Good morning ladies and gentlemen.
Firstly I would like to thank you for your continued support of Coffey, in what is our fiftieth year of operations and our twentieth year as a listed company.
Steve has presented to you the financial overview of the company. I would like to take the opportunity to provide some context to the events of the past 12 months and the initiatives we have commenced to ensure that in 50 years time Coffey is a globally recognised leader in professional services and has had a profound impact on communities around the world.
The 2009 financial year was a story of two halves: the first half was the best result for a half year that Coffey has ever seen, driven by strong demand across all our sectors. During the second half, the impact of the Global Financial Crisis saw many projects delayed or cancelled and as a result, demand for our services significantly declined during the third quarter. We took decisive action in March and April to reduce costs and increase operational efficiencies, gaining annualised costs savings of approximately $10 million. These actions were not undertaken lightly; having to reduce the workforce is never easy.
Nonetheless, action did have to be taken, as the impact of the global financial crisis was still unclear. As a result of this action and a cautious increase in demand as governments worldwide injected funds into the economy to stem the crisis, our fourth quarter results rebounded, and we finished with a strong month in June.
This slide clearly shows how this impacted each of our divisions. What is not evident is that during the fourth quarter, each month steadily improved on the previous one.
While the Global Financial Crisis (GFC) did have an impact on the company, Coffey has weathered the crisis well.
This can be attributed to our strategy to diversify by service, sector and geography.
Diversifying the company has allowed us to deliver strong growth and record results during the economic boom conditions experienced during much of this decade. It has also allowed us to limit the damage of the GFC and be well placed as the economic recovery commences.
In a year where Australia’s publicly listed companies have sliced more than $47 billion from balance sheets and European and American companies have fared worse, we are pleased with our position as we complete one of the toughest 12-month periods for some time.The transformational work we have undertaken over the past 2 years gives us a lot of confidence for the future. Today Coffey is a resilient, agile global company. Having completed an organisational restructure we now have 8 specialist businesses that are managed globally. This is where our technical people are aligned to ensure we continue to develop our skills to be at the forefront of our fields globally. This has included bringing together our Environments and Natural Systems businesses to be a combined service line.
We have now introduced a regional support model to these service lines. The 4 regions comprise Asia Pacific, Africa, Europe & Middle East and the Americas. Each region will ensure we have the local knowledge, but will focus on delivering common systems globally to ensure quality and efficiency as our people increasingly embark on large global projects.
In addition, we have organised our business development activities into one globally coordinated group who focus on our markets via the services, geographies and sectors that we operate in.
Our decision to significantly broaden our specialist services, sectors and geographic footprint has had a significant positive impact on our overall revenue during the past two years.
You can see on this slide how the mix of business changed between FY 08 and FY 09 by region and by sector, noting the increased contribution from the Americas in particular, and the increase in infrastructure and government sector income compared to the resources and property sectors.
It is this diversification that has enabled us to take advantage of upturns in particular areas, and to be more robust to weather downturns, and to still have substantial growth prospects ahead.
For example, when capital dried up for many companies, there were resulting delays and postponements of projects. The commercial property and mining sectors, in particular, deteriorated rapidly. Countering this, government spending globally on aid programs continued unabated. Because we had set ourselves up as a global leader in the provision of international development services, with exposure to the world’s major donor agencies, we were able to deliver strong growth from this sector.
Our Project Management division also won considerable contracts that resulted from the Australian Government’s stimulus packages. We formed this division in the 2004/05 financial year, as part of our diversification strategy, and grew it through a series of strategic acquisitions. Today it is making a sound contribution to Coffey’s profit and is successfully managing projects across a range of sectors, including ports, health, education, defence and tourism. Its reliance upon the commercial property sector has been significantly reduced.
I would now like to give you an overview of how each of our divisions fared throughout the year.
Our largest division is consulting which comprises 6 businesses, now that we are combining Environments and Natural Systems.
The Consulting division generates 48 per cent of our revenue and achieved fee revenue of $283.3 million, an increase of 13 per cent during the financial year. Operating EBITDA declined 9.2 per cent to $48.7 million, reflecting reduced revenue in quarter three as we saw projects delayed or cancelled. In addition this result also includes one off items of $4 million the chairman referred to earlier.
Each of the consulting businesses provides niche services to the construction industry, across the full project lifecycle, from concept to completion.
After a strong first half in all parts of the division, we experienced a decline in revenue in the third quarter, resulting particularly from declining demand from the mining and commercial property sectors. We took action to address under-utilisation caused by this reduced demand, and subsequently saw performance rebounding throughout the fourth quarter as a result of these savings and a strong focus on business development.
Our consulting division is involved in some of the world’s largest and most technically challenging developments. Projects include major LNG and Gold projects, such as Gorgon, Wheatstone, Papua New Guinea’s LNG, Frieda River Copper and Gold Project, Canada’s Spadina-Toronto Rail Tunnel, London’s Crossrail Tunnel, New Zealand’s Sea & City redevelopment and the Pacific and Hume Highway Upgrades – for which we have just recently been announced as a member of the Kempsey Bypass alliance, a project that is part of Infrastructure Australia’s program.
This slide shows some examples of the types of projects undertaken in the Consulting division.
Coffey has been engaged in a number of different projects as part of the upgrades of the Hume and Pacific Highways.
To date, we have been either a full alliance member or a key sub-contractor on a number of design and construct alliances on this important infrastructure including:
- Ballina Bypass
- Northern Hume Alliance
- Coopernook to Heron’s Creek
- Tarcutta Bypass
- Kempsey Bypass
The services Coffey provides on these projects includes investigations of the ground, design of the bridge foundations, the road pavement, the earth embankments and retaining walls. We also source materials to be used in construction and then test their quality to ensure they meet specification.
Our specialist services have the potential to significantly impact the design and cost of these projects and our ability to innovate adds significant value to all stakeholders.
Our second largest division, International Development, produced an outstanding growth in performance during the financial year as a result of investment in development programs from government donor agencies.
Our International Development business – which includes Coffey International Development, MSI and STA – are global leaders in this market and provide us with exposure to some of the world’s major donor agencies, governments and private foundations.
During the financial year fee revenue jumped by 132 per cent to $151.9 million and Operating EBITDA rose 203 per cent to $25.2 million.
We have an extensive track record of successful delivery and we have continued to win large, long-term projects across all areas of the business, including:
- A UK Department for International Development contract to design a five-year post-conflict recovery program for Northern Uganda
- A program funded by The International Finance Corporation to help banks improve small business funding in African and Asian countries, aimed at ultimately helping to create jobs and stimulate economic growth
- A number of projects to improve quarantine and food security for Middle Eastern governments, which have had support from Coffey Commercial Advisory
- A project to improve rural livelihoods in India on behalf of the UK Department for International Development
- A five-year training contract with the Saudi Arabian National Guard
- A USAID project to support legal reforms in Mexico and prevent organised crime.
We also recently won an AusAID road rehabilitation and maintenance program in the Southern Philippines and a US$40 million contract extension for the Tatweer Project in Iraq.
In July, MSI, was awarded a five year US$66.3 million rule of law project funded by USAID.
The project will work with state and federal justice institutions to strengthen their capacity to improve transparency, public oversight and public accountability to better serve Mexican citizens under the new constitutional reforms that shape the police and criminal procedure codes.
The project’s work supports the Merida Initiative, which aims to prevent and eradicate organised crime. This is just one of many projects Coffey is helping to implement around the world to improve the lives of communities.
Our Project Management division contributed approximately 10 per cent of overall revenue and performed well despite the global decline in commercial property development. The division saw a 26 per cent increase in fee revenue to $75.2 million and a 26 per cent increase in operating EBITDA to $13.4 million.
Having a broad geographic footprint spanning Africa, the Middle East, Australia, and New Zealand, has paid off, and enabled us to deliver a diversified portfolio of projects.
The division completed one acquisition during the year, with the addition of Bovell, Freeman and Holley in South Africa. This acquisition has performed well and has helped us increase our market presence throughout Sub-Saharan Africa.
The New Zealand market continues to win and deliver major projects and the Dubai operation has handled the economic downturn well through an early focus on the Abu Dhabi market.
The Project Management division benefitted from the increased number of government projects it secured, which offset the downturn in the commercial property market. Throughout the year, and since July, the division has secured a number of major government contracts in defence, education and housing.
These include
- The Federal Government’s Building the Education Revolution in WA, QLD, VIC, NT and ACT
- A major expansion at Auckland’s North Shore Hospital on behalf of a client we’ve worked with for more than 10 years
- Management of the introduction of a new air combat capability (AIR6000) that will meet Australia's needs to 2030 and beyond with the Department of Defence.
The division also continues to win major transportation projects, such as Christchurch International Airport Integrated Terminal, Johannesburg’s International Airport, Cairns Airport and the Auckland Rail DART 1 and 2 projects. The division is also expanding into the resources sector, undertaking work in association with Coffey’s Consulting division on LNG and gold projects.
An example of a project undertaken by the Project Management division is the recently won Oral Health Services project in New Zealand.
This project is a major long-term investment in the building and refurbishment of Counties Manukau Oral Health facilities and services and aims to support the area’s Oral Health needs over the next 20 years. Coffey Projects will manage this project through to completion.
So as you can see, despite the Global Financial Crisis, Coffey delivered a solid performance and is continuing to win high profile projects in each region and division.
During the past year, we have also undertaken an internal process to understand our strategic imperatives and implement a three year strategic plan.
The strategic imperatives are:
1. Be a united Coffey team executing the strategy
2. Develop a culture of one Coffey
3. Be agile, innovative and aspirational
4. Grow organically
5. Leverage existing equity and debt capacity
6. Create more efficiency to enhance profitability
7. Deliver improvements in working capital and cash flow.
Strategy 1 is core to organic growth plans and will focus on being more efficient and more competitive. We plan to cut a further $10m per annum from our operating costs.
When linked with strategies 4 & 5 we will have a strong focus on growing market share in each of the geographic areas in which we operate.
Strategy 2 is about building new value propositions for our clients; this is where future businesses will emanate from
Strategy 3 continues the vital transformation work begun by the Platform for Growth program. Company-wide transformation is being driven through the business by the corporate development team.
Strategy 4 is specific to working on further enhancing our reputation for excellence in client service; we have won BRW client awards twice and came 2nd last year.
Strategy 5 involves a much stronger, focussed and sustained business development effort across whole of Coffey. There is a clear emphasis on providing exceptional service and value to bigger clients by providing the full suite of Coffey services. The business development function is embedded across services, sectors and geographies.
Strategy 6 is about our new structure and working together in a matrix. The structure starts with specialist services and adds regional support and adds the sector facing BD focus.
This structure has been implemented, and went live on 1 October.
As part of the Launching Global Coffey strategy, we are continuing our push to be structured to best meet our clients’ needs. To that effect we have brought Coffey Environments and Coffey Natural Systems together into one environmental service line. This business will be known as Coffey Environments, specialists in environmental, social and safety performance. I’m pleased to say that today is the official launch of the new brand.
The new Coffey Environments business will build on the reputation both businesses have for providing specialist knowledge in their respective fields and continue to work with a range of clients in the property, mining, infrastructure, government and oil and gas sectors. The specialist skills and reputation that these two service lines have developed now enables Coffey to provide environmental services across the project lifecycle from development to closure. For our clients most importantly these specialist skills are now available in the one service line. The business will employ approximately 500 people and have a revenue of approximately $100m.
In our fiftieth year, we are excited about the future. We’ve shown over the past 12-18 months that the company is agile and can weather the downturns as well as take advantages of the opportunities boom conditions create. We have undergone an intense 18 months of internal transformation to solidify our culture and continue development of our strong customer orientation. Our path is set with the development of the Launching Global Coffey strategic plan, and all the building blocks have been put in place with a strong management team, embedded systems and a new structure.
We’ve had a great response from our 4,000 staff across the world and our new functional team is supporting operational growth.
Our first quarter has been strong compared to last year. Importantly, this growth is organic rather than acquisitional. However, we continue to look for targeted bolt on acquisitions, which we can fund from current capacity.
So the outlook is positive. We expect to deliver double digit earnings per share growth for our shareholders over the next three years. This growth will also enable our services and corporate activities to have a bigger impact on the lives of communities.
Roger Olds
Managing Director
26 November 2009
