Decmil Group Limited
Annual Report 2018

Plain-text annual report

Annual Report For the year ended 30 June 2018 Decmil Group Limited ABN 35 111 210 390 and Controlled Entities INFRASTRUCTURE RENEWABLES RESOURCES AUSTRALIAN BUSINESS NUMBER 35 111 210 390 ASX CODE DCG REGISTERED ADDRESS 20 Parkland Road Osborne Park, WA 6017 Tel: +61 8 9368 8877 ANNUAL GENERAL MEETING Shareholders are advised that the Decmil Group Limited 2018 Annual General Meeting (AGM) will be held on 8th November 2018 at 20 Parkland Road, Osborne Park, Western Australia, commencing at 10.00am (AWST). ABOUT THIS REPORT This Annual Report is a summary of Decmil Group Limited’s (ASX: DCG) (“Decmil” or “Company”) operations, activities and financial position as at 30 June 2018. Decmil Group Limited (ABN 35 111 210 390) is the parent Company of the Decmil Group of companies. In this report, unless otherwise stated, references to ‘Decmil’, ‘DGL’ and ‘the Company’, and ‘we’, ‘us’ and ‘our’ refer to Decmil Group Limited and its controlled entities. References in the report to ‘the year’ or ‘the reporting period’ relate to the financial year, which is 1 July 2017 to 30 June 2018, unless otherwise stated. All dollar figures are expressed in Australian currency. In an effort to reduce its impact on the environment, Decmil will only post printed copies of this Annual Report to those shareholders who elect to receive one through the share registry. An electronic copy of this Annual Report will be available on our website at www.decmil.com DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESC O N T E N T S 1 2 4 5 6 9 10 12 14 16 18 46 47 48 49 50 51 101 102 107 109 OUR COMPANY 40 Years of Success Our Journey Our Founder Vision and Values About Us Our Sectors MESSAGE FROM THE BOARD Chairman’s Letter WHAT MATTERS MOST TO US People & Culture Health, Safety & Environment Community FINANCIAL REPORT Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Information for Listed Public Companies Corporate Directory DECMIL GROUP LIMITED ANNUAL REPORT 2018 IN 2018, DECMIL CELEBRATES 40 YEARS OF SUCCESS. We have achieved many great things since our inception and have enjoyed celebrating our milestone with our colleagues, families and friends. In celebrating our achievement of 40 years we wish to thank everyone who has contributed to our success. We are proud of our journey and we look forward to the future. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 1 DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESOUR JOURNEY ESTABLISHED IN 1978, DECMIL HAS 40 YEARS’ EXPERIENCE DELIVERING INTEGRATED SOLUTIONS TO A RANGE OF CLIENTS. 1978 – 1983 The Early Days 1984 – 2003 Building on the Foundation 2005 Awarded contracts with Burrup Fertilisers, Chevron and Rio Tinto SECTION: OUR COMPANY 2009 – 2013 Continued Growth & Expansion 2013 Decmil wins first international contract award for Manus Island, Papua New Guinea 2014 – 2018 Growth and Diversification 1984 1999 Decmil opened Perth office in Maddington Decmil commences work for Rio Tinto for the Mesa J process plant 2007 Decmil was listed on the ASX 2009 Denis Criddle is appointed as 2015 Chairman of the Board Decmil opens an office in Auckland and launches Decmil Construction New Zealand 1978 In Karratha, Western Australia, four men formed a construction company, Silla Careba Pty Ltd (one of them being Denis Criddle) 2007 Moved to Osborne Park premises 2009 Scott Criddle is appointed Chief Executive Officer of Decmil Group 1985 2003 Continued growth with Decmil broadens client base Dampier Salt and key works with a number of government contracts for Woodside infrastructure projects 2011 Decmil expands into Queensland and opens an office in Brisbane 2016 Decmil acquires Cut & Fill (rebranded to Decmil in 2017) 2004 – 2008 From Strength to Strength 2007 Awarded construction projects for Hamersley Iron and Fortescue Metals Group 1980 First major contract awarded by Dampier Salt Ltd 1982 Work continued to increase and include clients such as Woodside and BHP 1988 Won first major contract for $20m with Woodside 2011 2017 Decmil acquires Homeground Villages First major renewables project delivered (Gullen Solar Farm) in NSW 1983 1993 2004 2008 2013 TODAY Denis Criddle and Milan Babic Scott Criddle joined Decmil Awarded first major Perth contract Awarded Woodside Pluto Decmil acquires EDE and VDM Today Decmil is a very well bought out partners and changed company name to Decmil Engineering and Construction (construction of the Gosnells Civic Centre) LNG contract Construction (East) in Brisbane established and highly regarded company with an enviable record of success and achievement DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 3 OUR FOUNDER, DENIS CRIDDLE This year we recognise the achievements of Decmil’s founder Denis Criddle. The Decmil story began in 1978 in the Pilbara town of Karratha, Western Australia. As a young civil engineer working for Hamersley Iron in Dampier, Denis Criddle, with a passion for the region, could see the need for accommodation in the developing regional community. Together with some local businessmen in Karratha they formed a partnership which was the foundation for the Decmil business. Starting with just four employees, Decmil has grown to now employ hundreds of people and operates across Australia and New Zealand. Denis grew the business to have a head office in Perth and to work with multiple clients including BHP, Woodside and Rio Tinto. In 2002 Denis Criddle stepped down as Managing Director and Scott Criddle was appointed to this role. Under Denis’ leadership, a culture of ‘family, respect and mutual support’ was established. These foundations have been a key factor in our company’s success. Additionally, his commitment to training and mentoring of the next generation of professionals in the construction and engineering industry is deeply embedded in our business. Over the past 40 years, Denis has continued to contribute to the growth and direction of Decmil and has maintained a strong presence not only as a non-executive Board member but as a regular visitor to our offices and projects. We would like to acknowledge Denis for his commitment and dedication to Decmil and for creating a strong culture from the very beginning. His values and foundations will continue to drive the success and sustainability of Decmil through the years to come. UNDER DENIS’ LEADERSHIP, A CULTURE OF ‘FAMILY, RESPECT AND MUTUAL SUPPORT’ WAS ESTABLISHED DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: OUR COMPANY VISION & VALUES OUR VISION To be the market leader in project delivery, achieving sustainable growth through the quality of our people and the strength of our relationships. OUR VALUES INTEGRITY: We are honest in all aspects and treat people with respect and dignity. EXCELLENCE: We strive to deliver results that stretch our capabilities. ACCOUNTABILITY: We take responsibility and accountability for our actions and hold others to account. TEAMWORK: We work together and support each other to achieve our goals. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 5 ABOUT US ESTABLISHED PUBLICLY LISTED AUSTRALIAN OWNED Decmil is a public company listed on the Australian Stock Exchange (ASX code DCG). solutions for: transport, mining infrastructure, non-process infrastructure; building; defence & detention; oil & gas; fuel infrastructure; health & education; wind, solar & battery; We are an Australian owned construction accommodation; structural, mechanical & and engineering company offering a diversified piping; electrical, instrumentation & controls; range of services to the infrastructure, and maintenance. renewable energy and natural resources sectors. Our clients vary from government sectors in With operations throughout Australia and New transport, defence, immigration and health to Zealand, we offer a combination of national blue chip clients in the resources, commercial expertise and local knowledge, supported by a and industrial sectors. We work closely with team of valued suppliers and contractors. Our our clients to achieve innovative and cost- offices are located in Perth, Western Australia; effective solutions. Brisbane, Queensland; Melbourne, Victoria; and Auckland, New Zealand. Our long standing client relationships and repeat business are testament to the value, For more than 40 years, and often in expertise, quality and performance we provide. remote and challenging locations, we have collaborated with our clients to deliver DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: OUR COMPANY DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 7 INFRASTRUCTURE RENEWABLES RESOURCES DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: OUR COMPANY OUR SECTORS Decmil provides design, engineering and construction services for the infrastructure, renewable energy and natural resources sectors. Our experienced in-house teams provide customised project solutions for a range of conditions and environments. INFRASTRUCTURE Decmil has significant experience in infrastructure engineering and construction, delivering multidisciplinary projects in sectors such as transport, utilities, water, defence, corrections, health and education. Our capabilities include bulk earthworks, road construction and maintenance, bridgeworks and environmental remediation and engineering. Through combining a wide range of skills with new and unique methods and technologies we are able to deliver projects in a timely and safe manner. We hold National Roads Prequalification R5, B4, F150+ meaning we are well placed and experienced to deliver transport infrastructure projects across Australia. Our robust quality management controls and systems enable us to deliver the high integrity products required by our clients and their customers. RENEWABLES Decmil offers a range of feasibility, engineering, project management and construction services for the renewable energy sector with capabilities in solar, wind and energy storage projects. From scoping studies through to design, approvals, delivery and operations we optimise all stages of the development process to provide our clients with a cost effective and streamlined delivery solution. Drawing on our knowledge and experience of delivering large infrastructure projects, we deliver optimal performance, availability and reliability options for our clients. By integrating power generation technology from recognised equipment manufacturers with our design and construction expertise, we have the proven capacity to provide the most cost-effective renewable energy solutions. Overall, we provide a low risk, proven capability and an innovative approach to the renewable sector. RESOURCES Decmil has an extensive history of achievement in the delivery of large scale resource projects. We have the capacity and experience to deliver everything from accommodation, process and non-process infrastructure, civil construction, transport infrastructure and fuel infrastructure solutions. Our proven history in delivering resource projects is due to our flexible approach and integrated engineering and construction capability. We respond efficiently to our clients’ needs and add value at all stages of the project life cycle. We have the expertise to self-perform works and have strong relationships with specialist sub-contractors where required. With our collaborative approach to project delivery, combined with thorough safety, environment and quality systems, we are able to achieve desired outcomes for our clients. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 9 CHAIRMAN’S LETTER OPERATIONS Operations in the 2018 financial year reflected the diversity of Decmil, with project activity spanning a number of sectors including WA Iron Ore works, Queensland Coal Seam Gas upstream maintenance, various public-sector infrastructure projects in Australia and New Zealand, road and bridge projects for State road authorities and renewable energy. KEY HIGHLIGHTS ~ A project for BHP at its South Flank project in relation to the upgrade and expansion of the Mulla Mulla village and for Fortescue in relation to its Port Hedland tug harbour; ~ Expansion of the Decmil business in New Zealand including the award of a combined NZ$185+ million Corrections project; ~ The award to Decmil’s Victorian business unit of almost $100 million of new transport infrastructure construction work and a significant increase in tendering activity in this region; ~ Completion of the Gullen solar project near Goulburn in New South Wales and secured a Memorandum of Understanding for an EPC contract with Maoneng Australia in relation to its Sunraysia project; and ~ The consolidation of the Group’s focus on the infrastructure, resources and renewable energy sectors and achieving greater operational consistency across regional business units in Australia and New Zealand. FINANCIAL PERFORMANCE & POSITION In the 2018 financial year Decmil returned to top line revenue growth, with the core Construction & Engineering business unit growing revenue from continuing operations by 28% year on year as the Company secured a number of new and larger contracts. DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: MESSAGE FROM THE BOARD IN THE 2018 FINANCIAL YEAR WE CELEBRATE THE 40TH ANNIVERSARY OF DECMIL AND IN THAT REGARD, IT IS MY GREAT PLEASURE TO PROVIDE A SUMMARY OF THE PAST YEAR. Our financial position remained sound and at 30 June In addition to our business ambitions, Decmil is also 2018 the Group’s balance sheet reflected an overall committed to being a good corporate citizen by net cash position of $17 million, no drawn core senior taking responsibility for all our social, ethical and secured debt and net tangible assets of $131 million. environmental actions. We see ourselves as part of STRATEGY AND OUTLOOK The Company consolidated its focus on the the communities in which we operate, and as such we strive to be a positive, active and contributing participant in community life. Decmil’s Corporate Social Responsibility program, Decmil in the Community, infrastructure, resources and renewable energy sectors is about giving back, helping people in need and across Australia and New Zealand and is experiencing supporting local communities. We do this through charity strong market conditions across these sectors. Based on the Company’s current tender pipeline and work in hand, and as at the date of this report, Decmil expects FY19 revenue to exceed $500 million with work in hand at ~$400 million. The Group continues to see good market conditions across a number of its key sectors including: ~ Resources: FMG’s Eliwana and Rio Tinto’s Koodaideri projects coming to the contractor market in FY19 and improved market conditions in the Queensland Coal Seam Gas sector; ~ Infrastructure: Significant public-sector infrastructure spend by State and Federal Government, in the Transport sector in Victoria; and ~ Renewable energy: Actively bidding a number of solar PV and wind projects as a balance of plant contractor. CONCLUSION The transformation that has occurred at Decmil in recent years has created a diverse and sustainable national business with strong market conditions in its core sectors and the strongest pipeline of opportunities seen in many years. events, corporate friendships, charity partnerships, volunteering and donating. Decmil strives to make a broad and meaningful contribution to the communities in which we operate through these mechanisms. Later this year we will bid farewell to the founder of Decmil, Denis Criddle, who will retire from his formal service on the Decmil Board. We wish Denis, Nola and their family all the best for the future. We also recently welcomed two new Board members, Don Argent and Dickie Dique, and look forward to the contribution they will make to the business. In closing, the Board and executive team believe that the measures we have taken in the past year have placed the business in a strong position for the future. I would like to take this opportunity on behalf of the Board to thank our loyal shareholders for their ongoing support and our employees for their dedication to Decmil. David Saxelby Chairman DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 11 PEOPLE & CULTURE Decmil has a proud history of project delivery since 1978 and this year we celebrate 40 years of successful operations. Our business has seen many changes but our foundations and vision remain the same. Our unique way of doing things, The Decmil Way, allows us to build a team unified by our strategy and vision, our commitment to building shareholder Our values are vital as they are the essence of our identity, support our vision and shape our culture. Having a clear and defined set of values helps guide and unify us as one team. The Decmil Way is driven by our values: Integrity We are honest in all aspects and treat people with respect and dignity. value and our culture. This empowers every employee Excellence We strive to deliver results that to make decisions and excel. stretch our capabilities. Our vision, ‘To be the market leader in project delivery, Accountability We take responsibility and achieving sustainable growth through the quality of our people and the strength of our relationships’, will continue to remain relevant and essential for success across Decmil. accountability for our actions and hold others to account. Teamwork We work together and support each other to achieve our goals. DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIES SECTION: WHAT MATTERS MOST TO US As a business with a large proportion of our workforce involved in contracting, Decmil continually adjusts staffing levels to meet the demands of the projects in which we are involved. As at 30 June 2018 Decmil employed 552 people; 336 salaried employees and 216 Our hiring philosophy ensures that we attract the right wages employees. people who are highly skilled in their areas of expertise and aligned to The Decmil Way to ensure success at every level. We are driven to hire local and indigenous employees to secure a diverse and all-encompassing workforce. We are employing people across Australia and New Zealand who represent a diversity of cultures, backgrounds and skills. Over the last 12 months, our New Zealand Team has grown significantly, increasing from 17 employees to 54 employees spread across With everyone aligned and working The Decmil Way Auckland, Wellington and Christchurch. we create a great workplace that will ensure the sustainability and success of Decmil. ANNUAL OVERVIEW The last twelve months have seen us grow our project delivery teams with a focus on civil and renewable capability. Nationally, we have welcomed several new senior positions as our regions grow and our strategy Our regions will continue to grow in headcount throughout the upcoming year with us focusing on attracting highly skilled workers who support The Decmil Way. To keep our employees engaged and empowered, we promote professional development through relationship building between co-workers, individual development plans, ensuring a safe work environment further focuses on work winning in our three key sectors and offering competitive compensation. of infrastructure, resources and renewables. Over the coming year, Decmil will continue to focus on initiatives aimed at recognising and developing our people to be the best they can be and creating a united culture within all the businesses. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 13 HEALTH, SAFETY & ENVIRONMENT SHIELD Keeping our people and our projects safe is central to everything we do at Decmil. SHIELD is about: ~ ~ ~ Recognising ‘What Matters Most’ to each of us; Understanding those behaviours that will keep us safe at work; Conducting safety conversations in the workplace to promote safe behaviours and correct at-risk behaviours; and ~ Providing a program to recognise and reward safe behaviours. The purpose of our SHIELD program is to drive the behaviours, attitudes, decisions and actions within the business to achieve a working environment that is free from injury or incident. WORK HEALTH & SAFETY During the 2018 financial year the Group recorded improved safety performance results compared to the previous year as measured by the TRIFR. The TRIFR was 3.35 for this period. Within this result, an outstanding TRIFR performance of ‘Zero’ was achieved by the Decmil Southern region. The Group has achieved unified certification under the Federal Safety Accreditation scheme for all of its Construction and Engineering divisions. Over the next 12 months the Group is focused on a range of key initiatives to support the safety and well-being of our staff. These include continued Work Health and Safety (WHS) leadership development programs, visible leadership programs focused on WHS in the field, health promotion activities and enhancement of Since it was implemented eight years ago, the SHIELD software solutions to drive a paperless system program has assisted significantly in reducing Total and simplify the administration of WHS processes, Recordable Injury Frequency Rates (TRIFR) across all as well as access to WHS management system Project sites. information for our people. THE HEALTH AND SAFETY OF EVERY EMPLOYEE IS FOREMOST IN EVERYTHING WE DO. IT IS A KEY FOCUS OF OUR GROUP AND IS UNDERPINNED BY OUR VALUES SYSTEM. ENVIRONMENT Environmental management is a key focus of the Group with exceptional performance reported for the 2018 financial year. There were no regulatory breaches or significant environmental impacts recorded with the Group’s operations over this period. Over the next 12 months the Group is targeting further greenhouse gas emissions intensity reductions as a measure of our full-time equivalent staff numbers. To achieve this result we will be increasing education and awareness for staff around our carbon footprint and recognising initiatives to achieve and improve on our sustainability results. DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: WHAT MATTERS MOST TO US DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 15 COMMUNITY LOCAL COMMUNITIES We are proud of the positive contributions Decmil MENTAL HEALTH A key focus of Decmil is the mental health of makes to the communities in which we operate. In our people and the broader community. addition to providing local employment and service opportunities, we support a range of initiatives that help create healthy, vibrant and cohesive communities. We actively fundraise for mental health organisations to help raise awareness and understanding of mental health issues, empowering people to seek help, and Our Corporate Social Responsibility program, supporting their recovery, management and resilience. Decmil in the Community, is about giving back, helping people in need and supporting local communities. We do this through: ~ Charity events ~ Corporate friendships ~ ~ Project based initiatives Staff driven initiatives ~ Volunteering ~ Donations We encourage our project teams to engage with local communities to support education, sport and culture as well as proactively working to help improve social amenities. INDIGENOUS PARTICIPATION Decmil is committed to indigenous participation STAFF DRIVEN INITIATIVES At Decmil, we encourage our people to participate in organised charity events. Over the past year the Company has been involved in Daffodil Day, World’s Greatest Shave, Lifewise Big Sleep, MS Walk and Fun Run and a national Christmas collection for the Smith Family. Also, the Decmil in the Community mandate encourages staff driven charity initiatives that assist worthy charities and support the communities in which we operate. Internal assistance with fundraising and promotion is provided to staff who instigate initiatives which support Decmil’s charity partners and our local communities. Over the past year, Decmil people have undertaken a range of initiatives such as participation in the Climb for Cancer, Walk 2 D’Feet, Fidelity Life Corporate Run, Paella Lunch, Host a Patient Dinners for the Cancer Society across all positions and levels. We develop and chocolate sales within the office with proceeds donated to charity. We encourage our project teams to engage with local communities to support education, sport and culture as well as proactively working to help improve social amenities. partnerships and initiatives with local communities to encourage indigenous participation. In the delivery of our projects, we engage with local indigenous workforce solutions and indigenous businesses to: ~ Develop procurement strategies that provides opportunities for Indigenous people ~ Train and equip our people with cultural knowledge and understanding ~ Work with our subcontractors so that they engage with Aboriginal and Torres Strait Islander people and communities. DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: WHAT MATTERS MOST TO US WE ARE COMMITTED TO BEING A GOOD CORPORATE CITIZEN BY TAKING RESPONSIBILITY FOR ALL OF OUR SOCIAL, ETHICAL AND ENVIRONMENTAL ACTIONS. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 17 DIRECTORS’ REPORT SECTION: FINANCIAL REPORT OUR DIRECTORS PRESENT THEIR REPORT ON THE COMPANY AND ITS CONTROLLED ENTITIES FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018. The names of directors of the Company at any time during or since the end of the financial year are: DAVID SAXELBY NON-EXECUTIVE CHAIRMAN SCOTT CRIDDLE MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER DENIS CRIDDLE NON-EXECUTIVE DIRECTOR BILL HEALY NON-EXECUTIVE DIRECTOR DON ARGENT NON-EXECUTIVE DIRECTOR DICKIE DIQUE NON-EXECUTIVE DIRECTOR DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 19 DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: FINANCIAL REPORT BOARD OF DIRECTORS DAVID SAXELBY DENIS CRIDDLE BILL HEALY DON ARGENT DICKIE DIQUE NON-EXECUTIVE CHAIRMAN NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR David was appointed as a Non- Denis was the founder of Decmil Bill Healy was appointed as Non- Don was appointed as Non-Executive Dickie was appointed as Non- Executive Chairman in March Australia, Decmil Group Limited’s Executive Director in April 2009 and Director of Decmil in March 2018. Executive Director of Decmil in July 2018. He has held Managing major business division. He was served as the Non-Executive Chairman Don was the Director Finance 2018. Dickie has 25 years’ experience Director and CEO roles for the appointed to the Company’s Board from July 2014 to February 2018. and Administration for the Thiess in senior executive and management past decade, most recently with as a Non-Executive Director in Bill was a director and shareholder in Group, one of the largest integrated roles in construction businesses and Lendlease as CEO of Construction August 2007 and served as the Sealcorp Holdings from 1985 which engineering and services providers is a respected leader in the Western and Infrastructure Australia. Non-Executive Chairman from then established and developed the in Australia and South East Asia. Australian construction industry. Prior to Lendlease, David was September 2009 to December 2011. diversified financial services group. He joined Thiess Pty Ltd in 1985 A registered builder, Dickie’s with the Leighton Group for 18 Denis is a civil engineer with He was a founding director of following six years’ service with Thiess experience covers the commercial, years, where he held a number of more than 30 years’ experience ASGARD Capital Management Ltd, Holdings Ltd in the late 1970’s, and civil, residential, mining and senior positions, most recently as in construction and maintenance Securitor Financial Group Ltd, PACT until he retired in July 2011, played modular sectors. Dickie is very Managing Director of Thiess. In services for the oil and gas Investment Group Pty Ltd and ASSIRT an instrumental part in the growth familiar with Decmil, having held addition to these roles, David has and resources sectors in Pty Ltd. Sealcorp was acquired by of Thiess from a family-run business the roles of General Manager held a number of senior positions on central Queensland and north- St George Bank in 1997 and Bill to a leading Australian construction, and Chief Operating Officer. Industry Boards and was listed in west Western Australia. remained on the Board until 1999. mining and services company. the Top 100 Engineers in Australia. Denis has been involved in rural He was founding director and Don holds a Bachelor of Dickie’s most recent operational role was as a Director at Pindan investments and local Government Chairman of BOOM Logistics Ltd Commerce degree, is a Certified Contracting. He also sits on the and was elected Shire President of and was involved in the development Practising Accountant and a Board of GO2 People Ltd. the Roebourne Shire Council during of the Company’s business the development years of oil and gas model, early acquisitions and expansion in the Karratha region. preparation for listing in 2003. Fellow of the Australian Institute of Company Directors. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 21 DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESSECTION: FINANCIAL REPORT EXECUTIVE MANAGEMENT SCOTT CRIDDLE CRAIG AMOS MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER Scott was appointed Chief Executive Craig was appointed Chief Financial Officer Officer in July 2009, and Managing in March 2014, having previously held the Director of Decmil Group Limited in position of Group Manager for Corporate April 2010 and has been a Director Development at Decmil Group Limited. of the Company since that time. As a qualified chartered accountant, he He was previously the Managing Director has over 20 years’ experience in finance, of Decmil Australia. In this role he was accounting, corporate transactions and responsible for the long-term growth and strategic direction of the Company, commercial projects in both corporate and professional service environments. playing a key role in building relationships with stakeholders and clients. Prior to joining Decmil he held the position of Executive Director in the Corporate Finance Scott joined Decmil Australia in 1993 as a division of Ernst & Young where he gained construction labourer to gain experience extensive experience leading teams on a and learn about the company from the range of strategic corporate transactions. ground up. He has held a variety of roles within Decmil Australia including Construction Manager, Estimator, Business Development Manager and Area Manager. Scott holds a Bachelor of Applied Science in Construction Management and Economics. Craig holds a Bachelor of Commerce (with Honours) and a Graduate Diploma in Applied Finance. He is also a Fellow of the Financial Services Institute of Australasia. TONY RADALJ CHIEF OPERATING OFFICER ALISON THOMPSON COMPANY SECRETARY Alison has held several senior financial positions within the Group since August 2007. She is currently the Group Financial Controller for Decmil and was appointed Company Secretary in January 2014. She has extensive technical experience gained from 4 years with PricewaterhouseCoopers and prior to joining Decmil, gained valuable industry experience at international construction firm Balfour Beatty based in the United Kingdom. Alison holds a Bachelor of Commerce and a Graduate Diploma of Applied Corporate Governance, and is a Fellow of Chartered Accountants, Australia and New Zealand. Tony joined Decmil in 2012 and was appointed Chief Operating Officer for Decmil in August 2017. During the past six years Tony has held key positions in Decmil such as Construction Manager and General Manager for Decmil Australia. Tony’s career spans across various sectors such as health, oil and gas, resources, government infrastructure, building and renewables. Tony brings extensive technical experience and a strong focus on strategy for Decmil. With his flexible management style, he motivates and empowers teams to enable a strong work ethic and produce rewarding outcomes. Tony has extensive experience in relationship style contracting ensuring positive relationships are sustained with our clients. This includes utilising contracting models such as lump sum, design & construct, alliance and early contractor involvement. DECMIL GROUP LIMITED ANNUAL REPORT 2018 | PAGE 23 DECMIL GROUP LIMITED ABN 35 111 210 390 AND CONTROLLED ENTITIESDirectors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Principal Activities Decmil provides design, engineering and construction work for the Infrastructure, Resources and Renewable Energy sectors: Infrastructure ▪ Government infrastructure projects including accommodation, immigration facilities, corrections facilities, office buildings, defence facilities, schools, administration buildings and storage facilities; ▪ Design and construction of fuel infrastructure facilities; and ▪ Road and bridge civil engineering projects. Resources ▪ Construction of remote non-process infrastructure, including industrial buildings, processing plants, workshops and storage facilities; ▪ Coal Seam Gas and LNG wellhead installation with associated pipelines and facilities; and ▪ Civil work on brown and greenfield projects including site preparation, excavation and bulk earthworks in regional and remote areas. Renewables ▪ Civil works for remote wind and solar projects including site preparation, foundations and pilings; ▪ Structural and mechanical installations including towers for wind farms and framing systems and PV modules for solar projects; and ▪ Specialist electrical work for energy storage and distribution. Operating Results The consolidated entity reported a statutory loss after providing for income tax expense of $6,131,000 (2017: $28,347,000). Dividends Paid or Recommended No final dividend was paid, declared or recommended for payment. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Overview of the Activities of the Group Decmil was established in 1978 and since has grown to provide design, engineering, construction and maintenance engineering construction services to the Infrastructure, Resources and Renewable sectors across Australia and New Zealand. The business currently has three key sector pillars that form the base of the business. These three pillars of focus (along with sub-sectors) are summarised in the below table: Infrastructure Defence Roads and Bridges Health Corrections Immigration Education Resources Iron Ore Coal Seam Gas LNG Renewables Solar PV Wind As part of the Group’s focus on the above sectors, in FY18 it exited non-core operations in the telecommunications and design consulting sectors. Operational Highlights Operations in FY18 reflected the diversity of the Group, with project activity spanning a number of sectors including WA Iron Ore works, Queensland coal seam gas upstream maintenance, various public sector infrastructure projects in Australia and New Zealand, road and bridge projects for State road authorities and renewable energy. Key highlights: ▪ Completion and commissioning of projects in the WA Iron Ore sector including a logistics hub for BHP at Port Hedland and non-process infrastructure for Rio Tinto at its Amrun and Silvergrass mines; ▪ Commencement of a project for BHP at its South Flank project in relation to the upgrade and expansion of the Mulla Mulla village and for Fortescue in relation to its Port Hedland tug harbor; ▪ Expansion of the Decmil business in New Zealand including the award of a combined NZ$185 million Corrections project; ▪ The award to Decmil’s Victorian business unit of ~$100 million of new transport infrastructure construction work and a significant increase in tendering activity in this region; ▪ Completion of the Gullen solar project near Goulburn in New South Wales and secured a Memorandum of Understanding for an EPC contract with Maoneng Australia in relation to its Sunraysia project; and ▪ The consolidation of the Group’s focus on the Infrastructure, Resources and Renewable Energy sectors and achieving greater operational consistency across regional business units in Australia and New Zealand. Operational focus for the 2019 financial year will be: ▪ Completion of BHP’s Mulla Mulla Village Expansion; ▪ Ramp up on Decmil’s project for NZ Corrections; ▪ Ramp up on a number of new road and bridge projects in Victoria; and ▪ Continued focus on project delivery on a wide range of existing projects. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Financial Performance & Position Revenue from continuing operations of $342 million for the twelve months ended 30 June 2018 grew by 23.3% from $277 million as the Company secured a number of new and larger contracts in the later part of the 2017 calendar year. Gross margin percentage for the twelve months ended 30 June 2018 was 10.4%. As part of the Group’s focus on the Infrastructure, Resources and Renewable Energy sectors it permanently exited non-core operations in the telecommunications and design consulting sectors, resulting in a total loss on discontinued operations of $6 million. At 30 June 2018 the Group’s balance sheet reflected an overall net cash position of $16.8 million, no drawn core senior secured debt and net tangible assets of $131 million. In FY18 the Group has also expanded working capital and bonding capacity to $272 million of facilities to fund expected growth in its operations going into FY19. Significant Changes in State of Affairs There were no significant changes in the state of affairs of the consolidated entity during the financial year. After Balance Date Events No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Likely Developments and Outlook In FY18 the business consolidated its focus on the Infrastructure, Resources and Renewable Energy sectors across Australia and New Zealand and is experiencing strong market conditions across these sectors. Based on the Company’s current tender pipeline and work in hand, and as at the date of this report, Decmil expects FY19 revenue to exceed $500 million. Work in hand (comprised of contracted and preferred contracts) for FY19 stands at ~$400 million comprised primarily of forward revenue from Decmil’s NZ Corrections and Schools, BHP South Flank, QGC and various VicRoads transport infrastructure projects. Going into FY19 the Group continues to see good market conditions across a number of its key sectors including: ▪ Natural Resources: Sustaining capital works and replacement tonnage projects in the WA Iron Ore market; ▪ Infrastructure: Significant opportunity in the Transport sector in Victoria where the Group is actively pursuing new road and bridge projects as both head contractor and in joint ventures; and ▪ Renewable Energy: Actively bidding a number of solar PV and wind projects as a balance of plant contractor. The recent budgets announced by State and Federal Government have presented a number of opportunities for Decmil including the following transport infrastructure projects that the Company has bid or is targeting in FY19: ▪ Mordialloc Freeway (VicRoads): the Mordialloc Freeway is a proposed new 9km freeway linking the end of the Mornington Peninsula Freeway at Springvale Road to the Dingley Bypass. Following an Expression of Interest process Decmil, with its JV partner McConnell Dowell, has been shortlisted to one of two bidders for the tender stage to design and construct the Mordialloc Bypass; ▪ M80 Ring Road Upgrade (VicRoads): the M80 Ring Road Upgrade relates to the design and construction of the remaining northern sections of the M80 Ring Road. Decmil, with its JV partner BMD, is one of two bidders that has submitted an Expression of Interest; ▪ Oxley Highway, Gunnedah (NSW RMS): Decmil is a shortlisted contractor for the Oxley Highway project in Gunnedah. The project relates to the design and construction of a bridge over an existing rail line; and ▪ Drysdale Bypass (VicRoads): Decmil is a shortlisted contractor for the design and construction of the Drysdale Bypass from Grubb Road to Whitcombes Road in Victoria. Decmil’s strategy remains based on an overall ambition to build a diverse and strong construction and engineering business. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Material Business Risks The key challenges for the Group going into the 2019 financial year are: ▪ To recruit quality staff that can sustain projected growth; ▪ Retain robust project controls to ensure project returns are predictable; ▪ To select projects that can deliver acceptable returns; and ▪ Control overheads across the Group. Material risks that could adversely affect the Group include the following: ▪ The Company is exposed to a number of macro-economic cycles, in particular capital expenditure by State and Federal Government and in natural resources. These cycles are in turn impacted by a variety of factors inclusive of fiscal conditions in the economy, Government policy on capital expenditure and commodity prices. Any weakness in the broader construction and engineering sector and a reduction in growth capital expenditure across major new natural resource projects will impact the Company. ▪ A portion of the Group's contracts are 'lump sum' in nature and to the extent costs exceed the contracted price, there is a risk these amounts may not be recovered. From time to time variations to the planned scope occurs or issues arise during the construction phase of a project, not anticipated at the time of bid. This may give rise to claims under the contract with the principal in the ordinary course of business. Where such claims are not resolved in the ordinary course of business they may enter formal dispute and the outcome upon resolution of these claims may be materially different to the position taken by Company. ▪ In order for the Group to continue working on engineering construction projects, a robust safety methodology needs to be in place. A serious safety incident or fatality has the ability to create a substantial risk to Decmil's social licence to operate. Decmil mitigates this safety risk via its 'SHIELD' safety methodology, ensuring that all employees (including senior management) and sub-contractors are aligned and engaged with the approach to safety. ▪ The Company is dependent on various technical and financial accreditations to operate the business. These include safety accreditations, quality assurance standards, building licences, technical accreditations by State Main Roads agencies and various financial accreditations. Many of these accreditations are assessed and monitored by State and Federal Government Agencies. Any failure to maintain or comply with an accreditation can impact the eligibility of the Company to participate in certain projects and sectors. ▪ The Company operates as a ‘Design and Construct’ or ‘Engineer, Procure and Construct’ contractor in the engineering sector. Such projects and contracts place an obligation on the Company to design ‘Fit for Purpose’ infrastructure and to give warranties to such effect. Any failure in design may see the Company exposed to contractual claims for breach of ‘Fit for Purpose’ or design obligations and, from time to time, to performance and liquidated damages. The Company manages this risk by maintaining Professional Indemnity insurance and also engaging appropriate third party design consultants for complex or specialist design expertise. ▪ Any abatement in economic activity in the Gladstone region will result in a short term diminution in the occupancy levels at the Homeground Village and significantly lower levels or revenue and profit than historically generated. Management expects that in the medium term new opportunities will arise for Homeground Gladstone as the LNG sector in Gladstone moves from the construction to the operational and maintenance stages; however the risk of volatility in the short term remains present. ▪ Decmil's ability to remain productive, profitable and competitive and to effect its planned growth initiatives, depends on its ability to attract and retain skilled labour. Tightening of the labour market in key regions due to a shortage of skilled labour, combined with a high industry turnover rate and growing number of competing employers for skilled labour, may inhibit Decmil's ability to hire and retain employees. Decmil is exposed to increased labour costs in markets where the demand for labour is strong. A shortage of skilled labour could limit Decmil's ability to grow its business or lead to a decline in productivity and an increase in training costs and adversely affect its safety record. Each of these factors could materially adversely impact its revenue and, if costs increase or productivity declines, its operating margins. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Material Business Risks (Cont’d) During the 2015 financial year the Company implemented an enterprise risk review process to identify the most material risks facing the Company enterprise wide, together with an action plan to mitigate the occurrence or effect of each identified risk (Enterprise Risk Register). Each of the risks on the Enterprise Risk Register have been allocated to an owner who is responsible for monitoring, reporting and implementing action plans for each of the risks. The Enterprise Risk Register brings together the most critical risks (both corporate and operational) identified by the Group Risk Management System and creates a structured process for regular reporting to the Board. The Enterprise Risk Register is reviewed and presented to the Audit and Risk Committee on a quarterly basis. Capital Management Management is continually assessing the optimal capital structure to ensure the Group is working towards providing shareholders with adequate returns based on assessment of market risks and opportunities. This includes the management of debt levels, distributions to shareholders and the requirement for further equity funding. Whilst the Group has access to substantial senior debt and bonding facilities, it ended the year with no senior debt and low levels of gearing. Management also periodically reviews the level of capital invested in the Homeground Gladstone Village and where appropriate opportunity exists, will consider options to monetise the asset. Environmental Regulation The Company is subject to environmental regulation in accordance with applicable state, territory or federal legislation and statutory requirements for the jurisdictions in which it operates. There were no incident events that required reporting to relevant statutory bodies during the financial year. The Company aims to continually improve its environmental performance and has established carbon emission reduction targets for the next financial year. Directors’ Meetings During the financial year, 10 directors’ meetings were held. Attendances by each director during the year were: Directors’ Meetings Audit & Risk Remuneration Number of meetings eligible to attend 3 10 10 10 10 4 Number attended 3 9 10 10 9 3 Number of meetings eligible to attend 1 4 - 4 1 2 Number attended 1 4 - 4 1 2 Number of meetings eligible to attend 1 - - 1 1 - Number attended 1 - - 1 1 - Don Argent Denis Criddle Scott Criddle Bill Healy David Saxelby Lee Verios Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report - Audited This Remuneration Report for the year ended 30 June 2018 details the nature and amount of remuneration for directors and specified executives of Decmil Group Limited in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The Remuneration Report is presented under the following sections: 1. Remuneration governance 1.1. Remuneration committee 1.2. Use of remuneration consultants 2. Executive remuneration approach and structure 2.1. Remuneration philosophy 2.2. Executive remuneration structure 2.3. Remuneration practices 2.4. Short term incentive plan 2.5. Long term incentive plan 3. Link between Company performance and executive remuneration 4. Employment contracts of directors and senior executives 5. Non-Executive Director fee arrangements 6. Details of remuneration This Remuneration Report sets out remuneration information for Decmil’s Key Management Personnel (KMP) (as defined in AASB 124 Related Party Disclosures) including Non-Executive Directors, Executive Directors and other senior executives who have authority for planning, directing and controlling the activities of the Company. The following persons acted as Directors or Executives during or since the end of the financial year: Role Non-Executive Directors (NEDs) Mr David Saxelby – Chairman of the Board Mr Bill Healy – Chairman of the Audit & Risk and Remuneration Committees Mr Don Argent Mr Denis Criddle Mr Dickie Dique Mr Lee Verios Executive Directors Appointed May 2016 and as Chairman 1 March 2018 Appointed to the Board April 2009 Appointed 1 March 2018 Appointed August 2007 Appointed 1 July 2018 Resigned 1 November 2017 Mr Scott Criddle – Managing Director and Group CEO Appointed as CEO in July 2009 and Managing Director in April 2010 Executives (Other KMP) Mr Ric Buratto1 – CEO Construction and Engineering Mr Tony Radalj2 – Chief Operating Officer Resigned 14 July 2017 Appointed to ELT on 1 August 2017 Mr Craig Amos – Chief Financial Officer Appointed March 2014 1 Ric Buratto left the Executive Leadership Team during the 2017 financial year 2 Tony Radalj joined the Executive Leadership Team during the 2018 financial year Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) 1. Remuneration governance 1.1 Remuneration committee The Remuneration Committee is responsible for reviewing and recommending to the Board of Directors compensation arrangements for the directors and Executive Leadership Team (ELT). The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of directors and the ELT on a periodic basis. The assessment is made with reference to the Group’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. 1.2 Use of remuneration consultants To ensure the Company and Remuneration Committee is fully informed when making remuneration decisions, it from time to time seeks external remuneration advice and uses industry salary survey data. During the financial year, the fixed remuneration of executives was benchmarked against peers based on industry salary surveys sourced from AON Hewitt and Mercer. In the past, Ernst & Young has also been engaged to provide advice on the structure of the long term incentive plans and provide a comparison of the Company’s plan to market trends. For the purposes of the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2001 (the Act), any guidance provided by remuneration consultants throughout the financial year was not considered a remuneration recommendation in relation to KMP as defined by Division 1 of Part 1.2 of Chapter 1 of the Act. 2. 2.1 Executive remuneration approach and structure Remuneration philosophy The performance of the Company ultimately depends upon the quality of its directors and ELT. In order to maintain performance and create shareholder value, the Company must attract, motivate and retain highly skilled and experienced directors and executives. Decmil aims to provide competitive at market remuneration and rewards in order to: ▪ attract the right people who are aligned to Decmil’s values and behaviours; ▪ motivate employees so they understand their contribution to Decmil; ▪ ▪ recognise employees’ effort and commitment to Decmil; and retain the highest quality employees within Decmil. Decmil ensures: ▪ appropriate compensation is given to executives for the services they provide; ▪ attraction and retention of executives with the required skills to effectively manage the operations and growth of the business; ▪ executives are motivated to perform in the best interest of Decmil; and ▪ gender pay equality. 2.2 Executive remuneration structure The remuneration structure for executive officers, including executive directors, is based on a number of factors, including experience, qualifications, job level and overall performance of the Company. The service agreements between the Company and specified directors and executives are on a continuing basis which are not expected to change in the immediate future. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) The following table illustrates the executive remuneration elements, including how each element aligns to the Company’s remuneration strategy and links remuneration outcomes to performance. Vehicle Purpose Link to performance Remuneration component Fixed remuneration STI Comprises base salary, superannuation contributions and other benefits such as motor vehicles and life insurance. Historically, the STI component of the Chief Executive Officer’s remuneration has been paid in cash. For FY16, FY17 and FY18 100% of any STI award earned will be deferred for 12 months and will be satisfied by the issue of Restricted Rights instead of a cash award. The STI of other executives are paid in cash. To provide competitive fixed remuneration for senior executives as determined by the scope of their position and the knowledge, skill and experience required to perform the role. Rewards executives for short term achievement of: ▪ financial and operational key performance indicators; ▪ ▪ progress with the delivery of the Company’s business plan and strategic objectives; and specific goals in relation to the development of people within the Company and its profile within the business community. Company and individual performance are considered during the annual remuneration review. Examples of key performance indicators include: ▪ Achievement of financial targets such as Group revenue and NPAT; ▪ Achievement of target work in hand levels at 30 June of each year to ensure the sustainability of revenue in subsequent years; ▪ Overhead and cost control targets; ▪ Targets set in relation to the achievement of the Group’s business plan such as the diversification of the business and entry into new markets; and ▪ Targets set for safety performance based on Total Recordable Injury Frequency Rates. Vesting of awards is dependent on absolute TSR, achieving EPS growth targets and continuous employment. LTI Executives are entitled to participate in the performance rights scheme approved by shareholders. Performance rights do not attract dividends or voting rights. To better align executives to the interests of shareholders and provide a reward based on long term growth in share price and earnings. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) 2.3 Remuneration practices The Company aims to reward executives with a level and mix of remuneration appropriate to their position, responsibilities and performance within the business and aligned with market practice. The Company’s policy is to position fixed remuneration around the 50th percentile of salary bands based on major industry surveys produced by AON Hewitt and Mercer. This aligns with the market median ensuring Decmil remains competitive with its peers. The performance of executives is measured against criteria agreed with each executive and is based predominantly on the Company’s performance and shareholder value. Incentives are linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives, bonuses, rights and shares. The policy is designed to attract high calibre executives and reward them for performance that results in long-term growth in shareholder wealth. Where applicable, executive directors and executives receive a superannuation guarantee contribution required by the Government, which during the year was 9.5%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice all or part of their remuneration to increase payments towards superannuation. Upon retirement, specified directors and executives are paid employee entitlements and incentives accrued to the date of their retirement. All remuneration paid to directors and executives is valued at cost to the Company and expensed. Where performance rights and shares are given to directors and executives, they are valued according to the accounting standards. 2.4 Short term incentive plan General Terms of the STI Plan How is it paid Generally, in cash. The CEO STI award can be satisfied by the issue of restricted rights. How much can executives earn? Executives can earn up to 50% of their total fixed remuneration as an STI How is performance measured? When is it paid? What are the deferral terms? What happens if an executive leaves or there is a change of control? How much STI has been accrued in relation to the 2018 financial year? incentive. Through a balance scorecard of financial, operational and organisation development KPI’s set prior to the commencement of each financial year. Financial measures are assessed based on the Group’s audited financial results. In September or October of the financial year after the target year. Historically, the STI component of the Chief Executive Officer’s remuneration has been paid in cash. It was proposed that for, FY16, FY17 and FY18 100% of any STI award earned will be deferred for 12 months and will be satisfied by the issue of restricted rights instead of a cash award. The payment of any accrued or part STI benefit in these circumstances is at the discretion of the Board. No STI has been accrued in relation to the 2016, 2017 or 2018 financial years. The STI award opportunity is based on a percentage of an individual’s base salary. For the CEO, a maximum award opportunity of 50% of total fixed remuneration is available. The STI is based on the previous financial year’s base salary earnings to 30 June before performance based remuneration reviews. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) With the dramatic turnabout in the resources and energy sectors during the 2016 financial year the Group undertook a number of steps to restructure and reduce the overhead base in its traditional business units. As part of these efforts, executives of the Group agreed to a 10% reduction in total fixed remuneration effective February 2016 (with the CEO voluntarily agreeing to a 15% reduction). As market conditions continued to be subdued throughout FY17, the CEO took a further voluntary reduction of 30% and the Board took a further 10% reduction in April 2017. In addition, no STI has been accrued for either the CEO or any other KMP in relation to the 2016, 2017 or 2018 financial years. 2.5 Long term incentive plan The LTI offered to key executives forms a key part of their remuneration and assists to align their interests with the long term interests of shareholders. The purpose of the LTI Scheme is to reward key executives for attaining results over a long measurable period and for staying with the organisation. The LTI Scheme is a share based plan consisting of performance rights and shares which have pre-determined vesting conditions. The LTI Scheme is designed to: ▪ create a strong link between the eligible participants’ performance and Decmil’s performance; ▪ assist in retention of employees; and ▪ contribute to eligible participants feeling they own part of Decmil and have an influence in the direction of Decmil. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) General Terms of the LTI Plan How is it paid? How much can be earned (i.e. maximum opportunity)? How is performance measured? When is performance measured? What happens if an executive leaves or there is a change of control? Are executives eligible for dividends? Have many shares vested under the LTI plan? The Company uses performance rights and restricted shares in its long term incentive plan. For executives, up to 150% of total fixed remuneration converted into performance rights at the 60 day VWAP to 30 June. Vesting hurdles for performance rights for executives are based on absolute TSR (40%), EPS (40%) and continuous employment (20%). The achievement of vesting conditions for performance rights are assessed between July and September after the target financial year-end. Measurement periods are from the date of award of the rights to the first tranche being eligible for vesting. If an employee resigns, or his or her employment is terminated due to misconduct or performance related reasons, all performance rights and restricted shares are immediately forfeited. If an employee retires or an employee’s employment terminates for redundancy prior to performance rights or restricted shares vesting, the Board may use its discretion to vest the performance rights or restricted shares. Where a change of control event occurs in respect to the Company, the Board, in its absolute discretion, may determine the treatment of any unvested performance rights or restricted shares and the timing of such treatment. Only where the Board does not exercise its discretion to determine a particular treatment, will all unvested performance rights and restricted shares vest on change of control. Performance rights do not accrue dividends. The retention grant of restricted shares to the CEO accrues dividends which become payable upon vesting. There has historically been a very low percentage of performance rights awarded that vest e.g. no performance rights have vested since the 2013 financial year other than in relation to time based conditions. For executives, performance rights will vest (that is, shares will be issued or become transferable to the executives upon satisfaction of the performance rights vesting conditions) to the extent that the applicable performance hurdles set by the Board are satisfied. Subject to achievement of the hurdle, the performance rights may be converted (on a one-for-one basis) to fully paid ordinary shares in the Company. Any performance rights which do not vest at any due vesting date rollover for re-assessment to the next vesting date. The vesting conditions will be subsequently reassessed in that year and performance rights may vest as applicable. Unvested performance rights will rollover for the length of the performance period and will be forfeited at the end of the grant period if not vested. If an executive resigns from his or her employment, any unvested performance rights will lapse, unless the Board determines otherwise. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) Performance Hurdles Each year the Board reviews and considers the appropriateness of the performance hurdles and, where necessary, makes adjustments and amendments to reflect market conditions. Below is a summary of the performance hurdles that relate to unvested performance rights as at 30 June 2018: Issued financial year ended 30 June 2013 and prior Performance rights issued during the financial year ended 30 June 2013 and prior years are eligible for vesting three, five and seven years after the initial grant date depending upon Total Shareholder Return (TSR) performance relative to a comparator group identified at the time of grant (S&P/ASX 300 Index). Performance rights granted during this period remain under these terms and conditions. The performance rights vest according to the schedule below: Company TSR Rank in S&P/ASX 300 Index Below the 50th Percentile At or below the 50th Percentile and below the 75th Percentile At or above the 75th Percentile % of Performance Rights that Vest 0% 50%, plus 2% for every one Percentile increase above 50th Percentile 100% Issued financial year ended 30 June 2014 These performance rights vest two, three and four years after the initial grant date and are subject to the following vesting performance measures: a. Two thirds of the performance rights are subject to earnings per share compound annual growth rate (EPS CAGR) performance and; b. One third of the performance rights are subject to TSR performance relative to the other companies in the ASX 200. The performance rights in respect of a financial year will vest in tranches as follows: Years after the financial year in respect of which the grant of Performance Rights is made 2 3 4 % of Performance Rights Eligible for Vesting 25% 25% 50% For performance rights subject to EPS CAGR performance, vesting will occur as follows: EPS CAGR – Measured from the year in respect of which grant of Performance Rights is made <6% 6% >6% <24% 24% or more % Performance Rights that Vest 0% 25% Pro-rata vesting between 25%-100% 100% Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) For performance rights subject to TSR performance, vesting will occur as follows: TSR – Measured from the year in respect of which grant of Performance Rights is made <50th Percentile 50th Percentile >50th Percentile <75th Percentile >75th Percentile or more % Performance Rights that Vest 0% 50% Pro-rata vesting between 50%-100% 100% Issues financial year ended 30 June 2015 and later These performance rights are subject to the following vesting conditions: a. 20% of performance rights are subject to continuous service of employment. This portion will vest at 100% three years after the financial year of which the grant of the performance rights are made; b. 40% of performance rights are subject to EPS CAGR performance; and c. 40% of performance rights are subject to absolute TSR performance. In relation to the performance rights subject to the EPS CAGR and TSR, the following vesting tranches will apply: Years after the financial year in respect of which the grant of Performance Rights is made 2 3 4 % of Performance Rights Eligible for Vesting 25% 25% 50% For performance rights subject to EPS CAGR performance, vesting will occur as follows: EPS CAGR – Measured from the year in respect of which grant of Performance Rights is made <6% 6% >6% <8% >8% % Performance Rights that Vest 0% 25% Pro-rata vesting between 25%-100% 100% For performance rights subject to TSR performance, vesting will occur as follows: Absolute TSR – Measured from the year in respect of which grant of Performance Rights is made < 7% 7% >7% <11% >11% % Performance Rights that Vest 0% 50% Pro-rata vesting between 50%-100% 100% Note, the Company obtained shareholder approval at the 2015 AGM to implement a number of changes to the hurdles attaching to the performance rights to be issued for FY15, FY16, FY17 and FY18. These changes included the replacement of the Relative Total Shareholder Return (TSR) performance hurdle with an Absolute TSR performance hurdle, and adjustment of the Earnings Per Share (EPS) hurdles in line with current market expectations and inclusion of a performance hurdle relating to continuous employment with the Group. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) 3. Link between Company performance and executive remuneration The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. There have been two methods applied in achieving this aim, the first being a performance based short term incentive based on key performance indicators, and the second being the issue of performance rights to executive directors and executives to encourage the alignment of personal and shareholder interests. 4. Employment contracts of directors and senior executives The Company has entered into a service agreement with Mr Scott Criddle who commenced in the role of CEO on 1 July 2009. The key terms of Mr Scott Criddle’s service agreement are: Notice Period Term Restraint Period Total Fixed Remuneration Long Term Incentive Scheme Short Term Incentive Scheme Termination Benefits Three month written notice unless in relation to certain circumstances such as serious misconduct or gross neglect of duty Ongoing until terminated Three months after termination of employment Reviewed and established annually by the Remuneration Committee The Decmil Group Limited LTI scheme applies The Decmil Group Limited STI scheme applies No contractual termination benefits apply The Company may terminate the contract without cause by providing written notice of the required termination period or by making payment in lieu of notice based on the individual’s annual salary component together with a discretionary payment. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct, the Company can terminate employment at any time. Other executives in the Company have similar executive service agreements which include terms and conditions relating to confidentiality, restraint on employment and intellectual property. The executive service agreements are typically not fixed term agreements and continue on an ongoing basis until terminated. These agreements may be terminated by notice of either party or earlier in the event of certain breaches. In the event of termination for any reason, the Company will pay accrued and untaken annual leave, and subject to legislation, any accrued and untaken long service leave owing to the executive. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct, the Company can terminate employment at any time. Non-Executive Directors are appointed under appointment letters that deal with, amongst other matters, the following: ▪ terms of appointment and tenure; ▪ entitlements; ▪ duties and responsibilities; and ▪ indemnities, insurances and access. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) 5. Non-Executive Director fee arrangements The Board’s policy is to remunerate Non-Executive Directors at market rates for comparable companies for time, commitment and responsibilities. The Board approves payments to the Non-Executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders during a general meeting. Fees for Non-Executive Directors are not linked to the performance of the consolidated entity however to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the Company. Non-Executive Director (NED) fees consist of base fees and committee chair fees. The payment of committee chair fees recognises the additional time commitment required by NEDs who chair Board committees. The chair of the Board attends all committee meetings but does not receive any additional committee fees in addition to base fees. The table below summaries Board and committee chair fees payable to NEDs at 30 June 2018 (inclusive of superannuation): Board fees Chairman Non-Executive Director Committee fees Audit & Risk and Remuneration Chair Member $000 130 73 $000 8 - Maximum aggregate NED fee pool The maximum aggregate amount of fees that can be paid to NEDs is subject to approval by shareholders during a general meeting. The maximum aggregate amount that may be paid to NEDs for their services is $650,000 during any financial year, as approved by shareholders at the 2012 AGM. The Board will not seek an increase to the aggregate NED fee pool limit at the 2018 AGM. 6. Details of remuneration As part of a restructuring and cost reduction effort by the Company, effective 1 February 2016, the fixed remuneration of KMP (and directors from 1 May 2016) was reduced by 10% (with the Group CEO voluntarily agreeing to a 15% reduction). With market conditions continuing to be subdued throughout FY17, the CEO took a further voluntary reduction of 30% and the Board took a further 10% reduction on 1 April 2017. Details of the remuneration of KMP of the consolidated entity are set out in the following tables: NEDs ($) David Saxelby Don Argent1 Denis Criddle Giles Everist2 Bill Healy Lee Verios3 Total Year 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Salary and Fees Superannuation STI Paid in Relation to Prior Year STI Accrued Current Year 91,799 78,975 22,192 - 66,575 72,123 - 54,375 106,027 128,219 24,658 80,137 311,251 413,829 - - 2,108 - 6,325 6,852 - - 10,073 12,181 2,342 7,613 20,848 26,646 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Executive Directors ($) Year Salary and Fees Superannuation STI Paid in Relation to Prior Year STI Accrued Current Year Scott Criddle4 Total 2018 2017 2018 2017 500,000 669,200 500,000 669,200 20,049 19,616 20,049 19,616 - - - - - - - - Other Executives ($) Year Salary and Fees Superannuation STI Paid in relation to Prior Year STI Accrued Current Year Tony Radalj5 Craig Amos Ric Buratto6 Total 2018 2017 2018 2017 2018 2017 2018 2017 421,186 - 350,000 387,500 - 393,750 771,186 781,250 16,605 - 20,049 19,616 - 14,712 36,654 34,328 - - - - - - - - - - - - - - - - 1 Don Argent was appointed to the board of directors on 1 March 2018 2 Giles Everist resigned from the board of directors on 7 February 2017 3 Lee Verios resigned from the board of directors on 1 November 2017 4 As at the date of this report the total fixed remuneration for the Managing Director and Group CEO is $520,049 5 Tony Radalj was appointed to the Executive Leadership Team on 1 August 2017 6 Ric Buratto left the Executive Leadership Team during the 2017 financial year Fair Value of Incentive Securities Awarded - - - - - - - - - - - - - - Fair Value of Incentive Securities Awarded 227,976 484,981 227,976 484,981 Fair Value of Incentive Securities Awarded 187,500 - 83,784 127,083 - 435,534 271,284 562,617 Other Total Total Performance Related % Total Fixed Remuneration % - - - - - - - - - - - - - - 91,799 78,975 24,300 - 72,900 78,975 - 54,375 116,100 140,400 27,000 87,750 332,099 440,475 Other Total - - - - 748,025 1,173,797 748,025 1,173,797 Other Total - - - - - - - - 625,291 - 453,833 534,199 - 843,996 1,079,124 1,378,195 - - - - - - - - - - - - - - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Performance Related % 30.5 41.3 30.5 41.3 Total Performance Related % 30.0 - 18.5 23.8 - 51.6 25.1 40.8 Total Fixed Remuneration % 69.5 58.7 69.5 58.7 Total Fixed Remuneration % 70.0 - 81.5 76.2 - 48.4 74.9 59.2 Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) Options issued as part of remuneration for the year ended 30 June 2018 There were no options granted to directors or executives as part of their remuneration during the financial year. Performance Rights During the year ended 30 June 2018, the following performance rights were granted. Grant Date 1 July 2017 Number of Rights Granted Fair Value of Rights Granted 1,676,126 $311,759 During the year ended 30 June 2018, 284,240 performance rights were vested. During the year ended 30 June 2018, 851,506 of performance rights lapsed due to their vesting criteria not being met. The following rights have been granted but remain unvested at 30 June 2018: Grant Date 1 July 2011 1 July 2012 1 July 2014 1 July 2015 1 July 2016 1 July 2017 Total Number of Unvested Rights 235,210 297,665 571,169 1,544,203 2,006,769 1,676,126 6,331,142 Fair Value of Unvested Rights $24,932 $30,362 $33,985 $216,188 $306,032 $311,759 $923,258 Additional Information The earnings of the consolidated entity for the five years to 30 June 2018 are summarised below: Revenue EBITDA EBIT Profit/(loss) after income tax 2018 $000 349,255 2017 $000 305,124 2016 $000 301,644 (1,722) (31,240) (75,926) (4,736) (36,867) (82,902) (6,131) (28,347) (58,236) 2015 $000 666,915 62,696 55,894 40,280 The factors that are considered to affect total shareholders return (TSR) are summarised below: Share price at financial year end ($) Total dividends paid (cents per share) 2018 0.97 - 2017 0.93 4.0 Basic earnings per share (cents per share) (0.10)1 (2.65)2 2016 0.72 10.5 6.102 2015 1.16 13.0 23.91 2014 $000 618,401 81,117 74,316 52,627 2014 1.83 12.5 29.503 1 Based on continuing operations 2 Based on adjusted earnings 3 Excluding business combination gains from the 2014 reporting period Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) Shareholdings, Option holdings and Performance Rights holdings Shareholdings The number of shares in the Company held during the financial year by each director and KMP of the consolidated entity, including their personally related parties, is set out below: 30 June 2018 Balance 1.07.2017 Received as Part of Remuneration Additions Disposals/ Other1 Balance 30.06.2018 Directors: Don Argent Denis Criddle Scott Criddle Bill Healy David Saxelby Lee Verios2 Key management personnel: Craig Amos Tony Radalj3 Total Option holdings - 20,989,145 5,709,695 600,190 - 66,667 1,500 - 27,367,197 - - 136,573 - - - 108,021 200,000 444,594 - 1,390,000 - - 50,000 - - - - - 22,379,145 (205,000) 5,641,268 - - (66,667) - 600,190 50,000 - 109,521 325,000 15,000 110,000 1,455,000 (161,667) 29,105,124 There were no options held by directors or KMP at 30 June 2018. Performance Rights holdings The number of performance rights in the Company held during the financial year by each director and KMP of the consolidated entity, including their personally related parties, is set out below: 30 June 2018 Balance 1.07.2017 Granted as Remuneration Vested During the Period Expired/ Other1 Balance 30.06.2018 Directors: Scott Criddle Key management personnel: Craig Amos Tony Radalj3 4,678,689 1,225,676 (136,573) (837,268) 4,930,524 737,377 450,450 (108,021) - - - - 172,414 1,079,806 172,414 5,416,066 1,676,126 (244,594) (664,854) 6,182,744 1 Other includes shares included upon appointment or excluded upon resignation 2 Lee Verios resigned from the board of directors on 1 November 2017 3 Tony Radalj was appointed to the Executive Leadership Team on 1 August 2017 Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Remuneration Report (Cont’d) Other transactions with directors, KMP and their related parties: (a) Director Related Transactions Rent of various properties used by Decmil Australia Pty Ltd paid to Broadway Pty Ltd, an entity in which Mr Denis Criddle has a beneficial interest Consulting fees for Saxelby Associates Pty Ltd, an entity in which Mr David Saxelby has a beneficial interest (b) Director Related Balances1 Amounts owing to Saxelby Associates Pty Ltd, an entity in which Mr David Saxelby has a beneficial interest, for directors’ fees and consulting fees [End of Remuneration Report] Shares Under Option 2018 $000 190 200 27 There were no unissued ordinary shares of the Company under option outstanding at the date of this report. Shares Issued on the Exercise of Options There were no ordinary shares of the Company issued on the exercise of options during the year ended 30 June 2018 and up to the date of this report. Employee Share Program At the 2014 Annual General Meeting, shareholders approved the adoption by the Company of a broad based employee share plan and the issue of securities pursuant to that plan. During the financial year, 213,490 shares were issued under this plan as part of the Decmil Employee Share Purchase Plan. Under this plan, employees who purchased up to $1,000 of shares had those shares matched by the Company. The matched shares are subject to a trade restriction until the earlier of 3 years or cessation of employment with the Company. Indemnifying Officers or Auditor The Company has indemnified the Directors of the Company for costs incurred, in their capacity as a director, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the Directors of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. Proceedings on Behalf of Company In or around August 2012, Steel Building Systems (SBS) was engaged as a subcontractor by Decmil Australia Pty Ltd (“Decmil”) to construct the Gladstone Village in Queensland. SBS’ scope of work was the design, manufacture and supply of modular buildings, as well as miscellaneous on-site works associated with the modular buildings. On 17 November 2017, the liquidators of SBS commenced proceedings against Decmil Australia Pty Ltd in the NSW Supreme Court for alleged unpaid contract sums of $3.3 million and alleged lost profit on works removed from SBS’ scope of works. Decmil rejects the claims brought by the liquidators of SBS and denies it is indebted to SBS as claimed. 1 Transactions relating to directors’ fees are included in the Directors’ Report details of remuneration Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Proceedings on Behalf of Company (Cont’d) Decmil’s current position is that SBS is in fact indebted to Decmil for a similar sum due to defective works and associated rectification costs, incomplete works, overheads incurred by Decmil in connection with the defects and rectification works, expert costs and fees. Decmil has filed a defence in relation to the liquidator’s claims and will file a cross claim for the sum Decmil alleges it is owed by SBS. On 1 May 2017 the Company received an advice from AusIndustry, the agency that oversees technical elements of the Australian Tax Office’s Research and Development Inventive Scheme (“R&D Scheme”), disputing the eligibility of certain engineering activities submitted by the Company in relation to the 2014 financial year for the R&D Scheme. R&D Scheme benefits received by the Company in relation to the 2014 financial year for the disputed engineering activities amounts to approximately $3.4 million. The Company does not agree with the advice received from AusIndustry and under the relevant legislation has requested an independent review of the matter. As at the date of this report, the independent review had not been completed. The Company is also considering further review options available to it, including submission to the Australian Administrative Tribunal. During the year ended 30 June 2017 the liquidators for Forge Group Ltd (in liquidation)(receivers and managers appointed) commenced an action in the Supreme Court of Western Australia against Eastcoast Development Engineering Pty Ltd (“EDE”), a subsidiary of the Company, for the repayment of $2.5 million for what they consider constitute unfair preference payments. The liquidators have commenced claims against a number of parties which are joined with EDE in the same action. EDE denies that it has any liability for repayment of any sums previously paid to EDE. Decmil has filed a defence in this matter. No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-Audit Services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: ▪ all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and ▪ the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to RSM Australia Partners for non-audit services provided during the year ended 30 June 2018: Taxation compliance services Accounting assistance Total Auditor’s Independence Declaration $ 29,250 9,585 38,835 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 can be found within this financial report. Directors’ Report Cont’d FOR THE YEAR ENDED 30 JUNE 2018 Rounding of Amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Decmil Group Limited support and have adhered to the ASX Corporate Governance Principles and Recommendations as detailed in Decmil Corporate Governance Statement which can be found at http://www.decmil.com.au/investor-relations/corporate-governance/ This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors David Saxelby Chairman 31 July 2018  Level 32 Exchange Tower, 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 RSM Australia Partners T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Decmil Group Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 July 2018 J A KOMNINOS Partner THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2018 Consolidated Entity 2018 $000 341,608 (305,927) 35,681 (27,972) (2,248) (747) 4,714 32 (1,493) (2,903) - 350 (521) (171) (5,960) (6,131) 2017 $000 276,972 (246,500) 30,472 (26,342) (1,030) (1,261) 1,839 43 (1,011) (5,331) (18,763) (23,223) 8,090 (15,133) (13,214) (28,347) - - (6,131) (28,347) (3.54) (3.54) (0.10) (0.10) (3.44) (3.44) (16.57) (16.57) (8.85) (8.85) (7.72) (7.72) Note 11 11(a) 4 4, 17, 19 33 5 6 9a 9a 9b 9b 9c 9c Revenue from continuing operations Cost of sales Gross profit Administration expenses Equity based payments Restructuring costs Earnings from continuing operations before interest, tax, depreciation and amortisation & impairments Interest received Borrowing costs Depreciation and amortisation expense Investment property fair value adjustment Profit/(loss) before income tax expense Income tax (expense)/benefit Net loss from continuing operations Loss after tax from discontinued operations Net loss for the year Other comprehensive income Other comprehensive income Total comprehensive income for the year Overall Operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Continuing Operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Discontinuing Operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements Statement of Financial Position FOR THE YEAR ENDED 30 JUNE 2018 Consolidated Entity Note 2018 $000 2017 $000 12 13 14 20 18 17 24 19 21 22 23 25 24 23 25 26 16,755 43,672 28,882 8,561 97,870 92,410 7,565 30,329 75,482 205,786 303,656 88,223 1,596 387 5,623 95,829 544 472 498 1,514 97,343 206,313 165,832 40,481 206,313 16,905 34,950 11,914 5,716 69,485 92,400 10,425 28,693 75,482 207,000 276,485 60,158 49 350 4,017 64,574 316 474 1,125 1,915 66,489 209,996 163,384 46,612 209,996 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Work in progress Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Investment property Property, plant and equipment Deferred tax assets Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Current tax payable Borrowings Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Retained earnings TOTAL EQUITY The accompanying notes form part of these financial statements Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2018 Consolidated Entity Note Balance at 1 July 2016 Net loss for the year Total comprehensive income for the year Shares issued for the period Transaction costs net of tax benefit Equity based payments Dividends paid Balance at 30 June 2017 Balance at 1 July 2017 Net loss for the year Total comprehensive income for the year Shares issued for the period Transaction costs net of tax benefit Equity based payments Dividends paid Balance at 30 June 2018 10 10 Issued Capital $000 162,254 - - 54 46 1,030 - 163,384 163,384 - - 118 82 2,248 - Retained Earnings $000 81,792 (28,347) (28,347) - - - (6,833) 46,612 46,612 (6,131) (6,131) - - - - Total $000 244,046 (28,347) (28,347) 54 46 1,030 (6,833) 209,996 209,996 (6,131) (6,131) 118 82 2,248 - 165,832 40,481 206,313 The accompanying notes form part of these financial statements Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2018 Note CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs paid Income taxes received Net cash provided by/(used in) operating activities 29(a) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from sale of subsidiary 29(b) Proceeds from sale of non-current assets Net cash provided by/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Net repayment of borrowings Net proceeds from share issue Dividends paid Net cash used in financing activities Net increase/(decrease) in cash held Cash at beginning of the financial year Cash at end of the financial year Consolidated Entity 2018 $000 315,662 (313,573) 34 (1,496) - 627 (1,775) 919 259 (597) (380) 200 - (180) (150) 16,905 16,755 2017 $000 303,413 (309,915) 53 (1,303) 800 (6,952) (1,346) - 26,061 24,715 (9,145) 43 (6,833) (15,935) 1,828 15,077 16,905 The accompanying notes form part of these financial statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 The financial statements of Decmil Group Limited (‘the Company’) for the year ended 30 June 2018 comprise of the Company and its controlled entities (collectively referred to as ‘the consolidated entity’) and the consolidated entity’s interests in joint operations. The separate financial statements of the parent entity, Decmil Group Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. Decmil Group Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The financial statements were authorised for issue in accordance with a resolution of the directors dated 30 July 2018. NOTE 1: Summary of Significant Accounting Policies Basis of Preparation These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board, and International Financial Reporting Standards as issued by the International Accounting Standards Board. The consolidated entity is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (a) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Decmil Group Limited at the end of the reporting period. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assets, liabilities and results of all controlled entities are fully consolidated into the financial statements of the consolidated entity from the date on which control is obtained by the consolidated entity. The consolidation of a controlled entity is discontinued from the date that control ceases. Intercompany balances and transactions between entities in the consolidated entity are eliminated on consolidation. Accounting policies of controlled entities have been changed where necessary to ensure consistency with those adopted by the consolidated entity. Non-controlling interests in the results and equity of controlled entities are shown separately within the equity section of the consolidated statement of financial position and statement of profit or loss and other comprehensive income. The non-controlling interests in the net assets of the controlled entity comprise their interests at the date of the original business combination and their share of changes in equity since that date. Where the consolidated entity loses control over a controlled entity, it derecognises the assets including goodwill, liabilities and non-controlling interest in the controlled entity together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’) (b) Income Tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in controlled entities, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Tax consolidation Decmil Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of the entities are set off in the consolidated financial statements. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the controlled entities nor a distribution by the controlled entities to the head entity. (c) Construction Contracts and Work in Progress Construction work in progress is valued at cost, plus profit recognised to date less any provision for anticipated future losses. Cost includes both variable and fixed costs relating to specific contracts, and those costs that are attributable to the contract activity in general and that can be allocated on a reasonable basis. Construction profits are recognised on the stage of completion basis and measured using the proportion of costs incurred to date compared to expected actual costs. Where losses are anticipated they are provided for in full. Construction revenue has been recognised on the basis of the terms of the contract adjusted for any variations or claims allowable under the contract. (d) Interests in Joint Arrangements Joint arrangements represent the contractual sharing of control between parties in a business venture where unanimous decisions about relevant activities are required. Joint venture operations represent arrangements whereby joint operators maintain direct interests in each asset and exposure to each liability of the arrangement. The consolidated entity’s interests in the assets, liabilities, revenue and expenses of joint operations are included in the respective line items of the consolidated financial statements. Gains and losses resulting from sales to a joint operation are recognised to the extent of the other parties’ interests. When the consolidated entity makes purchases from a joint operation, it does not recognise its share of the gains and losses from the joint operations until it resells those goods/assets to a third party. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) (e) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Depreciation The depreciable amount of all property, plant and equipment but excluding freehold land is depreciated on a straight-line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Owned plant and equipment Leased plant and equipment 5% to 33% 12.5% to 20% The assets' residual values and useful lives are reviewed and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss and other comprehensive income in the period in which they arise. (f) Investment Property Investment property, comprising investment interests in land and buildings, is held to generate long-term returns. Investment property is initially measured at cost and subsequently measured at fair value. Investment property is carried at fair value which is based on discounted cash flow projections. Investment property is valued at least every 3 years by independent external valuers. Any resultant changes in fair value are shown separately in the statement of profit or loss and other comprehensive income as net gains/(losses) from fair value adjustments on investment property. (g) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to entities in the consolidated entity are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over their estimated useful lives. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) (h) Impairment of Assets At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value-in-use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed immediately to the statement of profit or loss and other comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (i) Goodwill Goodwill acquired in a business combination is initially measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the acquisition date fair value of any previously held equity interest over the acquisition-date fair value of the identifiable assets acquired and the liabilities assumed. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. It is allocated to the consolidated entity’s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored not being larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Impairment losses recognised for goodwill are not subsequently reversed. (j) Intangibles other than Goodwill Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to each class of intangible assets. Where amortisation is charged on assets with finite lives, this expense is taken to the statement of profit or loss and other comprehensive income, through the ‘amortisation expenses’ line item. Intangible assets are tested for impairment where an indicator of impairment exists and in the case of intangible assets with indefinite useful lives, either individually or at the cash-generating unit level. (k) Employee Benefits Provision is made for the consolidated entity’s obligation for short-term employee benefits. Short-term employee benefits are benefits that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The consolidated entity’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as a part of current trade and other payables in the statement of financial position. The consolidated entity’s obligations for employees’ annual leave and long service leave entitlements are recognised as provisions in the statement of financial position. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) Other long term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for other long-term employee benefits are recognised in statement of profit or loss and other comprehensive income in the periods in which the changes occur. The consolidated entity’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the consolidated entity does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. Equity-based payments The consolidated entity provides equity-settled equity-based compensation benefits to employees. The equity-based compensation benefits include the award of shares, and performance rights over shares, in exchange for the rendering of services. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is measured as the share price at the date of grant and the fair value of performance rights is ascertained using various option pricing models which incorporate, where required, market vesting conditions. The number of shares and performance rights expected to vest is reviewed and adjusted at the end of each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. (l) Provisions Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. (m) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of 6 months or less. (n) Revenue and Other Income Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. Revenue recognition relating to the provision of services, namely construction activities, is determined with reference to the stage of completion of the transaction at the end of the reporting period, where outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. Interest revenue is recognised as interest accrues using the effective interest rate method. All revenue is stated net of the amount of goods and services tax (GST). Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) (o) Financing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the statement of profit or loss and other comprehensive income in the period in which they are incurred. (p) Earnings Per Share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Decmil Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (q) Issued Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (r) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. (s) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the relevant revenue authority. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (t) Financial Instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the consolidated entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the consolidated entity commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to the statement of profit or loss and other comprehensive income immediately. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) Classification and subsequent measurement Financial instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted, including recent arm’s length transactions, reference to similar instruments and option pricing models. Amortised cost is the amount at which the financial asset or liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest rate method. The effective interest rate method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in the statement of profit or loss or other comprehensive income. The consolidated entity does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. i. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in the statement of profit or loss and other comprehensive income through the amortisation process and when the financial asset is derecognised. ii. Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. iii. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Available-for-sale financial assets are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. All other financial assets are classified as current assets. Impairment At the end of each reporting period, the consolidated entity assesses whether there is objective evidence that a financial asset has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) (u) Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. (v) Current and Non-current Classification Assets and liabilities are presented in the statement of financial position based on current and non- current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. (w) Foreign Currency Transactions and Balances Foreign currency translation The financial statements are presented in Australian dollars, which is the Company’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. (x) Fair Value of Assets and Liabilities The consolidated entity measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the consolidated entity would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the consolidated entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) The fair value of liabilities and the consolidated entity’s own equity instruments (excluding those related to equity-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. (y) Rounding of Amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. (z) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (aa) Critical Accounting Estimates and Judgements The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated entity. Impairment of goodwill and intangibles The consolidated entity determines whether goodwill and intangible assets are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and intangibles are discussed in note 19. Equity-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instrument at the date at which they are granted. The fair value of performance rights are determined using various option pricing models. The accounting estimates and assumptions relating to equity-settled equity-based payments would have no impact on the carrying amount of assets and liabilities within the next annual reporting period but may impact expenses and equity. Construction contracts When accounting for construction contracts, the contracts are either combined or segmented if this is deemed necessary to reflect the substance of the agreement. Revenue arising from fixed price contracts is recognised in accordance with the percentage of completion method. Stage of completion is agreed with the customer on a work certified to date basis, as a percentage of the overall contract. Revenue from cost plus contracts is recognised by reference to the recoverable costs incurred plus a percentage of fees earned during the financial year. The percentage of fees earned during the financial year is based on the stage of completion of the contract. Where a loss is expected to occur from a construction contract, the excess of the total expected contract costs over expected contract revenue is recognised as an expense immediately. Provision for maintenance In determining the level of provision required for maintenance, the consolidated entity has made judgements in respect of the expected outcome of construction contracts and the costs of fulfilling the maintenance obligations. The provision is based on estimates made from historical data associated with past construction contracts. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Summary of Significant Accounting Policies (Cont’d) Fair value measurement hierarchy The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the consolidated entity can access at the measurement date; level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly; and level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Provision for impairment of receivables The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors’ financial position. Income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax audit issues based on the consolidated entity's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences and losses only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Employee benefits provision The liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: New Accounting Standards for Application in Future Periods New, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2018. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income (OCI). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' (ECL) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018 but it will have minimal impact on the consolidated entity. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining the timing and quantum of revenue recognised. It replaces existing guidance, including AASB 118 Revenue and AASB 111 Construction Contracts. The core principle of AASB 15 is that an entity shall recognise revenue when control of a good or service transfers to a customer. This standard will become mandatory for reporting periods beginning on or after 1 January 2018. The standard permits either a full retrospective or a modified retrospective approach for the adoption. Significant judgments and estimates are used in determining the impact, such as the assessment of the probability of customer acceptance of claims, estimation of project completion date and assumed levels of project execution productivity. The contractual terms and the way in which the Group operates its construction contracts is predominantly derived from projects containing one performance obligation. Contracted revenue will continue to be recognised over time, however the new standard provides new requirements for variable consideration, as well as accounting for claims and variations as contract modifications which all impart a higher threshold of probability for recognition. Revenue is currently recognised when it is probable that work performed will result in revenue whereas under the new standard, revenue is recognised when it is highly probable that a significant reversal of revenue will not occur for these modifications. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: New Accounting Standards for Application in Future Periods (Cont’d) Currently under AASB 111 Construction Contracts, costs incurred during the tender process are capitalised within other current assets when it is deemed probable the contract will be won. Under the new standard costs can only be capitalised if they are both expected to be recovered and either would not have been incurred if the contract had not been won or if they are intrinsic to the delivery of a project. Based on the current assessment, the higher recognition thresholds in the new standard may lead to an estimated adjustment reducing the current shareholder equity balance of $206.3 million by around $12.3 million (after tax) on 1 July 2018. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated entity will adopt this standard from 1 July 2019. The adoption of this standard has been assessed by the consolidated entity and will impact its assets, liabilities and expenses but the extent of which has not yet been assessed by the consolidated entity. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: Parent Entity Information Statement of profit or loss and other comprehensive income Loss for the year Total comprehensive income for the year Statement of financial position ASSETS Current assets Non-current assets TOTAL ASSETS LIABILITIES Current liabilities Non-current liabilities TOTAL LIABILITIES EQUITY Issued capital Retained earnings TOTAL EQUITY a) Guarantees Parent Entity 2018 $000 (27,725) (27,725) 86,543 87,175 173,718 158,083 652 158,735 2017 $000 (4,069) (4,069) 83,664 90,987 174,651 140,145 822 140,967 168,628 (153,645) 14,983 164,751 (131,067) 33,684 Cross guarantees have been provided by Decmil Group Limited and its controlled entities as listed in note 15(b). b) Other Commitments and Contingencies Decmil Group Limited has no commitments to acquire property, plant and equipment, and has no contingent liabilities apart from that disclosed in note 34. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 4: Expenses From continuing operations (Loss)/profit before income tax includes the following specific expenses: Employee benefits costs Finance costs Depreciation and amortisation of non-current assets: - plant and equipment owned - plant and equipment leased - building - amortisation of intangible assets Total depreciation Rental expense on operating leases Consolidated Entity 2018 $000 2017 $000 73,323 1,493 2,792 109 2 - 2,903 2,847 71,131 1,011 4,558 80 517 176 5,331 1,432 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 5: Income Tax Expense Income tax benefit is attributable to: (Profit)/Loss from continuing operations Loss from discontinued operations The components of income tax /benefit comprise: Current tax Deferred tax Over/(under) provision for tax in prior year Consolidated Entity Note 6 24 2018 $000 (521) 589 68 (1,564) 2,183 (551) 68 2017 $000 8,090 1,680 9,770 662 8,716 392 9,770 The prima facie tax benefit on loss before income tax is reconciled to the income tax benefit as follows: Prima facie tax benefit on loss before income tax at 30% (2017: 30%) Adjusted by the tax effect of: - equity based payments - deductible capital raising costs - non-deductible items - research and development tax offset (non-refundable) - over/(under) provision for tax in prior year Income tax benefit attributable to loss before income tax The applicable weighted average effective tax rates are as follows: 1,992 11,435 (93) 3 (855) (428) (551) 68 1% (230) 54 (2,763) 882 392 9,770 26% Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 6: Discontinued Operations As part of the Group’s refocus on its core construction and engineering business units, on 1 November 2017 the Group’s telecommunications division consisting of SC Holdings Pty Ltd and its subsidiaries SC Services Pty Ltd and SC Equipment Holdings Pty Ltd and the Group’s design consulting business, Scope Australia Pty Ltd, were discontinued. (a) Financial performance information Consolidated Entity Other services revenue Interest received Total revenue Cost of sales Administration expenses Borrowing costs Depreciation and amortisation expense Impairment of intangible assets Restructuring costs Loss on disposal of subsidiaries Total expenses Loss before income tax expense Income tax benefit Loss after income tax expense from discontinued operations Note 29(b) 5 2018 $000 7,647 1 7,648 (8,644) (2,002) (2) (111) - - (3,438) (14,197) (6,549) 589 (5,960) 2017 $000 28,151 9 28,160 (27,203) (4,452) (291) (296) (10,685) (127) - (43,054) (14,894) 1,680 (13,214) (b) Financial position information Consolidated Entity Current Assets Cash and cash equivalents Trade and other receivables Work in progress Other current assets Total Current Assets Non-current Assets Property, plant and equipment Deferred tax assets Intangible assets Total Non-current Assets Total Assets Current Liabilities Trade and other payables Provisions Total Current Liabilities Total Liabilities Net Assets Note 2018 $000 10 20 - 752 782 - - - - - 32 - 32 32 750 2017 $000 41 5,019 4,179 262 9,501 1,584 508 1,717 3,809 13,310 6,074 526 6,600 6,600 6,710 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 6: Discontinued Operations (Cont’d) (c) Cash flow information Consolidated Entity Net cash from/(used in) operating activities Net cash from/(used in) investing activities Net cash used in financing activities Net decrease in cash and cash equivalents from discontinued operations Note 2018 $000 (991) 962 (1) (30) 2017 $000 7,840 (113) (9,000) (1,273) NOTE 7: Key Management Personnel Disclosures a. Names and positions held of directors and other members of Key Management Personnel in office at any time during the financial year are: Parent Entity Directors Don Argent (appointed 1 March 2018) Denis Criddle Scott Criddle Bill Healy David Saxelby Lee Verios (resigned 1 November 2017) Key Management Personnel Tony Radalj: Chief Operating Officer Craig Amos: Chief Financial Officer b. Compensation for Key Management Personnel The totals of remuneration paid to directors and KMP of the Company and the consolidated entity during the year are as follows: Short-term employee benefits Equity-based payments 2018 $000 1,660 499 2,159 2017 $000 1,945 1,047 2,992 c. Loans to Key Management Personnel No directors or KMP had any loans during the reporting period. d. Other transactions and balances with Key Management Personnel There were no other transactions and balances with KMP other than that disclosed in note 31. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 8: Auditors’ Remuneration Remuneration of the auditor of the parent entity for: - - - auditing or reviewing the financial report taxation services accounting assistance NOTE 9: Earnings Per Share (a) (b) (c) (d) Reconciliation of earnings to profit or loss from overall operations Loss after income tax Earnings used to calculate basic and dilutive EPS Reconciliation of earnings to profit or loss from continuing operations Loss after income tax Earnings used to calculate basic and dilutive EPS Reconciliation of earnings to profit or loss from discontinuing operations Loss after income tax Earnings used to calculate basic and dilutive EPS Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of dilutive options outstanding Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS Consolidated Entity 2018 $000 228 29 10 267 2017 $000 266 16 9 291 Consolidated Entity 2018 $000 (6,131) (6,131) 2017 $000 (28,347) (28,347) (171) (171) (15,133) (15,133) (5,960) (5,960) (13,214) (13,214) No. No. 173,223,027 171,036,636 - - 173,223,027 171,036,636 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 10: Dividends Distributions Paid Final dividend for the year ended 30 June 2017 of nil cents (2016: 2.0 cents) per share fully franked at the tax rate of 30% (2017: 30%) Interim dividend for the year ended 30 June 2018 of nil cents (2017: 2.0 cents) per share fully franked at the tax rate of 30% (2017: 30%) Balance of franking account at year end NOTE 11: Revenue From continuing operations Construction and engineering revenue Accommodation revenue Other revenue - rentals - profit on sale of property - other services revenue Consolidated Entity 2018 $000 - - - 54,244 2017 $000 3,398 3,435 6,833 54,244 Note Consolidated Entity 2018 $000 335,901 5,952 (245) - - 2017 $000 259,847 14,486 351 2,213 75 Total revenue from continuing operations 341,608 276,972 (a) Interest revenue Interest revenue from: - other persons Total interest revenue 32 32 43 43 On 23 June 2017, a commercial building located at 20 Parkland Road, Osborne Park, Western Australia was sold for $27.5 million. The written down value at the date of sale was $23.189 million. The profit recognised on sale was $2.213 million net of selling costs. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 12: Cash and Cash Equivalents Cash at bank and in hand Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents NOTE 13: Trade and Other Receivables CURRENT Trade receivables Less: Provision for impairment of receivables Movement in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Written off during the year as uncollectable Closing balance Consolidated Entity 2018 $000 16,755 16,755 2017 $000 16,905 16,905 16,755 16,905 Consolidated Entity 2018 $000 43,672 - 43,672 - 399 (399) - 2017 $000 34,950 - 34,950 - 31 (31) - The following table details the consolidated entity’s trade receivables exposed to credit risk with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the debt has not been settled, with the terms and conditions agreed between the consolidated entity and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the consolidated entity. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. Past due but not impaired (days overdue) Within initial trade terms $000 Gross amount $000 31-60 $000 61-90 $000 91-120 $000 >120 $000 Past due and impaired $000 2018 Trade receivables Total 2017 43,672 43,672 42,472 42,472 547 547 Trade receivables Total 34,950 34,950 29,912 29,912 4,010 4,010 13 13 326 326 2 2 170 170 638 638 532 532 - - - - Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: Work in Progress CURRENT Construction and engineering contracts Cost incurred to date plus profit recognised Consideration received and receivables as progress billings Advanced billings to customers Unbilled amounts due from customers Consolidated Entity Note 2018 $000 2017 $000 566,798 (545,732) 21,066 (7,816) 28,882 21,066 730,763 (730,362) 401 (11,513) 11,914 401 21 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 15: Controlled Entities (a) Controlled Entities Country of Incorporation Percentage Owned (%) 2018 2017 Parent Entity: Decmil Group Limited Controlled entities of Decmil Group Limited: Decmil Australia Pty Ltd Decmil Properties Pty Ltd Eastcoast Development Engineering Pty Ltd Homeground Villages Pty Ltd Decmil Infrastructure Pty Ltd Decmil Services Pty Ltd Scope Australia Pty Ltd Decmil Group Limited Employee Share Plan Trust Controlled entities of Homeground Villages Pty Ltd: Homeground Gladstone Pty Ltd ATF Homeground Gladstone Unit Trust Homeground Gladstone Unit Trust Homeground Karratha Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Controlled entities of Decmil Australia Pty Ltd: Decmil PNG Limited Decmil Construction NZ Limited Decmil Engineering Pty Ltd Decmil Southern Pty Ltd (formerly Cut and Fill Pty Ltd) Papua New Guinea New Zealand Australia Australia 100% 100% 100% 100% 100% 100% - 100% 100% 100% - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Controlled entities of Decmil Infrastructure Pty Ltd: Cornelisse Shoal Pty Ltd Australia - 100% Controlled entities of Decmil Services Pty Ltd: Decmil Telecom Pty Ltd SC Holdings Pty Ltd SC Services Pty Ltd SC Equipment Holdings Pty Ltd Australia Australia Australia Australia 100% - - - 100% 100% 100% 100% Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 15: Controlled Entities (Cont’d) (b) A deed of cross guarantee between Decmil Group Limited and the following wholly-owned controlled entities existed during the financial year and relief was obtained from preparing a financial report for Decmil Group Limited’s wholly-owned controlled entities under ASIC Class Order 98/1418: Decmil Australia Pty Ltd, Eastcoast Development Engineering Pty Ltd, Homeground Villages Pty Ltd and Decmil Properties Pty Ltd. Under the deed, Decmil Group Limited and the above named wholly-owned controlled entities guarantee to support each other’s liabilities and obligations. Decmil Group Limited and its above named wholly- owned controlled entities are the only parties to the deed of cross guarantee and are members of the Closed Group. The following are the aggregate totals, for each category, relieved under the deed. Financial information in relation to: (i) Statement of profit or loss and other comprehensive income: Loss before income tax Income tax benefit Loss after income tax (ii) Retained Earnings: Retained earnings at the beginning of the year Loss after income tax Dividends recognised for the period Retained earnings at the end of the year 2018 $000 2017 $000 (19,151) 1,210 (17,941) 16,985 (17,941) - (956) (22,420) 7,268 (15,152) 38,970 (15,152) (6,833) 16,985 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 15: Controlled Entities (Cont’d) (iii) Statement of Financial Position: 2018 $000 2017 $000 Current Assets Cash and cash equivalents Trade and other receivables Work in progress Current tax receivable Other assets Total Current Assets Non-current Assets Investment property Property, plant and equipment Deferred tax assets Intangible assets Other financial assets Total Non-current Assets Total Assets Current Liabilities Trade and other payables Borrowings Provisions Total Current Liabilities Non-current Liabilities Deferred tax liabilities Provisions Total Non-current Liabilities Total Liabilities Net Assets Equity Issued capital Retained earnings Net Equity 3,662 24,176 27,821 820 6,829 63,308 92,410 3,658 29,375 71,061 6,218 202,722 266,030 96,512 173 3,427 100,112 544 498 1,042 101,154 164,876 165,832 (956) 164,876 9,773 25,602 6,165 271 2,808 44,619 92,400 5,469 27,285 69,343 9,560 204,057 248,676 64,429 243 2,194 66,866 316 1,125 1,441 68,307 180,369 163,384 16,985 180,369 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 16: Joint Arrangements Interest in Joint Operations In June 2017, Pilbara Marine Pty Ltd, a wholly owned subsidiary of Fortescue Metals Group, awarded Decmil Australia Pty Ltd, in joint venture with BESIX Australia Pty Ltd (Decmil BESIX JV), a ~$21.0m contract for the provision of tug infrastructure and service facilities including fuel, lighting, electrical and water services at Anderson Point, Port Hedland in Western Australia. The principal place of business of the joint operation is Australia. Under the joint venture agreement Decmil Australia Pty Ltd has a 50% participation interest in all the assets used, revenues generated and the expenses incurred by the joint arrangement. Decmil Australia Pty Ltd is also liable for 50% of any liabilities incurred by the joint arrangement. In addition, Decmil Australia Pty Ltd has voting rights in the joint arrangement, which generally require unanimity on most decisions save for certain urgent matters which may initially be determined by the Project Manager (and can be subsequently disputed by either party). Decmil BESIX JV is an unincorporated entity and is classified as a joint operation. Accordingly, Decmil Australia Pty Ltd’s interests in the assets, liabilities, revenues and expenses attributable to the joint arrangement have been included in the appropriate line items in the consolidated financial statements. The consolidated entity’s share of assets employed, liabilities owing and net results of the Decmil BESIX JV that are included in the consolidated financial statements are as follows: CURRENT ASSETS Cash and cash equivalents Other assets TOTAL CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL LIABILITES Revenue Expenses Profit for the year 2018 $000 520 3,671 4,191 4,191 3,939 3,939 3,939 12,014 (11,718) 296 2017 $000 100 673 773 773 728 728 728 592 (529) 63 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 16: Joint Arrangements (Cont’d) In August 2016, Decmil Construction NZ Limited, a controlled entity of Decmil Group Limited entered into a 50% participation interest in the Stanley Decmil Joint Venture with joint venture partner Stanley Construction Limited to construct the Thames Indoor Sports Facility for the Thames Coromandel District Council located in Thames, New Zealand valued at NZD$3.4m. The principal place of business of the joint operation is New Zealand. Under the joint venture agreement Decmil Construction NZ Limited has a 50% participation in all the assets used, the revenues generated and the expenses incurred by the joint arrangement. Decmil Construction NZ Limited is also liable for 50% of any liabilities incurred by the joint arrangement. In addition, pursuant to the joint venture agreement, Decmil Construction NZ Limited has 50% of the voting rights in relation to the Stanley Decmil Joint Venture. Stanley Decmil Joint Venture is an unincorporated entity and is classified as a joint operation. Accordingly, Decmil Construction NZ Limited’s interests in the assets, liabilities, revenues and expenses attributable to the joint arrangement have been included in the appropriate line items in the consolidated financial statements. The consolidated entity’s share of assets employed, liabilities owing and net results of the Stanley Decmil Joint Venture that are included in the consolidated financial statements are as follows: CURRENT ASSETS Cash and cash equivalents Other assets TOTAL CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL LIABILITES Revenue Expenses Profit for the year 2018 $000 95 256 351 351 315 315 315 432 (432) - 2017 $000 58 92 150 150 114 114 114 1,556 (1,506) 50 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 16: Joint Arrangements (Cont’d) Decmil Australia Pty Ltd, a controlled entity of Decmil Group Limited, is a participant in two unincorporated joint ventures with Balance Utility Solutions Pty Ltd. The first is a 50% participation interest in the delivery of a battery energy storage system for Western Power in Perenjori, Western Australia valued at $1.6m. The second is a 67% participation interest in the construction of a 10MW solar farm in Goulburn, New South Wales and a two-year operation and maintenance contract for Gullen Solar Pty Ltd valued at $19.2m. Under the joint venture agreements entered into in 2016, Decmil Australia Pty Ltd has the respective participation interests stated above, which reflects its percentage share of assets, distribution of funds and percentage liability for costs and expenses incurred by the joint arrangement (whether by way of return of capital or distribution of surplus funds). Those participation interests are supported by cross indemnities from Decmil and its joint venture partner. Decmil Australia Pty Ltd has voting rights in each joint arrangement, which generally require unanimity on most decisions save for certain urgent matters that only require a majority. Each of the arrangements described above are unincorporated entities and are classified as joint operations. Accordingly, Decmil Australia Pty Ltd’s interests in the assets, liabilities, revenues and expenses attributable to the joint arrangement have been included in the appropriate line items in the consolidated financial statements. The consolidated entity’s share of assets employed, liabilities owing and net results of Decmil Balance JV that are included in the consolidated financial statements are as follows: CURRENT ASSETS Cash and cash equivalents Other assets TOTAL CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL LIABILITES Revenue Expenses Profit/(loss) for the year 2018 $000 6 742 748 748 417 417 417 570 (892) (322) 2017 $000 499 1,955 2,454 2,454 1,898 1,898 1,898 12,957 (12,162) 795 Contingent Liabilities in Respect of Joint Arrangements The consolidated entity is liable for the following contingent liabilities owing from its participation interests in the joint arrangements if and when they arise: Guarantees given for satisfactory contract performance 2018 $000 4,677 2017 $000 18,757 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 17: Property, Plant and Equipment LAND AND BUILDING (Secured) Freehold land, at cost Building: At cost Accumulated depreciation PLANT AND EQUIPMENT Plant and Equipment: At cost Accumulated depreciation Leased Plant and Equipment (Secured) Accumulated depreciation Total Property, Plant and Equipment Movements in Carrying Amounts Consolidated Entity 2018 $000 554 - - 554 40,352 (33,944) 6,408 1,427 (824) 603 7,565 2017 $000 554 216 (22) 748 42,145 (32,973) 9,172 1,221 (716) 505 10,425 Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Balance at 1 July 2017 Additions Transfer between categories Disposals Disposals on divestment of subsidiary Depreciation expense Balance at 30 June 2018 Balance at 1 July 2016 Additions Transfer between leased and owned Disposals Depreciation expense Balance at 30 June 2017 Land and Building $000 748 Owned Plant and Equipment $000 9,172 Leased Plant and Equipment $000 505 - (192) - - (2) 554 Land and Building $000 24,232 222 - (23,189) (517) 748 1,768 192 (388) (1,433) (2,903) 6,408 207 - - - (109) 603 Owned Plant and Equipment $000 13,180 Leased Plant and Equipment $000 341 994 109 (257) (4,854) 9,172 353 (109) - (80) 505 Total $000 10,425 1,975 - (388) (1,433) (3,014) 7,565 Total $000 37,753 1,569 - (23,446) (5,451) 10,425 On 23 June 2017, a commercial building located at 20 Parkland Road, Osborne Park, Western Australia was sold for $27.5 million. The written down value at the date of sale was $23.189 million. The profit recognised on sale was $2.213 million net of selling costs. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 18: Investment Property Balance at beginning of year Additions Fair value adjustment Balance at the end of the year Consolidated Entity 2018 $000 92,400 10 - 92,410 2017 $000 111,032 131 (18,763) 92,400 The investment property comprises the Homeground Gladstone Accommodation Village located in Gladstone, Queensland. The investment property is carried at fair value, with fair value being determined using a discounted cash flow valuation model based on assumptions made by the consolidated entity as detailed in note 33. NOTE 19: Intangible Assets Consolidated Entity Goodwill at cost Goodwill written off Customer contracts, at cost Accumulated amortisation Total intangible assets Movements in Carrying Amounts Goodwill Balance at the beginning of the year Goodwill written off Balance at the end of the year Customer Contracts Balance at the beginning of the year Amortisation Balance at the end of the year Allocation of Goodwill to CGU’s Construction & Engineering Decmil Australia Pty Ltd Cut and Fill Pty Ltd Scope Australia Pty Ltd Balance at the end of the year 2018 $000 75,482 - 75,482 - - - 75,482 75,482 - 75,482 - - - 75,482 - - - 75,482 2017 $000 86,169 (10,687) 75,482 176 (176) - 75,482 86,169 (10,687) 75,482 176 (176) - - 69,343 4,422 1,717 75,482 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: Intangible Assets (Cont’d) The recoverable amount of the consolidated entity's goodwill has been determined by value-in-use calculations using discounted cash flow models, based on a 1-year budget approved by the Board and extrapolated for a further 4 years using a steady rate, together with a terminal value. During the year residual goodwill values associated with Scope Australia and Decmil Southern (formerly Cut and Fill) were amalgamated with the goodwill of Decmil Australia as certain activities and operations of these businesses was integrated into Decmil’s principal construction and engineering business unit. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model for each cash-generating unit: a. 12.9% (2017: 12.9%) pre-tax discount rate; b. 5% (2017: 5%) per annum projected revenue growth rate; c. 2.5% (2017: 2.5%) per annum increase in operating costs and overheads; and d. 2.5% (2017: 2.5%) per annum increase in terminal value. The discount rate of 12.9% pre-tax reflects management’s estimate of the time value of money and the consolidated entity’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market movements. Management believes the projected 5% revenue growth rate and 2.5% increase in operating costs and overheads is justified based on past experience and current market outlook. Management also believes that a 2.5% increase in the terminal value of each cash-generating unit is prudent and appropriate based on current market conditions. At the date of this report there has been no reason to adjust these assumptions. Sensitivity As disclosed above, the directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. The sensitivities are as follows: a. Revenue for Decmil Australia Pty Ltd would need to decrease by more than 6.2% before goodwill would need to be impaired, with all other assumptions remaining constant. b. Overheads for Decmil Australia Pty Ltd would need to increase by more than 17.1% before goodwill would need to be impaired, with all other assumptions remaining constant. Management believes that other reasonable changes in the key assumptions on which the recoverable amount of each cash-generating unit’s goodwill is based would not cause the carrying amount to exceed its recoverable amount. NOTE 20: Other Current Assets CURRENT Prepayments Others Note Consolidated Entity 2018 $000 1,170 7,391 8,561 2017 $000 1,258 4,458 5,716 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 21: Trade and Other Payables CURRENT Unsecured Liabilities Trade payables Advance billings to customers Sundry payables and accrued expenses NOTE 22: Current Income Tax Current tax payable - provision for income tax NOTE 23: Borrowings CURRENT Secured liabilities Hire purchase liability Insurance premium funding Software subscription funding Total current borrowings NON-CURRENT Secured liabilities Hire purchase liability Total non-current borrowings Total Borrowings Consolidated Entity Note 2018 $000 14 33,620 7,816 46,787 88,223 2017 $000 24,817 11,513 23,828 60,158 Consolidated Entity Note 2018 $000 1,596 1,596 2017 $000 49 49 Consolidated Entity 2018 $000 2017 $000 214 161 12 387 472 472 859 107 186 57 350 474 474 824 Hire purchase agreements have an average term of 5 years. The average interest rate implicit in the hire purchase is 4.51% (2017: 4.54%). The hire purchase liability is secured by a charge over the underlying hire purchase assets. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: Other Deferred Tax Consolidated Entity 2018 Deferred tax assets on: Transaction costs on equity issue Provisions – employee benefits Restructuring costs Investment due diligence costs Other provisions and accruals Tax losses and carry forward tax credits Property, plant and equipment Research and development tax offset (non-refundable) Total deferred tax assets Deferred tax liabilities on: Prepayments Equity based payments Accrued income Total deferred tax liabilities Consolidated Entity 2017 Deferred tax assets on: Transaction costs on equity issue Provisions – employee benefits Restructuring costs Investment due diligence costs Other provisions and accruals Tax losses and carry forward tax credits Property, plant and equipment Research and development tax offset (non-refundable) Total deferred tax assets Deferred tax liabilities on: Prepayments Equity based payments Total deferred tax liabilities 1 July 2017 Opening Balance $000 Under- provision in Prior Year $000 Disposed on Disposal of Subsidiary $000 Charged to Income $000 Charged Directly to Equity $000 30 June 2018 Closing Balance $000 7 1,578 - 12 843 12,630 12,028 1,595 - 315 - - (490) 139 (417) - - (312) - - - - (1) - 28,693 (453) (313) (17) 333 - 316 98 - - 98 - - - - 4 555 - (7) 111 3,477 (1,307) (428) 2,405 (64) 212 75 223 (3) - - - - - - - 8 2,136 - 5 464 16,246 10,303 1,167 (3) 30,329 - (93) - (93) 17 452 75 544 1 July 2016 Opening Balance $000 Under- provision in Prior Year $000 Disposed on Disposal of Subsidiary $000 Charged to Income $000 Charged Directly to Equity $000 30 June 2017 Closing Balance $000 6 1,949 4 34 430 9,130 7,281 703 19,537 - - - - - - - 332 (276) 113 - 169 - - - - - - - - - - - - - - - - (371) (4) (22) 81 3,776 4,634 892 8,986 (17) 287 270 1 - - - - - - - 1 - 46 46 7 1,578 - 12 843 12,630 12,028 1,595 28,693 (17) 333 316 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 25: Provisions CURRENT Employee entitlements Onerous lease Total current provisions NON CURRENT Employee entitlements Onerous lease Total non-current provisions Total Provisions Consolidated Entity Note 25a 25a 2018 $000 5,623 - 5,623 498 - 498 6,121 2017 $000 3,931 86 4,017 1,125 - 1,125 5,142 (a) Provision for Employee Entitlements Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the consolidated entity does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the consolidated entity does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. Movement in provision Balance at beginning of year Additional provision Disposals through disposal of controlled entity Amounts used Balance at the end of the year Note Consolidated Entity 2018 $000 5,056 6,169 (740) (4,364) 6,121 2017 $000 5,722 6,162 - (6,828) 5,056 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 26: Issued Capital Consolidated Entity 2018 $000 2017 $000 173,811,927 (2017: 171,736,697) fully paid ordinary shares 165,832 163,384 (a) Ordinary Shares 2018 No. At the beginning of reporting period 171,736,697 Shares issued during the year Options exercised during the year Issue of retention shares Performance rights converted to shares Equity based payments Transaction costs of issue/buy-back 213,490 - 1,577,500 284,240 - - $000 163,384 118 - - - 2,248 82 2017 No. 169,892,219 124,478 - 1,470,000 250,000 - - $000 162,254 54 - - - 1,030 46 At the end of the reporting date 173,811,927 165,832 171,736,697 163,384 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. During the year ended 30 June 2017, the Decmil Group Limited Employee Share Plan Trust was established. In November 2016, 1,470,000 ordinary shares were issued into the trust on an allocated basis for 58 employees. In October 2017, a further 1,577,500 ordinary shares were issued into the trust on an allocated basis for 80 employees. These ordinary shares will vest to employees after two years of continuous employment from the date of grant. Also, during the year ended 30 June 2018, 213,490 shares were issued under the Decmil Employee Share Purchase Plan. Under this plan, employees who purchased up to $1,000 of shares had those shares matched by the Company. The matched shares are subject to a trade restriction until the earlier of three years or cessation of employment with the Company. In addition to the above share issues, 284,240 shares were issued to executives upon vesting of performance rights during the year ended 30 June 2018. (b) Capital Management Management controls the capital of the consolidated entity in order to maintain an optimal debt to equity ratio, provide shareholders with adequate returns and ensure that the consolidated entity can fund its operations and continue as a going concern. The consolidated entity’s debt and capital includes ordinary share capital and financial liabilities (including bank guarantee and surety bonding facilities), supported by financial assets. Management manages the consolidated entity’s capital by assessing the consolidated entity’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. This includes the management of debt levels, distributions to shareholders and the requirement for further equity funding in the consolidated entity. The deployment of capital to the consolidated entity’s assets and business units is also reviewed regularly and managed to ensure rates of return continue to be at an acceptable level. Where necessary, management may consider redeploying capital within the consolidated entity or alternatively returning capital to shareholders. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 27: Commitments Consolidated Entity Note 2018 $000 2017 $000 (a) Hire Purchase Commitments1 Payable – minimum HP payments Not later than 1 year Between 1 and 5 years Minimum HP payments Less future finance charges Present value of minimum HP payments (b) Insurance Premium Funding Commitments Payable – minimum payments Not later than 1 year Minimum payments Less future finance charges Present value of minimum payments (c) Software Subscription Funding Commitments Payable – minimum payments Not later than 1 year Minimum payments Less future finance charges Present value of minimum payments (d) Operating Leases Payable Non-cancellable operating leases contracted for but not recognised as liabilities Payable – minimum lease payments Not later than 1 year Between 1 and 5 years More than 5 years (e) Operating Leases Receivable Future minimum rentals receivable for operating leases at the end of the reporting period but not recognised as assets Receivable – minimum lease receipts Not later than 1 year Between 1 and 5 years 242 512 754 (68) 686 161 161 (2) 159 12 12 - 12 131 515 646 (65) 581 188 188 (2) 186 61 61 (4) 57 2,683 8,028 1,176 11,887 3,380 8,393 1,176 12,949 128 132 260 167 642 809 1 Hire purchase commitments include contracted amounts for various plant and equipment with a written down value of $603,252 (2017: $505,770) secured under hire purchase contracts expiring within one to five years. Under the terms of the hire purchase contracts, the consolidated entity has the option to acquire the assets under finance for predetermined residual values on the expiry of the contracts. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 28: Segment Reporting The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The consolidated entity operates as three segments. 1. Construction and Engineering ▪ Decmil Australia Pty Ltd – multi-discipline design, civil engineering and construction services; ▪ Eastcoast Development Engineering Pty Ltd – fabrication and installation of high pressure pipes, vessels and tanks; ▪ Decmil PNG Limited – construction arm of Decmil located in Papua New Guinea; ▪ Decmil Engineering Pty Ltd – civil construction including roads and bridges primarily for the Government sector; ▪ Decmil Construction NZ Limited – construction arm of Decmil located in New Zealand; ▪ Decmil Southern Pty Ltd (formerly Cut and Fill Pty Ltd) – civil engineering company focussed on civil infrastructure works across the South Eastern seaboard of Australia; and ▪ Scope Australia Pty Ltd – discontinued business specialising in the delivery of study, project management, engineering and design consultancy services to the mining, resources, government and construction sectors. 2. Accommodation ▪ Homeground Villages Pty Ltd – build-own-operation of the Homeground Gladstone Accommodation Village located in Gladstone, Queensland. 3. Other ▪ Decmil Properties Pty Ltd – former owner and manager of a commercial office building located at 20 Parkland Road, Osborne Park, Western Australia which derived internal and external revenue; ▪ SC Services Pty Ltd – discontinued business specialising in the design, installation, commissioning and maintenance services to telecommunications network owners, manufacturers and NBN service providers; and ▪ Decmil Telecom Pty Ltd trading as SAS Telecom – the discontinued mining communications and managed services business. The consolidated entity is domiciled in Australia. 86% of revenue from external customers is generated from Australia. The consolidated entity derives 26%, 20% and 14% (2017: 14%, 10% and 10%) of its revenues from the top three external customers. All of the consolidated entity’s assets are located in Australia. Basis of accounting for purposes of reporting by operating segments a. Accounting policies adopted Unless stated otherwise, all amounts reported to the chief operating decision makers with respect to operating segments, are determined in accordance with accounting policies that are consistent with those adopted in the annual financial statements of the consolidated entity b. Intersegment transactions Corporate charges are allocated to reporting segments based on the segments’ overall proportion of revenue generation within the consolidated entity. Management believes this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries. c. Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of the economic value from the asset. In most instances, segment assets are clearly identifiable on the basis of their nature and physical location. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 28: Segment Reporting (Cont’d) d. Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Tax liabilities are generally considered to relate to the consolidated entity as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings. e. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: ▪ income tax expense; ▪ deferred tax assets and liabilities; and ▪ current tax liabilities. (a) Segment Performance 2018 External sales Total segment revenue Segment earnings before interest, tax, depreciation and amortisation & impairments Net interest Depreciation & amortisation expense Impairment of intangible assets Investment property fair value adjustment Segment result Other unallocated expenses Income tax benefit Loss for the period Segment Performance 2017 External sales Total segment revenue Segment earnings before interest, tax, depreciation, amortisation & impairments Net interest Depreciation & amortisation expense Impairment of intangible assets Investment property fair value adjustment Segment result Other unallocated expenses Income tax benefit Loss for the period Construction & Engineering $000 336,622 Accommodation $000 5,952 336,622 5,463 (1,418) (2,396) - - 5,952 (693) (20) (504) - - Other $000 6,681 6,681 Total $000 349,255 349,255 (6,109) (1,339) (24) (114) - - (1,462) (3,014) - - 1,649 (1,217) (6,247) (5,815) Construction & Engineering $000 263,584 Accommodation $000 14,486 263,584 (2,783) (839) (3,738) - - (7,360) 14,486 3,298 (45) (1,024) - (18,763) (16,534) (384) 68 (6,131) Total $000 305,124 305,124 Other $000 27,054 27,054 (1,563) (1,048) (366) (866) (1,250) (5,628) (10,687) (10,687) - (18,763) (13,482) (37,376) (741) 9,770 (28,347) Other $000 386 - 386 66 Other $000 9,612 1,698 Total $000 96,521 174,079 33,056 303,656 2,105 Total $000 68,859 177,435 30,191 276,485 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 28: Segment Reporting (Cont’d) (b) Segment Assets 2018 Current assets Non-current assets Other unallocated assets Total segment assets Total assets includes: Construction & Engineering $000 94,973 Accommodation $000 1,162 81,284 92,795 176,257 93,957 Acquisition of non-current assets 1,841 198 Segment Assets 2017 Current assets Non-current assets Other unallocated assets Total segment assets Total assets includes: Construction & Engineering $000 57,515 Accommodation $000 1,732 82,497 93,240 140,012 94,972 11,310 Acquisition of non-current assets 849 314 537 1,700 (c) Segment Liabilities 2018 Current liabilities Non-current liabilities Other unallocated liabilities Total segment liabilities Segment Liabilities 2017 Current liabilities Non-current liabilities Other unallocated liabilities Total segment liabilities Construction & Engineering $000 90,545 Accommodation $000 1,132 863 - 91,408 1,132 Construction & Engineering $000 56,734 Accommodation $000 1,200 1,093 - Other $000 - - - Other $000 5,017 - 57,827 1,200 5,017 Total $000 91,677 863 4,803 97,343 Total $000 62,951 1,093 2,445 66,489 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 29: Cash Flow Information (a) Reconciliation of Cash Flow from Operations with (Loss)/Profit after Income Tax Loss after income tax Adjustments for: Depreciation and amortisation Equity based payments Impairment of investment property Impairment of intangible assets (Profit)/loss on sale of non-current assets Loss on disposal of subsidiaries Bad debts written off Cash generated from operations before working capital changes Changes in assets and liabilities Trade receivables Other assets Work in progress Trade payables and accruals Current tax liabilities Deferred tax assets Deferred tax liabilities Provisions Change in working capital balances Net cash generated from/(used in) operating activities Consolidated Entity 2018 $000 (6,131) 3,014 2,248 - - 126 3,438 399 3,094 (9,969) (2,802) (20,860) 29,468 1,547 (1,948) 228 1,869 (2,467) 627 2017 $000 (28,347) 5,627 1,030 18,763 10,687 (2,615) - - 5,145 (5,433) 2,215 3,932 (3,133) 722 (9,859) 316 (857) (12,097) (6,952) Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 29: Cash Flow Information (Cont’d) (b) Disposal of Entities (i) On 1 November 2017, SC Holdings Pty Ltd and its subsidiaries SC Services Pty Ltd and SC Equipment Holdings Pty Ltd were divested. Goodwill associated with the SC Holdings entities amounting to $10,687,000 was previously impaired at 30 June 2017. The divestment excluded pre-completion cash and accounts receivable balances, which accrued to the benefit of Decmil. Residual net assets (excluding pre-completion cash and accounts receivable) were divested for a consideration of $919,055. Sale consideration Less: deferred consideration Cash inflow on disposal Assets and liabilities held at disposal date: Work in progress Plant and equipment Deferred tax assets Payables & accruals Provisions Loss on disposal Sale consideration (ii) On 1 November 2017, residual components of Scope Australia Pty Ltd were divested. Assets and liabilities held at disposal date: Receivables Plant and equipment Deferred tax assets Payables & accruals Provisions Loss on disposal Sale consideration Fair Value $000 919 - 919 3,892 1,361 221 (1,133) (653) 3,688 (2,769) 919 Fair Value $000 848 72 92 (106) (237) 669 (669) - Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 29: Cash Flow Information (Cont’d) (c) Non-cash Financing and Investing Activities Finance leases to acquire plant and equipment (d) Credit Standby Facilities with Banks Credit facilities Amount utilised Bank overdraft Limited recourse receivables funding Loan facility Equipment finance Bank guarantees and surety bond facilities The credit facilities are summaries as follows: Bank overdraft and/or limited recourse receivables funding facility Loan facility Equipment finance Bank guarantee and surety bond facilities Consolidated Entity 2018 $000 206 2017 $000 382 Consolidated Entity 2018 $000 2017 $000 272,000 187,000 - (16,688) - (686) (68,949) 185,677 25,000 25,000 3,000 219,000 272,000 (233) (3,059) - (581) (63,516) 119,611 20,000 25,000 2,000 140,000 187,000 The majority of credit facilities are provided by National Australia Bank Limited and comprise a $65 million multi-option facility and a $0.5 million corporate credit card facility. The $65 million multi-option facility encompasses a bank guarantee facility, letter of credit facility, overdraft and/or limited recourse receivables funding facility capped at $25 million and a market loan facility capped at $25 million. The bank market loan facility expires in January 2020. The interest charged is calculated at Bank Bill Rate plus a margin of 1.55% (2017: 1.45%) which equates to 3.73% as at 30 June 2018 (2017: 3.30%). Security for the National Australia Bank facilities comprises the following: ▪ General Security granted by Decmil Group Limited and its controlled entities (other than Decmil PNG Ltd and Homeground Karratha Pty Ltd); ▪ Negative pledge in relation to Homeground Gladstone Pty Ltd; and ▪ First registered mortgage over property situated at 101 Calliope River Road, Calliope, Queensland. In addition to the National Australia Bank facilities, the consolidated entity also has the following facilities: ▪ Equipment finance of $3 million with Toyota Finance; and ▪ Surety bond facilities of $80 million with Asset Insure, $35 million with Vero, $35 million with New Surety and $54 million (USD$40 million) with AIG Australia. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 30: Equity Based Payments Performance Rights Plan The Board believes that the long term incentive offered to key executives forms a key part of their remuneration and assists to align their interests with the long term interests of Shareholders. For details of the Long Term Incentive Plan, refer to the Directors’ Report. A summary of the movements of all performance rights issued is as follows: Performance rights outstanding as at 30 June 2016 Granted Forfeited Vested Lapsed Performance rights outstanding as at 30 June 2017 Granted Forfeited Vested Lapsed Performance rights outstanding as at 30 June 2018 Number 6,466,779 3,634,749 (4,060,766) (250,000) - 5,790,762 1,676,126 - (284,240) (851,506) 6,331,142 The fair value of the performance rights granted during the financial year was $311,760. Performance rights are valued using various valuation methodologies, including Black-Scholes option pricing models and Monte Carlo simulations where performance rights have market based vesting conditions. Expected life is based on management’s best estimate at the time of valuation of vesting criteria being achieved. The fair value has been discounted to reflect the probability of not meeting the vesting conditions. The discount factors were determined through an analysis of relative share price to the date of grant, dividends paid and likelihood of rights being forfeited prior to vesting. The weighted average fair value of performance rights granted during the year was $0.186 (2017: $0.305). These values were calculated using a Black-Scholes option pricing model applying the following inputs: Expected vesting period for the performance rights to vest: 2, 3 and 4 years Expected share price volatility: Risk-free interest rate: Dividend yield 30% 2.75% 0.0% Historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future movements. Expenses arising from equity-based payment transactions recognised during the year were as follows: Performance Rights Expenses Written back due to forfeiting Written back due to lapsing Written back on reassessment of probabilities Consolidated Entity 2018 $000 1,403 - (152) (270) 981 2017 $000 1,442 (381) - (397) 664 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 30: Equity Based Payments (Cont’d) Incentive Shares Plan During the year the Board approved an Incentive Shares Plan whereby ordinary shares are issued into the Decmil Group Limited Employee Share Plan Trust on an allocated basis for employees. These ordinary shares will vest to employees after two years of continuous employment from the date of grant. In the event an employee resigns or Decmil terminates their employment due to misconduct or performance related reasons prior to vesting, the shares are forfeited. A summary of the movements of all incentive shares issued is as follows: Unvested incentive shares as at 30 June 2016 Granted Forfeited Unvested incentive shares as at 30 June 2017 Granted Vested Forfeited Unvested incentive shares as at 30 June 2018 Number - 1,475,000 (105,000) 1,370,000 1,762,500 (165,000) (412,500) 2,555,000 The fair value of the incentive shares granted during the financial year was $1,478,906. Incentive shares are valued using the share price at the date of grant. The fair value has been discounted by 25% to reflect the probability of not meeting the continuous employment vesting condition. During the year ended 30 June 2018 the Board used their discretion to vest incentive securities totalling 165,000 to staff who were employed by the SC Services and Scope Australia business units which were discontinued during the financial year. Expenses arising from the incentive shares plan transactions recognised during the year were as follows: Incentive Shares Expenses Written back due to forfeiting Consolidated Entity 2018 $000 1,441 (174) 1,267 2017 $000 387 (21) 366 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 31: Related Party Transactions and Balances Parent entity Decmil Group Limited is the parent entity. Controlled entities Interests in controlled entities are set out in note 15. Key management personnel Disclosures relating to KMP are set out in note 7 and the Remuneration Report in the Directors' Report. Transactions with related parties The following transactions occurred with related parties: (a) Director Related Transactions Rent of various properties used by Decmil Australia Pty Ltd paid to Broadway Pty Ltd, an entity in which Mr Denis Criddle has a beneficial interest Consulting fees for Saxelby Associates Pty Ltd, an entity in which Mr David Saxelby has a beneficial interest (b) Director Related Balances1 Amounts owing to Saxelby Associates Pty Ltd, an entity in which Mr David Saxelby has a beneficial interest, for directors’ fees and consulting fees Consolidated Entity 2018 $000 190 200 2017 $000 196 200 27 23 1 Transactions relating to directors’ fees are included in the Directors’ Report details of remuneration Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 32: Financial Instruments The consolidated entity’s financial instruments consist mainly of deposits with banks, accounts receivable and payable and borrowings. The only derivatives used by the consolidated entity relate to forward foreign exchange contracts in relation to offshore procurement. The consolidated entity does not speculate in the trading of derivative instruments. (i) Financial Risk Management Policies The Chief Financial Officer and other senior finance executives regularly analyse financial risk exposure and evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. The overall risk management strategy seeks to assist the consolidated entity in meeting its financial targets, whilst minimising potential adverse effects on financial performance. Treasury functions are performed in accordance with policies approved by the Board of Directors. Risk management policies are approved and reviewed by the Board on a regular basis. (ii) Specific Financial Risk Exposures and Management The main risks the consolidated entity is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk, price risk and foreign exchange risk. Interest rate risk Exposure to interest rate risk arises on financial assets and liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows. Liquidity risk The consolidated entity manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained. Credit risk The maximum exposure to credit risk, at balance date to recognise financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. There are no material amounts of collateral held as security at 30 June 2018. In respect of the parent entity, credit risk also incorporates the exposure of Decmil Group Limited to the liabilities of all the parties to the deed of cross guarantee. Credit risk is managed on a consolidated basis and reviewed regularly by finance executives and the Board. It arises from exposures to customers as well as through deposits with financial institutions. The consolidated entity does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the consolidated entity. Price risk The consolidated entity is exposed to price risks associated with labour costs and to a lesser extent, fuel and steel prices. Wherever possible, the consolidated entity contracts out such exposures or allows for the rise and fall for changes in prices or provides sufficient contingencies to cover for such price risks. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 32: Financial Instruments (Cont’d) Foreign exchange risk Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the consolidated entity holds financial instruments which are other than the Australian Dollar (AUD) functional currency of the consolidated entity. This risk is managed predominantly through forward foreign exchange contracts. (iii) Financial instrument composition and maturity analysis: The tables below reflect the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity, as well as management’s expectations of the settlement period for all other financial instruments. As such, the amounts may not reconcile to the statement of financial position. Weighted Average Effective Interest Rate % 1.5 - - 3.9 1.5 - - 3.6 Non- Interest Bearing $000 - 43,672 43,672 (88,223) - (88,223) - 34,950 34,950 (60,158) - (60,158) Within 1 year $000 16,755 - 16,755 - (387) (387) 16,905 - 16,905 - (350) (350) 1 to 5 Years $000 Carrying Amount $000 - - - - (472) (472) - - - - (474) (474) 16,755 43,672 60,427 (88,223) (859) (89,082) 16,905 34,950 51,855 (60,158) (824) (60,982) 2018 Financial Assets Cash and cash equivalents Receivables Financial Liabilities Payables Borrowings 2017 Financial Assets Cash and cash equivalents Receivables Financial Liabilities Payables Borrowings The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. (iv) Net Fair Values of financial instruments Unless otherwise stated, the carrying amount of financial instruments reflect their fair value. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 32: Financial Instruments (Cont’d) (v) Sensitivity Analysis Interest Rate Risk and Price Risk The consolidated entity has performed sensitivity analysis relating to its exposure to interest rate risk, price risk and foreign exchange risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis The consolidated entity’s cash and cash equivalents and borrowings are subject to interest rate sensitivities. At 30 June 2018, the effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant is immaterial. Price Risk Sensitivity Analysis At 30 June 2018, the effect on profit and equity as a result of changes in the price risk, with all other variables remaining constant would be as follows: Consolidated Entity 2018 $000 2017 $000 Change in profit Increase in labour costs by 5% (CPI assumption) (3,666) (3,557) Change in equity Increase in labour costs by 5% (CPI assumption) (3,666) (3,557) In the opinion of the consolidated entity’s management, the majority of the above increase in labour cost, had it been incurred, would have been negated by an increase in the price of services offered by the consolidated entity. The above sensitivity analysis has been performed on the assumption that all other variables remain unchanged. Foreign Exchange Sensitivity Analysis The effect on profit and equity as a result of changes in foreign exchange rates, with all other variables remaining constant, is immaterial. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 33: Fair Value Measurement Fair value hierarchy The following tables detail the consolidated entity's assets measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets that the consolidated entity can access at the measurement date Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset, either directly or indirectly Level 3: Unobservable inputs for the asset Level 1 $000 Level 2 $000 Level 3 $000 Total $000 Consolidated 2018 Assets Investment property Total assets Consolidated 2017 Assets Investment property Total assets - - - - - - - - 92,410 92,410 92,410 92,410 92,400 92,400 92,400 92,400 There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Investment property has been valued using a discounted cash flow model. Movements in level 3 assets during the current and previous financial year are set out below: Consolidated Balance at 30 June 2016 Additions Revaluation Balance at 30 June 2017 Additions Revaluation Balance at 30 June 2018 Investment Properties $000 111,032 131 (18,763) 92,400 10 - 92,410 Total $000 111,032 131 (18,763) 92,400 10 - 92,410 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 33: Fair Value Measurement (Cont’d) In July 2017, the Group’s investment property, being the Homeground Gladstone Accommodation Village located near Gladstone, Queensland, was revalued by an independent valuer (Ernst & Young). The primary valuation method utilised by the valuer was a discounted cash flow model. Key assumptions utilised by the valuer in the preparation of its valuation included: ▪ Useful life of the asset in the range of 20 to 30 years with no terminal value; ▪ Various occupancy assumptions over the estimated useful life based on expected accommodation demand (low of 15% to high of 98%); ▪ Room rate growth in the range of 0% to 2.0%; and ▪ A nominal post-tax discount rate range of 11.0% to 12.0%. As a result of the independent valuation, the Homeground Gladstone investment property was revalued to $92,400,000. The fair value is sensitive to long term changes to key assumptions disclosed above. Any material change within the range for any individual assumption or any combination of assumptions will likely have a material impact on the fair value as follows: Assumption Useful life Occupancy Room rate growth Discount rate NOTE 34: Contingent Liabilities Increase in Assumption Decrease in Assumption Positive impact Negative impact Positive impact Negative impact Positive impact Negative impact Negative impact Positive impact Guarantees given to external parties for satisfactory contract performance for the consolidated entity Consolidated Entity 2018 $000 2017 $000 68,949 63,614 In or around August 2012, Steel Building Systems (SBS) was engaged as a subcontractor by Decmil Australia Pty Ltd (“Decmil”) to construct the Gladstone Village in Queensland. SBS’ scope of work was the design, manufacture and supply of modular buildings, as well as miscellaneous on-site works associated with the modular buildings. On 17 November 2017, the liquidators of SBS commenced proceedings against Decmil Australia Pty Ltd in the NSW Supreme Court for alleged unpaid contract sums of $3.3 million and alleged lost profit on works removed from SBS’ scope of works. Decmil rejects the claims brought by the liquidators of SBS and denies it is indebted to SBS as claimed. Decmil’s current position is that SBS is in fact indebted to Decmil for a similar sum due to defective works and associated rectification costs, incomplete works, overheads incurred by Decmil in connection with the defects and rectification works, expert costs and fees. Decmil has filed a defence in relation to the liquidator’s claims and will file a cross claim for the sum Decmil alleges it is owed by SBS. On 1 May 2017 the Company received an advice from AusIndustry, the agency that oversees technical elements of the Australian Tax Office’s Research and Development Inventive Scheme (“R&D Scheme”), disputing the eligibility of certain engineering activities submitted by the Company in relation to the 2014 financial year for the R&D Scheme. R&D Scheme benefits received by the Company in relation to the 2014 financial year for the disputed engineering activities amounts to approximately $3.4 million. The Company does not agree with the advice received from AusIndustry and under the relevant legislation has requested an independent review of the matter. As at the date of this report, the independent review had not been completed. The Company is also considering further review options available to it, including submission to the Australian Administrative Tribunal. Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NOTE 34: Contingent Liabilities (Cont’d) During the year ended 30 June 2017 the liquidators for Forge Group Ltd (in liquidation)(receivers and managers appointed) commenced an action in the Supreme Court of Western Australia against Eastcoast Development Engineering Pty Ltd (“EDE”), a subsidiary of the Company, for the repayment of $2.5 million for what they consider constitute unfair preference payments. The liquidators have commenced claims against a number of parties which are joined with EDE in the same action. EDE denies that it has any liability for repayment of any sums previously paid to EDE. Decmil has filed a defence in this matter. Certain contractual claims arising out of engineering and construction contracts have been made by, or against, controlled entities in the ordinary course of business. The Directors do not presently consider the outcome of any of these claims will be materially different to the position taken in the financial accounts of the Company. Apart from the above there are no further contingent liabilities relating to the consolidated entity. NOTE 35: Subsequent Events No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Directors’ Declaration FOR THE YEAR ENDED 30 JUNE 2018 In the directors' opinion: ▪ ▪ ▪ ▪ the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2018 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and ▪ at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 15(b) will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors David Saxelby Chairman 31 July 2018 INDEPENDENT AUDITOR’S REPORT To the Members of Decmil Group Limited Opinion We have audited the financial report of Decmil Group Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed this matter Recognition of Deferred Tax Assets Refer to Note 24 in the financial statements The Group has deferred tax assets of $30.329 million relating mainly temporary differences. losses and tax to For the year ended 30 June 2018, management has performed an assessment on the recoverability of the deferred tax assets by using the Group’s forecast for 2019 and beyond to satisfy the probability criteria that future taxable profits will be available against which the balance can be utilised. Impairment of Intangible Assets Refer to Note 19 in the financial statements The Group has goodwill of $75.482 million relating to the Construction and Engineering cash generating unit (“CGU”) as disclosed in note 19. We focused on this area due to the size of the goodwill balance, and because the directors’ assessment of the ‘value in use’ of the cash generating unit (“CGU”) involves judgements about the future underlying cash flows of the business and the discount rates applied to them. During the year, the Group disposed of SC Services Pty Ltd and Scope Pty Ltd (refer to note 29 (b)). The goodwill of SC Services Pty Ltd was written off in the previous year. The goodwill of Scope Pty Ltd was integrated into the Construction & Engineering CGU, as the part of the business associated with the goodwill was restructured into the Construction & Engineering CGU. During the year, Decmil Southern Pty Ltd (formerly Cut & Fill Pty Ltd) was included in the Construction restructure and & Engineering CGU after a reorganisation of this business unit to integrate into the broader Construction & Engineering business. Our audit procedures in relation to management’s recognition of deferred tax assets included: • Reviewing of the Group’s forecast for 5 assessing years 2019 management’s assumptions and inputs for reasonableness; and from and • Assessing the recoverability of deferred tax assets, and the manner in which timing differences would be reversed and losses utilised. This was based on the same intangible asset forecasts used valuation model (refer below) and were therefore assessed in conjunction with our audit procedures over intangible assets. the in Our audit procedures in relation to management’s impairment assessment included: • Assessing the appropriateness of the integration of the Decmil Southern Pty Ltd (formerly Cut & Fill Pty Ltd) and Scope goodwill the Construction & Engineering CGU in compliance with the requirements of AASB 136 Impairment into • Assessing the valuation methodology used and reconciling to supporting evidence, such as approved forecasts, then reviewing these forecasts against actual current and previous performance; input data • Challenging the reasonableness of key assumptions used in the valuation model, including the cash flow forecast and discount rates used; • Reviewing management’s sensitivity analysis on revenue growth rates and overheads used in the valuation model to determine the extent of headroom for the CGU; and • Reviewing the adequacy of disclosures against the requirements of AASB 136. For the year ended 30 June 2018, management has performed an impairment assessment over the restructured Construction and Engineering CGU goodwill balance by: • calculating the value in use for the CGU using a discounted cash flow model. This model used cash flows (revenues, expenses and capital expenditure) for the CGU for 5 years, with a terminal growth rate applied to the 5th year. These cash flows were then discounted to net present value using the Group’s weighted average cost of capital (WACC); and • comparing the resulting value in use of the CGU to its book value. Recognition of Revenue and Profits on Long Term Contracts Refer to Note 14 in the financial statements The Group’s largest source of revenue is from construction and engineering. Our audit procedures in relation to recognition of revenue and profits on long term contracts included: Construction and engineering revenues are derived from contracts where revenue is recognised based on the stage of completion. This is measured as the percentage of work performed up to the reporting date with respect to the total anticipated contract work to be performed. Construction and engineering revenue recognised by management after assessing all factors relevant to each contract, including specifically assessing the following as applicable: is • Determination of stage of completion • Estimation of total contract revenue and costs including the estimation of cost contingencies • Determination of contractual entitlement and assessment of the probability of customer approval of variations and acceptance of claims • Estimation of project completion date • Provision for loss making contracts We focused on this area as a key audit matter due to the number and type of estimation events over the course of the contract life, the unique nature of individual contract conditions, leading to complex and judgmental revenue recognition from contracts. • Evaluating and assessing the operating effectiveness of internal controls over the accuracy and timing of revenue recognised in the financial report, including: - Transactional controls in the revenue and billing cycles - Transactional controls in the underlying contract related cost balances in the purchase and payroll cycles • For material contracts with a delivery schedule of greater than 12 months, we performed the following procedures: - Understanding the performance and status of the contracts through enquiries for of personnel with responsibility contract management. - Assessing the Group’s ability to deliver contracts within budgeted margins by analysing the historical accuracy of forecasting margins. - Assessing loss the provisions making contracts and whether these appropriately reflected the expected contractual provisions. for - Evaluating the probability of recovery of outstanding amounts by reference to the historical status of supporting recoveries documentation. negotiations, and other Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Decmil Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 July 2018 J A KOMNINOS Partner Additional Information for Listed Public Companies FOR THE YEAR ENDED 30 JUNE 2018 Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. 1. Substantial shareholders The names of substantial beneficial shareholders listed on the Company’s register as at 31 May 2018 are: Denis Criddle Commonwealth Bank Group Paradice Investment Management Pty Ltd Thorney Investments Group Franco Family Holdings (Retail Group) The following information is made up as at 30 June 2018: 2. Distribution of shareholdings Shares 22,479,145 20,677,928 16,363,304 13,080,260 12,675,000 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total No. of shareholders No. of ordinary shares 1,494 1,735 606 591 73 4,499 778,531 5,014,979 4,729,018 15,699,485 147,589,914 173,811,927 % 12.93 11.90 9.41 7.53 7.29 % 0.45 2.89 2.72 9.03 84.91 100.00 There are 795 shareholders with an unmarketable parcel totalling 185,024 shares. 3. Voting rights All ordinary shares issued by Decmil Group Limited carry one vote per share without restriction. Additional Information for Listed Public Companies (Cont’d) FOR THE YEAR ENDED 30 JUNE 2018 4. Twenty largest shareholders The names of the twenty largest registered shareholders of fully paid ordinary shares in the Company as at 30 June 2018 are: Citicorp Nominees Pty Ltd HSBC Custody Nominees (Australia) Ltd National Nominees Ltd J P Morgan Nominees Australia Ltd Broadway Pty Ltd – Decmil Australia Fund A/C Broadway Pty Ltd – Decmil Australia A/C L, M & R Franco – The LMR Franco Unit A/C Sandhurst Trustees Ltd – Endeavor Asset Mgmt A/C CPU Share Plans Pty Limited Delauney Pty Ltd – The Franco Family A/C Farview Pty Ltd – Ernesto Franco Family A/C BNP Paribas Noms Pty Ltd – DRP Mrs Nola Criddle – Criddle Investment Fund A/C AMP Life Ltd BNP Paribas Nominees Pty Ltd – IB AU Noms Retailclient DRP SJ & AC Criddle Holdings Pty Ltd – SJ & AC Criddle Family A/C SJ & AC Criddle Holdings Pty Ltd – SJ & AC Criddle Family A/C SJ & AC Criddle Holdings Pty Ltd – SJ & AC Criddle Family A/C Mr Mario Franco + Mrs Immacolata Franco – The Mario Franco S/F Neweconomy Com Au Nominees Pty Ltd – 900 Account No. of Ordinary Fully Paid Shares Held 31,088,746 21,450,860 18,251,689 12,769,525 10,475,000 7,824,666 5,000,000 3,703,991 2,555,000 2,300,000 2,300,000 1,966,520 1,947,827 1,894,036 1,571,411 1,386,573 1,250,000 1,132,195 1,100,000 1,052,637 % 17.89 12.34 10.50 7.35 6.03 4.50 2.88 2.13 1.47 1.32 1.32 1.13 1.12 1.09 0.90 0.80 0.72 0.65 0.63 0.61 Total 131,020,676 75.38 Corporate Directory FOR THE YEAR ENDED 30 JUNE 2018 Directors David Saxelby, Non-Executive Chairman Scott Criddle, Managing Director Don Argent, Non-Executive Director Denis Criddle, Non-Executive Director Dickie Dique, Non-Executive Director Bill Healy, Non-Executive Director Executive Team Scott Criddle, Chief Executive Officer Tony Radalj, Chief Operating Officer Craig Amos, Chief Financial Officer Company Secretary Alison Thompson Australian Business Number 35 111 210 390 Principal Registered Address 20 Parkland Road Osborne Park WA 6017 Telephone: 08 9368 8877 Facsimile: 08 9368 8878 Postal Address PO Box 1233 Osborne Park WA 6916 Operational Offices Decmil Australia Pty Ltd Level 6, 20 Parkland Road Osborne Park WA 6017 Telephone: 08 9368 8877 Decmil Australia Pty Ltd & Homeground Villages Pty Ltd Level 5, 60 Edward Street Brisbane QLD 4000 Telephone: 07 3640 4600 Decmil Construction NZ Limited Level 6, 16 Kingston Street Auckland 1010 Telephone: +64 9 443 4443 Decmil Southern Pty Ltd Level 3, 850 Collins Street Docklands VIC 3008 Telephone: 1300 332 645 Auditor RSM Australia Partners 8 St Georges Terrace Perth WA 6000 Telephone: 08 9261 9100 Share Registry Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth WA 6000 Telephone: 08 9323 2000 Email: www- au.computershare.com/Investor/Contact Website: www.computershare.com Bankers National Australia Bank Ltd 100 St Georges Terrace Perth WA 6000 Telephone: 13 10 12 Controlled Entities Decmil Australia Pty Ltd Decmil Engineering Pty Ltd Decmil PNG Limited Decmil Construction NZ Limited Decmil Southern Pty Ltd Eastcoast Development Engineering Pty Ltd Homeground Villages Pty Ltd Homeground Gladstone Pty Ltd ATF Homeground Gladstone Unit Trust Decmil Properties Pty Ltd Decmil Infrastructure Pty Ltd Decmil Services Pty Ltd Decmil Telecom Pty Ltd Decmil Group Limited Employee Share Plan Trust ASX Code DCG Operating across Australia & New Zealand Perth | Melbourne | Brisbane | Auckland decmil.com 

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