Annual
Report
2019
This Annual Report includes
the Downer EDI Limited
Directors’ Report, the
Annual Financial Report and
Independent Audit Report
for the financial year ended
30 June 2019. The Annual
Report is available on
the Downer website
www.downergroup.com.
Contents
Highlights
Page 2
Directors’ Report
Page 4
Auditor’s signed reports
Page 53
Page 54
Auditor’s Independence Declaration
Independent Auditor’s Report
Financial Statements
Page 62
Page 63
Page 64
Page 65
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the consolidated financial statements
A
B
C
D
E
F
About this
report
Business
performance
Operating assets
and liabilities
Employee
benefits
Capital structure
and financing
Group
structure
G
Other
Page 66-67
Page 68-79
Page 80-90
Page 91
Page 92-99
Page 100-110
Page 111-124
B1
Segment
information
B2
Revenue
C1
Reconciliation
of cash and
cash equivalents
C2
Trade receivables
and contract assets
B3
Earnings per share
C3
Inventories
D1
Employee benefits
E1
Borrowings
F1
Joint arrangements
and associate
entities
G1
New accounting
standards
D2
Key management
personnel
compensation
D3
Employee discount
share plan
E2
Financing facilities
F2
Acquisition of
businesses
G2
Capital and financial
risk management
E3
Commitments
F3
Disposal of
business
G3
Other financial
assets and liabilities
E4
Issued capital
F4
Controlled entities
E5
Non-controlling
interest (NCI)
E6
Reserves
E7
Dividends
F5
Related party
information
F6
Parent entity
disclosures
B4
Taxation
C4
Trade payables and
contract liabilities
B5
Remuneration
of auditors
C5
Property, plant
and equipment
B6
Subsequent events
C6
Intangible assets
C7
Finance lease
receivables
C8
Provisions
C9
Contingent
liabilities
Page 125 Directors’ Declaration
Other information
Page 126 Sustainability Performance Summary 2019
Page 131 Corporate Governance
Page 142
Information for Investors
Annual Report 2019 1
Highlights
Downer’s results for the 2019 financial year featured good revenue
growth, a strong increase in earnings, and an improved Group margin.
Cash performance remains strong, predictable and reliable with Group
cash flow conversion of 89.0% of EBITDA. Statutory NPATA increased
from $117.9 million to $325.6 million, while underlying1 NPATA was
$340.1 million, 14.7% higher than the prior corresponding period.
Total
Revenue
Underlying1
EBITA Margin
6.6% increase to
0.4% increase to
$13,448.3m
4.2%
Underlying1
NPATA
Operating
Cash Flow
14.7% increase to
8.0% increase to
$340.1m
$630.2m
1
Underlying EBITA and NPATA are non-IFRS measures that are used by Management to assess the performance of the business. They have been calculated from the
statutory measures by adding back the Murra Warra wind farm loss of $45.0 million ($31.5 million after-tax) and deducting the fair value gain on revaluation of the existing
interest in the Downer Mouchel JV ($17.0 million; $17.0 million after-tax).
2 Downer EDI Limited
EBITA by Services
Urban services now
represents 83% of
Downer’s EBITA
Transport 36.8%
Utilities 20.6%
Urban
Services
Transport
Utilities
Facilities
Mining 11.6%
EC&M 5.1%
Facilities 25.9%
Mining, Energy and
Industrial Services
Mining
Engineering, Construction
and Maintenance
76% Revenue
5.4% EBITA margin
83% of EBITA
24% Revenue
3.5% EBITA margin
17% of EBITA
Annual Report 2019 3
Directors’ Report
for the year ended 30 June 2019
The Directors of Downer EDI Limited submit the Annual
Financial Report of the Company for the financial year
ended 30 June 2019. In compliance with the provisions
of the Corporations Act 2001 (Cth), the Directors’ Report
is set out below.
Board of Directors
R M HARDING (70)
Chairman since November 2010, Independent
Non-executive Director since July 2008
Mr Harding has held management positions around the world
with British Petroleum (BP), including President and General
Manager of BP Exploration Australia.
Mr Harding is currently the Chairman of Lynas Limited and
Horizon Oil Limited and a Director of Cleanaway Waste
Management Limited. He is a former Chairman of Roc Oil
Company Limited, Clough Limited and ARC Energy Limited and
a former Director of Santos Limited.
Mr Harding holds a Masters in Science, majoring in
Mechanical Engineering.
Mr Harding lives in Sydney.
G A FENN (54)
Managing Director and Chief Executive Officer since
July 2010
Mr Fenn has over 30 years’ experience in operational
management, strategic development and financial management.
He joined Downer in October 2009 as Chief Financial Officer and
was appointed Chief Executive Officer in July 2010.
He was previously a member of the Qantas Executive
Committee, holding a number of senior roles over 14 years,
as well as Chairman of Star Track Express and a Director of
Australian Air Express. He worked at KPMG for eight years
before he joined Qantas.
Mr Fenn is currently a Director of Sydney Airport Limited and
Spotless Group Holdings Limited and a Member of the UTS
Engineering and IT Industry Advisory Board.
Mr Fenn holds a Bachelor of Economics from Macquarie
University and is a member of the Australian Institute of
Chartered Accountants.
Mr Fenn lives in Sydney.
4 Downer EDI Limited
S A CHAPLAIN (61)
Independent Non-executive Director since July 2008
Ms Chaplain is a former investment banker with extensive
experience in public and private sector debt financing. She also
has considerable experience as a Non-executive Director of
local and state government-owned corporations involved in road,
water and port infrastructure.
Ms Chaplain is Chairman of MFF Capital Investments Limited
and a Director of Seven Group Holdings Limited and Credible
Labs Inc. Ms Chaplain is also Chairman of Canstar Pty Ltd,
a financial services research and ratings company and a Director
of The Australian Ballet. Her former Board roles include being
Chairman of Queensland Airports Limited, a member of the
Board of Taxation, a Director of EFIC, Australia’s export credit
agency and a Director of PanAust Limited.
A Fellow of the Australian Institute of Company Directors,
Ms Chaplain holds a Bachelor of Arts degree majoring in
Economics and Mandarin from Griffith University in addition to
a Masters of Business Administration (MBA) from the University
of Melbourne. She holds an honorary doctorate from Griffith
University for her service to banking and finance, and to the
Gold Coast community.
Ms Chaplain lives on the Gold Coast.
P S GARLING (65)
Independent Non-executive Director since November 2011
Mr Garling has over 35 years’ experience in the infrastructure,
construction, development and investment sectors. He was the
Global Head of Infrastructure at AMP Capital Investors,
a role he held for nine years. Prior to this, Mr Garling was CEO
of Tenix Infrastructure and a long-term senior executive at the
Lend Lease Group, including five years as CEO of Lend Lease
Capital Services.
Mr Garling is currently the Chairman of Tellus Holdings Limited,
Energy Queensland Limited and Newcastle Coal Infrastructure
Group and a Director of Charter Hall Limited and the NSW
electricity distributor, Essential Energy and the Australian
Literacy and Numeracy Foundation. He is a former Director of
Spotless Group Holdings Limited and a past President of Water
Polo Australia Limited.
Mr Garling holds a Bachelor of Building from the University of
New South Wales and the Advanced Diploma from the Australian
Institute of Company Directors. He is a Fellow of the Australian
Institute of Building, Australian Institute of Company Directors
and Institution of Engineers Australia.
Mr Garling lives in Sydney.
T G HANDICOTT (56)
Independent Non-executive Director since September 2016
Ms Handicott is a former corporate lawyer with over 30 years’
experience in mergers and acquisitions, capital markets and
corporate governance. She was a partner of national law firm
Corrs Chambers Westgarth for 22 years, serving as a member of
its National Board for seven years including four years as National
Chairman. She also has extensive experience in governance of
local and state government organisations.
Ms Handicott is currently the Chairman of listed company PWR
Holdings Limited and of Peak Services Holdings Pty Ltd, which is
the subsidiary of the Local Government Association of Queensland
that is responsible for its commercial operations. Ms Handicott is
also a Director of Bangarra Dance Theatre Limited and a Divisional
Councillor of the Queensland Division of the Australian Institute of
Company Directors.
Ms Handicott is a former Director of CS Energy Limited, a former
member of the Queensland University of Technology (QUT)
Council, the Takeovers Panel and Corporations and Markets
Advisory Committee and a former Associate Member of the
Australian Competition and Consumer Commission.
A Senior Fellow of Finsia, Fellow of the Australian Institute of
Company Directors and Member of Chief Executive Women,
Ms Handicott holds a Bachelor of Laws (Hons) degree from the
Queensland University of Technology.
Ms Handicott lives in Brisbane.
N M HOLLOWS (48)
Independent Non-executive Director since June 2018
Ms Hollows has over 20 years’ experience in the resources
sector in a number of senior managerial roles across both the
public and private sectors, including in mining, utilities and rail.
Her experience spans operational management, accounting
and finance, mergers and acquisitions, capital management and
corporate governance.
Ms Hollows is currently the Chief Executive Officer of SunWater
Limited, a Queensland Government owned corporation. She is
the Chair of The Salvation Army Brisbane Red Shield Appeal
Committee and an advisory committee member of the Salvation
Army Queensland Advisory Council and also a Board member of
the Water Services Association of Australia and a member of the
CEO Advisory Committee for Dean of Queensland University of
Technology Business School.
She was formerly the Chief Financial Officer and subsequently
Chief Executive Officer of Macarthur Coal Limited, Managing
Director of AMCI Australia and South East Asia and Interim Chair
of Queensland Rail Limited.
A Fellow of the Australian Institute of Company Directors
and a Member of Chief Executive Women and the Institute of
Chartered Accountants, Ms Hollows holds a Bachelor of Business
– Accounting and a Graduate Diploma in Advanced Accounting
(Distinction) from the Queensland University of Technology
and is a Graduate of Harvard Business School’s Program for
Management Development.
C G THORNE (69)
Independent Non-executive Director since July 2010
Dr Thorne has over 36 years’ experience in the mining and
extraction industry, specifically in senior operational and executive
roles with Rio Tinto. His experience spanned a range of product
groups and functional activities in Australia and overseas. After
serving in London as Group Mining Executive from 1996 to 1998,
Dr Thorne moved to Indonesia as President Director of Kaltim
Prima Coal and then returned to Australia to manage Rio Tinto’s
Australian coal business as Managing Director of Rio Tinto Coal
Australia and the publicly listed Coal and Allied Industries. He was
President of the Queensland Resources Council in 2001-2003.
In 2006, Dr Thorne was appointed global head of Rio Tinto’s
technology, innovation and project engineering functions,
reporting to the Chief Executive. He was a member of Rio Tinto’s
Executive Committee and Investment Committee. He retired from
Rio Tinto in 2011.
Dr Thorne is a Director of Spotless Group Holdings Limited and
a former Director of Wesley Research Institute, JK Tech and
Queensland Energy Resources Limited. He is a Fellow of the
Australasian Institute of Mining and Metallurgy.
Dr Thorne also holds directorships with a number of
private companies.
He holds Bachelor and Doctoral degrees in Metallurgy from the
University of Queensland and is a Graduate of the Australian
Institute of Company Directors.
Dr Thorne lives on the Sunshine Coast.
P L WATSON (62)
Independent Non-executive Director since May 2019
Mr Watson has extensive experience in the construction and
engineering sectors in senior executive and governance roles,
including in the industrial, transport, defence, health, justice
and utilities sectors. He was Chief Executive Officer and
Managing Director of Transfield Services Limited, now known as
Broadspectrum for ten years. During this period, he led the business
through a successful transition, cultivating a sustainable and
successful public company. He also has considerable experience in
various Non-executive Director roles.
Mr Watson is currently a Consultant of Stephenson Mansell Group
where he provides coaching and mentoring to senior executives.
Mr Watson is a former Chairman of LogiCamms Limited, Watpac
Limited, Regional Rail Link Authority in Victoria and AssetCo
Management which managed PPP assets, a former Director of
the Major Transport Infrastructure Board in Victoria, Yarra Trams
and Save the Children Australia and was a Board member of
Infrastructure Australia.
A Fellow of the Australian Academy of Technological Sciences and
Engineering and Member of the Institute of Engineers Australia
and Australian Institute of Company Directors, Mr Watson
holds a Diploma of Civil Engineering from the Caulfield Institute
of Technology and is a Graduate of the Wharton Advanced
Management Program of the University of Pennsylvania.
Ms Hollows lives in Brisbane.
Mr Watson lives in Melbourne.
Annual Report 2019 5
Directors’ shareholdings
The following table sets out each Director’s relevant interest (direct and indirect) in shares, debentures, and rights or options in shares
or debentures (if any) of the Company at the date of this report. No Director has any relevant interest in shares, debentures and rights
or options in shares or debentures, of a related body corporate as at the date of this report.
Director
R M Harding
G A Fenn1
S A Chaplain
P S Garling
T G Handicott
N M Hollows
C G Thorne
P L Watson
Number of Fully Paid
Ordinary Shares
Number of Fully Paid
Performance Rights
Number of Fully Paid
Performance Options
28,856
1,582,218
103,799
19,962
14,000
3,000
82,922
–
–
1,137,477
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
Performance rights granted to Mr Fenn are subject to performance and/or service period conditions over the period 2016 to 2022. Further details regarding the conditions
relating to these restricted shares and performance rights are outlined in sections 6.4 and 9.2 the Remuneration Report.
Company Secretary
Review of operations
The Company Secretarial function is responsible for ensuring
that the Company complies with its statutory duties and
maintains proper documentation, registers and records. It also
provides advice to Directors and officers about corporate
governance and gives practical effect to any decisions
made by the Board.
Mr Robert Regan was appointed Group General Counsel and
Company Secretary in January 2019. He has qualifications in
law from the University of Sydney and is an admitted solicitor
in New South Wales. Mr Regan was formerly a partner of Corrs
Chambers Westgarth and has over 30 years of experience in
legal practice.
Mr Peter Lyons was appointed joint Company Secretary in
July 2011. A Member of CPA Australia and the Governance
Institute of Australia, he has qualifications in commerce from the
University of Western Sydney and corporate governance from
the Governance Institute of Australia. Mr Lyons was previously
Deputy Company Secretary and has been in financial and
secretarial roles at Downer for over 15 years.
Principal activities
Downer EDI Limited (Downer) designs, builds and sustains
assets, infrastructure and facilities and is a leading provider
of integrated services in Australia and New Zealand. Downer
employs more than 53,000 people, mostly in Australia and New
Zealand but also in the Asia-Pacific region, South America and
Southern Africa.
Our Purpose is to create and sustain the modern environment
by building trusted relationships with our customers.
Our Promise is to work closely with our customers to help them
succeed, using world-leading insights and solutions.
Our business is founded on four Pillars:
– Safety: Zero Harm is embedded in Downer’s culture and is
fundamental to the Company’s future success
– Delivery: we build trust by delivering on our promises
with excellence while focusing on safety, value for
money and efficiency
– Relationships: we collaborate to build and sustain enduring
relationships based on trust and integrity
– Thought leadership: we remain at the forefront of our
industry by employing the best people and having the
courage to challenge the status quo.
Downer reports its results under five service lines (Transport,
Utilities, Facilities, Mining and Engineering, Construction &
Maintenance) and an outline of each service line is set out below.
6 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 Transport Infrastructure
Downer delivers multi-disciplined infrastructure solutions to
customers within the transport sector. The services provided by
Downer include the design and construction of light rail, heavy
rail, signalling, track and station works, rail safety technology,
bridges and roads.
Downer has a long history of delivering transport infrastructure
projects under a variety of contracting models. Downer’s
integrated capabilities enable intelligent transport solutions, road
network management and maintenance, facility maintenance,
utilities services and renewable energy technologies.
Rail
Downer has over 100 years’ rail experience providing end-to-end,
innovative transport solutions.
Downer is a leading provider of rollingstock asset
management services in Australia, with expertise in delivering
whole-of-life asset management support to our customers.
Downer’s capability spans all sectors, from rollingstock to
infrastructure; and every project phase, from design and
manufacture to through-life-support, fleet maintenance,
operations and comprehensive overhaul of assets.
Downer sets industry best practice with forward-looking
technology solutions like the TrainDNA data analytics platform
to deliver safe, efficient and reliable services for the public
transport sector.
Downer has formed strategic joint ventures and relationships
with leading technology and knowledge providers including
Keolis, CRRC, Hitachi and Bombardier.
The Keolis Downer joint venture is Australia’s largest private
provider of multi-modal public transport solutions, with contracts
to operate and maintain Yarra Trams in Melbourne, the Gold
Coast light rail system in Queensland, and an integrated public
transport system for the city of Newcastle in New South Wales.
Keolis Downer is also one of Australia’s most significant bus
operators with operations in South Australia, Western Australia
and Queensland. Keolis Downer provides more than 210 million
passenger trips each year.
Downer’s Rail customers include Sydney Trains, Transport for
NSW, Public Transport Authority (WA), Metro Trains Melbourne,
Public Transport Victoria, and Queensland Rail.
Transport
Transport comprises Downer’s Road Services, Transport
Infrastructure, and Rail businesses.
Total revenue1 (FY19)
EBITA2 (FY19)
32.4%
36.8%
Transport
1
2
Total revenue is a non-statutory disclosure and includes revenue, other income
and notional revenue from joint ventures and other alliances not proportionately
consolidated. Due to rounding, divisional percentages do not add up precisely
to 100%.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense.
Road Services
Downer manages and maintains road networks across Australia
and New Zealand and manufactures and supplies products
and services to create safe, efficient and reliable journeys.
Downer offers one of the largest non-government owned road
infrastructure services businesses in Australia and New Zealand,
maintaining more than 33,000 kilometres of road in Australia and
more than 25,000 kilometres in New Zealand.
Downer creates and delivers solutions to our customers’
challenges through strategic asset management and a
leading portfolio of products and services. Downer is a leading
manufacturer and supplier of bitumen-based products and
an innovator in the sustainable asphalt industry and circular
economy, using recycled products and environmentally
sustainable methods to produce asphalt.
Downer’s road network solutions are underpinned by industry-
leading research, development and innovation, unique asset
management tools and a commitment to safety, environment and
sustainability through industry awarded Zero Harm programs.
Downer has formed a number of strategic partnerships to meet
the changing needs of our customers and markets. Downer has
long-term asset stewardship and road management contracts
through DM Roads in Australia, and a number of alliances in
New Zealand such as the Infrastructure Alliance in Hamilton,
Whanganui Alliance, Tararua Alliance, Waikato District Alliance
and the Milford Road Alliance.
Downer works for all of Australia’s State Road Authorities,
the New Zealand Transport Agency and a large number of
local government councils and authorities in both countries.
Customers also include road owners and businesses operating in
industries including waste collection and management, mining,
construction, airports and motor racing tracks.
Annual Report 2019 7
Utilities
Downer offers a range of services to customers across the power
and gas, water, renewable energy and communications sectors.
Total revenue1 (FY19)
EBITA2 (FY19)
18.7%
20.6%
Utilities
1
2
Total revenue is a non-statutory disclosure and includes revenue, other income
and notional revenue from joint ventures and other alliances not proportionately
consolidated. Due to rounding, divisional percentages do not add up precisely
to 100%.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense.
Power and gas
Downer’s services include planning, designing, constructing,
operating, maintaining, managing and decommissioning power and
gas network assets. A collaborative approach has made Downer a
benchmark end-to-end service provider to owners of utility assets.
Downer designs and constructs steel lattice transmission towers,
designs and builds substations, constructs and maintains electricity
and gas networks, provides asset inspection and monitoring
services, connects tens of thousands of new power and gas
customers each year and provides meter, energy and water
efficiency services for governments, utilities and corporations.
Water
Downer is dedicated to delivering complete water lifecycle
solutions for municipal and industrial water users.
Downer’s expertise includes water treatment, wastewater
treatment, water and wastewater network construction and
rehabilitation, desalination and biosolids treatment.
As a leading provider of asset management services, Downer
supports its customers across the full asset lifecycle from
conceptual development through to design, construction,
commissioning and into operations and maintenance.
Downer collaborates with customers to manage their assets, so
they create community benefits that are sustainable, innovative,
cost-effective and provide value to all stakeholders.
Renewable energy
Downer is one of Australia’s largest and most experienced
providers in the renewable energy market, delivering services
to customers requiring both utility and commercial scale
sustainable energy solutions.
8 Downer EDI Limited
Downer offers trusted services and integrated solutions required for
the entire asset lifecycle including procurement, assembly, design,
construction, commissioning and maintenance for a range of
renewable assets specifically in the wind, solar and power systems
storage sectors including transmission and substations.
Downer offers flexible services like innovative energy systems
that include self-generation and storage, grid services such
as frequency control ancillary services (FCAS), fast frequency
response (FFR), grid stability and transmission terminal
congestion solutions.
Communications
Downer is a leading provider of end-to-end technology and
communications service solutions, offering integrated civil
construction, electrical, fibre, copper and radio network
deployment capability throughout Australia and New Zealand.
Key capabilities include:
– Design, engineering and network construction of fixed and
wireless networks
– Mobile deployment: site acquisition, environmental and
design services
– Network operations and help desk outsourcing
– Network maintenance
– Warehousing and logistics
– Smart metering
– Smart home power and technology solutions
– Fleet management
– Network security
– Remedial works and proactive maintenance
– Customer connections, in-premise installations and
service activations.
Facilities
The Facilities service line operates in Australia and New Zealand
delivering facilities services to customers across a diverse range
of industry sectors including: defence; education; government;
healthcare; senior living; sports and venues; resources; leisure
and hospitality; airports; industrial; commercial; property; utilities
and public private partnerships.
Total revenue1 (FY19)
EBITA2 (FY19)
25.3%
25.9%
Facilities
1
2
Total revenue is a non-statutory disclosure and includes revenue, other income
and notional revenue from joint ventures and other alliances not proportionately
consolidated. Due to rounding, divisional percentages do not add up precisely
to 100%.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense.
Directors’ Report – continuedfor the year ended 30 June 2019 Facilities businesses include Spotless, AE Smith, Alliance, Ensign,
EPICURE, Hawkins, Mustard, Nuvo, Taylors and Envar.
Spotless is the largest integrated facilities management services
provider in Australia and New Zealand. Its key capabilities include:
– Air-conditioning, mechanical and electrical
– Asset maintenance and management
– Catering and hospitality
– Cleaning
– Facilities management
– Laundry management
– Security and electronic solutions
– Utility support.
The Facilities service line also includes Hawkins, New
Zealand’s leading construction business. Hawkins delivers
unique transformational projects across a variety of sectors
including education, health, airports, commercial office
buildings and heritage restorations. It leads the industry in civic
projects including art galleries, event centres, stadiums and
community facilities.
Hawkins' and Downer’s combined technical and construction
management expertise provides proven, whole-of-life solutions
for customers’ assets using innovative technology to sustainably
deliver outcomes.
Engineering, Construction and Maintenance (EC&M)
Downer’s EC&M service line includes its Asset Services
and Engineering & Construction businesses and works with
customers in the public and private sectors delivering services
including design, engineering, construction, maintenance and
ongoing management of critical assets.
Total revenue1 (FY19)
EBITA2 (FY19)
12.7%
5.1%
EC&M
1
2
Total revenue is a non-statutory disclosure and includes revenue, other income
and notional revenue from joint ventures and other alliances not proportionately
consolidated. Due to rounding, divisional percentages do not add up precisely
to 100%.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense.
In the oil and gas sector, Downer’s capabilities cover the full
range of construction, maintenance, shutdown/turnaround/
outage delivery, sustaining capital program delivery and
commissioning services.
Key capabilities include:
– Electrical instrumentation and controls
– Structural and mechanical piping
– Lagging and cladding
– Insulation and coatings including painting and
blasting services
– Scaffold management and erection
– Facilities maintenance
– Project management, scheduling and resourcing
– Technical writing and workpack development
– Heavy lift studies
– Specialist subcontract management
– Procurement
– Integrated engineering.
Downer is also the leading provider of original equipment
manufacturer (OEM) maintenance and shutdown services
essential in running Australia’s power stations, servicing
customers that supply 80% of the National Electricity Market.
Downer’s Assets Services business operates across industries
including petrochemical and refining, bulk materials handling
and processing, coal, iron ore, minerals and metals and power
generation. Services include scoping, planning, integration and
support with engineering; and electrical and instrumentation,
insulation and scaffold erection, commissioning and
decommissioning.
Downer is also an OEM specialist in the design, supply,
construction, maintenance and overhaul of boilers, turbines and
generating plants.
Downer’s Mineral Technologies business is the world leader in
mineral separation and mineral processing solutions, as well
as spiral technology. Mineral Technologies delivers innovative,
cost effective process solutions for iron ore, mineral sands, silica
sands, coal, chromite, gold, tin, tungsten, tantalum and a wide
range of other fine materials.
Downer’s QCC business delivers solutions for customers
across all stages of the project lifecycle from initial concept,
prefeasibility and feasibility studies, to Coal Handling and
Preparation Plant (CHPP) design and Engineering, Procurement
and Construction (EPC) management delivery. QCC provides
strategic consulting services, working with customers to
optimise financial returns and maintain efficient operations for
their projects.
Annual Report 2019 9
In Western Australia, Downer has been providing mining
services to Karara Mining Ltd at its Karara mine since the
magnetite operation commenced production in February 2012.
Mining services are also provided at the Gruyere gold project
in Laverton for joint venture partners Gold Road Resources
Ltd and Gold Fields Ltd. Downer also delivers significant mine
contracting services at Cape Preston for CITIC Pacific Mining’s
Sino Iron Project (high-grade magnetite).
Group Financial Performance
For the 12 months ended 30 June 2019, Downer reported
increases in total revenue; earnings before interest, tax and
amortisation of acquired intangible assets (EBITA); and net profit
after tax (NPAT).
The main features of the result for the 12 months ended
30 June 2019 were:
– Total revenue of $13.4 billion, up 6.6%;
– Statutory EBITA of $532.6 million, up 96.2% from
$271.5 million;
– Statutory earnings before interest and tax (EBIT) of
$462.2 million, up 125.7% from $204.8 million;
– Underlying1 net profit after tax and before amortisation
of acquired intangible assets (NPATA) of $340.1 million,
up 14.7% from $296.5 million;
– Statutory net profit after tax and before amortisation
of acquired intangible assets (NPATA) of $325.6 million,
up 176.2% or $207.7 million from $117.9 million; and
– Statutory net profit after tax (NPAT) of $276.3 million,
up 288.6% from $71.1 million.
A reconciliation of the statutory result to the underlying result is
set out on page 12.
1
The underlying result is a non-IFRS measure that is used by Management to
assess the performance of the business. Non-IFRS measures have not been
subject to audit or review.
Mining
Downer is one of Australia’s leading diversified mining
contractors serving its customers across more than
50 sites in Australia, Papua New Guinea, South America and
Southern Africa.
Total revenue1 (FY19)
EBITA2 (FY19)
11.0%
11.6%
Mining
1
2
Total revenue is a non-statutory disclosure and includes revenue, other income
and notional revenue from joint ventures and other alliances not proportionately
consolidated. Due to rounding, divisional percentages do not add up precisely
to 100%.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense.
Downer services coal and metalliferous ore mining customers at
all stages of the mining lifecycle, specialising in both surface and
underground mining. Key capabilities include:
– Resource definition, exploration drilling and mine
feasibility studies
– Open cut mining services to Australian coal, iron ore and gold
– Underground mining services to Australian, Papua New
Guinea and South African copper and gold
– Drilling, explosives manufacture and supply,
blasting and crushing
– Tyre management (through the subsidiary
Otraco International)
– Mine closure and rehabilitation.
In New South Wales, Downer provides mining services at
Newcrest Mining’s Cadia Valley underground mine near Orange
and Cobar Management Pty Ltd’s CSA underground copper
mine located in Cobar, Central Western New South Wales.
In Queensland, Downer has provided mining services at Stanwell
Corporation’s Meandu mine in the South Burnett region since
2013. Downer has also been working closely with the BHP Billiton
Mitsubishi Alliance (BMA) for many years, providing mining
services at several mine sites in the Bowen Basin in Central
Queensland including Goonyella Riverside, Daunia, Peak Downs,
Saraji, Blackwater, Caval Ridge and Poitrel Mine. Downer also
continues to provide full mining services at Millmerran Power
Partner’s Commodore mine-site.
In South Australia, Downer provides engineering, procurement
and construction (EPC) services and mining services at OZ
Minerals' Carrapateena copper and gold mine.
10 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 Revenue
Total revenue for the Group increased by $828.1 million, or 6.6%,
to $13.4 billion compared to the previous corresponding period
(pcp). This was primarily driven by increased activity in Utilities,
EC&M and Mining, partially offset by lower revenue in Transport
and Facilities.
Expenses
Total expenses increased by 4.5% and include a $45.0 million
loss due to the provision recognised in relation to Senvion’s
scope in the delivery of the Murra Warra wind farm, while the
previous corresponding period (pcp) included $208.1 million of
Individually Significant Items (ISIs).
Transport revenue decreased by 2.8%, or $123.0 million, to
$4.3 billion due to completed infrastructure projects not being
fully replaced, the Sydney Growth Trains project nearing
completion and the divestment of the Freight Rail business in the
prior period. This was offset by continuing strong performance in
the Road Services business in both Australia and New Zealand,
and an increase in Rail Through Life Support (TLS) activity.
Utilities revenue increased by 25.0%, or $501.8 million, to
$2.5 billion, due to continuing strong contributions from NBN
contracts in Australia as well as new renewable energy projects
including Numurkah and Beryl solar farms.
Facilities revenue decreased by 0.8%, or $28.5 million to $3.4
billion due to projects completed in Australia and New Zealand in
the prior year not being fully replaced. This was partially offset by
higher building activities in New Zealand and from new contracts
in the Infrastructure and Construction business in Australia.
EC&M revenue rose by 23.7%, or $326.9 million, to $1.7 billion as
a result of increased activities from new maintenance contracts,
the acquisition of MHPS Plant Services Pty Ltd (MHPS) and new
contracts in Mineral Technologies. This increase was partially
offset by a reduction in construction activities at projects
including Wheatstone in Western Australia.
Mining revenue increased by 8.8%, or $120.1 million, to
$1.5 billion mainly due to increased activities at Blackwater and
Carrapateena and from the contribution of newly commenced
contracts. This increase was partially offset by the completion
of the Boggabri and Roy Hill contracts.
Employee benefits expenses increased by 7.6%, or $306.2 million,
to $4.3 billion and represent 35.1% of Downer’s cost base. The
increase is mainly due to higher activities across the Group.
Included in the pcp is $23.4 million of pre-tax ISIs in relation to
divisional merger costs and Spotless transition-related costs.
Subcontractor costs increased by 10.9%, or $412.4 million, to
$4.2 billion and represent 33.9% of Downer’s cost base. This
increase is a result of higher contracts activity and the change in
the subcontractor mix on some contracts.
Raw materials and consumables costs decreased by 3.9%, or
$85.5 million, to $2.1 billion and represent 17.1% of Downer’s cost
base. The decrease is driven by the net impact of the divestment
of Freight Rail, lower material requirements and the completion of
contracts in Mining.
Plant and equipment costs increased by 1.9%, or $12.7 million, to
$689.8 million and represent 5.6% of Downer’s cost base. The
lower increase in plant and equipment costs compared to other
types of expenses reflects a less capital-intensive business
coupled with more efficient maintenance practices.
Depreciation and amortisation decreased by 2.8% or
$10.2 million, to $360.0 million and represents 2.9% of Downer’s
cost base. This decrease is mainly due to project completion in
Mining partially offset by additional amortisation on acquired
intangibles following several bolt-on acquisitions and higher
amortisation as the business transformation program was
completed in 2018.
Other expenses, which include communication, travel,
occupancy, professional fees costs and ISIs, have decreased by
13.4%, or $105.9 million due to lower pre-tax ISIs compared to the
pcp. Excluding the impact of Murra Warra and ISIs in the pcp,
other expenses would have increased by 5.6%, or $33.8 million,
and this represents bid costs incurred and the continuous
investment in governance and risk management functions.
Annual Report 2019 11
Earnings
Statutory EBIT of $462.2 million was $257.4 million higher than pcp driven by higher contributions from Transport, Utilities, Facilities and
Mining, partially offset by a lower contribution from EC&M. The full year EBITA result of $532.6 million includes a $17.0 million fair value
gain on revaluation of existing interest in the Downer Mouchel joint venture. This gain arises from the revaluation of the proportion of
the joint venture already owned by Downer.
Statutory NPAT for the Group was $276.3 million, including $31.5 million (after-tax) provision for Murra Warra wind farm.
Underlying NPATA for the Group increased by 14.7%, or $43.6 million, to $340.1 million.
A reconciliation of the statutory result to the underlying result is set out below:
FY19
$m
Statutory result
Plus: Murra Warra wind farm loss
Less: Fair value gain on revaluation of
existing interest in Downer Mouchel JV
Underlying result
Net
interest
expense
(82.4)
–
(82.4)
–
(82.4)
Tax
expense
(103.5)
(13.5)
(117.0)
–
(117.0)
EBIT
462.2
45.0
507.2
(17.0)
490.2
Add back
amortisation
of acquired
intangibles
(post-tax)
49.3
–
49.3
–
49.3
NPAT
276.3
31.5
307.8
(17.0)
290.8
NPATA
325.6
31.5
357.1
(17.0)
340.1
Transport EBITA increased by 22.5% to $242.4 million due to continued strong performance in road maintenance in Australia and New
Zealand and higher contributions from the Waratah TLS contract and from the SGT and HCMT projects. This was partially offset by the
divestment of Freight Rail in 2H18 and a lower contribution from Infrastructure Projects in New Zealand.
Utilities EBITA increased by 19.1% to $136.1 million, driven by a strong performance from Communications, partially offset by
underperformance in a solar contract.
Facilities EBITA increased by 2.3% to $170.5 million mainly driven by growth in Defence and Hospitality & FM related contracts that
offset lower contribution from construction.
EC&M EBITA decreased by 8.3% to $33.3 million due to the completion of the Gorgon and Wheatstone contracts and loss-making
construction projects. This was partially offset by strong performance in maintenance contracts and the MHPS acquisition.
Mining EBITA increased by 52.2% to $76.7 million predominantly due to continued strong performance on ongoing and new contracts.
Corporate costs increased by $12.4 million to $98.4 million primarily from the continuous investment in governance and risk
management functions and higher amortisation of intangibles following completion of the business transformation program in 2018.
Net finance costs increased by $1.3 million to $82.4 million due to higher net debt balances during the year and the unwind of discount
charges relating to onerous provision recognised following the adoption of AASB 15, partially offset by lower average interest rates
following debt refinancing.
The effective tax rate is 27.3% which is lower than the statutory rate of 30.0% due to the impact of items including non-taxable
distributions from joint ventures and lower overseas tax rates (e.g. New Zealand).
12 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 Group Financial Position
Funding, liquidity and capital are managed at Group level,
with Divisions focused on working capital and operating cash
flow management.
Operating Cash Flow
Operating cash flow was strong at $630.2 million, up 8.0% from
last year due to strong contract performance, distributions
from equity accounted investments and contributions from
acquisitions. This represents a cash conversion of 89.0%
to adjusted earnings before interest, tax, depreciation and
amortisation (EBITDA).
Investing Cash
Total investing cash flow was $509.7 million, $219.9 million
lower than the pcp as the prior period included a $391.8 million
payment in relation to the additional interest acquired in
Spotless. Excluding the Spotless payment, and the proceeds
from the divestment of the Freight Rail business, investing cash
increased by 9.1% or $42.3 million mainly due to payments made
for capital expenditure during the year.
The business continued to invest in capital equipment
to support the existing contracted operations and future
operations, resulting in net capital expenditure of $330.1 million
and $52.6 million payment for lease assets.
Debt and Bonding
The Group’s performance bonding facilities totalled
$2,143.1 million at 30 June 2019 with $819.9 million undrawn.
There is sufficient available capacity to support the ongoing
operations of the Group.
As at 30 June 2019, the Group had liquidity of $1.8 billion
comprising cash balances of $710.7 million and undrawn
committed debt facilities of $1.1 billion. Total liquidity available is
$1.4 billion through Downer’s facilities and $379.9 million through
Spotless’ facilities.
The Group continues to be rated BBB (Stable) by Fitch Ratings.
Balance Sheet
The net assets of Downer decreased by 4.8% to $3.0 billion,
predominantly due to the impact of the adoption of AASB 15
Revenue from Contracts with Customers. This resulted in an
opening retained earnings adjustment of $258.0 million
(after-tax). Adjusting for the impact of AASB 15, net assets
increased by $97.9 million representing a 3.1% increase to pcp.
Cash and cash equivalents increased by $104.5 million, or 17.2%,
to $710.7 million. The increase reflects continued strong cash
contributions from operations and proceeds from external
borrowings drawn; offset by $78.4 million in relation to business
acquisitions, investment in joint ventures and final working
capital adjustments on the divestment of Freight Rail in FY18.
Net debt increased from $940.0 million at 30 June 2018
to $1,012.6 million at 30 June 2019 primarily as a result of
drawdowns made to support business activities, offset by a
higher cash position. The increased net debt position, together
with a lower equity balance following $258.0 million of
AASB 15 transition adjustments, resulted in an increase in
gearing (net debt to net debt plus equity) to 24.9%, up from
22.7% at 30 June 2018.
Trade receivables and contract assets decreased by
$165.2 million to $2,065.9 million reflecting the impact on
adoption of AASB 15 and strong cash collections.
Inventories increased by $35.8 million to $304.6 million as
a result of bogie overhaul activities in Transport and higher
bitumen stock levels.
Current tax assets decreased by $11.6 million to $57.7 million due
to the timing of tax payments.
Interest in joint ventures and associates increased by
$12.8 million. This represents $8.5 million for a 50% interest
acquired in Repurpose It, a waste recycling business in
Victoria; and Downer’s share of net profits from joint ventures
and associates of $30.4 million; offset by $4.0 million interest
reduction in MHPS Plant Services Pty Ltd following the 100%
ownership acquired during the year and $22.4 million of
distributions received.
Property, Plant and Equipment increased $92.9 million, to
$1,373.3 million, as additional capital expenditure incurred in
Transport and Mining exceeded the depreciation expense.
Intangible assets increased by $80.0 million arising from
$128.4 million additional goodwill and other acquired intangible
assets recognised from acquisitions made during the period
and $45.3 million additional investment in software; offset by
$100.0 million amortisation mainly related to Spotless’ acquired
intangible assets.
Annual Report 2019 13
Total trade payables and contract liabilities increased by
$148.7 million primarily as a result of higher business activities.
Trade payables and contract liabilities represent 49.6% of
Downer’s total liabilities.
Other financial liabilities of $67.4 million decreased by
$10.0 million and represents 1.4% of Downer’s total liabilities.
The decrease mainly reflects deferred consideration paid for
acquisitions during the year.
Deferred tax liability of $137.6 million primarily represents
temporary differences arising from work in progress, property,
plant and equipment, and the tax effect of the recognition of
acquired intangibles.
Provisions of $577.1 million increased by $86.6 million mainly from
the recognition of the new Royal Adelaide Hospital and Murra
Warra contract provisions and an increase in employee related
provisions. Provisions represent 11.6% of Downer’s total liabilities.
Employee provisions (annual leave and long service leave) made
up 66.8% of this balance with the remainder covering onerous
contracts provisions, surplus lease contracts provisions and
return conditions obligations for leased assets and property
and warranty obligations.
Shareholder equity decreased by $154.9 million driven by a
$258.0 million cumulative opening retained earnings adjustment
following adoption of AASB 15 and $174.9 million of dividend
payments made during the period. This was offset by the net
profit after tax of $276.3 million. Net foreign currency gains on
translation of foreign operations, particularly in New Zealand,
resulted in a movement in the foreign currency translation
reserve of $10.1 million.
Dividends
The Downer Board resolved to pay a final dividend of 14.0 cents
per share, 50% franked (consistent with the prior corresponding
period), payable on 2 October 2019 to shareholders on the
register at 4 September 2019. The unfranked portion of the
dividend (50%) will be paid out of Conduit Foreign Income (CFI).
The Board also determined to continue to pay a fully imputed
dividend on the ROADS security, which having been reset on
15 June 2019 has a yield of 5.49% per annum payable quarterly
in arrears, with the next payment due on 16 September 2019.
As this dividend is fully imputed (the New Zealand equivalent of
being fully franked), the actual cash yield paid by Downer will be
3.95% per annum for the next 12 months.
Zero Harm
Downer’s1 Lost Time Injury Frequency Rate (LTIFR) decreased to 0.57 from 0.78 and our Total Recordable Injury Frequency Rate
(TRIFR) decreased to 2.70 from 3.27 per million hours worked2.
Downer Group Safety Performance
(12-month rolling frequency rates)
R
F
T
L
I
2.5
2.0
1.5
1.0
0.5
0.0
3.27
0.78
I
R
F
R
T
4.0
3.5
3.0
2.5
2.0
1.5
1.0
2.70
0.57
8
1
-
n
u
J
8
1
-
l
u
J
8
1
-
g
u
A
8
1
-
p
e
S
8
1
-
t
c
O
8
1
-
v
o
N
8
1
-
c
e
D
9
1
-
n
a
J
9
1
-
b
e
F
9
1
-
r
a
M
9
1
-
r
p
A
9
1
-
y
a
M
9
1
-
n
u
J
LTIFR
TRIFR
1
2
Safety data excludes Hawkins and Spotless.
Lost time injuries (LTIs) are defined as injuries that cause the injured person (employee or contractor) to be unfit to perform any work duties for one whole day or shift, or
more, after the shift on which the injury occurred, and any injury that results, directly or indirectly, in the death of the person. The Lost Time Injury Frequency Rate (LTIFR) is
the number of LTIs per million hours worked. Total Recordable Injuries (TRIs) are the number of LTIs + medically treated injuries (MTIs) for employees and contractors. Total
Recordable Injury Frequency Rate (TRIFR) is the number of TRIs per million hours worked.
14 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 Group Business Strategies and Prospects for Future Financial Years
The Downer Group comprises a diverse collection of businesses. Downer’s Purpose is to create and sustain the modern environment
by building trusted relationships with customers. Downer’s Promise is to work closely with its customers to help them succeed, using
world-leading insights and solutions. Downer’s business is founded on four Pillars which support our Purpose and Promise: Safety,
Delivery, Relationships and Thought Leadership.
Downer’s strategy focuses on Zero Harm, driving improvement in existing businesses and operations, investing in targeted growth
opportunities, and creating new positions in appropriate markets.
Downer’s strategic objectives, prospects, and the risks that could adversely affect the achievement of these objectives, are set out in
the table below.
Strategic Objective
Prospects
Risks and risk management
Maintain focus on Zero
Harm as a cornerstone
of the Safety pillar
Embed asset
management and
data analytics as a
cornerstone of the
Delivery pillar
Downer recognises that a sustainable and
embedded Zero Harm culture is fundamental to
the Company’s future success.
Zero Harm means sustaining a work environment
that supports the health and safety of Downer’s
people, and conducting operations in a
manner that is environmentally responsible
and sustainable.
Downer’s Zero Harm culture is built on leading
and inspiring, verifying the effective management
of risks that have the potential to cause serious
harm, rethinking processes, continuously
improving management systems, applying lessons
learnt, and adopting and adapting practices that
aim to achieve zero work-related injuries and
unintentional harm to the environment.
Downer has established an Asset & Data
Management Office (ADMO) to coordinate the
Group’s extensive asset management knowledge
and expertise and use it, for example, to improve
the efficiency of its customers’ operations.
As a leader in asset management, Downer
aims to adopt and implement world-leading
insights and solutions. The proliferation of data
points and connected devices allows for more
data and business intelligence to be captured.
This information can be used to drive service
improvement and improve asset performance.
Downer’s approach to Zero Harm enables
the Company to work safely, sustainably and
environmentally responsibly where there are inherent
hazardous environments.
Downer has implemented a strong Critical Risk
program throughout its business. This program has
provided Downer with the opportunity to understand
the risks in its business that could cause serious
injury to people or the environment. That knowledge
has enabled Downer to implement a program to
eliminate or control those risks, and to monitor the
performance of those critical controls.
Each Downer Division has in place a Zero Harm
management system, certified as a minimum to
AS/NZS 4801 or BS OHSAS 18001, and ISO 14001.
Each management system is reviewed regularly,
undergoing internal and external audit.
The expectations of Downer’s customers, and their
customers, continue to grow with regards to reliable,
intuitive, and cost-effective assets and services.
Downer has invested in capability and talent to
improve asset management, data analytics and life
cycle performance analytics. A number of these
investments have Group-wide application in addition
to their bespoke customer benefit.
Risks to be managed include: not delivering value-
added services to customers and so reducing
the need for integrated services partners; scope
reduction by customers who elect to use pure
maintenance/blue collar services; and an inability to
deliver obligations in performance frameworks and
service outcome contracts.
Annual Report 2019 15
Strategic Objective
Prospects
Risks and risk management
Improve engagement
with customers as a
cornerstone of the
Relationships pillar
Providing valuable and reliable products and
services to customers, and their customers,
is at the heart of Downer’s culture. It enables
Downer’s customers to focus more on their
core expertise while Downer delivers non-core
operational services.
Through ongoing analysis of markets, customers
and competitors, Downer is well positioned to
improve value and service for its customers and
their customers.
Embed operational
technology into core
service offerings
as a cornerstone
of our Thought
Leadership pillar
Technology is an inherent feature of today’s
world and there is therefore greater demand for
technology in Downer’s projects and services.
Customer operations are growing in complexity
and this creates opportunities for Downer to
connect, manage, monitor and report on core
services and infrastructure.
Relationships creating success continues to be
Downer’s core operating philosophy that drives
delivery of projects and services. It helps to ensure
investment, initiatives and activities are focused on
helping Downer’s customers to succeed.
Building on existing expertise across the Group,
Downer is developing a more coordinated and
structured approach to customer engagement,
business development and market participation.
This will improve Downer’s ability to compete and
win in the markets and sectors in which it operates.
Risks to be managed include: the threat of new
competitors and disruptors in traditional markets;
not keeping pace with changing customer
expectations; and the threat of commoditisation of
core products and services.
Downer is investing in operational technology,
“apps”, platforms and partnerships to meet customer
needs. Downer is focused on selecting the right
operational technology investments, for example
those that can be leveraged across a number of
service lines to maximise value for the greatest
number of customers.
Risks to be managed include: intensification of
competition as customers converge into large
single market procurement channels; introduction
of foreign and technology based competitors that
bring a different value proposition; and a need for
greater investment in technology and data services.
16 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 The following table provides an overview of the key prospects relevant to each of Downer’s service lines and summarises Downer’s
intended strategic response across each sector to maximise the Company’s performance and realise future opportunities.
Service line
Transport
Utilities
Facilities
Prospects
Downer’s response
The multi-billion dollar market for transport
infrastructure and services continues to exhibit
good growth in both Australia and New Zealand.
Governments in both countries continue to invest
in a range of projects to reduce congestion,
improve mobility, and provide better linkages
between communities.
The cost of bidding for major projects is high
and project risks can be significant, so Downer is
selective about the projects for which it bids.
Looking forward, potential outsourcing and
franchising opportunities across the transport
sector may further expand Downer’s portfolio in
public transport operations.
Growth across utility markets is multi-faceted with
a good pipeline of prospects in both Australia
and New Zealand.
Activity in telecommunications continues to be
dynamic, with large capital builds in both Australia
and New Zealand coming to a close. Downer’s view
is that the timing of these large network builds
will extend beyond most analysts’ predictions.
However, increasing demand for data services
will see a continuing, solid baseload of activity
in this sector.
Large-scale and long-term outsourcing contracts
continue to come to market, however the
long-term nature of contracts in this sector means
that a lot of work is already under contract.
The defence, health, education, corrections, and
commercial markets continue to provide a range
of opportunities on the short-to-medium term
horizon in both Australia and New Zealand.
Downer is a market leader in road services in both
Australia and New Zealand, light rail construction
in Australia and heavy rail construction and
maintenance in Australia.
In recent years, Downer’s strategy has focused on
journey management, asset stewardship, congestion
management, and urban revitalisation. The ability
to deal with these issues through infrastructure
services and solutions is critical to driving the Downer
business forward and to provide increasing value to
Downer’s customers and their end customers.
Downer maintains strong strategic partnerships with
leading global transport solutions providers and,
through this model, is pursuing opportunities in rolling
stock manufacture and maintenance, and transport
network operations and maintenance.
The Keolis Downer joint venture is a leading
Australian multi-modal transport operator, through its
light rail and bus operations.
Downer has market leading positions in the electricity,
water, gas and telecommunications sectors in both
Australia and New Zealand.
Downer is strongly positioned to take advantage of
the growth opportunities available in these sectors,
with a demonstrable track record of excellence in
service delivery, and a greater focus on introducing
operational technology to improve the value Downer
brings to customers.
Through the acquisition of Spotless, Downer is now
a major force in both Australia and New Zealand with
market leading positions across key sectors including:
defence; health; education; corrections; commercial;
stadia and open space management; leisure;
and resources.
There is a focus on leveraging both businesses’ scale
and routes to market to position the Group’s core
offerings in an integrated way.
Annual Report 2019 17
Service line
EC&M
Prospects
Downer’s response
Many large projects are transitioning from
greenfield construction to brownfield asset
management, sustaining capital and longer-term
strategic partnerships.
New resources-related infrastructure projects,
including Western Australian iron ore, have begun
coming to market.
Downer’s EC&M service line includes its Asset
Services and Engineering & Construction businesses.
Downer is a market leader in electrical and
instrumentation work, particularly in the oil and
gas sector, and is growing its structural mechanical
piping business.
Downer has experience working on all of the recent
Australian major oil and gas developments. While
the first phase of major LNG construction comes to
an end, Downer is growing its market share in the
maintenance of these facilities.
Outside of oil and gas, Downer continues to be a
major player in the delivery of resources related
engineering, construction and maintenance services
with long and enduring relationships with all of
Australia’s major mining and industrial customers.
In 2018, Downer merged its Mining and EC&M
Divisions into the Mining, Energy and Industrial
Division. This has enhanced Downer’s ability to offer
customers a portfolio of complementary services in
the resources, energy, power generation and industrial
sectors. The Mining, Energy and Industrial Division
provides customers with safe, quality, cost-efficient
and technology-enabled solutions and services.
Downer is one of Australia’s leading diversified
mining contractors offering customers feasibility
studies, open cut mining services, underground
mining services, tyre management, drilling and
blasting services, mine closure and rehabilitation, and
asset management.
In 2018, Downer merged its Mining and EC&M
Divisions into the Mining, Energy and Industrial
Division. This has enhanced Downer’s ability to offer
customers a portfolio of complementary services in
the resources, energy, power generation and industrial
sectors. The Mining, Energy and Industrial Division
provides customers with safe, quality, cost-efficient
and technology-enabled solutions and services.
Mining
The contract mining sector has experienced a
recovery over the past 12 months, with production
volumes and capital investment confidence
returning to markets including metallurgical
coal and iron ore.
Mine owners are seeking to maximise supply
chain benefits, which opens opportunities for
contractors to work collaboratively with them
to drive productivity improvements and reduce
production costs.
18 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 Downer remains focused on developing solutions to reduce its
energy consumption and greenhouse gas (GHG) emissions.
Downer is committed to transitioning to a low carbon economy
and focusing its attention on managing risks associated with
environmental management and climate change. Downer is
also taking advantage of the commercial opportunities this
presents for its business, in particular the energy transition and
delivering infrastructure that is resilient to the physical impacts
of climate change.
Downer’s Zero Harm Management System Framework sets
the minimum standard for health, safety, environment and
sustainability within its Divisions, and with regard to environment
each Division’s Zero Harm Management System is certified
to ISO 14001:2015. Divisions also adhere to environmental
management requirements established by customers in addition
to all applicable licence and regulatory requirements. Each
Division is required to have an Environmental Sustainability
Action Plan (ESAP) and strategies in place supported by suitably
qualified environment and sustainability professionals. The
ESAP allocates internal responsibilities for reducing the impact
of its operations and business activities on the environment.
In addition, all Divisions’ management systems are audited
internally and externally by independent third parties.
Dividends
In respect of the financial year ended 30 June 2019, the Board:
– declared a 50% franked interim dividend of 14.0 cents per
share that was paid on 21 March 2019 to shareholders on the
register at 21 February 2019 with the unfranked portion paid
out of Conduit Foreign Income; and
– declared a 50% franked final dividend of 14.0 cents per share,
payable on 2 October 2019 to shareholders on the register at
4 September 2019 with the unfranked portion to be paid out
of Conduit Foreign Income.
Consistent with prior periods, the Company’s Dividend
Reinvestment Plan remains suspended.
As detailed in the Directors’ Report for the 2018 financial year,
the Board declared a fully franked final dividend of 14.0 cents
per share, that was paid on 27 September 2018 to shareholders
on the register at 30 August 2018 with the unfranked portion
paid out of Conduit Foreign Income.
Outlook
Downer is targeting consolidated net profit after tax and before
amortisation of acquired intangible assets (NPATA) of around
$365 million before minority interests for the 2020 financial year.
Subsequent events
In September 2017 Spotless commenced a Facilities
Management Sub-Contract (Subcontract) at the New Royal
Adelaide Hospital (nRAH). Spotless’ subcontract is with Celsus,
which has a head contract with the South Australian Government
as part of a Public Private Partnership model.
On 21 August 2019, Spotless reached in-principle agreement
with the South Australian Government and Celsus in relation
to the delivery of services under the Subcontract. The
agreement includes;
– settlement of historical abatement claims previously
disclosed as a contingent liability by Downer and Spotless;
– a revised KPI and abatement regime designed to better
reflect the services provided by Spotless; and
– an increase to Spotless’ monthly service fee.
The settlement agreement, which is expected to be signed in
the first half of the 2020 financial year, will take financial effect
from 1 July 2019.
Other than this in-principle agreement, there have been no
other matters or circumstances other than those referred to in
the financial statements or notes thereto, that have arisen since
the end of the financial year, that have significantly affected, or
may significantly affect, the operations of the Group, the results
of those operations, or the state of affairs of the Group
in subsequent financial years.
Changes in state of affairs
During the financial year there was no significant change in the
state of affairs of the Group other than that referred to in the
financial statements or notes thereto.
Environmental management
Downer believes in the pursuit of environmental excellence and
enhancing liveability for all communities in which it operates.
Downer’s environmental commitments are outlined in its
Environmental Sustainability Policy which can be found on the
Downer website at www.downergroup.com/board-policies.
Downer’s Purpose is to create and sustain the modern
environment by building trusted relationships with its customers.
Downer helps its customers succeed by developing and
delivering environmentally responsible and sustainable solutions.
Annual Report 2019 19
Employee Discount Share Plan (ESP)
An ESP was instituted in June 2005. In accordance with the provisions of the plan, as approved by shareholders at the 1998 Annual
General Meeting, permanent full-time and part-time employees of Downer EDI Limited and its subsidiary companies who have
completed six months service may be invited to participate.
No shares were issued under the ESP during the years ended 30 June 2019 or 30 June 2018.
There are no performance rights or performance options, in relation to unissued shares, that are outstanding.
Directors’ meetings
The following table sets out the number of Directors’ meetings (including meetings of Board Committees) held during the
2019 financial year and the number of meetings attended by each Director (while they were a Director or Board Committee member).
During the year, 10 Board meetings, six Audit and Risk Committee meetings, five Zero Harm Committee meetings, four Remuneration
Committee meetings and three Nominations and Corporate Governance Committee meetings were held. In addition, 23 ad hoc
meetings (attended by various Directors) were held in relation to various matters including tender reviews and major projects.
Director
R M Harding
G A Fenn
S A Chaplain
P S Garling2
T G Handicott3
N M Hollows
C G Thorne4
P L Watson
Director
R M Harding
G A Fenn
S A Chaplain
P S Garling2
T G Handicott3
N M Hollows
C G Thorne4
P L Watson
Board
Audit and Risk
Committee
Remuneration
Committee
Held1
10
10
10
10
10
10
10
2
Attended
10
10
9
9
10
10
10
2
Held1
–
–
6
5
6
6
6
1
Attended
–
–
6
5
6
6
6
1
Held1
4
–
–
4
4
–
–
–
Attended
4
–
–
4
4
–
–
–
Zero Harm
Committee
Nominations and
Corporate Governance
Committee
Held1
–
5
5
–
–
–
5
–
Attended
–
4
5
–
–
–
5
–
Held1
3
–
3
–
3
–
–
–
Attended
3
–
3
–
3
–
–
–
These columns indicate the number of meetings held during the period each person listed was a Director or member of the relevant Board Committee.
1
2 Mr Garling is also Chairman of the Rail Projects Committee.
3 Ms Handicott is also Chairman of the Disclosure Committee which meets on an unscheduled basis.
4 Dr Thorne is also Chairman of the Tender Risk Evaluation Committee which meets on an unscheduled basis.
20 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 The Directors are of the opinion that the services as disclosed
below do not compromise the external auditor’s independence,
based on advice received from the Audit and Risk Committee,
for the following reasons:
– All non-audit services have been reviewed and approved to
ensure that they do not impact the integrity and objectivity
of the auditor; and
– None of the services undermine the general principles
relating to auditor independence as set out in the Institute
of Chartered Accountants in Australia and CPA Australia’s
Code of Conduct APES 110 Code of Ethics for Professional
Accountants issued by the Accounting Professional &
Ethical Standards Board, including reviewing or auditing the
auditor’s own work, acting in a management or decision-
making capacity for the Company, acting as advocate for the
Company or jointly sharing economic risks and rewards.
A copy of the auditor’s independence declaration is set out on
page 53 of this Annual Report.
During the year, details of the fees paid or payable for non-audit
services provided by the auditor of the parent entity, its related
practices and related audit firms were as follows:
Non-audit services
Tax services
Advisory and due diligence services
Rounding of amounts
2019
$
338,957
275,000
613,957
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ reports) Instrument 2016/191,
relating to the “rounding off” of amounts in the Directors’
Report and consolidated financial statements. Unless otherwise
stated, amounts have been rounded off to the nearest whole
number of millions of dollars and one place of decimals
representing hundreds of thousands of dollars. Amounts
shown as $- represent amounts less that $50,000 which have
been rounded down.
Indemnification of officers and auditors
During the financial year, the Company paid a premium in
respect of a contract insuring the Directors of the Company,
the Company Secretary, all officers of the Company and of any
related body corporate against a liability incurred as a Director,
secretary or executive officer to the extent permitted by the
Corporations Act 2001 (Cth).
The contract of insurance prohibits disclosure of the nature of
the liability and the amount of the premium.
Downer’s Constitution includes indemnities, to the extent
permitted by law, for each Director and Company Secretary
of Downer and its subsidiaries against liability incurred in the
performance of their roles as officers. The Directors and the
Company Secretaries listed on pages 4 to 5, individuals who act
as a Director or Company Secretary of Downer’s subsidiaries and
certain individuals who formerly held any of these roles also have
the benefit of the indemnity in the Constitution.
The Company has not otherwise, during or since the financial
year, indemnified or agreed to indemnify an officer or auditor of
the Company or of any related body corporate against a liability
incurred as such an officer or auditor.
Corporate Governance
In recognising the need for the highest standards of corporate
behaviour and accountability, the Board endorses the
ASX Corporate Governance Council’s Corporate Governance
Principles and Recommendations (ASX Principles). The Group’s
corporate governance statement is set out at pages 131 to 141 of
this Annual Report.
Non-audit services
Downer is committed to audit independence. The Audit and
Risk Committee reviews the independence of the external
auditors on an annual basis. This process includes confirmation
from the auditors that, in their professional judgement, they are
independent of the Group. To ensure that there is no potential
conflict of interest in work undertaken by Downer’s external
auditors, KPMG, they may only provide services that are
consistent with the role of the Company’s auditor.
The Board has considered the position and, in accordance with
the advice from the Audit and Risk 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 (Cth).
Annual Report 2019 21
Remuneration Report
Chairman’s letter
Dear Shareholders,
Downer’s 2019 Remuneration Report provides information about
the remuneration of its most senior executives and explains how
performance has been linked to reward outcomes at Downer for
the 2019 financial year.
At the last Annual General Meeting in November 2018, 93.2%
of all votes cast by shareholders were in favour of the 2018
Remuneration Report. The structure of the 2019 Remuneration
Report has been prepared with the same objective of providing
readers with a transparent view of key performance and
outcomes using the report structure adopted in previous years.
Strong financial and safety performance
Downer has once again delivered strong financial and
safety performance in 2019 and has continued to deliver
on its promises:
– Total Revenue was $13.4 billion, an increase of
6.6% from 2018;
– Underlying Net Profit After Tax and before Amortisation of
acquired intangibles (NPATA) was $340.1 million, an increase
of $5.1 million over underlying guidance given at the
start of the year;
– Conversion of EBITDA (earnings before interest, tax,
depreciation and amortisation) to cash continued to be
strong at 89.0%;
– Work-in-hand is now $44.3 billion, up 5.5%
from June 2018; and
– Downer’s Total Shareholder Return over the three years to
30 June 2019 was 116.7%, 85.2% higher than the ASX 100
median comparator group.
Downer’s Lost Time Injury Frequency Rate decreased to 0.57
at 30 June 2019 and the Total Recordable Injury Frequency
Rate decreased to 2.70. Many of the activities that Downer’s
people perform every day have potential risks and ensuring
they remain safe is of paramount importance. Zero Harm is
central to Downer’s culture and our commitment to continuous
improvement in Zero Harm remains a core strategic objective.
22 Downer EDI Limited
Key remuneration issues in 2019
Downer continued to invest in its future through strategic
acquisitions and capital investments that have enhanced the
geographic footprint of the existing business, grown capability
and created new market positions which will maximise
long-term shareholder value. These include the acquisitions
of Boleh Consulting, The Roading Company, Envar Group,
FH Lismore and Rock N Road, a 50% interest in Repurpose It,
as well as the remaining interests in the MHPS Plant Services
and Downer Mouchel joint ventures.
The restructuring of Spotless and the integration of the
Spotless business into the Downer Group has also been
a major activity during 2019.
The impact of these major transactions on executive
remuneration can be significant. The Board’s overarching
concern is to ensure executives:
– Are accountable for delivery of the annual budget
and business plan; and
– Consider potential acquisition or divestment
opportunities without the influence of their impact
on remuneration outcomes.
For these and other reasons, where a transaction is both
material and unbudgeted, the Board’s policy is that it should
remove the impact of the transaction when calculating the
key performance indicators on which executive performance
is measured. This ensures that executives are ‘no better or
worse off’ as a result of the transaction.
In 2019, adjustments were made in respect of the Rock N Road
and Downer Mouchel acquisitions, in line with policy.
There were three items in 2019 which significantly affected
statutory results, which were the acceleration of capital
expenditure in the Mining business to take advantage of new
and extended contracts that were in the best interest of Downer,
a gain on revaluation of the existing interest in the Downer
Mouchel joint venture and Murra Warra Wind Farm loss.
The Board considers whether to adjust for the impact of
significant items (positive or negative) on a case by case basis,
having regard to the circumstances relevant to each item.
In 2019, adjustments were made in respect of the mining
capital expenditure and gain on revaluation of the existing
interest in the Downer Mouchel joint venture. No adjustment
was made in respect of the Murra Warra Wind Farm loss. The
adjustments that were made ensured that executives were
rewarded for performance against the operational performance
targets set at the beginning of the year absent the influence of
remuneration outcomes.
The adjustments resulted in the Group Free Cash Flow gateway
being met and part achievement of that measure for the
Corporate scorecard and reduced the level of achievement of
the Corporate NPATA measure and Earnings Before Interest,
Tax and Amortisation of acquired intangibles measure for the
Directors’ Report – continuedfor the year ended 30 June 2019 Mining, Energy and Industrial and Transport and Infrastructure
scorecards. For other measures there was no impact on
reward outcomes.
More information on the Board’s approach to the above activities
and their impact in 2019 can be found at sections 6.5 and 7.4 of
the Remuneration Report.
Link between Downer performance and reward outcomes
Downer is one of the few companies in its sector that provides
earnings guidance to the market each year. Downer has been
successful in meeting or exceeding this earnings guidance
for the last eight reporting periods.
Downer’s remuneration framework for key senior employees
has been very successful in aligning Downer’s strategy
and the creation of alignment between senior executives
and shareholders. As set out in this Remuneration Report,
Downer’s remuneration strategy continues to provide:
– A significant proportion of remuneration being at risk linked
to clear, objective measures;
– A profitability gateway as a precondition to any short-term
incentive entitlement;
– For deferral of 50% of short-term incentive payments over a
further two-year period; and
– The delivery of a significant proportion of pay in equity.
Remuneration framework review
Downer’s current remuneration framework was established
in 2008 and has been developed and refined over the
subsequent years.
In recent years, Downer has undergone transformational
change, including through the acquisitions of Tenix, Hawkins
and Spotless as well as the divestment of the Freight Rail
business and its revenue and market capitalisation have
grown significantly.
Accordingly, as foreshadowed in last year’s Remuneration Report,
the Board undertook a review of whether the remuneration
framework currently in place continued to be ‘fit for purpose’ for
today’s Downer. Guerdon Associates, the Board’s independent
remuneration adviser, was engaged to assist with the review.
The review concluded that Downer’s framework is well designed
and implemented to meet its needs. Further commentary on the
review can be found on page 25.
We trust that this overview and the accompanying detailed
analysis are helpful when forming your own views on Downer’s
remuneration arrangements.
R M Harding
Chairman
T G Handicott
Remuneration Committee Chairman
Annual Report 2019 23
Remuneration Report – AUDITED
The Remuneration Report provides information about the remuneration arrangements for key management personnel (KMP), which
means Non-executive Directors and the Group’s most senior executives, for the year to 30 June 2019. The term “executive” in this
Report means KMPs who are not Non-executive Directors.
The Report covers the following matters:
1. Year in review;
2. Details of Key Management Personnel;
3. Remuneration policy, principles and practices;
4. Relationship between remuneration policy and company performance;
5. The Board’s role in remuneration;
6. Description of executive remuneration;
7. Details of executive remuneration;
8. Executive equity ownership;
9. Key terms of employment contracts;
10. Related party information; and
11. Description of Non-executive Director remuneration.
1. Year in review
1.1 Summary of changes to remuneration policy
Downer has continued to refine its remuneration policy during the period. The Board considered Company strategy and reward plans
based on performance measurement, competitive position and stakeholder feedback. Changes to policy are noted in the relevant
sections of this Report and are summarised in the table below.
Policy
Enhancements since 2018
Short-term incentive (STI) plan
Long-term incentive (LTI) plan
– The Zero Harm measures for safety and environmental performance have been further
refined, building upon previous improvements to move with and support growth in
organisational maturity and ensure continual stretch and ongoing Zero Harm improvement
through requiring executives to:
– Reset the baseline for greenhouse gas (GHG) emissions to FY18 levels and development
of three-year plans for GHG emission reductions, setting targets for the achievement of
GHG emissions reduction and achieving FY19 targets;
– Conduct an operationally led review of Bow Tie analyses and critical analysis of critical
risk control performance and initiating a program of projects to improve the resilience of
critical controls; and
– Extend the critical risk observation program to also require observations to be
conducted in partnership with clients.
Following on from the evolution of the Financial measures for earnings from Net Profit After Tax
(NPAT) to Net Profit After Tax and before Amortisation of acquired intangibles (NPATA) at the
Group level for the STI plan in 2018, NPATA has now replaced NPAT in the LTI plan. Adopting
NPATA ensures that reward remains focused on the delivery of operational performance.
24 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 1.2 Remuneration Framework Review
Downer’s current remuneration framework was established in 2008 and has been developed and refined over the subsequent years.
In recent years, Downer has undergone transformational change in becoming Australia’s largest integrated services provider, including
through the acquisitions of Tenix, Hawkins and Spotless as well as the divestment of the Century Drilling and Freight Rail businesses
and its revenue and market capitalisation have grown significantly.
Accordingly, the Board, with the support of management, undertook a review of the framework currently in place to ensure it continues
to be ‘fit for purpose’ for today’s Downer. The Board’s independent remuneration adviser, Guerdon Associates, was engaged to assist
with this review.
The review included consideration of the objectives of the framework, which were confirmed as simplicity, performance, alignment
with shareholders, collaboration, sustainability and retention as well as assessment of the effectiveness of the framework in meeting
these objectives and its alignment with strategy and stakeholder expectations to ensure it is well designed to appropriately reward
performance and drive corporate culture. This involved comparing each objective against the relevant elements of the framework,
including the remuneration component mix, key result areas and measures, targets, payment vehicles, incentive grant basis, deferral
or claw back mechanisms, performance modifiers, Board discretion adjustment mechanisms and minimum shareholding requirements.
The review by Guerdon Associates concluded that the framework was well designed to meet its objectives, recommending that
consideration be given to enhancing the effectiveness of the framework in meeting the retention objective, notwithstanding that
the current framework satisfactorily addressed retention. Following presentation by Guerdon Associates of options to enhance the
retention elements of the framework, it was determined that, on balance, any changes would decrease the overall effectiveness of the
framework, and accordingly no changes were made.
2. Details of Key Management Personnel
The following persons acted as Directors of the Company during or since the end of the most recent financial year:
Director
Role
R M Harding
G A Fenn
S A Chaplain
P S Garling
T G Handicott
N M Hollows
C G Thorne
P L Watson
Chairman, Independent Non-executive Director
Managing Director and Chief Executive Officer
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
The named persons held their current executive position for the whole of the most recent financial year, except as noted:
Executive
Role
S Cinerari
M J Ferguson
S L Killeen
D Nelson
B C Petersen
P J Tompkins
Chief Executive Officer – Transport and Infrastructure
Chief Financial Officer
Chief Executive Officer – New Zealand
Chief Executive Officer – Spotless, to 15 October 2018
Chief Executive Officer – Mining, Energy and Industrial Services
Chief Executive Officer – Spotless, from 16 October 2018
Annual Report 2019 25
3. Remuneration policy, principles and practices
3.1 Executive remuneration policy
Downer’s executive remuneration policy and practices are summarised in the table below.
Policy
Practices aligned with policy
Retain experienced, proven
performers, and those
considered to have high
potential for succession
Focus performance
Provide a Zero
Harm environment
Manage risk
– Provide remuneration that is internally fair;
– Ensure remuneration is competitive with the external market; and
– Defer a substantial part of pay contingent on continuing service and sustained performance.
– Provide a substantial component of pay contingent on performance against targets;
– Focus attention on the most important drivers of value by linking pay to their achievement;
– Require profitability to reach a challenging level before any bonus payments can be made; and
– Provide a LTI plan component that rewards consistent Scorecard performance over multiple
years and over which executives have a clear line of sight.
– Incorporate measures that embody “Zero Harm” for Downer’s employees, contractors,
communities and the environment as a significant component of reward.
– Encourage sustainability by balancing incentives for achieving both short-term and longer-term
results, and deferring equity-based reward vesting after performance has been initially tested;
– Set stretch targets that finely balance returns with reasonable but not excessive risk taking and
cap maximum incentive payments;
– Do not provide excessive “cliff” reward vesting that may encourage excessive risk taking as a
performance threshold is approached;
– Diversify risk and limit the prospects of unintended consequences from focusing on just one
measure in both short-term and long-term incentive plans;
– Stagger vesting of deferred short-term incentive payments to encourage retention and allow
forfeiture of rewards that are the result of misconduct or material adjustments;
– Retain full Board discretion to vary incentive payments, including in the event of excessive
risk taking; and
– Restrict trading of vested equity rewards to ensure compliance with the Company’s Securities
Trading Policy.
Align executive interests with
those of shareholders
– Provide that a significant proportion of pay is delivered as equity so part of executive reward is
linked to shareholder value performance;
– Provide a long-term incentive that is based on consistent Scorecard performance against
challenging targets set each year that reflect sector volatility and prevailing economic
conditions as well as relative TSR and earnings per share measures directly related to
shareholder value;
– Maintain a guideline minimum shareholding requirement for the Managing Director;
– Exclude the short-term impact of unbudgeted and opportunistic acquisitions and divestments
from performance assessment to encourage agility and responsiveness;
– Encourage holding of shares after vesting via a trading restriction for all executives and
payment of LTI components in shares; and
– Prohibit hedging of unvested equity and equity subject to a trading lock to ensure alignment
with shareholder outcomes.
Attract experienced,
proven performers
– Provide a total remuneration opportunity sufficient to attract proven and experienced
executives from secure positions in other companies and retain existing executives.
26 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 4. Relationship between remuneration policy
and company performance
– Deferring 50% of STI awards to encourage sustainable
performance and a longer-term focus;
4.1 Company strategy and remuneration
Downer’s business strategy includes:
– Maintaining focus on Zero Harm by continually improving
health, safety and environmental performance to achieve
Downer’s goal of zero work-related injuries and significant
environmental incidents;
– Driving growth in core markets through focusing on serving
existing customers better across multiple products and
service offerings, growing capabilities and investing in
innovation, research and development and community and
Indigenous partnerships;
– Creating new strategic positions through enhanced value
add services that improve propositions for customers and
exporting established core competencies into new overseas
markets with current customers of the Company;
– Reducing risk and enhancing the Company’s capability
to withstand threats, take advantage of opportunities and
reduce cyclical volatility;
– Obtaining better utilisation of assets and improved margins
through simplifying and driving efficiency;
– Identifying opportunities to manage the Downer portfolio
through partnering, acquisition and divestment that deliver
long-term shareholder value; and
– Maintaining flexibility to be able to adapt to the changing
economic and competitive environment to ensure Downer
delivers shareholder value.
The Company’s remuneration policy complements
this strategy by:
– Incorporating Company-wide performance requirements for
both STI and LTI reward vesting for earnings (NPATA), Free
Cash Flow (FFO) and People measures to encourage cross-
divisional collaboration;
– Incorporating performance metrics that focus on cash flow to
reduce working capital and debt exposure;
– Setting NPATA, EBITA and FFO STI performance and
gateway requirements based on effective application of funds
employed to run the business for better capital efficiency;
– Employing FFO as the cash measure for the STI to provide
more emphasis on control of capital expenditure;
– Excluding the short-term impacts of opportunistic and
unbudgeted acquisitions and divestments on incentive
outcomes to encourage flexibility, responsiveness and
growth consistent with strategy;
– Incorporating consistent financial performance in the LTIP
Scorecard measure;
– Emphasis on Zero Harm measures in the STI to maintain the
Company’s position as a Zero Harm leader and employer
and service provider of choice, thereby delivering a
competitive advantage; and
– Encouraging engagement with and the development
and retention of its people to help maintain a sustainable
supply of talent.
4.2 Remuneration linked to performance
The link to performance is provided by:
– Requiring a significant portion of executive remuneration
to vary with short-term and long-term performance;
– Applying a profitability gateway to be achieved before
an STI calculation for executives is made;
– Applying further Zero Harm gateways to be
achieved before calculating any reward for safety or
environmental performance;
– Applying challenging financial and non-financial measures
to assess performance;
– Ensuring that these measures focus management
on strategic business objectives that create
shareholder value; and
– Delivering a significant proportion of payment in equity
for alignment with shareholder interests.
Downer measures performance on the following key
corporate measures:
– Earnings per share (EPS) growth;
– Total shareholder return (TSR) relative to other ASX 100
companies (excluding ASX “Financials” sector companies);
– Group NPATA;
– Divisional EBITA;
– FFO;
– Engagement with Downer’s people; and
– “Zero Harm” measures of safety and environmental
sustainability.
Remuneration for all executives varies with performance on
these key measures.
Annual Report 2019 27
The following graph shows the Company’s performance compared to the median performance of the ASX 100 over the three-year
period to 30 June 2019.
Downer EDI TSR compared to S&P/ASX 100 median*
)
0
0
1
o
t
d
e
x
e
d
n
I
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
250
200
150
100
50
0
Jun
2016
Dec
2016
Jun
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
* S&P/ASX 100 companies as at 30/06/2016
Downer EDI TSR
S&P/ASX 100 median TSR
The graphs below illustrate Downer’s performance against key financial and non-financial performance indicators over the
last five years.
Net profit after tax
Free cash flow
247.81
258.32
210.2
180.6
181.5
300
250
200
m
$
’
150
100
50
0
344.3
242.3
203.03
178.33
185.74
400
300
m
$
’
200
100
0
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Adjusted for material unbudgeted transactions and individually significant items.
1.
2. Adjusted for material unbudgeted transactions.
3. Adjusted for material unbudgeted transactions, including payment for
Spotless shares.
4. Adjusted for material unbudgeted transactions.
Basic earnings per share5
e
r
a
h
s
r
e
p
s
t
n
e
C
50
40
30
20
10
0
43.9
42.9
38.0
35.8
10.7
Safety
s
r
u
o
h
0
0
0
0
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,
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r
e
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e
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r
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1.2
1.0
0.8
0.6
0.4
0.2
0.0
LTIFR
TRIFR
0.87
0.70
0.66
0.78
0.55
0.57
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
12
10
8
6
4
2
0
s
r
u
o
h
0
0
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,
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n
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l
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a
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r
o
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R
l
a
t
o
T
5. Historical basic earnings per share were restated as a result of 169.9 million
shares issued from the capital raising made as part of the Spotless takeover
offer announced on 21 March 2017. The weighted average number of shares
(WANOS) to calculate EPS was adjusted by an adjustment factor of 0.943.
28 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019
5. The Board’s role in remuneration
The Board engages with shareholders, management and other stakeholders as required, to continuously refine and improve executive
and Director remuneration policies and practices.
Two Board Committees deal with remuneration matters. They are the Remuneration Committee and the Nominations and Corporate
Governance Committee.
The role of the Remuneration Committee is to review and make recommendations to the Board in relation to executives in respect of:
– Executive remuneration and incentive policy;
– Remuneration of senior executives of the Company;
– Executive reward and its impact on risk management;
– Executive incentive plans;
– Equity-based incentive plans;
– Superannuation arrangements;
– Recruitment, retention, performance measurement and termination policies and procedures for all Key Management Personnel and
senior executives reporting directly to the Managing Director;
– Disclosure of remuneration in the Company’s public materials including ASX filings and the Annual Report; and
– Retirement payments for all Key Management Personnel and senior executives reporting directly to the Managing Director.
The Nominations and Corporate Governance Committee is responsible for recommending and reviewing remuneration arrangements
for the Executive Director and Non-executive Directors of the Company.
Each Committee has the authority to engage external professional advisers without seeking approval of the Board or management.
During the reporting period, the Remuneration Committee retained Guerdon Associates Pty Ltd as its adviser. Guerdon Associates Pty
Ltd does not provide services to management and is considered to be independent.
Remuneration arrangements for executives of Spotless are set by the Board of Spotless. Spotless’ People and Remuneration Committee
is comprised of two independent Directors and one Director nominated by Downer.
Details of the remuneration structure and arrangements for 2019 for the Chief Executive Officer – Spotless, as established by the
Spotless Board, are outlined at section 6.7.
Annual Report 2019 29
6. Description of executive remuneration
6.1 Executive remuneration structure
Executive remuneration has a fixed component and a component that varies with performance.
The variable component ensures that a proportion of pay varies with performance. Performance is assessed annually for performance
periods covering one year and three years. Payment for performance assessed over one year is an STI. Payment for performance over
a three-year period is an LTI.
In order for maximum STIs to be awarded, performance must achieve a stretch goal that is a clear margin above the planned budget for
the period. This enables the Company to attract and retain better performing executives, and ensures pay outcomes are aligned with
shareholder returns.
Target STIs are less than the maximum STI. Target STI is payable on achievement of planned objectives. For executives the target
STI is 75% of the maximum STI. The maximum total remuneration that can be earned by an executive is capped. The maximums are
determined as a percentage of fixed remuneration.
Executive position
Managing Director
Executives appointed prior to 2011
Executives appointed from 2011
Target
STI % of
fixed
remuneration
Maximum
STI % of
fixed
remuneration
Maximum
LTI % of
fixed
remuneration
Maximum total
performance
based pay as a % of
fixed remuneration
75
75
56.25
100
100
75
100
75
50
200
175
125
The proportions of STI to LTI take into account:
– Market practice;
– The service period before executives can receive equity rewards;
– The behaviours that the Board seeks to encourage through direct key performance indicators; and
– The guideline for the Managing Director to maintain a shareholding as a multiple of pay after long-term incentive
rewards have vested.
6.2 Fixed remuneration
Fixed remuneration is the sum of salary and the direct cost of providing employee benefits, including superannuation, motor vehicles,
car parking, living away from home expenses and fringe benefits tax.
The level of remuneration is set to be able to retain proven performers and when necessary to attract the most suitable external
candidates from secure employment elsewhere.
Remuneration is benchmarked against a peer group of direct competitors and a sector peer group. While market levels of remuneration
are monitored on a regular basis, there is no contractual requirement or expectation that any adjustments will be made.
No adjustment has been made to remuneration for the Managing Director since July 2012.
30 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 6.3 Short-term incentive
6.3.1 STI tabular summary
The following table outlines the major features of the 2019 STI plan.
Purpose of STI plan
– Focus performance on drivers of shareholder value over 12-month period;
– Improve “Zero Harm” and people related results; and
– Ensure a part of remuneration costs varies with the Company’s 12-month performance.
Minimum performance “gateway”
before any payments can be made
Achievement of a gateway based on budgeted Group NPATA for corporate executives and
Division EBITA for divisional heads.
Maximum STI that can be earned
– KMP appointed pre 2011: up to 100% of fixed remuneration; and
– KMP appointed from 2011: up to 75% of fixed remuneration.
Percentage of STI that can
be earned on achieving
target expectations
Individual
Performance Modifier (IPM)
75% of the maximum. For an executive to receive more, performance in excess of target
expectations will be required.
– An IPM may be applied based on an executive’s individual key performance indicators and
relative performance;
– Moderate individual performance may result in an IPM of less than 1 or outstanding
performance may result in an IPM greater than 1. The IPM must average 1 across all
participants; and
– Application of an IPM cannot result in an award greater than the maximum STI% level set out
in section 6.1.
Discretion to vary payments
The Board, in its discretion, may vary STI payments by up to + or – 100% from the payment
applicable to the level of performance achieved, up to the maximum for that executive.
Performance period
1 July 2018 to 30 June 2019.
Performance assessed
August 2019, following audit of accounts.
Additional service period
after performance period for
payment to be made
Payment timing
Form of payment
50% of the award is deferred with the first tranche of 25% vesting one year following award and
the second tranche of 25% vesting two years following award.
September 2019 for the first cash payment of 50% of the award. The deferred components
of the STI payments will be paid one and two years following the award, in equal tranches of
25% of the award.
Cash for initial payment.
The value of deferred components will be settled in cash or shares, net of personal tax. An
eligible leaver’s deferred components will be settled in shares or in cash in the sole and absolute
discretion of the Board.
Performance requirements
Group NPATA and divisional EBITA, FFO, Zero Harm and people measures.
Board discretion
New recruits
Terminating executives
The Board may exercise discretion to:
– Reduce partly or fully the value of the deferred components that are due to vest in certain
circumstances, including where an executive has acted inappropriately or where the Board
considers that the financial results against which the STI performance measures were tested
were incorrect in a material respect or have been reversed or restated; and
– Settle deferred components in shares or cash.
New executives (either new starts or promoted employees) are eligible to participate in the STI
in the year in which they commence in their position with a pro-rata entitlement.
There is no STI entitlement where an executive’s employment terminates prior to the end of
the financial year. Where an executive’s employment terminates prior to the vesting date, the
unvested deferred components will be forfeited. However, the Board has retained discretion to
vest deferred awards, in the form of shares or cash, in their ordinary course where the executive
is judged to be an eligible leaver.
Annual Report 2019 31
6.3.2 STI overview
The STI plan provides for an annual payment that varies with annual performance. This has been applied to performance measured
over the Company’s financial year to 30 June 2019.
The basis of the plan is designed to align STI outcomes with financial results. No STI is paid unless a minimum profit gateway is met. For
corporate executives, the gateway is based on the Group budgeted profit target. For divisional executives, the gateway is based on the
division budgeted profit target. Profit for this purpose is defined as NPATA for corporate executives and EBITA for divisional executives.
This minimum must be at a challenging level to justify the payment of STI to an executive, and deliver an acceptable return for the
funds employed in running the business. Positive and negative impacts from material but unbudgeted and opportunistic transactions
are excluded from gateway assessment. Whether to exclude the impact of significant items (positive or negative) is considered on a
case by case basis.
As noted in section 6.1, the maximum STI that can be earned is capped to minimise excessive risk taking.
Deferral is a key feature as part of the STI structure. Payment of 50% of the award is paid at the time of award in cash and the remaining
50% of the award earned is deferred over two years.
The first payment of 50% of the award will be in cash after finalisation of the annual audited results. The payment of the deferred
component of the award will be in the form of two tranches, each to the value of 25% of the award.
The deferred components represent an entitlement to cash or shares, subject to the satisfaction of a continued employment condition.
The first tranche will vest one year following award and the second tranche will vest two years following award, provided an executive
remains employed by the Group at the time of vesting.
The value of deferred components will generally be settled in shares, net of applicable personal tax. This is designed to encourage
executive share ownership, and not adversely impact executives who have to meet their taxation obligations arising from the vesting
of the deferred components. However, the Board retains the discretion to vest deferred awards, in the form of shares or cash, and will
generally have regard to an executive’s individual circumstances and existing level of equity ownership.
No dividend entitlements are attached to the deferred components during the vesting period.
Where an executive ceases employment with the Group prior to the vesting date, the deferred components will be forfeited. However,
the Board has retained the discretion to vest deferred awards, in the form of shares or cash, in their ordinary course where the executive
is judged to be an eligible leaver.
6.3.3 How STI payments are assessed
Target STI plan percentage of pay
An individual’s target incentive under the STI plan is expressed as a percentage of fixed
remuneration. The STI plan percentage is set according to policy tabulated in section 6.1.
Organisational or divisional
scorecard result
As a principle, “target” achievement would be represented at budget. Thresholds and
maximums are also set.
Individual Performance
Modifier (IPM)
At the end of the plan year, eligible employees are provided with an IPM against their key
performance indicators and relative performance. Individual key performance indicators are set
between the individual and the Managing Director (if reporting to the Managing Director) or the
Board (if the Managing Director) at the start of the performance period. IPMs must average to 1.
STI plan incentive calculation
Fixed remuneration x maximum STI plan percentage x scorecard result x IPM.
32 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 6.3.4 STI performance requirements
Overall performance is assessed on Group NPATA, Divisional EBITA, FFO, Zero Harm and a measure of employee engagement.
NPATA and EBITA include joint ventures and associates and include, inter alia, changes in accounting policy. NPATA and EBITA provide
transparency on operational business performance, align with how Downer presents its results to the market and allow for easier
understanding of alignment between performance and remuneration outcomes. The Board considers this approach to be appropriate
as the Board is the ultimate decision maker for transactions that give rise to acquired intangibles that result in the amortisation expense
and the impact of amortisation of acquired intangibles, which in nature relate to long-term strategic decisions, remains reflected in
incentive outcomes through the EPS measure in the LTI plan.
FFO is defined as net cash from operating activities (i.e. EBIT plus non-cash items in operating profit plus distributions received
from JVs or associates plus movements in working capital plus movements in operating assets less net interest less tax paid), less
investing cash flow.
Zero Harm reflects Downer’s commitment to safety and environmental, social and governance matters. The Zero Harm element
includes safety and environmental measures, underscoring Downer’s commitment to customers, employees, regulators and the
communities in which it operates.
The measures for the Zero Harm element of the scorecard are as follows:
Measure
Target
Safety
TRIFR (total recordable injury
frequency rate)
LTIFR (lost time injury
frequency rate)
Environmental
GHG Emission Reductions
Critical risks
Achieve TRIFR and LTIFR below defined threshold levels for area of responsibility. TRIFR
is calculated as the number of recordable injuries x 1,000,000/the hours worked in
12 months. LTIFR is calculated as the number of lost time injuries x 1,000,000/the hours
worked in 12 months.
Reset the baseline year to FY18 and develop three-year Plan for GHG emission reductions.
Set targets identified for greenhouse gas emission reductions and the achievement of FY19
greenhouse emission reduction targets for the area of control.
Conduct an operationally led review of Bow Tie analyses. Critically analyse critical risk control
performance and initiate a program of projects to improve the resilience of critical controls.
Zero Harm Leadership
Performance of a minimum number of critical risk observations by senior executives within the
relevant area of control, other areas of Downer and in partnership with clients.
Should a workplace fatality or serious environmental incident occur, the relevant safety or environmental portion of the STI is foregone.
Weightings applied to the 2019 STI scorecard measures for all executives, including the Managing Director, are set out in
the table below.
Executive
Corporate
Business unit
Group NPATA
Divisional EBITA
Free cash flow
Zero Harm
30%
7.5%
–
22.5%
30%
30%
(7.5% Group,
22.5% division)
30%
30%
People
10%
10%
(3% Group,
7% division)
The Board has discretion to vary STI payments by up to + or – 100% from the payment applicable to the level of performance achieved,
up to the maximum for that executive.
Specific details of STI performance requirements are set out in section 7.3.
The Board retains the right to vary from policy in exceptional circumstances. However, any variation from policy and the reasons for it
will be disclosed.
Annual Report 2019 33
6.4 Long-term incentive
6.4.1 LTI tabular summary
The following table outlines the major features of the 2019 LTI plan.
Purpose of LTI plan
– Focus performance on drivers of shareholder value over three-year period;
– Manage risk by countering any tendency to over-emphasise short-term performance to the
detriment of longer-term growth and sustainability; and
– Ensure a part of remuneration costs varies with the Company’s longer-term performance.
Maximum value of equity
that can be granted
– Managing Director: 100% of fixed remuneration;
– KMP appointed pre-2011: 75% of fixed remuneration; and
– KMP appointed from 2011: 50% of fixed remuneration.
Performance period
1 July 2018 to 30 June 2021.
Performance assessed
September 2021.
Additional service period
after performance period
for shares to vest
Performance rights for which the relevant performance vesting condition is satisfied will not vest
unless executives remain employed with the Group on 30 June 2022.
Performance rights vest
July 2022.
Form of award and payment
Performance rights.
Performance conditions
There are three performance conditions. Each applies to one-third of the performance rights granted
to each executive.
Relative TSR
The relative TSR performance condition is based on the Company’s TSR performance relative to the
TSR of companies comprising the ASX 100 index, excluding financial services companies, at the start
of the performance period, measured over the three years to 30 June 2021.
The performance vesting scale that will apply to the performance rights subject to the relative TSR
test is shown in the table below:
Downer EDI Limited’s
TSR Ranking
Percentage of performance rights subject to TSR condition that
qualify for vesting
< 50th percentile
50th percentile
Above 50th and below
75th percentile
0%
30%
Pro rata so that 2.8% of the performance rights in the tranche will
vest for every 1 percentile increase between the 50th percentile and
75th percentile
75th percentile and above
100%
34 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 EPS growth
The EPS growth performance condition is based on the Company’s compound annual EPS growth
over the three years to 30 June 2021.
The performance vesting scale that will apply to the performance rights subject to the EPS growth
test is shown in the table below:
Downer EDI Limited’s EPS
compound annual growth
Percentage of performance rights subject to EPS condition that
qualify for vesting
< 5%
5%
0%
30%
Above 5% to < 10%
Pro rata so that 14% of the performance rights in the tranche will vest
for every 1% increase in EPS growth between 5% and 10%
10% or more
100%
Scorecard
The Scorecard performance condition is based on the Group’s NPATA and FFO for each of the
three years to 30 June 2021. These measures are considered to be key drivers of shareholder value.
Accordingly, they have been included in the LTI plan to reward sustainable financial performance.
The performance vesting scale that will apply to the performance rights subject to the Scorecard test
is shown in the table below:
Scorecard result
< 90%
90%
Percentage of performance rights subject to Scorecard condition
that qualify for vesting
0%
30%
Above 90% to < 110%
Pro rata so that 3.5% of the performance rights in the tranche will vest
for every 1% increase in the Scorecard result between 90% and 110%
110% or more
100%
How performance rights and
shares are acquired
The rights are issued by the Company and held by the participant subject to the satisfaction of
the vesting conditions. The number of rights held may be adjusted pro-rata, consistent with ASX
adjustment factors, for any capital restructures.
If the rights vest, executives can exercise them to receive shares that are normally acquired on-market.
Treatment of dividends
and voting rights on
performance rights
Performance rights do not have voting rights or accrue dividends.
Restriction on hedging
Hedging of entitlements under the plan by executives is not permitted.
Restriction on trading
New participants
Terminating executives
Vested shares arising from the rights may only be traded with the approval of the Remuneration
Committee. Approval requires that trading comply with the Company’s Securities Trading Policy.
New executives (either new starts or promoted employees) are eligible to participate in the LTI on
the first grant date applicable to all executives after they commence in their position. An additional
pro-rata entitlement if their employment commenced after the grant date in the prior calendar year
may be made on a discretionary basis.
Where an executive ceases employment with the Group prior to the vesting date, the rights will
be forfeited. However, the Board will retain the discretion to retain executives in the plan in certain
circumstances including the death, total and permanent disability or retirement of an executive. In
these circumstances, the Board will also retain the discretion to vest awards in the form of cash.
Annual Report 2019 35
Change of control
On the occurrence of a change of control event, and providing at least 12 months of the grants’
performance period have elapsed, unvested performance rights pro rated with the elapsed service
period are tested for vesting with performance against the relevant relative TSR, EPS growth or
Scorecard requirements for that relevant period. Vesting will occur to the extent the performance
conditions are met. Performance rights that have already been tested, have met performance
requirements and are subject to the completion of the service condition, fully vest.
6.4.2 LTI overview
Executives participate in a LTI plan. This is an equity-based plan that provides for a reward that varies with Company performance over
three-year measures of performance. Three-year measures of performance are considered to be the maximum reasonable time period
for setting incentive targets for earnings per share and are generally consistent with market practice in the Company’s sector.
The payment is in the form of performance rights. The performance rights do not have any dividend entitlements or voting rights. If all
the vesting requirements are satisfied, the performance rights will vest and the executives will receive shares in the Company or cash at
the discretion of the Board.
The 2019 LTI represents an entitlement to performance rights to ordinary shares exercisable subject to satisfaction of both a
performance condition and a continued employment condition. Grants will be in three equal tranches, with each tranche subject to an
independent performance requirement. The performance requirements for each tranche will share two common features:
– Once minimum performance conditions are met, the proportion of performance rights that qualify for vesting commences at 30%
and gradually increases pro rata with performance. This approach provides a strong motivation for meeting minimum performance,
but avoids a large “cliff” which may encourage excessive risk taking; and
– The maximum reward is capped at a “stretch” performance level that is considered attainable without excessive risk taking.
Performance for the 2019 LTI grants will be measured over the three-year period to 30 June 2021.
The proportion of performance rights that can vest will be calculated in September 2021, but executives will be required to remain in
service until 30 June 2022 to be eligible to receive any shares.
Where an executive ceases employment with the Group prior to the vesting date, the rights will be forfeited. However, the Board will
retain the discretion to retain executives in the plan in certain circumstances such as the death, total and permanent disability or
retirement of an executive. In these circumstances, the Board will also retain the discretion to vest awards in the form of cash.
After vesting, any shares will remain subject to a trading restriction that is governed by the Company’s Securities Trading Policy.
All unvested performance rights will be forfeited if the Board determines that an executive has committed an act of fraud, defalcation or
gross misconduct or in other circumstances at the discretion of the Board.
36 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 6.4.3 Performance requirements
One tranche of performance rights in the 2019 LTI grant will
qualify for vesting subject to performance relative to other
companies, while the other two tranches of performance rights
will qualify for vesting subject to separate, independent absolute
performance requirements.
The relative performance requirement applicable to the first
tranche of performance rights is based on total shareholder
return (TSR). TSR is calculated as the difference in share
price over the performance period, plus the value of shares
earned from reinvesting dividends received over this period,
expressed as a percentage of the share price at the beginning
of the performance period. If the TSR for each company in the
comparator group is ranked from highest to lowest, the median
TSR is the percentage return to shareholders that exceeds the
TSR for half of the comparison companies. The 75th percentile
TSR is the percentage return required to exceed the TSR for 75%
of the comparison companies.
Performance rights in the tranche to which the relative TSR
performance requirement applies will vest pro rata between the
median and 75th percentile. That is, 30% of the tranche vest at
the 50th percentile, 32.8% at the 51st percentile, 35.6% at the
52nd percentile and so on until 100% vest at the 75th percentile.
The comparator group for the 2019 LTI grants will be the
companies, excluding financial services companies, in the
ASX 100 index as at the start of the performance period on
1 July 2018. Consideration has been given to using a smaller
group of direct competitors for comparison, however:
– Limiting the comparator group to a small number of direct
competitors could result in very volatile outcomes from
period to period; and
– Management’s strong focus on improving the Company’s
ranking among ASX 100 companies has become embedded
in Company culture, so reinforcing this rather than trying to
dislodge it with another focus was considered desirable.
The absolute performance requirement applicable to the
second tranche of performance rights is based on Earnings per
Share (EPS) growth over the three-year performance period
to 30 June 2021. The EPS measure is based on AASB 133
Earnings per Share.
The tranche of performance rights dependent on the EPS
performance condition will vest pro rata between 5% compound
annual EPS growth and 10% compound annual EPS growth.
Vesting applies on a pro-rata basis from 30% upon meeting the
minimum compound annual EPS growth performance level of 5%
to 100% at 10% annual compound annual EPS growth. Capping
reduces the tendency for excessive risk taking and volatility that
may be encouraged if the annual compound EPS growth bar
is set above 10%.
The absolute performance requirement applicable to
the third tranche of performance rights is based on the
Scorecard condition over the three-year performance period
to 30 June 2021.
The Scorecard condition is designed to:
– Strengthen retention through the setting of challenging
targets on an annual basis that reflect prevailing market
conditions, for a portion of LTI awards;
– Align with the STI plan to encourage a long-term approach to
achieving annual financial performance targets;
– Improve the line of sight for executives so as to increase
motivation and focus on consistent performance; and
– Focus on performance sustainability through reward of
consistent achievement of absolute performance targets
over the long term.
The Scorecard condition is comprised of two independent
absolute components of equal weighting. These components are
based on Group NPATA and Group FFO.
The performance of each component will be measured over the
three-year period to 30 June 2021.
NPATA and FFO targets are set at the beginning of each of the
three financial years. The performance of each component will
be assessed each year relative to the targets. Performance of
each component will be determined as the average of the annual
performance assessments for the three years. The performance
rights will vest on a pro-rata basis from 30% upon meeting the
minimum three-year average component performance level
of 90% of target to 100% at the capped maximum three-year
average component performance level of 110% of target.
The processes and timing applicable for the Scorecard measure
are outlined below:
Timing
Actions
At the beginning
of the plan
Weighting of components is determined.
In 2019 the components are
equally weighted.
At the beginning of
each financial year
NPATA and FFO target performance
levels are set.
At the end of
each financial year
– Calculate actual performance; and
– Assess actual performance compared
to target to determine performance
percentage for the year.
At the end of
three years
– Calculate average annual performance
for each component; and
– Calculate award based on performance
against the vesting range.
At the end of
four years
Consider the continued service condition
and determine vesting.
Annual Report 2019 37
6.4.4 Post-vesting shareholding guideline
The Managing Director is required to continue holding shares
after they have vested until the shareholding guideline has been
attained. This guideline requires that the Managing Director
holds vested long-term incentive shares equal in value to 100%
of his fixed remuneration. The Managing Director’s shareholding
is currently well in excess of the guideline.
The Remuneration Committee has discretion to allow
variations from this guideline requirement. The guideline
requirement has been developed to reinforce alignment with
shareholder interests.
through the acquired business is appropriate. Where this
transition to Downer’s framework takes place over a longer
period due to the complexity of the implementation or the
maturity profile of the acquired business, the Board will consider
an extension to a more appropriate period.
6.6 Treatment of significant items
From time to time, Downer’s performance is impacted by
significant items. Where these occur, the Board considers
whether to adjust for their impact (positive or negative) on
a case by case basis, having regard to the circumstances
relevant to each item.
The Board retains the right to vary from policy in exceptional
circumstances. However, any variation from policy and the
reasons for it will be disclosed.
The Board considers this approach to be appropriate as it
ensures that executives and the Board make decisions solely
based on the best interests of Downer.
6.5 Treatment of major transactions
Downer has delivered significant shareholder value through a
long history of strategic mergers, acquisitions and divestments.
On each occasion, the Board considers the impact of these
transactions. Where a transaction is both material and
unbudgeted, the Board considers whether it is appropriate
to adjust for its impact on the key performance indicators on
which executive performance is measured. The objective of any
adjustment is to ensure that opportunities to add value through
an opportunistic divestment or acquisition should not be
fettered by consideration of the impact on incentive payments.
That is, executives should be ‘no better or worse off’ as a result
of the transaction. No adjustments are made for market reactions
to a transaction as the Board believes that management is
accountable for those outcomes.
The Board considers this approach to be appropriate as it:
– Ensures that executives and the Board consider these
transactions solely based on the best interests of Downer;
– Means executives remain accountable for transaction
execution and post-transaction performance from the
next budget cycle;
– Ensures that executives complete opportunistic transactions
that are in the long-term interest of shareholders;
– Is consistent with the Board’s long-term view when
considering the value of major transactions to Downer’s
shareholders; and
– Ensures Downer remains agile and responsive in managing
its portfolio by pursuing opportunities as and when
they emerge rather than be constrained by the annual
budget process.
In assessing Zero Harm performance of executives, the results
of acquired businesses are excluded for a period of 12 months
post-acquisition to ensure that management is accountable for
the objectives set in the annual business planning process and
in recognition that an integration period during which Downer’s
Zero Harm framework (including systems, processes, definitions
and measurement and reporting methods) is implemented
38 Downer EDI Limited
6.7 Chief Executive Officer – Spotless
Downer has an interest of 87.8% in Spotless Group Holdings
Limited (Spotless). Remuneration arrangements for executives
of Spotless are set by the Board of Spotless. Spotless’ People
and Remuneration Committee is comprised of two independent
Directors and one Director nominated by Downer.
Following is a summary of the remuneration structure
and arrangements for FY19 for P Tompkins in his role as
Chief Executive Officer – Spotless as established by the
Spotless Board.
6.7.1 Remuneration structure
The remuneration for the CEO – Spotless has a fixed component
and a component that varies with performance.
Fixed remuneration is the sum of salary and the direct cost of
providing employee benefits, including superannuation and other
non-cash benefits.
Remuneration is benchmarked against a peer group of
competitors. While market levels of remuneration are monitored
on a regular basis, there is no contractual requirement or
expectation that any adjustments will be made.
The variable component ensures that a proportion of pay
varies with performance. Performance is assessed annually
for performance periods covering one year and three years.
Payment for performance assessed over one year is an STI.
Payment for performance assessed over three years is an LTI.
In 2018, the Spotless Board determined that it was inappropriate
to grant performance rights under the LTI, which was based on
EPS and TSR performance hurdles, due to the low level of free
float shares in Spotless and lack of trading liquidity following the
takeover by Downer. Accordingly, for 2019 the Spotless Board
determined it was appropriate that P Tompkins – Chief Executive
Officer – Spotless, participate in the Downer Group Long Term
Incentive Plan.
Directors’ Report – continuedfor the year ended 30 June 2019 6.7.2 STI tabular summary
The following table outlines the major features of the Spotless 2019 STI plan.
Minimum performance “gateway”
before any payments can be made
Achievement of a gateway based on budgeted NPATA must be met before any STI
payment can be made. A further Zero Harm gateway must be met for an award for safety
performance to be made.
Maximum STI that can be earned
75% of fixed remuneration.
Percentage of STI that can
be earned on achieving
target expectations
Discretion to vary payments
56.25% of the maximum. For an executive to receive more, performance in excess of target
expectations will be required.
The Board, in its discretion, may vary STI payments by up to + or – 50% from the payment
applicable to the level of performance achieved, up to the maximum for that executive.
Performance period
1 July 2018 to 30 June 2019.
Performance assessed
August 2019, following audit of accounts.
Additional service period
after performance period for
payment to be made
Payment timing
50% of the award is deferred with the first tranche of 25% vesting one year following award and
the second tranche of 25% vesting two years following award.
September 2019 for the first payment of 50% of the award. The deferred components of
the STI payments will be paid one and two years following the award, in equal tranches of
25% of the award.
Form of payment
Payments are made in cash.
Performance requirements
The Spotless performance scorecard is comprised of the following measures:
Measure
Group NPAT
Divisional EBIT
Group FFO
Divisional FFO
Zero Harm – Recordable Injury Frequency Rate
People – talent and succession planning, regrettable turnover
Weighting
7.5%
22.5%
7.5%
22.5%
30%
10%
Board discretion
Terminating executives
The Board may exercise discretion to reduce partly or fully the value of the deferred
components that are due to vest in certain circumstances, including where an executive has
acted inappropriately or where the Board considers that the financial results against which
the STI performance measures were tested were incorrect in a material respect or have been
reversed or restated.
There is no STI entitlement where employment terminates prior to the end of the financial year.
Where employment terminates prior to the vesting date, the unvested deferred components will
be forfeited other than where the Spotless Board judges the executive to be an eligible leaver.
Further information on Spotless’ remuneration practices is contained in its Remuneration Report which can be found on the Spotless
website www.spotless.com.
Annual Report 2019 39
7. Details of executive remuneration
7.1 Remuneration received in relation to the 2019 financial year
Executives receive a mix of remuneration during the year, comprising fixed remuneration, an STI paid in cash and an LTI in the form of
performance rights that vest four years later, subject to meeting performance and continued employment conditions.
The table below lists the remuneration actually received in relation to the 2019 financial year, comprising fixed remuneration, cash STIs
relating to 2019, deferred STIs payable in 2019 in respect of prior years and the value of LTI grants that vested during the 2019 financial
year. This information differs to that provided in the statutory remuneration table at section 7.2 which shows the accounting expense
of LTIs and deferred STIs for 2019 determined in accordance with accounting standards rather than the value of LTI grants that vested
during the year.
Cash Bonus paid
or payable in
respect of
current year2
$
Fixed
Remuneration1
$
2,077,247
1,134,090
937,500
850,134
323,155
1,101,453
710,136
7,133,715
746,800
481,580
280,050
303,371
–
371,374
109,874
2,293,049
Deferred
Bonus paid
or payable in
respect of
prior years4
$
902,200
494,065
269,499
134,795
–
299,529
178,526
2,278,614
Total
payments
$
3,726,247
2,109,735
1,487,049
1,288,300
323,155
1,772,356
998,536
11,705,378
Equity
that vested
during 20193
$
Total
remuneration
received
$
2,548,347
802,731
–
–
–
–
–
3,351,078
6,274,594
2,912,466
1,487,049
1,288,300
323,155
1,772,356
998,536
15,056,456
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
D Nelson
B C Petersen
P J Tompkins
1
2
3
Fixed remuneration comprises salary and fees, payment of leave entitlements, non-monetary benefits and superannuation payments.
Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2019 financial year. These comprise the 50% cash component of the
award. The remaining 50% of the total award is deferred as described in section 6.3.
Represents the value of restricted shares granted in previous years that vested during the year, calculated as the number of restricted shares that vested multiplied by the
closing market prices of Downer shares on the vesting date.
4 Deferred Bonus represents the deferred cash bonus amount to be paid in September 2019, being the second deferred component of the 2017 award and the first deferred
component of the 2018 award, being 25% of each award.
40 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 7.2 Remuneration of executive key management personnel required under the Corporations Act 2001 (Cth)
2019
Short-term employee
benefits
Post-employment
benefits
Cash
Bonus
paid or
payable in
respect
of current
year2
$
Deferred
Bonus
paid or
payable4
$
Salary
and fees
$
Non-
monetary
$
Super-
annuation
$
Other
benefits
$
Term-
ination
Benefits
$
Subtotal
$
Share-
based
payment
transac-
tions3
$
Total
$
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
D Nelson1
B C Petersen
P J Tompkins1
1,774,469
1,079,469
904,567
824,997
312,889
1,079,469
686,640
821,975
488,492
273,482
222,585
–
325,368
149,834
6,662,500 2,293,049 2,281,736
746,800
481,580
280,050
303,371
–
371,374
109,874
282,247
25,030
12,402
387
–
1,453
8,925
330,444
20,531
29,591
20,531
24,750
10,266
20,531
14,571
140,771
4,727,178
–
2,525,831
–
1,786,432
–
1,539,480
–
1,363,388
– 1,040,233
2,092,461
–
–
–
1,129,952
–
– 1,040,233 12,748,733 2,415,989 15,164,722
– 3,646,022
2,104,162
–
–
1,491,032
– 1,376,090
1,363,388
1,798,195
969,844
1,081,156
421,669
295,400
163,390
–
294,266
160,108
1
2
3
Amounts represent the payments relating to the period during which the individuals were Key Management Personnel (KMP).
Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2019 financial year. These comprise the 50% cash component of
the award.
Represents the value of vested and unvested equity expensed during the period including reversal for forfeited equity incentives and the probability of the incentives
vesting, in accordance with AASB 2 Share-based Payment, related to grants made to the executive, as outlined in section 8.3. Vesting of the majority of securities remains
subject to significant performance and service conditions as outlined in section 6.4.
4 Deferred Bonus represents the value of deferred components attributable to the 2019 financial year based on amortisation of deferred components over the period from the
commencement of the relevant performance year to the end of financial year to which payment of the relevant deferred component relates.
2018
Short-term employee
benefits
Post-employment
benefits
Cash Bonus
paid or
payable in
respect
of current
year2
$
Deferred
Bonus paid
or payable4
$
Non-
monetary
$
Super-
annuation
$
Other
benefits
$
Subtotal
$
Share-based
payment
transac-
tions3
$
Total
$
840,300
492,580
267,846
200,476
156,576
506,237
–
283,146
2,747,161
859,283
491,054
224,583
109,854
192,511
210,932
335,984
260,140
2,684,341
273,656
14,084
12,402
7,130
19,773
2,300
2,319
11,324
342,988
20,049
30,377
20,049
71,787
13,689
15,037
12,829
20,049
203,866
3,759,906
–
2,066,379
–
1,317,429
–
1,139,515
–
832,969
–
1,665,900
–
1,136,875
–
–
1,395,926
– 13,314,899
1,373,275
546,250
211,220
86,100
187,063
–
161,500
276,351
5,133,181
2,612,629
1,528,649
1,225,615
1,020,032
1,665,900
1,298,375
1,672,277
2,841,759 16,156,658
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
M J Miller1
D Nelson1
D J Overall1
B C Petersen
Salary
and fees
$
1,766,618
1,038,284
792,549
750,268
450,420
931,394
785,743
821,267
7,336,543
1
2
3
Amounts represent the payments relating to the period during which the individuals were Key Management Personnel (KMP).
Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2018 financial year. These comprise the 50% cash component of
the award.
Represents the value of vested and unvested equity expensed during the period including reversal for forfeited equity incentives and the probability of the incentives
vesting, in accordance with AASB 2 Share-based Payment, related to grants made to the executive, as outlined in section 8.3. Vesting of the majority of securities remains
subject to significant performance and service conditions as outlined in section 6.4.
4 Deferred Bonus represents the value of deferred components attributable to the 2018 financial year based on amortisation of deferred components over the period from the
commencement of the relevant performance year to the end of the financial year to which payment of the relevant deferred component relates.
Annual Report 2019 41
7.3 Performance related remuneration
7.3.1 Performance outcomes required under the Corporations Act 2001 (Cth)
The table below lists the proportions of remuneration paid during the year ended 30 June 2019 that are performance and non-
performance related and the proportion of STIs that were earned during the year ended 30 June 2019 due to the achievement of the
relevant performance targets.
Proportion of 2019 remuneration
2019 Short-term incentive
G A Fenn1
S Cinerari1
M J Ferguson
S L Killeen
B C Petersen1
P J Tompkins1
Performance
Related
%
Non-
performance
Related
%
56%
55%
48%
45%
47%
37%
44%
45%
52%
55%
53%
63%
Paid
%
75%
88%
75%
86%
90%
29%
Forfeited
%
25%
12%
25%
14%
10%
71%
1
Performance related portion includes the reversal of expense for forfeited equity incentives described in section 6.4.
7.3.2 STI performance outcomes
Specific STI financial and commercial targets remain commercially sensitive and so have not been reported.
In order for an STI to be paid, a minimum of 90% of the budgeted profit target must be met. For corporate executives, the hurdle is
90% of the Group budgeted profit target. Profit for this purpose is defined as NPATA. For divisional executives, the hurdle is 90% of the
division budgeted profit target. Profit for this purpose is defined as EBITA.
The following table summarises the average performance achieved by the KMP across each element of the scorecard.
Weighting of scorecard element
Percentage of the element achieved
Corporate
Division
Corporate
Division1
Group
NPATA
Divisional
EBITA
Group
FFO
Divisional
FFO
30.0
7.5
31.0
31.1
22.5
71.9
30.0
7.5
84.6
84.7
22.5
84.3
Zero
Harm
30.0
30.0
100.0
97.9
People
10.0
10.0
100.0
100.0
1
Performance includes the results for each Division for each element, even if the EBITA gateway was not achieved.
42 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 The following table sets out the performance achieved by each KMP across each element of the scorecard.
G A Fenn and M J Ferguson
Element
Measure
Threshold
Target
Maximum
Safety and Environmental
Employee engagement
Profit (NPATA)
FFO
Zero Harm
People
Financial
S Cinerari
Element
Measure
Threshold
Target
Maximum
Safety and Environmental
Employee engagement
Profit (NPATA/EBITA)
FFO
Zero Harm
People
Financial
S L Killeen
Element
Measure
Threshold
Target
Maximum
Zero Harm
People
Financial
Safety and Environmental
Employee engagement
Profit (NPATA/EBITA)
FFO
P J Tompkins
Element
Measure
Threshold
Target
Maximum
Safety and Environmental
Talent and succession
Profit (NPAT/EBIT)
FFO
Zero Harm
People
Financial
B C Petersen
Element
Measure
Threshold
Target
Maximum
Zero Harm
People
Financial
Safety and Environmental
Employee engagement
Profit (NPATA/EBITA)
FFO
For 2019, the IPM applied to each member of the KMP ranged from 0.6 to 1.
Annual Report 2019 43
7.3.3 LTI performance outcomes
The table below summarises LTI performance measures tested and the outcomes for each executive.
Relevant
executives1
G A Fenn,
S Cinerari,
B Petersen,
P Tompkins
Relevant
LTI measure
Performance
outcome
% LTI tranche
that vested
2016 plan
TSR tranche – percentile ranking of
Downer’s TSR relative to the constituents
of the ASX 100 over a three-year period.
EPS tranche – compound annual
earnings per share growth against
absolute targets over a three-year period.
Scorecard tranche – sustained NPAT and
FFO performance against budget over a
three-year period.
Actual performance ranked at
the 78th percentile based on
a TSR result of 81.9%.
Actual performance was
–6.64%.
100% became provisionally
qualified.
0% became provisionally qualified.
100% were forfeited.
Actual performance was 96.4%
for NPAT and 178.1% for FFO.
76.2% became provisionally
qualified.
23.8% were forfeited.
1
Relevant executive refers to members of the KMP who are participants in the plan tested.
7.4 Major transactions and significant items
7.4.1 Major transactions
In 2019 Downer continued to optimise its portfolio in keeping with its strategy of creating efficient market positions to deliver long-term
shareholder value through restructuring, partnering and acquisitions.
Downer undertook eight transactions during 2019. These transactions were the acquisition of Boleh Consulting, The Roading Company,
Envar Group, FH Lismore and Rock N Road, a 50% interest in Repurpose It, as well as the remaining interests in the MHPS Plant
Services and Downer Mouchel joint ventures.
In accordance with its policy, the Board considered the impact of each transaction on incentive outcomes and determined that:
– The acquisition of Boleh Consulting was immaterial and accordingly no adjustment would be made to incentive outcomes;
– The acquisition of The Roading Company Limited was immaterial and accordingly no adjustment would be made to
incentive outcomes;
– The acquisition of Envar Group was reflected in the budget and accordingly no adjustment would be made to incentive outcomes;
– The acquisition of FH Lismore was immaterial and accordingly no adjustment would be made to incentive outcomes;
– The acquisition of Rock N Road was a material, unbudgeted transaction for which it was appropriate to adjust incentive outcomes;
– The acquisition of the 50% interest in Repurpose It was reflected in the budget and accordingly no adjustment would be made to
incentive outcomes;
– The acquisition of the remaining interest in MHPS Plant Services was reflected in the budget and accordingly no adjustment would
be made to incentive outcomes; and
– The acquisition of the remaining interest in the Downer Mouchel joint venture was a material, unbudgeted transaction for which it
was appropriate to adjust incentive outcomes.
44 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 7.4.2 Significant items
During the year, three items had a significant impact. The Board considers such items at the end of each performance period and
whether it is appropriate to adjust for their impact on incentive outcomes. In forming its views, the Board noted the robust operational
performance of the Company and strong returns to shareholders through TSR returns of 86.2% and 116.7% over one and three years
respectively, share price growth and increase in the dividend rate.
The Board considered it was appropriate to adjust incentive outcomes for the following items:
Item
Description
Mining capital expenditure
During the year, the Mining business was successful in negotiating expanded services at the
Blackwater mine and a new contract at the Cadia mine. These opportunities were identified in
business planning processes however crystalised earlier than expected.
Gain on revaluation of the
existing interest in the
Downer Mouchel joint venture
Murra Warra Wind Farm loss
In order to secure these opportunities, it was necessary to invest capital expenditure, which
was unbudgeted, to acquire the necessary mining plant and equipment in 2019 rather than
in future years.
Securing these opportunities in 2019 was considered to be in the best interest of Downer.
Accordingly, it was determined that it was appropriate to adjust incentive outcomes for this item.
In December 2018, Downer acquired the remaining 50% interest in the Downer Mouchel joint
venture by purchasing 100% of the shares in partner, KHSA Limited.
On acquisition, Downer’s existing 50% interest was re-measured to fair value in accordance with
Australian Accounting Standards and compared to the existing carrying value. This resulted in a
fair value gain on re-measurement of $17.0 million.
The Board determined that it was appropriate to adjust incentive outcomes for this item.
In December 2017, Downer and its partner Senvion GmbH, a leading global manufacturer of wind
turbines based in Germany, entered into a contract for Stage One of the Murra Warra Wind Farm
near Horsham in Western Victoria.
On 28 May 2019, Downer announced that Senvion GmbH had filed for self-administration
proceedings in Germany.
On 1 August 2019, Downer announced that losses in relation to its obligation to complete
Senvion GmbH’s scope were expected to be $45 million before tax ($31.5 million after tax).
No adjustment was made to incentive outcomes for this item.
Annual Report 2019 45
7.4.3 Adjustments made to incentive calculations for major transactions and significant items
The Board determined that the following adjustments be made to KPI calculations for the impact of major transactions and significant
items. The adjustments mean that executives are ‘no better or worse off’ as a result of the transactions and significant items so that
performance is measured against delivery of the Company’s budget and business plan.
Measure
Adjustment
Impact on STI
Impact on LTI
NPATA (STI)
NPAT (LTI)
FFO
Net decrease of $18.0 million NPAT
($23.3 million NPATA) comprised of:
– Exclusion of fair value gain on revaluation of
existing interest in Downer Mouchel Joint Venture
of $17.0 million;
– Exclusion of operating earnings of Downer Mouchel
(net of transaction costs and net interest expense)
attributable to the additional interest of
($0.9) million NPAT ($4.4 million NPATA);
– Exclusion of operating earnings of Rock N Road
(net of transaction costs and net interest expense)
of $1.3 million; and
– Exclusion of operating earnings related to the
unbudgeted capital expenditure in Mining
of $0.6 million.
Net increase of $65.2 million comprised of:
– Exclusion of the cash flow impact on Downer
Mouchel acquisition (transaction costs, net interest
expense, operating cash and payment for business
acquisition) of $20.3 million;
– Exclusion of the cash flow impact on Rock N
Road acquisition (transaction costs, net interest
expense, operating cash and payment for business
acquisition) of $11.1 million; and
– Exclusion of the cash flow impact on Mining
unbudgeted capex spent on Cadia and Blackwater
(net interest expense, operating cash and payment
for capex) of $33.8 million.
A decrease from 52.3% to
45.1% of rights in the NPAT
tranche met the performance
condition. This equates to
1.2% of the total number of
rights in the grant.
For Corporate scorecard
participants, a decrease from
62.3% to 31.0% of the NPATA
measure was achieved.
For Mining, Energy and
Industrial scorecard
participants, a decrease
from 85.3% to 83.7% of the
measure was achieved.
For Transport and
Infrastructure scorecard
participants, a decrease
from 78.7% to 72.8% of the
measure was achieved.
For Corporate
scorecard participants:
No change.
– The gateway was met; and
– 84.6% of the FFO
measure was achieved.
No change for
Divisional participants.
Zero Harm
The Zero Harm performance of acquired businesses
has been excluded.
EPS
TSR
The use of NPAT adjusted as set out above.
No adjustments were made.
Not applicable as acquired
businesses historical
performance has been
measured on a different basis.
Not applicable.
Not applicable.
Not applicable.
No change.
No change.
7.4.4 Future periods
For major transactions completed in 2019, the impact on operational performance is included in the 2020 budget and accordingly
no adjustments are expected in respect of FY20 operational performance.
7.5 Variance from policy
There were no variances from policy during the year.
46 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 8. Executive equity ownership
8.1 Ordinary shares
KMP equity holdings in fully paid ordinary shares and performance rights issued by Downer EDI Limited are as follows:
Ordinary shares
Performance rights
Balance at
1 July 2018
Net
Change
Balance at
30 June 2019
Balance at
1 July 2018
Net
Change
Balance at
30 June 2019
No.
826,226
10,407
–
1,000
2,510
38,413
No.
337,977
96,056
7,086
1,663
12,703
56,398
No.
1,164,203
106,463
7,086
2,663
15,213
94,811
No.
1,885,380
699,195
164,995
66,240
240,600
279,099
No.
(329,888)
(103,429)
71,675
65,805
56,988
24,050
No.
1,555,492
595,766
236,670
132,045
297,588
303,149
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen
P J Tompkins
8.2 Preference shares
KMP equity holdings in fully paid preference shares issued by Works Finance (NZ) Limited, a wholly owned subsidiary of Downer EDI
Limited, are as follows:
S L Killeen
Preference shares
Balance at
1 July 2018
Net
change
Balance at
30 June 2019
No.
3,000
No.
–
No.
3,000
Annual Report 2019 47
8.3 Options and rights
No performance options were granted by Downer EDI Limited or exercised during the 2019 financial year.
As outlined in section 6.4.1, the LTI plan for the 2019 financial year is in the form of performance rights. Relief from certain regulatory
requirements was applied for and has been received from the Australian Securities and Investments Commission. During the year,
grants of performance rights were made to KMP in respect of the 2019 financial year.
The following table shows the number of performance rights granted by Downer EDI Limited and percentage of performance rights
that vested or were forfeited during the year for each grant that affects compensation in this or future reporting periods.
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen
P J Tompkins3
2015 Plan
2016 Plan
Number of
performance
rights1
Vested
%
Forfeited
%
Number of
performance
rights2
Vested
%
Forfeited
%
541,920
170,705
–
–
–
67,740
62.4
62.4
–
–
–
62.4
–
–
–
–
–
–
711,717
266,894
–
–
63,017
124,551
–
–
–
–
–
–
41.3
41.3
–
–
41.3
41.3
1
2
3
Grant date 2 June 2015. Expiry date is 1 July 2018. The fair value of shares granted was $4.23 per share for the EPS and Scorecard tranches and $1.70 per share for the
TSR tranche.
Grant date 30 June 2016. Expiry date is 1 July 2019. The fair value of shares granted was $3.24 per share for the EPS and Scorecard tranches and $0.97 per share for the
TSR tranche.
Vesting of rights under the 2015 Plan occurred prior to commencement of role as CEO of Spotless.
2017 Plan
2018 Plan
2019 Plan
Number of
performance
rights1
Vested
%
Forfeited
%
Number of
performance
rights2
Vested
%
Forfeited
%
Number of
performance
rights3
Vested
%
Forfeited
%
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen
P J Tompkins
503,526
188,822
94,411
–
106,999
88,116
–
–
–
–
–
–
–
–
–
–
–
–
332,160
137,016
70,584
66,240
70,584
66,432
–
–
–
–
–
–
–
–
–
–
–
–
301,791
113,172
71,675
65,805
82,993
75,448
–
–
–
–
–
–
–
–
–
–
–
–
1
2
3
Grant date 21 June 2017. Expiry date is 1 July 2020. The fair value of shares granted was $5.29 per share for the EPS and Scorecard tranches and $4.61 per share for the
TSR tranche.
Grant date 21 June 2018. Expiry date is 1 July 2021. The fair value of shares granted was $6.12 per share for the EPS and Scorecard tranches and $3.38 per share for the
TSR tranche.
Grant date 3 June 2019. Expiry date is 1 July 2022. The fair value of shares granted was $5.93 per share for the EPS and Scorecard tranches and $2.22 per share for the
TSR tranche.
48 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019
The maximum number of performance options and rights that may vest in future years that will be recognised as share-based
payments in future years is set out in the table below:
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen
P J Tompkins
Maximum number of shares
for the vesting year
2020
418,015
156,756
–
–
37,012
73,153
2021
503,526
188,822
94,411
–
106,999
88,116
2022
332,160
137,016
70,584
66,240
70,584
66,432
2023
301,791
113,172
71,675
65,805
82,993
75,448
The maximum expense for performance options and rights that may vest in future years that will be recognised as share-based
payments in future years is set out in the table below. The amount reported is the value of share-based payments calculated in
accordance with AASB 2 Share-based Payment over the vesting period.
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen
P J Tompkins
2020
1,424,492
550,420
295,633
163,605
324,850
286,684
2021
787,301
311,474
176,160
163,605
189,447
175,177
2022
354,348
132,881
84,158
77,265
97,445
88,586
8.4 Remuneration consultants
Guerdon Associates Pty Ltd was engaged by the Board Remuneration Committee to provide remuneration advice in relation to KMP,
but did not provide the Board Remuneration Committee with remuneration recommendations as defined under Division 1, Part 1.2, 9B (1)
of the Corporations Act 2001 (Cth).
The Board was satisfied that advice received was free from any undue influence by Key Management Personnel to whom the advice
may relate, because strict protocols were observed and complied with regarding any interaction between Guerdon Associates Pty Ltd
and management, and because all remuneration advice was provided to the Board Remuneration Committee chair.
9. Key terms of employment contracts
9.1 Notice and termination payments
Executives are on contracts with no fixed end date.
The following table captures the notice periods applicable to termination of the employment of executives.
Managing Director
Other Executives
Termination notice period
by Downer
12 months
12 months
Termination notice period
by employee
6 months
6 months
Termination payments
payable under contract
12 months
12 months
Termination payments are calculated based upon total fixed remuneration at the date of termination. No payment is made for
termination due to gross misconduct.
Annual Report 2019 49
9.2 Managing Director and Chief Executive Officer of Downer’s employment agreement
Mr Fenn was appointed as the Managing Director of Downer commencing on 30 July 2010. The following table sets out the key terms
of the Managing Director’s employment agreement.
Term
Until terminated by either party.
$2.0 million per annum. This has remained unchanged since July 2012.
Fixed remuneration includes superannuation and non-cash benefits but excludes entitlements to
reimbursement for Mr Fenn’s home telephone rental and call costs, home internet costs and medical, life and
salary continuance insurance. Mr Fenn may also be accompanied by his wife when travelling on business, at the
Chairman’s discretion. There was no such travel during the year.
Mr Fenn is eligible to receive an annual STI and the maximum STI opportunity is 100% of fixed remuneration.
Any entitlement to an STI is at the discretion of the Board, having regard to performance measures and targets
developed in consultation with Mr Fenn including Downer’s financial performance, safety, people, environmental
and sustainability targets and adherence to risk management policies and practices. The Board also retains
the right to vary the STI by + or – 100% (up to the 100% maximum) based on its assessment of performance.
The STI deferral arrangements in place for KMP apply to Mr Fenn.
There is no STI entitlement where the Managing Director’s employment terminates prior to the end of the
financial year, other than in the event of a change in control or by mutual agreement.
Mr Fenn is eligible to participate in the annual LTI plan and the value of the award is 100% of fixed remuneration
calculated using the volume weighted average price after each year’s half yearly results announcement.
Mr Fenn’s performance requirements have been described in section 6.4.
In the event of a change of control, providing at least 12 months of a grant’s performance period have elapsed,
unvested shares and performance rights pro rated with the elapsed service period are tested for vesting
with performance against the relevant hurdles for that period and vest, as appropriate. Shares that have
already been tested, have met performance requirements and are subject to the completion of the service
condition, fully vest.
Mr Fenn can resign:
a) By providing six months’ written notice; or
b) Immediately in circumstances where there is a fundamental change in his role or responsibilities. In these
circumstances, Mr Fenn is entitled to a payment in lieu of 12 months’ notice.
Immediately for misconduct or other circumstances justifying summary dismissal; or
Downer can terminate Mr Fenn’s employment:
a)
b) By providing 12 months’ written notice.
When notice is required, Downer can make a payment in lieu of notice of all or part of any notice period
(calculated based on Mr Fenn’s fixed annual remuneration).
If Mr Fenn resigns because ill health prevents him from continuing his duties, he will receive a payment in
recognition of his past services equivalent to 12 months’ fixed remuneration. At the discretion of the Board,
his shares under the LTI plan may also vest.
If Downer terminates Mr Fenn’s employment on account of redundancy, in addition to the notice (or payment
in lieu of notice) required to be given by Downer, Mr Fenn will receive a payment in recognition of his past
services equivalent to 12 months’ fixed remuneration.
If Mr Fenn resigns he will be subject to a six-month post-employment restraint in certain areas where the
Downer Group operates, where he is restricted from working for competitive businesses.
The agreement contains provisions regarding leave entitlements, duties, confidentiality, intellectual property,
moral rights and other facilitative and ancillary clauses. It also contains provisions regarding corporate
governance and a provision dealing with the Corporations Act 2001 (Cth) limits on termination benefits
to be made to Mr Fenn.
Fixed remuneration
STI opportunity
LTI opportunity
Termination
Other
50 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 10. Related party information
10.1 Transactions with other related parties
Transactions entered into during the year with Directors of Downer EDI Limited and the Group are within normal employee, customer
or supplier relationships on terms and conditions no more favourable than dealings in the same circumstances on an arm’s length
basis and included:
– The receipt of dividends from Downer EDI Limited;
– Participation in the Long Term Incentive Plan;
– Terms and conditions of employment; and
– Reimbursement of expenses.
A number of Directors of the Company hold directorships in other entities. Several of these entities transacted with the Group on terms
and conditions no more favourable than those available on an arm’s length basis.
11. Description of Non-executive Director remuneration
11.1 Non-executive Director remuneration policy
Downer’s Non-executive Director remuneration policy is to provide fair remuneration that is sufficient to attract and retain Directors
with the experience, knowledge, skills and judgment to steward the Company.
There has been no change to the level of Non-executive Director fees since the prior reporting period and there will be no changes in
the 2019 financial year.
Fees for Non-executive Directors are fixed and are not linked to the financial performance of the Company. The Board believes this is
necessary for Non-executive Directors to maintain their independence.
Shareholders approved an annual aggregate cap of $2.0 million for Non-executive Director fees at the 2008 AGM. The allocation of
fees to Non-executive Directors within this cap has been determined after consideration of a number of factors, including the time
commitment of Directors, the size and scale of the Company’s operations, the skill sets of Board members, the quantum of fees paid to
Non-executive Directors of comparable companies and participation in Board Committee work.
The basis of fees and the fee pool are reviewed when new Directors are appointed to the Board, when the structure of the Board
changes, or at least every three years. Reference is made to individual Non-executive Director fee levels and workload (i.e. number of
meetings and the number of Directors) at comparably sized companies from all industries other than the financial services sector, and
the fee pools at these companies. In addition, an assessment is made on the extent of flexibility provided by the fee pool to recruit any
additional Directors for planned succession after allocation of fees to existing Directors.
The Chairman receives a base fee of $375,000 per annum (inclusive of all Committee fees) plus superannuation. The other
Non-executive Directors each receive a base fee of $150,000 per annum plus superannuation. Additional fees are paid for Committee
duties: $35,000 for the chair of the Audit and Risk Committee; and $15,000 for the chair of each of the Zero Harm Committee,
Remuneration Committee, Rail Projects Committee and Tender Risk Evaluation Committee.
Non-executive Directors are not entitled to retirement benefits. All Non-executive Directors are entitled to payment of statutory
superannuation entitlements in addition to Directors’ fees.
Annual Report 2019 51
11.2 Non-executive Directors’ remuneration
The table below sets out the remuneration paid to Non-executive Directors for the 2019 and 2018 financial years.
Short-term benefits
Post-employment benefits
R M Harding
S A Chaplain1
P S Garling
T G Handicott
N M Hollows1
C G Thorne
P L Watson
Board fee
$
Chair fee
$
Total fees
$
Super-
annuation
$
Termination
benefits
$
375,000
375,000
150,000
150,000
150,000
150,000
150,000
150,000
150,000
5,000
150,000
150,000
16,965
–
–
21,146
35,000
15,000
15,000
15,000
15,000
13,854
–
30,000
30,000
–
375,000
375,000
171,146
185,000
165,000
165,000
165,000
165,000
163,854
5,000
180,000
180,000
16,965
35,625
35,625
16,259
17,575
15,675
15,675
15,675
15,675
15,566
475
17,100
17,100
1,612
–
–
–
–
–
–
–
–
–
–
–
–
–
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
Total
$
410,625
410,625
187,405
202,575
180,675
180,675
180,675
180,675
179,420
5,475
197,100
197,100
18,577
1
N M Hollows succeeded S A Chaplain as Chair of the Audit and Risk Committee on 8 February 2019.
11.3 Equity held by Non-executive Directors
The table below sets out the equity in Downer held by Non-executive Directors for the 2019 and 2018 financial years.
2019
2018
Balance at
1 July 2018
Net
change
Balance at
30 June 2019
Balance at
1 July 2017
Net
change
Balance at
30 June 2018
R M Harding
S A Chaplain
P S Garling
T G Handicott
N M Hollows
C G Thorne
P L Watson
14,210
103,799
16,940
14,000
–
82,922
–
14,646
–
3,022
–
3,000
–
–
28,856
103,799
19,962
14,000
3,000
82,922
–
14,210
103,799
16,940
14,000
–
82,922
–
–
–
–
–
–
–
–
14,210
103,799
16,940
14,000
–
82,922
–
Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001 (Cth).
On behalf of the Directors
R M Harding
Chairman
Sydney, 22 August 2019
52 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2019 Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act
2001
To the Directors of Downer EDI Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Downer EDI Limited for the
financial year ended 30 June 2019 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in
relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
K
KNI_01
PAR_SIG_01Jpp
PAR_NAM_0
1
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
K
Cameron Slapp
Partner
Sydney
22 August 2019
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
Annual Report 2019 53
Independent Auditor’s Report
for the year ended 30 June 2019
Independent Auditor’s Report
To the shareholders of Downer EDI Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of Downer EDI
Limited (the Company).
In our opinion, the accompanying Financial Report of
the Company is in accordance with the Corporations
Act 2001, including:
•
•
giving a true and fair view of the Group’s
financial position as at 30 June 2019 and of its
financial performance for the year ended on that
date; and
complying with Australian Accounting Standards
and the Corporations Regulations 2001.
The Financial Report comprises:
• Consolidated statement of financial position as at
30 June 2019
• Consolidated statement of profit or loss and other
comprehensive income, Consolidated statement of
changes in equity, and Consolidated statement of
cash flows for the year then ended
• Notes including a summary of significant
accounting policies
• Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.
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 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 fulfilled our other ethical
responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional
Standards Legislation.
54 Downer EDI Limited
Key Audit Matters
The Key Audit Matters we identified are:
• Recognition of revenue
• Value of goodwill
Recognition of revenue
Refer to Note B2 ‘Revenue’ ($12,789.4m)
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.
The key audit matter
How the matter was addressed in our audit
Recognition of revenue is a key audit matter due to
the:
•
•
•
Significance of revenue to the financial
statements;
Large number of contracts with numerous
estimation events that may occur over the
course of the contract’s life. This results in
complex and judgemental revenue recognition
from rendering of services and construction
contracts and therefore significant audit effort
is required to gather sufficient appropriate
audit evidence for revenue recognition; and
Transition adjustment arising from the
adoption of AASB 15 Revenue from Contracts
with Customers resulting in additional audit
focus. This effort is due to the complex nature
of the changes to the accounting standard and
the financial impact on rendering of services
and construction contract revenue, requiring
senior team involvement.
We focused on the Group’s assessment of the
following elements of revenue recognition for
rendering of services and construction contracts, as
applicable:
•
•
•
Estimating total expected costs to complete at
initiation of the contract, including cost
contingencies for contracting risks, which have
a high level of estimation uncertainty;
Revisions to total expected costs for certain
events or conditions that occur during the
performance of the contract, or are expected
to occur to complete the contract, which is
difficult to estimate;
The Group’s determination of contractual
entitlement and assessment of the probability
of customer approval of changes in scope
Our procedures included:
• We obtained an understanding of the Group’s
process of accounting for rendering of services and
construction contract revenues. We tested key
controls such as:
‒ management’s review and approval of bid
information including estimated project
milestones, projected Earnings Before Interest
and Tax (EBIT), Net Present Value (NPV), Return
On Funds Employed (ROFE), and potential legal
risks identified by the Group risk and legal
team, as prescribed in the Group’s risk
management process; and
‒ management’s detailed project reviews for key
contracts, including cost to complete reviews,
comparing to budget and original bid
documentation.
• We undertook a sample of site visits (to both
contract sites and commercial offices) across the
Group’s major divisions and geographies to obtain a
detailed understanding of the Group’s contract
processes, their consistent application, and to
understand the variety of risk elements of the
contracts;
• We used data analytic routines to select a sample of
contracts for testing based on a number of
quantitative and qualitative factors. These factors
included contracts with significant deterioration in
margin, significant variations and claims, contract
modifications or variable consideration, and factors
which indicated to us a greater level of judgement
was required by the Group when assessing the
revenue recognition based on the estimates
developed for current and forecast contract
performance. For the samples selected, where
relevant:
Annual Report 2019 55
Independent Auditor’s Report – continued
for the year ended 30 June 2019
•
and/or price. The Group’s consideration of the
enforceability or approval of the modification
of the terms of a contract may include evidence
that is written, oral or implied by customary
business practice and therefore requires a
degree of judgement. The Group’s
determination of modifications can drive
different accounting treatments, increasing the
risk of inappropriately recognising revenue; and
The Group’s policy for the determination of the
amount of revenue recognised from variable
consideration being highly probable of not
reversing. Variable consideration is contingent
on the Group’s performance and includes key
performance payments, liquidated damages
and abatements that offset revenue under the
contract. The Group's determination of an
amount that is highly probable requires a
degree of estimation and judgement. This
increased the audit effort we applied to gather
sufficient appropriate audit evidence that the
variable consideration is highly probable.
56 Downer EDI Limited
‒ we read the selected contract terms and
conditions to evaluate the individual
characteristics of each contract reflected in the
Group’s estimate;
‒ we assessed the estimation of total expected
costs, including cost contingencies for
contracting risks, by challenging the Group’s
project and finance managers on their
estimations. We also checked key forecast cost
assumptions to underlying documentation such
as Enterprise Bargaining Agreements for wage
rates, historical costs for maintenance events
and agreements with subcontractors;
‒ we assessed the Group’s ability to forecast
margins on contracts by analysing the accuracy
of previous margin forecasts to actual
outcomes;
‒ we evaluated the Group’s assessment of when
a modification to the contract scope and/or
price for variations and claims is approved and
enforceable. This included assessing the
underlying records, legal documents, customer
correspondence and contracts. We recalculated
the amount of revenue using the modified
features of the contract. We compared the
recalculated amounts against the amounts
recorded by the Group;
‒ we assessed the Group’s estimation of a highly
probable amount for variations and claims by
comparing underlying evidence such as
timesheets, correspondence with customers,
and reports from objective time and cost claim
experts (where applicable) for consistency with
contract terms;
‒ we evaluated the Group’s legal and external
experts’ reports received on contentious
matters to identify conditions indicating the
inappropriate recognition of variations and
claims. We checked the consistency of this to
the inclusion or not of an amount in the
estimates used for revenue recognition;
‒ we assessed the scope, competency and
objectivity of the legal and external experts
engaged by the Group; and
‒ we evaluated the appropriateness of the
method applied by the Group to estimate the
highly probable amount of the key performance
payments, liquidated damages and abatements
against the specific contract terms. This
included gathering underlying evidence in
relation to the Group’s performance against the
terms of the contract. We then recalculated the
amount of variable consideration. We
compared the recalculated amounts to the
amounts recorded by the Group as offsets to
revenue.
•
•
For contracts with customers where revenue
recognition is at a point in time rather than over
time, we selected a statistical sample of revenue
recognised and checked to customer approval of the
service being performed or cash received;
For a sample of contracts assessed by the Group for
the transitional adjustment of AASB 15 we evaluated
the conclusions reached by the Group using our
understanding of the contracts obtained in the
procedures noted above, in the context of the
requirements of AASB 15;
• We assessed the new disclosures relating to the
initial adoption of AASB 15 against the requirements
of the accounting standard.
Value of goodwill
Refer to Note C6 ‘Intangible assets’ ($2,454.5m)
The key audit matter
How the matter was addressed in our audit
The value of goodwill is a key audit matter due to
the size of the balance (being 30.7% of total assets)
and the significant audit effort arising from:
•
•
•
The Group having 8 groups of Cash Generating
Units (CGUs) for which the impairment of
goodwill is assessed;
The risk that a reasonably possible
unfavourable change in certain key
assumptions for the Spotless CGU in the
absence of any mitigating factors, may result in
nil headroom for that CGU; and
The Group reorganising its segments during the
year, necessitating our consideration of the
composition of the Group’s CGUs and the level
at which goodwill was assessed.
We focused on the following key forward looking
assumptions in the Group’s value in use models:
•
•
•
Projected cash flows: Budgeted Earnings Before
Interest, Tax, Depreciation and Amortisation
(EBITDA) – including the outcome of tenders for
the Spotless CGU;
Discount rates – these are complicated in
nature and vary according to the conditions
and environment the specific CGU is subject to
from time to time; and
Long-term growth rates – certain valuations for
CGUs of the Group are highly sensitive to
Our procedures included:
• We obtained an understanding of the Group’s
goodwill impairment assessment process and tested
key controls such as the review and approval of
budgets and forecasts by management and the
Board;
• We considered the appropriateness of the value in
use method applied by the Group to perform the
annual test of goodwill for impairment against the
requirements of the accounting standards.
• We considered the Group’s determination of their
CGUs based on our understanding of the operations
of the Group and how independent cash inflows
were generated, against the requirements of the
accounting standards;
• We analysed the Group’s reorganised segments and
the Group’s internal reporting to assess the Group’s
monitoring and management of activities, and the
allocation of goodwill to CGUs;
• We obtained the Group’s value in use models and
checked amounts to the Board approved FY20
budget and the FY21-FY22 business plan. We
challenged the Group’s projected cash flows by
comparing the budget and business plan to our
understanding of the business and comparing the
actual performance in FY19 to the budget for FY20;
• We challenged the key market based assumption,
being the long term growth rate, against external
Annual Report 2019 57
Independent Auditor’s Report – continued
for the year ended 30 June 2019
changes in this assumption.
analyst reports and published industry growth rates;
The significant judgement involved in key
assumptions required the involvement of valuation
specialists to supplement our senior audit team
members in assessing this key audit matter.
•
.
For the Spotless CGU with a higher risk of
impairment, for projected cash flows we assessed
the inclusion of key ongoing revenue contracts by
comparing the renewal rates in the value in use
models to historical renewal rates. For current
tenders we assessed the probability weighting and
margins based on our understanding of the
businesses historical win rates;
• We assessed the accuracy of previous Group
forecasting to inform our evaluation of forecasts
included in the value in use models. We applied
increased scepticism to current period forecasts in
areas where previous forecasts were not achieved
and/or where future uncertainty is greater or
volatility is expected;
• Working with our valuation specialists we
independently developed a discount rate range
using publicly available market data for comparable
entities, adjusted by risk factors specific to the
Group and the industry it operates in;
• We performed sensitivity analysis on CGUs in two
main areas, being the discount rate and long-term
growth rate assumptions. For the Spotless CGU with
a higher risk of impairment we performed a range of
sensitivity analyses to identify those assumptions at
higher risk of bias or inconsistency in application.
This included the discount rate, long-term growth
rate and projected cash flows. We considered the
sensitivity of the models by varying key assumptions
within a reasonably possible range;
• We assessed the Group’s disclosures of the
quantitative and qualitative considerations in
relation to the valuation of goodwill, by comparing
these disclosures to our understanding and the
requirements of the accounting standards.
58 Downer EDI Limited
Other Information
Other Information is financial and non-financial information in Downer EDI Limited’s annual reporting which is
provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other
Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express
an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing
so, we 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.
We are required to report if we conclude that there is a material misstatement of this Other Information, and
based on the work we have performed on the Other Information that we obtained prior to the date of this
Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group’s ability to continue as a going concern and whether the use of the going concern basis
of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless they 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 objective is:
•
•
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 Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They 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 the
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/ar1.pdf. This
description forms part of our Auditor’s Report.
Annual Report 2019 59
Independent Auditor’s Report – continued
for the year ended 30 June 2019
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Downer
EDI Limited for the year ended 30 June 2019,
complies with Section 300A of the Corporations Act
2001.
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 responsibilities
We have audited the Remuneration Report included in
pages 22 to 50 of the Directors’ report for the year ended
30 June 2019.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Cameron Slapp
Partner
Sydney
22 August 2019
60 Downer EDI Limited
Financial Statements
Page 62
Page 63
Page 64
Page 65
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the consolidated financial statements
A
B
C
D
E
F
About this
report
Business
performance
Operating assets
and liabilities
Employee
benefits
Capital structure
and financing
Group
structure
G
Other
Page 66-67
Page 68-79
Page 80-90
Page 91
Page 92-99
Page 100-110
Page 111-124
B1
Segment
information
B2
Revenue
C1
Reconciliation
of cash and
cash equivalents
C2
Trade receivables
and contract assets
B3
Earnings per share
C3
Inventories
D1
Employee benefits
E1
Borrowings
F1
Joint arrangements
and associate
entities
G1
New accounting
standards
D2
Key management
personnel
compensation
D3
Employee discount
share plan
E2
Financing facilities
F2
Acquisition of
businesses
G2
Capital and financial
risk management
E3
Commitments
F3
Disposal of
business
G3
Other financial
assets and liabilities
E4
Issued capital
F4
Controlled entities
E5
Non-controlling
interest (NCI)
E6
Reserves
E7
Dividends
F5
Related party
information
F6
Parent entity
disclosures
B4
Taxation
C4
Trade payables and
contract liabilities
B5
Remuneration
of auditors
C5
Property, plant
and equipment
B6
Subsequent events
C6
Intangible assets
C7
Finance lease
receivables
C8
Provisions
C9
Contingent
liabilities
Page 125 Directors’ Declaration
Other information
Page 126 Sustainability Performance Summary 2019
Page 131 Corporate Governance
Page 142
Information for Investors
Annual Report 2019 61
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2019
Revenue
Other income
Total revenue and other income
Employee benefits expense
Subcontractor costs
Raw materials and consumables used
Plant and equipment costs
Depreciation and amortisation
Other expenses from ordinary activities
Total expenses
Share of net profit of joint ventures and associates
Earnings before interest and tax
Finance income
Finance costs
Net finance costs
Profit before income tax
Income tax expense
Profit after income tax
Profit for the year is attributable to:
– Non-controlling interest
– Members of the parent entity
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
– Exchange differences arising on translation of foreign operations
– Net (loss) / gain on foreign currency forward contracts taken to equity
– Net loss on cross currency and interest rate swaps taken to equity
– Change in fair value of available-for-sale assets
– Available-for-sale reserve transferred to profit or loss
– Income tax relating to components of other comprehensive income
Other comprehensive loss for the year (net of tax)
Other comprehensive loss for the year is attributable to:
– Non-controlling interest
– Members of the parent entity
Other comprehensive loss for the year
Total comprehensive income for the year
Earnings per share (cents)
– Basic earnings per share
– Diluted earnings per share(i)
Note
B2
B2
D1
C5, C6
F1(a)
B4(a)
B3
B3
2019
$’m
12,789.4
23.3
12,812.7
(4,340.4)
(4,193.7)
(2,114.4)
(689.8)
(360.0)
(682.6)
(12,380.9)
2018
$’m
12,016.6
14.3
12,030.9
(4,034.2)
(3,781.3)
(2,199.9)
(677.1)
(370.2)
(788.5)
(11,851.2)
30.4
462.2
8.8
(91.2)
(82.4)
379.8
(103.5)
276.3
14.5
261.8
276.3
9.6
(2.0)
(13.7)
–
–
4.3
(1.8)
(0.9)
(0.9)
(1.8)
274.5
42.9
42.3
25.1
204.8
7.1
(88.2)
(81.1)
123.7
(52.6)
71.1
(0.3)
71.4
71.1
(8.3)
4.8
(14.0)
(1.3)
(0.5)
2.6
(16.7)
0.7
(17.4)
(16.7)
54.4
10.7
10.7
(i) At 30 June 2018, the ROADS are deemed anti-dilutive and consequently, diluted EPS remained at 10.7 cents per share.
The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying
notes on pages 66 to 124.
62 Downer EDI Limited
Consolidated Statement of Financial Position
as at 30 June 2019
ASSETS
Current assets
Cash and cash equivalents
Trade receivables and contract assets
Other financial assets
Inventories
Finance lease receivables
Current tax assets
Prepayments and other assets
Total current assets
Non-current assets
Trade receivables and contract assets
Interest in joint ventures and associates
Property, plant and equipment
Intangible assets
Other financial assets
Finance lease receivables
Deferred tax assets
Prepayments and other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables and contract liabilities
Borrowings
Other financial liabilities
Employee benefits provision
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade payables and contract liabilities
Borrowings
Other financial liabilities
Employee benefits provision
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Reserves
Retained earnings
Parent interests
Non-controlling interest
Total equity
Note
C1(c)
C2
G3
C3
C7
C2
F1(a)
C5
C6
G3
C7
B4(b)
C4
E1
G3
D1
C8
C4
E1
G3
D1
C8
B4(b)
E4
E6
E5
30 June
2019
$’m
30 June
2018
$’m
710.7
1,991.5
35.0
304.6
12.4
57.7
52.8
3,164.7
74.4
108.8
1,373.3
3,130.7
5.2
38.7
93.5
18.7
4,843.3
8,008.0
2,405.5
14.6
47.4
340.5
107.0
15.4
2,930.4
51.3
1,688.9
20.0
45.1
84.5
137.6
2,027.4
4,957.8
3,050.2
2,425.1
(27.5)
496.7
2,894.3
155.9
3,050.2
606.2
2,117.9
18.6
268.8
4.0
69.3
48.8
3,133.6
113.2
96.0
1,280.4
3,050.7
15.5
4.5
75.5
18.8
4,654.6
7,788.2
2,281.6
153.7
43.2
336.7
50.7
15.7
2,881.6
26.5
1,367.5
34.2
38.0
65.1
170.2
1,701.5
4,583.1
3,205.1
2,421.9
(26.9)
655.1
3,050.1
155.0
3,205.1
The consolidated statement of financial position should be read in conjunction with the accompanying notes on pages 66 to 124.
Annual Report 2019 63
Consolidated Statement of Changes in Equity
for the year ended 30 June 2019
2019
$’m
Balance at 30 June 2018
Opening balance adjustment on application
of AASB 15(i) (net of tax)
Balance at 1 July 2018
Profit after income tax
Other comprehensive loss for the year
(net of tax)
Total comprehensive income for the year
Vested executive incentive share transactions
Share-based employee benefits expense
Income tax relating to share-based
transactions during the year
Payment of dividends(ii)
Balance at 30 June 2019
Issued
capital
Reserves
Retained
earnings
Total
attributable
to owners of
the parent
Non-
controlling
interest
Total
2,421.9
(26.9)
655.1
3,050.1
155.0
3,205.1
–
2,421.9
–
–
–
3.2
–
–
–
2,425.1
–
(26.9)
–
(0.9)
(0.9)
(3.2)
4.0
(0.5)
–
(27.5)
(245.3)
409.8
261.8
–
261.8
–
–
–
(174.9)
496.7
(245.3)
2,804.8
261.8
(0.9)
260.9
–
4.0
(0.5)
(174.9)
2,894.3
(12.7)
142.3
14.5
(0.9)
13.6
–
–
–
–
155.9
(i) Refer to Note G1 for details on opening balance adjustments made on application of new accounting standards.
(ii) Payment of dividend relates to the 2018 final dividend, 2019 interim dividend and $8.3 million ROADS dividends paid during the financial year.
.
2018
$’m
Balance at 1 July 2017
Profit after income tax
Other comprehensive income for the year
(net of tax)
Total comprehensive income for the year
Capital raising
(net of transaction costs and tax)
Vested executive incentive share transactions
Share-based employee benefits expense
Income tax relating to share-based
transactions during the year
Payment of dividends(i)
Acquisition of non-controlling interest
Balance at 30 June 2018
Issued
capital
2,421.8
–
–
–
(0.1)
0.2
–
–
–
–
2,421.9
Reserves
Retained
earnings
Total
attributable
to owners of
the parent
Non-
controlling
interest
(10.9)
–
(17.4)
(17.4)
–
(0.2)
2.8
(1.2)
–
–
(26.9)
740.4
71.4
–
71.4
–
–
–
–
(156.7)
–
655.1
3,151.3
71.4
(17.4)
54.0
(0.1)
–
2.8
(1.2)
(156.7)
–
3,050.1
435.2
(0.3)
0.7
0.4
–
–
–
–
–
(280.6)
155.0
(i) Payment of dividend relates to the 2017 final dividend, 2018 interim dividend and $8.0 million ROADS dividends paid during the financial year.
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes on pages 66 to 124.
64 Downer EDI Limited
(258.0)
2,947.1
276.3
(1.8)
274.5
–
4.0
(0.5)
(174.9)
3,050.2
Total
3,586.5
71.1
(16.7)
54.4
(0.1)
–
2.8
(1.2)
(156.7)
(280.6)
3,205.1
Consolidated Statement of Cash Flows
for the year ended 30 June 2019
Cash flows from operating activities
Receipts from customers
Distributions from equity accounted investees
Payments to suppliers and employees
Interest received
Interest and other costs of finance paid
Income tax paid
Net cash generated by operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Payments for intangible assets
Payments for acquisition of Spotless
Payments for acquisition of businesses, net of cash acquired
Investment in Joint Venture entities
Divestment of Freight Rail
Receipts from investments
Advances to joint ventures
Payments for leased assets
Proceeds from sale of assets
Recovery on acquisition of business
Net cash used in investing activities
Cash flows from financing activities
Issue of shares (net of costs)
Proceeds from borrowings
Repayments of borrowings
Dividends paid
Net cash used in financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes
Cash and cash equivalents at the end of the year
Note
2019
$’m
2018
$’m
14,177.4
22.4
(13,442.8)
5.2
(76.1)
(55.9)
630.2
16.1
(346.2)
(44.8)
–
(63.0)
(8.5)
(6.9)
–
(5.5)
(52.6)
–
1.7
(509.7)
–
3,859.3
(3,704.2)
(174.9)
(19.8)
100.7
606.2
3.8
710.7
F1(a)
C1(a)
F2
F1(a)
F3
C1(c)
12,856.9
16.9
(12,164.3)
7.4
(77.6)
(56.0)
583.3
22.7
(356.8)
(47.0)
(391.8)
(84.1)
–
129.6
0.4
(7.1)
–
4.5
–
(729.6)
(0.2)
2,043.9
(1,974.7)
(156.7)
(87.7)
(234.0)
844.6
(4.4)
606.2
The consolidated statement of cash flows should be read in conjunction with the accompanying notes on pages 66 to 124.
Annual Report 2019 65
Notes to the consolidated financial statements
for the year ended 30 June 2019
A
About this report
Statement of compliance
Accounting estimates and judgements
These financial statements represent the consolidated results
of Downer EDI Limited (ABN 97 003 872 848). The consolidated
Financial Report (Financial Report) is a general purpose financial
report which has been prepared in accordance with Australian
Accounting Standards (AASBs) adopted by the Australian
Accounting Standards Board (AASB) and the Corporations Act
2001 (Cth). The Financial Report complies with International
Financial Reporting Standards (IFRS) adopted by the
International Accounting Standards Board (IASB).
Preparation of the Financial Report requires management to
make judgements, estimates and assumptions about future
events. Information on material estimates and judgements
considered when applying the accounting policies can be found
in the following notes:
Accounting estimates and judgements
Note
Page
Revenue recognition
Recovery of deferred tax assets
The Financial Report was authorised for issue by the Board of
Directors on 22 August 2019.
Income taxes
Useful lives and residual values
Impairment of assets
Provisions
Annual leave and long service leave
Accounting for acquisition of businesses
B2
B4
B4
C5
C6
C8
D1
F2
75
78
78
85
87
89
91
106
Significant accounting policies
Accounting policies are selected and applied in a manner that
ensures that the resulting financial information satisfies the
concepts of relevance and reliability, thereby ensuring that the
substance of the underlying transactions or other events is
reported. Other significant accounting policies are contained
in the notes to the Financial Report to which they relate.
(i) Principles of consolidation
The Financial Report incorporates the financial statements
of the Company and entities controlled by the Group and its
subsidiaries. The Group 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 from its
involvement with the entity and has the ability to affect those
returns through its power over the entity.
The Financial Report includes the information and results
of each subsidiary from the date on which the Company
obtains control and until such time as the Company ceases
to control such entity.
In preparing the Financial Report, all intercompany balances
and transactions, and unrealised profits arising within the
consolidated entity, are eliminated in full.
Rounding of amounts
Downer is a company of the kind referred to in ASIC
Corporations (Rounding in Financial/Directors’ reports)
Instrument 2016/191, relating to the “rounding off” of amounts
in the Directors’ Report and consolidated financial statements.
Unless otherwise expressly stated, amounts have been rounded
off to the nearest whole number of millions of dollars and one
place of decimals representing hundreds of thousands of
dollars in accordance with that Instrument. Amounts shown
as $- represent amounts less than $50,000 which have
been rounded down.
Basis of preparation
The Financial Report has been prepared on a historical cost
basis, except for the revaluation of certain financial instruments.
Cost is based on the fair values of the consideration given in
exchange for assets. All amounts are presented in Australian
dollars, unless otherwise noted.
The accounting policies and methods of computation in the
preparation of the Financial Report are consistent with those
adopted and disclosed in Downer’s Annual Report for the
financial year ended 30 June 2018, except in relation to the
relevant new and amended accounting standards adopted by
the Group and their effects on the current period or prior periods
as described in Note G1.
Certain comparative balances have been reclassified to ensure
consistency with current year classifications.
66 Downer EDI Limited
A. About this report – continued
(ii) Foreign currency
Transactions, assets and liabilities denominated in foreign
currencies are translated into Australian dollars at reporting date
using the following applicable exchange rates:
Foreign currency amount
Applicable exchange rate
Transactions
Monetary assets and liabilities Reporting date
Non-monetary assets and
liabilities carried at fair value
Date of transaction
Date fair value is determined
Foreign exchange gains and losses resulting from translation are
recognised in the statement of profit or loss, except for qualifying
cash flow hedges which are deferred to equity.
On consolidation the assets, liabilities, income and expenses of
foreign operations are translated into Australian dollars using the
following applicable exchange rates:
Foreign currency amount
Applicable exchange rate
Income and expenses
Assets and liabilities
Equity
Average exchange rate
Reporting date
Historical date
Foreign exchange differences resulting from translation are
initially recognised in the foreign currency translation reserve
and subsequently transferred to the profit or loss on disposal
of the foreign operation.
(iii) Finance and borrowing costs
Finance costs comprise interest expense on borrowings, unwind
of discount of provisions, costs to establish financing facilities
(which are expensed over the term of the facility), losses on
ineffective hedging instruments that are recognised in profit or
loss and finance lease charges.
Annual Report 2019 67
B
Business performance
This section provides the information that is most relevant to understanding the financial performance of the Group during
the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made.
B1. Segment information
B2. Revenue
B3. Earnings per share
B1. Segment information
Identification of reportable segments
An operating segment is a component of an entity that engages
in business activities from which it may earn revenue and incur
expenses, whose operating results are regularly reviewed by the
Group’s chief operating decision maker in order to effectively
allocate Group resources and assess performance.
The Group has identified its operating segments based on the
internal reports that are reviewed and used by the Group CEO
in assessing performance and in determining the allocation
of resources. The operating segments are identified by the
Group based on the nature of the services provided. Discrete
financial information about each of these operating businesses
is reported to the Group CEO on a recurring basis.
The reportable segments are based on a combination of
operating segments determined by the similarity of the services
provided, and the sources of the Group’s major risks that could
therefore have the greatest effect on the rates of return. Downer
has determined that reportable segments are best represented
as service lines.
B4. Taxation
B5. Remuneration of auditors
B6. Subsequent events
During the year, the composition of business units within
operating segments was realigned to better reflect how the
Group’s chief operating decision maker assesses performance
and allocates Group resources. As a result, the Infrastructure
Projects NZ, Building Projects NZ and Defence business units
(previously reported as part of the EC&M segment), were
reallocated to the Transport, Facilities and Utilities segments
respectively; the UASG business unit (previously reported
as part of the Facilities segment) has been reallocated to
the Utilities segment; and the Rail Services business unit
(previously the Rail segment) has been included as part of
the Transport segment. The new structure better aligns the
segment reporting with Downer’s end-markets and management
reporting structure.
Accordingly, the Group has restated the previously reported
segment information for the year ended 30 June 2018.
68 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 B1. Segment information – continued
The reportable segments identified within the Group are outlined as follows:
Service line
Segment description
Transport
Utilities
Facilities
Engineering,
Construction
and Maintenance
(EC&M)
Mining
Comprises the Group’s road services, transport infrastructure and rail businesses. Downer’s road and transport
infrastructure services include: road network management; routine road maintenance; asset management systems;
spray sealing; asphalt laying; manufacture and supply of bitumen based products and asphalt products; the use
of recycled products and environmentally sustainable methods to produce asphalt; landfill diversion solutions;
intelligent transport systems; design and construction of light rail and heavy rail networks; signalling; track and
station works; rail safety technology; and bridges. The Rail business spans all light rail and heavy rail sectors, from
rollingstock to infrastructure; from design and manufacture to through-life-support including fleet maintenance,
operations and comprehensive overhaul of assets.
Comprises the Group’s power, gas, water, renewable energy and telecommunications businesses. This includes:
planning, designing, constructing, operating, maintaining, managing and decommissioning power and gas network
assets; providing complete water lifecycle solutions for municipal and industrial water users including water and
wastewater treatment, network construction and rehabilitation; design, construction and maintenance services for
a range of renewable assets in the wind, solar and power system storage sectors; and end-to-end technology and
communications solutions including design, civil construction, network construction, operations and maintenance
across fibre, copper and radio networks.
Facilities operates in Australia and New Zealand and provides outsourced facility services to customers across
a diverse range of industry sectors including: defence; education; government; healthcare; resources; leisure and
hospitality. Facilities provides catering and laundry services; technical and engineering services; maintenance and
asset management services and refrigeration solutions to various industries; as well as building and construction
solutions across a variety of sectors in New Zealand.
Provides design, engineering, construction, shutdowns, turnaround and outage delivery, operations maintenance
and ongoing management of strategic assets across a range of sectors and in all stages of the project lifecycle
including: feasibility studies; engineering design; procurement and construction; structural, mechanical and piping;
electrical and instrumentation; commissioning and decommissioning services; and design and manufacture of
mineral process equipment.
Provides services across all stages of the mining lifecycle including: resource definition; exploration drilling and
mine feasibility studies; open cut and underground mining services; drilling, explosives manufacture and supply;
blasting and crushing; asset management; tyre management; mine closure and rehabilitation.
Annual Report 2019 69
B1. Segment information – continued
2019
$’m
Transport Utilities Facilities
EC&M
Mining
Un-
allocated
Total
Segment revenue and other income
3,775.7
2,506.7
3,384.7
1,704.6
1,423.5
17.5
12,812.7
Share of sales revenue from joint ventures
and associates(i)
Total revenue including joint ventures and
other income(i)
572.6
–
8.0
–
55.0
–
635.6
4,348.3
2,506.7
3,392.7
1,704.6
1,478.5
17.5
13,448.3
Share of net profit from joint ventures and associates
Depreciation and amortisation
EBIT before amortisation of acquired
intangibles (EBITA)
Amortisation of acquired intangibles
Total reported segment results (EBIT)
26.6
67.2
242.4
(8.3)
234.1
–
18.0
136.1
(3.2)
132.9
0.5
90.1
170.5
(11.9)
158.6
–
9.4
33.3
–
33.3
3.3
114.2
76.7
–
76.7
Net finance costs
Total profit before income tax
–
61.1
30.4
360.0
(126.4)
(47.0)
(173.4)
532.6
(70.4)
462.2
(82.4)
379.8
Acquisition of segment assets
Segment assets
Segment liabilities
Carrying value of equity accounted investees
228.0
2,126.0
925.0
99.1
24.0
1,268.9
566.5
–
101.5
2,780.3
1,566.9
1.6
14.7
570.4
327.6
–
184.1
839.1
294.0
8.1
39.4
423.3
1,277.8
–
591.7
8,008.0
4,957.8
108.8
2018
$’m
Transport Utilities Facilities
EC&M
Mining
Un-
allocated
Total
Segment revenue and other income
3,960.3
2,004.9
3,413.1
1,356.5
1,309.4
(13.3)
12,030.9
Share of sales revenue from joint ventures
and associates(i)
Total revenue including joint ventures and
other income(i)
511.0
–
8.1
21.2
49.0
–
589.3
4,471.3
2,004.9
3,421.2
1,377.7
1,358.4
(13.3)
12,620.2
Share of net profit from joint ventures and associates
Depreciation and amortisation
EBIT before amortisation of acquired
intangibles (EBITA)
Amortisation of acquired intangibles
Total reported segment results (EBIT)
23.4
58.2
197.9
(0.4)
197.5
–
21.1
114.3
(3.0)
111.3
0.4
93.6
166.7
(15.1)
151.6
(1.3)
10.6
36.3
–
36.3
2.6
131.1
50.4
–
50.4
–
55.6
(294.1)
(48.2)
(342.3)
Net finance costs
Total profit before income tax
25.1
370.2
271.5
(66.7)
204.8
(81.1)
123.7
Acquisition of segment assets
Segment assets
Segment liabilities
Carrying value of equity accounted investees
175.9
2,032.7
1,030.2
83.1
107.2
1,046.7
485.8
–
142.5
2,769.6
1,465.1
1.5
5.7
542.4
327.2
4.0
134.3
804.8
271.7
7.4
20.7
592.0
1,003.1
–
586.3
7,788.2
4,583.1
96.0
(i) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.
70 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 B1. Segment information – continued
Reconciliation of segment EBIT to net profit after tax:
Segment EBIT
Unallocated:
Mining goodwill impairment
Divestment of Freight Rail
Auburn Rail claim
Divisional merger costs
Spotless transaction related costs
Murra Warra wind farm loss1
Amortisation of Spotless and Tenix acquired intangible assets
Fair value gain on revaluation of existing interest in Downer Mouchel Joint Venture
Corporate costs
Total unallocated
Earnings before interest and tax
Net finance costs
Profit before income tax
Income tax expense
Profit after income tax
Note
F2
B4(a)
Segment results
2019
$’m
635.6
–
–
–
–
–
(45.0)
(47.0)
17.0
(98.4)
(173.4)
462.2
(82.4)
379.8
(103.5)
276.3
2018
$’m
547.1
(76.4)
(50.2)
(25.0)
(28.5)
(28.0)
–
(48.2)
–
(86.0)
(342.3)
204.8
(81.1)
123.7
(52.6)
71.1
1
Relates to Downer’s obligation to complete the Murra Warra wind farm following Senvion’s insolvency as announced to the
market on 1 August 2019. The onerous contract provision recognised is not related to contract performance, rather to the credit
risk assumed by Downer to complete the contract as Downer and Senvion share liability under the project jointly and severally.
This individually significant item is classified to the unallocated segment and is disclosed as part of “other expenses from ordinary
activities” in the statement of profit or loss at 30 June 2019.
Segment assets by geographical location:
Geographic location(i)
Australia
New Zealand and Pacific
Rest of the world
Total
(i) Assets are allocated based on the geographical location of the legal entity.
Segment assets
Non-current
Acquisition of
segment assets
Non-current
2019
$’m
2018
$’m
2019
$’m
4,456.3
378.3
8.7
4,843.3
4,287.2
355.4
12.0
4,654.6
545.0
46.4
0.3
591.7
2018
$’m
538.0
47.1
1.2
586.3
Annual Report 2019 71
B2. Revenue
Revenue and other income
2019
$’m
Service revenue
Construction contracts
Sale of goods
Total revenue from
contracts with customers
Other revenue
Total revenue from
ordinary activities
Other income
Total revenue
and other income
Share of sales revenue
from joint ventures
and associates(i)
Total revenue including
joint ventures and
other income(i)
2018
$’m
Service revenue
Construction contracts
Sale of goods
Total revenue from
contracts with customers
Other revenue
Total revenue from
ordinary activities
Other income
Total revenue
and other income
Share of sales revenue
from joint ventures
and associates(i)
Total revenue including
joint ventures and
other income(i)
Transport
Utilities
Facilities
EC&M
Mining
2,628.4
936.9
204.4
3,769.7
5.2
1,441.7
1,061.5
1.2
2,504.4
1.4
2,525.6
821.6
36.6
3,383.8
–
914.6
767.0
14.9
1,696.5
6.9
1,363.5
–
57.0
1,420.5
0.9
Un-
allocated
(1.4)
–
–
(1.4)
1.5
Total
8,872.4
3,587.0
314.1
12,773.5
15.9
3,774.9
2,505.8
3,383.8
1,703.4
1,421.4
0.1
12,789.4
0.8
0.9
0.9
1.2
2.1
17.4
23.3
3,775.7
2,506.7
3,384.7
1,704.6
1,423.5
17.5
12,812.7
572.6
–
8.0
–
55.0
–
635.6
4,348.3
2,506.7
3,392.7
1,704.6
1,478.5
17.5
13,448.3
Transport
Utilities
Facilities
EC&M
Mining
2,601.7
1,140.2
205.7
3,947.6
11.3
1,257.1
744.6
1.1
2,002.8
1.7
2,599.0
745.0
61.5
3,405.5
–
611.6
723.2
19.7
1,354.5
1.4
1,297.6
–
3.2
1,300.8
4.3
Un-
allocated
(34.8)
–
–
(34.8)
21.5
Total
8,332.2
3,353.0
291.2
11,976.4
40.2
3,958.9
2,004.5
3,405.5
1,355.9
1,305.1
(13.3)
12,016.6
1.4
0.4
7.6
0.6
4.3
–
14.3
3,960.3
2,004.9
3,413.1
1,356.5
1,309.4
(13.3)
12,030.9
511.0
–
8.1
21.2
49.0
–
589.3
4,471.3
2,004.9
3,421.2
1,377.7
1,358.4
(13.3)
12,620.2
(i) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.
72 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 B2. Revenue – continued
Revenue from contracts with customers by geographical location:
2019
$’m
Geographic location(i)
Australia
New Zealand and Pacific
Rest of the world
Total revenue from
contracts with customers
2018
$’m
Geographic location(i)
Australia
New Zealand and Pacific
Rest of the world
Total revenue from
contracts with customers
Transport
Utilities
Facilities
EC&M
Mining
Un-
allocated
Total
2,610.2
1,159.5
–
2,007.8
496.6
–
2,481.6
902.2
–
1,676.5
0.2
19.8
1,364.0
–
56.5
(1.4)
–
–
10,138.7
2,558.5
76.3
3,769.7
2,504.4
3,383.8
1,696.5
1,420.5
(1.4)
12,773.5
Transport
Utilities
Facilities
EC&M
Mining
Un-
allocated
2,807.3
1,140.3
–
1,575.9
426.9
–
2,521.8
883.7
–
1,336.1
2.2
16.2
1,248.2
–
52.6
(34.8)
–
–
Total
9,454.5
2,453.1
68.8
3,947.6
2,002.8
3,405.5
1,354.5
1,300.8
(34.8)
11,976.4
(i) Revenue is allocated based on the geographical location of the legal entity.
Recognition and measurement
Revenue
The Group has adopted AASB 15 Revenue from Contracts
with Customers from 1 July 2018. Under AASB 15, revenue
is recognised when a customer obtains control of the goods
or services. Revenue is measured at the fair value of the
consideration received or receivable. Determining the timing
of the transfer of control – at a point in time or over time –
requires judgement. Revenue is recognised if it meets the
criteria below.
(i) Rendering of services
The Group primarily generates service revenue from the
following activities:
– Maintenance and management of transport infrastructure;
– Utilities infrastructure maintenance services
(gas, power and water);
– Maintenance and installation of infrastructure in the
telecommunications sector;
– Industrial plant maintenance;
– Contract mining services, mining assets maintenance
services, tyre management and blasting;
– Rolling stock maintenance and rail asset
management services;
– Engineering and consultancy services; and
– Facilities management.
Typically, under the performance obligations of service contracts,
the customer consumes and receives the benefit of the service
as it is provided. As such, service revenue is recognised over
time as the services are provided.
(ii) Construction contracts
The contractual terms and the way in which the Group operates
its construction contracts is predominantly derived from
projects containing one performance obligation. Under these
performance obligations, customers either simultaneously
receive and consume the benefits as the Group performs
them or performance creates or enhances an asset that the
customer controls as the asset is created or enhanced. Therefore
contracted revenue is recognised over time based on stage of
completion of the contract.
(iii) Sale of goods
Revenue is recognised at a point in time when the customer
obtains control of goods and services. In the prior year revenue
was recognised when the significant risks and rewards of
ownership of the goods passed to the buyer.
(iv) Other revenue
Other revenue primarily includes rental income
received by the Group.
Annual Report 2019 73
B2. Revenue – continued
Recognition and measurement – continued
The following table provides information about the Group’s revenue recognition policies for both services and construction contracts
under the current and previous accounting standards:
Revenue recognition after 1 July 2018
Revenue recognition before 1 July 2018
Estimates of revenue include:
– claims from customers where
negotiations have reached an advanced
stage and it is probable that the
customer will accept the claim and the
amount can be measured reliably; and
– variations when it is probable that the
customer will approve the variation and
the amount can be measured reliably.
Costs incurred during the tender / bid
process are capitalised within amounts due
from customers under contracts when it is
probable that the contract will be awarded.
If the contracts are not subsequently
awarded the amounts capitalised are
expensed to profit or loss.
Under AASB 111 Construction Contracts
revenue is recognised over the stated term
of the contract.
Contract claims and variations – now referred to as contract modifications
For services and construction contracts the new standard provides a higher threshold
for recognition of variations, claims and incentives which only allows revenue from
variations and claims to be recognised to the extent they are approved or enforceable
under the contract. The amount of revenue is then recognised to the extent it is highly
probable that a significant reversal of revenue will not occur.
In making this assessment, the Group considers a number of factors including nature
of the claim, formal or informal acceptance by the customer of the validity of the claim,
stage of negotiations, or the historical outcome of similar claims to determine whether
the enforceable and “highly probable” threshold has been met.
Revenue in relation to modifications, such as a change in the scope of the contract,
will only be included in the transaction price, when it is approved by the parties to the
contract or the modification is enforceable and the amount becomes highly probable.
Modifications will be recognised when client instruction has been received in line with
customary business practice for the customer.
Contract costs (tender costs)
Costs incurred during the tender / bid process are expensed, unless they are
incremental to obtaining the contract and the Group expects to recover those costs
or where they are explicitly chargeable to the customer regardless of whether the
contract is obtained.
Performance obligations and contract duration
Revenue is allocated to each performance obligation and recognised as the
performance obligation is satisfied which may be at a point in time or over time.
AASB 15 requires a granular approach to identify the different revenue streams
(i.e. performance obligations) in a contract by identifying the different activities that
are being undertaken and then aggregating only those where the different activities
are significantly integrated or highly interdependent. Revenue will continue to be
recognised, on certain contracts over time, as a single performance obligation when
the services are part of a series of distinct goods and services that are substantially
integrated with the same pattern of transfer.
AASB 15 provides guidance in respect of the term over which revenue may be
recognised and is limited to the period for which the parties have enforceable rights
and obligations. When the customer can terminate a contract for convenience
(without a substantive penalty), the contract term and related revenue is limited to the
termination period.
The Group has elected to apply the practical expedient to not adjust the total
consideration over the contract term for the effect of a financing component if the
period between the transfer of services to the customer and the customer’s payment
for these services is expected to be one year or less.
74 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 B2. Revenue – continued
Recognition and measurement – continued
Revenue recognition after 1 July 2018
Revenue recognition before 1 July 2018
Measure of progress
The Group recognises revenue using the measure of progress that best reflects the
Group’s performance in satisfying the performance obligation within the contracts
over time. The different methods of measuring progress include an input method (e.g.
costs incurred) or an output method (e.g. milestones reached). The same method of
measuring progress will be consistently applied to similar performance obligations.
Variable consideration
Variable consideration that is contingent on the Group’s performance, including key
performance payments, liquidated damages and abatements that offset revenue
under the contract, is recognised only when it is highly probable that a reversal of that
revenue will not occur.
In addition, where the identified revenue stream is determined to be a series of distinct
goods or services that are substantially the same and that have the same pattern of
transfer to the customer (for example maintenance services), variable consideration is
recognised in the period/(s) in which the series of distinct goods or services subject to
the variable consideration are completed.
Loss making contracts
Loss-making contracts are recognised under AASB 137 Provisions, Contingent
Liabilities and Contingent Assets as onerous contracts.
Contract revenue and contract costs are
recognised as revenue and expenses by
reference to the stage of completion of the
contract at the end of the reporting period.
Estimates of revenue include incentive
payments such as payments for meeting
certain performance criteria when it is
probable that the criteria will be met and
can be measured reliably. Liquidated
damages or abatements that are probable
and can be measured reliably are included
in contract costs.
For contracts under the percentage of
completion method the expected loss on a
contract is recognised immediately when
it is probable that total contract costs will
exceed total contract revenue.
Key estimates and judgements: Revenue recognition
Stage of completion
Determining the stage of completion requires an estimate of expenses incurred to date as a percentage of total estimated costs.
Modifications
When a contract modification exists and the Group has an approved enforceable right to payment, revenue in relation
to claims and variations is only included in the transaction price when the amount claimable becomes highly probable.
Management uses judgement in determining whether an approved enforceable right exists and the amount that meets
the “highly probable” thereshold.
Variable consideration
Determining the amount of variable consideration requires an estimate based on either “the expected value” or “the most likely
amount”. The estimate of variable consideration can only be recognised to the extent it is highly probable that a significant
revenue reversal will not occur in future.
Changes in these estimation methods could have a material impact on the financial statements of the Group.
Annual Report 2019 75
B3. Earnings per share
Basic earnings per share
The calculation of basic earnings per share (EPS) is based on the profit attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding.
Profit attributable to members of the parent entity ($’m)
Adjustment to reflect ROADS dividends paid ($’m)
Profit attributable to members of the parent entity used in calculating EPS ($’m)
Weighted average number of ordinary shares (WANOS) on issue (m’s)(i)
Basic earnings per share (cents per share)
2019
261.8
(8.3)
253.5
591.2
42.9
2018
71.4
(8.0)
63.4
590.5
10.7
Diluted earnings per share
The calculation of diluted EPS is based on the profit attributable to ordinary shareholders and the weighted average number of ordinary
shares outstanding after adjustments for the effects of all dilutive potential ordinary shares.
Profit attributable to members of the parent entity ($’m)
Weighted average number of ordinary shares
– Weighted average number of ordinary shares (WANOS) on issue (m’s)(i) (ii)
– WANOS adjustment to reflect potential dilution for ROADS (m’s)(iii)
WANOS used in the calculation of diluted EPS (m’s)
Diluted earnings per share (cents per share)(iv)
2019
261.8
592.2
26.9
619.1
42.3
2018
71.4
590.5
27.8
618.3
10.7
(i) The WANOS on issue has been adjusted by the weighted average effect of the unvested executive incentive shares.
(ii) For diluted earnings per share, the WANOS has been further adjusted by the potential vesting of executive incentive shares.
(iii) The WANOS adjustment is the value of ROADS that could potentially be converted into ordinary shares at the reporting date. It is calculated based on the issued value of
ROADS in New Zealand dollars converted to Australian dollars at the spot rate prevailing at the reporting date, which was $191.2 million (2018: $183.4 million), divided by the
average market price of the Company’s ordinary shares for the period 1 July 2018 to 30 June 2019 discounted by 2.5% according to the ROADS contract terms, which was
$7.10 (2018: $6.60).
(iv) At 30 June 2018, the ROADS are deemed anti-dilutive and consequently, diluted EPS remained at 10.7 cents per share.
76 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 B4. Taxation
a) Reconciliation of income tax expense
The prima facie income tax expense on profit before income tax reconciles to the income tax expense in the financial
statements as follows:
Profit before income tax
Tax using the Company’s statutory tax rate
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Profits and franked distributions from joint ventures and associates
Non-taxable government grant
Impairment of goodwill
Non-taxable gains
Other items
Under / (over) provision of income tax in previous year
Total income tax expense
Current tax expense
Deferred tax expense
2019
$’m
379.8
113.9
(1.7)
0.8
(6.8)
–
–
(5.1)
0.1
2.3
103.5
63.4
40.1
2018
$’m
123.7
37.1
(1.3)
1.0
(5.6)
(2.6)
22.9
(1.8)
1.2
1.7
52.6
49.2
3.4
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits
under Australian tax law. There has been no change in the corporate tax rate when compared with the previous year.
Recognition and measurement
Current tax
Current tax assets and liabilities are measured at the amount of
income taxes payable or recoverable in respect of the taxable
profit or tax loss for the period; it is calculated using tax rates
and tax laws that have been enacted or substantively enacted
by the reporting date.
Deferred tax
Deferred tax is accounted for in respect of temporary differences
arising from differences between the carrying amount of assets
and liabilities and the corresponding tax base.
Deferred tax liabilities are recognised for all taxable temporary
differences. Deferred tax assets are recognised for all deductible
temporary differences, unused tax losses and tax offsets, to the
extent that it is probable that sufficient taxable profits will be
available to utilise them.
However, deferred tax assets and liabilities are not recognised for:
– Temporary differences that arise from the initial recognition
of assets or liabilities in a transaction that is not a business
combination which affects neither taxable income nor
accounting profit;
– Temporary differences relating to investments in subsidiaries,
associates and joint ventures to the extent that the Group
is able to control the timing of the reversal of the temporary
differences and it is probable that they will not reverse in the
foreseeable future; and
– Temporary differences arising from goodwill.
Deferred tax assets and liabilities are measured at the tax rates
and tax laws that are expected to apply in the year when the
asset is utilised or liability is settled, based on tax rates and tax
laws that have been enacted or substantively enacted at the
reporting date.
Income taxes relating to items recognised directly in equity
are recognised in equity and not in the income statement.
Offsetting deferred tax balances
Deferred tax assets and liabilities are offset when they relate
to income taxes levied by the same taxation authority and the
Company/consolidated entity intends to settle its current tax
assets and liabilities on a net basis.
Tax consolidation
Downer EDI Limited and its wholly owned Australian entities are
part of a tax-consolidated group under Australian taxation law.
Downer EDI Limited is the head entity in the tax-consolidated
group. Entities within the tax-consolidated group have entered
into a tax funding agreement and a tax sharing agreement
with the head entity. Under the terms of the tax funding
agreement, Downer EDI Limited and each of the entities in the
tax-consolidated group have agreed to pay (or receive) a tax
equivalent payment to (or from) the head entity, based on the
current tax liability or current tax asset of the entity.
Annual Report 2019 77
B4. Taxation – continued
a) Reconciliation of income tax expense – continued
Key estimate and judgement:
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible
temporary differences, unused tax losses and tax offsets,
to the extent it is probable that sufficient future taxable
profits will be available to utilise them. Judgement is
required to determine the amount of deferred tax assets
that can be recognised, based upon the likely timing and
the level of future taxable profits.
b) Movement in deferred tax balances
Key estimate and judgement: Income taxes
The Group is subject to income taxes in Australia and
jurisdictions where it has foreign operations. Judgement is
required to determine the worldwide provision for income
taxes and to assess whether deferred tax balances are
recognised on the statement of financial position. Changes
in circumstances will alter expectations, which may impact
the amount of provision for income taxes and deferred tax
balances recognised.
2019
$’m
Trade receivables and
contract assets
Joint ventures and associates
Property, plant and equipment
Intangible assets
Income tax losses
Trade payables and
contract liabilities
Provisions, including
employee benefits
Other
Tax assets/(liabilities)
before set-off
Set-off of DTA against DTL
Net tax assets/(liabilities)
Net
balance
at
30 June
2018
Opening
balance
adjust-
ment on
application
of AASB 15
Net
balance
at 1 July
2018
Charged
to income
statement
Charged to
comprehen-
sive income
and equity
Net foreign
currency
exchange
differences
Acquis-
ition and
disposal
Net
balance
at
30 June
2019
Deferred
tax
assets
Deferred
tax
liabilities
(100.5)
(0.9)
(32.2)
(164.1)
32.5
83.2
–
–
–
–
(17.3)
(0.9)
(32.2)
(164.1)
32.5
(36.6)
0.9
(8.0)
19.7
(4.2)
34.5
–
34.5
(9.5)
129.4
6.6
25.6
–
155.0
6.6
(1.7)
(0.7)
–
–
–
–
–
–
–
3.8
(0.3)
–
(0.1)
(0.2)
–
(9.2)
–
(0.6)
(9.1)
–
(63.4)
–
(40.9)
(153.7)
28.3
–
–
–
–
28.3
(63.4)
–
(40.9)
(153.7)
–
(0.2)
3.1
27.9
27.9
(0.4)
1.0
(6.3)
0.4
146.6
11.1
146.6
11.1
–
–
–
108.8
(94.7)
–
(94.7)
14.1
–
14.1
(40.1)
3.8
(0.2)
(21.7)
(44.1)
–
(44.1)
213.9 (258.0)
120.4
(137.6)
(120.4)
93.5
2018
$’m
Trade receivables and contract assets
Inventories
Joint ventures and associates
Property, plant and equipment
Intangible assets
Income tax losses
Trade payables and contract liabilities
Provisions, including employee benefits
Other
Tax assets/(liabilities) before set-off
Set-off of DTA against DTL
Net tax assets/(liabilities)
78 Downer EDI Limited
Net balance
at 1 July
2017
Charged
to income
statement
Charged to
comprehen-
sive income
and equity
Net foreign
currency
exchange
differences
Acquisition
and
disposal
Net balance
at 30 June
2018
Deferred
tax
assets
Deferred
tax
liabilities
(103.0)
(9.8)
(1.1)
(12.9)
(166.6)
25.1
20.8
156.5
5.0
(86.0)
–
(86.0)
1.6
9.8
0.2
(19.3)
19.0
7.4
12.9
(33.2)
(1.8)
(3.4)
–
–
–
–
–
–
–
–
1.6
1.6
0.8
–
–
–
–
–
0.3
(0.2)
0.1
1.0
0.1
–
–
–
(16.5)
–
0.5
6.3
1.7
(7.9)
(100.5)
–
(0.9)
(32.2)
(164.1)
32.5
34.5
129.4
6.6
(94.7)
–
(94.7)
–
–
–
–
–
32.5
34.5
129.4
6.6
203.0
(127.5)
75.5
(100.5)
–
(0.9)
(32.2)
(164.1)
–
–
–
–
(297.7)
127.5
(170.2)
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 B5. Remuneration of auditors
B6. Subsequent events
Audit or review of financial reports:
Audit or review – Australia
Audit or review – Overseas
Sustainability and other
assurance services
Non-audit services
Tax services
Advisory and due
diligence services
The auditor of the Group is KPMG.
2019
$
2018
$
4,376,000
1,026,736
4,165,000
721,000
452,044
5,854,780
278,634
5,164,634
In September 2017 Spotless commenced a Facilities
Management Sub-Contract (Subcontract) at the New Royal
Adelaide Hospital (nRAH). Spotless’ subcontract is with Celsus,
which has a head contract with the South Australian Government
as part of a Public Private Partnership model.
On 21 August 2019, Spotless reached in-principle agreement
with the South Australian Government and Celsus in relation
to the delivery of services under the Subcontract. The
agreement includes;
– settlement of historical abatement claims previously
disclosed as a contingent liability by Downer and Spotless;
338,957
556,106
– a revised KPI and abatement regime designed to better
275,000
613,957
950,457
1,506,563
reflect the services provided by Spotless; and
– an increase to Spotless’ monthly service fee.
The settlement agreement, which is expected to be signed in
the first half of the 2020 financial year, will take financial effect
from 1 July 2019.
Other than this in-principle agreement, at the date of this report,
there have been no other matters or circumstances that have
arisen since the end of the financial year, that have significantly
affected, or may significantly affect, the operations of the Group,
the results of those operations, or the state of affairs of the
Group in subsequent financial years.
Annual Report 2019 79
C
Operating assets and liabilities
This section provides information relating to the operating assets and liabilities of the Group. Downer has a strong focus
on maintaining a strong balance sheet through continued focus on cash conversion. The Group’s strategy also considers
expenditure, growth and acquisition requirements.
C1. Reconciliation of cash and cash equivalents
C2. Trade receivables and contract assets
C3. Inventories
C4. Trade payables and contract liabilities
C5. Property, plant and equipment
C6. Intangible assets
C7. Finance lease receivables
C8. Provisions
C9. Contingent liabilities
C1. Reconciliation of cash and cash equivalents
(a) Reconciliation of cash flows from operating activities
Profit after tax for the year
Adjustments for:
Share of joint ventures and associates’ profits net of distributions
Depreciation and amortisation of non-current assets
Amortisation of deferred costs
Net gain on sale of property, plant and equipment
Fair value gain on revaluation of existing interest in Downer Mouchel Joint Venture
Loss on disposal of business
Impairment of intangibles
Research and development incentives
Foreign exchange gains
Movement in current tax balances
Movement in deferred tax balances
Share-based employee benefits expense
Other
Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:
(Increase) / decrease in assets:
Note
F1(a)
C5, C6
F2
F3
B1
D1
Current trade receivables and contract assets
Current inventories
Other current assets
Non-current trade receivables and contract assets
Other non-current assets
Increase / (decrease) in liabilities:
Current trade payables and contract liabilities
Current financial liabilities
Current provisions
Non-current trade payables and contract liabilities
Non-current financial liabilities
Non-current provisions
Net cash generated by operating activities
80 Downer EDI Limited
2019
$’m
276.3
(8.0)
360.0
4.2
(4.8)
(17.0)
–
–
–
(1.5)
6.9
40.5
4.0
2.3
386.6
(67.1)
(29.3)
(1.5)
(10.2)
0.4
65.9
(3.7)
16.1
24.2
(3.1)
(24.4)
(32.7)
630.2
2018
$’m
71.1
(8.2)
370.2
5.7
(14.2)
–
40.6
76.4
(8.7)
(0.1)
(7.5)
13.7
2.8
0.7
471.4
(479.1)
(17.2)
6.3
(53.8)
12.1
607.7
21.2
(41.8)
(13.9)
10.2
(10.9)
40.8
583.3
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 C1. Reconciliation of cash and cash equivalents – continued
(b) Reconciliation of liabilities arising from financing activities
$’m
Interest bearing loans
Finance lease and hire purchase liabilities
Total liabilities from financing activities
(c) Cash and cash equivalents
1 July
2018
1,504.7
16.5
1,521.2
For the purpose of the statement of cash flows, cash and cash equivalents comprises:
Cash
Short-term deposits
C2. Trade receivables and contract assets
Trade receivables
Loss allowance
Contract assets
Other receivables
Total trade receivables and
contract assets
Included in the
financial statements as:
Current
Non-current
Contract asset balances
Contract assets
Contract costs (Tender costs)
Retentions
Total contract assets
2019
$’m
888.0
(17.5)
870.5
1,084.4
111.0
2018
$’m
842.0
(15.3)
826.7
1,228.5
175.9
2,065.9
2,231.1
1,991.5
74.4
2,117.9
113.2
2019
$’m
1,050.3
–
34.1
1,084.4
2018
$’m
1,162.0
34.0
32.5
1,228.5
Amortisation
and foreign
exchange
movement
Net cash
flows
160.6
(5.5)
155.1
28.0
(0.8)
27.2
2019
$’m
663.2
47.5
710.7
30 June
2019
1,693.3
10.2
1,703.5
2018
$’m
321.4
284.8
606.2
A summary of the Group’s exposure to credit risk for trade
receivables and contract assets is as follows:
Ageing profile of trade receivables and contract assets
Neither past due nor impaired
Past due but not impaired
Impaired
2019
$’m
1,771.7
183.2
17.5
1,972.4
2018
$’m
1,749.8
305.4
15.3
2,070.5
An impairment loss of $1.3 million on trade receivables
and contract assets arising from contracts with customers
was recognised during the year in “Other expenses” in the
consolidated statement of profit or loss.
Annual Report 2019 81
C2. Trade receivables and contract assets – continued
Remaining performance obligations
As of 30 June 2019, the aggregate amount of the transaction
price allocated to the remaining performance obligations is
$14,514.3 million. The Group will recognise this revenue when
the performance obligations are satisfied. Approximately 28%
of remaining performance obligations are expected to occur
within the next five years; with the remaining 72% of performance
obligations, being related to long-term service / maintenance
contracts, ranging up to 43 years.
When a customer can terminate for convenience without a
substantive penalty, the contract term and related revenue
are limited by the termination clause. This would include,
for example, framework contracts for which a firm order
or instruction has not been received from the customer.
Nonetheless, based on historical experience, these contracts
are not expected to be cancelled and therefore future revenue
and profits are expected to be recognised in line with the
contract term. The Group has also applied the practical
expedient available under the accounting standards to exclude
those contracts with an original expected duration of less than
12 months from the above disclosure.
As permitted under the transitional provisions in AASB 15,
the transaction price allocated to remaining performance
obligations as of 30 June 2018 is not disclosed.
Recognition and measurement
Trade receivables
Trade receivables and other receivables are initially recognised
at fair value and subsequently at amortised cost using the
effective interest rate method, less an allowance for impairment.
Contract assets
Contract assets primarily relate to the Group’s rights to
consideration for work performed but not billed at the reporting
date. The contract assets are transferred to trade receivables
when the rights have become unconditional. This usually occurs
when the Group issues an invoice in accordance with contractual
terms to the customer.
Payments from customers are received based on a billing
schedule / milestone basis, as established in our contracts.
Costs to fulfil contracts
Costs incremental to obtaining a contract and that are expected
to be recovered or are explicitly chargeable to the customer
regardless of whether the contract is obtained are capitalised.
Financial assets and liabilities
AASB 9 Financial Instruments contains a new classification and
measurement approach for financial assets that reflects the
business model in which assets are managed and their cash flow
characteristics.
AASB 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income (FVOCI) and fair value through
profit or loss (FVTPL). The standard eliminates the existing
AASB 139 categories of held to maturity, loans and receivables and
available for sale. The existing requirements for the classification of
financial liabilities in AASB 139 is retained, resulting in no change
in classification or measurement of financial liabilities on adoption
of AASB 9. The adoption of AASB 9 has not had a significant effect
on the Group’s accounting policies related to financial assets.
Fair value
Due to the short-term nature of these financial rights, their
carrying amounts are estimated to represent their fair values.
Impairment
AASB 9 replaced the “incurred loss” model in AASB 139 with
a forward looking “expected credit loss” (ECL) model. The
Group exercises considerable judgement about how changes
in economic factors affect ECL, which is determined on a
probability-weighted basis. There is consideration around the
probability of default upon initial recognition and subsequent
assessment as to whether there has been a significant increase
in credit risk at each reporting period.
This impairment model applies to financial assets measured
at amortised cost or FVOCI (except for investments in
equity instruments).
Under AASB 9, loss allowances are measured on either of the
following bases:
– 12-month ECLs: where there are ECLs that result from
possible default events within 12 months from the
reporting date; and
– Lifetime ECLs: these are ECLs that result from all possible
default events over the expected life of a financial instrument.
The Group has applied the simplified approach to recognise
lifetime expected credit losses for trade receivables, contract
assets and finance lease receivables as permitted by AASB 9.
In the prior year, the allowance for doubtful debts was made
for the estimated irrecoverable trade receivable amounts
arising from services provided, determined in reference to past
default experience.
82 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 C3. Inventories
Current
Raw materials
Work in progress
Finished goods
Components and spare parts
2019
$’m
127.0
7.3
56.2
114.1
304.6
2018
$’m
123.2
0.2
47.6
97.8
268.8
Recognition and measurement
Inventories are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all
estimated costs of completion and costs to be incurred in marketing, selling and distribution.
C4. Trade payables and contract liabilities
Trade payables
Contract liabilities
Accruals
Other
Included in the financial statements as:
Current
Non-current
2019
$’m
810.6
501.5
1,007.2
137.5
2,456.8
2,405.5
51.3
2018
$’m
674.2
429.1
1,088.9
115.9
2,308.1
2,281.6
26.5
Recognition and measurement
Trade payables, accruals and other payables
Trade payables, accruals and other accounts payable are recognised when the Group becomes obliged to make future payments
resulting from the purchase of goods and services.
Contract liabilities
Contract liabilities primarily relate to the Group’s obligation to transfer goods or services to a customer for which the Group has
received consideration (or an amount of consideration is due) from the customer. Contract liabilities are recognised as revenue when
work is performed under the contract.
If the net amount of the Group’s rights to consideration for work performed after deduction of progress payments received is negative,
the difference is recognised as a liability and included as part of contract liabilities.
The amount of $230.9 million recognised in contract liabilities at the beginning of the year has been recognised as revenue for the year
ended 30 June 2019.
Fair value
Due to the short-term nature of these financial obligations, their carrying amounts are estimated to represent their fair values.
Annual Report 2019 83
C5. Property, plant and equipment
2019
$’m
Carrying amount as at 1 July 2018
Additions
Disposals at net book value
Acquisition of businesses(i)
Depreciation expense
Reclassifications at net book value
Reclassified as intangible assets(ii)
Net foreign currency exchange differences
at net book value
Closing net book value as at 30 June 2019
Cost
Accumulated depreciation
2018
Carrying amount as at 1 July 2017 (restated)(iii)
Additions
Disposals at net book value
Acquisition of businesses
Disposal of business at net book value
Depreciation expense
Reclassifications at net book value
Reclassified as intangible assets(ii)
Net foreign currency exchange differences
at net book value
Closing net book value as at 30 June 2018
Cost
Accumulated depreciation
Freehold
land and
buildings
Plant,
equipment
and leasehold
improvements
Equipment
under
finance
lease
Laundries
rental
stock
118.8
10.5
(3.0)
0.1
(2.9)
–
–
0.5
124.0
152.8
(28.8)
129.4
0.5
(5.6)
–
–
(5.1)
–
–
(0.4)
118.8
155.1
(36.3)
1,106.3
305.3
(8.5)
12.0
(219.8)
0.4
(0.8)
1.3
1,196.2
2,722.1
(1,525.9)
1,061.2
322.9
(14.9)
3.2
(60.0)
(229.5)
26.5
(0.3)
(2.8)
1,106.3
2,488.7
(1,382.4)
14.1
2.3
(2.3)
–
(4.8)
(0.4)
–
0.1
9.0
24.5
(15.5)
52.3
7.9
(14.4)
7.6
–
(10.3)
(29.1)
–
0.1
14.1
34.1
(20.0)
41.2
35.2
–
–
(32.5)
–
–
0.2
44.1
105.9
(61.8)
37.5
36.2
–
1.5
–
(33.4)
2.6
–
(3.2)
41.2
74.0
(32.8)
Total
1,280.4
353.3
(13.8)
12.1
(260.0)
–
(0.8)
2.1
1,373.3
3,005.3
(1,632.0)
1,280.4
367.5
(34.9)
12.3
(60.0)
(278.3)
–
(0.3)
(6.3)
1,280.4
2,751.9
(1,471.5)
(i) The values recognised are based on the fair value of assets acquired from the business acquisitions made during the year ended 30 June 2019, for which the accounting on
certain transactions remains provisional. Refer to Note F2.
(ii) Refers to the reclassification of software from Capital work in progress to Intangible assets.
(iii) June 2017 balances were restated to reflect the impact of acquisition accounting adjustments made during the previous period on opening balances.
Recognition and measurement
The value of property, plant and equipment is measured as the cost of the asset less accumulated depreciation and impairment.
The expected useful life and depreciation methods used are listed below:
Item
Useful life
Depreciation method
Freehold land
Buildings
Leasehold improvements
Plant and equipment – mining, power and gas
Plant and equipment – other
Equipment under finance lease
Laundries rental stock
n/a
20-50 years
Life of lease
Working hours
3-25 years
5-15 years
18 months-5 years
No depreciation
Straight-line
Straight-line
Based on hours of use
Straight-line
Straight-line – lease term
Straight-line
84 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 C5. Property, plant and equipment – continued
Key estimate and judgement: Useful lives and residual values
The estimation of the useful lives and residual values of assets has been based on historical experience as well as manufacturers’
warranties (for plant and equipment), lease terms (for leased equipment and leasehold improvements) and turnover policies.
In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life.
Adjustments to useful lives and residual values are made when considered necessary.
C6. Intangible assets
2019
$’m
Carrying amount as at 1 July 2018
Additions
Disposals at net book value
Acquisition of businesses(i)
Reclassifications at net book value(ii)
Amortisation expense
Net foreign currency exchange differences
at net book value
Closing net book value as at 30 June 2019
Cost
Accumulated amortisation and impairment
2018
Carrying amount as at 1 July 2017
(restated)(iii)
Additions
Disposals at net book value
Acquisition of businesses
Disposal of business at net book value
Reclassifications at net book value(ii)
Amortisation expense
Impairment of goodwill
Net foreign currency exchange differences
at net book value
Closing net book value as at 30 June 2018
Cost
Accumulated amortisation and impairment
Goodwill
2,351.5
–
–
98.2
–
–
4.8
2,454.5
2,606.9
(152.4)
2,341.1
–
–
105.0
(14.2)
–
–
(76.4)
(4.0)
2,351.5
2,503.9
(152.4)
Customer
contracts
and
relationships
Brand
names on
acquisition
Intellectual
property on
acquisition
Software
and system
development
381.1
–
–
30.2
–
(66.3)
–
345.0
494.1
(149.1)
409.1
–
–
34.5
–
–
(62.6)
–
0.1
381.1
463.8
(82.7)
74.7
–
–
–
–
(3.9)
0.5
71.3
79.4
(8.1)
56.9
–
–
21.7
–
–
(3.9)
–
–
74.7
78.7
(4.0)
2.2
–
–
–
–
(0.2)
–
2.0
2.4
(0.4)
3.5
–
–
(1.1)
–
–
(0.2)
–
–
2.2
2.4
(0.2)
241.2
45.3
(0.3)
–
0.8
(29.6)
0.5
257.9
419.3
(161.4)
220.6
46.4
(0.2)
–
–
0.3
(25.2)
–
(0.7)
241.2
394.9
(153.7)
Total
3,050.7
45.3
(0.3)
128.4
0.8
(100.0)
5.8
3,130.7
3,602.1
(471.4)
3,031.2
46.4
(0.2)
160.1
(14.2)
0.3
(91.9)
(76.4)
(4.6)
3,050.7
3,443.7
(393.0)
(i) The values recognised are based on the fair value of assets acquired from the business acquisitions made during the year ended 30 June 2019, for which the accounting on
certain transactions remains provisional. Refer to Note F2.
(ii) Refers to the reclassification of software from Capital work in progress to Intangible assets.
(iii) June 2017 balances were restated to reflect the impact of acquisition accounting adjustments made during the previous period on opening balances.
Annual Report 2019 85
C6. Intangible assets – continued
Recognition and measurement
Goodwill
Goodwill acquired in a business combination is measured at
cost and subsequently measured at cost less any impairment
losses. The cost represents the excess of the cost of a business
combination over the fair value of the identifiable assets,
liabilities and contingent liabilities acquired.
Brand names on acquisition
Brand names acquired as part of a business combination are
recognised separately from goodwill and are carried at fair value
at date of acquisition less accumulated amortisation and any
accumulated impairment losses.
Customer contracts and relationships on acquisition
Customer contracts and relationships acquired as part of
a business combination are recognised separately from
goodwill and are carried at fair value at date of acquisition
less accumulated amortisation and any accumulated
impairment losses.
Intellectual property on acquisition
Intellectual property acquired as part of a business combination
is recognised separately from goodwill and is carried at fair value
at date of acquisition less accumulated amortisation and any
accumulated impairment losses.
Intellectual property, software and system development
Intangible assets acquired by the Group, including intellectual
property (purchased patents, trademarks and licences) and
software are initially recognised at cost, and subsequently
measured at cost less accumulated amortisation and any
impairment losses. Internally developed systems are capitalised
once the project is assessed to be feasible. The costs
capitalised include consulting, licensing and direct labour
costs. Costs incurred in determining project feasibility are
expensed as incurred.
Amortisation
Intangible assets with finite useful lives are amortised on a
straight-line basis over their useful lives. The estimated useful
lives are generally:
Item
Software and system development
Brand names
Customer contracts and relationships
Intellectual property acquired
Other intangible assets (other than indefinite
useful life intangible assets)
Useful Life
5-15 years
20 years
1-20 years
15-20 years
20 years
The estimated useful life and amortisation method are reviewed
at the end of each annual reporting period.
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life
are tested annually for impairment, or more frequently if events or
changes in circumstances indicate that they might be impaired.
Other assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable.
An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. For the
purpose of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows that
are largely independent of the cash inflows from other assets or
groups of assets (cash-generating units or CGUs). Non-financial
assets other than goodwill that suffered impairment are reviewed
for possible reversal of the impairment at each reporting date.
Allocation of goodwill to cash-generating units
Goodwill has been allocated for impairment testing purposes
to CGUs (groups of units) that are significant individually or in
aggregate, taking into consideration the nature of service, resource
allocation, how operations are monitored and where independent
cash flows are identifiable.
Following Divisional and Operational restructures and changes
to operating segments there has been a change in the level at
which performance and goodwill is monitored. This has resulted
in a change to the manner in which impairment testing of goodwill
has been performed with a consequential reallocation of goodwill
across a revised group of CGUs.
Consequently, eight independent CGUs have been identified
across the Group against which goodwill has been allocated and
for which impairment testing has been undertaken. A goodwill
impairment assessment was also performed on the previous
CGUs, with no impairment identified.
Goodwill has been reallocated to the new CGUs based on the
relative fair value of each CGU. Comparatives have been restated.
The goodwill allocation to the new CGUs is presented below:
Carrying value of
consolidated goodwill
2019
$’m
283.6
335.0
55.3
53.7
70.5
63.7
1,438.3
154.4
2,454.5
2018
Restated
$’m
212.0
335.0
55.3
53.7
68.0
61.0
1,412.1
154.4
2,351.5
Transport Australia(i)
Utilities Australia
Rail
Defence
Downer NZ Services(i)
Building Projects NZ
Spotless(i)
EC&M Australia
86 Downer EDI Limited
(i)
Included in this amount is the goodwill for certain acquisitions made during the
year ended 30 June 2019, for which the accounting remains provisional.
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019
C6. Intangible assets – continued
Key estimate and judgement:
Impairment of assets
Determination of potential impairment requires an
estimation of the recoverable amount of the CGUs to which
the goodwill and intangible assets with indefinite useful
lives are allocated. Key assumptions requiring judgement
include projected cash flows, discount rates, capital
expenditure, working capital, budgeted EBITDA growth
rate and long-term growth rate.
Recoverable amount testing – key assumptions
The recoverable amount of the identified CGUs has been
completed using the higher of “value in use” and “fair value less
costs of disposal” (“FVLCOD”). For each CGU, this has resulted in
a “value in use” methodology being used.
The table below shows the key assumptions utilised in the
“value in use” calculations.
Budgeted
EBITDA(i)
Long-term
growth rate
Discount
rate
Transport Australia
Utilities Australia
Rail
Defence
Downer NZ Services
Building Projects NZ
Spotless
EC&M Australia
6.7%
1.9%
(8.2%)
15.8%
5.1%
4.1%
5.1%
9.6%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
8.9%
9.2%
9.8%
9.3%
9.2%
8.8%
8.1%
8.7%
(i) Budgeted EBITDA used for impairment testing is expressed as the compound
annual growth rates from FY19 to terminal year based on the CGUs
business plan.
(i) Projected cash flows including budgeted EBITDA
Value in use calculation
The Group determines the recoverable amount, using three-year
cash flow projections based on the FY20 budget for the year
ending 30 June 2020 and the business plan for the subsequent
financial years ending 30 June 2021 and 2022 (as discussed
with the Board). For FY23 onwards, the Group assumes a
long-term growth rate to allow for organic growth on the
existing asset base.
Cash flow projections are determined utilising the budgeted
Earnings Before Interest, Tax, Depreciation and Amortisation
(EBITDA) less tax, capital maintenance spending and working
capital changes, adjusted to exclude any uncommitted
restructuring costs and future benefits to provide a “free
cash flow” estimate. This calculated “free cash flow” is then
discounted to its present value using a post-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
Budgeted EBITDA has been based on past experience and the
Group’s assessment of economic and regulatory factors affecting
the industry within which the Downer businesses operate:
– Transport Australia is expected to benefit from an increase
in activity in the transport infrastructure sector due to
population growth, increasing user expectation and higher
government spend;
– Utilities Australia is expected to benefit from an increase
in activity from existing customers in the electricity and
water sectors and from new customers in the wireless,
commercial solar and Biosolids sectors; partially offset
by the reduction in revenue from its existing significant
telecommunications contracts;
– Rail is expected to contract as the two major projects
(High Capacity Metro Trains and Sydney Growth Trains)
transition from train construction to the Through Life
Support (TLS) phase;
– Defence is expected to benefit from an increase in activity in
the defence consulting sector and revenue growth through
the integration of activities from building an end-to-end
service offering and expanding its offering and services
to key customers;
– Downer New Zealand Services is expected to benefit
from increased activities on Alliance contract models
and increased maintenance contracts in transport and
utilities sectors;
– Building Projects New Zealand is expected to benefit from a
changing competitive landscape and business development
in the South Island;
– Spotless is expected to benefit from increased activities
in the Government, Defence and Infrastructure and
Construction (I&C) sectors including contributions from
recent acquisitions; and
– EC&M Australia’s revenue and EBITDA include assumptions
that take into account the cyclical nature of the resources
industry and growth opportunities on Asset Maintenance
Services and in long-term service agreements in the LNG
and CSG sectors.
The FY20 budget and the business plan for FY21 and FY22
have included consideration of the impact of climate risk.
The impact of climate risk is not a key assumption in the
“value in use” calculation.
(ii) Long-term growth rates
The future annual growth rates for FY23 onwards to perpetuity
are based on the historical nominal GDP rates for the
country of operation.
Annual Report 2019 87
C6. Intangible assets – continued
Recoverable amount testing – key assumptions
– continued
(iii) Discount rates
Post-tax discount rates of between 8.1% and 9.8% reflect the
Group’s estimate of the time value of money and risks specific
to each CGU. In determining the appropriate discount rate
for each CGU, consideration has been given to the estimated
weighted average cost of capital (WACC) for the Group adjusted
for country and business risks specific to that CGU, including
benchmarking against relevant peer group companies. The post-
tax discount rate is applied to post-tax cash flows that include
an allowance for tax based on the respective jurisdiction’s tax
rate. This method is used to approximate the requirement of
the accounting standards to apply a pre-tax discount rate to
pre-tax cash flows.
(iv) Budgeted capital expenditure
The cash flows for capital expenditure are based on past
experience and the amounts included in the terminal year
calculation are for maintenance capital used for existing plant
and replacement of plant as it is retired from service. The
resulting expenditure has been compared against the annual
depreciation charge to ensure that it is reasonable.
The following table shows the approximate individual change in
key assumptions under a downside sensitivity scenario for the
estimated recoverable amount of the Spotless CGU to be equal
to the carrying amount.
Individual changes in key assumptions
that would result in nil headroom
– Decrease in four-year compound annual
EBITDA growth rate
– Decrease in long-term growth rate
– Increase in the post-tax discount rate
C7. Finance lease receivables
Less than one year
Between one and five years
Greater than five years
Future minimum lease receivables
Less: unearned finance income
Present value of minimum
lease receivables
(3.3%)
(1.0%)
0.9%
2018
$’m
4.2
4.7
-
8.9
(0.4)
8.5
4.0
4.5
2019
$’m
14.2
40.7
0.2
55.1
(4.0)
51.1
12.4
38.7
(v) Budgeted working capital
Working capital has been maintained at a level required to
support the business activities of each CGU, taking into account
changes in the business cycle. It has been assumed to be in line
with historic trends given the level of operating activity.
Included in the
financial statements as:
Current
Non-current
There were no guaranteed residual values of assets leased under
finance leases at reporting date (2018: nil).
Recognition and measurement
Some of the Group’s mining services contracts include
arrangements whereby the customer will retain ownership of the
assets at the end of the contract. The asset component of those
contracts is recognised as finance lease receivables.
A finance lease arrangement transfers substantially all the
risks and rewards of ownership of the asset to the lessee.
The Group’s net investment in the lease equals the net present
value of the future minimum lease payments. Finance lease
income is recognised to reflect a constant periodic rate of
return on the Consolidated Group’s remaining net investment in
respect of the lease.
Sensitivities
Other than as disclosed below, the Group believes that for all
CGUs, any reasonably possible change in the key assumptions
would not cause the carrying value of the CGUs to exceed their
recoverable amounts.
The valuation of the Spotless CGU assumes growth in the
Government, I&C and Defence sectors driven by increased
projects works in facilities management and critical
infrastructure. The recoverable amount of the Spotless CGU
currently exceeds its carrying value by $338.2 million. A number
of scenarios, including the impact of macro-economic risks
and the timing of the cash flows arising from these growth
opportunities have been analysed. Based on the modelling
and analysis performed utilising a “value in use” model, the
recoverable amount of the Spotless CGU is expected to be
greater than its carrying value.
Management has identified that a reasonably possible
unfavourable change in the four-year compound annual
EBITDA growth rate, long-term growth rate and discount rate
assumptions in isolation, and in the absence of any mitigating
factors or unchanged circumstances, would result in the
carrying value of the Spotless CGU becoming equal to the
recoverable amount.
88 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 C8. Provisions
2019
$’m
Decomm-
issioning and
restoration
Warranties
and contract
claims
Onerous
contracts
and other
Note
Balance at 30 June 2018
Opening balance adjustment on application of AASB 15
G1
Balance at 1 July 2018
Additional provisions recognised
Unused provisions reversed
Utilisation of provisions
Acquisition of businesses
Net foreign currency exchange differences
Balance at 30 June 2019
Current
Non-current
33.1
–
33.1
2.0
(4.3)
(2.6)
–
(0.1)
28.1
6.6
21.5
19.8
–
19.8
14.2
(3.5)
(8.4)
1.5
0.1
23.7
23.3
0.4
62.9
85.2
148.1
58.4
(18.0)
(48.8)
–
–
139.7
77.1
62.6
Total
115.8
85.2
201.0
74.6
(25.8)
(59.8)
1.5
–
191.5
107.0
84.5
Recognition and measurement
Provisions
Provisions are recognised when:
– The Group has a present obligation as a result
of a past event;
– It is probable that resources will be expended to settle the
obligation; and
– The amount of the provision can be measured reliably.
(i) Decommissioning and restoration
Provisions for decommissioning and restoration are made for
close down, restoration and environmental rehabilitation costs,
including the cost of dismantling and demolition of infrastructure,
removal of residual materials and remediation of disturbed areas.
Future rectification costs are reviewed annually and any changes
are reflected in the present value of the rectification provision at
the end of the reporting period.
The provision is discounted using a pre-tax rate that reflects
current market assessments of the time value of money and the
risks specific to the liability.
(ii) Warranties and contract claims
Provisions for warranties and contract claims are made for
the estimated liability on all products still under warranty at
balance sheet date and known claims arising under service and
construction contracts.
(iii) Onerous contracts and other
Provisions primarily include amounts recognised in relation to
onerous customer contracts, supply contracts, surplus lease
contracts and return conditions provisions for leased assets. The
Group has leases that require the leased asset to be returned to
the lessor in a certain condition.
The onerous contract provision is discounted using a pre-tax
rate that reflects current market assessments of the time value
of money and the risks specific to the liability.
Additional onerous contract provision recognised includes
$45.0 million in relation to Murra Warra wind farm as
detailed in Note B1.
Key estimate and judgement: Provisions
(i) Decommissioning and restoration
Judgement is required in determining the expected
expenditure required to settle rectification obligations at
the reporting date, based on current legal requirements
and technology.
(ii) Warranties and contract claims
The provision is estimated having regard to previous
claims experience.
(iii) Onerous contracts and other
These provisions have been calculated based on
management’s best estimate of discounted net cash
outflows required to fulfil the contracts. The status of
these contracts and the adequacy of provisions are
assessed at each reporting date. The return condition
provision is estimated based on the costs associated with
returning leased assets to the lessor in a certain condition.
Annual Report 2019 89
vi) On 16 September 2015, the Group announced that it had
terminated a contract with Tecnicas Reunidas S.A. (“TR”)
following TR’s failure to remedy a substantial breach of the
contract and that the Group is pursuing a claim against TR
in the order of $65 million. Downer has since demobilised
from the site and has commenced a claim that will be
determined via an arbitration process, with a hearing date
currently expected to occur in April 2020. TR has initiated
a counter-claim, which is being defended by Downer. The
Directors are of the opinion that disclosure of any further
information relating to this matter would be prejudicial to the
interests of the Group.
vii) On 25 May 2017, Alison Court, as applicant, filed a
representative proceeding in the Federal Court of Australia
on behalf of shareholders who acquired Spotless shares from
25 August 2015 to 1 December 2015. The applicant under
this proceeding alleges that Spotless engaged in misleading
or deceptive conduct and/or breached its continuous
disclosure obligations in relation to Spotless’ financial results
for the financial year ended 30 June 2015 and in its conduct
following the release of those financial results until Spotless
issued its trading update of 2 December 2015. The applicant
seeks damages, declarations, interest and costs. Spotless is
vigorously defending the proceeding.
C9. Contingent liabilities
Bonding
Note
2019
$’m
2018
$’m
The Group has bid bonds
and performance bonds
issued in respect of
contract performance
in the normal course
of business for
controlled entities
E2
1,323.2
1,341.6
The Group is called upon to give guarantees and indemnities to
counterparties, relating to the performance of contractual and
financial obligations (including for controlled entities and related
parties). Other than as noted above, these guarantees and
indemnities are indeterminable in amount.
Other contingent liabilities
i) The Group is subject to design liability in relation to
completed design and construction projects. The Directors
are of the opinion that there is adequate insurance to cover
this area and accordingly, no amounts are recognised in the
financial statements.
ii) The Group is subject to product liability claims. Provision
is made for the potential costs of carrying out rectification
works based on known claims and previous claims history.
However, as the ultimate outcome of these claims cannot
be reliably determined at the date of this report, contingent
liability may exist for any amounts that ultimately become
payable in excess of current provisioning levels.
iii) Controlled entities have entered into various joint arrangements
under which the controlled entity is jointly and severally liable
for the obligations of the relevant joint arrangements.
iv) The Group carries the normal contractors and consultants
liability in relation to services, supply and construction
contracts (for example, liability relating to professional advice,
design, completion, workmanship, and damage), as well as
liability for personal injury / property damage during the
course of a project. Potential liability may arise from claims,
disputes and / or litigation / arbitration by or against Group
companies and / or joint venture arrangements in which
the Group has an interest. The Group is currently managing
a number of claims, arbitration and litigation processes in
relation to services, supply and construction contracts as
well as in relation to personal injury and property damage
claims arising from project delivery.
v) Several New Zealand entities in the Group have been named
as co-defendants in “leaky building” claims. The leaky building
claims where Group entities are co-defendants generally
relate to water damage arising from historical design and
construction methodologies (and certification) for residential
and other buildings in New Zealand during the early-mid
2000s. The Directors are of the opinion that disclosure of
any further information relating to the leaky building claims
would be prejudicial to the interests of the Group.
90 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 D
Employee benefits
This section provides a breakdown of the various programs
Downer uses to reward and recognise employees and
key executives, including Key Management Personnel
(KMP). Downer believes that these programs reinforce the
value of ownership and incentives and drive performance
both individually and collectively to deliver better returns
to shareholders.
D1. Employee benefits
D2. Key management personnel compensation
D3. Employee discount share plan
D1. Employee benefits
Employee benefits provision:
– Current
– Non-current
Total
2019
$’m
340.5
45.1
385.6
2018
$’m
336.7
38.0
374.7
Recognition and measurement
The employee benefits liability represents accrued wages and
salaries, leave entitlements and other incentives recognised in
respect of employees’ services up to the end of the reporting
period. These liabilities are measured at the amounts expected to
be paid when they are settled and include related on-costs, such as
workers compensation insurance, superannuation and payroll tax.
Key estimate and judgement:
Annual leave and long service leave
Long-term employee benefits are measured at the present
value of estimated future payments for the services
provided by employees up to the end of the reporting
period. This calculation requires judgement in determining
the following key assumptions:
– Future increase in wages and salary rates;
– Future on-cost rates; and
– Expected settlement dates based on staff turnover history.
The liability is discounted using the Australian corporate
bond rates which most closely match the terms to maturity
of the entitlement.
For New Zealand employees the liability is discounted
using long-term government bond rates given there is no
deep corporate bond market.
Employee benefits expense:
– Defined contribution plans
– Shared-based employee benefits
expense
– Employee benefits
Total
2019
$’m
2018
$’m
258.2
219.2
4.0
4,078.2
4,340.4
2.8
3,812.2
4,034.2
D2. Key management personnel compensation
2019
$
2018
$
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
12,804,694
1,298,516
2,415,989
16,519,199
14,236,432
310,779
2,841,759
17,388,970
Recognition and measurement
Equity-settled transactions
Equity-settled share-based transactions are measured at
fair value at the date of grant. The cost of these transactions
is recognised in profit or loss and credited to equity over the
vesting period. At each balance sheet date, the Group revises
its estimates of the number of rights that are expected to
vest for service and non-market performance conditions.
The expense recognised each year takes into account the
most recent estimate.
The fair value at grant date is independently determined using
an option pricing model and takes into account any market
related performance conditions. Non-market vesting conditions
are not considered when determining value; however they are
included in assumptions about the number of rights that are
expected to vest.
Cash-settled transactions
The amount payable to employees in respect of cash-settled
share-based payments is recognised as an expense, with a
corresponding increase in liabilities, over the period during
which the employees become unconditionally entitled to the
payment. The liability is remeasured at each reporting date and
at settlement date based on the fair value, with any changes in
the liability being recognised in profit or loss.
D3. Employee discount share plan
No shares were issued under the Employee Discount Share Plan
during the years ended 30 June 2019 and 30 June 2018.
Annual Report 2019 91
E
Capital structure and financing
This section provides information relating to the Group’s capital structure and its exposure to financial risks, how they affect
the Group’s financial position and performance and how the risks are managed.
The capital structure of the Group consists of debt and equity. The Directors determine the appropriate capital structure
of Downer, specifically how much is raised from shareholders (equity) and how much is borrowed from financial institutions
(debt) in order to finance the current and future activities of the Group. The Directors review the Group’s capital structure
and dividend policy regularly and do so in the context of the Group’s ability to continue as a going concern, to invest in
opportunities that grow the business and enhance shareholder value.
E1. Borrowings
E2. Financing facilities
E3. Commitments
E4. Issued capital
E1. Borrowings
Current
Secured:
– Finance lease liabilities
– Hire purchase liabilities
Unsecured:
– Bank loans
– USD private placement notes
– AUD medium term notes
– Deferred finance charges
Total current borrowings
Non-current
Secured:
– Finance lease liabilities
– Hire purchase liabilities
Unsecured:
– Bank loans
– USD private placement notes
– AUD private placement notes
– AUD medium term notes
– JPY medium term notes
– Deferred finance charges
Total non-current borrowings
Total borrowings
Fair value of total borrowings(i)
(i) Excludes finance lease and hire purchase liabilities.
92 Downer EDI Limited
E5. Non-controlling interest (NCI)
E6. Reserves
E7. Dividends
Note
E3(d)
E3(e)
E3(d)
E3(e)
2019
$’m
2018
$’m
2.8
–
2.8
6.1
10.0
–
(4.3)
11.8
14.6
7.4
–
7.4
833.4
142.6
30.0
550.0
132.4
(6.9)
1,681.5
1,688.9
1,703.5
1,798.4
5.1
0.2
5.3
2.1
–
150.0
(3.7)
148.4
153.7
11.2
–
11.2
817.7
144.7
30.0
250.0
122.2
(8.3)
1,356.3
1,367.5
1,521.2
1,561.8
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 E1. Borrowings – continued
Recognition and measurement
Borrowings
Borrowings are initially recognised at fair value, net of transaction
costs. They are subsequently measured at amortised cost using
the effective interest rate method.
Fair value
The cash flows under the Group’s debt instruments are
discounted using current market base interest rates and
adjusted for current market credit default swap spreads for
industrial companies with a BBB credit rating.
E2. Financing facilities
At reporting date, the Group had the following facilities that
were unutilised:
Syndicated loan facilities
Bilateral loan facilities
Total unutilised facilities
Syndicated bank
guarantee facilities
Bilateral bank guarantees and
insurance bonding facilities
Total unutilised facilities
2019
$’m
770.0
297.0
1,067.0
314.9
505.0
819.9
2018
$’m
780.0
145.0
925.0
67.1
507.2
574.3
Summary of borrowing arrangements
Bank loan facilities
Bilateral loan facilities:
– A total of $397.0 million in bilateral loan facilities are
committed unsecured facilities with maturities in calendar
years 2019, 2020 and 2021.
Syndicated loan facilities:
The syndicated loan facilities are unsecured, committed facilities
and comprised of Australian Dollar and New Zealand Dollar
tranches as follows:
– $480 million and NZ$75 million revolving tranches maturing
in April and May 2021;
– NZ$75 million term tranche maturing May 2021;
– $480 million revolving tranches maturing May 2022;
– $200 million term tranche maturing May 2022; and
– $200 million revolving tranche maturing May 2023.
USD private placement notes
USD unsecured private placement notes are on issue for a
total amount of US$107.0 million. US$7.0 million notes mature in
September 2019 and US$100.0 million mature in July 2025. The
USD denominated principal and interest amounts have been fully
hedged against the Australian dollar through cross-currency
interest rate swaps.
AUD private placement notes
AUD unsecured private placement notes are on issue for a total
amount of $30.0 million with a maturity date of July 2025.
Medium Term Notes (MTNs)
The Group has the following unsecured MTNs on issue:
– $250.0 million maturing March 2022;
– $300.0 million maturing April 2026; and
– JPY10.0 billion maturing May 2033.
The JPY denominated principal and interest amounts have
been fully hedged against the Australian dollar through
a cross-currency interest rate swap.
The above loan facilities and note issuances are supported by
certain Group guarantees.
Annual Report 2019 93
Refinancing requirements
Where existing facilities approach maturity, the Group will
negotiate with existing and, where required, with new financiers
to extend the maturity date or refinance these facilities. The
Group’s financial metrics and credit rating as well as conditions in
financial markets and other factors may influence the outcome of
these negotiations.
Credit ratings
The Group has an Investment Grade credit rating of BBB
(Outlook Stable) from Fitch Ratings. Where the credit rating is
lowered or placed on negative watch, customers and suppliers
may be less willing to contract with the Group. Furthermore,
banks and other lending institutions may demand more stringent
terms (including increased pricing, reduced tenors and lower
facility limits) on all financing facilities, to reflect the weaker
credit risk profile.
E2. Financing facilities – continued
Finance lease/Hire purchase facilities
The Group has certain secured facilities of these types which are
for an aggregate amount of $10.2 million and which amortise over
different periods of up to four years.
Covenants on financing facilities
Downer Group’s financing facilities contain undertakings
to comply with financial covenants and ensure that Group
guarantors of these facilities collectively meet certain minimum
threshold amounts of Group EBIT and Group Total Tangible
Assets (for Downer) and Group EBITDA and Group Total Assets
(for Spotless).
The main financial covenants which the Group is subject to are
Net Worth, Interest Service Coverage and Leverage.
Financial covenants testing is undertaken and reported to the
Downer and Spotless Boards monthly. Reporting of financial
covenants to financiers occurs semi-annually for the rolling
12-month periods to 30 June and 31 December. Both Downer
Group and Spotless were in compliance with all their financial
covenants as at 30 June 2019.
Bank guarantees and insurance bonds
The Group has $2,143.1 million of bank guarantee and
insurance bond facilities to support its contracting activities.
$1,210.4 million of these facilities are provided to the Group on a
committed basis and $932.7 million on an uncommitted basis.
The Group’s facilities are provided by a number of banks and
insurance companies on an unsecured and revolving basis.
These facilities are supported by Group guarantees representing
certain minimum threshold amounts of Group EBIT and Group
Total Tangible Assets (for Downer) and Group EBITDA and
Group Total Assets (for Spotless). $1,323.2 million (refer to Note
C9) of these facilities were utilised as at 30 June 2019 with
$819.9 million unutilised. These facilities have varying maturity
dates between calendar years 2019 and 2021.
The underlying risk being assumed by the relevant financier
under all bank guarantees and insurance bonds is corporate
credit risk rather than project specific risk.
The Group has the flexibility in respect of certain committed
facility amounts (shown as part of the unutilised bilateral loan
facilities) which can at the election of the Group be utilised to
provide additional bank guarantees capacity.
94 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 E3. Commitments
a) Capital expenditure commitments
Plant and equipment and other
Within one year
Between one and five years
Greater than five years
b) Operating lease commitments
Non-cancellable operating leases relate to premises with lease terms of between
one to 20 years.
Within one year
Between one and five years
Greater than five years
Non-cancellable operating leases relate to plant and equipment with lease terms of
between one to ten years.
Within one year
Between one and five years
Greater than five years
c) Catering rights
Catering rights relates to exclusive secured catering rights arrangements with customers.
Within one year
Between one and five years
Greater than five years
d) Finance lease commitments
Finance leases relate to plant and equipment with lease terms of between one
to five years.
Within one year
Between one and five years
Minimum finance lease payments
Future finance charges
Finance lease liabilities
Included in the financial statements as:
Current borrowings
Non-current borrowings
e) Hire purchase liabilities
Within one year
Between one and five years
Minimum hire purchase payments
Hire purchase liabilities
Included in the financial statements as:
Current borrowings
Non-current borrowings
f) Operating lease expenses
Operating lease expenses relating to land and buildings
Operating lease expenses relating to plant and equipment
Total operating lease expenses
Note
2019
$’m
2018
$’m
103.5
24.3
1.3
129.1
80.3
261.5
256.4
598.2
77.1
111.8
8.5
197.4
27.8
55.5
5.9
89.2
3.2
7.4
10.6
(0.4)
10.2
2.8
7.4
10.2
–
–
–
–
–
–
–
60.3
14.4
–
74.7
79.3
225.4
148.8
453.5
65.2
84.8
7.2
157.2
26.9
81.8
12.0
120.7
6.1
11.6
17.7
(1.4)
16.3
5.1
11.2
16.3
0.2
–
0.2
0.2
0.2
–
0.2
89.8
113.8
203.6
81.8
121.1
202.9
Annual Report 2019 95
E1
E1
E1
E1
E3. Commitments – continued
Recognition and measurement
Leases
When the terms of a lease transfer substantially all the risks and
rewards of ownership to the Group, the lease is classified as a
finance lease. All other leases are classified as operating leases.
(i) Operating leases
Operating lease payments are recognised as an expense
on a straight-line basis over the term of the lease, except
where another systematic basis is more representative of
the time pattern in which economic benefits from the leased
assets are consumed.
E4. Issued capital
Ordinary shares
594,702,512 ordinary shares (2018: 594,702,512)
Unvested executive incentive shares
3,385,446 ordinary shares (2018: 4,207,358)
200,000,000 Redeemable Optionally Adjustable
Distributing Securities (ROADS) (2018: 200,000,000)
(ii) Finance leases
Assets held under finance leases are initially recognised at
an amount equal to the lower of their fair value or the present
value of the minimum lease payments. Subsequently the assets
are depreciated on a straight-line basis over the lesser of the
estimated useful life or the lease term.
Finance lease payments are apportioned between the finance
expense and the reduction of outstanding liability. The finance
expense is allocated to each period during the lease term so as
to achieve a constant rate of interest on the remaining balance
of the liability.
2019
$’m
2018
$’m
2,263.1
2,263.1
(16.6)
(19.8)
178.6
2,425.1
178.6
2,421.9
a) Fully paid ordinary share capital
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Fully paid ordinary share capital
Balance at the beginning of the financial year
Capital raising costs net of tax
Balance at the end of the financial year
b) Unvested executive incentive shares
Balance at the beginning of the financial year
Vested executive incentive share transactions(i)
Balance at the end of the financial year
2019
m’s
594.7
–
594.7
4.2
(0.8)
3.4
$’m
2,263.1
–
2,263.1
(19.8)
3.2
(16.6)
2018
m’s
594.7
–
594.7
4.3
(0.1)
4.2
$’m
2,263.2
(0.1)
2,263.1
(20.0)
0.2
(19.8)
(i) June 2019 figures are referable to the 2015 LTI plan, second deferred component of the 2016 STI award and first deferred component of the 2017 STI award totalling 821,912
vested shares for a value of $3,166,042.
June 2018 figures are referable to the second deferred component of the 2015 STI award and the first deferred component of the 2016 STI award totalling 50,015 vested
shares for a value of $192,660.
Unvested executive incentive shares are stock market purchases and are held by the Executive Employee Share Plan Trust under the
Long Term Incentive (LTI) plan. From the 2011 LTI plan onwards, no dividends will be distributed on shares held in trust during the
performance measurement and service periods. Accumulated dividends will be paid out to executives after all vesting conditions have
been met. Otherwise, excess net dividends are retained in the trust to be used by the Company to acquire additional shares on the
market for employee equity plans.
96 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019
E4. Issued capital – continued
2019
m’s
$’m
2018
m’s
$’m
c) Redeemable Optionally Adjustable Distributing Securities
(ROADS)
Balance at the beginning and at the end of the financial year
200.0
178.6
200.0
178.6
ROADS are perpetual, redeemable, exchangeable preference shares. In accordance with the terms of the ROADS preference shares, the
dividend rate for the one year commencing 15 June 2019 is 5.49% per annum (2018: 6.15% per annum) which is equivalent to the one
year swap rate on 17 June 2019 of 1.44% per annum plus the Step-up margin of 4.05% per annum.
Share options and performance rights
During the financial year 1,044,363 performance rights (2018: 1,078,912) in relation to unissued shares were granted to senior
executives of the Group under the LTI plan. Further details of the Key Management Personnel (KMP) LTI plan are contained in the
Remuneration Report.
Recognition and measurement
Ordinary shares
Incremental costs directly attributed to the issue of ordinary shares are accounted for as a deduction from equity, net of any tax effects.
Executive incentive shares
When executive incentive shares subsequently vest to employees under the Downer employee share plans, the carrying value of the
vested shares is transferred from issued capital to the employee benefits reserve.
E5. Non-controlling interest (NCI)
The following table summarises the NCI in relation to the Group’s subsidiaries:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
NCI percentage
Net assets attributable to NCI
Spotless
$’m
566.6
2,283.3
(602.5)
(1,004.5)
1,242.9
12.198%
151.6
2019
Other
$’m
22.3
1.2
(7.0)
(0.1)
16.4
26.0%
4.3
Total
$’m
588.9
2,284.5
(609.5)
(1,004.6)
1,259.3
12.380%
155.9
2018
Spotless
$’m
529.1
2,272.8
(521.1)
(1,009.9)
1,270.9
12.198%
155.0
Annual Report 2019 97
E6. Reserves
2019
$’m
Balance at 1 July 2018
Foreign currency translation difference
Change in fair value of cash flow hedges (net of tax)
Total comprehensive income for the year
Vested executive incentive share transactions
Share-based employee benefits expense
Income tax relating to share-based transactions
during the year
Balance at 30 June 2019
Foreign
currency
translation
reserve
Hedge
reserve
Employee
benefits
reserve
Fair value
through OCI
reserve(i)
Total
attributable
to the
members of
the Parent
(13.0)
–
(11.0)
(11.0)
–
–
–
(24.0)
(26.8)
10.1
–
10.1
–
–
–
(16.7)
15.5
–
–
–
(3.2)
4.0
(0.5)
15.8
(2.6)
–
–
–
–
–
–
(2.6)
(26.9)
10.1
(11.0)
(0.9)
(3.2)
4.0
(0.5)
(27.5)
(i) Before 1 July 2018, these reserves were classified in the available-for-sale revaluation reserve in accordance with AASB 139. From 1 July 2018, these are classified as
Fair Value through Other Comprehensive Income (FVOCI) in accordance with AASB 9.
2018
$’m
Balance at 1 July 2017
Foreign currency translation difference
Change in fair value of cash flow hedges (net of tax)
Change in fair value of available-for-sale assets
Available-for-sale reserve transferred to profit or loss
Total comprehensive income for the year
Vested executive incentive share transactions
Share-based employee benefits expense
Income tax relating to share-based transactions
during the year
Balance at 30 June 2018
Foreign
currency
translation
reserve
Employee
benefits
reserve
Available-
for-sale
revaluation
reserve
Hedge
reserve
Total
attributable
to the
members of
the Parent
(6.2)
–
(6.8)
–
–
(6.8)
–
–
–
(13.0)
(18.0)
(8.8)
–
–
–
(8.8)
–
–
–
(26.8)
14.1
–
–
–
–
–
(0.2)
2.8
(1.2)
15.5
(0.8)
–
–
(1.3)
(0.5)
(1.8)
–
–
–
(2.6)
(10.9)
(8.8)
(6.8)
(1.3)
(0.5)
(17.4)
(0.2)
2.8
(1.2)
(26.9)
Hedge reserve
The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
relating to future transactions.
Foreign currency translation reserve
The foreign currency translation reserve comprises foreign exchange differences arising from the translation of the financial statements
of operations where their functional currency is different to the presentation currency of the Group.
Employee benefit reserve
The employee benefit reserve is used to recognise the fair value of share-based payments issued to employees over the vesting period,
and to recognise the value attributable to the share-based payments during the reporting period.
Fair value through OCI reserve
The fair value through OCI reserve comprises the cumulative net change in the fair value of equity investments designated as FVOCI
(2018: available-for-sale financial assets) until the assets are derecognised or reclassified. This amount is reduced by the amount of
loss allowance.
98 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 E6. Reserves – continued
Available-for-sale revaluation reserve
The available-for-sale reserve includes the cumulative net movement above cost of the fair value of available-for-sale investment until
the asset is realised or impaired or control of an acquiree is obtained at which time the cumulative gain or loss previously recognised in
the available-for-sale revaluation reserve is included in the profit or loss.
E7. Dividends
a) Ordinary shares
Dividend per share (in Australian cents)
Franking percentage
Cost (in $’m)
Dividend record date
Payment date
2019
Final
14.0
50%
83.3
4/9/19
2/10/19
2019
Interim
14.0
50%
83.3
21/2/19
21/3/19
2018
Final
2018
Interim
14.0
50%
83.3
30/8/18
27/9/18
13.0
50%
77.3
7/3/18
4/4/18
Recognition and measurement
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity,
before or at the end of the financial year but not distributed at balance date.
The final 2019 dividend has not been declared at the reporting date and therefore is not reflected in the consolidated
financial statements.
b) Redeemable Optionally Adjustable Distributing Securities (ROADS)
2019
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Dividend per ROADS (in Australian cents)
New Zealand imputation credit percentage
Cost (in A$’m)
Payment date
2018
Dividend per ROADS (in Australian cents)
New Zealand imputation credit percentage
Cost (in A$’m)
Payment date
1.01
100%
2.0
17/9/18
1.05
100%
2.1
17/12/18
1.06
100%
2.1
15/3/19
1.06
100%
2.1
17/6/19
Quarter 1
Quarter 2
Quarter 3
Quarter 4
1.00
100%
2.0
15/9/17
0.99
100%
2.0
15/12/17
1.02
100%
2.0
15/3/18
1.00
100%
2.0
15/6/18
c) Franking credits
The franking account balance as at 30 June 2019 is nil (2018: nil).
Total
4.18
100%
8.3
Total
4.01
100%
8.0
Annual Report 2019 99
F
Group structure
This section explains significant aspects of Downer’s Group structure, including joint arrangements where the Group has interest
in its controlled entities and how changes have affected the Group structure. It also provides information on business acquisitions
and disposals made during the financial year as well as information relating to Downer’s related parties, the extent of related party
transactions and the impact they had on the Group’s financial performance and position.
F1. Joint arrangements and associate entities
F4. Controlled entities
F2. Acquisition of businesses
F3. Disposal of business
F5. Related party information
F6. Parent entity disclosures
F1. Joint arrangements and associate entities
a) Interest in joint ventures and associates
Interest in joint ventures at the beginning of the financial year
Share of net profit
Share of distributions
Interest in Joint Venture acquired
Foreign currency exchange differences
Interest in joint ventures at the end of the financial year
Interest in associates at the beginning of the financial year
Share of net profit
Share of distributions
Acquisition of MHPS Plant Services Pty Ltd
Interest in associates at the end of the financial year
Interest in joint ventures and associates
2019
$’m
21.2
17.1
(15.6)
8.5
0.3
31.5
74.8
13.3
(6.8)
(4.0)
77.3
108.8
2018
$’m
19.0
15.9
(13.5)
–
(0.2)
21.2
69.0
9.2
(3.4)
–
74.8
96.0
100 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019
F1. Joint arrangements and associate entities – continued
a) Interest in joint ventures and associates – continued
The Group has interests in the following joint ventures and associates which are equity accounted:
Name of arrangement
Principal activity
Asphalt plant
Bitumen importer
Catering for functions at Eden Park
Joint ventures
Allied Asphalt Limited
Bitumen Importers Australia Joint Venture Construction of bitumen storage facility
Bitumen Importers Australia Pty Ltd
Eden Park Catering Limited
EDI Rail-Bombardier Transportation Pty Ltd Sale and maintenance of railway rolling stock
Emulco Limited
Isaac Asphalt Limited
Repurpose It Holdings Pty Ltd(ii)
RTL Mining and Earthworks Pty Ltd
Waanyi Downer JV Pty Ltd
ZFS Functions (Pty) Ltd
Associates
MHPS Plant Services Pty Ltd
Emulsion plant
Manufacture and supply of asphalt
Waste recycling
Contract mining; civil works and plant hire
Contract mining services
Catering for functions at Federation Square
Keolis Downer Pty Ltd
Refurbishment, construction and
maintenance of boilers
Operation and maintenance of Gold Coast light rail,
Melbourne tram network and bus operation
Ownership interest
Country of
operation
2019
%
2018
%
New Zealand
Australia
Australia
New Zealand
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
50
50
50
50
50
50
50
50
44
50
50
(i)
49
50
50
50
50
50
50
50
–
44
50
50
27
49
(i) Downer acquired the remaining 73.33% of MHPS Plant Services Pty Ltd on 30 August 2018. Refer to Note F2. The entity name has been subsequently changed to DMH
Plant Services Pty Ltd during the year ended 30 June 2019.
(ii) JV acquired during the financial year ended 30 June 2019.
There are no material commitments held by joint ventures or associates. All joint ventures and associates have a statutory reporting
date of 30 June.
Recognition and measurement
Equity accounting
(i) Investments in joint ventures
Investments in joint ventures are accounted for using the equity method of accounting.
(ii) Investments in associates
Investments in entities over which the Group has the ability to exercise significant influence, but not control, are accounted for using
the equity method of accounting. The investment in associates is carried at cost plus post-acquisition changes in the Group’s share of
the associates’ net assets, less any impairment in value.
Proportionate consolidation
Joint operations
Joint operations give the Group the right to the underlying assets and obligations for liabilities and are accounted for by recognising
the share of those assets and liabilities.
Annual Report 2019 101
F1. Joint arrangements and associate entities – continued
b) Interest in joint operations
The Group has interests in the following joint operations which are proportionately consolidated:
Name of joint operation
Principal activity
Ownership interest
Country of
operation
2019
%
2018
%
Ausenco Downer Joint Venture
BPL Downer Joint Venture(iv)
CDJV Construction Pty Ltd(iv)
China Hawkins Construction JV
City Rail JV
Clough Downer Joint Venture(iv)
Concrete Paving Recycling Pty Ltd
CRL Construction Joint Venture(vii)
Dampier Highway Joint Venture
DM Roads Services Pty Ltd(ii)
Downer-Carey Mining JV(viii)
Downer Daracon Joint Venture(iv)
Downer EDI Works Pty Ltd & CPB
Contractors Pty Limited(vi)
Downer Electrical GHD JV(i)
Downer FKG JV
Downer HEB Joint Venture
(Memorial Park Alliance)
Downer HEB Joint Venture
(Mt Messenger Project)
Downer MCD Wynyard Edge JV
(Americas Cup Project)
Downer KHSA JV(ii)
Downer Seymour Whyte JV
Downer York Joint Venture
Downtown Infrastructure Development
Project JV(vii)
Gumala Downer Joint Venture(vii)
Hatch Downer JV
HCMT Supplier JV
John Holland EDI Joint Venture(iv)
John Holland Pty Ltd & Downer Utilities
Australia Pty Ltd Partnership
Karlayura ReGen Joint Venture(viii)
Landloch Project JV(iv)
Enabling works for Carrapateena Project
Building construction
Employment of labour force deployed
in Clough Downer
Building construction
Enabling works for Auckland City Rail Link
Gas compression facilities and pipelines
Road maintenance
Construction of the City Rail Link Alliance Project
Highway construction and design
Employment of labour force deployed in DM
in New South Wales
Management of run of mine and ore
rehandling services
Construction
Parramatta Light Rail construction
Traffic control infrastructure
Major civil and roadworks
Design and build of the New Zealand
National War Memorial Park
Design and build of the Mt Messenger Project
Australia
Singapore
Australia
New Zealand
New Zealand
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Design and build on Americas Cup Project
New Zealand
Road maintenance
Construct of an urban operations training facility
Tramline extension
Downtown infrastructure development program
Australia
Australia
Australia
New Zealand
Contract mining services
Australia
Design and construction of solvent extraction plant Australia
Australia
Rail build supplier
Australia
Research reactor
Australia
Operation of water recycling plant at Mackay
Road construction
Rehabilitation works, earthworks and plant
monitoring and maintenance
Road construction
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
50
–
–
50
50
–
49
30
50
(ii)
46
–
50
90
50
50
50
50
(ii)
50
50
33
50
50
50
–
50
50
–
–
50
50
50
50
50
50
50
50
50
49
–
50
50
46
50
50
90
50
50
50
50
60
50
50
–
–
50
50
40
50
50
(iii)
50
50
50
50
Leighton Works Joint Venture(iv)
Macdow Downer Joint Venture (Connectus) Rail construction
Macdow Downer Joint Venture (CSM2)
Macdow Downer Joint
Venture (Russley Road)
Road construction
Road construction
102 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 F1. Joint arrangements and associate entities – continued
b) Interest in joint operations – continued
Name of joint operation
North Canterbury Transport Infrastructure
Economic Recovery Alliance “NCTIER” JV
Organic Water Joint Venture(iv)
Principal activity
Kaikoura earthquake works
Design, construction and operation of
water recycling plant
RPQ JV
Safety Focused Performance JV(vii)
Thiess VEC Joint Venture
Utilita Water JV
VEC Shaw Joint Venture
Waanyi ReGen JV
WDJV Unit Trust
Wiri Train Depot Joint Venture
Water and sewerage capital works
Highway construction
Plant maintenance
Road construction
Rehab contract services
Contract mining services
Construction of the Wiri train depot
Ownership interest
Country of
operation
New Zealand
2019
%
25
2018
%
25
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
–
(v)
45
50
50
50
50
50
50
50
(v)
–
50
50
50
50
50
50
(i) Contractual arrangement prevents control despite ownership of more than 50% of these joint ventures.
(ii) Following the acquisition of KHSA Limited which holds the remaining interest in the Downer KHSA JV (formerly known as Downer Mouchel JV) and DM Roads Services Pty Ltd,
these joint ventures are now 100% controlled by the Group. Refer to Note F2.
(iii) Joint control is through unanimous vote by joint venture partners to direct the joint arrangement’s relevant activities; however, the Group’s interest may vary based on
discrete phases of works performed.
(iv) Joint venture ceased / terminated / de-registered during the year ended 30 June 2019.
(v) Following the acquisition of RPQ Group, the joint venture is 100% controlled by the Group.
(vi) Joint Venture name has been changed to CPB Contractors Pty Limited from Leighton Contractors Pty Ltd during the year ended 30 June 2019.
(vii) Joint operation entered into during the year ended 30 June 2019.
(viii) Joint Venture commenced liquidation / de-registration as at 30 June 2019.
F2. Acquisition of businesses
2019
Cash outflow on acquisitions
The total net cash outflow as a result of the acquisitions made during the year ended 30 June 2019 is as follows:
Gross purchase consideration
Deferred consideration paid(i)
Less: Net cash acquired
Less: Deferred and contingent consideration
Total cash consideration
2019
$’m
100.7
15.6
(35.9)
(17.4)
63.0
2018
$’m
119.3
1.3
(1.3)
(35.2)
84.1
(i) Represents purchase and deferred consideration paid during the year for Envista, AGIS and RPQ.
MHPS Plant Services
On 30 August 2018, the Group acquired the remaining 73.33% of MHPS Plant Services Pty Ltd (“MHPS”) for consideration
of $5.6 million.
The acquisition accounting for MHPS remains provisionally accounted for as at 30 June 2019.
Rock N Road
On 3 October 2018, the Group acquired 100% of the shares of Rock N Road Bitumen Pty Ltd (“RNR”) for total consideration of
$17.9 million. RNR is a road surfacing business based in Mackay and operates in the central and northern regions of Queensland.
The acquisition accounting for RNR remains provisionally accounted for as at 30 June 2019.
Annual Report 2019 103
F2. Acquisition of businesses – continued
Cash outflow on acquisitions – continued
KHSA Limited
On 21 December 2018, the Group executed a Share Sale Deed to acquire 100% of the shares in the Downer Mouchel Joint Venture
partner KHSA Limited (“KHSA”) for consideration of $43.7 million, including cash of $19.5 million.
As KHSA Limited has a 50% interest in the Downer Mouchel Joint Venture (alongside Downer’s existing 50% interest), Downer Mouchel
Joint Venture is now 100% controlled. On acquisition of the remaining 50% interest, the initial investment was re-measured to fair value
in accordance with Australian Accounting Standards and compared to the existing carrying value. As a result, $17.0 million fair value
gain on re-measurement has been reported as other income in the statement of profit or loss.
The acquisition accounting for KHSA remains provisionally accounted for as at 30 June 2019.
Boleh Consulting
On 7 December 2018, the Group acquired the net assets of Boleh Consulting (“Boleh”) for total consideration of $1.4 million.
The business provides a range of engineering services to the railway industry that include design of train control and signalling
systems, systems engineering, systems assurance and project management.
The acquisition accounting for Boleh remains provisionally accounted for as at 30 June 2019.
Envar Group
On 28 February 2019, The Group acquired 100% of the shares of Envar Group (“Envar”) through Spotless for a total consideration
of $24.9 million. The primary purpose of this acquisition is to continue to build a market leading integrated mechanical and
electrical business.
The acquisition accounting for Envar remains provisionally accounted for as at 30 June 2019.
The Roading Company Limited
On 1 May 2019, the Group acquired the net assets of The Roading Company Limited for a total consideration of $5.4 million.
The Roading Company is a roading and civil construction business based in New Zealand.
The acquisition accounting for The Roading Company remains provisionally accounted for as at 30 June 2019.
FH Lismore
On 22 March 2019, the Group acquired the net assets of Fulton Hogan’s surfacing business in Lismore, New South Wales for a total
consideration of $1.8 million. The assets provide Downer access to the surfacing market in and around Lismore to enhance the road
maintenance capabilities in the area.
The acquisition accounting for FH Lismore remains provisionally accounted for as at 30 June 2019.
104 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 F2. Acquisition of businesses – continued
Cash
Deferred and contingent consideration
Fair value gain on revaluation of existing interest in Downer Mouchel Joint Venture
Less: Net identifiable assets acquired
Provisional goodwill arising from acquisitions
Note
C6
2019
$’m
87.3
17.4
104.7
17.0
(23.5)
98.2
2018
$’m
84.1
35.2
119.3
-
(14.3)
105.0
2018 Acquisitions
UrbanGrid
On 1 July 2017, Downer acquired the net assets of UrbanGrid
Australia (“UrbanGrid”). UrbanGrid provides a wide range of
specialist services to develop, operate and maintain Western
Australia’s essential water, energy and communications networks
as well as civil projects.
The Group has concluded the acquisition accounting process
for this acquisition and there was no material change arising
from finalisation.
Cabrini
On 1 July 2017, Spotless Facility Services Pty Ltd acquired the
customer contracts and associated assets and liabilities of
Cabrini Linen Service (“Cabrini”) from Cabrini Health Limited.
The primary purpose of this acquisition is to strengthen
Spotless’ linen capabilities, enhance customer service
offerings and maintain Spotless’ market-leading position in the
Victorian health sector.
The Group has concluded the acquisition accounting process
for this acquisition and there was no material change arising
from finalisation.
Integrated Services
On 31 January 2018, the Group acquired the net assets of
Integrated Services. The business provides traffic infrastructure
electrics related works and complements the existing Transport
business capabilities.
The Group has concluded the acquisition accounting process
for this acquisition and there was no material change arising
from finalisation.
Envista
On 2 March 2018, the Group acquired 100% of Envista Pty
Ltd and Smarter Contracting Pty Ltd (“Envista”). Envista
provides strategy, architecture and delivery services in
complex and sensitive environments. The acquisition enhances
Downer’s services to customers in the Defence and National
Security sectors.
The Group has concluded the acquisition accounting process
for this acquisition and there was no material change arising
from finalisation.
Annual Report 2019 105
F2. Acquisition of businesses – continued
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Asset acquired
Trade receivables and contract assets
Property, plant and equipment
Intangible assets
Trade payables and contract liabilities
Borrowings
Provisions
Valuation technique
Cost technique – considers the expected economic benefits receivable when due.
Market comparison technique and cost technique – the valuation model considers
quoted market prices for similar items when available and depreciated replacement cost
when appropriate.
Multi-period excess earnings method – considers the present value of net cash flows
expected to be generated by the customer contracts and relationships, intellectual
property and brand names, excluding any cash flows related to contributory assets. For
the valuation of certain brand names, discounted cash flow under the relief from royalty
valuation methodology has been utilised.
Cost technique – considers the expected economic outflow of resources when due.
Cost technique – considers the expected economic outflow of resources when due.
Cost technique – considers the probable economic outflow of resources when the
obligation arises.
Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates and its subsequent
settlement is accounted for within equity.
Contingent consideration that is classified as an asset or
liability is remeasured at subsequent reporting dates with the
corresponding gain or loss being recognised in profit or loss.
(iii) Non-controlling interest
The Group can elect, on an acquisition by acquisition basis, to
recognise non-controlling interests in an acquired entity either
at fair value or at the non-controlling interest’s share of the
acquired entity’s net identifiable assets / (liabilities).
Key estimate and judgement:
Accounting for acquisition of businesses
Accounting for acquisition of businesses requires
judgement and estimates in determining the fair value of
acquired assets and liabilities. The relevant accounting
standard allows the fair value of assets acquired to be
refined in a window of a year after the acquisition date
and judgement is required to ensure that the adjustments
made reflect new information obtained about facts and
circumstances that existed as of the acquisition date.
The adjustments made to the fair value of assets are
retrospective in nature and have an impact on goodwill
recognised on acquisition.
Goodwill from acquisitions
The goodwill resulting from the above acquisitions represents
future market development, expected revenue growth
opportunities, technical talent and expertise, and the benefits
of expected synergies. These benefits are not recognised
separately from goodwill because they do not meet the
recognition criteria for identifiable intangible assets. None of
the goodwill arising from these acquisitions is expected to be
deductible for tax purposes.
Recognition and measurement
Business combinations
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group.
The consideration transferred in the acquisition is measured
at fair value. Acquisition-related costs are expensed as incurred
in profit or loss.
(i) Acquisition achieved in stages
Where a business combination is achieved in stages, the Group’s
previously held equity interest in the acquiree is remeasured
to fair value at the acquisition date (i.e. the date when the
Group attains control) and the resulting gain or loss, if any, is
recognised in profit or loss. Amounts arising from interests in the
acquiree prior to the acquisition date that have previously been
recognised in other comprehensive income are reclassified to
profit or loss where such treatment would be appropriate if that
interest were disposed of or control of the acquiree obtained.
(ii) Contingent consideration
The subsequent accounting for changes in the fair value of
contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent
consideration is classified.
106 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 F3. Disposal of business
2019
The Group did not dispose any business during the year
ended 30 June 2019.
2018
On 21 November 2017, Downer entered an agreement to
sell its Freight Rail business to Progress Rail for $109 million
($122.7 million after adjusting for working capital movements).
This sale was completed on 2 January 2018 with the final
settlement payment of $6.9 million in relation to working capital
adjustments made during 2019. The following disposal entries
were recorded in the 2018 financial year:
Proceeds on disposal
Less: working capital adjustments
Disposal costs incurred
Proceeds net of disposal costs
Trade receivables and
contract assets
Amounts due from customers
under contracts
Inventory
Other assets
Intangibles (goodwill)
Property, plant and equipment
Assets disposed
Trade payables and
contract liabilities
Amounts due to customers
under contracts
Employee benefits provisions
Provisions
Liabilities disposed
Net assets disposed
Loss on disposal pre-tax
Income tax benefit
Total loss on disposal after tax
Note
C6
C5
2018
$’m
129.6
(6.9)
(4.3)
118.4
30.0
33.5
49.4
0.1
14.2
60.0
187.2
(3.7)
(1.9)
(8.6)
(4.4)
(18.6)
168.6
(50.2)
9.6
(40.6)
Annual Report 2019 107
F4. Controlled entities
The controlled entities of the Group listed below were wholly owned during the current and prior year, unless otherwise stated:
QCC Resources Pty Ltd
Rail Services Victoria Pty Ltd
REJV Services Pty Ltd
Roche Bros. Superannuation Pty. Ltd.
Roche Services Pty Ltd
Rock N Road Bitumen Pty Ltd(iii)
RPC Roads Pty Ltd
RPQ Asphalt Pty Ltd
RPQ North Coast Pty Ltd
RPQ Pty Ltd
RPQ Services Pty Ltd
RPQ Spray Seal Pty Ltd
SACH Infrastructure Pty Ltd(vii)
Smarter Contracting Pty Ltd
Snowden Holdings Pty Ltd
Snowden Mining Industry Consultants Pty Ltd
Snowden Technologies Pty Ltd
Southern Asphalters Pty Ltd
Trico Asphalt Pty Ltd
VEC Civil Engineering Pty Ltd
VEC Plant & Equipment Pty Ltd
New Zealand and Pacific
AF Downer Memorial Scholarship Trust
DGL Investments Limited
Downer Construction (Fiji) Limited
Downer Construction (New Zealand) Limited
Downer EDI Engineering Power Limited
Downer EDI Engineering PNG Limited
Downer EDI Works Vanuatu Limited
Downer New Zealand Limited
Downer New Zealand Projects 1 Ltd
Downer New Zealand Projects 2 Ltd
Downer Utilities Alliance New Zealand Limited
Downer Utilities New Zealand Limited
Downer Utilities PNG Limited(vii)
Green Vision Recycling Limited
Hawkins 2017 Limited
Hawkins Project 1 Limited
ITS Pipetech Pacific (Fiji) Limited
Richter Drilling (PNG) Limited
Techtel Training & Development Limited
The Roading Company Limited(viii)
Underground Locators Limited
Waste Solutions Limited
Works Finance (NZ) Limited
Australia
AGIS Group Pty Ltd
ASPIC Infrastructure Pty Ltd
Dean Adams Consulting Pty Ltd(vii)
DMH Plant Services Pty Ltd(iii)
DMH Maintenance and Technology Services Pty Ltd(iii)
DMH Electrical Services Pty Ltd(iii)
Downer Australia Pty Ltd
Downer EDI Associated Investments Pty Ltd
Downer EDI Engineering Company Pty Limited
Downer EDI Engineering CWH Pty Limited
Downer EDI Engineering Electrical Pty Ltd
Downer EDI Engineering Group Pty Limited
Downer EDI Engineering Holdings Pty Ltd
Downer EDI Engineering Power Pty Ltd
Downer EDI Engineering Pty Limited
Downer EDI Limited Tax Deferred Employee Share Plan
Downer EDI Mining Pty Ltd
Downer EDI Mining Blasting Services Pty Ltd
Downer EDI Mining Minerals Exploration Pty Ltd
Downer EDI Rail Pty Ltd
Downer EDI Services Pty Ltd
Downer EDI Works Pty Ltd
Downer Energy Systems Pty Limited
Downer Group Finance Pty Limited
Downer Holdings Pty Limited
Downer Investments Holdings Pty Ltd
Downer Mining Regional NSW Pty Ltd
Downer PipeTech Pty Limited
Downer PPP Investments Pty Ltd
Downer Utilities Australia Pty Ltd
Downer Utilities Holdings Australia Pty Ltd
Downer Utilities Networks Pty Ltd(vii)
Downer Utilities New Zealand Pty Limited
Downer Utilities Projects Pty Ltd(vii)
Downer Utilities SDR Australia Pty Ltd(vii)
Downer Utilities SDR Pty Ltd
Downer Victoria PPP Maintenance Pty Ltd
EDI Rail PPP Maintenance Pty Ltd
EDICO Pty Ltd
Emoleum Partnership
Emoleum Road Services Pty Ltd
Emoleum Roads Group Pty Ltd
Emoleum Services Pty Limited(vii)
Envista Pty Limited
Evans Deakin Industries Pty Ltd
LNK Group Pty Ltd
Lowan (Management) Pty. Ltd.
Maclab Services Pty Ltd
Mineral Technologies (Holdings) Pty Ltd
Mineral Technologies Pty Ltd
New South Wales Spray Seal Pty Ltd
Otraco International Pty Ltd
Otracom Pty Ltd
Primary Producers Improvers Pty Ltd
108 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 F4. Controlled entities – continued
Africa
Downer EDI Mining Ghana Ltd
Downer Mining South Africa Proprietary Limited
MD Mineral Technologies SA (Pty) Ltd.
MD Mining and Mineral Services (Pty) Ltd(i)
Otraco Botswana (Proprietary) Limited
Otraco Southern Africa (Pty) Ltd(ii)
Otraco Tyre Management Namibia (Proprietary) Limited
Snowden Mining Industry Consultants (Proprietary) Ltd
Asia
Chang Chun Ao Da Technical Consulting Co Ltd(iv)
Chang Chun Ao Hua Technical Consulting Co Ltd
Downer EDI Engineering (S) Pte Ltd
Downer EDI Engineering Holdings (Thailand) Limited
Downer EDI Engineering Thailand Ltd
Downer EDI Group Insurance Pte Ltd
Downer EDI Rail (Hong Kong) Limited
Downer EDI Works (Hong Kong) Limited
Downer Pte Ltd
Downer Singapore Pte Ltd
MD Mineral Technologies Private Limited
PT Duffill Watts Indonesia
PT Otraco Indonesia
Americas
DBS Chile SpA
Mineral Technologies Comercio de Equipamentos para
Processamento de Minerais LTD
Mineral Technologies, Inc.
Otraco Brasil Gerenciamento de Pneus Ltda
Otraco Chile SA
Snowden Consultoria do Brasil Limitada
Snowden Mining Industry Consultants Inc.(iv)
United Kingdom
KHSA Limited(iii)
Sillars (B. & C.E.) Limited
Sillars (TMWD) Limited
Sillars Holdings Limited
Sillars Road Construction Limited
Works Infrastructure (Holdings) Limited
Works Infrastructure Limited
Spotless(v)
AE Smith & Son (NQ) Pty Ltd
AE Smith & Son (SEQ) Pty Ltd
AE Smith & Son Proprietary Ltd
AE Smith Building Technologies Pty Ltd
AE Smith Service (SEQ) Pty Ltd
AE Smith Service Holdings Pty Ltd
AE Smith Service Pty Ltd
Airparts Holdings Pty Ltd(iii)
Airparts Fabrication Pty Ltd(iii)
Aladdin Group Services Pty Limited(vi)
Aladdins Holdings Pty Limited(vi)
Aladdin Laundry Pty Limited(vi)
Aladdin Linen Supply Pty Limited(vi)
Asset Services (Aust) Pty Ltd(vi)
Berkeley Challenge (Management) Pty Limited(vi)
Berkeley Challenge Pty Limited(vi)
Berkeley Railcar Services Pty Ltd(vi)
Berkeleys Franchise Services Pty Ltd(vi)
Bonnyrigg Management Pty Limited(vi)
Cleandomain Proprietary Limited(vi)
Cleanevent Australia Pty Ltd(vi)
Cleanevent Holdings Pty Limited(vi)
Cleanevent International Pty Limited(vi)
Cleanevent Technology Pty Ltd(vi)
Emerald ESP Pty Ltd
Envar Installation Pty Ltd(iii)
Envar Service Pty Ltd(iii)
Envar Holdings Pty Ltd(iii)
Envar Engineers & Contractors Pty Ltd(iii)
Ensign Services (Aust) Pty Ltd(vi)
Errolon Pty Ltd(vi)
Fieldforce Services Pty Ltd(vi)
Infrastructure Constructions Pty Ltd(vi)
International Linen Service Pty Ltd(vi)
Monteon Pty Ltd(vi)
National Community Enterprises(vii)
Nationwide Venue Management Pty Ltd(vi)
NG-Serv Pty Ltd(vi)
Nuvogroup (Australia) Pty Ltd(vi)
Pacific Industrial Services BidCo Pty Limited(vi)
Pacific Industrial Services FinCo Pty Limited(vi)
Riley Shelley Services Pty Ltd(vi)
Skilltech Consulting Services Pty Ltd(vi)
Skilltech Metering Solutions Pty Ltd(vi)
Sports Venue Services Pty Ltd(vi)
Spotless Defence Services Pty Ltd(vi)
Spotless Facility Services (NZ) Limited
Spotless Facility Services Pty Ltd(vi)
Spotless Financing Pty Limited(vi)
Spotless Group Limited(vi)
Spotless Group Holdings Limited(vi)
Spotless Holdings (NZ) Limited
Annual Report 2019 109
F4. Controlled entities – continued
F6. Parent entity disclosures
a) Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Retained earnings
Reserves
Employee benefits reserve
Total equity
b) Financial performance
Profit for the year
Total comprehensive income
Company
2019
$’m
2018
$’m
58.3
2,427.8
2,486.1
40.2
61.2
101.4
2,384.7
130.1
2,340.6
2,470.7
39.4
15.3
54.7
2,416.0
2,246.5
122.4
2,243.3
157.2
15.8
2,384.7
15.5
2,416.0
131.8
131.8
185.5
185.5
c) Guarantees entered into by the parent entity in
relation to debts of its subsidiaries
The parent entity has, in the normal course of business, entered
into guarantees in relation to the debts of its subsidiaries during
the financial year.
d) Contingent liabilities of the parent entity
The parent entity has no contingent liabilities as at 30 June 2019
(2018: nil) other than those disclosed in Note C9.
The parent entity does not have any commitments
for acquisition of property, plant and equipment as at
30 June 2019 (2018: nil).
Spotless(v) – continued
Spotless Investment Holdings Pty Ltd(vi)
Spotless Management Services Pty Ltd(vi)
Spotless Property Cleaning Services Pty Ltd(vi)
Spotless Securities Plan Pty Ltd(vi)
Spotless Services Australia Limited(vi)
Spotless Services International Pty Ltd(vi)
Spotless Services Limited(vi)
Spotless Treasury Pty Limited(vi)
SSL Asset Services (Management) Pty Ltd(vi)
SSL Facilities Management Real Estate Services Pty Ltd(vi)
SSL Security Services Pty Ltd(vi)
Taylors Two Seven Pty Ltd(vi)
Trenchless Group Pty Ltd(vi)
UAM Pty Ltd(vi)
Utility Services Group Holdings Pty Ltd(vi)
Utility Services Group Limited(vi)
(i) 70% ownership interest.
(ii) 74% ownership interest.
(iii) Entity acquired during the financial year ended 30 June 2019.
(iv) Entity dissolved / de-registered / liquidated during the financial year ended
30 June 2019.
(v) The ownership interest in Spotless is 87.8% as at 30 June 2019.
(vi) These Spotless controlled entities all form part of the tax-consolidated group
of which Spotless Group Holdings Limited is the head entity.
(vii) Entity is currently undergoing liquidation / dissolution.
(viii) Downer New Zealand Projects 3 Limited changed its name to The Roading
Company Limited during the financial year ended 30 June 2019.
F5. Related party information
a) Transactions with controlled entities
Aggregate amounts receivable from and payable to controlled
entities are included within total assets and liabilities balances
as disclosed in Note F6. Amounts contributed to the defined
contribution plan are disclosed in Note D1.
Other transactions which occurred during the financial year
between the parent entity and controlled entities, as well as
between entities in the Group, were on normal arm’s length
commercial terms.
b) Equity interests in related parties
Equity interests in subsidiaries
Details of the percentage of ordinary shares held in controlled
entities are disclosed in Note F4.
Equity interests in joint arrangements and
associate entities
Details of interests in joint arrangements and associate entities
are disclosed in Note F1. The business activities of a number of
these entities are conducted under joint venture arrangements.
Associated entities conduct business transactions with various
controlled entities. Such transactions include purchases and
sales, dividends and interest. All such transactions are conducted
on the basis of normal arm’s length commercial terms.
c) Controlling entity
The parent entity of the Group is Downer EDI Limited.
110 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 G
Other
This section provides details on other required disclosures relating to the Group to comply with the accounting standards
and other pronouncements including the Group’s capital and financial risk management disclosure. This disclosure provides
information around the Group’s risk management policies and how Downer uses derivatives to hedge the underlying exposure
to changes in interest rates and to foreign exchange rate fluctuations.
G1. New accounting standards
G2. Capital and financial risk management
G3. Other financial assets and liabilities
G1. New accounting standards
a) New and amended accounting standards adopted by
the Group
Changes in significant accounting policies
Except as described below, the accounting policies applied in
the financial report are the same as those applied in the Group’s
consolidated Annual Report for the year ended 30 June 2018.
AASB 9: Financial Instruments
AASB 9 Financial Instruments replaces AASB 139 Financial
Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018, bringing together all three
aspects of the accounting for financial instruments: classification
and measurement; impairment; and hedge accounting. The
Group has adopted AASB 9 from 1 July 2018 and has applied the
exemption in relation to full retrospective application of AASB 9
and as a result, the Group comparative information has not been
restated to reflect the requirements of the new standard.
AASB 9 contains a new classification and measurement
approach for financial assets that reflects the business model in
which assets are managed and their cash flow characteristics.
AASB 9 contains three principal classification categories
for financial assets: measured at amortised cost, fair value
through other comprehensive income (FVOCI) and fair value
through profit or loss (FVTPL). The standard eliminates the
previous AASB 139 categories of held to maturity, loans and
receivables and available for sale; while the requirements for the
classification of financial liabilities as per AASB 139 was retained,
resulting in no change in classification or measurement of
financial liabilities on adoption of AASB 9.
As available for sale classification is no longer permitted
under AASB 9, on transition, the Group has designated the
unquoted equity investment (previously classified as an
available-for-sale investment carried at fair value under AASB
139) as an investment measured at Fair Value through Other
Comprehensive Income (FVOCI) with no material impact on
the carrying amount. Following this reclassification, all fair value
gains and losses will be reported in the OCI with no impairment
losses nor gains or losses (when the investment is derecognised)
to be recognised in the statement of profit or loss.
As the loans and receivables classification is no longer permitted,
trade and other receivables and cash and cash equivalents have
been reclassified to the category of measured at amortised cost.
There has been no material impact on the carrying amount of
these balances resulting from either this change in classification
or the new expected credit loss impairment model for financial
assets carried at amortised cost and contract assets.
There were no further changes to the classification or
measurement of financial assets or financial liabilities.
The classification and measurement requirements of AASB 9
did not have a material impact on the opening retained earnings
position of the Group and therefore, no adjustment to opening
retained earnings at 1 July 2018 is required.
AASB 15: Revenue from Contracts with Customers
The Group has adopted AASB 15 Revenue from Contracts with
Customers from 1 July 2018. Details of the new requirements
of AASB 15 as well as their impact on the Group’s consolidated
financial report are described below.
AASB 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It has
replaced AASB 118 Revenue, AASB 111 Construction Contracts
and related interpretations. The core principle of AASB 15 is
that an entity shall recognise revenue to depict the transfer of
promised goods and services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. This means that
revenue will be recognised when control of goods or services is
transferred rather than on transfer of risks and rewards.
Annual Report 2019 111
G1. New accounting standards – continued
a) New and amended accounting standards adopted by the Group – continued
AASB 15: Revenue from Contracts with Customers – continued
Impact on Application
The Group has adopted AASB 15 using the cumulative effect method, with the effect of initially applying this standard recognised at
the date of initial application (i.e. 1 July 2018). Accordingly, the information presented for the year ended 30 June 2018 has not been
restated and it is presented, as previously reported, under AASB 118, AASB 111 and related interpretations. Additionally, the disclosure
requirements in AASB 15 have not generally been applied to comparative information.
The following table summarises the Group impact (net of tax) of transition to AASB 15 recognised on retained earnings and
Non-controlling interest (NCI) on 1 July 2018. The table below only shows the balance sheet items impacted by the adoption of AASB 15.
Impact on the opening balance of the consolidated statement of financial position
As reported
30 June 2018
$’m
AASB 15
Transition
Adjustments
$’m
Opening
Balance
1 July 2018
$’m
Trade receivables and contract assets
Total current assets
Trade receivables and contract assets
Deferred tax assets
Total non-current assets
Total assets
Provisions
Total current liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Retained earnings
Parent interests
Non-controlling interest
Total equity
2,117.9
3,133.6
113.2
75.5
4,654.6
7,788.2
(50.7)
(2,881.6)
(65.1)
(170.2)
(1,701.5)
(4,583.1)
3,205.1
655.1
3,050.1
155.0
3,205.1
(232.2)
(232.2)
(49.4)
25.6
(23.8)
(256.0)
(34.8)
(34.8)
(50.4)
83.2
32.8
(2.0)
(258.0)
(245.3)
(245.3)
(12.7)
(258.0)
Below is a summary of the impact on transition to AASB 15 on the Group’s retained earnings and NCI:
Contract claims and variations – now referred to as contract modifications
Contract costs (Tender Costs)
Performance Obligations and contract duration
Measure of Progress
Total
112 Downer EDI Limited
1,885.7
2,901.4
63.8
101.1
4,630.8
7,532.2
(85.5)
(2,916.4)
(115.5)
(87.0)
(1,668.7)
(4,585.1)
2,947.1
409.8
2,804.8
142.3
2,947.1
Impact on
transition
(net of tax)
$’m
204.8
23.9
26.8
2.5
258.0
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 G1. New accounting standards – continued
a) New and amended accounting standards adopted by the Group – continued
AASB 15: Revenue from Contracts with Customers – continued
On adoption, the key impacts on transition were as a result of the
following changes:
Contract modifications
Revenue was previously recognised when it was probable that
work performed will result in revenue whereas under AASB
15, revenue is recognised when contract modifications are
enforceable and to the extent that it is “highly probable” that
a significant reversal of revenue will not occur.
In making this assessment, the Group considers a number
of factors including nature of the claim, formal or informal
acceptance by the customer of the validity of the claim, stage
of negotiations, legal opinion on the enforceability of the claim
under the contract, or the historical outcome of similar claims,
to determine whether the enforceable and “highly probable”
threshold has been met.
As a result of the change to a higher threshold of approval for
claims or variations and the “highly probable” threshold for
the estimation of the amount to be recognised as revenue,
a $204.8 million after tax impact on transition was recognised in
retained earnings as at 1 July 2018.
Contract costs
Under AASB 111 Construction Contracts, costs incurred during
the tender process were capitalised within contract debtors
when it was deemed probable the contract will be won. Under
the new standard, costs incurred during the tender/bid process
will be expensed, unless they are incremental to obtaining the
contract and the Group expects to recover them or they are
explicitly chargeable to the customer, regardless of whether
the contract is obtained. As a result a $23.9 million after tax
impact on transition was recognised in retained earnings as
at 1 July 2018.
Performance obligations and contract duration
AASB 15 requires a more granular approach to identify the
different revenue streams (i.e. performance obligations) in a
contract by identifying the different activities that are being
undertaken and then aggregating only those where the different
activities are significantly integrated or highly interdependent.
As a result of the change, additional performance obligations
were identified for some contracts with later revenue recognition
which resulted in an adjustment of $26.8 million after tax to
retained earnings as at 1 July 2018.
Measure of progress
The Group recognises revenue using the measure of progress
that best reflects the Group’s performance in satisfying the
performance obligation within the contracts over time. The
different methods of measuring progress include an input
method (e.g. costs incurred) or an output method
(e.g. milestones reached).
On adoption of AASB 15, it was identified that for Rail
maintenance contracts, the input method would better reflect
the measure of progress rather than the billing method
previously used. As a result, a $2.5 million after tax impact on
transition was recognised in retained earnings as at 1 July 2018.
Tax
Adjustments under the new standards are subject to tax
effect accounting and therefore the net deferred tax position
has been impacted.
Annual Report 2019 113
G1. New accounting standards – continued
a) New and amended accounting standards adopted by the Group – continued
AASB 15: Revenue from Contracts with Customers – continued
Impact on the consolidated statement of profit or loss
The following tables summarise the impact of adoption of AASB 15 on the Group’s Consolidated Statement of Financial Position and
Consolidated Statement of Profit or Loss and Other Comprehensive Income for the current period in comparison to the results that
would have been reported if AASB 15 had not been applied.
30 June 2019
Trade receivables and contract assets
Total current assets
Trade receivables and contract assets
Deferred tax assets
Total non-current assets
Total assets
Provisions
Total current liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Retained earnings
Parent interests
Non-controlling interest
Total equity
For the year ended 30 June 2019
Earnings before interest and tax
Net finance costs
Profit before income tax
Income tax expense
Profit after income tax
Profit for the year that is attributable to:
Non-controlling interest
Members of the parent entity
Profit for the year
As reported
$’m
Adjustments
$’m
Amounts
without
adoption of
AASB 15
$’m
1,991.5
3,164.7
74.4
93.5
4,843.3
8,008.0
(107.0)
(2,930.4)
(84.5)
(137.6)
(2,027.4)
(4,957.8)
3,050.2
496.7
2,894.3
155.9
3,050.2
225.2
225.2
89.6
(13.5)
76.1
301.3
16.7
16.7
28.3
(93.5)
(65.2)
(48.5)
252.8
240.1
240.1
12.7
252.8
2,216.7
3,389.9
164.0
80.0
4,919.4
8,309.3
(90.3)
(2,913.7)
(56.2)
(231.1)
(2,092.6)
(5,006.3)
3,303.0
736.8
3,134.4
168.6
3,303.0
As reported
$’m
Adjustments
$’m
Amounts
without
adoption of
AASB 15
$’m
462.2
(82.4)
379.8
(103.5)
276.3
14.5
261.8
276.3
(7.0)
–
(7.0)
1.8
(5.2)
–
(5.2)
(5.2)
455.2
(82.4)
372.8
(101.7)
271.1
14.5
256.6
271.1
There has been no material impact on other comprehensive income and consolidated statement of cash flow on transition to AASB 15.
114 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 Other
The following new or amended standards are not expected
to have a significant impact on the Group’s consolidated
financial statements:
– AASB 2014-10 Amendments to Australian Accounting
Standards – Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture;
– Interpretation 23 and AASB 2017-4 Amendments to
Australian Accounting Standards – Uncertainty over Income
Tax Treatments;
– AASB 2017-7 Amendments to Australian Accounting
Standards – Long-term interest in Associates and JVs;
– AASB 2018-1 Amendments to Australian Accounting
Standards – Annual Improvements 2015–2017 Cycle;
– AASB 2018-6 Amendments to Australian Accounting
Standards – Definition of a Business; and
– AASB 2018-7 Amendments to Australian Accounting
Standards – Definition of Material.
G1. New accounting standards – continued
b) New accounting standards and interpretations not
yet adopted
The following standards, amendments to standards and
interpretations are relevant to current operations. They are
available for early adoption but have not been applied by the
Group in this Financial Report.
AASB 16 – Leases
AASB 16 Leases will replace the current leasing standard AASB 117
and contains significant changes to the accounting treatment of
leases around how to recognise, measure and disclose leases.
The new standard provides a single lessee accounting model,
requiring lessees to recognise assets and liabilities for all leases,
with the exception of short-term (less than 12 months) and
low value leases. AASB 16 applies to annual reporting periods
beginning on or after 1 January 2019 (1 July 2019 for Downer).
The Group manages its owned and leased assets to ensure
there is an appropriate level of equipment to meet its current
obligations and to tender for new work. The decision as to
whether to lease or purchase an asset is dependent on the
finance available at the time and the residual risk of ownership
following the anticipated completion of the project.
The Group plans to adopt AASB 16 using the modified
retrospective method, with the cumulative effect of initially
applying this standard to be recognised as an adjustment to
opening retained earnings at 1 July 2019, with no restatement of
comparatives. As a result, the Group will apply the requirements of
AASB 16 for the first time in the 2020 half-year Financial Report.
Based on the current assessment, upon adoption of AASB
16, total assets will increase by $560 million to $610 million
and total liabilities will increase by $720 million to $770 million,
due to the recognition of a “Right of Use Asset” and a “Lease
Liability”; grossing up the assets and liabilities in the Consolidated
Statement of Financial Position as at 1 July 2019.
The adjustment for AASB 16 will have a positive impact on EBITDA
as the costs of operating leases (previously recognised as part of
EBIT expensed over the term of the lease) will now be excluded
from EBITDA as lease costs will be recognised separately in
depreciation (for the right of use assets) while interest on lease
liabilities will be disclosed as part of financing costs.
Annual Report 2019 115
G2. Capital and financial risk management
a) Capital risk management
The capital structure of the Group consists of debt and equity. The Group may vary its capital structure by adjusting the amount of
dividends, returning capital to shareholders, issuing new shares or increasing or reducing debt.
The Group’s objectives when managing capital are to safeguard its ability to operate as a going concern so that it can meet all its
financial obligations when they fall due, provide adequate returns to shareholders, maintain an appropriate capital structure to optimise
its cost of capital and maintain an Investment Grade credit rating to ensure ongoing access to funding.
b) Financial risk management objectives
The Group’s Treasury function manages the funding, liquidity and financial risks of the Group. These risks include foreign exchange,
interest rate, commodity and financial counterparty credit risk.
The Group enters into a variety of derivative financial instruments to manage its exposures including:
i)
Forward foreign exchange contracts to hedge the exchange rate risk arising from cross-border trade flows, foreign income and debt
service obligations;
Cross-currency interest rate swaps to manage the interest rate and currency risk associated with foreign currency denominated
borrowings; and
ii)
iii) Interest rate swaps to manage interest rate risk.
The Group does not enter into or trade derivative financial instruments for speculative purposes.
Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position, when there
is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. No material amounts with a right to offset were identified in the Consolidated Statement of
Financial Position.
c) Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. As a result, exposures to exchange rate fluctuations
arise. Exchange rate exposures are managed within approved policy parameters, utilising forward foreign exchange contracts and
cross-currency swaps.
The carrying amounts of the Group’s material unhedged foreign currency denominated financial assets and financial liabilities at the
reporting date are as follows:
US dollar (USD)
(i) The above table shows foreign currency financial assets and liabilities in Australian dollar equivalent.
Financial assets(i)
Financial liabilities(i)
2019
$’m
10.1
2018
$’m
1.4
2019
$’m
5.5
2018
$’m
6.3
116 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 G2. Capital and financial risk management – continued
c) Foreign currency risk management – continued
Foreign currency forward contracts
The following table summarises, by currency, the Australian dollar value (unless otherwise stated) of forward exchange contracts
outstanding as at the reporting date:
Weighted average
exchange rate
Outstanding contracts
2019
2018
Foreign currency
Contract value
Fair value
2019
FC’m
2018
FC’m
2019
$’m
2018
$’m
2019
$’m
2018
$’m
Buy USD/Sell AUD
Less than 3 months
3 to 6 months
Later than 6 months
Buy AUD/Sell USD
Less than 3 months
3 to 6 months
Later than 6 months
Buy EUR/Sell AUD
Less than 3 months
3 to 6 months
Later than 6 months
Buy JPY/Sell AUD
Less than 3 months
3 to 6 months
Later than 6 months
Sell JPY/Buy AUD
Less than 3 months
Buy NZD/sell AUD
Less than 3 months
Buy GBP/Sell AUD
Less than 3 months
Buy CNY/Sell AUD
Less than 3 months
3 to 6 months
Buy AUD/Sell NZD
Less than 3 months
3 to 6 months
Later than 6 months
Buy CAD/Sell AUD
Less than 3 months
Sell CAD/Buy AUD
Less than 3 months
Total
0.6955
0.7142
0.7101
0.7540
–
0.7534
0.6985
0.7073
0.7194
0.7617
–
0.7613
0.6210
0.6147
0.6188
0.6366
–
0.6167
5.2
1.3
0.9
7.4
12.1
0.8
37.1
50.0
0.3
3.0
3.4
6.7
20.0
–
66.9
86.9
5.8
–
7.0
12.8
8.6
–
5.4
14.0
77.68
77.88
76.95
80.86
81.68
82.75
1,648.3
255.9
215.2
2,119.4
2,190.6
567.6
25.9
2,784.1
7.5
1.8
1.3
10.6
17.3
1.1
51.6
70.0
0.5
4.9
5.5
10.9
21.2
3.3
2.8
27.3
76.40
81.67
289.5
205.7
3.8
1.0493
–
18.0
–
17.2
26.6
–
88.8
115.4
7.6
–
9.2
16.8
13.5
–
8.8
22.3
27.1
6.9
0.3
34.3
2.5
–
(0.1)
–
–
(0.1)
0.1
–
(0.9)
(0.8)
–
–
0.1
0.1
0.6
0.1
0.1
0.8
0.8
–
1.5
2.3
(0.2)
–
(0.3)
(0.5)
0.1
–
(0.1)
-
–
0.1
–
0.1
–
–
0.1
0.5532
0.5700
1.2
0.1
2.2
0.2
–
4.9383
–
5.3302
5.3535
–
–
–
1.0812
1.0814
1.0819
–
1.0181
–
1.0053
6.0
–
6.0
–
–
–
–
–
–
3.0
3.0
6.0
5.3
11.8
26.9
44.0
24.2
25.3
1.2
–
1.2
–
–
–
–
–
–
0.6
0.6
1.2
4.9
10.9
24.9
40.7
24.6
25.4
–
–
–
–
–
–
–
–
–
0.1
–
–
–
0.1
0.1
0.1
0.1
0.3
0.5
0.3
(0.6)
2.2
Annual Report 2019 117
G2. Capital and financial risk management – continued
c) Foreign currency risk management – continued
Cross-currency interest rate swaps
Under cross-currency interest rate swaps, the Group is committed to exchange certain foreign currency loan principal and interest
amounts at agreed future dates at fixed foreign exchange and interest rates. Such contracts enable the Group to eliminate the risk of
adverse movements in foreign exchange and interest rates related to foreign currency denominated borrowings.
The following table details the Australian dollar equivalent of cross-currency interest rate swaps outstanding as at the reporting date:
Weighted average
AUD equivalent
interest rate
(including credit
margin)
2019
%
2018
%
Weighted average
exchange rate
2019
2018
Contract value
Fair value
2019
$’m
2018
$’m
2019
$’m
2018
$’m
7.8
–
5.9
–
7.8
5.9
0.7168
–
0.7739
–
0.7168
0.7739
9.8
–
129.2
139.0
–
9.8
129.2
139.0
0.2
–
2.5
2.7
–
(0.5)
(5.4)
(5.9)
5.2
5.2
83.12
83.12
120.3
120.3
(6.3)
(6.9)
Outstanding contracts
Buy USD/Sell AUD
Less than 1 year
1 to 5 years
5 years or more
Buy JPY/Sell AUD
5 years or more
The above cross-currency interest rate swaps are designated as effective cash flow hedges.
Foreign currency sensitivity analysis
The Group is mainly exposed to the United States dollar (USD), Euro (EUR), Japanese Yen (JPY) and New Zealand dollar (NZD).
The following table details the Group’s sensitivity to movements in the Australian dollar against relevant foreign currencies. The
percentages disclosed below represent the Group’s assessment of the possible changes in spot foreign exchange rates (i.e. forward
exchange points and discount factors have been kept constant). The sensitivity analysis includes only outstanding foreign currency
denominated monetary items and adjusts their translation at the period end for a given percentage change in foreign exchange rates.
A positive number indicates a before-tax increase in profit and equity and a negative number indicates a before-tax decrease in
profit and equity.
USD impact
– 15% rate change
+ 15% rate change
EUR impact
– 15% rate change
+ 15% rate change
JPY impact
– 15% rate change
+ 15% rate change
NZD impact
– 15% rate change
+ 15% rate change
Profit / (loss)(i)
2019
$’m
2018
$’m
0.8
(0.6)
–
–
–
–
–
–
(0.9)
0.6
–
–
–
–
(7.6)
5.6
Equity(ii)
2019
$’m
(10.4)
7.7
(1.6)
1.6
4.3
(3.2)
3.0
(2.2)
2018
$’m
16.7
(12.4)
(3.3)
3.3
5.7
(4.2)
–
–
(i) This is mainly as a result of the changes in the value of forward foreign exchange contracts not designated in a hedge relationship, receivables and payables.
(ii) This is as a result of the changes in the value of forward foreign exchange contracts designated as cash flow hedges.
118 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 G2. Capital and financial risk management – continued
d) Interest rate risk management
The Group is exposed to interest rate risk as entities borrow funds at floating interest rates. Management of this risk is governed by
a Board approved Treasury Policy and is managed by maintaining an appropriate mix between fixed and floating rate borrowings and
hedging is undertaken through interest rate swap contracts and the issue of long-term fixed rate debt securities.
The Group’s exposure to interest rates on financial assets and financial liabilities is detailed in the table below:
Floating interest rates – cash flow exposure
Bank loans
Cash and cash equivalents
Total cash flow exposure
Fixed interest rates – fair value exposure
Bank loans(i)
USD private placement notes(i)
AUD private placement notes
Medium term notes(i)
Finance lease and hire purchase
Total fair value exposure
Weighted average AUD
equivalent interest rate
(including credit margin)
Liability / (asset)
2019
%
2018
%
2019
$’m
2018
$’m
2.8
1.1
3.6
6.0
5.8
4.3
5.5
3.4
1.5
3.6
6.0
5.8
5.0
4.1
288.0
(710.7)
(422.7)
556.4
149.9
30.0
688.7
10.2
1,435.2
202.1
(606.2)
(404.1)
617.7
150.6
30.0
529.1
16.5
1,343.9
(i) The values of the interest rate and cross-currency swaps have been included in the debt amounts.
All interest rates in the above table reflect rates in the currency of the relevant loan other than USD private placement notes and JPY
medium term notes, where the AUD rates under the relevant cross-currency swaps are used.
The table above relates to amounts that are drawn. The Group has a number of undrawn facilities, which if utilised would be on a
floating rate basis.
Interest rate swap contracts
The Group uses interest rate swap contracts to manage interest rate exposures. Under these contracts, the Group commits to
exchange the difference between fixed and floating rate interest amounts calculated on notional principal amounts. The fair value of
interest rate swaps are based on market values of equivalent instruments at the reporting date.
The following table details the interest rate swap contracts and related notional principal amounts as at the reporting date:
Weighted average
interest rate
Notional principal amount
Fair value
Outstanding floating to fixed swap
contracts
2019
%
2018
%
2019
$’m
AUD interest rate swaps
Less than 1 year
1 to 2 years
2 to 3 years
3 years or more
NZD interest rate swaps
Less than 1 year
2 to 3 years
2.1
1.2
1.2
1.3
2.2
1.5
–
2.1
–
–
–
2.2
450.0
150.0
270.0
135.0
1,005.0
100.0
100.0
200.0
2018
$’m
–
450.0
–
–
450.0
–
100.0
100.0
2019
$’m
2018
$’m
(2.4)
(0.2)
(0.9)
(0.7)
(4.2)
(0.3)
(0.3)
(0.6)
–
(0.2)
–
–
(0.2)
–
(0.2)
(0.2)
Annual Report 2019 119
G2. Capital and financial risk management – continued
d) Interest rate risk management – continued
Interest rate sensitivity analysis
The sensitivity analysis has been determined based on the
exposure to interest rates at the reporting date and assuming
that the rate change occurs at the beginning of the financial year
and is then held constant throughout the reporting period.
Sensitivities have been based on a movement in interest rates
of 100 basis points across the yield curve of the relevant
currencies. The selected basis point increase or decrease
represents the Group’s assessment of the possible change
in interest rates on variable rate instruments, cross-currency
interest rate swaps and interest rate swaps. An increase in
interest rates of 100 basis points on the unhedged position
(mostly cash and cash equivalents) will generate a profit of
$4.6 million (2018: $2.3 million loss) to the profit or loss; a similar
decrease in interest rates will generate a $4.6 million (2018:
$2.5 million profit) loss to the profit or loss.
For hedged positions designated as cash flow hedges,
an increase and decrease in interest rates of 100 basis
points will generate an increase and decrease in equity of
$10.7 million (2018: $4.8 million) and $10.4 million (2018:
$3.7 million) respectively.
e) Credit risk management
Credit risk refers to the risk that a financial counterparty will
default on its contractual obligations, resulting in a loss to the
Group. The Group’s exposure and the credit ratings of these
counterparties are regularly monitored and transactions are
diversified among approved counterparties.
Trade receivables and contract assets arise from a large number
of customers, spread across diverse industries and geographical
areas. Ongoing credit evaluation is performed on the financial
condition of counterparties. Refer to Note C2 for details on credit
risk arising from trade receivables and contract assets.
The preferred credit risk on derivative financial instruments is to
counterparties that have minimum long-term credit ratings from
Standard & Poor’s of no less than A- (or equivalent from other
rating agencies).
Credit risk arising from cash balances held with banks is
managed by Group Treasury. Investments of surplus funds are
generally only made with counterparties that have a minimum
A- credit rating. In limited circumstances, amounts of surplus
funds are held in foreign jurisdictions where there are no financial
institutions that meet the above minimum rating threshold.
Financial counterparty credit limits and the related credit
acceptability of counterparties are set by a Board approved
Treasury Policy that is reviewed by the Board from time to time.
The limits are set to minimise the concentration of risks and
therefore mitigate financial loss through potential counterparty
default. No material exposure is considered to exist by virtue of
the non-performance of any financial counterparty.
The carrying amount of financial assets recorded in the financial
statements, net of any allowances for losses, represents the
Group’s maximum exposure to credit risk.
f) Liquidity risk management
Liquidity risk arises from the possibility that the Group is unable
to settle a financial transaction on the due date. Liquidity risk
management is ultimately a Board responsibility and is managed
within an appropriate risk management framework under the
Group’s Treasury policy.
The Group manages liquidity risk by maintaining adequate cash
reserves and committed undrawn debt facilities, monitoring
forecast and actual cash flows and matching the maturity
profiles of financial assets and liabilities. Included in Note E2
is a summary of committed undrawn bank loan facilities.
120 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 G2. Capital and financial risk management – continued
f) Liquidity risk management – continued
Liquidity risk tables
The following tables detail the contractual maturity of the Group’s financial liabilities. The tables are based on the undiscounted cash
flows of financial liabilities and include both interest and principal cash flows.
2019
$’m
Trade payables
Finance lease and hire purchase liabilities
Bank loans
USD notes
AUD notes
Medium term notes
Total borrowings including interest
Cross-currency interest rate swaps
Interest rate swaps
Foreign currency forward contracts
Total derivative instruments(i)
Less than
1 year
810.6
3.2
18.4
16.8
1.7
23.8
60.7
5.7
3.5
(0.6)
8.6
1 to 2
years
–
6.9
540.1
6.5
1.7
23.8
572.1
5.9
1.4
0.5
7.8
2 to 3
years
–
0.4
315.4
6.5
1.7
273.8
597.4
5.9
0.4
–
6.3
3 to 4
years
4 to 5
years
–
0.1
–
6.5
1.7
12.6
20.8
5.9
–
–
5.9
–
–
–
6.5
1.7
12.6
20.8
5.9
–
–
5.9
More
than 5
years
–
–
–
152.3
32.6
467.6
652.5
19.4
–
–
19.4
883.1
586.8
604.1
26.8
26.7
671.9
Total
2018
Trade payables
Finance lease and hire purchase liabilities
Bank loans
USD notes
AUD notes
Medium term notes
Total borrowings including interest
Cross currency interest rate swaps
Interest rate swaps
Foreign currency forward contracts
Total derivative instruments(i)
674.2
6.1
27.0
8.5
1.7
166.9
204.1
6.5
0.3
2.2
9.0
–
3.9
75.7
17.7
1.7
12.6
107.7
6.7
0.1
0.1
6.9
–
2.2
494.5
7.9
1.7
12.6
516.7
6.4
–
–
6.4
–
5.5
312.6
7.9
1.7
262.6
584.8
6.3
–
–
6.3
Total
893.4
118.5
525.3
596.6
(i)
Includes assets and liabilities.
–
–
–
7.9
1.7
1.4
11.0
6.3
–
–
6.3
17.3
–
–
–
185.1
34.4
135.5
355.0
44.8
–
–
44.8
399.8
Annual Report 2019 121
G2. Capital and financial risk management – continued
Recognition and measurement
Derivative financial instruments
Derivative financial instruments are initially recognised at fair
value on the date a derivative contract is entered into and are
subsequently re-measured to their fair value at each reporting
date. Any gains or losses arising from changes in fair value of
derivatives, except those that qualify as effective hedges, are
immediately recognised in profit or loss.
Hedge accounting
AASB 9 aligns the accounting for hedging instruments more
closely with the Group’s risk management objectives and
strategy and applies a more qualitative and forward-looking
approach to assessing hedge effectiveness. The Group has
elected to adopt the general hedge accounting model in AASB
9. AASB 9 introduces new requirements on rebalancing hedge
relationships and prohibiting voluntary discontinuation of hedge
accounting. Under the new model, it is possible that more risk
management strategies, particularly those involving hedging
a risk component (other than foreign currency risk) of a non-
financial item, will be likely to qualify for hedge accounting.
Similar to the Group’s prior period hedge accounting policy,
management does not intend to exclude the forward element
of foreign currency forward contracts from designated
hedging relationships. The Group previously elected to
adjust non-financial hedged items with gains/losses arising
from effective cash flow hedges under AASB 139 which is
mandatory under AASB 9.
The Group notes the impact on transition from application of the
general hedge accounting model in AASB 9 is not material.
Fair value hedges
Fair value hedges are used to hedge the exposure to changes in
the fair value of a recognised asset, liability or firm commitment.
For fair value hedges, changes in the fair value of the derivative,
together with any changes in the fair value of the hedged asset
or liability that is attributable to the hedged risk, are immediately
recorded in profit or loss. Hedge accounting is discontinued
when the hedge instrument expires or is sold, terminated,
exercised, or no longer qualifies for hedge accounting.
Cash flow hedges
Cash flow hedges are used to hedge risks associated with
contracted and highly probable forecast transactions. For cash
flow hedges, the effective portion of changes in the fair value of
the derivative is deferred in equity and the gain or loss relating to
the ineffective portion is recognised immediately in profit or loss.
Amounts deferred in equity are transferred to profit or loss
in the same period the hedged item is recognised in profit or
loss. When the forecast transaction that is hedged results in
the recognition of a non-financial asset or liability, the gains
and losses previously deferred in equity are transferred to form
part of the initial measurement of the cost of the non-financial
asset or liability.
If the forecast transaction is no longer expected to occur, the
cumulative gain or loss that was deferred in equity is recognised
immediately in profit or loss. If the hedge instrument expires or
is sold, terminated, exercised, or no longer qualifies for hedge
accounting, any gain or loss deferred in equity remains in equity
until the forecast transaction occurs.
122 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 G3. Other financial assets and liabilities
2019
$’m
At amortised cost:
Other financial assets
Advances to / from joint ventures and associates
Deferred consideration
At fair value:
Level 2
Foreign currency forward contracts – Cash flow hedge
Cross-currency and interest rate swaps – Cash flow hedge
Level 3
Unquoted equity investments – Fair value through OCI
Contingent consideration
Total
2018
$’m
At amortised cost:
Other financial assets
Advances to / from joint ventures and associates
Deferred consideration
At fair value:
Level 2
Foreign currency forward contracts – Cash flow hedge
Foreign currency forward contracts – Fair value through profit or loss
Cross-currency and interest rate swaps – Cash flow hedge
Level 3
Unquoted equity investments – Available-for-sale
Contingent consideration
Total
Financial assets
Financial liabilities
Current Non-current
Current Non-current
23.7
9.8
–
33.5
1.3
0.2
1.5
–
–
–
35.0
–
–
–
–
–
3.2
3.2
2.0
–
2.0
5.2
–
13.1
22.1
35.2
1.0
8.0
9.0
–
3.2
3.2
47.4
–
–
15.3
15.3
0.2
3.8
4.0
–
0.7
0.7
20.0
Financial assets
Financial liabilities
Current Non-current
Current Non-current
10.0
5.1
–
15.1
3.0
0.5
–
3.5
–
–
–
18.6
13.5
–
–
13.5
–
–
–
–
2.0
–
2.0
15.5
–
11.3
8.0
19.3
1.2
0.1
6.1
7.4
–
16.5
16.5
43.2
–
–
13.3
13.3
–
–
7.1
7.1
–
13.8
13.8
34.2
Reconciliation of Level 3 fair value measurements of financial assets
Level 3 investments remained unchanged from prior year (2018: $1.7 million decrease mostly due to revaluation and return
on investment).
Annual Report 2019 123
G3. Other financial assets and liabilities – continued
Recognition and measurement
Fair value measurement
When a derivative is designated as the cash flow hedging instrument, the effective portion of changes in the fair value of the derivative
is recognised in Other Comprehensive Income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair
value of the derivative is recognised immediately in profit or loss.
Valuation of financial instruments
For financial instruments measured and carried at fair value, the Group uses the following to categorise the methods used:
– Level 1: fair value is calculated using quoted prices in active markets for identical assets or liabilities;
– Level 2: fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices); and
– Level 3: fair value is estimated using inputs for the asset or liability that are not based on observable market data.
During the year there were no transfers between Level 1, Level 2 and Level 3 fair value hierarchies.
The following table shows the valuation technique used in measuring Level 2 and 3 fair values, as well as significant
unobservable inputs used:
Type
Valuation technique
Significant unobservable input
Cross-currency and interest rate swaps
Foreign currency forward contracts
Unquoted equity investments
Calculated using the present value of
the estimated future cash flows based
on observable yield curves.
Not applicable.
Calculated using forward exchange rates
prevailing at the balance sheet date.
Not applicable.
Calculated based on the Group’s interest
in the net assets of the unquoted entities.
Assumptions are made with regard
to future expected revenues and
discount rates.
Contingent consideration
Calculated on the amounts expected to be
paid based on the probability of contingent
events and targets being achieved,
determined by reference to forecasts
of future performance of the acquired
businesses discounted using the market
rates prevailing at financial year end.
Changing the inputs to the valuations
to reasonably possible alternative
assumptions would not significantly change
the amounts recognised in profit or loss,
total assets or total liabilities, or total equity.
Assumptions are made with regard
to future expected earnings and
discount rates on certain of the
contingent arrangements.
124 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2019 Directors’ Declaration
for the year ended 30 June 2019
In the opinion of the Directors of Downer EDI Limited:
(a) The financial statements and notes set out on pages 62 to 124 are in accordance with the Australian Corporations Act 2001
(Cth), including:
(i) Complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements; and
(ii) The financial statements and notes thereto give a true and fair view of the financial position and performance of the Company
and the consolidated entity;
(b) There are reasonable grounds to believe that Downer EDI Limited will be able to pay its debts as and when they become
due and payable;
(c) The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 (Cth); and
(d) The attached financial statements are in compliance with International Financial Reporting Standards, as noted in Note A to the
financial statements.
Signed in accordance with a resolution of the Directors made pursuant to Section 295(5) of the Corporations Act 2001 (Cth).
On behalf of the Directors
R M Harding
Chairman
Sydney, 22 August 2019
Annual Report 2019 125
Sustainability Performance Summary 2019
Downer’s sustainability approach
Downer’s ESG reporting approach
To Downer, sustainability is delivering financial growth and
value to its customers through its supply chain, looking after the
wellbeing of its people, having a diverse and inclusive workforce,
minimising its impact on the environment and enhancing
the liveability of the communities in which it has influence.
Downer recognises that sustainability is vital for securing
long-term environmental, economic and social viability and
understands its role in contributing to a sustainable future for
communities to prosper.
Downer has prepared its Sustainability Report in accordance
with the Global Reporting Initiative’s (GRI) Standards to provide
investors with comparable information relating to environmental,
social and governance (ESG) performance. Specifically,
Downer’s approach takes into consideration the GRI’s principles
for informing report content: materiality, completeness, and
sustainability context and stakeholder inclusiveness. A key focus
is to demonstrate how Downer delivers sustainable returns while
managing risk and being responsible in how it operates.
Sustainability is intrinsically linked to Downer’s business strategy
because the sustainability of Downer’s activities is fundamental
to the Company’s future success. Downer’s sustainability strategy
is shaped by its four Pillars: Safety; Delivery; Relationships and
Thought Leadership. Downer’s commitment to sustainability is
outlined on the Downer website and within the sustainability report
located on www.downergroup.com/sustainability.
Downer makes a positive contribution in industry sectors such
as utilities, renewables, public transport, infrastructure, facility
management and carbon-intensive industries sectors, for
example, mining and production of road pavement products.
Downer’s strategy focuses on improving efficiencies in existing
operations, investing in growth, and adapting as industry and
customer needs and preferences change. Downer’s business
diversity allows it to leverage emerging opportunities such
as increasing and ageing populations, infrastructure renewal
requirements and the increased need for inter-connected smart
cities and regional city hubs.
As an integrated service provider, Downer’s contribution to
sustainability is achieved by providing its customers with
industry leading solutions that drive and provide efficiency and
reduce their impact on the environment.
Downer works closely with the local communities in which
it operates to achieve better social inclusion outcomes,
implementing a range of strategies focusing on social
responsibility, local and Indigenous employment, cultural
heritage management and stakeholder engagement.
Downer’s success is a direct result of the experience, capability
and engagement of Downer’s people. Downer aims to employ
the best people and bring thought leadership to support its
customers to plan, create and sustain. Downer achieves this by
embracing diversity and inclusiveness in the workplace. Downer
continues to strengthen its focus on recruiting strategically to
increase workforce participation across a range of demographics.
Downer seeks to identify the issues that have the greatest
potential to impact its future success and returns to
shareholders. This year Downer revisited its materiality
assessment in accordance with the GRI Standards via a rigorous
process to formally engage internal and external stakeholders
to understand what they believe are the material sustainability
issues for Downer and inform the identification of its economic,
social, environmental and governance risks and opportunities.
The materiality assessment provided key sustainability insights
for Downer’s strategy and frames the content for this year’s
Sustainability Report. The results were positive with strong
alignment between internal and external stakeholder views. This
provided a list of the top 11 issues which Downer deems to be its
material issues ranked in order of priority consisted of:
1. Health and safety
2. Governance and ethics
3. Contractor management
4. Operational performance
5. Financial performance
6. Attraction and retention
7. Partnerships and stakeholder engagement
8. Customer expectations
9. Business resilience
10. Climate change
11. Diverse and inclusive workforce
Further information including the process undertaken is available
in the 2019 Sustainability Report.
Governance and Risk Management
The Downer Board, through its oversight functions has
ensured Downer appropriately considers ESG risks including
those related to climate change. In fulfilling this function, the
Downer Board also receives oversight from Downer’s Audit
and Risk Committee, Zero Harm Committee, Zero Harm Board
Committee, Tender Risk Evaluation Committee and Disclosure
Committee. ESG-related risks and opportunities are incorporated
into Downer’s broader corporate strategy, planning and
risk management.
126 Downer EDI Limited
The Downer Board recognises that an integrated approach to
managing ESG risks and opportunities is essential. This has
been reflected in the strengthening of Downer’s governance
structure and increased focus on this risk in both Board and
executive forums throughout the financial year ended 2019.
This has included:
– Formal updates to the Board on a regular basis and Audit
and Risk and Zero Harm Committees on a bi-monthly basis;
– Regular updates and stakeholder engagement with the
Executive Committee;
– Amendments to the Audit and Risk Committee Charter
to include explicit reference to climate-related risks
and opportunities;
– Inclusion of ESG risks and opportunities in the annual Board
strategy agenda; and
– Incorporating ESG risk and opportunity discussions in
Divisional Executive Meetings, including climate-related
workshops with senior leadership teams of each Division.
ESG risks and opportunities are governed as part of Downer’s
Group Risk and Opportunity Management Framework and
Project Risk Management Framework. Downer identifies,
manages and discloses material climate-related risks as part of
standard business practices, and, in accordance with the Group
and Divisional strategies, which apply to everyone at Downer.
Downer’s Zero Harm Management System Framework sets
the Company’s Zero Harm and sustainability governance
requirements. Downer has been certified (as a minimum) to
the following standards: AS/NZS 4801 or OHSAS 18001 (for
occupational health and safety management systems); ISO
14001 environmental management systems; and IS0 9001 quality
management systems.
The Board’s Zero Harm Committee oversees the development
and implementation of Downer’s Zero Harm management
systems, and the process of Downer’s Zero Harm performance.
The effectiveness of these systems is monitored through
extensive internal and third-party audit programs, with
oversight by both the Board Zero Harm and Board Audit and
Risk Committees. Other aspects of Downer’s approach to
sustainability are overseen by the Group Diversity Committee
and other relevant corporate governance forums.
The method for measuring the Company’s performance is clearly
set out in its governance framework, short-term remuneration
incentives are offered to senior managers in relation to the
Company’s performance against environmental sustainability
targets. These targets include the management of critical
environmental risks and GHG emissions reduction.
Downer’s Zero Harm performance during 2019 is summarised
below. More comprehensive information is provided in Downer’s
2019 Sustainability Report which will be available on the Downer
website at www.downergroup.com.
Health and safety
Downer’s business is founded on its deeply held value of Zero
Harm. Health and safety is Downer’s highest priority and is the
first of the Company’s strategic pillars. Zero Harm is embedded in
Downer’s culture and is fundamental to its future success. Downer
works relentlessly to make sure this does not become rhetoric
and that its people actively live these words vigilantly every day,
watching out for their own health and safety as well as that of
others in and around its workplaces.
Downer’s approach to health and safety is built on leading and
inspiring, managing risk, rethinking processes, applying lessons
learnt, and adopting and adapting practices that aim to achieve
zero work-related injuries. Downer’s approach is a market
differentiator as it enables its people to work in industry sectors
that may be inherently hazardous. In everything Downer does,
the health and safety of Downer’s people and communities that it
works within is always the Company’s top priority.
Downer’s commitment is enhanced by strong leadership from
senior leaders within the business, who actively engage, enable
and empower its people to work safely, and maintain safe working
environments for themselves and the community. As Downer’s
health and safety performance demonstrates, Downer has a
mature safety culture, it is proud of its people’s support and
commitment to its Zero Harm principles and practices.
Downer’s strategic program for Health and Safety has focused on:
– Critical risk management including the evaluation and
assurance of critical controls by multiple layers of management
and frontline leaders. The goal is to eliminate all preventable
significant harm and establish Downer as a leader in critical
risk management.
– Streamlining and harmonising management systems and
continuing to further frontline leadership capability. The goal is
to have an aligned approach to managing Zero Harm.
– Technology and innovation. The goal is to collect better
data to better anticipate future risks and opportunities, and
innovate via use of technology.
– Business resilience, including mental health. The goal is to
proactively respond to emerging strategic Zero Harm issues
that impact the sectors it operates in and reinforce the
positioning of Downer as a thought leader.
LTIFR
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Annual Report 2019 127
Sustainability Performance Summary 2019 – continued
Environmental Sustainability
Significant achievements for FY19 include:
Downer’s environmental sustainability performance is measured
against the key areas of risk management, compliance,
minimising environmental impact and maximising resource
efficiency opportunities in its own and its customers’ businesses.
Downer’s key focus areas during the year were:
– Continuing to focus on the resilience and assurance of
environmental risk controls;
– Incorporating sustainability rating tools and initiatives into
major projects;
– Improving environmental workforce capability;
– Engaging with customers regarding Downer’s environmental
capability; and
– Preparing the business as markets transition to a low
carbon economy.
Downer achieved its Group-wide target of zero Level 51 or
Level 62 environmental incidents. There were no significant
environmental incidents3 (≥ Level 4) during financial year 2019.
Disappointingly, Downer incurred nine penalty infringement
notices totalling NZD $4,950 in its New Zealand Division.
At the time of writing this report, one infringement notice
(NZD $750) is being contested due to evidence suggesting the
discharge did not originate from the Downer facility. Downer
also incurred two penalty infringement notices totalling
AUD $19,055 in its Transport and Infrastructure Division
associated with the operation of wastewater treatment facilities
resulting in an exceedance of ammonia released into the nearby
watercourse. The other related to a breach of the Planning
approval whereby the construction certificate was not obtained
for the Beryl Solar Farm (further information is available in the
2019 Sustainability Report).
– Recognised by the Australasian Reporting Awards with a
Bronze Award for Downer’s 2018 Sustainability Report.
– Downer was awarded a “Leading” Infrastructure Sustainability
(IS) Design rating by the Infrastructure Sustainability Council
of Australia (ISCA) for the Auckland’s City Rail Link project,
the highest possible achievement in the IS scheme.
– Downer achieved the first Infrastructure Sustainability (IS)
Design rating for a Light Rail Project in New South Wales for
the successful delivery of the Newcastle Light Rail project,
which achieved an ‘Excellent Design’ rating by ISCA.
– Downer New Zealand became a signatory to the New
Zealand Climate Leaders Coalition and established an
internal sustainability governance working group.
– Expansion of its circular economy capability through
acquiring 50% of Repurpose It, a waste resource
company in Victoria.
– Secured $2.5 million in grant funding through the
Queensland Resource Recovery Industry Development
program to build another gully pit recycling system in
Queensland like the one opened last year in Rosehill.
– Produced an Environmental Product Declaration (EPD)
in accordance with ISO14025 for the Sydney Growth
Train (also known as ‘Waratah Series 2’) suburban train
sets – the first EPD produced in Australia for vehicle and
transport equipment.
Downer’s response to climate change
Climate change impacts present a challenge to sustaining
our modern environment, enhancing livability, the natural
environment and our business. While Downer’s business portfolio
is diverse, it has limited exposure to the effects of climate change
impacts on its business through fixed, long-lived capital assets.
Downer’s diverse portfolio allows it to be flexible and agile to
redeploy assets to high growth areas as markets change. This
diversity of portfolio strongly positions Downer to mitigate
and manage its exposure to climate risks and to maximise the
business opportunities it presents.
Downer accepts the latest Intergovernmental Panel on Climate
Change (IPCC) assessment of the science related to climate
change. Downer considers climate change to be one if its
material issues – refer to the materiality assessment.
1
2
3
A Level 5 environmental incident is defined as any incident that causes significant impact or serious harm on the environment, where material harm has occurred and if
costs in aggregate exceed $50,000.
A Level 6 environmental incident is defined as an incident that results in catastrophic widespread impact on the environment, resulting in irreversible damage.
A significant environmental incident or significant environmental spill (≥Level 4) is any environmental incident or spill where there is significant impact on or material harm
to the environment; or a notifiable incident where there is a spill that results in significant impact or material harm; or there is long-term community irritation leading to
disruptive actions and requiring continual management attention.
128 Downer EDI Limited
Downer continues to make significant progress in assessing the financial implications of climate change and in 2019 Downer has
implemented the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and focused on scenario analysis
and developing a science-based target as detailed below. In addition, in 2019 Downer published a set of climate change frequently
asked questions (FAQs) on its website www.downergroup.com/environment to provide a consistent response to FAQs Downer
receives on climate change from its stakeholders. For more detailed information on Downer’s Climate Change disclosures, refer to the
Sustainability Report.
TCFD Scenario analysis
In 2019, Downer completed a scenario analysis to test the resilience of its strategy, and the assumptions underpinning strategic
focus areas in relation to relevant climate futures both physical and transitional. Acknowledging the significant degree of uncertainty
associated with the manifestation of these futures, the analysis explores four different, yet inter-related potential futures with varying
climate change severity and alternate socioeconomic and political landscapes.
In deciding on the three key issues upon which to frame the scenario analysis, Downer undertook a process to identify the future risks
and opportunities arising from the transition to a low carbon economy and physical changes and overlaid Downer’s strategic priorities,
current risks and future changes which resulted in the three key issues and their respective areas of the business.
Key issue
Physical impacts of climate change (weather)
Energy Transition (i.e. Thermal coal transition)
Changing carbon/energy policy
Area of business focus
Transport & Infrastructure and New Zealand
Mining (part of Mining, Energy and Industrials)
Group
These informed the selection of four divergent, internally consistent and plausible scenarios, based upon the best available literature
and modelling. Two of the four scenarios explore the minimum plausible global-warming trajectory (approximately 2 degrees of global
warming), and two explore the upper limit (approximately 4 degrees of global warming), with the pairs separated based on the degree to
which adaptation is available and practicable in the given future.
The degrees warming is informed by the Representative Concentration Pathways “RCPs” (RCP 2.6 for under 2 degrees and RCP 8.5 for
4 degrees). Whilst the transition pathways, including broader energy and socio-economic conditions are informed by the Shared
Socio-economic Pathways “SSPs”.
Scenarios
Sustainability
Follower
Fossil fuel development
Global decline
~2 degrees global warming (SSP 1- RCP 2.6)
~2 degrees global warming (SSP 4- RCP 2.6)
~4 degrees global warming (SSP 5- RCP 8.5)
~4 degrees global warming (SSP 3- RCP 8.5)
Each of these scenarios provide numeric and qualitative outcomes to explore risks and opportunities. The development of these
scenarios was tailored to Downer’s business strategy, by identifying the key risks and opportunities that arose in each of the three
selected priority areas. Once these were understood, a key driving climate or transition variable was mapped, enabling consistent
exploration of the potential impact or outcome for Downer in each of the four futures.
Key findings include:
– Downer’s strategy was found to be resilient and well positioned in all scenarios used due to diversification of services across
multiple sectors, existing market presence and capabilities.
– A <2°C world provides considerable opportunities which outweigh identified risks and will assist with lower cost of capital and
increased margins.
– Aligning to a <2°C world will require decarbonisation by the second half of the century 2050> with a substantial decrease by 2030.
The scenario analysis work will be used as signposts to inform Downer’s strategy and help Downer to manage some of the uncertainty
and complexities associated with these futures. Monitoring government policy (e.g. carbon price), consumer sentiments on climate
change, the levelised cost of energy across major energy sources and the global emission trajectory will provide key insights to best
inform Downer’s business strategies.
Downer continues to focus on a decarbonisation strategy with an emphasis on long-term contracts, technology, energy transition,
GHG reductions and efficiencies, and opportunities to offset emissions.
Annual Report 2019 129
Sustainability Performance Summary 2019 – continued
GHG Emission Reduction Target
A key consideration of the TCFD recommendations is the
pathway to reduce emissions and the establishment of targets.
Downer has set ambitious targets to align with the 2015 Paris
agreement goals to “pursue efforts to limit the temperature
increase to 1.5 °C” by the end of this century.
Downer acknowledges that climate change mitigation is a shared
responsibility and to support the transition to a low-carbon
economy in an equitable manner, organisations need to play their
part by developing emissions reduction targets that align to the
latest science. Therefore, Downer has leveraged the Science-
based Target (SBT) initiative’s framework and guidance to set a
GHG emission reduction target for the Downer Group.
Downer commits to the decarbonisation4 of its absolute Scope 1
and 2 GHG emissions5 by 45-50% by 2035 from a FY2018 base
year and be net zero in the second half of this century6.
In addition, Downer will review its emission reduction approach
in line with Intergovernmental Panel on Climate Change (IPCC)
updated scientific reports and other developments in
low-emissions technology, to ensure a practical and affordable
transition towards this commitment.
Refer to Downer’s Sustainability Report for further
disclosures on Downer’s response to climate change and
how we have specifically addressed the recommendations
outlined in the TCFD.
4 Decarbonisation may include the use of certified offsets.
5
Scope 1 emissions are those produced directly by Downer Group activities, Scope 2 emissions are indirect emissions, such as electricity consumption, Scope 3 emissions are
those that occur from sources not owned or controlled by Downer.
This is consistent with a 1.5 degree Celsius pathway using the latest International Panel on Climate Change (IPCC) scientific reports.
6
130 Downer EDI Limited
Corporate Governance
for the year ended 30 June 2019
Overview
Downer’s corporate governance framework provides the
platform from which:
– The Board is accountable to shareholders for the operations,
performance and growth of the Company;
– Downer management is accountable to the Board;
– The risks to Downer’s business are identified
and managed; and
– Downer effectively communicates with its shareholders and
the investment community.
Downer continues to enhance its policies and processes to
promote leading corporate governance practices.
The Board endorses the ASX Corporate Governance Council’s
Corporate Governance Principles and Recommendations
(ASX Principles).
Principle 1: Lay solid foundations for
management and oversight
The Downer Board Charter sets out the functions and
responsibilities of the Board and is available on the Downer
website at www.downergroup.com.
The Board Charter states that the role of the Board is to provide
strategic guidance and to effectively oversee management of the
Company. Among other things, the Board is responsible for:
– Overseeing the Company, including its control and
accountability systems;
– Appointing and removing the Group CEO and
senior executives;
– Monitoring performance of the Group CEO and senior
executives; and
– Reviewing, ratifying and monitoring systems of risk
management and internal control, codes of conduct and
legal compliance.
Before appointing a Director, the Board undertakes appropriate
checks and provides shareholders with all material information
which is relevant to the decision to elect or re-elect a Director.
Directors receive formal letters of engagement setting out the
key terms, conditions and expectations of their engagement.
The Board Charter also describes the functions delegated to
management, led by the Group CEO.
The primary goal set for management by the Board is to focus
on enhancing shareholder value, which includes responsibility for
Downer’s economic, environmental and social performance.
The Group CEO is responsible for the day-to-day
management of Downer and his authority is delegated and
authorised by the Board.
Downer has written employment agreements with each of
its senior executives and the performance of those senior
executives is regularly reviewed against appropriate measures,
including performance targets linked to the business plan and
overall corporate objectives. In 2019, Downer’s senior executives
participated in periodic performance evaluations where they
received feedback on progress against these targets.
The Company Secretary is responsible for supporting the
effectiveness of the Board and is directly accountable to the
Board, through the Chairman, on all matters to do with the proper
functioning of the Board.
Details of Downer’s Directors and the Executive Leadership Team
are available on the Downer website at www.downergroup.com.
Diversity at Downer
Downer is committed to ensuring that it has a diverse and
inclusive workforce, which fulfils the expectations of its
employees, customers and shareholders while building a
sustainable future for its business. This is formalised through
the Downer Diversity & Inclusiveness (D&I) Policy which outlines
the Company’s commitment to developing a diverse and
inclusive workforce.
In 2016, Downer launched a revised Diversity Framework.
The purpose of this framework is to support the D&I Policy and
implementation of Divisional D&I strategies.
The Diversity & Inclusiveness Policy is available on the Downer
website at www.downergroup.com.
ASX diversity recommendations – diversity statement
This diversity statement outlines Downer’s performance
throughout 2019 with respect to its broader diversity program,
but with a particular focus on gender, and specifically includes:
– Details of Downer’s key gender representation metrics;
– An overview of the gender diversity initiatives undertaken by
Downer throughout 2019; and
– An outline of Downer’s measurable gender diversity
objectives for 2020.
Gender representation metrics
As at 30 June 2019, Downer’s female gender representation
metrics were as follows:
– Board
– Senior Executive1
– Management2
– Workforce
37%
21%
22%
36%
1
2
For present purposes, “Senior Executive” refers to CEO, KMP and Other Executives/General Managers as defined in the Workplace Gender Equality Agency Reference guide
to the workplace profile and reporting questionnaire (WGEA Reference Guide).
For present purposes, “Management” refers to CEO, KMP, Other Executives/General Managers, Senior Managers and Other Managers as defined in the WGEA
Reference Guide.
Annual Report 2019 131
Looking back: 2019 measurable objectives
Focus Area Objective
Targets
Outcome
Brand and
Reputation
Establish two
partnerships
with reputable
diversity
agencies.
To enhance the brand
and reputation of
Downer Group through
partnerships related to
our diversity focus areas
and to ensure Downer
Group continues
to be viewed as an
organisation that is
committed to D&I.
Gender
Diversity
To improve
opportunities for women
to reach their potential
through an inclusive
work environment while
positioning Downer
Group as a preferred
employer for women in
its industries.
37% women in
the workforce
by 2020.
20% women in
Management
by 2020.
– Re-established partnership with the Diversity Council of Australia.
– Became a member of Work180, an Australian jobs network that operates
at the forefront of recruitment and advocacy for women.
Employees have received stories of interest reinforcing a commitment to a
diverse and inclusive culture through a range of communication and media,
including Downer and Spotless intranet pages, Downer Connect, Downer
and Spotless websites and LinkedIn. Highlights include:
– Celebrating events of significance for gender and Indigenous cultures,
such as International Women’s Day, participation in Habitat for
Humanity and National Reconciliation Week.
– Graduate series of stories featuring talent and success (focusing on
female graduates).
– 60 Seconds series, being interviews with Senior Leaders.
– Indigenous participation stories around the Waanyi Downer JV,
Cowboys House, the PCYC Blackwater and Mundine Means Business.
Parental Leave Policy is currently under review. Extensive research,
benchmarking and internal consultation was undertaken to understand
Downer and Spotless’ relative position on Parental Leave Policies in the
market place and as a competitive positioning tool in the attraction and
retention of talent.
Downer refreshed and relaunched the Downer Mentoring program in this
period. 30 mentoring relationships were established with 15 high performing
females participating.
– As part of Downer’s Talent Management and Succession Planning, all
female employees at CEO-2 and high potential female employees have
an active talent profile and development plan.
– Seven female executive leaders participated in the Downer Executive
Development Program (ExeLD).
– Two executive leaders participated in the Chief Executive Women
Development Program.
An information sheet that increases knowledge on how to mitigate
unconscious bias in recruitment was made available to hiring managers in
this period.
132 Downer EDI Limited
Corporate Governance – continuedfor the year ended 30 June 2019 Focus Area Objective
Targets
Outcome
3% Aboriginal
and Torres
Strait Islander
employees
by 2020.
– Downer launched its second Reconciliation Action Plan (RAP) ‘Innovate’,
endorsed by Reconciliation Australia, which outlines our reconciliation
vision, strategy and targeted initiatives.
– Spotless is closing out its second RAP ‘Innovate’, having implemented
all initiatives.
Cultural
Diversity
To build on Downer
Group’s commitment
to closing the gap by
increasing Indigenous
workforce participation
and developing
strategic partnerships
with Indigenous
organisations and
community groups.
Generational
Diversity
To establish Downer
Group as a sought-
after employer for all
age-groups and as
an organisation that
builds a talent pipeline
of thought leaders
and continues to value
experience.
Build Downer’s
LinkedIn ranking
(as of 30 June
2018, the 12th
most sought-
after business
to work for).
Maintain
or increase
the number
of graduate
employees’
year-on-year
until 2021.
– Spotless is consulting with Reconciliation Australia on its ‘Stretch’ RAP,
which is anticipated to launch Q2 FY20.
– Partnerships developed with PCYC Blackwater and Aboriginal
Employment Strategy (AES).
– Became a registered member of Supply Nation. Supply Nation is
Australia’s largest national directory of verified Aboriginal and Torres
Strait Islander businesses.
– Continued to work closely with government partners in NZ, including
the Ministry of Social Development and Te Puni Kōkiri to provide
employment opportunities for Māori people who may experience
challenges to securing and/or maintaining ongoing employment.
– Evolved the Māori Leadership program, Te Ara Whanake, into a program
specifically designed for non-Māori leaders.
– Worked in partnership with Te Puni Kōkiri to create Whakatipu Tētēkura
a program to attract and recruit Māori school leavers.
– Launched a custom-built Indigenous Cultural Awareness Training
e-learn program for Australian supervisors and above during this period.
Downer did not improve its LinkedIn ranking, due to a change in focus to
promote the diversity of our people (amongst other things) on Downer
Connect, the internal social media platform that was launched in this period.
Downer continues to build its pipeline of talent by investing in youth
through the:
– Downer Graduate Program – intake for 2018 was 28 and in 2019
increased to 40, a 40% increase year on year.
– LEaD: Emerging Leaders Program (Downer’s leadership program for
emerging leaders), had 37 participants in FY19 – double the intake of
the previous four years.
Downer commenced consultation and development of the governance
structure and framework for the Apprentices and Trainees Program.
The Downer ‘Our Brand’ guidelines have been updated to include diverse
and inclusive imagery and instruction to promote and support our
commitment to D&I.
Annual Report 2019 133
Looking ahead: 2020 measurable objectives
Focus Area Objective
Targets
Initiatives
Flexibility,
Diversity
and
Inclusion
Gender
Diversity
To continue developing
Downer’s commitment
to representing the
businesses and
communities in which it
serves through a focus
on D&I.
To improve
opportunities for women
to reach their potential
through an inclusive
work environment while
positioning Downer
Group as a preferred
employer for women in
its industries.
Report quarterly to
EXCO on progress
towards targets and
objectives.
– Continue the governance structure through Divisional Diversity
Steering Committees (DDSCs) with progress and initiatives
reported quarterly to the Executive Committee (EXCO).
– Leverage our partnership with Work180 as an endorsed
employer to utilise its job board for Downer targeted positions.
– Review and modify the Downer Mandatory Induction to ensure
they promote the Company’s commitment to a diverse and
inclusive workforce and working environment.
37% women in the
workforce by 2020.
– Deliver on Downer’s Workplace Gender Equality Agency
(WGEA) Pay Equity Ambassador commitments.
23% women in
Management positions
by 2020, a 3% increase
on the disclosed
measurable objective
outlined in Downer’s
FY18 Annual Report.
22% women in Senior
Executive positions by
2020.
30% women on the
Board – the Board’s
composition currently
meets this objective.
– Undertake a pilot program showcasing how to incorporate
Downer’s Flexible Working Arrangements for an operational
team and site. Share learnings broadly.
– Develop capability to effectively lead and manage a diverse
workforce via a series of manager guides. Content to include:
inclusive language, strategies for managing a culturally diverse
workforce and everyday sexism in the workplace.
– Implement a second intake of the Downer Mentoring program
where high performing women are paired with high performing
leaders to support their development goals.
– Develop and launch a Female Network to highlight opportunities
and networking.
– Develop and launch a ‘Manager Toolkit’ for supporting
Primary Carers on Parental Leave before, during and as part of
return to work.
– Build the anti-unconscious bias capability of hiring
managers and recruitment specialists via access to an online
learning module.
134 Downer EDI Limited
Corporate Governance – continuedfor the year ended 30 June 2019 Focus Area Objective
Targets
Initiatives
Cultural
Diversity
To build on Downer
Group’s commitment
to closing the gap by
increasing Indigenous
workforce participation
and developing
strategic partnerships
with Indigenous
organisations and
community groups.
3% Aboriginal and
Torres Strait Islander
employees by 2020.
– Make progress on the commitments outlined in the ‘Innovate’
RAP (close out due 2021).
– Launch Spotless ‘Stretch’ RAP and commence delivery on
the commitments.
– Develop five new partnerships with Indigenous businesses
and/or communities.
– Remaining Australian supervisors and above to complete
Downer’s Indigenous Cultural Awareness Training Program.
– Develop an Indigenous Cultural Awareness training module for
non-Indigenous employees, available via e-learn and a ’toolbox’
training kit for site-based employees.
– Build on the NZ based Whatakipu Tētēkura program for Māori
school leavers at risk of becoming NEETs (not in education,
employed or training) consisting of a series of marae-based
residential workshops, pastoral care and supporting career
development pathways into permanent roles.
– Support and engage non-Māori leaders to participate in the
Te Ara Maramatanga. (Building on Te Ara Whanake (the Māori
Leadership Program) by participating in the 24-hour marae-
based immersion program that allows employees to experience
Māori culture. Continue to provide employment opportunities
to migrant workers and further build manager capability by
providing cultural awareness training. Conduct pre-employment
programs quarterly.
Generational
Diversity
To establish Downer
Group as a sought-
after employer for all
age-groups and as
an organisation that
builds a talent pipeline
of thought leaders
and continues to value
experience.
Maintain or increase
the number of graduate
employees’ year-on-year
until 2021.
Continue to build a talent pipeline by investing in entry level
programs that align to Downer’s diversity focus and priority areas,
including:
– The Downer Graduate Development Program (continue to unify
a ‘one Downer’ approach to graduate recruitment).
– Implementation of a governance structure and framework for the
Downer Apprentice and Trainee Program that supports strategic
attraction, selection and retention.
– Explore partnership opportunities with organisations that
manage the transition of ex-Defence personnel into Downer
employment opportunities.
Annual Report 2019 135
Principle 2: Structure the Board to add value
Throughout the 2019 financial year, the Board was comprised of
a majority of independent Directors.
Downer’s governance framework requires each Director to
promptly disclose actual and possible conflicts of interest, any
interests in contracts, other directorships or offices held, related
party transactions and any dealing in the Company’s securities.
The Board is currently comprised of the Chairman (Mike Harding,
an independent, Non-executive Director), six other independent,
Non-executive Directors and an Executive Director (the Group
CEO, Grant Fenn). Details of the members of the Board, including
their skills, experience, status and their term of office are set out
in the Directors’ Report on pages 4 to 5 and are also available on
the Downer website at www.downergroup.com.
The composition of the Board is reviewed and assessed by the
Nominations and Corporate Governance Committee to ensure
the Board is of a composition, size and commitment to effectively
discharge its responsibilities and duties.
Directors are required to bring their independent judgement to
bear on all Board decisions. To facilitate this, it is Downer’s policy
to provide Directors with access to independent professional
advice at the Company’s expense in appropriate circumstances.
Downer’s Non-executive Directors recognise the benefit of
conferring regularly without management present, and they do
so at various times throughout the year.
The Board considers that an independent Director is a Non-
executive Director who is not a member of management and
who is free of any business or other relationship that could (or
could reasonably be perceived to) materially interfere with the
independent exercise of their judgement. The Board regularly
assesses the independence of each Director to ensure that each
Director has the capacity to bring independent judgement to
bear on issues before the Board and to act in the best interests
of Downer as a whole.
Board Committee
Audit and Risk
Chairman
N M Hollows
Zero Harm
C G Thorne
Nominations and Corporate Governance
R M Harding
Remuneration
Disclosure
Rail Projects
T G Handicott
T G Handicott
P S Garling
Tender Risk Evaluation
C G Thorne
136 Downer EDI Limited
At least one Director must retire from office at each Annual
General Meeting (AGM). No Non-executive Director can
serve more than three years without offering themselves
for re-election.
The Chairman of the Board is an independent, Non-executive
Director. He is responsible for the leadership of the Board
and for the efficient organisation and functioning of the
Board. The Chairman is appointed by the Board to ensure
that a high standard of values, governance and constructive
interaction is maintained.
The Chairman facilitates the effective contribution of all
Directors and promotes constructive and respectful relations
between Directors and the Board and management. He also
represents the views of the Board to Downer’s shareholders and
conducts the AGM.
The roles of Chairman and Group CEO are not exercised by
the same person and the division of responsibilities between
the Chairman and the Group CEO have been agreed by the
Board and are set out in the Board Charter and Downer’s
Delegations Policy.
The Board has established a number of committees to assist the
Board to effectively and efficiently execute its responsibilities. A
list of the main Board Committees and their current membership
is set out in the table below.
Members
S A Chaplain
T G Handicott
C G Thorne
P L Watson
S A Chaplain
G A Fenn
P L Watson
S A Chaplain
T G Handicott
P S Garling
R M Harding
G A Fenn
R M Harding
G A Fenn
T G Handicott
R M Harding
G A Fenn
R M Harding
P L Watson
Corporate Governance – continuedfor the year ended 30 June 2019 The names of members of each committee, the number of
meetings and the attendances by each of the members of the
various committees to which they are appointed is set out in the
Directors’ Report on page 20.
The Tender Risk Evaluation Committee’s primary purpose is
to oversee tenders and contracts that exceed the delegation
of the Group CEO. The Tender Risk Evaluation Committee,
is chaired by an independent Director and comprises five
members, including the Group CEO. Meetings of the Tender
Risk Evaluation Committee are convened as required to review
tender opportunities.
The Board has established the Nominations and Corporate
Governance Committee to oversee the practices for selection
and appointment of Directors of the Company.
The Nominations and Corporate Governance Committee’s
primary purpose is to support and advise the Board on fulfilling
its responsibilities to shareholders by ensuring that the Board
is comprised of individuals who are best able to discharge the
responsibilities of Directors having regard to the law and leading
governance practice.
The Nominations and Corporate Governance Committee has a
charter which sets out its roles and responsibilities, composition,
structure, membership requirements and the procedures for
inviting non-committee members to attend meetings. The
Nominations and Corporate Governance Committee Charter
gives the Nominations and Corporate Governance Committee
access to internal and external resources, including advice
from external consultants and specialists. The Nominations and
Corporate Governance Committee Charter is available on the
Downer website at www.downergroup.com.
The Nominations and Corporate Governance Committee, all
members of which are independent Directors, is chaired by an
independent Director and has a minimum of three members.
The Committee’s responsibilities include:
– Assessing the skills and competencies required on the Board;
– Assessing the extent to which the required skills are
represented on the Board;
– Establishing processes for the review of the performance of
individual Directors and the Board as a whole;
– Establishing processes for identifying suitable candidates for
appointment to the Board (including undertaking a formal
due diligence screening process); and
– Recommending the engagement of nominated
persons as Directors.
When appointing Directors, the Nominations and Corporate
Governance Committee aims to ensure that an appropriate
balance of skills, experience, expertise and diversity is
represented on the Board. This may result in a Non-executive
Director with a longer tenure remaining in office to bring that
experience and depth of understanding to matters brought
before the Board.
Given the breadth of Downer’s service offerings across a range
of markets, the Board seeks to ensure that it maintains an
appropriate range of technical skills across engineering, geology,
construction and scientific disciplines as well as professional
services when considering the appointment of a new Director.
The Board identified that the review of major tenders, successful
delivery of major projects in an increasingly complex commercial
environment and experience in services activities were required.
It is for this reason that in undertaking the selection process
for its most recently appointed Director, the Board selected a
candidate with engineering qualifications and experience as a
CEO of an ASX listed company.
Annual Report 2019 137
The chart below illustrates the balance achieved with the
current Board composition. The Company recognises the value
of diversity which has been a component of the appointment
process over the past few years.
Professional qualifications
From time to time, Downer engages external specialists to assist
with the selection process as necessary, and the Chairman,
Board and Group CEO meet with candidates as part of the
appointment process.
Nominations for re-election of Directors are reviewed by the
Nominations and Corporate Governance Committee and
Directors are re-elected in accordance with the Downer
Constitution and the ASX Listing Rules.
As part of its commitment to leading corporate governance
practice, the Board undertakes improvement programs, including
externally facilitated periodic reviews of its performance and
that of its Committees and Directors. The last review was
completed during FY16.
The Company has formal induction procedures for both
Directors and senior executives. These induction procedures
have been developed to enable new Directors and senior
executives to gain an understanding of:
– Downer’s financial position, strategies, operations and risk
management policies;
– The respective rights, duties and responsibilities and roles of
the Board and senior executives; and
– Downer’s culture and values.
Directors are given an induction briefing by the Company
Secretary and an induction pack containing information about
Downer and its business, Board and Committee charters and
Downer Group policies. New Directors also meet with key senior
executives to gain an insight into the Company’s business
operations and the Downer Group structure.
Directors are encouraged to continually build on their exposure
to the Company’s business and a formal program of Director
site visits has been in place since 2009. Directors are also
encouraged to attend appropriate training and professional
development courses to update and enhance their skills
and knowledge and the Company Secretary regularly
organises governance and other continuing education
sessions for the Board.
The Board is provided with the information it needs to discharge
its responsibilities effectively. The Directors also have access
to the Company Secretary for all Board and governance-
related issues and the appointment and removal of the
Company Secretary is determined by the Board. The Company
Secretary is accountable to the Board, through the Chair, on all
governance matters.
Professional qualifications
Business, finance and economics
Technical*
Humanities
Legal
0.0
1.0
2.0
3.0
4.0
5.0
*Comprises construction, engineering, metallurgy and science.
Industry experience
Professional Services*
Resources
Transport and infrastructure
0.0
1.0
2.0
3.0
4.0
5.0
*Includes banking, finance and legal.
Tenure
9+
6–9
3–6
0–3
0.0
1.0
2.0
3.0
4.0
Gender diversity
Gender diversity
3
5
Male
Female
138 Downer EDI Limited
Corporate Governance – continuedfor the year ended 30 June 2019 Principle 3: Promote ethical and responsible
decision-making
Downer’s Purpose is to create and sustain the modern
environment by building trusted relationships with our customers.
Its Promise is to work closely with our customers to help them
succeed, using world-leading insights and solutions. Downer’s
Purpose and Promise are founded on.the Pillars of Zero Harm,
Delivery, Relationships and Thought Leadership and define the
way it manages its business and are the foundations that support
Downer’s culture. An overview of the Purpose, Promise and Pillars
can be found on the Downer website at www.downergroup.com.
Downer strives to attain the highest standards of behaviour and
business ethics when engaging in corporate activity. The Downer
Standards of Business Conduct sets the ethical tone and
standards of the Company and deals with matters such as:
– Compliance with the letter and the spirit of the law;
– Workplace behaviour;
– Prohibition against bribery and corruption;
– Protection of confidential information;
– Engaging with stakeholders;
– Workplace safety;
– Diversity and inclusiveness;
– Sustainability; and
– Conflicts of interest.
Downer has a formal whistleblower policy and procedures
for reporting and investigating breaches of the Standards of
Business Conduct. This includes the Our Voice service, an
external and independent reporting service which enables
employees to anonymously report potential breaches of
the Standards of Business Conduct, including misconduct
or other unethical behaviour. Reports received through Our
Voice are investigated where appropriate, with the Company
Secretary overseeing the completion of any remedial action.
The Board is informed of material incidents reported under the
whistleblower policy.
The Standards of Business Conduct applies to all officers and
employees and is available on the Downer website at
www.downergroup.com.
Downer endorses leading governance practices and has in
place policies setting out the Company’s approach to various
matters, including:
– Securities trading (stipulating ‘closed periods’ for designated
employees and a formal process which employees must
adhere to when dealing in securities);
– The Company’s disclosure obligations (including
continuous disclosure);
– Communicating with shareholders and the general
investment community; and
– Privacy.
Downer has an Anti-Bribery and Corruption Policy which
expands upon the prohibition against bribery and corruption
currently contained in the Standards of Business Conduct, and
which addresses key issues such as working with government,
political donations, human rights, conducting business
internationally and gifts and benefits. The Board is informed of
material breaches of the Anti-Bribery and Corruption Policy.
As Downer has operations in foreign jurisdictions, Downer
employees are confronted by the challenges of doing business
in environments where bribery and corruption are real risks.
However, regardless of the country or culture within which its
people work, Downer is committed to compliance with the law,
as well as maintaining its reputation for ethical practice.
These policies are available on the Downer website at
www.downergroup.com.
Principle 4: Safeguard integrity in
financial reporting
The Company has in place a structure of review and
authorisation which independently verifies and safeguards the
integrity of its financial reporting.
The Audit and Risk Committee assists the Board to fulfil its
responsibilities relating to:
– The quality and integrity of the accounting, auditing and
reporting practices of the Company with a particular
focus on the qualitative aspects of financial reporting
to shareholders;
– The Company’s risk profile and risk policies; and
– The effectiveness of the Company’s system of internal
control and framework for risk management.
The Audit and Risk Committee is structured so that it:
– Consists of only Non-executive Directors;
– Consists of a majority of independent Directors;
– Is chaired by an independent Chairman (who is not the
Chairman of the Board); and
– Has at least three members.
The Audit and Risk Committee comprises only independent
Directors, includes members who are financially literate and
has at least one member who has relevant qualifications
and experience.
The Audit and Risk Committee Charter sets out the Audit and
Risk Committee’s role and responsibilities, composition, structure
and membership requirements and the procedures for inviting
non-committee members to attend meetings.
Annual Report 2019 139
The Board receives assurances from the Group CEO and the
Group CFO that the declarations provided to it in relation to the
annual and half-year financial statements, in accordance with
sections 295A and 303(4) of the Corporations Act 2001 (Cth)
are founded on a sound system of risk management and internal
control and that the system is operating effectively in all material
respects in relation to financial reporting risks.
Downer’s external auditor attends the Company’s AGMs and is
available to answer any questions which shareholders may have
about the conduct of the external audit for the relevant financial
year and the preparation and content of the Audit Report.
Information regarding the number of times the Audit and Risk
Committee convened in FY19, together with the individual
attendances of members at the meetings, is set out in the
Directors’ Report on page 20.
The Audit and Risk Committee Charter is available on the
Downer website at www.downergroup.com.
Principle 5: Make timely and
balanced disclosure
The Company’s Disclosure Policy sets out processes which
assist the Company to ensure that all investors have equal and
timely access to material information about the Company and
that Company announcements are factual and presented in a
clear and balanced way. It includes that new and substantive
investor or analyst presentations are released on the ASX Market
Announcements Platform ahead of the presentation. A copy of
the Disclosure Policy is available on the Downer website at
www.downergroup.com.
The Disclosure Policy also sets out the procedures for identifying
and disclosing material and market-sensitive information in
accordance with the Corporations Act 2001 (Cth) and the ASX
Listing Rules. The Board receives copies of all material market
announcements promptly after they have been made.
Downer’s Disclosure Committee consists of two independent,
Non-executive Directors (one of which is the Chairman of the
Board) and the Group CEO. The Disclosure Committee oversees
disclosure of information by the Company to the market and the
general investment community.
Principle 6: Respect the rights of shareholders
Downer empowers its shareholders by:
– Communicating effectively, openly and honestly
with shareholders;
– Giving shareholders ready access to balanced and
understandable information about the Company and
its governance;
– Making it easy for shareholders to participate in
general meetings; and
– Giving shareholders the option to receive communications
from, and send communications to, the Company and its
security registry electronically.
The Downer Communication Policy sets out the Company’s
approach to communicating with shareholders and is available
on the Downer website at www.downergroup.com.
The Company publishes corporate information on its website
(www.downergroup.com), including Annual and Half
Year Reports, ASX announcements, investor updates and
media releases.
Downer encourages shareholder participation at members
meetings through its use of electronic communication, including
by making notices of meetings available on its website and audio
casting of general meetings and significant Group presentations.
All substantive resolutions at meetings of shareholders are
conducted by poll.
The Directors and key members of management attend the
Company’s AGMs and are available to answer questions.
Principle 7: Recognise and manage risk
To mitigate the risks that arise through its activities, Downer has
various risk management policies and procedures in place that
cover (among other matters) interest rate management, foreign
exchange risk management, credit risk management, tendering
and contracting risk and project management.
Downer has controls at the Board, executive and business unit
levels that are designed to safeguard Downer’s interests and
ensure the integrity of reporting (including accounting, financial
reporting, environment and workplace health and safety policies
and procedures). These controls are designed to ensure that
Downer complies with legal and regulatory requirements, as well
as community standards.
140 Downer EDI Limited
Corporate Governance – continuedfor the year ended 30 June 2019 Downer’s remuneration policy is designed to motivate senior
executives to pursue the long-term growth and success of
the Company and prescribes a relationship between the
performance and remuneration of senior executives.
The Remuneration Committee is structured so that it:
– Consists of a majority of independent Directors;
– Is chaired by an independent Director; and
– Has at least three members.
The Executive Director is not a member of the
Remuneration Committee.
The maximum aggregate fee approved by shareholders that can
be paid to Non-executive Directors is $2.0 million per annum.
This cap was approved by shareholders on 30 October 2008.
Further details about remuneration paid to Non-executive
Directors are set out in the Remuneration Report at page 22.
Retirement benefits are not paid to Non-executive Directors.
Non-executive Directors do not participate in any equity
incentive schemes.
The remuneration structure for Executive Directors and senior
executives is designed to achieve a balance between fixed and
variable remuneration taking into account the performance of
the individual and the performance of the Company. Executive
Directors receive payment of equity-based remuneration as
short-term and long-term incentives.
Executive Directors and senior executives are prohibited from
entering into transactions in associated products which limit the
economic risk of participating in unvested entitlements under
any of the Company’s equity-based remuneration schemes, as
set out in the Securities Trading Policy. A copy of the Securities
Trading Policy is available on the Downer website at
www.downergroup.com.
Further details about the remuneration of Executive Directors
and senior executives are set out in the Remuneration Report
at page 22 and details of Downer shares beneficially owned by
Directors are provided in the Directors’ Report at page 6.
Downer has a Risk Management Framework in place to enable
business risks to be identified, evaluated and managed. The
Board ratifies Downer’s approach to managing risk and oversees
Downer’s Risk Management Framework, including the Group risk
profile and the effectiveness of the systems being implemented
to manage risk. The last comprehensive review of the Risk
Management Framework was completed in 2016. However,
the Board reviews the Group risk profile twice each year and
considers other risk matters, such as business resilience, tender
review processes, risk appetite, and specific risk areas, on a
regular basis, as well as regular reports from senior management,
the internal audit team, and the external auditor.
Downer’s annual Sustainability Report provides a detailed
overview of Downer’s approach to managing its environmental
and social risks. The Sustainability Report is available on the
Downer website at www.downergroup.com.
The Company’s internal audit function objectively evaluates and
reports on the existence, design and operating effectiveness of
internal controls. Downer’s internal audit team is independent
of the external auditor and reports to the Audit and
Risk Committee.
Downer’s Audit and Risk Committee assists the Board in
its oversight of Downer’s risk profile and risk policies, the
effectiveness of the systems of internal control and Risk
Management Framework and Downer’s compliance with
applicable legal and regulatory obligations. The Audit and Risk
Committee Charter is available on the Downer website at
www.downergroup.com.
Management reports regularly to the Audit and Risk Committee
on the effectiveness of Downer’s management of its material
business risks and on the progress of mitigation treatments.
Principle 8: Remunerate fairly and responsibly
The Board has established a Remuneration Committee and has
adopted the Remuneration Committee Charter which sets out its
role and responsibilities, composition, structure and membership
requirements and the procedures for inviting non-committee
members to attend meetings.
The Remuneration Committee is responsible for reviewing and
making recommendations to the Board about:
– Executive remuneration and incentive policies;
– The remuneration, recruitment, retention, performance
measurement and termination policies and procedures for all
senior executives reporting directly to the Group CEO;
– Executive and equity-based incentive plans; and
– Superannuation arrangements and retirement payments.
Remuneration of the Group CEO, Executive Directors and
Non-Executive Directors forms part of the responsibilities
of the Nominations and Corporate Governance Committee.
Annual Report 2019 141
Information for Investors
for the year ended 30 June 2019
Downer shareholders
Share registry
Downer had 21,270 ordinary shareholders as at 30 June 2019, of
which 19,547 shareholders had a registered address in Australia.
The largest shareholder, HSBC Custody Nominees (Australia)
Limited, held 30.14% of the 594,702,512 fully paid ordinary shares
issued at that date.
Securities exchange listing
Downer is listed on the Australian Securities Exchange (ASX)
under the “Downer EDI” market call code 3965, with ASX code
DOW, and is a foreign exempt issuer on the New Zealand
Exchange with the ticker code DOW NZ.
Company information
The Company’s website www.downergroup.com offers
comprehensive information about Downer and its services.
The site also contains news releases and announcements to
the ASX and NZX, financial presentations, Annual Reports,
Half Year Reports and company newsletters. Downer printed
communications for shareholders include the Annual Report
which is available on request.
Dividends
Dividends are determined by the Board having regard to a range
of circumstances within the business operations of Downer
including operating profit and capital requirements. The level of
franking on dividends is dependent on the level of taxes paid to
the Australian Taxation Office by Downer and its incorporated
joint ventures.
Dividends are paid in Australian dollars, other than for
shareholders with a registered address in New Zealand, who
receive dividends in New Zealand dollars unless an election
is made to receive payment in Australian dollars by providing
Australian bank account details.
International shareholders can use Computershare’s Global
Payments System to receive dividend payments in the currency
of their choice at a nominal cost to the shareholder.
Dividend reinvestment plan
Downer’s Dividend Reinvestment Plan (DRP) is a mechanism
to allow shareholders to increase their shareholding in the
Company without the usual costs associated with share
acquisitions, such as brokerage. Details of the DRP are available
from the Company’s website or the Easy Update website at
www.computershare.com.au/easyupdate/dow.
Shareholders and investors seeking information about Downer
shareholdings or dividends should contact the Company’s
share registry, Computershare Investor Services Pty Ltd
(Computershare):
Level 3
60 Carrington Street
Sydney NSW 2000
GPO Box 2975
Melbourne VIC 3001
Tel: 1300 556 161 (within Australia)
+61 3 9415 4000 (outside Australia)
Fax: 1300 534 987 (within Australia)
+61 3 9473 2408 (outside Australia)
www.computershare.com
Shareholders must give their holder number (SRN/HIN) when
making inquiries. This number is recorded on issuer sponsored
and CHESS statements.
Updating your shareholder details
Shareholders can update their details (including bank accounts,
DRP elections, tax file numbers and email addresses) online at
www.computershare.com.au/easyupdate/dow.
Shareholders will require their holder number (SRN/HIN) and
postcode to access this site.
Tax file number information
Providing your tax file number to Downer is not compulsory.
However, for shareholders who have not supplied their tax file
number, Downer is required to deduct tax at the top marginal
rate plus Medicare levy from unfranked dividends paid to
investors residing in Australia. For more information please
contact Computershare.
Lost issuer sponsored statement
You are advised to contact Computershare immediately,
in writing, if your issuer sponsored statement has been
lost or stolen.
142 Downer EDI Limited
Annual Report mailing list
Shareholders must elect to receive a Downer Annual Report
by writing to Computershare Investor Services Pty Ltd at the
address provided. Alternatively, shareholders may choose to
receive this publication electronically.
Change of address
So that we can keep you informed, and protect your interests in
Downer, it is important that you inform Computershare of any
change of your registered address.
Registered office and principal
administration office
Downer EDI Limited
Level 2, Triniti III
Triniti Business Campus
39 Delhi Road
North Ryde NSW 2113
Tel: +61 2 9468 9700
Fax: +61 2 9813 8915
Auditor
KPMG
International Towers Sydney 3
300 Barangaroo Avenue
Sydney NSW 2000
Australian securities exchange information as at 30 June 2019
Number of holders of equity securities:
Ordinary share capital
594,702,512 fully paid listed ordinary shares were held by 21,270 shareholders. All issued ordinary shares carry one vote per share.
Substantial shareholders
The following shareholders have notified that they are substantial shareholders of Downer as at 30 June 2019.
Shareholders
AustralianSuper Pty Ltd
Dimensional Fund Advisors
FIL Limited
Ausbil Investment Management Limited
Vinva Investment Management
Ordinary
shares held
48,746,466
35,958,473
30,859,896
29,840,376
29,742,478
% of issued
shares
8.20
6.05
5.19
5.02
5.00
Distribution of holders of quoted equity securities
Shareholder distribution of quoted equity securities as at 30 June 2019 is as follows.
Range of holdings
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Holding less than a marketable parcel of shares
Number of
shareholders
11,624
7,545
1,281
766
54
21,270
844
Shareholders %
54.66
35.47
6.02
3.60
0.25
Ordinary shares
held
5,108,163
17,145,101
9,124,928
16,177,615
547,146,705
594,702,512
Shares
%
0.86
2.88
1.53
2.72
92.01
100.00
Annual Report 2019 143
Information for Investors – continued
for the year ended 30 June 2019
Twenty largest shareholders
Downer’s 20 largest shareholders of ordinary fully paid shares as at 30 June 2019 are as follows.
Shareholders
HSBC Custody Nominees (Australia) Limited
Chase Manhattan Nominees Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
CPU Share Plans Pty Limited
Citicorp Nominees Pty Limited
Argo Investments Ltd
AMP Life Ltd
Sandhurst Trustees Ltd
Mr Grant Fenn
Mr Barry Sydney Patterson + Mrs Glenice Margaret Patterson
Bainpro Nominees Pty Limited
National Nominees Limited
Navigator Australia Ltd
BNP Paribus Noms (NZ) Ltd
Navigator Australia Ltd
Total for top 20 shareholders
Shares held
179,250,193
173,614,303
80,133,929
52,378,195
15,377,507
12,414,703
6,438,726
3,822,000
3,730,060
3,507,999
2,659,538
2,113,627
1,799,760
961,478
891,642
639,969
454,273
417,043
390,198
377,154
541,372,297
% of issued shares
30.14
29.19
13.47
8.81
2.59
2.09
1.08
0.64
0.63
0.59
0.45
0.36
0.30
0.16
0.15
0.11
0.08
0.07
0.07
0.06
91.04
144 Downer EDI Limited
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www.downergroup.com