focus on cash and debt reduction

Chairman’s Address
AGM 27 October 2008


Ladies and gentlemen It is a pleasure to address you today at the 15th Annual General Meeting of Brandrill Limited since we became a publicly listed company in December 1993. It is also my fourth Annual General Meeting as Chairman since we emerged from restructuring in late 2004. The last year has seen a continuation of the good progress we have made in revenues, in profitability and by bedding down the two acquisitions from last year, we have added earnings diversity.

Since December 2004 we have grown revenues by 300% and increased EBIT by 700%. We are clearly Australia’s pre-eminent specialist drill and blast contractor. I will talk more about the company’s progress and how we see the outlook but I must first address the elephant in the room – the current global financial crisis. Stemming from the subprime crisis in the USA, we have seen a domino effect drive financial institutions around the world to the brink of collapse as excess debt loads come to light.

A number of big names have fallen over or been sold off at bargain prices to more conservative institutions. Others have been propped up by government funding or nationalised.
This is clearly the worst financial crisis since the Great Depression almost 80 years ago. I do not pretend to be an expert in global financial matters, but the experts seem to agree on one thing – we are much better able to cope with the global financial crisis now than we were 80 years ago. There are already signs of swift action by governments, well swift by government standards, something that did not occur 80 years ago. Also we have a better knowledge of
economics and will not fall into the trap of increasing taxes as some governments did in the 1930’s. So my view is that the system will survive and the world will not slip into a long depression. But the size of the problem suggests it will take considerable time to unwind the
mess and return to stable global growth. I suspect no-one really knows how long this will be but it seems that Australia is in pretty good shape compared to many other countries. It is likely that an outcome will be increased regulation of borrowing practices, and exposing of true
corporate debt levels. It is in these two areas that the seeds of destruction were sown both in the 1987 crash and the current crisis.

Australia is well placed because of the strength of our banking sector, the low national debt and the surpluses that have been maintained by our federal and several state governments in recent years. The Federal Government is firmly of the view that although we will see a downturn we will not have a recession, and they have maintained this view over the last month as other events have unfolded. But it is likely that Australia will face increasing unemployment, and declining consumer confidence which will flow into retail, luxury goods and the real estate market.

The key to our Company’s position is what happens in China. There are signs that growth in China will slow but not stop. There appears to be some form of managed reduction in China’s steel output underway. This will be aimed at increasing domestic steel prices, which have fallen in recent times, and putting pressure on the major iron ore producers to reduce their prices. This should play out over the next 3 months or so. If the domestic steel prices do not
respond, the managed downturn may continue. But in the medium term, the consensus seems to be that Chinese demand for imported resources will continue underpinning existing
production levels of coal and iron ore in Australia, and even continued expansion plans.

A downturn in Australia’s general economy may see increased availability of employees, particularly skilled tradesmen and a lessening of wage pressures in the mining industry. The sharply reduced Australian dollar will boost revenues for unhedged miners selling in US dollars softening the impact of any potential reduction in commodity prices. In fact there is talk of iron ore prices softening by 20% next year but this is against a +90% increase last year and a
cumulative 400% increase over the last 5 years. Coal is a similar story. Existing iron ore and coal producers in Australia are still enjoying healthy margins and are pressing on with expansion plans.

In FY2008, we made a net profit of $11.0 million well up on the tax effected $8.1 million in FY2007. At the EBTA level, we grew from $10.1 million to $18.4 million, an increase of 82%. In FY2008 we acquired the Strange RC exploration business for $27 million and made an investment of $4 million in acquiring 70% of the light weight haul truck tray business DT Hi Load Australia. In addition we spent another $32.1 million on capital equipment purchases
bringing our total rig fleet to over 90 rigs at the end of June. Staff numbers also grew significantly ending the financial year at around 700. To assist in funding this growth, we issued 45 million shares to Resource Capital Funds at a price of 25 cents in August to raise
$11.25 million.

Up until the last few weeks, this rate of growth has continued. Drilling revenues including RC exploration in the first three months have been at a run rate over $200 million per annum, and profitability has been in line with expectations. DT Hi Load has been successful in disposing
of some existing stock with sales through October approaching $2 million per month including an increasing amount of service work. There are several large orders pending which if come to fruition will significantly improve the scale of this business. Our partners in Chile have extended the Company’s option to acquire their 10% share in DT Hi Load for another six months recognising that this business is at a pivotal point in its development.

The financial crisis has caused us to re-examine our forecasts for activity and profitability. Basically, we cannot see much changing, but there is great gloom in the markets and we should take account of this. Hence, we will increase our conservatism and place a greater emphasis on cash retention and debt reduction. Note that almost all of our debt is equipment finance with fixed interest. New equipment loans are basically over four or five years, some with balloon payments. The average maturity of our debt book is three years, hence without growth, every six months our debt reduces by 15%. Surplus cash generation further reduces net debt.

We have over $150 million of drill and blast revenue for financial year 2009 already secured and we have seen no sign of existing projects slowing. Note that including the Pilbara civil drill and blast activity, the coal and iron ore sectors account for over 70% of our revenues. Our
coal fleet is fully utilised and we are turning down work as demand continues to expand. Our hard rock mining and civil projects are mainly focussed on iron ore. The RC rig fleet is largely committed under long term contracts, but there has been increased availability of uncontracted rigs in the market over the last six weeks. DT Hi Load appears ready to deliver on its promise.

Unfortunately in the current market, the share price of Brandrill has become uncoupled from its value. We are not alone. We are currently trading at PE multiples below 3 times earnings. The company will remain focussed on securing and growing our earnings while reducing financial leverage until the picture becomes clearer. The world financial crisis is extremely serious. But it is important to note your Company is very well placed in providing services to the coal and iron ore sectors, is a strong cash generator with long term contracts in place, and with our activity levels not being sensitive directly to commodity prices. Previously we have stated that we expected revenues and net profit to grow by 30%. This is still achievable. However, in this climate, we think it is prudent to have a
downside case in which we still outperform last year’s record profit.

On behalf of the Board and Shareholders I wish to express our thanks to the staff of Brandrill for meeting the challenges posed over the last twelve months and delivering another successful year. The Annual Report highlights some of the individuals who have contributed to the success. I also wish to thank my fellow Board members for their guidance and advice over the year. We are well positioned to face the challenges of the next twelve months.


Thank you
VINCE PENDAL
Chairman
Brandrill Limited
27 October 2008