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A GOOD READ FOR THOSE INTERESTED IN THE LOOONG PROPOSITION.
The board has acted decisively to change the leadership of the company
through the appointment of Brent Waldron as interim Chief Executive. In turn
Brent has rapidly implemented a series of senior management and
operational changes and with the Board implemented a full business review
which is well advanced.
Brent was appointed at the beginning of August with a clear mandate from the
board to quickly identify and execute those initiatives required to re-establish
Downer EDI’s reputation. His work is supported by a Board Steering
committee that meets with the Executive team weekly.
The rationale for the appointment of an interim CEO was to ensure the
business moved rapidly to bring about the changes that would restore investor
confidence and realise the value latent within Downer EDI, not allowing the
business to sit still.
At the same time the board is committed to ensuring that the selection of a
permanent CEO follows a robust process so that the best possible candidate
is appointed. Brent Waldron is a candidate in that process, and we expect
that process to be completed before Christmas.
With the Board’s full support Brent moved quickly to realign the senior
leadership team, bringing about increased clarity of roles and clearer lines of
accountability.
The business review announced just over two months ago is now well
underway, and Brent will update you on progress in his report.
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The changes that have already been made have been well received by our
investors, employees and customers.
We appreciate that support is earned over time based on consistent delivery
on our promises and we do not take it for granted. We have further work to
do to earn back your trust.
The leadership changes initiated by the Board were driven by a series of
events that were brought to a head at the start of August.
In the settlement and ensuing work-out of our position surrounding the last
few of the problem contracts identified to you at last year’s AGM, it became
clear to the Board that a more conservative view on settlements overall was
warranted.
This is the key component of the write-back and subsequent trading-halt and
market disclosure on 1 August.
The only appropriate way to assess our risk management policies and
procedures is the quality of our pipeline of work and the fact that no new
problem projects have emerged.
It is in this light that we are genuinely able to take great heart in the underlying
performances of our businesses.
For the financial year ended 30 June 2007, Group revenues totalled $5.4
billion – up 15% on the previous year.
The underlying EBIT performance of $281 million was an increase of 22% on
the prior year and pleasingly the year saw a return to positive cash flow.
An unfranked final dividend of 8 cents per share was declared, bringing total
dividends for the year to 21 cents per share, representing a payout ratio of
66%.
The integrity of our underlying operations was also ultimately reflected in
September with Fitch Ratings affirming our investment grade credit rating.
Underpinning that performance were a large number of the small to medium
sized contract wins which characterise the engine room of so much of our
Group’s performance, but which really go unreported.
The wins that did make the headlines included –
�� The Reliance Rail consortium, of which Downer EDI is a 49% equity
partner, winning the NSW Government’s contract to design,
manufacture and maintain 72 eight car sets;
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�� The Reliance Rail consortium winning CFO Magazine’s Structured
Finance Deal of the Year award;
�� Downer EDI Rail securing $75 million worth of contracts to supply BHP
Iron Ore and Rio Tinto Aluminium 15 new locomotives;
�� Extension orders from Queensland Rail and the Western Australian
Government for passenger trains and the second tranche of
locomotives to BHP’s Pilbara operations;
�� The successful integration of Emoleum and Southern Asphalters into
the Downer EDI Works Australia businesses, and the acquisition of
bolt-on businesses in Singapore and the UK;
�� New alliance contracts entered into with Xstrata Coal for the
development of two coal processing plants in NSW;
�� Downer EDI Engineering securing $400m more work through the
extension of its Foxtel contract;
�� Two further acquisitions in our consulting Division;
�� Downer EDI Works winning $50m of work through securing New
Zealand’s first water industry contracting alliance;
�� Downer EDI Works securing a two year extension to its alliance
contract with the Australian Rail Track Corporation for rail track
maintenance in Victoria.
Turning to the future, the 2008 outlook is positive and underpinned by record
levels of spending on Infrastructure by Governments across all of the
geographies in which we operate.
In FY 2008 Australian Governments alone are expected to spend over $40
billion on infrastructure and in the four years to FY 2011, spending on
infrastructure is expected to exceed $150 billion.
With just under 23,000 employees and a demonstrated capacity to deliver on
the new order of contract and strategic alliance business models that are
destined to be the future in our core markets,
Downer EDI is well positioned to capitalise on these trends through our core
competencies in supply, service and maintenance.
In this context it is important to comment on the NSW PPP.
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The NSW PPP contract is for the manufacture and maintenance of a crucial
piece of the Infrastructure of NSW, and was won by the consortium of which
Downer EDI is a 49% partner.
The contract represents one end of a spectrum of contractual forms that will
increasingly dominate the manner in which public infrastructure needs are
being met.
Participation in these relationship-driven models requires a business with the
configuration and core-competencies which characterise Downer EDI, and
which Brent Waldron will talk about more in his address.