Annual - AJ Lucas

REAL PEOPLEREAL PROJECTSAJ LUCAS 2003

CONTENTSChairman’s letter 2Five year review 4The year in brief 5Pipelines 6Horizontal directional drilling (HDD) 10Coal seam gas 14Our other bottom lines 18Concise financial report 20

WE LEAVE IT AS WE FIND ITThe SEA Gas pipeline travels through valuable and beautifulcountry, like this property in the Adelaide Hills. Avoidingenvironmental damage and restoring the land is an importantpart of our pipeline construction approach. This photowas taken as the pipeline trench was being dug. In a fewmonths’ time, once our restoration crews have restored thecontours, replaced the topsoil and replanted the vegetation,it will look like this again.

CHAIRMAN’S LETTEROur strategy of the last five years hasdelivered as we promised. We‘re throughour ‘adolescence’ and Lucas is nowestablishing itself as a strong, world-classinfrastructure business with a provenbusiness model and clear objectives.2AJ LUCAS ANNUALREPORT 2003

Fellow shareholders,Lucas is going well and our growing maturity is clearly shownin our results.We’ve just completed a year of record turnover – morethan double last year, and nearly six times our turnover whenwe listed in 1999. We’ve also delivered a record profit and arecord dividend.While exciting and extremely hard work, the past fouryears have had their difficulties. We have been taken advantageof by others of superior size and financial resources.While unnecessary, it is not unexpected, particularly when“you punch above your weight” as Lucas does.In spite of this, the company has succeeded for a numberof reasons. Essentially, it is because we try to be better andsmarter than our competitors. This is not to say that Lucasalways gets it right; we don’t. But we try harder and we nevergive up. We always deliver.We offer our clients a genuine alternative approach. Onethat’s based on competence and integrity – and, by definition,on the quality of our people.We have people employed at all levels with the right setof values and more than a high level of competence.These people are the company.They’re the ones who deliver, week in and week out.We expect a lot from them and they perform.Lucas is built on these twin pillars of competence andintegrity. We believe that these are enduring foundations andour success so far certainly affirms this.The next stepNow that the goals we set when we listed four years agohave been achieved, Lucas is moving on to a new phase ofcorporate development.The next two years are very important in our strategy aswe capitalise on our success to date and improve the qualityof our revenue and earnings stream.We intend to develop our activities in coal seam gas,build on our pipeline and drilling successes to undertake furthersignificant projects and expand our activities to includefacilities management (operation and maintenance) andspecialist civil engineering of infrastructure. This should takeeighteen to twenty-four months to complete and, if successful,will see Lucas complete the transformation into a maturespecialist engineering and infrastructure services business.Through this, our emphasis on people and our provenbusiness model will continue. The competition won’t stop,but we believe our successful approach will be hard to duplicatebecause it’s a direct reflection of our unique culture.Lucas now has an adequate capital base. We definitelyhave the right people. The prospects in the marketplace arevery bright and Lucas is well positioned within that marketplace.The directors are justifiably proud of our company;very proud of our Real Projects and our Real People. They arethe true monuments to Lucas’ success.We thank you for your support during the year and lookforward to continuing together during the next phase ofLucas’ journey.Yours sincerely,Allan CampbellChairman and CEOAJ LUCAS ANNUALREPORT 2003 3

FIVE YEAR REVIEW *from normal operations before tax Since listing in 1999, Lucas has achievedits strategic and revenue goals, deliveringa consistent return to shareholders. 4AJ LUCAS ANNUALREPORT 2003

THE YEAR IN BRIEFKEY FIGURES FOR YEARENDED 30 JUNE 2003Revenue for the yearProfit before taxEarnings per shareDividends per shareAT 30 JUNE 2003Shareholders’ equityMarket capitalisation$151.2 millionPrice/earnings ratio 7.4Gearing 15%Interest cover$10.8 million18.9 cents7.5 cents$30.7 million$63.6 million17.9 XReturn on equity 25.2%RESULT BYBUSINESS DIVISIONDIVISION REVENUE PROFIT MARGINPipelines $123.3m $12.8m 10%HDD $19.1m $2.1m 11%Coal Seam Gas $8.8m $(0.5m) (6%)HIGHLIGHTS OF THE YEARAustralia’s current largest pipeline projectOur pipeline division is into the final months of the SEA GasPipeline project. With a total cost of $341 million, this is ourlargest project ever – in fact it’s the country’s largest pipelineproject of the last year. Apart from size, the speed andbreadth of this engineer/procure/construct project makes itan important landmark for us and the industry.Three more HDD recordsAfter setting a world record with the Tamar River crossing inTasmania last year, our HDD division has followed up withtwo more record-setting drills in Wollongong and Chatswoodfor Sydney Water. These have redefined the capabilitiesof the HDD for sewers and open the way for a range ofHDD work. And, because these are based on our proprietarydrilling techniques, tools and software – not to mention ourexperienced engineers and crews – our leadership in thistechnology continues to increase.Our third record drill for the year is the ocean landfallfor BHP Billiton’s Minerva gas field, a dual 1,550 m drill rightunder Victoria’s Port Campbell National Park.The country’s most completecoal seam gas serviceOur newest division, Coal Seam Gas, has continued todevelop and grow. Our long-term research and developmentof surface to in-seam drilling has reached commercial practicality.As the year ended, the division secured its largestcontract to date – and the largest surface to in-seam coal gascontract in Australia.Another year without time lost to injuryWorking hard and fast can potentially increase the risk ofinjury. Not at Lucas. Our no-compromise safety policy hasensured we complete our third successive year with no losttimeinjuries.Our LTIFR (lost-time injury frequency rate) continues to be0 (yes, zero), compared with an industry average of 16.7.…or to the environmentOur tight environmental policies and practice mean the yearhas been completed without breaching any environmentalconditions and with no environmental incidents.AJ LUCAS ANNUALREPORT 2003 5

KEVIN LESTERGeneral ManagerKevin joined Lucas as aproject manager in 1984after graduating as a civilengineer. Since then he’sbeen responsible for over50 major projects as projectmanager, operations managerand general manager. Thesehave included major pipelinesfor gas, water and petroleumproducts, civil and tank farmprojects, and a diverse rangeof directional drilling andhydrostatic testing projects.As manager of our jointventure with Clough and ouralliance with Agility, Kevin’sbeen crucial to the success ofLucas’ partnership strategy.Kevin is a key part of SEAGas as the project’s deputymanager, working closelywith project manager YvesPasquier from Spie Capag,our joint venture partner.JOHN BRENNANPipelines ConstructionManagerJohn has over 30 years’experience constructingpipelines in Saudi Arabia,Iraq, Iran, Turkey, Canada,India, New Zealand, Malaysia,Indonesia, PNG, as well asthroughout Australia. He’sbeen a key member of Lucas’pipeline management teamsince 1997 and is regarded asAustralia’s most experiencedpipeline constructionmanager. Since September2002 he’s been overseeingthe construction of SEA Gas,keeping a team of over 300people working productivelyand meeting challenges overthe pipeline’s 686 kilometres.

PIPELINESLucas is the Australianindustry leader in longdistance pipelines,responsible for morethan half the Australianpipelines built over thelast seven years.Growing demand and new gas fields. Two factorsmake us very positive about the pipeline business. First isthe expected growth in demand for gas and the need tocarry gas from new sources. The latest forecasts from theAustralian Pipeline Industry Association (APIA) are for continuinggrowth in gas demand of around four percent eachyear until 2020 – taking natural gas to over 25% of Australia’senergy supply.The most important growth areas are gas used for industrialand minerals processing and power generation wherenatural gas’ much lower greenhouse effects give it a majorenvironmental advantage over coal. And with many oldercoal-fired power stations due for replacement, gas use willcontinue to grow.Apart from growth in demand, one of the country’s maingas sources, the Cooper Basin, is in decline, so gas will needto be carried from new fields.Although this has been well known for some time,pipeline planning has been hampered by governmentwavering on investment rules. This has made many prospectiveinfrastructure investors ‘wait and see’. This situation isgetting resolved, so we expect investment in new pipelinesto build momentum.A business approach that makes sense to clients,not to lawyers. The traditional “contracting” approach,narrowly focused on the mechanics of a job, is clearly obsoletein today’s climate.In contrast, Lucas’ partnership approach focuses onour clients’ objectives and sets about achieving them. Weget involved in projects earlier and concentrate on addingvalue, instead of looking for ‘variations’ to pad the profit ona marginal contract.The five-year success (to date) of the Agility Alliance is thebest example of this.By eliminating the adversary element from relationshipswith our clients, we can work faster and more openly, gettinggas flowing sooner. In the end, everyone benefits. Our profitmargin is more consistent. Our clients get a better projectwithin their budget and delivery date. Everyone can focus onthe same objective of delivering the finished product.Every aspect covered. The other element of our approachis completeness. We offer everything from engineeringthrough landowner liaison, environmental planning, procurement,reinstatement, testing and commissioning.The SEA Gas Pipeline is a good example of this. Ourclient’s responsibilities end with the broad governmentalapprovals, acquiring the easement and the project finance.Lucas and our joint venture partner…CONTINUED P8AJ LUCAS ANNUALREPORT 2003 7

PIPELINESSEA GAS CASE STUDYFROM P7Spie Capag, are responsible for almost everything else untilthe pipeline is delivering gas. This makes sense to clients,who are can stick to their core business of carrying andselling gas, and leave us to take care of the engineering,construction and other elements of building the pipeline.OUR YEAR’S WORKOur pipeline division is into the final stages of the SEA GasPipeline project, our largest project ever. Apart from size, thespeed and breadth of this engineer/procure/construct projectmakes it an important landmark for us and the industry.SEA Gas Pipeline. Lucas, in joint venture with Spie CapagAustralia, won the design, procurement and constructioncontract in May 2002 against international competition.Paraburdoo Compressor Station. The Clough/Lucas AgilityAlliance is building the Paraburdoo Compressor Stationfor the Goldfields Gas Pipeline in Western Australia, whichcarries gas 1,380km from the North-West. The compressorstation will increase the pipeline’s capacity to 108 TJ per day,enabling it to connect to new customers.The largest pipelinecurrently underway inAustralia, the 686km,350/450mm diameterunderground pipelineruns from Port Campbell,Victoria to Pelican Point inAdelaide, South Australia.Along the way it travelsthrough grazing country, someof Australia’s most famousvineyards and the Adelaidesuburbs. It will supply gas toSouth Australia from Victoria’sMinerva offshore gas fieldand later, the Thylacine andGeographe fields.Initially a joint venturebetween International Powerand Origin Energy, TXU joinedseveral months after engineeringwas complete and the pipewas being manufactured.This required an increasein the pipeline’s capacity.The solution was to make partof the pipeline 450mm, anddouble-up the existing 350mmpipe over half the pipeline’slength. So there’s actuallyover 1,000km of pipe beinglaid, using specially developedtechniques to lay the dualsections in a single trench.The “mainline” crew ofaround 180 has been movingforward at around 4km perday – clearing, stringing,welding, X-raying, blasting,trenching, lowering-in andrestoring. The more restrictedsections through Adelaide aredone by the smaller “poorboy” crew of around 30.Most roads are beingcrossed using small HDD rigs,while Lucas’ large HDD rigsare handling seven majorriver crossings.In spite of delays causedby wet weather and arealignment to avoid landslipproneareas, the pipeline is onschedule for completion latein 2003, ready to start carryinggas in early 2004.The country between theAdelaide Hills and the MurrayRiver is a mix of pasture, forestsand vineyards. The topographyand varying geology makeslaying the pipeline challenging.Some areas needed blasting;others needed careful work toavoid mature trees and otherobstacles. There are plenty ofroads, fences and other pipelinesto be negotiated.Left: As eachsection of pipelineis complete andin the ground, ourtesting crews getto work. First, aseries of ‘pigs’ aresent through toclean the pipe andcheck for faults.Next is hydrostatictesting: the pipe isfilled with millionsof litres of microfilteredwaterand pressurisedto above thepipeline’soperating pressure.Right: Completedsections of thepipeline are joinedby the ‘tying-in’crews. Here,they’re cutting oneof the 14” pipesprecisely to lengthbefore joining tothe next section.8AJ LUCAS ANNUALREPORT 2003

SEAGAS PROGRESSBelow is aThe chart reflectssimplified version the work of aof the main project team of projectplanning chart for planners workingSEA Gas together with sophisticatedwith a map of the software to coordinateour teams,route. You can seethat construction materials, machineryand vehiclesactually began nearthe middle. on the project.This avoided The plans changeconflicts with the daily in response tobushfire season progress, weatherfurther west and conditions, deliverythe red-tailed black delays and othercockatoo nesting factors.season to the east.CAMP (Gawler/Elizabeth)CAMP (Coomandook)South AustraliaCAMP (Padthaway)SEA Gas StatisticsPipe design pressureCapacityEmployeesCAMP (Casterton)15MPaup to 240 terajoulesper day withoutcompression330 on construction;40 on prefabricationMan-hours to date over 800,000Lost-time injuries to dateVehicle kilometres drivenPipezero3.2 million91,000 tonnesVictoriaMeters above sea level500400300CAMP2001000PELICAN POINT MSTORRENS ISLANDCAVANBOLIVARMUNO PARAGAWLERWILLIAMSTOWN7/8 MLVCOOMANDOOKStart project October 16YALLAMURRAYMIAKITEMINERVAWUGSOct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2002 2003650600550500450400350300250200150100500 kmADELAIDEFIREPRONEAREAM O U N TL O F T YR A N G E SFIREPRONEAREAL A K EA L E X A N D R I N AVICTOR HARBOUR GOOLWAMURRAY BRIDGES O U T H E R N O C E A NCOOKE PLAINSTINTINARABORDERTOWNNATIVEHABITATAREANATIVEHABITATAREAHAMILTONPORTLANDWARRNAMBOOLPORT CAMPBELLKINGSCOTEK A N G A R O OI S L A N DSOUTHERN OCEANNWESAJ LUCAS ANNUALREPORT 2003 9

HDDSafe for personnel, thegeneral public and theenvironment, horizontaldirectional drilling (HDD)is simply the best way tocarry pipelines and otherutility conduits undersurface obstacles.Whether those obstacles are roads and rivers, wildernesshabitats or entire cities, HDD avoids the danger, disruptionand environmental damage of trenching. The installed pipe,deep below the ground, is safe from careless backhoes, strayanchors and sabotage.The Lucas fleet of seven drilling rigs with over 50 tonnesof push/pull capacity is unmatched in the Asia-Pacific and isamong the top four worldwide. We hold the outright recordfor an HDD crossing and have completed more drills over1,000 metres than any other company in the world. Theprecision of our drilling has enabled previously “impossible”projects to be completed. So when we claim to be theworld’s leader in HDD, we mean it.The technology and skills we’ve developed have expandedthe market for our HDD solutions. Because we can drillfurther and more accurately, projects that were regardedas impractical for HDD – like the ones we successfullycompleted this year in Wollongong and Chatswood – becomeopportunities for us.Focused on the top end of the market. While shortdistance/small diameter HDD has become a commoditytechnology, there are major barriers to entry at our end ofthe market. Equipment, personnel, software and capitaldemands are stringent, so competition is limited.Although the direct cost of our engineered HDD can behigher than traditional trenching, this extra cost can often berecouped through reduced compensation, lower insuranceand earlier completion. In cases where trenching is impossible,HDD can be the only way to complete a project.Satisfying both clients and shareholders is often achallenge. Our constant development means we can offerour clients valuable services at competitive prices that stilldeliver a good return to investors.OUR YEAR’S WORKAfter setting a new world record for the longest HDD crossinglast year in Tasmania, our HDD division has followed upwith three more record-setting drills this year: two for SydneyWater in Wollongong and Chatswood and the landfall forBHP Billiton’s Minerva gas field.Minerva landfall. BHP Billiton’s Minerva gas field is 12kmoffshore from Port Campbell National Park, home to theTwelve Apostles and some of Australia’s most spectacularcoastline.Lucas HDD has set a world record for an HDD landfall bydrilling a pair of bores 1,550 metres long: CONTINUED P12DUNCAN MACDONALD (left)Manager, Survey TechnologiesDuncan is responsible fordeveloping and applying ourproprietary HDD steering andsurvey techniques, devisingsolutions to the many factorsthat affect the guidance andlocation of HDD bits.With an honours degree ingeology and over ten yearsof experience in the drillingindustry, Duncan joined Lucasin January 2001 after severalyears’ working for us as acontractor. Since then he’sdesigned and supervised thesteering on all our recordbreakingdrills.STEPHEN LONERAGAN (right)General Manager HDDSince joining us part-time in1993 while studying for hisengineering degree, Stephenhas worked as site manager,project manager and generalmanager of our HDD division.A member of the Societyof Petroleum Engineers andrecognised as ‘Young Pipelinerof the Year’ by the AustralianPipeline Industry Association,Stephen has been responsiblefor many innovations in HDD,including our patenteddownhole tooling.10AJ LUCAS ANNUALREPORT 2003

HDDFROM P10one to carry gas from the field; the other for the gas wells’chemical injection and hydraulic control lines. These startinland from the park, travel under the Great Ocean Road,the sea cliffs and beach, emerging 800m offshore in 15mof water. This has avoided the mass of environmental andcommunity safety risks with conventional trenching and wasa key element in government approval of the project.Illawarra. HDD eliminated a variety of environmental andcommunity issues for Sydney Water by taking a new sewermains directly from one side of Wollongong to the otherwithout surface trenching or intermediate work site. At1,900 metres long, this is the world’s longest HDD pressuresewer installation.Below: The landfallfor the Minervagas field is on oneof Australia’s bestknownstretchesof coast – near theTwelve Apostlesand the Great OceanRoad. Our HDDinstallation avoidedany disturbance ofthe coastal nationalpark and offshoremarine park. FromLucas’ drill site,visible at the bottomof this photo, wedrilled 1500m outto sea, ready toinstall the gas flowand control linesto bring gas ashorefrom the field.Right: After weldingand testing, the1,900 metre pipestring for theIllawarra sewerwas carried acrossWollongong’s NorthBeach and golfcourse, ready forpullthrough to thecity’s other side.Chatswood SewerFix for Sydney Water. A new gravitysewer mains to increase the capacity of one of Sydney’sbusiest shopping and commercial centres, this bore is over1,800 metres long, following a complex curved path with asteady grade of 1.46° over its length. This again sets an HDDrecord, as the world’s longest gravity (grade) sewer.SEA Gas. SEA Gas has also kept the HDD division busy,drilling seven river crossings for the pipeline including a 685mcrossing of the Murray River at Tailem Bend. Apart from thesemajor crossings, HDD has been used for many of the roadcrossings for the pipeline. This has dramatically reduced thetraffic disruption from the pipeline’s construction.12AJ LUCAS ANNUALREPORT 2003

CHATSWOOD CASE STUDYLucas sets a world recordto meet the sewer needsof one of Sydney’sfastest-growing suburbs.Chatswood’s seweragesystem simply wasn’t coping,especially during wet weather.Sydney Water’s SewerFixprogramme called for a newsewer mains from the centreof the CBD to the Scotts CreekMains two kilometres away.The original plan was to useHDD for part of the distance,then ‘microtunnel’ between aseries of deep pits along themain thoroughfare.While better than opentrenching for the full distance,the pits (up to 17 metres deep)would still have dramaticallyslowed road traffic andcreated a significant hazard.We offered an alternativesolution: using HDD to drill theentire distance in one path.While no-one had everdrilled a gravity sewer thisdistance, we’ve been steadilyextending our range andaccuracy in a series of sewersin the Blue Mountains. Ourproprietary bit and reamertechnology were well-provenin Sydney sandstone. Ourunique guidance systems hadthe accuracy needed and ourengineering analysis confirmedthe project was within thelimits of the equipment.Sydney Water was persuadedby the obvious advantages ofthe single-HDD approach andLucas’ meticulous approachto the engineering challengesand their solution. Lucas’successful track record withSydney Water made themconfident we could do it.“We didn’t choose thelowest cost tender. Wechose the highest technologyapproach – and the one thatoffered the best value solutionfor the situation.” said JamesChiang, Sydney Water’s projectmanager.The drillingDrilling was done in threepasses to create an 812 mmhole for the 630 mm pipe. Thehigh-density polyethylene pipewas drawn into the hole in13.5 metre lengths, joined byfusion welding. This was doneworking around the clock,with the pipe lengths beingfed in from the top end of thedrill path, outside ChatswoodChase shopping centre.The completionOnce the pipe was in placeand tested, it was linked tothree existing sewers and tothe mains leading to the NorthHead treatment plant.With all the pipe worksdone and the drilling rig andits associated equipmentremoved, the final part of thejob was the site rehabilitation.Before site work began,seeds were collected frommany of the plants in thearea immediately surroundingthe drill site. These weregerminated and raised innurseries while the drillingproceeded. When it cameto rehabilitate the site, theseindigenous plants – 32,000of them – were planted in thereplaced topsoil. The photoshows the drilling rig sitedin the Scotts Creek Reserve(bottom centre), with the pipedestination, the ChatswoodCBD, visible in the distance.CHATSWOOD SEWERFIXChatswood Chaseshopping centreSydney sandstone1806 metresDrilling siteScotts CreekLucas’ drillingsite is visibleat the bottomcentre of thepicture. Thedestination,underChatswood’sCBD, is at theupper left.AJ LUCAS ANNUALREPORT 2003 13

COAL SEAM GASCHRIS HILL (left)maintenance managerChris leads a team oftradesmen who ensure thespecialised drilling rigs andancillary equipment in thecoal seam division are allworking exactly as theyshould. With a string of tradequalifications and over 17years of experience withunderground drilling rigs, he’sbeen a key element in thesuccessful establishment anddevelopment of the division.BRETT KUHNERT (centre)SIS drilling managerBrett manages our surface toin-seam drilling teams. With50,000 metres of SIS drillingto his credit, he’s amongAustralia’s most experiencedin this developing technology.He is responsible for the SISwork at Oaky Creek mine.GLENN CARRUTHERS (right)underground drilling managerGlenn has nine yearsof underground drillingexperience. He’s worked inmost of the pits in NSW andQueensland and set worldrecords for distance drilledin a shift and the longesthorizontal hole. He’s currentlymanaging four teams ofunderground drillers at Appin,Mandalong, Myuna andElouera mines.A lot has happened incoal seam gas recently,as it has changed froma mine hazard and wasteproduct to a viableresource industry.Today, coal seam gas is contributing a growing proportion ofAustralia’s energy needs. 25% of Queensland’s gas is currentlycoming from coal seam gas. ABARE estimates Australia hasknown recoverable reserves of at least 50,000 petajoules,making coal seam gas a major energy resource.Since we established Lucas Coal Technologies in 2000,it has developed into Australia’s most complete service tolocate, drain and capture coal seam gas.As well as our role in the coal industry, we’re working tobecome a gas producer in our own right through our investmentin the Gloucester Basin.Coal mine gas drainage. For coal miners, seam gas is ahazard. A series of drainage holes can be drilled through coalseams and the gas captured for economic use. As an area isdrained of gas, it can be safely mined.We can identify a mine’s gas management needs, carryout the drilling and build gathering and processing plants tocollect the gas for use on-site or for sale.AJ LUCAS ANNUALREPORT 2003 15

COAL SEAM GASOAKY CREEK CASE STUDYSurface to in-seam is now a reality. The key developmentthat’s come to fruition this year is surface to in-seam(SIS) drilling. This enables gas drainage to be done from thesurface, instead of from the underground coal face itself.The advantages are obvious: it’s much safer to keep ourcrews and equipment on the surface, away from potentialoutbursts of gas or water. It’s also safer for other mine workersas gas flows aren’t being carried through the active partof the mine. Mines don’t have to factor underground drillinginto their production programme.SIS technology has been under development by Lucasfor over eight years, and since 2000 in collaboration withthe Cooperative Research Centre for Mining Technology &Equipment (CRC Mining). It’s now set to become the dominanttechnique in mine gas drainage. Over the past year ourwork has been split equally between underground and SISdrilling. Next year we expect 70% of it to be SIS.Lucas is the only company in Australia offering bothunderground in-seam and surface to in-seam drilling, as wellas a comprehensive mine exploration and gas managementservice.Beyond gas drilling. Lucas’ other activities complementour gas expertise so we can design and build gathering andprocessing systems to take the gas to the market.Gloucester Basin update. Our petroleum explorationlicence for the Gloucester Basin in NSW in joint venture withMolopo Australia NL has given us another test bed to developour SIS technology. We will now apply the technology todevelop the field into a commercial gas source.Exploration drilling to date in a small area of the basinhas found substantial gas, so the licence area has enormouspotential. And, being a short distance from Sydney, it will berelatively economical to bring it to market.Dungog0PEL285licence areaGloucesterStratford ProspectStratfordStroudBooral10 20 30KilometresPEL 285, our licencearea, covers an areaof approximately1,308 squarekilometres withinthe Gloucester Basin,approximately100km north ofNewcastle NSW.Test wells indicatearound 85 petajoulesof gas in placein the 25 squarekilometre StratfordProspect alone.After years of research anddeveloping our coal seamgas expertise, Australia’slargest surface to in-seammine gas drainage projectis underway.XStrata’s Oaky Creek coalmine, in Queensland’s BowenBasin, produces around10 million tonnes of highqualitycoking coal annually.Lucas has been providingunderground drilling servicesto the mine over the last twoyears. More recently, we’vebeen providing surface toin-seam (SIS) drilling. As thisreport was being finalised inOctober 2003, we executedcontracts with Oaky Creek Coalto provide a complete serviceinvolving the design, drilling,wellhead infrastructure andgas monitoring for the mine.This is a first contract of thissize and scope to be awardedin the Australian coal industry.Our Redhead workshopteam has spent several monthsrefurbishing our new DD120drilling rig and equippingit for SIS drilling. This newrig enables us to quicklyand accurately complete themultiple holes required toinstall gas drainage pipesacross the coal seam.Our expert drilling teamsare guided by our geologistsand specialists in assessingcoal seam gas to ensuredrilling is cost-effective, safeand efficient.16AJ LUCAS ANNUALREPORT 2003

Upper left: Lucas’new DD120 drillingrig on site atOaky Creek. Thecomplete systemcomprises therig itself, dieselpower units andan integrated mudsystem, part ofwhich is shownat the left.Drilling locationsare chosen toenable the rigto intersect coalseams ahead ofcurrent undergroundwork.The diagram atright shows theprocess.Upper right: aseach drilling iscompleted thedrainage pipe isput in place. Thiswill be connectedto a gatheringpipeline to collectthe gas ready foruse as a fuel.SURFACE TO IN-SEAM (SIS) DRILLING CROSS-SECTIONDRILLING RIG ON SURFACE• Allows drainageahead of workings• Larger rigs• More technology options• Fewer people undergroundMulti seam intersectionsSloted casing topreserve gas flowAJ LUCAS ANNUALREPORT 2003 17

OUR OTHER BOTTOM LINESSAFETYSafety is a preoccupation at Lucas. We work hard at identifyingrisks, training and equipping our people to avoid, preventand resolve them. No-one walks onto a Lucas site without aninduction and the right protection.As a result we haven’t had a single lost-time injury inthree years.In the statistics of occupational health and safety, ourLTIFR (lost-time injury frequency rate) of zero is exceptionalfor an industry with an average of 16.7.Apart from the ethical and legal necessity of this rigour,our safety record has commercial advantages. It helps attractand retain the best people. And, by keeping our insurancecosts low, it makes us more competitive.ENVIRONMENTWe strive to ensure our activities enhance rather thandegrade the environment. All environmental risks from ourwork are identified and prevention and correction strategiesdeveloped and implemented.Our HDD expertise is frequently employed to avoid damageto fragile, vulnerable or precious environments.Our coal seam gas management is helping reduce theamount of unburnt methane vented to the atmosphere.In pipelines, the final stage of our work is restoration,replacing the soil, restoring the contours and replanting withappropriate vegetation so you can’t tell we’ve been there.Our work is monitored by statutory authorities, local governmentand non-government organisations. Over the yearsa small number of minor incidents have been correctedquickly and completely by our established procedures. WeAttracting and retaining thebest people in the industryenables us to innovate anddeliver. They are our realcompetitive advantage.have never had an environmental incident with any longtermconsequences.We continue to develop our environmental processestowards ISO 14001 accreditation.ISO 9001:2000 QUALITY CERTIFICATIONWe’ve maintained our quality certification under thedemanding ISO 9001:2000 standard with Bureau VeritasQuality International.CORPORATE GOVERNANCE – new ASX principlesThe ASX Corporate Governance Council published itsPrinciples of Good Corporate Governance and Best PracticeRecommendations in March 2003. From next financial year,all listed companies must report to shareholders on theirperformance against these principles.Briefly, ASX have defined ten principles of good corporategovernance, with recommendations on putting them intopractice. Alternative approaches are allowed as long as theyare disclosed to shareholders and the market.Ethical business practice and good corporate governanceare central to Lucas’ business success and we strongly supportASX in developing these principles.We have reviewed the company’s corporate governanceagainst the principles and confirmed that Lucas’ corporategovernance already complies with all ten ASX principles. Weare working on implementing some of the specific recommendationsand in some areas have taken an alternativeapproach where we believe it is a better way for Lucas tocomply with the principles.One recommendation we don’t think appropriate toLucas at its current stage of development is that the roles ofchairman and CEO should be separate.Allan Campbell currently fills both these roles at Lucas.We believe this is appropriate at this time and maximisesthe value of the board for our company. This is affirmed byLucas’ performance.A new Corporate Governance area on our Web site(www.lucas.com.au) will provide full details of our corporategovernance and its compliance with the ASX principles.18AJ LUCAS ANNUALREPORT 2003

OTHER BOTTOM LINESMATTY KAHUROARig ForemanMatty Kahuroa joined Lucas in1995 and has been a key memberever since. As rig foreman,he’s worked on many of ourinnovative HDD projects aroundAustralia and overseas.Matty’s typical of our coreemployees. They have beenwith us for many years and havea deep understanding of thecompany and its business. Manyown shares in the company.All are dedicated, hardworking,multi-skilled and focused ondelivering their best.

CONCISE FINANCIAL REPORT30 JUNE 2003

CONCISE FINANCIAL REPORTA J Lucas Group Limitedand its controlled entitiesConcise financial reportfor the year ended 30 June 2003Throughout this report, “the Company” means AJ LucasGroup Limited; “Lucas”, “the Group” and “the Lucas Group”means the Company and its controlled entities. “The year”means the financial year ended 30 June 2003. All pagenumbers refer to this document – the AJ Lucas GroupLimited Concise Financial Report 2003.The financial statements and specific disclosuresrequired by AASB 1039 have been derived from theGroup’s full financial report for the financial year. Otherinformation included in the concise financial report isconsistent with the Group’s full financial report.It cannotprovide as complete an understanding of the Group’sfinancial performance and position and its financing andinvestment activities as the full financial report, which isavailable on our Web site at www.lucas.com.au. Printedcopies are available at no cost on request from our office.Corporate governance statementThis outlines the Group’s main corporate governancepractices for the year.Board of directors and its committeesThe board is ultimately responsible for the managementand control of the Lucas Group. Specifically, the board isthere to guide and oversee management, provide strategicdirection, set and monitor goals and advance the Group’sbusiness.The board is deliberately small and comprises peoplewho understand the Group’s business and industries indepth. Each contributes a specific set of skills and businessexperience. All have excellent judgement, plenty of commonsense and add real value. Every board member is activelyinvolved in the Group and works closely with management.As the Group is growing rapidly it needs a flexibleand pro-active board with a range of specialist skills andexperience. At this stage we believe the Chairman should beexecutive and that senior executives maintain close contactwith the board; both formally through board meetings andinformally during the course of normal business.The board’s size and composition is reviewed from timeto time to maintain the right mix of expertise and judgement.Directors’ dealings in Company sharesDirectors may own shares in the Company, but must notifythe Company Secretary before they buy or sell them.Independent professional advice for directorsEach director may seek independent professional advice atLucas Group expense, with the Chairman’s approval (whichwill be granted).Board committeesThe board is supported by two sub-committees:• the Audit committee, and• the Tender Review committee.Audit committeeThe Audit committee must comprise non-executivedirectors. The CEO, CFO and external auditors attend byinvitation. The committee reviews and advises on theGroup’s internal control framework and develops andoversees accounting policies which most accurately reflectthe Group’s business to management and shareholders.It also ensures the Group meets all its legal, ethical andcontractual obligations, working with outside auditors,regulators and other bodies where necessary.The committee’s members are Martin Green (chairman),Garry O’Meally and Ian Stuart-Robertson.Tender Review committeeThe Tender Review committee is an essential element ofthe Group’s risk management procedure. It reviews allproposed Group tenders and operational contracts andassesses their potential risks. These include business,technical and environmental risks as well as financial risksincluding capital expenditure, foreign exchange, insuranceand the like.The Tender Review committee enables the Board toclosely monitor all the projects the Group has underway.Its members are Ian Stuart-Robertson (chairman), AllanCampbell, Andrew Lukas and Hamish Pryor.Quality Standard AS/NZS ISO 9001:2000The Group strives to ensure all its services are of the higheststandard. To help achieve this, Lucas has established qualitymanagement systems based on the AS/NZS ISO 9001:2000 Quality Standard. These have been certified by BVQI, anindependent, international quality certification organisation.AJ LUCAS ANNUALREPORT 2003 21

DIRECTORS The directors of the Company throughout the financial year and since are:Allan Campbell BCom LLBAge 48Chairman and CEO, member oftender review committeeAndrew Lukas BEAge 56Executive director, member ofrender review committeeIan Stuart-Robertson AAIQSAge 54Non-executive director, chairmanof tender review committee andmember of audit committeeGarry O’Meally BSc BEAge 67Non-executive director,member of audit committeeMartin Green FCAAge 58Non-executive director,chairman of audit committeeMr Campbell acquired a controllinginterest in the Company in 1995,following a successful career ininvestment banking and commerce,including property, construction andbuilding materials. Since acquiring hisshareholding, he has been responsiblefor the Group’s strategic directionand has established its position asthe leading outsource provider ofinfrastructure services in Australia.Meetings attendedBoard 17Tender review committee 11Mr Lukas commenced employmentwith the Company in 1975, initially asa project manager, becoming generalmanager in 1977 and was appointeda director in 1985. A graduate inCivil Engineering from UNSW withpostgraduate studies at the PipelineSchool of the University of Texas, hepreviously gained valuable experiencewith Williams Brothers Company inthe US and MacDonald Wagner &Priddle and Transfield in Australia.He pioneered the development ofdirectional drilling in Australia and isan authority on this technology andpipeline installation.He is an executive committeemember and past president of theAustralian Pipeline IndustryAssociation (APIA), representingpipeline owners, operators andcontractors.Meetings attendedBoard 15Tender review committee 11Mr Stuart-Robertson is a qualifiedquantity surveyor with over 30 years’experience in civil and buildingconstruction. He brings considerableexpertise in project cost reportingsystems and general constructionplanning and makes a vitalcontribution to the Group in his roleas tender review committee chairman.He is a non-executive directorof quantity surveyors John Hollis &Partners and a director of constructioncompany, Stuart Pty Ltd.Meetings attendedBoard 16Audit committee 4Tender review committee 11Mr O’Meally has worked in the oiland gas industries for over 40 years,mainly with Australian Gas LightCompany where he served as GeneralManager of AGL Gas Companies andlater of AGL Petroleum. After the saleof AGL’s upstream assets, he becameGeneral Manager, Queensland andNorthern Territory, for Santos Limited.Since leaving AGL, he has consulted tonumerous energy companies.He has been a non-executivedirector since 1999 and has servedas President of the AustralianGas Association, as Councillorand Queensland Chairman of theAustralian Petroleum Productionand Exploration Association and asExecutive Manager of APIA.Meetings attendedBoard 17Audit committee 4Mr Green is a Fellow of the Instituteof Chartered Accountants and hasbeen in practice for 30 years, in themain specialising in business recoveryand insolvency. He has substantialbusiness and finance experience atsenior levels and was appointed anon-executive director in 1999.He is currently a Principal ofGreen Krejci, a former honorarydirector/treasurer of the National Trustof Australia (NSW) and has served atvarious times in many public rolesand capacities.Meetings attendedBoard 17Audit committee 4Total meetings of directorsheld during the yearBoard 17Audit committee 4Tender review committee 1122AJ LUCAS ANNUALREPORT 2003

DIRECTORS’ REPORTDirectors’ reportFor the year ended 30 June 2003The directors present their report together withthe concise financial report of the Company andthe AJ Lucas Group consolidated entity, being theCompany and its controlled entities, for theyear ended 30 June 2003 and the auditors’report on them.Principal activitiesThe Group’s principal activity over the yearwas the provision of infrastructure engineeringservices to the major utility sectors, principallythe gas transmission and water and wastewaterindustries. The major services are pipelineconstruction and horizontal directional drilling.The Group also provides consulting and drillingservices for the drainage and commercialexploitation of methane gas from coal seams.There were no significant changes in thenature of the activities of the consolidated entityduring the year.Review and results of operationsThe Group recorded a consolidated profit aftertax of $7,743,000, an $8,520,000 turnaroundfrom the net loss of $777,000 reported in2002. Group operating revenue increased by126% to $151,162,000 from $66,782,000 inthe previous year.Much of the improvement was due topipeline activities where profit before taxincreased by $9,411,000 to $12,791,000 onincreased turnover of $123,269,000. Marginswere unchanged at 10.4%.Directional drilling also showed a strongimprovement with profit before tax increasing by102% to $2,099,000 from $1,040,000 in theprevious year. Margins strengthened to 11.0%from 4.1% in 2002.The coal seam gas activities also showedimprovement with operating revenue increasingby 129% to $8,782,000 from $3,843,000.Losses as a percentage of operating revenuedecreased from 14.8% to 5.8% after expensingconsiderable research and developmentexpenditure.The results included an additional netprovision for doubtful debts of $1,646,000(2002: $590,000).A detailed review of the Group’s operations isset out on pages 4 to 17 of this report.State of affairsSignificant changes in the state of affairs of the consolidated entity duringthe financial year were as follows:2003Fully paid ordinary shares increased during the year as follows: $’000• Private placement of 4,354,090 shares for cash at $1.10 per share to provideadditional working capital of $4,789,000 less transaction costs of $146,000 4,643• Issue of 4,090,900 shares for cash at $1.05 per share under a one for 10 rights issueto provide additional working capital of $4,295,000 less transaction costs of $131,000 4,164• Issue of 200,000 shares under the Deferred Share Plan for no consideration.Fair value per share has not been recognised in the financial statements —• Issue of 50,000 shares resulting from the exercise of options under theExecutive Share Option Plan at $1.00 per share 50• Issue of 285,000 shares in lieu of fees and costs 129Increase in fully paid capital 8,986The Group purchased three drilling rigs and associated mud cleaning and ancillaryequipment for $1,500,000 during the year thereby doubling its capacity and positioningit for further growth. The price paid was a substantial discount to market value as it wasacquired from a major international competitor’s liquidation.AJ LUCAS ANNUALREPORT 2003 23

DIRECTORS’ REPORT CONTINUEDDividendsCents Totalper amount Franked/ Date ofshare $’000 Unfranked PaymentAs proposed and provided for in last year’s report:Final – ordinary 4.0 1,457 unfranked 16/12/02In respect of the current financial year:Paid or declared during the yearInterim – ordinary 3.5 1,587 unfranked 24/6/03Paid or declared after end of yearFinal – ordinary 4.5 2,043 unfranked 16/12/033,630Dealt with in the financial report as:Dividends 3,044Adjusted against opening retainedearnings on adoption of AASB 1044“Provisions, Contingent Liabilitiesand Contingent Assets” (1,457)1,587Noted as a subsequent event 2,0433,630Environmental regulations and native titleAs infrastructure engineers, meeting stringent environmentaland land use regulations, including native title issues, isan important element of our work. One of the key benefitsof directional drilling is its ability to avoid or substantiallymitigate environmental impact.Lucas is committed to identifying environmental risksand engineering solutions to avoid, minimise or mitigatethem. We work closely with all levels of government,landholders, Aboriginal land councils and other bodies toensure our activities have minimal or no effect on landuse and areas of environmental, archæological or culturalimportance.Group policy requires all operations to be conducted ina manner that will preserve and protect the environment.The directors are not aware of any significantenvironmental incidents, or breaches of environmentalregulations during or since the end of the year.Events subsequent to balance dateSince 30 June 2003, the following events have occurred:• The Group’s finance facilities have been restructuredresulting in a net increase in bank overdraft facilitiesfrom $2,500,000 to $4,000,000. In addition, as partof the restructuring, the Group now has an undrawnasset finance facility of $1,000,000 and an indemnityguarantee facility of $750,000 of which $350,000 isundrawn.• A dividend was declared of 4.5 cents per share.Other than the matters discussed above, there has notarisen in the interval between the end of the financialyear and the date of this report any item, transaction orevent of a material or unusual nature likely, in the opinionof the directors of the Company, to significantly affect theoperations of the consolidated entity, the results of thoseoperations, or the state of affairs of the consolidated entity,in future financial years.Future developmentsLucas will continue to pursue its policy of increasing theprofitability and market share of its business activities. TheGroup purchased substantial drilling equipment towardsthe end of the financial year to increase its capacity inanticipation of further strong growth across all areas of itsoperations.Additionally, the Company intends to expand itsinfrastructure capabilities to enhance the quality of itsearnings. These include specialist civil engineering worksand facilities management. This will be achieved by acombination of organic growth and acquisition.Directors’ and senior executives’ emolumentsThe board determines remuneration packages for theGroup’s directors and senior executives. The policy isto ensure packages reflect each individual’s duties andresponsibilities and that they are of a level to attract, retainand motivate the highest quality people.Executive directors and senior executives may receivebonuses based on the Group’s performance (includingoperational results and cash flow). Options and other rightsmay also be issued under the consolidated entity’s equityparticipation plans. Non-executive directors do not receiveany performance-related remuneration.Details of the nature and amount of the remunerationof each director of the Company and each of the five highestremunerated executives of the Company and consolidatedentity are:24AJ LUCAS ANNUALREPORT 2003

DeferredBase Vehicle shares Rights Otheremolument allowance Super issued 1 Issued 2 Options 3 benefits Total$ $ $ $ $ $ $ $DirectorsA Campbell 359,760 — 18,600 — 50,104 — — 428,461A Lukas 200,000 40,000 18,000 — 50,104 — — 308,104I Stuart-Robertson 30,000 — — 61,605 — — — 91,605G O’Meally 30,000 — — 41,070 — — — 71,070M Green 30,000 — — 61,605 — — — 91,605Executive officers of the Group (excluding directors)H Pryor 337,922 — — — — — — 337,922K Lester 222,383 — 12,870 — — 11,175 83,505 329,933T Herlihy 200,000 15,000 20,000 — — — 2,237 237,237P Shields 176,667 6,250 13,087 — — — — 196,004S Loneragan 158,375 7,500 14,254 — — 3,725 — 183,8541 The deferred shares were issued to the non-executivedirectors in recognition of their contribution to theCompany over the three years since it listed in August1999. Shareholders approved the issue at the annualgeneral meeting held on 28 November 2002. The shareswere issued for nil consideration. The fair value of theshares issued was $164,280 being the market price ofthe Company’s shares on the Australian Stock Exchangeon their date of allotment less a 26% deduction for therestrictions on their disposal. The deduction representsthe discount in the present value of the shares at a 3.0%discount rate for 10 years. The fair value has not beenrecognised as an expense in the financial statements.2 The rights to acquire shares in the Company wereapproved by shareholders at the annual general meetingheld on 28 November 2002. The rights expire on 23December 2007 and vest in three tranches, one third twoyears after their grant, a further third after three years andthe balance after four years and may only be exercised ifthe Group achieves the performance hurdle.To achieve the performance hurdle, the Group’s earningsper share (“EPS”) for the last three financial years (twofinancial years in respect of the first tranche) ended priorto the grant of any rights must equal or exceed the rateof 10% per annum growth over a deemed EPS base of12.7 cents. If the performance hurdle is not achievedin respect of a tranche, the Board may re-evaluate theperformance at the end of a subsequent year and allowthe rights to be exercised if the hurdle is subsequentlysatisfied.The fair value of the rights is calculated at the dateof grant using a Black-Scholes model and allocated toeach reporting period evenly over the period from grantdate to vesting date. Assuming the performance hurdleis satisfied and the rights are exercised, the shares willbe issued for nil consideration. Accordingly, the value ofthe rights is the market value of the shares at the date ofgrant. The value disclosed above is the portion of the fairvalue of the rights allocated to this reporting period. Thefair value has not been recognised as an expense in thefinancial statements.3 The options were granted on 31 July 1999 and expire on31 July 2004. The fair value of the options is calculatedat the date of grant using a Black-Scholes model andis allocated to each reporting period evenly over theperiod from grant date to date of expiry. The valuedisclosed above is the portion of the fair value of theoptions allocated to this reporting period. The fair valuehas not been recognised as an expense in the financialstatements.The following factors and assumptions were used indetermining the fair value of the options on grant date:Grant date 31 July 1999Expiry date 31 July 2004Exercise price $1.00Price of shares on grant date n/aEstimated volatility 33.0%Risk-free interest rate 5.0%Dividend yield 5.7%Estimated volatility approximates the historic volatilityin the Company’s share price over the three monthsended August 2003. The estimated life of the optionsgranted is five years. Each option entitles the holder topurchase one ordinary share in the Company.All options expire on the earlier of their expiry date ortermination of the employee’s employment. Options donot vest until three years after grant date and thereafterexercise is conditional on the Company’s share priceexceeding $1.30 on the date of exercise. In determiningfair value, it has been assumed that the service periodrequirement and performance hurdle have a 100%probability of being met.No options have been granted since the end of thefinancial year.Directors’ shareholdings and other interestsThe relevant interest of each director and their directorrelated entities in the share capital of the Company, asnotified by the directors to the Australian Stock Exchange inaccordance with s.205G(1) of the Corporations Act 2001,at the date of this report are as follows:Rights issued underOrdinary ManagementShares Rights PlanAllan Campbell 10,152,658 250,000Andrew Lukas 6,121,500 250,000Ian Stuart-Robertson 1,386,200 —Martin Green 75,000 —Garry O’Meally 109,180 —AJ LUCAS ANNUALREPORT 2003 25

Management rightsDuring the financial year, the Company granted rights overunissued shares to the following directors:Number ofDirectors rights granted Expiry dateAllan Campbell 250,000 23 December 2007Andy Lukas 250,000 23 December 2007No rights were granted since the end of the financial year.Unissued shares under option or rightsAt the date of this report unissued shares of the Companyunder option or rights are:Expiry date Exercise price Number of shares31 July 2004 $1.00 50,00023 December 2007 $0.00 500,000All options and rights expire on the earlier of their expirydate or termination of the employee’s employment orcessation of the officer’s service. In addition, the ability toexercise the options and rights is conditional on the Groupachieving certain performance hurdles as described earlierin this report.Neither the options nor the rights entitle the holders toparticipate in any share issue of the Company.Shares issued on exercise of optionsDuring or since the end of the financial year, the Companyissued ordinary shares as result of the exercise of optionsas follows:Number of shares Amount paid on each share150,000 $1.00There were no amounts unpaid on the shares issued.Indemnification and insuranceof officers and auditorsIndemnificationThe Company has agreed to indemnify all directors andofficers of the Company against all liabilities includingexpenses to another person or entity (other than theCompany or a related body corporate) that may arise fromtheir position as directors or officers of the Company and itscontrolled entities, except where the liability arises out ofconduct involving a lack of good faith.No indemnity has been provided to the auditor of theCompany.Insurance premiumsSince the end of the previous financial year, the Companyhas paid premiums in respect of Directors’ and Officers’liability and legal expenses insurance contracts for the yearended 30 June 2003 and, since the end of the financialyear, the Company has paid or agreed to pay premiumsin respect of Directors’ and Officers’ insurance for the yearending 30 June 2004.The directors have not included details of the nature ofthe liabilities covered or the premiums paid in respect ofsuch insurance contracts, as disclosure of this is prohibitedunder the terms of the contracts.Rounding offThe Company is of a kind referred to in ASIC 98/100 dated10 July 1998 and, in accordance with that Class Order,amounts in the directors’ report and the financial reportare rounded off to the nearest thousand dollars, unlessotherwise stated.Dated at Sydney, this 30th day of September 2003Signed in accordance with a resolution of the directorspursuant to s.298 (2) of the Corporations Act 2001.Allan Stuart CampbellChairmanIan Stuart-RobertsonDirector26AJ LUCAS ANNUALREPORT 2003

STATEMENT OF FINANCIAL PERFORMANCEStatement of financial performancefor the year ended 30 June 2003Consolidated2003 2002$’000 $’000Revenue from rendering services 151,162 66,782Other revenue from ordinary activities 3,724 1,610Total revenue 154,886 68,392Project and construction management costs (113,667) (44,258)Employee expenses (16,080) (12,257)Depreciation and amortisation expenses (5,183) (3,325)Borrowing costs (581) (550)Debt recovery and legal costs (998) (1,068)Net foreign exchange loss (117) (921)Other expenses incurred in ordinary activities (7,501) (6,689)Profit/(loss) from ordinary activities before related income tax 10,759 (676)Income tax expense relating to ordinary activities (3,016) (101)Net profit/(loss) attributable to members of the parent entity 7,743 (777)Non-owner transaction changes in equityIncrease in asset revaluation reserve:Fair value adjustment 1,058 –Total changes in equity from non-owner related transactionsattributable to the members of the parent entity 8,801 (777)Basic earnings/(loss) per share (cents) 18.9 (2.1)Diluted earnings/(loss) per share (cents) 18.6 (2.1)The statement of financial performance must be read in conjunctionwith the notes to the financial statements set out on pages 30 to 35.Discussion and analysisof the statement of financial performanceThe Group’s operating revenue increased by 126% to$151,162,000 from $66,782,000.The 2003 result was also affected by a net increase inthe provision for doubtful debts of $1,646,000.Details of revenue and results by segment are set out inNote 4. All business segments improved their performancecompared to 2002 as follows:PipelinesThe pipeline division recorded a strong result with operatingrevenue increasing by 279% to $123,269,000. Thesegment earnings also improved by 278% to $12,791,000at an unchanged margin of 10.4%. The improvement wasattributable to the Group’s work on the SEA Gas project,the largest pipeline contract undertaken in Australia over2002-2004. The margin achieved was consistent with theCompany’s target in the pipeline construction segment.Horizontal directional drilling (HDD)HDD revenue declined by 24% to $19,093,000 from$25,097,000. The decrease reflected the timing of theGroup’s activities in this area with the completion of a majorcontract deferred until after the year end. Major projectsat Illawarra and Chatswood were completed. In addition,substantial drilling work was done on the SEA Gas project.Margins recorded a strong recovery to 11.0% from 4.1%in 2002. The 2003 margin is closer to the target rate ofreturn on HDD work.Coal seam gasOperating revenue for coal seam gas increased by 129%to $8,782,000. The segment result improved with lossesdeclining by $61,000 to $509,000 from $570,000 in theprevious year after amortising $258,000 (2002: nil) ofresearch and development expenditure.Return on revenue, assets and equity.Return on revenue (net profit attributable to the membersof the Company on total revenue) improved to 5.0%compared to a deficit in the previous year.Return on total assets increased to 9.0% from –1.1%in the previous year. Return on equity increased to 25.2%from –5.4% in the previous year.AJ LUCAS ANNUALREPORT 2003 27

STATEMENT OF FINANCIAL POSITIONStatement of financial positionas at 30 June 2003Consolidated2003 2002$’000 $’000CURRENT ASSETSCash assets 31,625 7,442Receivables 26,791 17,649Inventories 4,356 23,844Other 329 339Total current assets 63,101 49,274NON-CURRENT ASSETSPlant and equipment 17,053 13,775Intangibles – 276Deferred tax assets 2,065 1,730Other 3,391 2,926Total non-current assets 22,509 18,707Total assets 85,610 67,981CURRENT LIABILITIESPayables 41,573 40,407Interest-bearing liabilities 3,509 2,986Current tax liabilities 1,444 4,078Provisions 620 2,081Total current liabilities 47,146 49,552NON-CURRENT LIABILITIESInterest-bearing liabilities 2,049 3,597Deferred tax liabilities 5,443 322Provisions 289 27Total non-current liabilities 7,781 3,946Total liabilities 54,927 53,498Net assets 30,683 14,483EQUITYContributed equity 18,178 9,192Reserves 1,058 –Retained profits 11,447 5,291Total equity 30,683 14,483The statement of financial position must be read in conjunction withthe notes to the financial statements set out on pages 30 to 35.Discussion and analysisof the statement of financial positionThe Group’s net assets increased by $16,200,000 (119%)over the year. Of this, share capital increased by a net$8,986,000 during the financial year due to:• A private placement of 4,354,090 shares for cashraising a net $4,643,000.• The issue of 4,090,900 shares for cash under a one forten rights issue raising a net $4,164,000.• The issue of 50,000 shares for $50,000 upon theexercise of executive options.• The issue of 285,000 shares in payment of fees andother costs.Total assets increased by $17,629,000 (26%) to$85,610,000.The increase in total assets principally comprises:• An increase in cash assets of $24,183,000 to$31,625,000 largely due to additional cash inthe Group’s interests in joint venture operations of$21,756,000.• An increase in receivables of $9,142,000 mainlyreflecting additional receivables due ($8,611,000) fromthe Group’s interest in the SEA Gas joint venture.• A decrease in inventories of $19,488,000 due toprogress billings in advance of contract work being done.• An increase in plant and equipment of $3,278,000. Theincrease was due to purchases of $8,099,000 to provideadditional capacity for the Group and includes plant andequipment with a fair value of $2,702,000 received insettlement of a receivable. Additionally, items of plantand equipment were revalued, resulting in a revaluationreserve of $1,058,000. Depreciation and amortisationof plant and equipment amounted to $4,077,000.The decrease in current tax liabilities is due to areassessment of the timing of foreign profits being taxablein Australia. This is reflected in the increase in non-currentdeferred tax liabilities. Timing differences account for theremainder of the increase in deferred tax liabilities.28AJ LUCAS ANNUALREPORT 2003

STATEMENT OF CASH FLOWSStatement of cash flowsfor the year ended 30 June 2003Consolidated2003 2002$’000 $’000CASH FLOWS FROM OPERATING ACTIVITIESCash receipts in the course of operations 141,649 79,318Cash payments in the course of operations (117,853) (54,614)Interest received 956 104Income taxes received 69 —Income taxes paid (159) (1,408)Borrowing costs paid (581) (550)Net cash provided by operating activities 24,081 22,850CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of plant and equipment 380 1,398Payments for plant and equipment (4,703) (2,026)Payments for purchase of investments — (2,552)Loans to other entities — (3,297)Payments for purchase of business — (1,405)Net cash used in investing activities (4,323) (7,882)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of shares 9,134 —Transaction costs from issue of shares (277) —Repayment of borrowings – other (31) (2,054)Proceeds of borrowing from related entities 1,500 —Repayment of borrowings from related entity (565) —Proceeds of borrowings – other — 2,105Dividends paid (3,044) (3,999)Finance lease payments (1,999) (1,069)Net cash provided by/(used in) financing activities 4,718 (5,017)Net increase in cash held 24,476 9,951Cash at beginning of the year 6,971 (2,980)Cash at end of the year 31,447 6,971The statement of cash flows must be read in conjunction withthe notes to the financial statements set out on pages 30 to 35.Discussion and analysisof the statement of cash flowsOperating cash flowsCash flows generated from operating activities amounted to$24,081,000 reflecting the progress billings in advance ofcontract work being done together with the profits earnedduring the year.Investing cash flowsPayments for plant and equipment increased by$2,677,000 to $4,703,000 over the prior year to increasethe Group’s capacity and position it for further growth. Thisexpenditure was financed by a $1,500,000 loan from arelated party, part of the proceeds from the issue of sharesmade by the Company and working capital.Financing cash flowsThe proceeds of shares issued during the year were appliedto capital expenditure and working capital.AJ LUCAS ANNUALREPORT 2003 29

NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 20031. BASIS OF PREPARATION OF CONCISE FINANCIAL REPORTThe concise financial report has been prepared inaccordance with the Corporations Act 2001, AccountingStandard AASB 1039 Concise Financial Reports andapplicable Urgent Issues Group Consensus Views. Thefinancial statements and specific disclosures requiredby AASB 1039 have been derived from the Group’s fullfinancial report for the financial year. Other informationincluded in the concise financial report is consistentwith the Group’s full financial report.It cannot provideas complete an understanding of the Group’s financialperformance and position and its financing and investmentactivities as the full financial report, which is availableon our Web site at www.lucas.com.au. Printed copies areavailable at no cost on request from our office.It has been prepared on the basis of historical costs and,except where stated, does not take into account changingmoney values or fair values of non-current assets.These accounting policies have been consistentlyapplied by each entity in the Group and are consistent withlast year’s, except where there is a change in accountingpolicy as set out in Note 2.There is a full description of the Group’s accountingpolicies in its full financial report.2. CHANGES IN ACCOUNTING POLICIESa) Employee benefitsThe consolidated entity has applied the revised AASB 1028“Employee Benefits” for the first time from 1 July 2002.The liability for wages and salaries, annual leave andsick leave is now calculated using the remuneration ratesthe Company expects to pay as at each reporting date, notwage and salary rates current at reporting date.There were no adjustments to the consolidated financialreport as at 1 July 2002 as a result of this change as theamount was not material.b) Provisions and contingent liabilitiesThe consolidated entity has applied AASB 1044“Provisions, Contingent Liabilities and Contingent Assets”for the first time from 1 July 2002.Dividends are now recognised at the time they aredeclared, determined or publicly recommended. Previously,final dividends were recognised in the financial yearto which they related, even though the dividends wereannounced after the end of the financial year.The adjustments to the consolidated and Companyfinancial reports as at 1 July 2002 as a result of thischange are:• $1,457,000 increase in opening retained profits• $1,457,000 decrease in provision for dividends.There was no impact on net profit for the currentfinancial year to 30 June 2003.c) Revaluation of non-current assetsThe consolidated entity has elected under AASB 1041“Revaluation of non-current Assets” to change the cost basisto the fair value basis to measure the owned and leasedplant and equipment classes of its non-current assets from1 July 2002. The change in methodology for accounting forplant and equipment was adopted because the cost basiswas no longer considered reflective of the underlying valueof the assets to Lucas.The current years valuation was prepared by anindependent valuer except for the the Group’s proportionof the plant and equipment used on the Spie Capag Lucasjoint venture which were valued by the directors. Therewas no impact on net profit for the current financial year to30 June 2003.d) Pro forma restatement of retained profits andprovision for dividendsThe pro forma restatement of retained profits and provisionfor dividends below show the information that would havebeen disclosed had the new accounting policies disclosedin this note always been applied.Consolidated2003 2002$’000 $’000(restated) (restated)Restatement of retained profitsReported retained profit at the end of the previous year 5,291 8,797Increase in retained profit due to changes in accounting policies on adoption of:AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” 1,457 2,726Restated retained profits at the beginning of the year 6,748 11,523Net profits/(loss) attributable to members of the parent entity 7,743 (777)Dividends recognised during the year (3,044) (3,998)Restated retained profits at end of year 11,447 6,748Restatement of provision for dividendsBalance at end of year – as previously reported — 1,457Effect of change in accounting policy — (1,457)Restated balance at end of year — —30AJ LUCAS ANNUALREPORT 2003

NOTES CONTINUED3. PROFIT/(LOSS) FROM ORDINARY ACTIVITIESBEFORE INCOME TAX EXPENSEConsolidated2003 2002$’000 $’000(a) Individually significant items included in profit/(loss) fromordinary activities before income tax expense:Movement in provision for doubtful debts 1,646 590Loss from discontinued operations 19 2,781(b) Profit/(loss) from ordinary activities before income tax expensehas been arrived at after charging/(crediting) the following items:Depreciation of:• Plant and equipment 2,586 1,972• Motor vehicles 40 54• Other fixed assets 200 1462,826 2,172Amortisation of:• Goodwill 266 430• Leased plant and equipment 1,112 670• Leased office equipment 62 8• Leased motor vehicles 77 79• Research and development expenditure 258 —• Bonding costs 582 —Less: capitalised amortisation — (34)2,357 1,153Total depreciation and amortisation 5,183 3,325Net bad and doubtful debts expense including• Movement in provision for doubtful debts 1,646 590• Movement in provision for obsolete stock (250) 250• Operating lease rental expense – minimum lease payments 209 324• Movement in provisions for employee entitlements 258 (198)• Unrealised net foreign exchange (gain)/loss (86) 921• Realised foreign exchange loss 203 –Net (gain)/loss on sales of non—current assets:• Plant and equipment (599) 59• Investments – (136)(599) (77)Borrowing costs: other parties• Bank loans and overdraft 169 238• Finance charges on capitalised leases 412 312581 550(c) Revision of accounting estimateFuture income tax benefit relating to tax lossesAs a consequence of the substantive enactment of theTax Consolidation legislation and since the consolidatedtax group within the consolidated entity had not notifiedthe Australian Taxation Office at the date of signing thisreport of the implementation date for tax consolidation, theconsolidated entity has applied UIG 39 “Effect of ProposedTax Consolidation Legislation on Deferred Tax Balances”.There was no impact on the Company or the consolidatedentity’s future income tax benefit as a result of this.AJ LUCAS ANNUALREPORT 2003 31

NOTES CONTINUED4. SEGMENT REPORTINGSegment results, assets and liabilities include items directlyattributable to a segment as well as those that can beallocated on a reasonable basis. Unallocated items mainlycomprise interest-earning assets and revenue, interestbearingloans, borrowings and expenses, and corporateassets and expenses.Segment capital expenditure is the total cost incurredduring the period to acquire segment assets that areexpected to be used for more than one period.Business segmentsLucas is organised into four major operating divisions– pipelines, directional drilling, coal seam gas and networkservices. These divisions are the basis on which the Groupreports its primary segment information. The principalservices of each of these divisions are as follows:Horizontal directional drilling (HDD) Trenchless installationof pipes, conduits or cables under obstacles using a surfacedrilling rig.Pipelines Construction and installation of pipelinesincluding hydrostatic testing.Coal seam gas Application of directional drilling servicesto degasification of underground coal mines and recoveryand commercialisation of coal seam gas.Networks IT&T solutions including network design andsystems integration. The closure of this business wasannounced on 18 June 2002 with all activities ceased by30 June 2002.Primary reporting – business segmentsHDD Pipelines Coal seam gas Networks Other Consolidated2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000RevenueOperating revenue 19,093 25,097 123,269 32,565 8,782 3,843 – 5,277 18 – 151,162 66,782Other revenue 2,207 1,433 982 80 381 28 128 – 26 69 3,724 1,610Total segment revenue 21,300 26,530 124,251 32,645 9,163 3,871 128 5,277 44 69 154,886 68,392ResultSegment profit/(loss) 2,099 1,040 12,791 3,380 (509) (570) (19) (2,781) (3,603) (1,745) 10,759 (676)Profit/(loss) from ordinaryactivities before income tax 10,759 (676)Income tax expense (3,016) (101)Net profit/(loss) after income tax 7,743 (777)Segment assets 25,094 19,792 51,056 40,277 8,382 6,345 79 952 999 615 85,610 67,981Segment liabilities 19,794 15,171 29,045 31,469 3,969 4,065 393 538 1,726 2,255 54,927 53,498Secondary reporting – geographical segmentsIn presenting information on the basis of geographicalsegments, segment revenue is based on the geographicallocation of customers. Segment assets are based on thegeographical location of the assets.Australia Asia/Pacific Consolidated2003 2002 2003 2002 2003 2002$’000 $’000 $’000 $’000 $’000 $’000Operating revenue 151,162 55,823 – 10,959 151,162 66,782Other revenue 3,528 1,609 196 1 3,724 1,610Total revenue 154,690 57,432 196 10,960 154,886 68,392Assets 82,027 64,025 3,583 3,956 85,610 67,981Acquisitions of plant and equipment 8,095 4,229 – – 8,095 4,22932AJ LUCAS ANNUALREPORT 2003

NOTES CONTINUED5. DISCONTINUED OPERATIONSOn 18 June 2002, the Board announced its decision todiscontinue the Group’s network services activities. Theprofitability of this segment, subsequent to the acquisitionof the business of Smart Communications in November2001, was unsatisfactory and diverting resources fromthe Group’s other activities. As at 30 June 2002, thenetwork services activity had ceased with one residualcontract novated to another company within the Group.Full provision was made for all costs and liabilities relatingto the cessation of this business activity.Details of the financial performance, financial positionand cash flows of the network services activities during thefinancial year are as follows:Consolidated2003 2002Financial Performance $’000 $’000Revenue from ordinary activities 128 5,277Expenses from ordinary activities (147) (8,058)(Loss) from ordinary activities before income tax expense (19) (2,781)Income tax benefit relating to ordinary activities — 667Net (loss) (19) (2,114)Financial position information as at 30 JuneSegment assets 79 952Segment liabilities (393) (538)Net assets/(liabilities) (314) 414Cash flow information for the year ended 30 JuneNet cash flows from operating activities (19) (749)Net cash flows from investing activities — (1,439)Net cash flows from financing activities — 2,130Total net cash flows (19) (58)6. RETAINED PROFITS Retained profits at beginning of year 5,291 8,797Net profit/(loss) attributable to members of the parent entity 7,743 (777)Net effect on dividends from:Initial adoption of AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” 1,457 –Dividends recognised during the year (3,044) (2,729)Total dividends (1,587) (2,729)Balance at end of year 11,447 5,2917. TOTAL EQUITY RECONCILIATION Total equity at beginning of year 14,483 17,933Total changes in parent entity interest in equity recognised in statement of financial performance 8,801 (777)Transactions with owners as owners: Contributions of equity 8,986 56Dividends (1,587) (2,729)Total equity at end of year 30,683 14,483AJ LUCAS ANNUALREPORT 2003 33

NOTES CONTINUED8. DIVIDENDSCents per share Total amount $’000 Franked/Unfranked Date of Payment2003Interim - ordinary 3.5 1,587 unfranked 24 June 20032002 final dividend recognised whendeclared during the year. Refer Note 2“Changes in accounting policies”.Final – ordinary 4.0 1,457 unfranked 16 December 2002Total amount 3,0442002Interim – ordinary 3.5 1,272 unfranked 7 June 2002Final – ordinary 4.0 1,457 unfranked 16 December 2002Total amount 2,729Subsequent eventsSince the end of the financial year, the directors declared the following dividend:Final – ordinary 4.5 2,043 unfranked 16 December 2003The financial effect of this dividend has not been brought to account in the financial statements for the year ended30 June 2003 and will be recognised in subsequent financial reports.9. CONTINGENT LIABILITIES Details of contingent liabilities and contingent assetswhere the probability of future payments/receipts is notconsidered remote are set out below, as well as details ofcontingent liabilities and contingent assets which, althoughconsidered remote, the directors consider should bedisclosed.The directors don’t believe provisions are required inrespect of these matters, as it is not probable that a futuresacrifice of economic benefits will be required or theamount is not capable of reliable measurement.BondingThe consolidated entity has insurance bonding in placetotalling $18,608,000 (2002: $15,315,000) of which$12,800,000 (2002: $12,904,000) is on projects whichare yet to achieve practical completion.LitigationClaims have been made by DrillTec GUT GmbH for$4.5 million on the Company and $1.5 million under aguarantee given by a director, who has been indemnifiedby the Company. These claims are in respect of workperformed jointly on a contract now completed.A judgement has been awarded against the Companyin this amount. The Company and the directors disputethese claims and the judgement. The Company hasappealed against the judgement and separately has lodgeda counterclaim. The Company has recorded a liability of$3,100,000 in respect of the original disputed amount.There is therefore a contingent liability of $2,900,000.IndemnitiesIndemnities have been provided to directors, and certainexecutive officers of the Company in respect of liabilitiesto third parties arising from their positions, except wherethe liability arises out of conduct involving a lack of goodfaith. No monetary limit applies to these agreements. Themaximum exposure under this indemnity is $1.5 millionwhich relates to the litigation noted above.Consolidated2003 2002$’000 $’000Total estimated contingent liabilities 15,674 12,91734AJ LUCAS ANNUALREPORT 2003

NOTES CONTINUED10. INTERESTS IN JOINT VENTURE OPERATIONSParticipationinterestContributionto Groupoperating results2003 2002 2003 2002Joint Venture Name Principal Activities % % $’000 $’000Clough Lucas Pipe laying and related construction activities 50 50 (66) 348Clough Lucas Bundeena Pipe laying and related construction activities 20 20 (69) 34Lucas Downer Design and installation of communications infrastructure - - - 95Agility Clough Lucas Pipe laying and related construction activities 25 25 - 821Spie Capag Lucas Engineering, design, procurement & construction of pipeline 50 50 10,062 1,986Included in the assets and liabilities of the Group are the following items which represent the Group’s interest in the assets andliabilities employed in the joint ventures.ConsolidatedConsolidated2003 20022003 2002$’000 $’000$’000 $’000ASSETSCurrent assetsCash assets 28,732 6,976Receivables 10,203 1,592Inventories - 23,351Prepayments - 339Total current assets 38,935 32,258Non-current assetsPlant and equipment 430 1Total non-current assets 430 1Total assets 39,365 32,259LIABILITIESCurrent liabilitiesPayables 32,823 28,866Total current liabilities 32,823 28,866Total liabilities 32,823 28,866CommitmentsThe consolidated entity has commitments to all joint ventures of which it is a party to supply loan funds as and when needed.Failure to supply funds may result in exclusion from the joint ventures. It is not possible to estimate the fundingrequirements of the joint ventures.11. EVENTS SUBSEQUENT TO BALANCE DATE Since 30 June 2003, the following events have occurred:• the Group’s finance facilities have been restructured resulting in a net increase in bank overdraft facilities from$2,500,000 to $4,000,000. In addition, as part of the restructuring, the Group now has an undrawn asset financefacility of $1,000,000 and an indemnity guarantee facility of $750,000 of which $350,000 is undrawn.• A dividend was declared of 4.5 cents per share. Refer to Note 8 for further details.The directors are not aware of any other event that has arisen since the end of the year that may significantly affect theGroup’s operations, its results or its state of affairs in subsequent financial years.AJ LUCAS ANNUALREPORT 2003 35

DIRECTORS’ DECLARATIONS AND INDEPENDENT AUDIT REPORTDirectors’ declarationsFor the year ended 30 June 2003In the opinion of the directors of A J Lucas Group Limited the accompanyingconcise financial report of the consolidated entity, comprising A J Lucas GroupLimited and its controlled entities for the year ended 30 June 2003, set out onpages 27 to 35:a. has been derived from or is consistent with the full financial report for thefinancial year; andb. complies with Accounting Standard AASB 1039 Concise Financial Reports.Signed in accordance with a resolution of the directors:Allan Stuart CampbellDirectorIan Stuart-RobertsonDirector30 September 2003Independent audit report on theconcise financial report to themembers of AJ Lucas Group LimitedScopeWe have audited the concise financial report of A J LucasGroup Limited (“the Company”) and its controlled entitiesfor the financial year ended 30 June 2003, consisting of thestatements of financial performance, statements of financialposition, statements of cash flows, accompanying notes1 to 11, and the accompanying discussion and analysison the statement of financial performance, statement offinancial position and the statement of cash flows, set outon pages 27 to 35 in order to express an opinion on it tothe members of the Company. The Company’s directors areresponsible for the concise financial report.Our audit has been conducted in accordance withAustralian Auditing Standards to provide reasonableassurance whether the concise financial report is freeof material misstatement. We have also performed anindependent audit of the full financial report of AJ LucasGroup Limited and its controlled entities for the year ended30 June 2003. Our audit report on the full financial reportwas signed on 30 September 2003 and was not subject toany qualification.Our procedures in respect of the audit of the concisefinancial report included testing that the information in theconcise financial report is consistent with the full financialreport and examination, on a test basis, of evidencesupporting the amounts, discussion and analysis, and otherdisclosures which were not directly derived from the fullfinancial report. These procedures have been undertakento form an opinion whether, in all material respects, theconcise financial report is presented fairly in accordancewith Accounting Standard AASB 1039 “Concise FinancialReports” issued in Australia.The audit opinion expressed in this report has beenformed on the above basis.Audit opinionIn our opinion the concise financial report of AJ LucasGroup Limited and its controlled entities for the yearended 30 June 2003 complies with Australian AccountingStandard AASB 1039 “Concise Financial Reports”.KPMGMalcolm KaferPartnerSydney, 24 October 200336AJ LUCAS ANNUALREPORT 2003

SHAREHOLDERS’ INFORMATIONAustralian Stock Exchangeadditional informationFor the year ended 30 June 2003SHAREHOLDING DETAILSThe shareholder information set out below was applicableas at 31 August 2003.(a) Distribution of equity holdingsNumber of InvestorsOrdinaryNumber held shares Options100,001 and over 22 110,001 - 100,000 413 -5,001 - 10,000 508 –1,001 - 5,000 1,141 –1 - 1,000 253 –Total 2,337 114 shareholders held less than a marketable parcelof ordinary shares.Design de Luxe & AssociatesWords & management Ad Verbum Pty LtdPrincipal photography Richard GloverOther photography Robin Sharrock(b) Twenty largest shareholdersNameNumber of % ofordinary shares held issued sharesA J Lucas Holdings Pty Limited 17,490,000 38.53Amalgamated Dairies Limited 2,090,000 4.60Commodity Traders (NZ) Limited 1,770,000 3.90National Nominees Limited 1,601,985 3.53Westpac Custodian Nominees Limited 1,157,954 2.55New Zealand Guardian Trust Company Limited 639,882 1.41Questor Financial Services 433,317 0.95Auckland Medical Research Foundation 418,000 0.92New Zealand Guardian Trust Company Ltd 330,000 0.73Bruce Birnie Pty Ltd 320,000 0.70Gwynvill Trading Pty Ltd 300,000 0.66Wightholme Nominees Pty Ltd 300,000 0.66NZ Guardian Trust Company Ltd 290,950 0.64Commonwealth Custodial 266,980 0.59Queensland Investment Corporation 193,977 0.43Maminda Pty Ltd 125,000 0.28Mr Paul Neville Griffin 121,000 0.27Edrus Limited 116,248 0.26Mr Geoffrey Henry Kimpton & Mrs Margaret Jo Kimpton 110,000 0.24Primdonn Nominees Pty Limited 110,000 0.24Total 28,185,293 62.09(c) Substantial shareholdersNameNumber of Ordinary % ofShares held Issued SharesA J Lucas Holdings Pty Limited 17,490,000 38.53Voting rightsOrdinary shares carry voting rights of one vote per share.Options have no voting rights.DirectoryCompany SecretaryNicholas SwanRegistered officeGround Floor157 Church StreetRyde NSW 2112Tel +61 2 9809 6866Fax +61 2 9807 6088Share registryComputershare Investor Services Pty LimitedLevel 5, 115 Grenfell StreetADELAIDE SA 5000GPO Box 1903ADELAIDE SA 5001Enquiries within Australia: 1300 556 161Enquiries outside Australia: +61 3 9615 5970Email: web.queries@computershare.com.auWebsite: www.computershare.comStock ExchangeThe Company is listed on the Australian Stock Exchangewith the code ‘AJL’. The home exchange is Sydney.AuditorsKPMG45 Clarence StreetSydney NSW 1213Legal AdvisorsMinter EllisonAurora Place88 Phillip StreetSydney NSW 2000BankersANZ Bank67 Albert StreetChatswood NSW 2067AJ LUCAS ANNUALREPORT 2003 37

STROP AND GERT -SIXTEEN YEARS WITH LUCASStrop Jessop (left) and Gert Blasche (right) both joined Lucas in1987 as experienced pipeline hands and qualified tradesmen.Between them they’ve been involved in diverse roles on dozensof the company’s major projects.They’ve spent this year on SEA Gas, leading the pipeline’shydrostatic testing crews. This critical final test pressurisessections of the finished pipeline to well above its plannedoperating pressure – enough to make the steel walls stretch.Precise instrumentation detects the smallest leaks. Any majorproblems are revealed more dramatically by the pipe rupturing.Testing is demanding work: with pipelines literally beingtested to their limits, equipment has to be in perfect order andsafety protocols are rigorous. In spite of the enormous scale ofthe testing (there can be up to five million litres in a test length),the measuring systems must detect a pinhole leak.Gert, Strop and rest of the Lucas testing team have testedmore of Australia’s high-pressure pipelines than anyone else.