Report from the Leighton Holdings Limited Annual General Meeting

Future GrowthA Presentation to the 41st Annual General Meeting of LeightonHoldings Limited by the Chief Executive Officer, Mr Wal King AMAs the Chairman has outlined in his address, we are proud tohave delivered another strong performance for shareholders.We have significantly boosted our work in hand, with somemajor projects such as the Western Sydney Orbital tollroadstill to come. The momentum generated by this level of workshould underpin growth for the next few years in the coreareas of our business.Today I will talk about our business strategy and about somespecific areas of future growth.Business StrategyThe Group’s business strategy is built on three criticalelements: diversity, financial strength and people. It is thesethree elements, working in unison, that are key to oursuccess.Diversity, by geography, by the markets in which we operate,by the companies through which we operate, and the way inwhich services are delivered to clients, increases our marketpresence and our ability to grow.Over the years, we have progressively shifted away frombeing a construction-only entity operating in one market tobeing a multi-faceted contractor in Australia and across theAsian region. And we encourage our people to seekdiversified opportunities where we can apply our contractingand development skills.The Group’s financial strength is an equally fundamental partof our strategy, allowing us to facilitate and invest indevelopment projects and to make opportunistic acquisitions.It also attracts the best business partners. We need to beable to support $1 billion worth of bonds and guarantees andwe have significant working capital requirements. We alsohave a large investment in plant and equipment. To be asuccessful contractor, having a strong balance sheet is not anoption, it’s a necessity.Our people, numbering over 15,000 across our diverseoperations, are critical to our success. We are a servicebased organisation and we succeed or fail because of thequality of that service. It is our people who managerelationships with clients, drive equipment, pour concrete,collect tolls and liaise with the community. We foster aperformance driven culture throughout the Group and rewardperformance against stated objectives through variousincentive schemes.Our decentralised management structure allows a high levelof autonomy. It is a flexible structure that can adapt tochanging market conditions and each of our companies hasits own distinct identity and market position. We announcedyesterday that John Holland has entered into a non-bindingMemorandum of Understanding with Walter Bau AG toacquire the Australian operations of Walter ConstructionGroup. The potential acquisition is part of John Holland’sstrategy to grow the business to a larger, more efficientnational structure. If the deal is done, John Holland will gain$850 million of new work and specialist skills such astunnelling, underground mining and the construction of waterinfrastructure. The Group’s structure will stay the same withWalter merged into John Holland’s operations.Before I talk about some specific opportunities, I will give abrief overview of the market outlook in Australia. The nonresidentialconstruction market is heading for a significantupswing. BIS-Shrapnel is forecasting a strong upturn in boththe non-residential building and engineering markets. Bothsectors are expected to experience sustained growth fromnow until at least 2006, with the engineering market headingfor an historic high.Resources InfrastructureAustralia is expected to experience an upturn in resourcesdue to its vast reserves, competitive exchange rate,reformed taxation system and labour market, and its cheapenergy supply.This positive environment is leading to a surge in capitalspending. Billions of dollars worth of new minerals andenergy projects are being developed or are underconsideration. A number include substantial value adding torefine and process resources.The North West Shelf liquefied natural gas project is a greatexample of adding value to our natural resources. The recentsigning of a $25 billion contract to supply China, makes theNorth West Shelf one of the largest gas suppliers in theworld. A fourth ‘train’, or processing plant, is currently beingbuilt at a cost of $1.6 billion. Both Thiess and John Hollandare currently undertaking civil works on site.Oil and gas developments offshore may provide someopportunities for concrete gravity structures to serviceproduction facilities. Group companies have a track record inthis area. Leighton Contractors developed the Wandooconcrete gravity structure off Dampier in Western Australia.Further afield, John Holland developed one in the Philippinesat Malampaya.The development of Australia’s oil and gas reserves, andproduction of cheap energy, should lead to the developmentof other related industries such as fertilizer production andalumina smelting.In August 2002, Leighton Contractors finalised anengineering, procurement and construction (EPC) contractwith Australian Magnesium Corporation (AMC) to developtheir $1 billion Stanwell magnesium project, nearRockhampton in Queensland. This is the first time anAustralian company has taken on the role of EPC contractorfor such a large scale project.This will see AMC become the world’s largest producer ofmagnesium metal. Magnesium has the potential tosignificantly reduce the weight of motor vehicles, therebyimproving fuel economy. AMC has already signed a 10-yearsupply agreement with the Ford Motor Company in the US.Also, Leighton Contractors in joint venture with Fluor, hasrecently been appointed as interim EPC contractor for the$3.4 billion greenfield aluminium smelter at the AldogaIndustrial Estate at Gladstone.Road InfrastructureI’d now like to talk about some transport infrastructureprojects.Contractors have become integral to the development of thecomplex road infrastructure that we take for granted in ourcities. We are now involved in the roles traditionally providedby government including design, financing, communityconsultation, and operation and maintenance.The Leighton Group has developed a leading position as aprovider of road infrastructure. Leighton Contractorsdeveloped the M5 Motorway in the early 90s and morerecently the Eastern Distributor, both in Sydney. In theseprojects the Group’s financial strength was a key componentof successfully developing large scale, private sector projectsand we expect that it will become more important inthe future.In Queensland, Leighton Contractors recently deliveredBrisbane’s Inner City Bypass eight months early and onbudget, taking over 40 percent of traffic out of the CBD.A number of major road projects are now either in activeplanning or under consideration around the country.