Company

News 2010

Port Bouvard Limited
Chairman's Address to Shareholders
Wednesday, 23 June 2010

Good morning Ladies & Gentlemen, today is a watershed for the Company. The passing of the resolutions to be put to you today will breathe life back into your Company and provide the opportunity to resume business and concentrate on our recognised core strengths, but with a more robust management style.

I have been Chairman for just 15 months and the shares of the Company have been in suspension for the past 9 months. That maybe some kind of record but it is not one that I, the remainingmembers of the Board or the Executive are at all proud of and, I certainly know that you, the Shareholders, are entitled to be dissatisfied.

However, what we are proud of throughout this very difficult period for the Company, we kept
focussed, we worked hard, we made difficult decisions, and as a result, we can present to you today, an outcome that we are confident will, in time, return true value back to your shareholding and adequately reward your ongoing support of the Company.

Ladies and Gentlemen, let there be no misunderstanding, we were a Company in deep trouble. Our obligation was to do whatever we reasonably could to financially re establish Port Bouvard and create a fresh base for shareholders to move forward.

Our challenge was to, firstly, eliminate the uncertainties which affected us and, for that matter, many other real estate development companies, largely, as the result of the global financial crisis and the resultant tightening (if not strangulation) of banking credit, and, secondly, find a way to clear the decks so that we would be an attractive investment opportunity once again and we could get on with what we do best, i.e. developing and selling real estate.

I am not going to go into a detailed summary of the events and the background to all of the decision making processes and lengthy and detailed negotiations leading up to this meeting. I am sure you have all read the Notice of Meeting. This provides a comprehensive explanation of the background to and the effect of these proposals, how they are to operate, and, what we expect will be their outcome.

It is a complex proposal. I make no excuse for that. We have been obliged to mesh together an extraordinary number of inter-dependent arrangements to ensure we achieved the desired outcome and this had to be done in the context of a very uncertain market place which consistently affected each of the critical supporting banking and investment decisions.

Furthermore, and most importantly, we had to find the right balance, in both pricing and structure that would not only attract the right strategic partner, and gain sufficient institutional support, but would, at the same time, provide existing Shareholders an opportunity to participate in the process, and leave the Company organised in such a way that it could move positively forward once again.

In the meantime, we have been obliged to continue operating the business through out this period, the highlights being the successful marketing and sale of Eastport 5 Canal lots, the marketing and sale of Eastport 5 Island, completion of civil works for Eastport 5, sale of various non-core assets and, of course working towards the completion of construction of the magnificent Oceanique Apartment complex.

The bottom line is that the Board strongly believes that the Capital Raising Proposal to be put to you today, that is, the passing of the two Dependant Resolutions (being the FKP Placement and the Institutional Placement) and the subsequent success of the Entitlement Offer which will be put to eligible shareholders pursuant to a Prospectus, is in the best interests of Shareholders. The Recapitalisation we are putting to you is designed to provide the following outcomes:

1. Ensure that the Company can meet its banking covenants, most critically, the obligation to raise a minimum of $50m by no later than 15 July 2010 with a permanent debt reduction of $20m by that date;

2. Introduces a key strategic partner into the Company's register (being a party that can deliver to Port Bouvard an unchallengeable array of benefits, I comment further on FKP a little later);

3. Provides the capital to develop the first stage of its flagship project at Point Grey. Approximately $32 m of the funds raised is to be applied towards working capital and the infrastructure and development costs in respect of the first stage of residential lots at Point Grey;

4. Eliminates the Company's obligation to fund the further acquisition and development of Gidgegannup. The Group potentially had at least a further $45m commitment to acquire the balance of the land and would have required at least $20m to commence the initial stages of development (when and if approvals were obtained). To remove any further obligations that the option contracts represented, and all of the associated planning risk, we have agreed to terminate these arrangements based on payment of a cancellation fee of $9.9m which is payable in three parts:

a. by an initial instalment of $2m by no later than 12 June 2010,
b. a subsequent instalment of $3m by 15 January 2011; and
c. the balance of $4.9m on 2 January 2014

plus the return of the land already acquired. I might add that the $3m portion of the cancellation fee is being funded by way of a refund of stamp duty that was pre-paid on the option contracts so the immediate cash flow obligation of this arrangement has been minimised.

While it is extremely painful to consider paying out any further sum on this project, the agreement reached avoids further substantial funding obligations or the risk of substantial litigation if our subsidiary had failed to perform it's obligations under the option contracts. It is a reality that the Gidgegannup Cancellation Agreement was a necessary precondition to the recapitalisation before you. This agreement remains conditional upon the success of this Capital Raising Proposal.

5. Significantly reduces the Company's external borrowing reducing the Company's net debts to total assets ratio from 50.7% to approximately 26.7%;

6. Provides greater working capital flexibility and capacity. This is particularly important as we complete the Oceanique Apartments and enter the settlement phase of the pre-commitment contracts. As previously announced, our Oceanique Bank Facility was restructured to provide for a $75m permanent reduction by 31 December 2010. We expect this to be largely met through the existing contracted pre-sales which are due to commence in July. However, to the extent that settlement of sales do not eventuate as contracted and subject to additional funds to be derived from further sales being effected, the Company may need to utilise the available working capital
funding to meet this commitment;

7. Overall this capital raising stabilises the Company and, as mentioned previously, effectively gives us a fresh start to get on with business.

We acknowledge the proposal has some disadvantages as set out in the Notice of Meeting, including:

1. Dilution to existing shareholders; and
2. FKP will end up with a voting power of approximately 29.7%

As a result, it is important to note, that the Independent Expert concluded that the FKP Placement was "not fair but reasonable" to existing Shareholders.

However, after exhaustive evaluation of various third party approaches and consideration of lengthy and detailed advice from the Company's advisors and the Joint Lead Managers, we formed the view that the advantages of the Capital Raising Proposal far outweighed the disadvantages.

Without a successful recapitalisation of the nature being proposed, the Company would have been in the most unenviable position of either proceeding with the liquidation of its assets or being placed under the control of our Bank. But let's make no mistake, there is no such thing as an orderly sale of assets by a distressed company.

Prior to concluding, I wish to make the following further remarks:

FKP
When we set out to seek a cornerstone investor we considered our most ideal candidate would be strong, property focused company who would find both Western Australia and Port Bouvard Limited as strategic opportunities. Indeed, we had serious discussions with other parties but FKP was then introduced to us and, as I trust you will agree, they fit the bill perfectly. As you would expect, FKP undertook a substantial and extremely detailed due diligence and review process prior to making a commitment. We are, of course, delighted with the introduction of FKP as our cornerstone investor as they offer their strength, property expertise - especially their experience in masterplanned residential communities - their corporate and commercial acumen and their solid reputation. FKP are not so well known in WA, as they currently have no presence here. Their focus of operations to date has been in Queensland, New South Wales and Victoria. They have a market capitalisation north of $900M, are one of the largest and most successful retirement village operators in Australia, hold some 20 commercial and industrial properties valued at $750M, are involved in 15 residential development projects with a lot pipeline of 7,500 lots representing an end value of some $3.5 Billion, and have $2.1 Billion of funds under management. They are a serious property development company. They understand our business and we believe they bring to the table much more than just their investment dollars. In that regard, we will also welcome the addition of two of their nominees to our Board.

FKP have recognised we do represent a unique opportunity and we do provide unparalleled expertise in masterplanned residential communities in Western Australia. They have made it clear to us that their present intention is to hold a strategic investment in the Company in order to gain development exposure into WA. FKP intends to support the Company in operating the Company's business consistent with the Company's existing strategies and initiatives and they fully support and have confidence in the Company's present management.

Issues of Shares to directors
I would like to clarify that the shares being subscribed for and issued to Directors are being issued on exactly the same terms and exactly the same price as all the other shares being issued. Directors have to pay 13 cents for every share they are buying. There are no discounts, no loans, no free options being granted, whatsoever. The shares to be taken up by Directors should provide a level of commitment and comfort and validation in the Company's recapitalisation and business strategy moving forward.

Finally, I wish to thank all of those parties who have worked so diligently over the past 9 months very often long after hours and many weekends to achieve this outcome. In particular, the Company's advisors being Max Capital, Macquarie, Euroz, Norton Rose and our dedicated executives; our CEO John Wroth, executive director, Stephen Court, and, our company secretary, Peter Coppini, all of whom have been wonderfully supported by our small but extremely dedicated work force at Port Bouvard.

I would also like to pass on our appreciation to St George Bank who has been fully supportive and cooperative throughout the process.

The resolutions dealing with the investment of FKP and indeed the whole capital raising process are to be formally put to shareholders shortly. But before I do proceed with that it is most important and relevant to note the affect of the announcement we made to the Exchange yesterday, namely, we successfully completed the bookbuild for the Institutional Placement and the accelerated institutional component of the Entitlement Offer. There was strong support from both new institutions and existing sophisticated investors, and, as a result, the Company has received binding commitments of $26.4m. The now underwritten retail component of the Entitlement Offer is expected to raise the balance of $11m.

We believe we have arrived at a credible solution which not only repairs and restores the Company but positions it to take full advantage of the Company's flagship project Point Grey. We are very much looking forward to getting back to business. We respectfully seek approval of these resolutions from you, the owners of the Company.

Thank you.

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