THE CONSTRUCTION INDUSTRY OUTLOOK

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1 THE CONSTRUCTION INDUSTRY OUTLOOK The resources boom and a strong programme of public works is expected to drive engineering construction activity to record levels over the next two years.. but a downturn remains likely from 2007/08.

2 An unprecedented and thus far an unabated deal flow. Record volumes of heavy engineering construction. Most of the State Governments have announced record capital expenditure budgets. This combined with demand for our natural resources has ensured an abundance of infrastructure construction work particularly in Queensland and Western Australia. Courtesy of BIS Shrapnel The Construction of Work undertaken by the Private Sector 03/04 04/05 05/06 06/07 07/08 ENGINEERING INFRASTRUCTURE $000 19,976 23,279 29,057 30,849 30,027 NON RESIDENTIAL BUILDING $000 17,215 17,899 19,779 21,188 20,081 TOTAL 37,191 41,178 48,836 52,037 50,108

3 Total Engineering Construction Australia BIS Shrapnel Chart $ M illion Value of W ork Done /04 Prices Forecast Total Engineering Construction Engineering Work Total Funded by the Public Sector T otal by P rivate Contractors Total Funded by Private Sector Year Ended June Source: BIS Shrapnel, A BS data Total Engineering Construction BIS Shrapnel Chart $ M illio n Australia and States Value of W ork Done /04 Prices Forecast A u s tra lia Engineering Work New South W ales 6000 Victoria Queensland 3000 W estern Australia South Australia Year Ended June S o u rce : B IS S h ra pn e l, A B S da ta

4 It is clearly obvious that construction levels over the next few years should remain very high particularly in transport, essential services and the resources sector. To list a number of projects in various stages of preparation for which funding has been allocated: WESTERN AUSTRALIA $M Perth to Bunbury Highway 500 Waste Water Schemes at Alkimos and Eastern Rockingham 620 Fiona Stanley Hospital 700 Charles Gardner Hospital 540 These are all part of $18BN capital works plan over the next four years. NEW SOUTH WALES Government commitments over the next four years across all of the agencies with capital spending of some $40BN. $M Royal North Shore Hospital 700 Auburn & Liverpool Hospitals 500 Parramatta Justice Precinct 330 Illawarra Prison 250 Pacific Highway Upgrades 1,280 Hume Highway Upgrade 800 Princes Highway 390 Port Botany Expansion 750 Desalination Plant 2,000 M4 East 1,400 F3 to F2 Link 1,400

5 QUEENSLAND $M Gateway Bridge Duplication 1,900 North South Bypass Tunnel 2,500 Gold Coast Desalination 1,100 Springfield to Darra Road & Rail Corridor 1,400 Port Upgrades:- Gladstone, Rockhampton and Port Brisbane 560 VICTORIA $M Monash to West Gate Corridor 860 Western Highway Deer Park Bypass 326 Regional Road Upgrades 690 Arterial Road Projects 1,200

6 With the commodity prices all sitting well above normal levels, a record number of resource related projects are contemplated. For example in the IRON ORE SECTOR $M Rapid Growth 4 Project 2,300 Cape Preston Mine & Plant WA 1,900 Jack Hills Sage 2 1,900 Karara Mine & Plant 1,000 Koolanooka Pellet Project 1,000 Weld Range WA 800 South Down Magnetite Project 785 Costs, wages and skills shortages remain key growth impediments in the medium term. Suffice to say with record levels of construction work comes demand for resources and subsequent escalating costs. With the expansion in China followed by India and the continued construction expenditure levels in the Middle East has translated into global competition for resources. This has exacerbated the escalation of costs. For example, Copper, Nickel, Aluminium, Iron Ore, Coking Coal have all seen dramatic price rises over the last couple of years.

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9 Construction personnel have multiple choices of employment and as such it is challenging to attract and retain competent staff, and to manage their expectations both in salary and position. Consequently projects that are marginal in terms of economic viability as well as those that are not of critical importance may well not proceed. However, in terms of infrastructure critical works will need to happen. For example, Desalination Plants, with the current drought and the now accepted fact of climate change, are becoming a necessity. Desalination plants in Perth, South Australia, Gold Coast, Central Coast and Sydney have the spectre of inevitability.

10 IN SUMMARY An unprecedented workload Demand for resources increased Skills shortages key growth - Impediments to growth Much of the infrastructure is a critical requirement and will proceed

11 IMPLICATIONS FOR THE IMMEDIATE FUTURE Significant cost escalation Slippage in work schedules Cautious of fixed fee contracts, tight margins and penalties for late completion Focus on building relationships with suppliers, subcontractors, designers and clients Skilled labour the most critical resource