Good morning Ladies and Gentlemen. Welcome to the 20th Annual General meeting of Coffey International Limited (“Coffey” or “the Company”). This is a special year in that it also marks the 50th Anniversary of the foundation of the Coffey business.
The Year in Review and Financial Result
Last year at this time we were in the middle of the Global Financial Crisis and there was considerable uncertainty of how it would impact not only on Coffey but on corporate Australia as a whole.
I indicated to shareholders with that backdrop and having secured our funding facilities earlier that year until 2012 that the Board determined that it would adopt a conservative approach to “hasten slowly” with its growth strategy and defer its scheduled 3 year strategic plan into 2010. The Board instead endorsed management’s focus on a transformation strategy – “Platform For Growth” which was aimed at extracting the value out of our acquisitions and uniting the Coffey businesses with a common vision, culture, behaviors and systems on a global basis to prepare for the future.
We completed the appointment of our Global Function Leaders with our new Chief Financial Officer Urs Meyerhans joining us early this year and with Ms Debbie Goodin being appointed to the critical role of Group Executive Operations, having held the acting CFO role in Coffey up until that appointment.
Our half year result to 31 December 2008 was excellent in the difficult economic circumstances, however, the full year result underlined the uncertainty which prevailed in the economy with the third quarter activities being slow to pick up after the Christmas break. I am pleased to report that management took swift action and implemented cost savings across the business. The benefits of these cost efficiencies flowed through into the 4th quarter.
Overall the financial year finished on a positive note.
- Total revenue increased by 45% to $808.7m
- Fee revenue was up by 36% to $510.4m
- Operating EBITDA was up 12% to $56m; this result includes ‘one off items’ of $4m relating to the cost savings program I mentioned and a more conservative approach to doubtful debts
- NPAT was up 7% to $16.4m
- EPS was up 4% to 14.5 cents per share
- Net debt only slightly increased to $92.8m, compared to $91.9m at the same time the previous year, reflecting a gearing ratio of 32.7%, with which we are very comfortable
- Importantly Coffey was not impacted by any impairment write downs at the balance date and our cash generation left us with funding capacity of $107m available to support our growth plans going forward.
Dividend Policy
Fully franked dividends of 13 cents per share were declared for the financial year by the Board. This represented 65% of earnings per share pre-amortisation and share based expense, which was within the previously stated dividend policy to pay 60% to 80%. The Board has reviewed the current dividend policy and has resolved that it should remain unaltered. Whilst this is a reasonable range the Board requires the flexibility in determining the dividends having regard to its capital requirements with the new 3 year strategic plan going forward. Roger Olds will outline those plans in his presentation.
The Board also re-instated the previously suspended Dividend Reinvestment Plan for the final dividend with a discount of 5%. It did so recognizing that the Company’s share price was low and provided shareholders with an opportunity to be rewarded over the long term when the market strengthened.
Share Buy Back
On 11 November 2008 Coffey announced an on market buy-back program of up to 10% of its issued capital on the basis that the Board was of the view that the then current share price did not reflect the Company’s underlying value and any buy back would be undertaken with available cash and be EPS accretive. Between November 2008 and March 2009 the Company acquired 215,685 shares for a total consideration of $317,744 at an average price of $1.47 per share which is EPS accretive to shareholders. There have been no further share buy backs on market since March.
Non-Executive Director Appointment
As foreshadowed last year the Board undertook a widespread search to appoint two new Non-executive Directors to the Board. The Board retained Spencer Stuart to conduct the search process with a specific brief as to the attributes and criteria required for the new appointments. That search led the Board to appoint Dr. John Mulcahy in September. John is a civil engineer with extensive chief executive experience over a number of different companies and sectors including Civil and Civic, Lend Lease, banking and other financial sectors. John brings extensive business and financial skills to the Board and no doubt will add significant value to the Coffey Board and we welcome him to Coffey. Our search for the second appointee continues and we are conscious that this task demands an awareness of gender balance. We expect that process to be completed next year.
As I mentioned to you at last year’s Annual General Meeting, Dr Glen Simpson indicated that once a new Non executive Director had been identified, he would retire from the Board and therefore with John’s appointment Glen stepped down as an executive director. I would again like to take this opportunity to thank Glen for his strong contribution to the Board over almost 10 years. Glen will continue in his operational role as the Global Leader of International Development.
Risk Management
One of the consequences of our global expansion is an increased awareness of risks that exist in the operation of our businesses in all sectors. Business risks present both opportunities and dangers in any business, and the balance of acceptable material business risks needs to be continually assessed and managed. Risk management is not about eliminating risks but responding to identified risks in a way that creates value for the Company and its shareholders.
Financial risk continues to be the main focus of the Audit Committee as we expand our services around the globe. The importance of internal systems and controls is paramount and deserves an individual focus. As a result the Board determined to establish a separate Risk Management Committee during the year.
The Board recognizes that the determination of an acceptable risk profile throughout the Company will have a direct impact on the success and growth of the business. The Risk Management Committee is currently reviewing the risk framework for the Company and I expect that by early next year we will have implemented a new risk policy and management framework. I am pleased to note this as a pro-active enhancement of our risk management approach and not in response to some failure of our current risk systems.
As a separate matter the Audit Committee has increased its focus on internal controls and during the year created an outsourced internal audit function which is an added level of review in addition to the external audit process.
Executive Remuneration
Executive Remuneration remains in the spotlight. Recent and current global financial turmoil, including examples of significant diminution in shareholder value made public in the media, have highlighted executive remuneration as an ongoing issue. Last year Coffey experienced some shareholder opposition to the approval of the issue of shares to Directors under the Coffey Rewards Scheme Share Plan.
That experience caused the Board to carefully review not only the very basis of the Company’s remuneration approach in its remuneration levels, including the Short Term Rewards (STR) and the Long Term Rewards (LTR). The Board also reviewed the hurdles which were applied to the LTR share issues to employees to ensure that they were satisfactorily aligned with shareholder interests. The Board is satisfied that the remuneration levels throughout Coffey are appropriate.
This year we have attempted to provide a better explanation in the Explanatory Notes of how the Coffey Rewards Scheme works. Due to the existing focus of the Productivity Commission and legislative uncertainty, the Board is hesitant to make any major changes to our rewards scheme until the position is clear. Interestingly the Coffey Rewards Scheme Share Plan would be one of only a few that meets the indicative guidelines in that there is “a real risk of forfeiture” of shares in the Plan.
Nevertheless along with the qualifying hurdles of personal and financial performances to participate, we have been careful to ensure that the “at risk” component of remuneration for our Key Management Personnel is also subject to satisfactory hurdles going forward measured against Total Shareholder Return (TSR) and Earnings Per Share (EPS) to align them with shareholder interests. In the Boards’ view, the characteristics of the Coffey Rewards Scheme substantially meet the principle requirements of guidelines set down by the Australian Shareholders Association and moreover are appropriate for our business.
Finally it should be noted that the Director share issues before shareholders for approval today are consistent with the rules applied to all participants in the Coffey Rewards Scheme. The only difference is that the ASX Listing Rules require that Director share issues be approved by shareholders. The Board remains confident that consistency in the application of incentives to the Managing Director with his senior executives is paramount and moreover so does the Managing Director.
Outlook
It has been another year of significant positive change for the Company and its staff. That change has been consistent with what the Board set out to achieve 18 months ago and has been very successful. I would like to thank all our shareholders for their ongoing support through this challenging period. I wish to also thank my fellow Board members, all our senior executives and staff for the commitment they have again shown during the past year in difficult economic times to make great strides forward in our global expansion and at the same time deliver a good financial performance.
The future looks bright for Coffey. We are in a strong financial position to take advantage of opportunities that arise as economic conditions improve. We do not discount further acquisitions but our strategy is to build on the platform we have built with organic growth driving efficiencies and improved profits.
Thank you for your attention and I would now like to introduce your Managing Director, Mr. Roger Olds to give his presentation on operations.
S. R. Williams
Chairman
26 November 2009
