite the cultural centre there in Brisbane it s a joint venture development and it s been presold for $210m. Leighton Contractors are expecting to make good contributions to the full year and Leighton Properties have entered into a number of joint venture arrangements with Devine, one of the arrangements that was concluded was a $400m Hamilton Harbour mixed use development just there at Hamilton in Brisbane and people who drive into Brisbane it s just before you reach the city you ll see it on the river on the left hand side. Hamilton Harbour comprises approximately 300 residential units and some 30,000 sqm of office space and I ll comment later, we have probably in excess of $1bn of property Leighton Holdings Limited ABN Page 2 of 17

3 joint venture deals that we ll be doing with Devine in Queensland including a big development we hope down on the park which is called the French Quarter. Turning to Leighton Asia, Leighton Asia has been restructured as I said with the appointment of the new Managing Director and the previous Managing Director retiring for health reasons. Hamish Tyrwhitt who s been appointed there ran Leighton Contractors Southern division he s a long term company employee and before that he was Manager for Malaysia and responsible for lay-offs in Thailand. In Macau Leighton Asia is progressing well on the $2.1bn City of Dreams which is on the board an entertainment and gambling complex which we re executing under a management basis. Progress has been also good on the $400m Wynn s complex in Macau and in Hong Kong we completed the Eagles Nest Tunnel and in the Philippines we ve started work on the EPC contract for masvadi gold project. In Indonesia all our mining contracts are progressing well, some were impacted by substantial wet weather in the second quarter but we re back on track there. We anticipate there s a whole series of very substantial contracts in Indonesia will be negotiated in the next months ahead and Leighton International was awarded $125m 3 year contract extension for mining services at MSJ. In the Middle East we well know the Middle East is a phenomenon with some $1.4 trillion worth of projects planned or under development. This is the new TDIC headquarters in Abu Dhabi. The Al Habtoor acquisition was obviously a highlight for the period and I ll talk more about that later on bit it s performing in excess of its business case. We ve agreed a long term joint venture with TDIC which has great potential, TDIC was created to manage and develop the real estate assets for the Abu Dhabi Government and they have some $US60bn in their pipeline. The highest profile project is the Saadiyat Island project on the outskirts of Abu Dhabi, the largest single mixed use development in the Gulf, the master plan includes 29 hotels, 3 marinas a Louvre Museum for which they ve paid the French Government $US1bn for the naming rights of that particular museum, a Guggenheim Museum, golf courses, formulae 1 race tracks and all sorts of other things. Saadiyat Island is expected to be a permanent home for more than 150,000 people. We re continuing to focus on our India albeit the last several months has been much slower than we hoped and maybe that s a little bit to do with management focus on the Middle East and we re re-focussing to try and gain momentum. India we believe in the years ahead will be one of the largest countries in the world. Whether it s the biggest, the 2 nd biggest or the 3 rd biggest country really doesn t matter all that much they just have an unbelievable pipeline of work and I guess the issues are whether we can in fact become a successful contractor, we are profitable in India we have executed very successfully a number of projects. The Emaar MGF joint venture has delivered more building work and we have signed an MOU to undertake a major mining contract there which I will talk somewhat about. So perhaps now I ll just ask Scott to walk you through the detailed financial results. Thanks Wal and welcome everyone. I ll just take you quickly through the highlights for the 4D and then take questions if we can after Wal finishes on the strategy. So just looking at the highlights on page 19 of the 4D I think everyone should have a copy I ll just walk through some of the slides. If we look at revenue it s up some 14% to Leighton Holdings Limited ABN Page 3 of 17

4 $6.5bn. The Group revenue self performed work is down some 3% but the JV s and associates revenue is up 118%, the shift there is really moving into the big JV s obviously with NSBT, Gateway, a lot of our alliance work now is done in JVs and of course Al Habtoor revenue is treated as a JV and going forward we ll see more contribution for the JV s as a way to obviously access additional capital, manage our risk and give a different skill base and if we look at Connect East or Lane Cove Tunnel contributing into those over the years the JV the percentages would be similar but obviously from their perspective that was consolidated in the Group perspective. One thing I just wanted to highlight is we have changed some of the format and how we report work in hand and revenue in relation to market segments and activity. The old format the way we presented it had a mix as you can see markets and activities in the same sort of format, from I think your perspective and maybe our shareholders difficult to align those sectors with say some of the reporting from ABARE or BIS or some of the different markets, so what we ve done now is align the format into actual markets and activities so there s nothing untoward in that, just to make it easier for you guys and hopefully our shareholders to see how we re performing against activities and markets but we ve also provided a reconciliation or comparable to the old format just for your benefit. Now moving into the more sexy and fun stuff, let s look at the profit, income statement on page 20 there, EBIT was up some 42% to roughly $370m obviously with a substantial increase from the JV s and the associates. One thing I just want to explain about the contribution from the JV and the associates, there s a lot of costs that aren t included in those obviously tender costs, interest, taxation, corporate overheads, all that s borne more as corporate office so again don t read too much into the single contribution from the JV s and how we manage Leighton on a consolidated basis is nothing in that. Income tax broadly in line with profit at 22% similar to last year and that tax rate is based on a full year forecast. Finance costs were up because of an increase in borrowings to fund obviously Al Habtoor, we ve made some significant investments obviously with Macmahon, we ve increased our shareholding through the rights placement with Devine which is as Wal said is performing well and he ll talk more about that and the other is our working capital, because of the acceleration of construction of some of our major projects which I ll talk about when we get to the cash flow. The tax rate is lower than obviously the nominal corporate tax rate and that s largely driven by R&D and our earnings mix abroad and that brings us down to a record net profit after tax for the half year for $250m up some 32% which we think is a fantastic result. Just on page 21, I won t dwell on that too much you can see the change in FX which is just the movement from the half year from 85 to 87 to December and also there s some revaluation of investments according to standards for Macmahon, the M7 and our investment in North Luzon Expressway and that obviously flows through the revaluation to the equity on the balance sheet. Speaking of which we ll go through the balance sheet now which is obviously made a significant step up over the last 6 months, I ll point out some of the key issues, the gross cash obviously at December very healthy at $511m, the trade and receivables in line with revenue growth and obviously with the cash flow as well, one thing we need to understand is when you re comparing June to December we really only get 3 months to bill so the trade and receivables on a like like basis it s better to go back to December 06 where you see it s over a $300m increase in trade receivables. So when we come to the Leighton Holdings Limited ABN Page 4 of 17

5 cash flow the issue of why isn t the cash showing up in the receivables it is on like on like if we were billing for a full 4 weeks or full month trade and receivables would be well over $2bn. I can answer some questions on that later if you need to. Inventories up mainly due to property investments that we ve made which will fund future growth. The big increase in equity accounted investments is not surprise is Al Habtoor and those other investments include things like carrying value we have in Devine, Sedgeman and our big joint venture with Silcar with Thiess and then the other investments most relate to our infrastructure investments such as Lane Cove, the M7, we made a small investment in Cross City Tunnel for the O&M contract and also our investment in Macmahon. Property, plant and equipment $1.3bn obviously reflects continued increase investment in our plant, we ve also invested in plant off balance sheet to bring the total value up to some over $2.1bn both on and off balance sheet for the Group and that brings the total assets increase of over a billion dollars. Look at the not so fun side which is the liability side. A couple of key points again trade payables broadly in line with the self performed work, the tax liabilities has come down largely because of the big payment we ve made over the last 6 months, cash payment again reflected in the cash flow statement, $103m largely relates to Australian tax and obviously one of the reasons we were able to return to 50% franking earlier than we had forecast. Provisions in line with basically the employees in the business, most of it s linked to employee provisions. Interest bearing liabilities are up some $500m on the short term that again relates to investments in things like McMahon, Devine but the big one is the accelerated projects where we will complete as Wal said substantially early on Connect East and we have a fixed draw down schedule with Connect East, we have a fixed draw down schedule with NSBT, we have fixed payments on the Gateway project and we have some other fixed payments on some projects. So the good news is that we re accelerating on the construction of all those, it looks like we ll be finishing early on all those and Connect East obviously coming to an end very quickly, but that s causing short term borrowings to ramp up but that will reverse out in the near term. The limited recourse debt relates to the Indonesian notes bring since that debt for Indonesia for $126m and then the $490m of borrowings to fund the acquisition of Al Habtoor which again is ring fenced to the investment in Al Habtoor, then the Leighton notes of $200m and that increased our total liabilities by $1bn. As I said looking at the cash flow, strong opening balance we look at the operating cash, if we were to take out the impact of tax and the acceleration of the construction projects we d be well in excess of $500m in cashflow for the 6 months, but we re sitting at $161m but like I said that will reverse out over the near-medium term. And we had the investment in property, plant and equipment and the proceeds from sale that largely relates to the sale and lease backs so we put into our operating leases and then the borrowings both non-recourse and short term borrowings and some of the major investments moving into Macmahon s, our dividends and then obviously a healthy closing cash of over $500m. Looking at the depreciation, we still again putting plant on balance sheet, plant off balance sheet, the underlying plant and equipment depreciation you can see is Leighton Holdings Limited ABN Page 5 of 17

6 increasing there but the overall depreciation is actually remaining flat or actually coming down slightly. Most of that relates to plant and equipment component, our fleet is actually newer and therefore the depreciation relating to components is less while the underlying depreciation is increasing. We have had a big spend on capital last year, we re having a big spend obviously on capital as well this year which you ll see that related into our work in hand in which mining work in hand has increased by 25% and as Wal said we expect the revenue from contract mining to start ramping up but that work in hand comes to fruition and the plant starts to continue to get utilised, but it is moving at a high rate and is being used at a fairly high rate. Total plant as I said on and off balance sheet over $2.1bn and see depreciation remaining strong. Just looking at the depreciation page run through that small component of net gains on a sale of a couple of assets, one relates to a company called Metlabs that Leighton Contractors sold which was a small material testing business which didn t fit necessarily into our long term strategy and an offer too good to refuse so Leighton Contractors sold Metlabs and the property, plant and equipment is just our normal trade sales which reflect at the end of a plant life which reflects strong secondary market. Turning to the geography split there. Pretty much in line with more of a historical profits with the Asian profits up from $30m to $57m which contributing 16% of our overall profit. Obviously we had some issues last year in Indonesia with the derojet(?) project and now we re seeing the Asian businesses recovering back along the lines of more historical profitability and as well we have the Al Habtoor contribution for 4 months starting to make its presence felt and as Wal said very pleased at the moment that Al Habtoor is performing above expectations, it s still early days but so far it looks like a fantastic opportunity. From there on in the ASX report we go through dividends 60 cents per share Wal talked about up 22% liquidity, MTA happy to take questions about that but I won t spend much time on that. A couple of issues I d just like to address quickly is that our balance sheet is a source of competitive advantage and something that we very actively manage. We have a very active capital planning program, we ve done some very innovative things over the last few years, obviously the hybrid and the Leighton notes, the operating lease facility the size and the structure was one of the most innovative things done in that sector for a while here in Australia. The Indonesian notes we ve ring fenced that and then of course the non-recourse debt for Al Habtoor which just yesterday was voted project finance deal of the year by Asian Money which is pleasing to see, and again we ve started well there and I m sure our debt providers there are very happy with the results so far. These programs and other capital options will continue to be integral to our growth and we have lots of opportunities. Our financial strength is solid, we ve got capacity, support, future investments and our growth opportunities. We have capital options in place including we have cash, undrawn operating leases, debt facilities, hybrid capacity on the balance sheet, obviously our Leighton notes come up for renewal or reset in November, we ll look at how we manage that, given the structure it s probably not optimum after the S&P issue so we ll look at how we might manage that going forward. But again all this is part of our capital planning program and we have plenty of capacity to meet our strategic objectives. I ll hand back to Wal and happy to take questions after he s finished. Leighton Holdings Limited ABN Page 6 of 17

7 Thanks Scott, I ll just now move through and make a few comments about the outlook as we see it and the strategy. In terms of a detailed outlook I think out there on the desk there s various charts and graphs from the Group Market Outlook so I won t go through those. But essentially the outlook is extremely positive in the markets in which we operate. The Asian market remains very strong, the infrastructure and mining market in Australia remains very strong and despite any issues that might come out of the subprime fall-out. A key element of our strategy is continue providing competitive and efficient service in our home market that s throughout operating companies. This model also provides a framework for future extension to the business. Let me talk and update you, I talked about various strategic initiatives last August and let me update you on those. The first and foremost I mentioned in August was our desire to expand our business in the growing markets of Asia and the Gulf and of course at the end of August seen us acquire the 45% stake in Al Habtoor Engineering by investing some $860m. This investment comprised of 40% cash and 60% non-recourse debt and obviously Scott s very happy that he s got the Oscar for the year in that and I m not sure whether the Oscar is more important or the deal. The Oscar is very important he got the deal of the year. The funding structure provide benefits to shareholders in terms of financial returns and risk mitigation, it s a conservative structure that protects our shareholders through the non-recourse debt position, Leighton has equal board representatives and we have the option to acquire further equity. I personally am spending a lot of time in the Middle East and overviewing and sit on the Board up there. The transaction was immediately EPS accretive. Al Habtoor Leighton as it s now called immediately became probably the largest regional contractor, that s an interesting tower in the Middle East some of the things they dream up, that particular job involved putting the top on this grand stand and leaning tower of Pisa and the top of it is a Grand Hyatt Hotel and the little bit that sits out to the side is the swimming pool. So if you work out where the lift goes there is actually a vertical line that you can fit through the building, so that s one of many, many interesting jobs up there. Al Habtoor Engineering provides Leighton with a significant increase in capacity and this enables both parties to fully capitalise on the numerous opportunities in the Gulf market particularly in the United Arab Emirates. The transaction bought incrementally into the uncompleted work in hand some $1.5bn of work and as Scott said and I emphasise that Al Habtoor Leighton is actually trading above our acquisition model and everything seems to be travelling in the right direction. They have more opportunities up there than they can sensibly respond to, so a great positive and I m sure that will become a part of our business. We do have a plan over the next couple of years to float the business and it will remain a United Arab Emirates construction company, I mean there is no thought by us that we re going to bring that back to Australia, we want it to be a Middle East construction company it s probably the biggest construction company in the Middle East now. We would increase our shareholding from the 45% the original founders would in fact stay in for part of the action going forward, albeit those gentlemen will down sell and some of their interests, become a public company listed in the United Arab Emirates, we do have some regulatory procedures to get over and when I say within the next couple of years I don t mean next week it will probably happen sometime next year we ll float the company. It will run up to a turnover in the next couple of years of some several billion Australian dollars, so it s going to be a very significant company. Leighton Holdings Limited ABN Page 7 of 17

8 We wanted to expand our international mining activities, we are by far the largest contract miner in the world and we re continuing to evaluate possibilities in India, China and Mongolia. We recently signed an MOU with a major Indian conglomerate to develop a green field s coal mine for 20 years this mine is forecast to have a capacity of something around 6.75 million tonnes per annum and work is expected to commence on the development of this later this year. Leighton Asia also commenced an EPC contract at Musbadi Coal project in the Philippines and we re close to finalising a mining contract and I said earlier on there s a number of very major mining extensions in Indonesia we expect to conclude in the next 6 months. In infrastructure we are a leading developer of infrastructure in Australia, we want to extend that role into the region, we have the skills that are in fact in demand, Thiess are preferred developer for 3 tollways in Indonesia and we expect to progress those over the next several months. Thiess and Leighton International are also pursuing a number of tollways in India. And of course here in Australia we have the major $3bn plus Airport Link project in Brisbane which is expected to be decided by midyear and of course here in NSW they re getting very close we believe to announcing the M4 East privatisation which will be probably the biggest infrastructure project in Australia with a construction value of some several billion dollars. In Melbourne there s a $3bn desalination plant coming up and we ve submitted bids for the redevelopment of the Royal North Shore Hospital I think we re one of two and that project including construction and management some billion dollars. We have a significant investment in projects in Australia, infrastructure projects of some $500m and we ll continue to liquidate these over time and reinvest the proceeds in our core business. We ve entered the residential property development market through Devine, we now have a 40.6% stake in Devine and when our standstill agreement comes to conclusion we ll move up to 50% in that particular company. The overall objective in the residential business is to have a business that s similar size to our property development. The relationship with Devine is extremely positive like the project I commented earlier on the $400m Hamilton Harbour mixed development in Brisbane and in addition to that we have some billion dollars worth of projects that we re progressing with Devine so that all goes well for us. The other step was we were wanting to continue to grow our services business, we look very strongly at the Alinta deal with our friends from Macquarie but ultimately couldn t agree in value and walked away. Last year we entered the aircraft maintenance business, we do have this big facility in Melbourne now and have a number of steps happening there and that is building into a business of maintaining aircraft, so that s all going fine. We ve continued a number of smaller investments like Champ and Villaway, 2 utilities maintenance businesses acquired by Thiess and a small company called AMS which is a services to the iron ore business was acquired by HWE. In the Middle East TDIC have requested that we put proposals to have a facilities management company to maintain a lot of the big facilities they re developing and a Leighton Holdings Limited ABN Page 8 of 17

9 number of the TIDC executives have been down in Australia and we re progressing that forward. We still see defence contracting as an attractive area we re invited to participate in the Tenix sale and undertook a significant due diligence process but withdrew from the process on the basis that we thought the whole thing was too expensive and as you well know we re not in the business of paying too much for anything, so we didn t proceed with that. We re still monitoring the Australian Submarine Corporation and of course the sale process has been somewhat delayed by the change of government and we ll see where that continues to go. In relation to McMahon we ve formally entered into a Memorandum of Understanding with McMahon to formalise a partnership relationship between the two companies, we have acquired more than 15% and we will work our way up to 20% which is the cap we have for two years under the Memorandum of Understanding Leighton will promote McMahon as a partner of choice to joint venture on large scale infrastructure projects and resource related projects, so we believe there s going to be value in the McMahon acquisition to be able to access and joint venture with them. We believe in the current market place there will be opportunities arise so we have a watching brief if you like as those opportunities develop. So bringing it to summary we believe the outlook remains very positive, we have a huge number of opportunities in our core markets in Australia and overseas in the Middle East, we re progressing a number of strategic initiatives we have a very strong market position we re more than two to three times the size of any other construction and mining group in Australia, we have the capital to progress our initiatives and we expect to work to remain well above the $25bn and potentially higher, our revenues for the year are expected to be in excess of $14.5bn and the revenues for next year will be we believe well in excess of $15.5bn. So we remain on track for increased profit for the year, so the words in the press announcement were at least 30% growth this year and that 30% is over and above the 63% that we delivered last year. There s been a lot of debate again about what at least means, I would say the 30% is guaranteed and over and above that we ll let you know in due course when we get to our update later on. So I think we re in a great position and we see strong growth in the years ahead. So there you go I m happy to answer any Valentine s Day questions. Question: Congratulations on an excellent result, I have two questions, one is Connect East project which is running ahead of schedule could you provide an indication of likely type of payment that you might receive on completion of that project and my second question related to head count growth in the first quarter your head count grew by about 6% it looks like second quarter head count is flat, can you provide some comments on that. Connect East I think I said in my statement there it will be finished in several weeks and you might ask me what several is and several is a number of weeks, there is a whole series of issues to be dealt with so we re very confident it will be open several months Leighton Holdings Limited ABN Page 9 of 17

10 ahead of time, the original completion date I think was end of November of mid- November, there s a whole series of issues that we need to sort out with the client there in terms of bonuses there and the like and I don t really think I should comment on those quantum figures and I m sure Connect East have got someone in the audience listening to what we ve got to say or on the web. Your second question are you talking about people? Question: Yes. Well the people thing has probably been distorted to the extent we felt how do we report the number of people that we employ, we have joint ventures, we now have Al Habtoor and I think that s all been consolidated on the basis of ownership, it s a question of how you count, Al Habtoor has about 30,000 people but we own 45% of that so how do you bring those numbers into your figures and similarly with joint ventures, I wouldn t take much credence on the figures at the moment, the figures that we ve put in I believe are now on a new format that is proportionally we ve taken the number of people in and the biggest influence of that is on Al Habtoor, do you want to add anything Scott? I think the only things is the work is increasing obviously the revenue is increasing we re finding the people to do the work, I wouldn t take too much on those numbers, but we are recruiting of course in the inevitable Leighton way we have recruiters down from the Middle East looking for Australians to go to the Middle East and we have people in the Middle East looking for recruiting down in to Australia and we move those people around, but we re finding the resource whether it s South Africa or the UK obviously the slowdown in Europe might create more opportunities for us if they do slow down for recruits but I think we re finding all the people we need to execute the work. Question: Simon Thackeray, ABN AMRO Wal firstly just talked about 30% this year which is terrific, I asked you last time and ask you again pre-habtoor we got 20% out of you in 09 so what are we looking at now for 09 off the base for NPAT growth next year? What Wal said was 20% on 20% when we were on 450 so that s the guidance for 09 so you can work out the maths Question: Simon Thackray, ABN AMRO On the margins Scotty I m looking at the overall Group margins went up pretty significantly 5.4 to 3.3 the consolidated margins went backwards by.4 but you made the point before that it s copping a lot of the corporate costs around the JV s and stuff. Remember the JV s don t carry any tender costs. Leighton Holdings Limited ABN Page 10 of 17

11 Question: Simon Thackray, ABN AMRO Yes they re being absorbed in the corporate I understand that, but if the overall margins are going up is there some margin benefit from the alliance and JV structure that we might be otherwise missing that you can explain I mean is that what we should be assuming going forward because there s about 120 basis points of EBIT margin improvement there or is it something in the mix? It s something in the mix. We don t look at it Simon that this exact JV, we look at the project and some of the JV s will be managed different some of the alliances are managed different and how we account for the overhead. So I think what you just need to look at is the consolidated result. The Group result. Question: Simon Thackray, ABN AMRO If that s the case then in terms of the margin improvement how much of this, I saw property revenues are up pretty strongly mainly in the property under the old divisional reporting revenues were up pretty strongly is there a kick out in here from property? No we re changing market and activity so the property market includes all building and property. So if you look at Al Habtoor everything that Al Habtoor builds is buildings so when we re saying the property market there s not a big kick from this half year from Leighton Properties but they will contribute for the full year in line with what they ve done for the past couple years. Question: Simon Thackray, ABN AMRO I guess I m missing it, what s the underlying driver then for the improvement in the margin from the Group the actual main driver for the underlying Improved profitability. Someone asked me a question previously, when are you going to get back to the same profit margins that you had in the late 90 s? Well I think we re virtually there around 4%. And of course in terms of returns on shareholders funds I mean return on shareholder funds is at an all time high of around 40%. So there s not a particular area mix of the business but margin improvements across the whole of the Group are coming through for the consolidated. Question: Simon Thackray, ABN AMRO Wal I know you re not a weather forecaster but rain the second half obviously discussion about El Nino the impact of construction Boral made some comments yesterday that they re dependent in the second half of the weather being normal. Any views in terms of contracts in Australia with the weather what that might do? The weather is like the stock market it rains sometimes and it doesn t rain other times. Weather is really something we have to cope with in our issues, obviously the last Leighton Holdings Limited ABN Page 11 of 17

12 several weeks have been extremely wet and it s been flooding in Central Queensland and there s a lot of photos going around on the internet of all sorts of people that have temporary embarrassments including ourselves about mines being flooded. That s all factored into, there s nothing that impairs if you like the plus 30% that we re talking about, that s not to say it hasn t cost us money. I think for me to stand up in front of you and say well we re not going to make our 30% because it s rained heavily, obviously that is an issue for us but we have to deal with that in the overall business, equally I don t get up here and say Christ we ve had this fantastic run of fine weather I mean they re issues that we really have to cope with in our business. Question: Simon Thackray, ABN AMRO So you re not making any assumptions in the second half about normal weather or anything in the guidance is what you re saying. I think the weather forecast if you can believe is expected to remain wet for the next few months, but that wetness varies where you are, obviously the east coast of Australia is copping a hammering, just as well we started getting the desalination plants because they mightn t be jobs now but Victoria has been ok and Western Australia has been ok and we ve had major floods in the Middle East which is unusual event as well. But I don t think there s anything there, I mean if it rained everyday from now until the middle of June that would hurt and be embarrassing but I m not going to attribute any shortfall in profitability to the weather we ve just got to deal with it. Question: Simon Thackray, ABN AMRO One last small question, which is just more on the macro environment, rising interest rates and I saw the comments in the property outlook for expectations of 30% I think year on year growth for the next four years in resi the houses and 45% in apartments. Have you got any caveats on the views with interest rates what that might do this current cycle and what it may do to infrastructure spending and the government easing up on fiscal stimulus at this point in the cycle? The biggest impact in rising interest rates is going to be through Devine where we do have a big involvement, Devine do a lot of mixed developments and Devine are very fortunate that they re in the growth areas, in Queensland they re probably the biggest or near biggest unit developer and the Queensland market is hot and will remain hot. So I don t think the interest rates are going to have a big impact on where they work and similarly Devine are down in South Australia and down there they can t meet the demand in South Australia. In overall issues will the labour government or labour administration slow the infrastructure development in Australia? I think the reality is most of the infrastructure is implemented by the states, what I would personally prefer to see is a greater level of co-ordination between the states in terms of developments and of course here in New South Wales major infrastructure is at an all time low in a comparative sense. So I don t think it s going to have a significant impact on the company. I mean Australia is very fortunate that we re in a close position to the big expanding markets of the world. Leighton Holdings Limited ABN Page 12 of 17

13 Question: Alistair Reed, JPMorgan First quick question to Scott just on Eastlink revenues, the pre-agreed revenues that you have go through to November given you will reach practical completion well before that time is that when you expect to receive 100% of the revenues or will it continue through to the originally contracted PC? We have contractual arrangements, historically what s tended to happen with these roads as they near completion and where we have completed significantly early for example the M7, it s been in everyone s best interest the client, the operator, the contractor to just do a settlement and come to an arrangement where the funds can be drawn and everyone can move onto an operational phase and you discount the funds, you do whatever you need to do to bring everything back into equilibrium hopefully that situation will prevail with Connect East but currently we ve got significant up against that to draw down schedule at the moment. Question: Alistair Reed, JPMorgan Thank you. A couple of quick ones for you Wal please if I can. The Al Habtoor and TDIC contribution guidance that you gave us when we were up there last December are you still sticking by that or are you seeing prospects for further contributions coming through: I think in the broad I still maintain what I said I mean we re working through, TDIC are wanting us to do more work rather than less work, those things have been going into the field at the moment and I think the TDIC relationship will be great provided that we deliver. I mean it s all about deliverability, the TDIC joint venture I think they re moving from staff numbers of about 200 to 1000 and that in itself is a challenge. Just on that it is performing above expectations but we have only been there for 5 months, before you guys get too carried away. Question: Alistair Reed, JPMorgan And just one final one Wal if I could get your thoughts on the outlook for the industrial relations environment, I notice you didn t put a slide up where you have in the past, just your thoughts on where we sit now with the new changing government, I notice John Holland pushed through a wage agreement with the unions in NSW on the Kurnell plant, is that something that is likely going forward we might see agreements like that just trying to stave off potential industrial disputes. Well I think what happened after the labour administration was elected, the unions did come out of their box and there was a lot of publicity over the early January period where they were going to re-balance, restore their equilibrium and suddenly the whole thing disappeared. Now I don t know for sure but I think the labour administration got those guys in and said well this is not on and there was comments in the press so the industrial environment is completely calm, there is nothing there, nothing happening and I d expect that to be the case for some period ahead, obviously the labour administration is going to Leighton Holdings Limited ABN Page 13 of 17

14 be very conservative and the last thing that they want is a big wages break out that drives inflation along to further jack up interest rates to bring it all to an end. So they re maintaining a very conservative approach and it s all very quiet. But that agreement just relates to about 30% of the employees and the alliance and I ve had chats with David Stewart and the productivity gains that they re getting out of the agreements in the workforce there make it more than manageable for the Group. There s some questions on the screen here. What is the option price required additional equity in Al Habtoor, so someone s asking us how much it cost us to acquire the additional 4-5%. Well that s undecided it will happen at the time of the float, that s a couple of years out. There s one here for you Scott. Do you have any comments on whether and/or how to refinance the hybrid reset due in November? We have an active capital training program and we re looking at different markets and different aspects all the time, obviously with the hybrid we could just reset it and that s probably the easiest thing to do, but given the structure and the downgrade effectively because of the ownership structure of Leighton it might be better to look at restructuring the hybrid to get a better outcome, we re reviewing that all the time and when we re ready we ll come back to the market but it s in place for, well I guess we only have 94 years left if we need it. But keep resetting it but otherwise we might look at a more efficient structure. There s another question here. Why was share trading suspended today? Well I believe it wasn t suspended, it was put into a trading halt while ASX got their release out to the market which is apparently normal practice. Question: John Purtell, Macquarie Just touching on an earlier question around 2009, just to clarify back in August while you did make informal reference to 2010 growth as a target for profit in 2009 does that still stand, is there any reason or any change in the drivers of that 20% I guess thinking that Eastlink is obviously running off in 2008 you get a full contribution from Al Habtoor, so if you can just clarify 2009 and second question is in relation to the revenue growth that you re expecting in the second half, you re expecting a big step up there from what we saw in the first what are the key drivers there? Well the second question our business is more seasonal than the sugar cane business. Our second half is always stronger than the first half, so I think you see a stronger which will get us to the bigger that we talking of or speaking of a guaranteed 30% and guarantee over and above the 30% you ll get in due course. Leighton Holdings Limited ABN Page 14 of 17

15 : The 20 in 20 at the full year result last year Wal so that was 20 on 20 on the full 50. But I think it s being applied to the 2009 result. 20% in 08 and 20% on top of that, so I think John are you asking whether it s 20% on top of 30. Question: John Purtell, Macquarie Correct. My answer earlier was what Wal said was 20 on 20 but if Wal wants to say anything else. I m trying to do the mathematics in my head I think, if you ll get me a calculator I ll do the mathematics because obviously I have a number in mind but I m not sure what the percentage. You want me to give you the numbers so you can do the mathematics, I think I d prefer to do it the other way round. Any other questions? Question: Cassandra Mar, Commsec A couple of questions on the operating revenue result particularly on the subsidiary company. Thiess appeared kind of slow with its revenue, is that being driven by mining or by services and can you just comment on the outlet from services just generally. I guess the slowing of the Thiess revenue relates to a lot of process engineering and construction that they have down over the last couple of years relating to building up the mine infrastructure, they have to some extent that work has decreased and also they have scaled it back and that s where obviously they got in trouble with Darrahjet and Suban in Indonesia so they have scaled back some of that work so that explains some of the slowing. In relation to services obviously we see a bright future for services and as Wal said Thiess Services has been acquiring some small companies and we hope to apply a consolidation role in the industry aviation services as Wal mentioned as well, we had a big 6 months in the telecommunications area where Visionstream picked up a substantial portion of the Telstra contracts as known contracts that were issued and Silcar that s 50% owned by Thiess also picked up their share. So we do see a bright future in services and it is a big focus for us. Question: Cassandra Mar, Commsec Just a final question on Leighton Properties work in hand in the release is at 0 is that right is it growing or what s happening there? Leighton Holdings Limited ABN Page 15 of 17

16 I might have to get back to you on that Cassandra. Question: Michael Just a question on the joint ventures and associates, what was the amount of dividends and distributions received in the half? Again Michael, that s not the way we manage it, we manage it on a consolidated basis, I mean obviously we have issues with associates with Devine and Habtoor where we ll get the dividend from Habtoor in March but we ve had the 4 months of the profit recognised in the accounts and the same with Devine. I don t have the exact number sitting in front of me, I can only talk about it in general but we just don t manage the business that way. Obviously there s some high level of interest in the services business I mean we should maybe pull some of that out but I think we d probably be the biggest services contractor in Australia if you pulled it all out separately, our aviation business is now at full capacity constrained by people, Qantas did pay us to put a bid together for the handling of the 380 Airbus which they decided ultimately to do in house, but that was a very useful exercise in terms of certification of our people, so getting all the licenses and the like in Melbourne and they ve pretty much acquired all the licenses now, they ve got major overhauls to do on 737 s and 767 s and the like. So that should build on our business to run up into a few hundred million dollars a year in the maintenance business. Question: Michael Were there any capitalised interests of note during the half? Very small, there s a bit in the properties that we carry but it s a very small immaterial amount. Question: Wal King There s a question here on the screen. Emaar MGF IPO was withdrawn in India will this have any impact on Leighton contracts? I don t think directly but I think directly the Emaar MGF projects are coming through much slower than anticipated. Two things might happen indirect relationship but not necessarily a direct relationship. Another question here which I ll allow my mathematician to answer. The % = $650m per year 009. I think that s the mathematics. So then it goes on which equals $450m for year 07 and $1.2 spent before you spent $870m on Al Habtoor so is the guidance for financial year 09 now higher given Al Habtoor? will do at this point in time. We ll have another update in March/April. Leighton Holdings Limited ABN Page 16 of 17