Leighton Holdings 46th Annual General Meeting 8 November 2007

Transcription

1 Leighton Holdings 46th Annual General Meeting 8 November 2007 Speaker: David Mortimer Good morning ladies and gentlemen, my name is David Mortimer and I am your Chairman. On behalf of the Board of Directors I am pleased to welcome you to the 46 th Annual General Meeting of Leighton Holdings Limited and to report to you on the company s results for the year ended 30 June As it is a little past 10am and we have a chorum I declare the meeting open. Before we commence the business of the meeting I would like to introduce to you the company s directors and the company secretary, I will ask each of them to stand as I introduce them, commencing from my left we have Ian MacFarlane, Achim Drescher, Bob Humphris, Dr Hans Peter Keitel, and Wal King - Managing Director and Chief Executive Officer, Dieter of course has retired but he s also here. Next to my vacant chair is Dr Peter Noé, Ashley Moir our Company Secretary, David Robinson, Herbert Lütkestratkötter, and Martin Albrecht and Peter Gregg, it s pretty hard to see from here. Thank you gentlemen. Details of each of the director s qualifications, experience and special responsibilities are included in the resumes which appear on pages 64 and 65 of the companies 2007 Concise Annual Report. Whilst the resumes also include listings of each Directors membership of other prominent local and international boards I would point out that these listings of other directorships are not intended to be exhaustive. The resumes do however include directorships of all Australian listed public companies held in the last 3 years as is required under the Corporations Act. Comprehensive listings of each of the Directors Australian board positions are available from the Australian Securities and Investments Commission. I advise that notice of this meeting has been given to shareholders in accordance with the requirements of the Corporations Act. Copies of the notice have been sent to shareholders. The minutes of the 45 th Annual General Meeting held in November 2006 have been signed as a correct record of the proceedings of that meeting and they are available for inspection by shareholders. Ladies and gentlemen having dealt with the formalities I now wish to proceed with the business of the meeting. The first item on the agenda is to receive and consider the financial report and the reports of the directors and auditor for the year ended 30 June Before moving their adoption I would like to make some comments on the state of the company and its progress commencing with the results for the year 2006/2007. Leighton Holdings Limited ABN Page 1 of 31

2 On behalf of the Directors I am very pleased to report that the company has recorded another extremely successful year. It has been one of excellent financial performance, significant new strategic initiatives and great returns for shareholders. The record profit result in 2007 reflects the Leighton Group s strength and diversity. The major contributors have again been construction activity from a number of large Australian infrastructure projects and contract mining in Australia and South East Asia and another very strong property development performance. The result is a credit to the company s management and its 27,834 direct employees. Highlights for the 2007 year include total revenue including joint ventures of $11.9bn up some 19%. Work in hand at the 30 June of $21bn up 31%. Profit after tax was an all time record of $450m up 63%. Dividends were 110 cents per share up 67%. The Group s balance sheet was further enhanced with shareholders funds growing to $1.35bn up by 22%. The Group s credit rating triple B plus from Standard and Poors and BAA1 from Moody s has been retained. They acknowledged Leighton as the highest rated pure construction group globally. The net cash position was a healthy $669m up some 8% and return on total equity was 33.3% whilst the total shareholders return TSR for the year was 147%. The Group s Australian Pacific operations are again a strong contributor. Revenue from the Australian Pacific operations was $10.2bn up 23% and profit before interest and tax was $516m up 89%. Work in hand was up by 39% to $17.4bn and our company s continued to win a large number of transport infrastructure projects in Australia boosted by an impressive number of water infrastructure projects and we successfully completed ahead of schedule the $1.1bn Lane Cove Tunnel in Sydney. We were successful in securing some major long term mining contracts in Australia in coal, iron ore and other minerals. Major projects included the $2bn North South Bypass Tunnel joint venture in Brisbane to Leighton Contractors, $1.4bn Gateway Upgrade joint venture also in Brisbane to Leighton Contractors, the $1bn Gold Coast Desalination project alliance in Queensland to John Holland, the $522m Perth Bunbury Highway Alliance in Western Australia to Leighton Contractors and $790m worth of mining work at the new Prominent Hill Cooper Gold Mine in South Australia won by Thiess. Since June 30 th more than $7bn worth of work has been awarded including projects such as the $1bn Sydney desalination plant to John Holland, $470m worth of sewerage projects in Melbourne to John Holland, a $500m coal mining contract at the Sonoma Coal mine in Central Queensland to Leighton Contractors, a $500m contract at the Tarong Gold Mine in South East Queensland to Thiess, a $500m contract at the Lake Verna Coal Mine in Central Queensland also to Thiess, and a $345m extension at the South Walker Creek coal mine also in Central Queensland to Thiess and this week $700m extension at the Area C Iron Ore mine at Western Australia to HWE Mining. Leighton Holdings Limited ABN Page 2 of 31

3 Whilst our major markets are continuing to perform strongly, providing many opportunities we continue to actively pursue opportunities to grow and to diversify the business. This year the Group acquired a strategic 40% stake in Devine Limited for $95.6m. Devine is one of Australia s leading residential property developers, the acquisition substantially increases Devine s ability to fund and to develop its business and to further diversify the Leighton Group into the residential property market. John Holland acquired a Central Queensland contractor, Marshall Mining and Earthmoving which facilitates John Holland s entry into the contract mining market. John Holland has also diversified into the aviation maintenance market by acquiring the former Ansett Aviation Engineering Services business since renamed John Holland Aviation Services. The business provides total engineering support to commercial airlines and third party operators across Australia and the Asia Pacific region. The company has also progressively acquired a 15% stake in Macmahon Holdings Limited. Earlier this week the company entered into a Memorandum of Understanding an MOU with Macmahon which formalises a partnering relationship between the two companies. Under the MOU Leighton will promote Macmahon as a partner of choice to joint venture on civil and infrastructure projects. The MOU includes the application of a probity regime, a 2 year stand still period and the appointment of a Leighton nominated director Mr Vyril Vella to the Macmahon Board. The Leighton Board believes this is a very good arrangement providing significant benefits to shareholders at both companies. In Asia the Group s operations reported a reduced profit before interest and tax of $65m down $42m from revenue of $1.6bn down some 2%. The Asian contribution was impacted by poor performances on 2 process engineering projects in Indonesia, however these projects have been dealt with. Work in hand increased by 5% to almost $3.6bn. A highlight of the year was the award to Leighton Asia of a joint venture management contract for the $2bn plus City of Dreams integrated gaming and entertainment resort in Macau. Leighton Asia successfully completed phase 1 of the Wynn Resorts Hotel and Casino Complex which was opened in September last year and recently commenced the construction of a 40 storey hotel adjoining the existing resort worth some $400m. In Indonesia, Leighton International was awarded new work worth $620m at the Wahana Coal Mine and the PT Multi Harapan Utama MHU coal mine and a 3 year extension on the PT Mahakam Sumber Jaya MSJ joint venture for coal worth $140m. The Group has continued to push into the Gulf region and India assuming a cautious approach by spending time getting to understand the markets and by engaging in contracts with a relatively low risk profile. Leighton Holdings Limited ABN Page 3 of 31

4 Leighton International s presence in India was further enhanced with the establishment of the joint venture with MRMGF one of India s leading property developers. The 50:50 joint venture immediately creates one of India s leading construction entities and has commenced work on 4 residential developments around Delhi. Since year end we have entered into one of the company s most significant transactions, acquiring a 45% stake in the Arabian Gulf based Al Habtoor Engineering. The stake has been combined with Leighton International s local business and the merge entity to be known as Al Habtoor Leighton, will immediately become one of the region s largest multi-disciplined contractors. Al Habtoor is regarded as one of the leading builders in the region. Their track record in large scale building projects is second to none and this compliments Leighton International s expertise in the large scale infrastructure projects. This deal significantly increased Leighton International s capacity to capitalise on the numerous opportunities in the Arabian Gulf market. Particularly in Dubai, Abu Dhabi and Qatar. Since June Leighton International has been awarded some $650m on a 6.5km highway comprising 5 lanes in each direction which will link Abu Dhabi city with Saadiyat Island, a new 27 square km master planned development and this week Al Habtoor Leighton has been awarded the construction of a new $310m JW Marriott Hotel in Abu Dhabi. I would like now to comment on the shareholders returns and dividends. Leighton is a company underpinned by its values and the first of those is to be commercially competitive. To do this the company must meet or exceed the performance expectations of clients in all of our businesses whilst providing consistent and strong returns to shareholders over the long term. In essence we must be commercially competitive to be sustainable, because no business is sustainable if it is not profitable. We measure returns to shareholders or wealth creation using total shareholder return TSR which is composed of the dividends we pay and the share price appreciation. The Directors increased the final dividend to 65 cents per share, a 58% increase over the prior periods 41 cents a share. This dividend was 50% franked and paid to shareholders on the 28 th September 2007, when added to the unfranked interim dividend of 45 cents a share paid on the 30 th March 2007 the total dividend for the year rose 67% to 110 cents per share. This dividend resulted in a payout ratio of 67.8% which is in line with the Board s policy to pay out between 60 and 70% of profits as dividends, this year s TSR to the 30 th June was 140% and over a 10 year period our TSR averaged 28% per annum. This means that $1000 invested in your company 10 years ago would be worth $11,806 today. This year we reported an average return on shareholders funds of 36.7% and that placed us 15 th in the top 100 largest companies in Australia. Leighton Holdings has long recognised the need to have in place a comprehensive series of policies, procedures and guidelines relating to corporate governance, ethics Leighton Holdings Limited ABN Page 4 of 31

5 and financial and risk management and while I believe the company has these elements in place there is no single model of good corporate governance. Good corporate governance must be tailored to the markets that a company operates in and be able to evolve with the changing circumstances of a company. At Leighton the Board is conscious that it must constantly improve its policies, procedures and guidelines to protect the interests of you the shareholders. We have again included in the company s Concise Annual Report a summary of corporate governance policies which sets out the 10 core principles identified by the council as underlining good corporate practice. This report is supplemented by a full corporate governance report which is available on the company s website. In providing governance it is fundamental that the Board is able to renew its capable and experienced directors. On that subject I would like on behalf of the Board to sincerely thank outgoing Chairman Geoffrey Ashton for his service to the company since 1996 as a Director and from March 2004 until the end of May this year as Chairman. Geoff served the role with great distinction. I would also like to thank Dr Hans Peter Keitel for his service as Deputy Chairman since 1998 and to congratulate Dr Peter Noé on his appointment as Deputy Chairman. Dr Keitel remains a Director of Leighton Holdings. I also welcome to the Board Dr Herbert Lütkestratkötter the Chief Executive Officer of Hochtief since April of this year. Herbert has served as an Alternate Director in this company since 2004 and he replaces Thomas Leppart who resigned as a Director in February. I am also pleased to welcome to the Board Mr Ian Macfarlane AC, former Governor of the Reserve Bank of Australia from 1996 to Mr Macfarlane brings his vast economic and public policy expertise to the Board as well as of course his international experience. I would also like to thank my colleagues on the Board for their counsel and contribution since my appointment at the end of May this year. Ladies and gentlemen the Leighton Group has an outstanding management team and the Board is pleased to have retained the services of Mr King as CEO for a further 3 years until June We also have an option to extend the contract by mutual agreement. Mr King s leadership and experience remains crucial in steering the Leighton Group as it continues to diversify and grow both in Australia and internationally. I would also like to take this opportunity to congratulate Wal on reaching the remarkable milestone of 20 years as CEO earlier this year. Former Deputy Chief Executive and Chief Financial Officer Mr Dieter Adamsas retired after 36 years of service with the company. Dieter remains on the Board as a Non-Executive Director and will share the Boards of Leighton Asia and Leighton Contractors. The Board has also concluded a consulting agreement with Dieter. The Managing Director of Leighton Properties Mr Vyril Vella retired after providing 33 years of service to the Group. Vyril will retain links with the Leighton Group through the provision of a consultancy service which will allow the Group to access his skills and experience. Leighton Holdings Limited ABN Page 5 of 31

6 The Board is also pleased to welcome Scott Charlton as CFO and look forward to working very closely with Scott now and in the future. Scott joined Leighton Holdings in 2003 and most recently held the role of Executive General Manager, Finance where his responsibilities included treasury operations, Group taxation, project finance and investments and acquisitions. Scott brings over 20 years experience in senior financial positions and has worked on many projects with the Group companies over time. On a very sad note I observe the recent passing of Mr Roger Trundle, Managing Director of Thiess for 6 years until his retirement in February of this year. Roger was a friend of many in this room and he serves Thiess and the Group with great distinction during his almost 27 years of service. Mr David Saxelby formerly CEO of Thiess Australia has been appointed Managing Director of Thiess. Mr Mark Gray formerly NSW Manager of Leighton Properties has been appointed Managing Director of that company. I congratulate both men on their appointments and wish them well. The Board has continued to be active in terms of succession planning ensuring there is a talent pool in place to address the inevitability of demographic change and ageing. We have great confidence that the Leighton Group s integral culture is deeply imbedded and there is formidable team of people in place to continue driving the company forward. Which brings me to our people. This year has seen a great emphasis on human resources. It is important that our people are given the opportunity to show their potential and we must be prepared to recognise their performance by providing exciting and challenging work opportunities and attractive compensation. In keeping with our belief in reward for performance and in recognition of the valuable contribution of our employees and their commitment in the company the Board has again approved a free issue of $1000 worth of Leighton shares to employees with more than 3 years worth of service. It is intended that these shares will be brought on the market and therefore the issue will not have a delusionary impact on existing shareholders. We value our people and are absolutely committed to providing a safe and healthy workplace. It is very disappointing however to report that we ve had 5 workplace fatalities in our Operating Companies during the year. 3 in Australia and 2 overseas. Every incident has been thoroughly investigated and reported on to the Board of Leighton Holdings through our ethics and compliance committee. That committee works with the Board to ensure that the Group s Operating Companies are working aggressively to meet their health and safety obligations. Each of the Group s Operating Companies has developed its own system for managing safety which complies with the core values and share vision set out in Leighton Holdings safety framework. It also incorporates the individual vision, strategy and requirements of our Leighton Holdings Limited ABN Page 6 of 31

7 Board. Each Operating Company system is fully integrated with an optimise against the particular scope of its own operations and the culture and history of that company. Let me now turn to the outlook and the current position, the year has started extremely well for the company. Operating revenue for the first quarter to the 30 September 2007 was $3.1bn representing an unaudited profit after tax of $98m. Work in hand at the 30 December stood at $23.5bn up 12% since June 30 th. These first quarter results for the year are in line with our expectations. The Group s outlook remains very strong driven by a record level of work in hand, the continued strength of the core markets in Australia and an increasing diversification into growth markets in Asia. Ageing infrastructure, a growing population, a resources boom and issues such as the recent draught continue to support the long term outlook for infrastructure investment in Australia. Demand for raw materials particularly coal and iron ore is forecast to remain at high levels for the foreseeable future. Demand will continue to be underpinned by the remarkable growth in China s economy which should support long term opportunities for contract mining. The Leighton Group is the largest contract miner in the world and we are keen to export this capability into a number of new markets in the future and we are exploring growth opportunities in both India and China. Asia is forecast to continue growing strongly and the Group is leveraged both directly undertaking mining and construction work across the region and indirectly providing services such as contract mining to companies selling commodities into Asia. Many of the countries in Asia need our skills and we d expect that international markets will progressively become a more significant contributor to the Leighton Group s results. In closing this address I would like to thank all of our shareholders for their continued support during the year. The Board is absolutely focussed on continuing to deliver value for shareholders, I am confident that the Group has in place the strategies, the risk management discipline and the depth of talent to profit from the great opportunities which face us. As a result the Board expects the Group to continue to deliver strong growth for shareholders over the next few years. I would now like to hand over to the Group s Chief Executive Mr Wal King who will discuss some of the Group s strategic initiatives. Speaker: Wal King Good morning everyone, and thank you David. In the Chairman s address he referred to the continued strength of the core markets in Australia and the increasing diversification of the company into growth markets of Asia. He also mentioned the Group has in place a number of strategic initiatives that we are progressing, today I would like to discuss some of those strategic initiatives in more detail. But before I do so I think we should hear from our individual managing directors and how their businesses performed last year and how they see the opportunities ahead. Leighton Holdings Limited ABN Page 7 of 31

8 Speaker: David Saxelby, Managing Director, Thiess Our financial performance at Thiess was very strong, we achieved a turnover of $4.7bn and met all of our profit and other financial objectives. We re resource based company primarily and our turnover in our mining division was about $1.8bn, in construction we turned over $1.4bn, our process Mech and Elec about $800m and in our services business about three quarters of a billion dollars. We finished the year in June with a work in hand figure of just a whisker over $9bn. Exceeding our work in hand figures by something like a billion dollars in our Australian core markets was a great highlight, and I guess the stability of our business going forward for our people and the confidence with our record turnover of $4.7bn was a great thing to achieve. The outlooks strong in our core markets of mining, construction and services. The high commodity price of coal currently drives our mining market of course. In our construction markets, government spending on our ageing infrastructure in rail, roads, water will keep that market strong over the next several years. Our services market has grown very strongly over the last few years and that s going to continue in utilities maintenance, in asset management and any of the other core areas of our business in services, waste streams management for example. Shareholders can expect another strong year from Thiess, our target is $4.5bn and we move into the first quarter of our new financial year with a significant portion of that committed. Speaker: Peter McMorrow, Managing Director, Leighton Contractors This year we actually had a cracker of a year, our revenues were up 40% from last year, our profit was up 3 fold from last year and our work in hand at the end of June was $6.9bn. The targets that we had set this year we ve exceeded those in terms of revenue and profit up about 50% from the target that we set as well. We had exceptional performance across a wide variety of things including our people, markets, customers and systems. For example on the people front we grew to in excess of 800 people, good people into our organisation in the last 12 months. And then there s HWE, this is a fantastic addition to our organisation and I m really pleased the way its integrated into our business and they ve had a very solid year. The Gateway Upgrade project in Brisbane and the North South Bypass Tunnel had great teams and they accomplished a lot in the last 12 months. I think lastly the way that we are getting our attitude in our organisation and our planning around environment and sustainability, this has gained momentum and that s going to serve us well for our longevity and for the long term. Our core markets are very strong, in the infrastructure area we re finding an enormous amount of activity right across the country, in the resources sector iron ore is particularly strong, coal is still quite strong. In the telecommunications market we ve seen a major shift in the take up of the telco area. In our industrial and services division there s a lot of work in that area. We ve set ourselves some aggressive targets for this financial year but we re very confident that we ll accomplish them. Leighton Holdings Limited ABN Page 8 of 31

9 Speaker: David Stewart, Managing Director, John Holland John Holland has had an excellent year this year in terms of turnover and profitability, our turnover for the year was $2.4bn and we had a profit increase on the previous year of 25% and our work in hand is at a record level of $3.7bn. Clearly our profit and turnover is a highlight in itself but on the project side we ve successfully completed Lane Cove Tunnel 2 months ahead of program, we ve achieved tremendous performance in our Eastlink project in Melbourne and our South Bank Tafe College in Brisbane which was Queensland s first PPP project. We ve experienced tremendous activity in the water sector and tunnelling and telecommunications and process engineering across Australia on the back of the buoyant market. And we ve had some great successes in Hong Kong and Macau on the City of Dreams Casino and the Kowloon Southern Link in Hong Kong. We see no abatement to the current high levels of activity in every sector both government and private. John Holland recently embarked on a number of new initiatives we have purchased the business of Ansett Aviation Engineering Services which we ve rebranded as John Holland Aviation Services, it s a service offering to international and local airlines based in Melbourne. We ve also purchased a mining company primarily to work in the coal sector in New South Wales and Queensland, that company known as Marshall Mining and Earthmoving is moving strongly forward in that sector and we see great opportunities in the market. We see next year as being a great year, we see again very strong levels of work in the market, we see our turnover increase to be at least 10% to 15% going forward, we see profits increasing, we have a very high level of work in hand, so we re very confident in the future and very confident in our ability to embrace the opportunities that are out there for John Holland. Speaker: Vyril Vella, Former Managing Director, Leighton Properties Happily we significantly exceeded our budgets this year, we increased our profit levels significantly over budget and we ve exceeded our development value in excess of $3bn for the first time, so we ve had a very successful year. There were quite a number of highlights, in New South Wales we had pre-leasing and sale of 25 Smith Street, Parramatta it was pre-leased to IAG and pre-sold to Grosvenor our 50% interest in the project. We also completed 101 George Street which had been pre-leased to the Commonwealth Bank and pre-sold to the Commonwealth Property Fund. We had also purchased a new site at Matraville and was secured preferred developer position in a resort development for the government on the Tweed Coast. In terms of Queensland we ve secured and started construction of our project at 400 George Street which is a 33 level commercial office building and we have also got our major first pre-lease commitment which will certainly assist us in on-selling the project. In terms of other opportunities up there we ve also progressed well on Green Square development and we also secured another site at Wyckham Terrace and we we ve also secured a prelease commitment on that as well so we ve had a pretty good year, there s a lot of other highlights but I think they were the major ones. We see the market continuing to be pretty strong over the next year, the commercial market certainly in Queensland, New Leighton Holdings Limited ABN Page 9 of 31

10 South Wales will be quite strong, Victoria improving and in Victoria we see the industrial markets doing exceptionally well. So across all the areas I think are going to do well, residential is going to recover and we are looking at getting involved in some residential joint ventures with various parties but the prospects at the moment are looking good. Speaker: David Savage, Managing Director, Leighton International Our performance this year was exemplary we achieved an increase on our budget of nearly 70%, we nearly doubled our hurdles and produced a result that we re all very proud of. The highlight was our result was probably a key highlight, the continued of our business in our newer markets in India and the Gulf, some of the new partnerships we formed which we think will help develop our business long term in the future, particularly in India the joint venture we formed with Emaar MGF to develop their projects and of course our partnership with Al Habtoor in the Gulf region, that offers major opportunities for the company to grow in that exciting region as we go forward. The outlook is exciting, we have our new partnerships in India and the Gulf that are growing business there, we have a large work load in Indonesia and some exciting opportunities in Malaysia. Speaker: Joe Dujmovic, Managing Director, Leighton Asia This year was a lot better than last year we improved significantly and even though we re just below our targets it was a huge improvement on last year on both profit figures and revenue figures. Our level of work in hand just slightly higher than last year and looking to grow it in the next 2 or 3 years. The highlights would definitely have to be the work coming out of Macau, we ve got a gaming boom there at the moment and we re well entrenched with the likes of the Wynn Development and also City of Dreams with Melko and PBL. So securing the City of Dreams project was a big step forward for us $US1.5bn that contract value and then just recently securing the Wynn Diamond Suites worth about $350m they d have to be the 2 major highlights. The outlook is very positive for Leighton Asia, in Hong Kong there s been a backlog of work and that seems to be coming out to the fore now, particularly in tunnel work, rail infrastructure, there s probably half a dozen projects that will come out in the next 2 years. Macau I mean gaming doesn t seem to be stopping there, revenues are increasing. In the outlying regions, Philippines, Thailand, Indo China will be contract mining and mine infrastructure with the smaller miners, and then there ll be in infrastructure development we re moving into China in a more aggressive mode now and some major opportunities coming up and we re also looking to expand further into Mongolia. In Korea we ve set up an office there, and Guam we ve set up an office there. Shareholders can expect a big improvement in our region as we grow and expand. Leighton Holdings Limited ABN Page 10 of 31

11 Speaker: Wal King I hope you enjoyed that video showcasing our various companies, obviously there s an enormous diversity of work. Our major markets continue to perform strongly providing many opportunities. In Australia we have a growing population, we have had under investment in infrastructure for decades, we have water shortages and we have the impact of climate change. I believe the governments are finally waking up to the importance of infrastructure in maintaining our prosperity. At the same time we have a federal government and some state governments flush with cash and an increasing willingness to use private sector financing. All of these points support the long term outlook for infrastructure, construction in this country. The non-residential property market remains at very high levels, while activity in this market is influenced by interest rate movements and the economic activity we see still good levels of construction in property development and construction opportunities going forward. The growth of China and India and their demand for Australian resources provide great opportunities for us. As a country we are well placed geographically, we are politically stable and we are seen as a reliable supplier. These are positive things that support out outlook for our very strong contract mining business. And of course in Asia the growth is very rapid and we are well positioned to take place of opportunities in the infrastructure and mining services. Asia is a vast market with great opportunities and we seek to export our skills to these countries that need them. But we aren t naïve to believe that one day these markets may turn down as they have in the past. History has shown that our markets are cyclical and I ve been through a few cycles. So what does this mean for the Leighton Group? Well if there is a downturn we re not just going to sit idly by and say too bad and ride out the cycle. We re intent on pursuing a number of strategic initiatives that will allow the business to keep growing and for shareholders to be rewarded. So this brings me to our strategy and I think I ve shown this triangle many, many times. It s based on our diversity model, provides a framework for how we define our markets. Diversity by brands, diversity by markets, diversity by geography and by delivery system. First and foremost our strategy is based on being strong in our core markets in Australia, that s in resources and infrastructure, property and services. We have to provide a competitive, efficient construction and mining services at home. If we can t do it at home we shouldn t consider expanding offshore. And I m sure the video would show you that we are strong in Australia and we intend to get stronger. This model provides a framework for further extension to our business. Today I want to talk about 7 key initiatives around this strategic framework. Some of these have been substantially progressed during the year but there s plenty more to be done. These initiatives include as listed there expanding our Asian and Gulf businesses, expanding Leighton Holdings Limited ABN Page 11 of 31

12 contract mining internationally, becoming a leading infrastructure and resource developer in Australia and Asia., moving into the residential property development market, growing our services business, building our defence services business through an acquisition and continuing to progress acquisitions at large when they present themselves. So let me talk about these initiatives in more detail. We are keen to expand in the growing markets of Asia and the Gulf region. Asia is a vast market that dwarfs Australia both in terms of population and scale. The region is seeing enormous change as the vast populations of India and China continue to industrialise and develop. And of course the Gulf region is benefiting from very high oil and gas prices. The Gulf is the biggest construction market in the world on a per capita basis and the opportunities are completely staggering. The United Arab Emirates believe that more than $120bn will be invested in the next 4 to 5 years in projects is Abu Dhabi alone. It is this region that we merged our Gulf operations with one of the leading construction contractors in the region Al Habtoor by acquiring a 45% stake in Al Habtoor with Leighton investing $870m. Renamed Al Habtoor Leighton immediately becomes the biggest, largest multi disciplined contractor in the United Arab Emirates. Al Habtoor Engineering has undertaken a substantial number of large scale construction projects in the Gulf including high rise commercial, residential, residential buildings, hotels, airports, universities and infrastructure projects. It built the iconic Burge Hotel in Dubai, the world s tallest hotel, in fact the building doesn t appear to be but it s as tall as the Empire State Building. Al Habtoor Engineering brings significant capacity to enable us to fully capitalise on the opportunities in the Arabian market. Al Habtoor has a highly qualified experienced, professional team and a multinational workforce of more than 25,000 employees and I m pleased to report that the integration is going well and I think we look forward to a very confident future. Some Leighton International projects that were secured over the last 2 years include a $550m equestrian centre in Qatar and a $650m expressway at Saadiyat Island in Abu Dhabi. While Leighton International has developed a considerable presence in the Gulf in its own right, the Al Habtoor investment provides us with a quantum leap into one of the world s fastest growing construction markets. In line with the increased focus on the Gulf region, Leighton International is moving its corporate headquarters from Kuala Lumpur to Dubai, this reflects a shift in the centre of gravity in the business from South East Asia to the Gulf region. In India we have entered a 50/50 joint venture with leading developer Emaar MGF in a deal worth $2.7bn of which Leighton have 50% $US1.35bn over the next 5 years. the joint venture will provide design and construction services for Emaar projects across India and will immediately lead to the entity becoming one of the leading construction groups in India. Emaar MGF has projects planned across India in residential, hospitality, commercial, retail and also construction in a special economic zones in Leighton Holdings Limited ABN Page 12 of 31

13 things like IT and healthcare. The Group is also developing plans to enter new markets in North East Asia as well as growing its presence in the South East Asian markets. Contract mining, we are the world s largest contract miner and we want to further expand internationally. The strength in the mining sector has been driven by incredible demand for raw materials globally. Demand is forecast to remain at these levels into the foreseeable future particularly for coal, iron ore etc supporting our outlook for the contract mining market. This year we expect to mine more than 100 million tonnes of coal and in excess of 100 million tonnes of iron ore. We expect our iron ore production to move up to at least 150 million tonnes per annum in the next couple of years. In our established markets of Australia and Indonesia we intend to continue to improve our competitive position and as the Chairman noted in his address John Holland entered the mining market with the acquisition of Marshall Mining and Earthmoving and I m pleased to report that is also proceeding very satisfactorily and John Holland will continue to expand in the mining Market. But global mining is a long term strategy, we are focussing on a number of emerging markets which are looking to be successful over the next 5 years, these include India, China and possibly Canada a big question mark about Canada, these are the 3 largest resource markets in the world. In India some 26 coal blocks with reserves of 8.5 billion tonnes have been allocated for development by government companies to approved users. This allotment is opening up the contract mining opportunities for Leighton International and Thiess and those 2 companies have formed a joint venture in India, Thiess Leighton India to pursue these contract mining opportunities and we fully expect that a very large contract mining opportunity will be awarded in India within the next 12 months. Leighton Asia has opened up an office in Beijing in China and is building a team of people to focus on the mining market. This team is targeting resource opportunities in China and Mongolia, that develop from opportunities with local companies and international investors. So I also fully expect that we ll be awarded some contract mining work in that part of the world. We talk about infrastructure, we aim to be a leading infrastructure developer in Australia and Asia. Over a number of years we have built a significant portfolio of investments of something in excess of $500m in infrastructure projects. This portfolio includes projects like the North Luzon Expressway in the Philippines, the Lane Cove Tunnel here in Sydney, Westlink M7 in Sydney, Eastlink in Melbourne, River City Motorway in Brisbane and 2 tollways in India. It s interesting to note in India they have some 40,000 to 50,000 km of tollways that they intend to build in the years ahead. And I m sure that you haven t forgotten that the Group has also developed many privately funded infrastructure projects in Australia, such as the M5 Motorway here in Sydney, Leighton Holdings Limited ABN Page 13 of 31

14 the Eastern Distributor, Alice Springs to Darwin Railway line, Nextgen Fibre Optic Network, Star City Casino here in Sydney and many, many other projects. Through its involvement on these projects the Group has developed the skills and these skills can be exported to other parts of the world. Skills in project financing and structuring of these very large and complicated infrastructure projects. Skills in project managing very large infrastructure projects, the types that will be required in the Middle East and Asia. Many of these markets in Asia in which we operate are pursuing very ambitious large scale infrastructure projects and we believe with our skills and our base here in Australia we can take advantage of those opportunities. Also in Australia we see a large number of infrastructure projects coming forward in the next few years. Projects such as announced a $3bn desalination plant in Victoria, a $1bn desalination plant in Western Australia, $3bn Airport Link Tollway in Brisbane, $2bn project in Melbourne Eastern Freeway City Link project, and the M4 here in Sydney which has been announced by the government from Home Bush to Leichardt and Botany Bay and this project could be anywhere between $3bn and $7bn depending on the options that are finally picked by the Government. We believe the Group is well placed to play a bigger role in the much needed infrastructure in Australia and around the region. In order to deliver that infrastructure we need capacity and this is where Macmahon s comes in. We entered into a Memorandum of Understanding with Macmahon which formalises a partnering relationship between the 2 companies, having a partner of choice relationship with Macmahon increases the Group s ability to take on and execute work. It also boosts Macmahon s ability to participate on projects that may have been beyond their capacity. It will also strengthen Macmahon s position as a vigorous, independent and a competitive contractor in the Australian construction and mining markets. I am very pleased with the agreements we ve reached and it s a good outcome for both Leighton and the Macmahon shareholders. Residential market we have entered the residential property market and aim to become a substantial player. We re attracted to the residential property market because of its size and prospects and its complimentary fit with our existing businesses. At around $31bn per annum the residential property market is much larger than the non-residential property market which we participate in. It is a market that is forecast to expand and recover, recovery in NSW and further sustained demand in Queensland, changing demographics will move forward to smaller households and also growing population which we believe will drive demand for housing and apartments. So to that end we have entered through Devine we acquired a 40% stake in the leading housing and development company in Queensland Devine Limited. Devine is a very good fit for Leighton, the company offers affordable housing in Queensland, Victoria and South Australia, it s highly regarded for its innovation, its Leighton Holdings Limited ABN Page 14 of 31

15 modern quality homes and its particular dedication to service. It is also known as the leading high rise developer in the CBD of Brisbane. The investment by Leighton will allow Devine to fast track its diversification program and help to progress a number of exciting development opportunities that the company has identified, in fact it will allow Devine to further undertake geographic expansion in the medium term and since our involvement we have in discussions and under negotiations with Devine in excess of $2bn worth of joint venture properties. Mr Vyril Vella formerly Managing Director of Leighton Properties and Mr Graeme McOrist former senior executive with Leighton have been appointed to the Board of Devine to represent the company s interest in that company. This is really only the first step for us, our overall objective is to have a residential business that is a similar size to our existing non-residential property business, we will consider further acquisitions in the next couple of years and have the option to step up further in Devine when the standstill agreement comes to an end in November We believe that so far it is working extremely well and as I said we have more than $2bn worth of joint venture projects we re discussing with Devine. We want to continue to grow our services business, the services market across the transport, utilities, mining and property sectors continues to grow it is approaching $30bn per annum in Australia. The increasing number and value of operations and maintenance service contracts has been driven by substantial levels of investment in infrastructure in building in Australia. The market is also growing but it s also consolidating. Clients now wish to deal with a smaller number of organisations, so the market is rationalising and that suits us. This is also a market that offers long term contracts, much typically longer than construction work, construction of the Eastern Distributor by Leighton Contractors took 2 years and 8 months but the company has a 49 year operation and maintenance contract and this might even see my tenure out as CEO. We are continuing to pursue services work in 3 ways, organically continuing to build existing businesses and leading off our construction projects like the example of the Eastern Distributor that I mentioned, acquisitions and also by moving up the value chain and we ll be looking at services businesses particularly in other geographical areas such as the Gulf region. Each of our operating companies has a substantial services business and it s very important to diversify further in these businesses. In the defence business we ve said for some considerable period of time we re keen to expand to provide services to the defence business. Defence spending is increasing and the industry remains limited to a few medium sized contractors and a range of smaller suppliers. We have stated for some considerable period of time our interest in the Australian Submarine Corporation, it has a number of long term maintenance contracts, the timing of the sale of the Australian Submarine Corporation of course is influenced by politics and of course we do have a federal election coming. So we re very hopeful when it does eventually come for sale that we will be making a bid to boost our activities in providing services to the defence business. But already we are a very large contractor supplying services to the defence business in any event. Leighton Holdings Limited ABN Page 15 of 31

16 And of course we ll continue to pursue acquisitions. Acquisitions has been a key part of our growth strategy delivering revenue and people, people are very important. This year we expect some 40% of our revenue will come from previous acquisitions that we have made and this will continue to be part of our growth strategy. We believe we have the ability to identify and acquire underperforming businesses and turn them around. We bring financial discipline and control, but more particularly we bring a philosophy that people perform when given clear goals, when they re given accountability and responsibility and they re rewarded for their performance, an underlying philosophy of this particular group. Acquisitions do require significant investment capital, but the Group has funding options in place including undrawn operating leases, additional hybrid capacity, debt and our own cash excluding our working capital and at the moment the Group has more than $1bn of fire power to spend on acquisitions and that s after of course the very substantial amount of money that we invested in Al Habtoor. So we re looking at a large number of potential acquisitions and we continue to do so but I ve said time and time again these acquisitions have to make both strategic sense and financial sense and we re not about to do anything stupid or silly. So bringing all of this together we see very strong conditions in our core markets, they re running very strongly in our favour and should continue to do so for the foreseeable future. The sustained strength of the Australian infrastructure market complimented by ongoing demand for Australian resources provides support for the Australian Group s contract mining and construction activities and we also have now this strong presence in the Gulf and our existing businesses in Asia. The Gulf is the fastest growing construction market in the world and we are very well positioned. Ultimate in our business I believe you grow or you die, we aren t going to rest on our laurels and take this positive market conditions for granted, so we re actively pursuing growth initiatives that I believe will set the company up for the years ahead. I look forward next year to updating you on the progress of the company in these strategic initiatives, I thank everyone for their support and I particularly think our 25,000 to 30,000 staff who work across all regions in Australia, India, the Gulf, I thank everyone for their contributions and the shareholders for their support. Thank you very much. Speaker: David Mortimer Thanks very much Wal. I would now like to move to the Financial Report and the Report of the Directors and Auditor for the year ended 30 th June 2007 as submitted to this meeting be received. May I have a shareholder to second the motion. Thank you. The Corporations Act specifies that a reasonable opportunity must be given to members at an Annual General Meeting to ask questions of and to make comments on the management of the company. Also a reasonable opportunity must be given to members at an Annual General Meeting to ask the Auditor questions relevant to the Leighton Holdings Limited ABN Page 16 of 31