Annual
Report
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This Annual Report includes
the Downer EDI Limited
Directors’ Report, the
Annual Financial Report
and the Independent
Audit Report for the
financial year ended
30 June 2020. The Annual
Report is available on
the Downer website
www.downergroup.com.
Contents
Directors’ Report
Page 4
Auditor’s signed reports
Page 51
Page 52
Auditor’s Independence Declaration
Independent Auditor’s Report
Financial Statements
Page 60
Page 61
Page 62
Page 63
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 64-65
Page 66-78
Page 79-91
Page 92-94
Page 95-102
Page 103-111
Page 112-124
B1
Segment
information
B2
Revenue
C1
Reconciliation
of cash and
cash equivalents
D1
Employee benefits
E1
Borrowings
F1
Joint arrangements
and associate
entities
G1
New accounting
standards
C2
Trade receivables
and contract assets
D2
Defined benefit
plan
E2
Financing facilities
F2
Acquisition of
businesses
B3
Individually
significant items
C3
Inventories
D3
Key management
personnel
compensation
E3
Lease liabilities
F3
Controlled entities
F4
Related party
information
F5
Parent entity
disclosures
B4
Earnings per share
C4
Trade payables and
contract liabilities
D4
Employee discount
share plan
E4
Commitments
E5
Issued capital
E6
Non-controlling
interest (NCI)
E7
Reserves
E8
Dividends
B5
Taxation
B6
Remuneration of
auditor
C5
Property, plant and
equipment
C6
Right-of-use assets
B7
Subsequent events
C7
Intangible assets
C8
Lease receivables
C9
Other provisions
C10
Contingent
liabilities
Page 125 Directors’ Declaration
Other information
Page 126 Sustainability Performance Summary 2020
Page 130 Corporate Governance
Page 140
Information for Investors
G2
Capital and financial
risk management
G3
Other financial
assets and liabilities
Annual Report 2020 1
Highlights
Downer’s Urban Services businesses performed well during the
2020 financial year with strong demand for the Group’s road, rail,
power, gas, water, health, education, defence and government
services. Total revenue of $13.4 billion was in line with the prior year.
Downer reported a statutory net loss after tax of $155.7 million
while underlying NPATA was $215.1 million, with $386.0 million
($320.9 million after tax) of items outside the underlying result.
Total Revenue2
Underlying1 EBITA
$13,417.9m
$416.0m
Underlying1 NPATA
Operating Cash Flow
$215.1m
$178.8m
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 and underlying EBITA is reconciled to statutory NPAT in the Directors’ Report Group Financial Performance section on page 11.
2 Total revenue is a non-statutory disclosure and includes revenue from joint ventures, other alliances and other income.
2 Downer EDI Limited
Downer’s strategy is to focus on its core Urban Services businesses.
These businesses have:
– demonstrated strength and resilience
– leading market positions and attractive
medium and long-term growth opportunities
– a high proportion of government and government-related contracts
– a capital light, services-based business model generating
lower risk, more predictable revenues and cash flows.
The Downer Portfolio
Downer Group
Transport
Utilities
Facilities
Asset Services
Wind down & re-scope
Core
Non-core
Road Services
Telecommunications
Government
Oil & Gas
Rollingstock
Services
Transport Projects
Water
Health & Education
Power Generation
Power & Gas
Defence
Building
Industrial
Infrastructure & Construction
(Facilities)
Engineering & Construction
(EC&M)
Under review / to be sold
Mining
Laundries (Facilities)
Hospitality (Facilities)
Annual Report 2020 3
Directors’ Report
for the year ended 30 June 2020
The Directors of Downer EDI Limited submit the Annual Financial
Report of the Company for the financial year ended 30 June
2020. In compliance with the provisions of the Corporations Act
2001 (Cth), the Directors’ Report is set out below.
Board of Directors
R M HARDING (71)
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 will retire from
the Board of Lynas Limited on 30 September 2020.
Mr Harding holds a Masters in Science, majoring in
Mechanical Engineering.
Mr Harding lives in Sydney.
G A FENN (55)
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.
P S GARLING (66)
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. 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 (57)
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 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.
4 Downer EDI Limited
N M HOLLOWS (49)
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 the Non-executive Chair of Jameson Resources
Limited, Chair of The Salvation Army Brisbane Red Shield
and Fundraising Committee, a member of the Salvation Army
Queensland Advisory Council and a member of the CEO
Advisory Committee for Dean of Queensland University of
Technology (QUT) Business School.
P L WATSON (63)
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 10 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.
She was formerly the Chief Executive Officer of SunWater
Limited, a Queensland Government owned corporation; 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.
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 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.
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 2020 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
P S Garling
T G Handicott
N M Hollows
P L Watson
Number of Fully Paid
Ordinary Shares
Number of Fully Paid
Performance Rights
Number of Fully Paid
Performance Options
28,856
1,877,464
19,962
17,000
13,000
16,799
–
646,097
–
–
–
–
–
–
–
–
–
–
1
Performance rights granted to Mr Fenn are subject to performance and/or service period conditions over the period 2017 to 2022. Further details regarding the conditions
relating to these restricted shares and performance rights are outlined in sections 6.4 and 9.2 of the Remuneration Report.
– Implementing plans for office staff to work remotely
where possible and increasing social distancing
measures in all offices
– Restricting visitors to customer sites and locations to only
essential employees and contractors
– Implementing temperature testing procedures at sites
– Banning all non-essential business travel
– Applying all current Government mandated guidelines
relating to travel and self-isolation
– Regular communication with employees reinforcing correct
hygiene, self-isolation and social distancing practices.
Downer has also put in place strategies to minimise the impact
of COVID-19 on its employees and the communities in which it
operates, including:
– Increasing the focus on mental health support and
activities for employees
– Establishing a hardship program for affected workers
– Establishing a redeployment and retraining program for
displaced workers
– Providing support for vulnerable community initiatives.
Under the New Zealand Government’s Level 4 restrictions,
Downer was only able to perform about 30% of its usual services.
These restrictions were eased from late April 2020 and service
levels then began gradually returning to normal.
In Australia, Spotless’ Hospitality business has been generating
virtually no revenue since COVID-19 regulations were introduced
in March 2020. As a result, Downer reduced the size of this
business in June to reflect the smaller scale of operations.
Company Secretary
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.
Review of Operations
COVID-19
Downer has complied with all Government regulations and advice
in relation to the COVID-19 pandemic and has robust Business
Continuity Plans in place. Senior managers communicate regularly
with their teams to ensure they are fully informed about the
evolving situation and putting in place appropriate strategies.
Downer has implemented a range of control measures
across its offices and sites to minimise the risks of COVID-19
transmission. This includes:
– Increased cleaning of site amenities and facilities, including
availability of hand sanitiser on all sites
– Ensuring face-to-face meetings involve as few employees
as possible and practising appropriate social distancing
measures when these do take place
6 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 Several other Downer businesses have also experienced a
reduction in revenue, however there has been no material impact
on demand for the majority of Downer’s Australian businesses,
including: Road Services; Rollingstock Services; Transport
Projects; Utilities; Defence consulting; Defence base and estate
management; Health and Education; and Government services.
In addition, Downer announced during the year that it would
focus its construction efforts on areas where it has a competitive
differentiation. As a result, Downer will no longer tender for
“hard dollar” construction contracts in the solar, coal, iron ore
and industrial E&I (electrical and instrumentation) and SMP
(structural, mechanical and piping) sectors.
Downer is committed to working closely with its customers and
partners to minimise the impact on operations while keeping its
employees and communities safe.
Principal Activities
Downer EDI Limited (Downer) is a leading provider of integrated
services in Australia and New Zealand. Downer employs
approximately 52,000 people, mostly in Australia and New
Zealand but also in the Asia-Pacific region, South America and
Southern Africa.
Downer reports its results under five service lines: Transport;
Utilities; Facilities; Engineering, Construction and Maintenance
(EC&M); and Mining.
Downer’s strategy is to focus on the core Urban Services
businesses within the Transport, Utilities and Facilities service
lines because they have:
– Demonstrated strength and resilience
– Leading market positions and attractive medium and long-
term growth opportunities
– A high proportion of government and government-
related contracts
– A capital light, services-based business model generating
lower risk, more predictable revenues and cash flows.
On 21 July 2020, Downer announced a package of initiatives to
reshape the Group in line with its Urban Services strategy and
create a stronger platform for long-term, sustainable growth.
These initiatives are:
– Achieving 100% ownership of Spotless (at the date of this
Annual report, Downer owned 88% of Spotless)
– Exiting non-core businesses
– Right-sizing the cost base and operating model to align with
the Urban Services strategy
– A non-cash impairment of $165.0 million relating to the
Spotless cash generating units.
Downer has made an unconditional offer to acquire all of the
issued share capital of Spotless not already owned by Downer.
It is expected that the outcome of this offer will be known by the
end of the 2020 calendar year.
In relation to exiting non-core businesses, Downer is exploring
the potential sale of its Mining portfolio (in parts or as a whole)
and reviewing the prospects of its Hospitality business (within
the Facilities service line) to determine which parts will continue
and which will be exited or sold. Downer is also considering the
sale of its Laundries business (within Facilities).
For the 2020 financial year, an outline of each of the five services
lines is set out below.
Transport
Transport comprises Downer’s Road Services, Transport
Projects, and Rollingstock Services businesses.
Total revenue1 (FY20)
EBITA2 (FY20)
35.0%
48.8%
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.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense. Due to rounding, divisional percentages do not add up
precisely to 100%.
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.
Annual Report 2020 7
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.
Transport Projects
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.
Rollingstock Services
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 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.
Downer’s rollingstock customers include Sydney Trains,
Transport for NSW, Public Transport Authority (WA),
Metro Trains Melbourne, Public Transport Victoria, and
Queensland Rail.
Utilities
Downer offers a range of services to customers across the power
and gas, water, communications and renewables sectors.
Total revenue1 (FY20)
EBITA2 (FY20)
20.0%
23.7%
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.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense. Due to rounding, divisional percentages do not add up
precisely to 100%.
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.
Our performance on the network is benchmarked at activity unit
level, repeatedly demonstrable and assessed against continually
improving key performance indicators.
Water
Downer delivers 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.
8 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 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.
Renewables
Downer is one of Australia’s most experienced providers in the
renewable energy market, delivering services to customers
requiring both utility and commercial scale sustainable
energy solutions.
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.
Facilities
The Facilities service line operates in Australia and New
Zealand delivering facilities services to customers across a
range of industry sectors including: defence; education; health;
government; and hospitality.
Total revenue1 (FY20)
EBITA2 (FY20)
24.7%
21.6%
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.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense. Due to rounding, divisional percentages do not add up
precisely to 100%.
Facilities businesses include Spotless, AE Smith, Alliance, Ensign,
EPICURE, Mustard, Nuvo, Taylors and Envar.
Spotless is the largest integrated facilities management
services provider in Australia and New Zealand and 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 services 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.
Engineering, Construction and Maintenance (EC&M)
Downer’s EC&M service line includes its Engineering &
Construction and Asset Services businesses and works with
customers in the public and private sectors delivering services
including design, engineering, construction and maintenance of
critical assets.
Total revenue1 (FY20)
EBITA2 (FY20)
8.7%
(10.6)%
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.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense. Due to rounding, divisional percentages do not add up
precisely to 100%.
Downer announced at its 2020 half-year results that it will focus
its construction efforts on areas where it has a competitive
differentiation. As a result, Downer will no longer tender for “hard
dollar” construction contracts in the coal, iron ore and industrial
E&I (Electrical and Instrumentation) and SMP (Structural,
Mechanical and Piping) sectors.
In the oil and gas sector, Downer’s capabilities cover the full
range of services including maintenance, shutdown, turnaround
and outage delivery, sustaining capital program delivery, project
and commissioning services.
Annual Report 2020 9
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 is 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
fine physical mineral separation solutions, including spiral gravity
concentrators, magnetic and electrostatic separation technology.
Mineral Technologies delivers innovative, process solutions for
iron ore beneficiation, mineral sands, silica sands, coal, chromite,
gold, tin, tungsten, tantalum and several other fine materials.
Mining
Downer is one of Australia’s leading diversified mining
contractors serving its customers across more than 60
sites in Australia, Papua New Guinea, South America and
Southern Africa.
Total revenue1 (FY20)
EBITA2 (FY20)
11.6%
16.4%
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.
Downer calculates EBITA by adjusting EBIT to add back acquired intangibles
amortisation expense. Due to rounding, divisional percentages do not add up
precisely to 100%.
Downer provides services at all stages of the mining
lifecycle, including:
– Exploration drilling
– Open cut mining services in Australia
– Underground mining services in Australia and
Papua New Guinea
– Drilling, explosives manufacture and supply,
blasting and crushing
– Tyre management (through the subsidiary
Otraco International)
– Mine closure and rehabilitation.
Downer’s mining services customers include BHP Mitsubishi
Alliance, Fortescue Metals Group, the Gold Fields-Gold Roads
Resources joint venture, Karara Mining Ltd, Millmerran Power
Partners, OZ Minerals and Stanwell Corporation Ltd.
10 Downer EDI Limited
Group Financial Performance
For the 12 months ended 30 June 2020, Downer reported total
revenue in line with the prior year while earnings before interest,
tax and amortisation of acquired intangible assets (EBITA) and
statutory net profit after tax (NPAT) were both lower.
The table below provides a comparison of the underlying
earnings for FY20 versus underlying results for FY19 and a
reconciliation to statutory NPAT.
Underlying1 EBITA
(A$m)
Reporting
Segment
Transport
Utilities
Facilities2
Asset Services3
Core Urban
Services Businesses
Infrastructure
& Construction
(Spotless)2
Engineering &
Construction
(Downer)3
Businesses in wind down
Mining
Laundries2
Hospitality2
Businesses under
review or to be sold
Corporate
Group Underlying EBITA
Amortisation of acquired
intangibles (pre-tax)
Underlying EBIT
Net interest expense
Tax expense
Underlying NPAT
Amortisation of acquired
intangibles (post tax)
Underlying NPATA
Items outside of
underlying NPATA
Tax effect on
items outside NPATA
Statutory NPATA
Amortisation of acquired
intangibles (post tax)
Statutory NPAT
Transport
Utilities
Facilities
EC&M
FY20
FY19
235.6
114.6
133.9
27.1
242.4
136.1
133.6
13.4
Variance
(%)
(2.8%)
(15.8%)
0.2%
>100%
511.2
525.5
(2.7%)
Facilities
(9.0)
(3.1)
>(100%)
EC&M (69.2)
(78.2)
79.0
9.1
(19.7)
Mining
Facilities
Facilities
19.9
>(100%)
16.8 >(100%)
3.0%
76.7
(48.0%)
17.5
>(100%)
22.5
Unallocated
68.4
(85.4)
416.0
116.7
(98.4)
560.6
(41.4%)
13.2%
(25.8%)
(71.3)
344.7
(112.0)
(67.5)
165.2
(70.4)
490.2
(82.4)
(117.0)
290.8
(1.3%)
(29.7%)
(35.9%)
42.3%
(43.2%)
49.9
215.1
49.3
340.1
1.2%
(36.8%)
(386.0)
(28.0)
>(100%)
65.1
(105.8)
13.5
>100%
325.6 >(100%)
(49.9)
(155.7)
(49.3)
(1.2%)
276.3 >(100%)
1
2
3
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.
Total underlying EBITA for the Facilities segment in FY20 was $114.3 million
(FY19: $170.5 million). Refer to Note B1 on page 68.
Total underlying EBITA for the EC&M segment in FY20 was loss $42.1 million
(FY19: profit $33.3 million). Refer to Note B1 on page 68.
Directors’ Report – continuedfor the year ended 30 June 2020 A reconciliation of the underlying result to the statutory result is provided in the table below:
$m
Underlying result
Historical contract claims adjustments
Portfolio restructure and exit costs
Payroll remediation costs
Goodwill impairment
Spotless shareholder class action
Legal settlement
Total items outside underlying result
Statutory result – profit/(loss)
Net
interest
expense
Tax
expense
(112.0)
–
–
–
–
–
–
–
(112.0)
(88.9)
5.5
42.2
4.5
–
10.2
2.7
65.1
(23.8)
EBITA
416.0
(18.8)
(142.4)
(16.3)
(165.0)
(34.0)
(9.5)
(386.0)
30.0
Deduct:
Amortisation
of acquired
intangibles
(post-tax)
(49.9)
–
–
–
–
–
–
–
(49.9)
NPATA
215.1
(13.3)
(100.2)
(11.8)
(165.0)
(23.8)
(6.8)
(320.9)
(105.8)
NPAT
165.2
(13.3)
(100.2)
(11.8)
(165.0)
(23.8)
(6.8)
(320.9)
(155.7)
Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group FY20: $71.3 million, $49.9 million after-tax.
(FY19: $70.4 million, $49.3 million after-tax)
Revenue
Total revenue for the Group decreased by $30.4 million, or 0.2%,
to $13.4 billion.
Transport revenue increased by 7.9%, or $344.0 million, to
$4.7 billion. This growth has been driven by continuing strong
performance in the Road Services business particularly in
Australia, increased contributions from Transport Projects, both
in Australia and New Zealand, and strong performance in the
Rollingstock Services business.
Utilities revenue increased by 7.2%, or $181.3 million, to
$2.7 billion due to increased activities in water, power and gas,
as well as from new renewables projects. This was partially
offset by reduced contribution from nbnTM contracts as the
project winds down.
Facilities revenue decreased by 2.3%, or $77.0 million, to
$3.3 billion largely due to the impact of COVID-19 on Hospitality
and projects completed in New Zealand not being fully replaced.
This was partially offset by increased revenue from Government-
related contracts and contribution from Envar (acquired in 2H19).
EC&M revenue decreased by 31.5%, or $536.6 million, to
$1.2 billion as a result of project completions, particularly
the Ichthys contract, and reduced construction activity in
line with Downer’s strategy. In the Asset Services business,
COVID-19 resulted in deferrals of non-essential maintenance
and shutdowns.
Mining revenue increased by 4.8%, or $71.3 million, to $1.5 billion
with higher activities at several sites partially offset by completed
contracts at Roy Hill and Cloudbreak. COVID-19 impacted some
operational activities due to travel restrictions.
Expenses
Total expenses increased by 3.4% compared to the prior
corresponding period (pcp) and includes $386.0 million of
items outside the underlying result, while the pcp included a
$45.0 million individually significant item balance in relation to
the Murra Warra wind farm contract.
Excluding these items, total expenses increased by 0.7%,
or $81.5 million.
Employee benefits expenses decreased by 2.8%, or $123.1 million,
to $4.2 billion and represent 32.9% of Downer’s cost base.
The decrease is mainly due to a shift in the mix of labour, where
subcontractors’ costs as a percentage of revenue has increased,
as well as from the benefit of integration and restructuring
activities across the Group.
Included in Employee benefits expenses there is $51.0 million
of pre-tax items in relation to portfolio restructure and exit
costs and payroll remediation costs as described in Note B3 in
the Financial Report. Excluding these items, employee benefits
expenses would have decreased by 4.0%, or $174.1 million, and
would represent 33.5% of Downer’s cost base.
Subcontractor costs increased by 5.1%, or $212.3 million, to
$4.4 billion and represent 34.4% of Downer’s cost base. This
increase is a result of higher contract activities and the change in
the subcontractor mix on some contracts during the year.
Raw materials and consumables costs increased by 2.0%, or
$43.3 million, to $2.2 billion and represent 16.9% of Downer’s cost
base. The increase is mainly due to bogie overhaul activities in
Rollingstock Services and from contract completion activities,
particularly in the EC&M segment.
Plant and equipment costs decreased by 4.2%, or $29.2 million,
to $660.6 million and represent 5.2% of Downer’s cost base.
The decrease in plant and equipment costs is attributed to a less
capital-intensive business as well as initiatives to drive efficient
plant and equipment usage and maintenance practices.
Following the adoption of AASB 16 Leases from 1 July 2019, the
depreciation charges in relation to the right-of-use assets is now
recognised and disclosed separately. The depreciation charge
against the right-of-use assets of $151.8 million represents 1.2% of
Downer’s cost base.
Annual Report 2020 11
Other depreciation and amortisation increased by 1.5%, or
$5.5 million, to $365.5 million and represents 2.9% of Downer’s
cost base. This increase is driven by ongoing investment in
business-critical equipment over recent years.
Impairment of non-current assets of $212.0 million represents
$165.0 million impairment of goodwill and $47.0 million
impairment of capitalised information systems, right-of-use
assets; plant and equipment and leasehold improvement
balances as a result of portfolio restructuring activities.
Other expenses, which include communication, travel, occupancy
and professional fees costs, decreased by $50.1 million or 7.3%
to $632.5 million and represent 4.9% of Downer’s cost base.
This decrease is primarily as a result of the application of AASB
16 Leases, which has resulted in the majority of the Group’s
leases being brought on balance sheet, and therefore incurring
depreciation and interest charges rather than operating lease
rental charges that had previously been disclosed as part of
Other expenses.
Included in Other expenses is $94.9 million of pre-tax items as
described in Note B3 of the Annual Report. Excluding these
items, Other expenses would have decreased by 15.7%, or
$100.0 million, to $537.6 million and would represent 4.3% of
Downer’s cost base.
Earnings
The results of the Group have been adversely impacted by
contract losses in the EC&M service line as well as by the impact
of $367.2 million (pre-tax) of Individually Significant Items.
Transport EBITA decreased by 2.8%, or $6.8 million, to
$235.6 million driven by completed Transport Infrastructure
projects in Australia and New Zealand, completion of the
construction phase of contracts within Rollingstock Services,
and lower contribution from the Keolis Downer JV as Yarra
Trams patronage was impacted by COVID-19. Road Services in
Australia continued to perform strongly.
Utilities EBITA decreased by 15.8% to $114.6 million as a result
of reduced contribution from nbnTM contracts as the project
winds down and from telecommunications contract completions
in New Zealand.
Facilities EBITA decreased by 38.8%, or $66.1 million, to
$104.4 million due to the significant impact of COVID-19 on
the Hospitality business as well as completion of construction
contracts not fully replaced. COVID-19 also reduced volumes
in the Laundries business as elective surgery activities were
restricted. This was partially offset by increased activity in
Government contracts, including additional cleaning activities
associated with COVID-19.
EC&M reported an EBITA loss of $51.0 million for the year,
a $84.3 million decrease compared to the pcp. This was primarily
due to a small number of loss-making construction contracts
as well as from the completion of contracts in the pcp not fully
replaced. The Asset Services business grew despite COVID-19
causing cancellations and delays of plant maintenance and
shutdown activities.
12 Downer EDI Limited
Mining EBITA increased by 3.0% to $79.0 million driven by
improved performance from existing contracts, the contribution
of new contracts and benefits from restructuring initiatives.
Corporate costs decreased by $13.0 million or 13.2% to
$85.4 million following restructuring initiatives.
Net finance costs, excluding $26.4 million of interest on
lease liabilities arising from the changes in lease accounting
under AASB 16 Leases, increased by $3.2 million or 3.9%, to
$85.6 million as a result of increase in debt draw downs and debt
refinancing to support business activities.
The tax expense of $2.4 million results in an effective tax rate
of (1.6)% 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 tax rates in overseas jurisdictions
(e.g. New Zealand) as well as non-deductible items outside
statutory results such as the Spotless goodwill impairment of
$165.0 million.
Group Cash Flow and Financing
Funding, liquidity and capital are managed at Group level,
with Divisions focused on working capital and operating cash
flow management.
During the year ended 2020, the Group was successful in
renegotiating the maturity dates of a significant portion of its
debt facilities and establishing $787.8 million of new committed
debt facilities, $500 million of which was established in direct
response to the global COVID-19 pandemic to ensure the Group’s
liquidity strength was maintained during a period of heightened
global uncertainty and volatility. In addition, the Group deferred
payment of the 2019 interim dividend of $83.3 million to further
augment its strong liquidity position.
On 21 July 2020, the Group announced the launch of a
$400 million equity raising to support the acquisition of the
remaining shares in Spotless and provide flexibility for continued
investment in Downer’s core businesses. The Group now has
no material debt facilities maturing in the 12 months to 30 June
2021 and a strong liquidity position which will assist in mitigating
any further market volatility.
Operating Cash Flow
Operating cash flow before interest and tax was $340.4 million,
a $416.6 million decrease from the prior year. Most of this
decrease ($339.6 million) occurred in the first six months of the
year as a result of lower operating cash flows in EC&M due to
losses incurred on a small number of constructions contracts,
the impact of project completions in Utilities, and Waratah bogie
overhaul activities in Transport.
Operating cash flow before interest and tax for the second half
of the year was $320.9 million, compared to $397.9 million in
the second half of the prior year. The decrease of $77.0 million
is largely driven by the impact of COVID-19 and project
completion activities across the Group. The operating cash
flow in the second half of FY20 represents a 74.2% underlying
EBITDA conversion.
Directors’ Report – continuedfor the year ended 30 June 2020 The Group delivered net operating cash flow of $178.8 million
with a FY20 underlying EBITDA conversion of 39.5%.
Net interest paid increased $32.8 million compared to the prior
year. Of this increase, $26.4 million relates to interest payments in
relation to the lease liabilities recognised on adoption of AASB 16
Leases from 1 July 2019.
Investing Cash
Total investing cash outflow was $397.9 million, $111.8 million
lower than prior year, driven by $55.5 million lower payments for
property, plant and equipment and $33.2 million less payments
for business acquisitions. With the onset of COVID-19, the Group
has deferred all non-essential investments.
Debt and Bonding
The Group’s performance bonding facilities totalled
$2,034.8 million at 30 June 2020, $108.3 million lower
compared to the pcp with $595.0 million undrawn. There
is sufficient available capacity to support the ongoing
operations of the Group.
As at 30 June 2020, the Group had liquidity of $1,858.5 million
comprising cash balances of $588.5 million and undrawn
committed debt facilities of $1,270.0 million.
The Group continues to be rated BBB (Stable) by Fitch Ratings.
Group Financial Position
The ongoing review of the Group’s compliance with Modern
Award and Enterprise Agreements obligations has determined
that the Group had a liability of $24.8 million for periods prior
to 1 July 2018. As a result, prior year comparatives have been
restated to properly reflect the opening balance of retained
earnings, employee benefits provision and related deferred tax
assets impact of $7.4 million. The after-tax impact of $17.4 million
was reflected as an adjustment in opening retained earnings, of
which $15.3 million was attributable to the parent and $2.1 million
to non-controlling interests. In the analysis below, the balances
as at 30 June 2019 are inclusive of the above adjustments.
The net assets of Downer decreased $412.3 million or 13.6% to
$2,620.5 million. The main drivers of this decrease are the impact
of the $320.9 million of items outside the underlying results and
the adoption of AASB 16 Leases from 1 July 2019 which resulted
in an adjustment to opening retained earnings of $66.0 million.
Net debt is calculated as borrowings (excluding lease liabilities)
less the cash and cash equivalents. Net debt has increased
$470.0 million to $1,462.8 million mainly driven by $122.2 million
lower cash and cash equivalent balances and a lower operating
cash flow to the pcp due to project completion activities as
explained above.
As a result of a lower cash balance, drawdowns made to support
operational activities and a reduced equity resulting from the
items recognised during the year, Group gearing at 30 June
2020 was 35.5% (calculated on a pre-AASB 16 basis) which is
10.5 percentage points higher than 30 June 2019.
Total trade receivables and contract assets have increased
16.7% or $345.2 million to $2,411.1 million as a result of contract
asset balance increases in EC&M and in Transport as a result of
project commencements and bogie overhaul activities.
Inventories have increased 9.7% or $29.4 million to $334.0 million
driven by bogie overhaul activities in Transport and higher stock
levels in Utilities as a result of new contracts.
Current tax assets increased $7.5 million to $65.2 million due to
the timing of tax payments.
Interest in joint ventures and associates increased by $1.8 million
to $110.6 million. This represents Downer’s share of net profit from
joint ventures and associates of $19.4 million, offset by $17.2 million
distributions received and $0.4 million of exchange losses.
Property, plant and equipment decreased by $23.1 million with
depreciation and impairment charges of $275.1 million and net
disposals of $19.3 million being partially offset by $286.2 million
of additions during the year.
Right-of-use assets at 30 June 2020 were $592.6 million. This
balance primarily arose as a result of the adoption of AASB
16 Leases as at 1 July 2019 recognising an initial balance of
$570.6 million. The movement to 30 June 2020 relates to
new leases entered since 1 July 2019 net of depreciation and
impairment charges.
Intangible assets decreased by $234.6 million reflecting the
$165.0 million impairment of goodwill in relation to Spotless,
$23.9 million impairment of capitalised information systems and
an additional $61.4 million investment in software during the year,
offset by $100.5 million of amortisation charges.
Net deferred tax balances (net of deferred tax asset and
liabilities) moved from a net deferred tax liability position of
$36.7 million as at 30 June 2019 to a net deferred tax asset
position of $47.0 million. The net movement of $83.7 million is
primarily due to the recognition of available income tax losses as
well as the initial adoption of AASB 16 Leases.
Total trade payables and contract liabilities increased
by $69.4 million or 2.8% largely due to the recognition of
$83.3 million on dividend payables following the deferral of the
FY20 interim dividend and $34.0 million payable following the
Spotless shareholder class action settlement. Excluding these
specific payable amounts, trade payables and contract liabilities
balances decreased by $47.9 million or 1.9% due to timing of
payments and conversion of contract liabilities as project work is
delivered. Trade payables and contract liabilities represents 41.7%
of Downer’s total liabilities.
Other financial liabilities decreased by $7.2 million to
$60.2 million, representing 1.0% of Downer’s total liabilities. The
decrease mainly reflects a $26.7 million reduction in deferred
and contingent consideration payable on acquisitions made in
prior years, offset by a $17.0 million increase in the fair value of
derivative financial instruments.
Annual Report 2020 13
Lease liabilities at 30 June 2020 were $763.2 million, of which
$727.8 million was recognised on adoption of AASB 16 Leases as
at 1 July 2019. The increase represents new leasing arrangements
entered into since 1 July 2019, offset by $152.9 million of principal
payments made during the year. Lease liabilities represent 12.6% of
Downer’s total liabilities.
Provisions of $545.6 million decreased by $56.3 million mainly
driven by provision utilisation during the year, particularly for
Murra Warra and new Royal Adelaide Hospital, while the adoption
of AASB 16 Leases resulted in $37.1 million reduction of onerous
provisions related to leases being recognised against the right-of-
use assets. Provisions represent 9.0% of Downer’s total liabilities.
Employee related provisions (mainly annual leave and long service
leave) made up 79.2% of this balance with the remainder covering
contract provisions, decommissioning and restructuring and
warranty obligations.
Total equity decreased by $412.3 million compared to pcp.
The main drivers of this reduction are the loss for the year of
$155.7 million, the $174.0 million dividends paid/declared and
the $66.0 million impact for the adoption of AASB 16 Leases.
Net foreign currency losses on translation of foreign operations,
particularly in New Zealand, resulted in a movement in the foreign
currency translation reserve of $13.9 million.
The Non-controlling interest’s share of the Total Equity decreased
$9.6 million to $144.2 million. The reduction is due to $5.4 million
losses by the non-controlling interest holders’ share of the
results in Spotless and Otraco South Africa, $1.0 million of other
comprehensive losses and $3.2 million post-tax impact arising
from the adoption of AASB 16 Leases.
Dividends
In respect of the financial year ended 30 June 2020, the Board:
– Declared an interim dividend of 14.0 cents per share,
unfranked, that was to be paid on 25 March 2020 to
shareholders on the register at 26 February 2020.
On 24 March 2020 the payment date was deferred to
25 September 2020.
– Decided not to declare a final dividend for the 2020
financial year.
The unfranked dividend 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 2020 has a yield of 4.32% per annum payable quarterly
in arrears, with the next payment due on 15 September 2020.
As this dividend is fully imputed (the New Zealand equivalent of
being fully franked), the actual cash yield paid by Downer will be
3.11% per annum until the next reset date.
Consistent with prior year, the Company’s Dividend
Reinvestment Plan remains suspended.
As detailed in the Directors’ Report for the 2019 financial year,
the Board declared a 50% franked final dividend of 14.0 cents
per share, that was paid on 2 October 2019 to shareholders on
the register at 4 September 2019, with the unfranked portion
paid out of CFI.
Zero Harm
Downer’s1 Lost Time Injury Frequency Rate (LTIFR) increased to 0.67 from 0.57 and its Total Recordable Injury Frequency Rate (TRIFR)
increased to 2.88 from 2.70 per million hours worked2. Regrettably, in July 2019, an employee of Otraco died as a result of an incident
at our facility in Calama, Chile. Senior leaders from the business attended the site to meet with family and colleagues to offer support.
Downer continues to co-operate with regulatory investigations.
Downer Group Safety Performance
(12-month rolling frequency rates)
I
R
F
R
T
3.5
3.0
2.5
2.0
2.70
0.57
2.88
0.67
R
F
T
L
I
1.5
1.2
0.9
0.6
0.3
0.0
9
1
-
n
u
J
9
1
-
l
u
J
9
1
-
g
u
A
9
1
-
p
e
S
9
1
-
t
c
O
9
1
-
v
o
N
9
1
-
c
e
D
0
2
-
n
a
J
0
2
-
b
e
F
0
2
-
r
a
M
0
2
-
r
p
A
0
2
-
y
a
M
0
2
-
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 2020 Group Business Strategies and Prospects for Future Financial Years
Downer’s 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’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
Downer believes that a sustainable and
embedded Zero Harm culture is fundamental
to the Company’s ongoing success, and to
building trusted relationships with customers and
business partners.
Downer’s approach to Zero Harm enables
it to work safely and environmentally
responsibly in industry sectors with inherently
hazardous environments.
Zero Harm at Downer means a work environment
that supports the health and safety of its people,
allows it to deliver its business activities in an
environmentally sustainable manner, and advance
the communities in which it operates.
Downer has a robust Critical Risk program throughout
its business. Risks that could cause serious injury
to people or harm to the environment, and the
controls needed to eliminate or manage those risks,
are understood. This knowledge forms the core
of Downer’s risk management processes, and the
monitoring of its critical controls.
There is a strong commitment to Downer’s Zero Harm
objectives across all levels of the business.
Each Division has in place a Zero Harm management
system that meets the requirements of the Downer
Zero Harm Framework. These systems are certified as
a minimum to AS/NZS 4801 or BS OHSAS 18001, and
ISO 14001:2015. Each system is reviewed regularly,
undergoing internal and external audit. Downer has
been developing a single management system known
as The Downer Standard that applies across all
businesses, and is presently planning for certification
of that system.
As outlined on page 6 of this Annual Report, Downer
developed and implemented a range of measures in
response to COVID-19 including Business Continuity
Plans and Business Resumption Plans. Policies
were also developed for implementing new safety
procedures, such as non-contact temperature testing.
Annual Report 2020 15
Strategic Objective
Prospects
Risks and risk management
Embed asset
management and
standardisation as a
cornerstone of the
Delivery pillar
Downer has developed extensive asset
management knowledge and expertise and also
adopts and implements world-leading insights
and solutions.
Downer strives for standardisation in its risk
management and project delivery to ensure
consistent quality outcomes for its customers.
Focus on engagement
with customers as a
cornerstone of the
Relationships pillar
Utilise technology in
core service offerings
as a cornerstone
of our Thought
Leadership 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.
Technology is an inherent feature of today’s
world and there is therefore greater demand for
technology in the services Downer provides.
Customer operations are growing in complexity
and this creates opportunities for Downer to
connect, manage, monitor and report on core
services and infrastructure.
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, standard processes,
data analytics and lifecycle 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; 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.
Relationships creating success continues to be
Downer’s core operating philosophy that drives
delivery of projects and services. It helps to ensure
investment as initiatives and activities are focused
on helping Downer’s customers to succeed.
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 invests in a range of technology platforms
and partnerships to meet customer needs. Downer
focuses on selecting the right 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 2020 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.
Prospects
Downer’s response
Service line
Transport
The multi-billion dollar market for transport
services continues to grow 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.
Utilities
Growth across utility markets is multi-faceted with
a good pipeline of prospects in both Australia
and New Zealand.
Facilities
EC&M
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.
There is a strong pipeline of opportunities on the
short-to-medium term horizon in both Australia
and New Zealand.
Downer’s EC&M service line includes its
Engineering and Construction and Asset
Services businesses.
In recent years, a number of projects in the
Engineering and Construction business have
underperformed significantly. At the same time,
the Asset Services business has performed well
and achieved good growth.
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.
Downer maintains strong strategic partnerships
with leading global transport solutions providers
and, through this model, is pursuing opportunities
in rollingstock manufacture and maintenance, and
transport network operations and maintenance.
The Keolis Downer joint venture is a leading
Australian multi-modal transport operator.
Downer has market leading positions in the power,
gas, water and communications 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 a
major force in both Australia and New Zealand with
market leading positions across key sectors including:
defence; health; education and government.
Government restrictions imposed in March 2020
to slow the spread of COVID-19 forced the majority
of customers serviced by Spotless’ Hospitality
business to close. In June 2020, Downer reduced
the footprint of this business to reflect the smaller
scale of operations.
Downer announced at its 2020 half year results that it
will focus its construction efforts on areas where it has
competitive differentiation. As a result, Downer will no
longer tender for “hard dollar” construction contracts
in the coal, iron ore, and industrial E&I (electrical and
instrumentation) and SMP (structural, mechanical and
piping) sectors.
Downer will continue to invest and grow its Asset
Services offering in EC&M.
Annual Report 2020 17
Service line
Prospects
Downer’s response
Mining
Downer has a proven track record as a leading
provider of mining services in Australia and is well
positioned to build on its strong market position
and pipeline of work.
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.
Downer announced in August 2019 that it was
conducting a review of its portfolio of businesses
and that Mining would be an important area of
focus. On 16 March 2020, Downer announced its
review of Mining, including a potential sale, had been
suspended due to the extraordinary market volatility
caused by COVID-19.
In July 2020, Downer announced it was again
exploring the potential sale of the Mining portfolio,
in parts or as a whole, in response to enquiries from a
number of interested parties.
18 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 Downer’s ability to manage the impacts of its activities on the
natural and built environment is fundamental to its long-term
success. This typically relates to land, air, water and greenhouse
gas (GHG) emissions created from the activities it carries out
for its customers. Downer’s purpose is to create and sustain
the modern environment by building trusted relationships with
its customers. Downer is committed to helping its customers
succeed by developing and delivering environmentally
responsible and sustainable solutions, so communities remain
resilient for the future.
Downer remains focused on developing solutions to reduce its
energy consumption and 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 standards for health, safety, environment and
sustainability within its Divisions. For environmental management
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.
Outlook
In the current environment, Downer is not providing earnings
guidance for the 2021 financial year. The acquisition of the
remaining shares in Spotless will allow Downer to get the
full benefits of the acquisition. Spotless is an important part
of Downer’s Urban Services strategy - driving consistent
earnings and reliable cash flow from long term customers in
critical sectors.
Downer’s diversification across critical services in road, rail,
power, gas, water, defence, health, education and government
has delivered resilience in earnings and cash flows and there
continues to be strong demand for these services.
Subsequent Events
On 21 July 2020 Downer announced the launch of a $400 million
equity raising to support the acquisition of the remaining shares
in Spotless and provide flexibility for continued investment in
Downer’s core business.
Downer has also announced it has made an unconditional offer
to acquire all of the issued share capital of Spotless not already
owned for an upfront cash consideration of approximately
$134.5 million, plus a maximum of 7.5 million Downer shares to be
issued on exercise of the Downer Contingent Share Option.
Downer has entered into a call option deed with Coltrane
Master Fund, L.P. under which it has a call option over 2.99%
of Spotless shares, which on exercise will increase Downer’s
ownership above the 90% threshold required to proceed to
compulsory acquisition.
Outside of the above, 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.
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
Environmental management is a key component of Downer’s
Zero Harm philosophy and it places a strong emphasis on
meeting its environmental compliance obligations. 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.
Annual Report 2020 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 2020 or 30 June 2019.
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 2020
financial year and the number of meetings attended by each Director (while they were a Director or Board Committee member).
During the year, 17 Board meetings, six Audit and Risk Committee meetings, four Zero Harm Committee meetings, two Remuneration
Committee meetings and two Nominations and Corporate Governance Committee meetings were held. In addition, 25 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 Chaplain5
P S Garling2
T G Handicott3
N M Hollows
C G Thorne4
P L Watson
Director
R M Harding
G A Fenn
S A Chaplain5
P S Garling2
T G Handicott3
N M Hollows
C G Thorne4
P L Watson
Board
Audit and Risk
Committee
Remuneration
Committee
Held1
17
17
3
17
17
17
17
17
Attended
17
17
3
17
17
17
15
17
Held1
–
–
2
–
6
6
6
6
Attended
–
–
2
–
6
6
5
6
Held1
2
–
–
2
2
1
–
–
Attended
2
–
–
2
2
1
–
–
Zero Harm
Committee
Nominations and
Corporate Governance
Committee
Held1
–
4
2
–
–
–
4
4
Attended
–
4
2
–
–
–
3
4
Held1
2
–
–
–
2
–
–
–
Attended
2
–
–
–
2
–
–
–
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 was also Chairman of the Tender Risk Evaluation Committee which meets on an unscheduled basis. Dr Thorne retired as a Director of the Company on
13 July 2020.
5 Ms Chaplain retired as a Director of the Company on 7 November 2019.
20 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 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 6, 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 130 to 139 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).
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
– 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 and
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 51 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
2020
$
2019
$
242,148
338,957
468,318
710,466
275,000
613,957
Rounding of Amounts
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.
Annual Report 2020 21
Key remuneration issues in 2020
2020 will be remembered as one of the more challenging years
in corporate memory. COVID-19 has had a significant impact
not just on Downer and its people, but also on the national and
global economy.
In recognition of these likely impacts:
– The Directors decided to voluntarily reduce their fees by
50% for the Chairman and 30% for the other Non-executive
Directors for the period 1 April 2020 to 30 June 2020
– The Managing Director, Chief Executive Officer – New
Zealand and Chief Executive Officer – Spotless decided to
voluntarily reduce their fixed remuneration by 50% for the
period 1 March 2020 to 30 June 2020
– The other KMP decided to voluntarily reduce their
fixed remuneration by 30% for the period 1 March 2020
to 30 June 2020
– A significant number of other executives decided to
voluntarily reduce their fixed remuneration.
The funds from these voluntary remuneration reductions
were used to establish a fund to provide financial assistance
to Downer and Spotless employees who are experiencing
severe hardship.
Further, no short-term incentive awards have been made in
relation to the 2020 financial year.
Remuneration Report
Chairman’s Letter
Dear Shareholders,
Downer’s 2020 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 2020 financial year.
At the last Annual General Meeting in November 2019, 97.3%
of all votes cast by shareholders were in favour of the 2019
Remuneration Report. The structure of the 2020 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.
A strong future
Several decisions have been made since the last Chairman’s
Letter with a clear objective to create a stronger platform for
long-term, sustainable growth and position Downer as one of
Australia’s largest integrated providers of Urban Services.
These include:
– Repositioning construction efforts to markets and projects
where Downer has competitive strength and opportunity to
drive long-term services based contracts
– Completing significant refinancing and establishment of new
facilities to bolster the Group’s liquidity and reduce short-
term debt maturities
– Exploring options to sell the Mining and Laundries
businesses and reviewing the medium to long-term
prospects of the Hospitality business to determine which
parts will continue, be exited or be sold
– Undertaking a capital raising to strengthen the balance
sheet, fund the acquisition of the remaining shares in
Spotless and provide flexibility for continued investment in
Downer’s core business.
The acquisition of the remaining shares in Spotless continues
the reshaping of Downer as an Urban Services business with
resilient earnings, long-term customer relationships and more
predictable cash flows.
Many of the activities that Downer’s people perform every
day have potential risks and ensuring they remain safe is of
paramount importance. Downer’s Lost Time Injury Frequency
Rate at 30 June 2020 was 0.67 and the Total Recordable Injury
Frequency Rate was 2.88. Downer’s culture and our commitment
to continuous improvement in Zero Harm remains a core
strategic objective.
22 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020
Link between Downer performance and reward outcomes
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
– The delivery of a significant proportion of pay in equity.
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 2020 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 2020. 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
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 2019
Short-term incentive (STI) 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:
– Review baselines and set targets for annualised GHG emission reductions to contribute
towards meeting Downer’s science-based target for areas of control and identify, assess
and determine Return on Investment (ROI) for three opportunities that will contribute to
Downer’s decarbonisation strategy
– Implement updated Group-wide consistent policies, procedures and
supporting documents.
24 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 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 (retired 7 November 2019)
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director (retired 13 July 2020)
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
S Cinerari
M J Ferguson
S L Killeen
B C Petersen
P J Tompkins
Role
Chief Executive Officer – Transport and Infrastructure to 25 August 2019
Chief Operating Officer – Australian Operations from 26 August 2019
Chief Financial Officer
Chief Executive Officer – New Zealand
Chief Executive Officer – Mining, Energy and Industrial Services to 25 August 2019
Chief Executive Officer – Spotless
Annual Report 2020 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
– 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
– 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
– 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
– 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 2020 4. Relationship Between Remuneration Policy
and Company Performance
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
– 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
– Deferring 50% of STI awards to encourage sustainable
performance and a longer-term focus
– 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
– 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
– 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
– Zero Harm measures of safety and environmental
sustainability.
Remuneration for all executives varies with performance on
these key measures.
Annual Report 2020 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 2020.
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
2017
Dec
2017
Jun
2018
Dec
2018
Jun
2019
Dec
2019
Jun
2020
* S&P/ASX 100 companies as at 30/06/2017
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
m
$
’
300
200
100
0
-100
-200
247.81
258.32
180.6
181.5
2016
2017
2018
2019
2020
(155.7)
300
200
100
m
$
’
0
-100
-200
-300
242.3
203.03
178.33
185.74
2016
2017
2018
2019
2020
(219.1)
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
-10
-20
-30
38.0
35.8
42.9
10.7
2016
2017
2018
2019
(26.6)
2020
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
Safety
s
r
u
o
h
0
0
0
0
0
0
,
1
,
r
e
p
s
e
i
r
u
n
j
i
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e
m
T
t
s
o
L
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
LTIFR
TRIFR
0.66
0.70
0.55
0.78
0.55
0.57
0.67
0.57
2016
2017
2018
2019
2020
12
10
8
6
4
2
0
s
r
u
o
h
0
0
0
0
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1
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r
e
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r
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I
e
b
a
d
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o
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e
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l
a
t
o
T
Directors’ Report – continuedfor the year ended 30 June 2020
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
– 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 advisors without seeking approval of the Board or management.
During the reporting period, the Remuneration Committee retained Guerdon Associates Pty Ltd as its advisor. 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 2020 for the Chief Executive Officer – Spotless, as established by the
Spotless Board, are outlined at section 6.7.
Annual Report 2020 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
– 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.
In recognition of the likely impact of the coronavirus on Downer and its people, the Managing Director, Chief Executive Officer –
New Zealand and Chief Executive Officer – Spotless decided to voluntarily reduce their fixed remuneration by 50% for the period
1 March 2020 to 30 June 2020 and the other KMP decided to voluntarily reduce their fixed remuneration by 30% for the same period.
A significant number of other executives also decided to reduce their fixed remuneration.
The funds from these voluntary remuneration reductions were used to establish a fund to provide financial assistance to Downer and
Spotless employees who are experiencing severe hardship.
Otherwise, 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 2020 6.3 Short-term Incentive
6.3.1 STI tabular summary
The following table outlines the major features of the 2020 STI plan.
Purpose of STI plan
– Focus performance on drivers of shareholder value over 12-month period
– Improve Zero Harm and people related results
– 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
– 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
– 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 2019 to 30 June 2020.
Performance assessed
August 2020, 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 2020 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
– 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 2020 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 2020.
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 2020 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
Achieve TRIFR and LTIFR below defined threshold for area of responsibility. TRIFR is calculated
as the number of recordable injuries per million hours calculated over 12 months.
LTIFR is calculated as the number of lost time injuries per million hours calculated
over 12 months.
Review baselines and set targets for annualised GHG emission reductions to contribute towards
meeting Downer’s science-based target for areas of control.
Identify, assess and determine Return on Investment (ROI) for three opportunities for each Line
of Business that will contribute to Downer’s decarbonisation strategy.
Critical Risks
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
their business, across businesses, and in partnership with clients.
Implementation of updated Group-wide consistent policies, procedures and
supporting documents.
Should a workplace fatality or serious environmental incident occur, the relevant safety or environmental portion of the STI is foregone.
Weightings applied to the 2020 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 outcomes are set out in section 7.3.
Annual Report 2020 33
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.
6.4 Long-term Incentive
6.4.1 LTI tabular summary
The following table outlines the major features of the 2020 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
– 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
– KMP appointed from 2011: 50% of fixed remuneration.
Performance period
1 July 2019 to 30 June 2022.
Performance assessed
September 2022.
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 2023.
Performance rights vest
July 2023.
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 2022.
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 2020 EPS growth
The EPS growth performance condition is based on the Company’s compound annual EPS growth
over the three years to 30 June 2022.
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 2022. 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%
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.
The Board retains the discretion to vest awards in the form of cash.
Performance rights do not have voting rights or accrue dividends.
How performance rights and
shares are acquired
Treatment of dividends
and voting rights on
performance rights
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 complies 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 2020 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 2020 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
– The maximum reward is capped at a “stretch” performance level that is considered attainable without excessive risk taking.
Performance for the 2020 LTI grants will be measured over the three-year period to 30 June 2022.
The proportion of performance rights that can vest will be calculated in September 2022, but executives will be required to remain in
service until 30 June 2023 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 2020 6.4.3 Performance requirements
One tranche of performance rights in the 2020 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 2020 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
2019. 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
– 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 2022. 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% 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 2022.
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
– 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 2022.
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 2020 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
– 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
– 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 2020 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.
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.
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 interests of shareholders
– Is consistent with the Board’s long-term view when
considering the value of major transactions to
Downer’s shareholders
– 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
through the acquired business is appropriate. Where this
transition to Downer’s framework takes place over a longer
38 Downer EDI Limited
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. The integration of
Hawkins and Spotless into the Downer Zero Harm Framework
is ongoing. Accordingly, the Zero Harm performance of these
businesses remains excluded from Group lagging performance
measures at this time. Close attention is given to continuous
improvement of the Zero Harm performance and culture of these
businesses.
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 considers this approach to be appropriate as it
ensures that executives and the Board make decisions solely
based on the best interests of Downer.
6.7 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 FY20 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 2020 the Spotless
Board determined it was appropriate that P J Tompkins – Chief
Executive Officer – Spotless participate in the Downer Group
Long-Term Incentive Plan.
Directors’ Report – continuedfor the year ended 30 June 2020 6.7.2 STI tabular summary
The following table outlines the major features of the Spotless 2020 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 2019 to 30 June 2020.
Performance assessed
August 2020, 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 2020 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 NPATA
Divisional EBITA
Group FFO
Divisional FFO
Zero Harm
People
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 2020 39
7. Details of Executive Remuneration
7.1 Remuneration received in relation to the 2020 financial year
Executives receive a mix of remuneration during the year, comprising fixed remuneration, an STI paid in cash, and a LTI in the form of
performance rights that vest four years later, subject to meeting performance and continued employment conditions.
In recognition of the likely impact of COVID-19 on Downer and its people, the Managing Director, Chief Executive Officer – New Zealand
and Chief Executive Officer – Spotless decided to voluntarily reduce their fixed remuneration by 50% for the period 1 March 2020 to
30 June 2020 and the other KMP decided to voluntarily reduce their fixed remuneration by 30% for the same period.
The table below lists the remuneration actually received in relation to the 2020 financial year, comprising fixed remuneration, cash
STIs relating to 2020, deferred STIs payable in 2020 in respect of prior years and the value of LTI grants that vested during the 2020
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 2020 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
$
1,828,488
1,042,861
925,001
841,591
165,592
877,626
5,681,159
–
–
–
–
–
–
–
Deferred
Bonus paid
or payable in
respect of
prior years4
$
793,550
487,080
273,947
256,041
327,259
215,476
2,353,353
Total
payments
$
2,622,038
1,529,941
1,198,948
1,097,632
492,851
1,093,102
8,034,512
Equity
that vested
during 20203
$
Total
remuneration
received
$
3,068,230
1,150,589
–
–
271,668
536,943
5,027,430
5,690,268
2,680,530
1,198,948
1,097,632
764,519
1,630,045
13,061,942
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen5
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 2020 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 of $7.34.
4 Deferred Bonus represents the deferred cash bonus amount to be paid in September 2020, being the second deferred component of the 2018 award and the first deferred
component of the 2019 award, being 25% of each award.
Amounts represent the payments relating to the period during which the individual was Key Management Personnel (KMP).
5
40 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 7.2 Remuneration of executive key management personnel required under the Corporations Act 2001 (Cth)
In recognition of the likely impact of COVID-19 on Downer and its people, the Managing Director, Chief Executive Officer – New Zealand
and Chief Executive Officer – Spotless decided to voluntarily reduce their fixed remuneration by 50% for the period 1 March 2020 to 30
June 2020 and the other KMP decided to voluntarily reduce their fixed remuneration by 30% for the same period.
2020
Short-term employee
benefits
Post-employment
benefits
Cash
Bonus
paid or
payable in
respect
of current
year2
$
–
–
–
–
–
–
Deferred
Bonus
paid or
payable4
$
451,217
282,755
161,328
161,745
30,976
116,541
Salary
and fees
$
1,490,664
996,497
891,596
804,223
162,430
843,346
5,188,756
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
B C Petersen1
P J Tompkins
Non-
monetary
$
Super-
annuation
$
Other
benefits
$
Term-
ination
Benefits
$
Subtotal
$
316,821
16,301
12,402
–
–
13,277
21,003
30,063
21,003
37,368
3,162
21,003
– 2,279,705
–
1,325,616
– 1,086,329
– 1,003,336
196,568
–
994,167
–
–
–
–
–
–
–
–
Share-
based
payment
transac-
tions3
$
793,520
332,556
208,578
278,369
51,454
213,766
Total
$
3,073,225
1,658,172
1,294,907
1,281,705
248,022
1,207,933
– 1,204,562
358,801
133,602
– 6,885,721 1,878,243
8,763,964
1
2
3
Amounts represent the expense 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 2020 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 and an estimate of the fair value of grants to be
made in respect of the 2020 financial year attributable to the period. 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 2020 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.
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 expense 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.
Annual Report 2020 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 2020 that are performance and
non-performance related and the proportion of STIs that were earned during the year ended 30 June 2020 due to the achievement
of the relevant performance targets.
Proportion of 2020 remuneration
2020 Short-term incentive
G A Fenn1
S Cinerari1
M J Ferguson
S L Killeen
P J Tompkins1
Performance
Related
%
Non-
performance
Related
%
41%
37%
29%
34%
27%
59%
63%
71%
66%
73%
Paid
%
Forfeited
%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
1
Performance related portion includes the reversal of expense for forfeited equity incentives described in section 6.4.
7.3.2 STI performance outcomes
No STI awards were made in relation to the 2020 financial year.
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.
Specific STI financial and commercial targets remain commercially sensitive and so have not been reported.
Regrettably, in July 2019, an employee of Otraco died as a result of an incident at our facility in Calama, Chile. Senior leaders from
the business attended the site to meet with family and colleagues to offer support. Accordingly, the STI safety gate was not met for
Corporate and the relevant business.
An employee engagement survey was not conducted in 2020 due to constraints arising from COVID-19. Accordingly, no award was
made in respect of the People measure.
The following table summarises the average performance achieved by the KMP across each element of the scorecard.
Group
NPATA
Divisional
EBITA
Group
FFO
Divisional
FFO
Zero
Harm
People
Weighting of scorecard element
Percentage of the element achieved
Corporate
Division
Corporate
Division1
30.0
7.5
0.0
0.0
22.5
0.0
30.0
7.5
0.0
0.0
22.5
50.0
30.0
30.0
12.5
64.6
10.0
10.0
0.0
0.0
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 2020 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
Below
Threshold
Threshold
Target
Maximum
Safety and Environmental
Employee engagement
Profit (NPATA)
FFO
Zero Harm
People
Financial
S Cinerari
Element
Measure
Zero Harm
People
Financial
S L Killeen
Safety and Environmental
Employee engagement
Profit (NPATA)
FFO
Element
Measure
Zero Harm
People
Financial
Safety and Environmental
Employee engagement
Profit (NPATA/EBITA)
FFO
P J Tompkins
Element
Measure
Zero Harm
People
Financial
Safety and Environmental
Employee engagement
Profit (NPATA/EBITA)
FFO
Below
Threshold
Below
Threshold
Below
Threshold
Threshold
Target
Maximum
Threshold
Target
Maximum
Threshold
Target
Maximum
For 2020, the IPM was not applied to the members of the KMP as no STI awards were made.
Annual Report 2020 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,
M J Ferguson,
B C Petersen,
P J Tompkins
G A Fenn,
S Cinerari,
M J Ferguson,
P J Tompkins
Relevant
LTI measure
Performance
outcome
% LTI tranche
that vested
2017 plan – performance period 1 July 2016 to 30 June 2019
TSR tranche – percentile ranking of
Downer’s TSR relative to the constituents
of the ASX 100 over a three-year period.
Actual performance ranked at
the 89th percentile based on a
TSR result of 121.65%.
100% became provisionally
qualified.
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 was –0.19%. 0% became provisionally qualified.
100% were forfeited.
Actual performance was 94.3%
for NPAT and 162.6% for FFO.
45.1% became provisionally
qualified. 54.9% were forfeited.
2018 plan – performance period 1 July 2017 to 30 June 20202
TSR tranche – percentile ranking of
Downer’s TSR relative to the constituents
of the ASX 100 over a three-year period.
Actual performance ranked at
the 18th percentile based on a
TSR result of –17.9%.
0% became provisionally qualified.
100% were forfeited.
EPS tranche – compound annual
earnings per share growth against
absolute targets over a three-year.
Scorecard tranche – sustained NPAT and
FFO performance against budget over a
three-year period.
Actual performance was
–186.6%.
0% became provisionally qualified.
100% were forfeited.
Actual performance was 41.1%
for NPAT and 49.7% for FFO.
0% became provisionally qualified.
100% were forfeited.
1
2
Relevant executive refers to members of the KMP who are participants in the plan tested.
Test outcomes for the 2018 plan are provisional and will be confirmed following release of the Company’s audited 2020 results. Accordingly, the outcomes are not reflected
in the disclosures in section 8.
7.4 Major transactions and significant items
7.4.1 Major transactions
There were no major transactions during 2020.
7.4.2 Adjustments made to incentive calculations for major transactions and significant items
The Board determined that no adjustments be made to KPI calculations for the impact of significant items.
7.5 Variances from policy
There were no variances from policy during the year.
44 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 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 2019
Net
Change
Balance at
30 June 2020
Balance at
1 July 2019
Net
Change
Balance at
30 June 2020
No.
1,164,203
106,463
7,086
2,663
94,811
No.
418,015
156,756
(5,086)
12,865
90,700
No.
1,582,218
263,219
2,000
15,528
185,511
No.
1,555,492
595,766
236,670
132,045
303,149
No.
(631,846)
(236,943)
(40,093)
–
(110,573)
No.
923,646
358,823
196,577
132,045
192,576
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
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 2019
Net
change
Balance at
30 June 2020
No.
3,000
No.
–
No.
3,000
Annual Report 2020 45
8.3 Options and rights
No performance options were granted by Downer EDI Limited or exercised during the 2020 financial year.
As outlined in section 6.4.1, the LTI plan for the 2020 financial year is in the form of performance rights. During the year, the LTI plan
for the 2020 financial year was approved as outlined in section 6.4 of this report; however due to ongoing restructuring of the Group,
grants of performance rights have not yet been made to KMP; however they are expected to be made in early 2021. This means that
grants in relation to 2020 and 2021 are expected to be made during the 2021 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
P J Tompkins
2016 Plan
2017 Plan
Number of
performance
rights1
Vested
%
Forfeited
%
Number of
performance
rights2
Vested
%
Forfeited
%
711,717
266,894
–
–
124,551
58.7
58.7
–
–
58.7
–
–
–
–
–
503,526
188,822
94,411
–
88,116
–
–
–
–
–
42.5
42.5
42.5
–
42.5
1
2
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.
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.
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
P J Tompkins
2018 Plan
2019 Plan
Number of
performance
rights1
Vested
%
Forfeited
%
Number of
performance
rights2
Vested
%
Forfeited
%
332,160
137,016
70,584
66,240
66,432
–
–
–
–
–
–
–
–
–
–
301,791
113,172
71,675
65,805
75,448
–
–
–
–
–
–
–
–
–
–
1
2
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.
46 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020
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
P J Tompkins
Maximum number of shares
for the vesting year1
2021
289,695
108,635
54,318
–
50,696
2022
332,160
137,016
70,584
66,240
66,432
2023
301,791
113,172
71,675
65,805
75,448
1
The quantity of performance rights that may vest in future years has been adjusted in the 2021 financial year to reflect the discount to the market price of the Company’s
shares offered to shareholders in the equity raising announced on 21 July 2020. The adjustment factor of 0.9812 is based on the theoretical ex-rights price (TERP) of
$4.18 divided by the last share price prior to the announcement of the equity raising. The quantities in this table are before this adjustment.
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. In respect of the 2020 plan an estimated expense has been
recognised that will be trued up following formal valuation after the grants have been made.
G A Fenn
S Cinerari
M J Ferguson
S L Killeen
P J Tompkins
2021
1,287,301
517,724
301,160
278,368
300,177
2022
854,348
339,131
209,158
192,028
213,586
2023
500,000
206,250
125,000
114,763
125,000
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 2020 47
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.
Downer can terminate Mr Fenn’s employment:
(a) Immediately for misconduct or other circumstances justifying summary dismissal; or
(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
48 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 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
– 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 judgement to steward the Company.
In recognition of the likely impact of the coronavirus on Downer and its people, the Directors decided to voluntarily reduce their fees by
50% for the Chairman and 30% for the other Non-executive Directors for the period 1 April 2020 to 30 June 2020.
The funds from these voluntary remuneration reductions were used to establish a fund to provide financial assistance to Downer and
Spotless employees who are experiencing severe hardship.
Otherwise, 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 2021 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 2020 49
11.2 Non-executive Directors’ remuneration
The table below sets out the remuneration paid to Non-executive Directors for the 2020 and 2019 financial years.
In recognition of the impact of the coronavirus pandemic on the Company and its people, Directors fees were reduced for the period
1 April 2020 to 30 June 2020 by 50% for the Chairman and 30% for the other Non-executive Directors.
R M Harding
S A Chaplain1
P S Garling
T G Handicott
N M Hollows
C G Thorne
P L Watson
Short-term benefits
Post-employment benefits
Board fee
$
Chair fee
$
Total fees
$
Super-
annuation
$
Termination
benefits
$
328,125
375,000
52,917
150,000
138,750
150,000
138,750
150,000
138,750
150,000
138,750
150,000
138,750
16,965
–
–
–
21,146
13,875
15,000
13,875
15,000
32,375
13,854
19,167
30,000
8,583
–
328,125
375,000
52,917
171,146
152,625
165,000
152,625
165,000
171,125
163,854
157,917
180,000
147,333
16,965
31,172
35,625
5,027
16,259
14,499
15,675
14,499
15,675
16,257
15,566
15,002
17,100
13,997
1,612
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
359,297
410,625
57,944
187,405
167,124
180,675
167,124
180,675
187,382
179,420
172,919
197,100
161,330
18,577
Year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
1
Amounts represent the payments relating to the period during which the individual was a Non-executive Director (NED).
11.3 Equity held by Non-executive Directors
The table below sets out the equity in Downer held by Non-executive Directors for the 2020 and 2019 financial years.
2020
2019
Balance at
1 July 2019
Net
change
Balance at
30 June 2020
Balance at
1 July 2018
Net
change
Balance at
30 June 2019
R M Harding
P S Garling
T G Handicott
N M Hollows
C G Thorne
P L Watson
28,856
19,962
14,000
3,000
82,922
–
–
–
3,000
–
–
6,329
28,856
19,962
17,000
3,000
82,922
6,329
14,210
16,940
14,000
–
82,922
–
14,646
3,022
–
3,000
–
–
28,856
19,962
14,000
3,000
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, 12 August 2020
50 Downer EDI Limited
Directors’ Report – continuedfor the year ended 30 June 2020 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 2020 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
NI_01
P__01Jpp
PAR_NAM_0
1
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
K
Cameron Slapp
Partner
Sydney
12 August 2020
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
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 2020 51
Independent Auditor’s Report
for the year ended 30 June 2020
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 2020 and of
its financial performance for the year ended
on that date; and
The Financial Report comprises:
Consolidated statement of financial position as
at 30 June 2020
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
complying with Australian Accounting
Standards and the Corporations Regulations
2001.
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.
52 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’ ($12,669.4m)
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; and
Large number of contracts with numerous
estimation events potentially occurring 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 audit evidence for
revenue recognition.
We focused on the Group’s assessment of the
following elements of revenue recognition for
rendering of services and construction
contracts, as applicable:
• Revisions to total expected costs for
certain events or conditions occurring
during the performance of the contract, or
are expected to occur to complete the
contract, which is difficult to estimate;
•
The Group’s assessment of when a
modification to the contract scope and/or
price for variations and claims is approved
and enforceable. The Group’s consideration
of the enforceability or approval may
include evidence that is written, oral or
implied by customary business practice and
therefore requires a degree of judgement.
The Group’s assessment of the
enforceability of variations and claims can
drive different accounting treatments,
increasing the risk of inappropriately
recognising revenue; and
Our procedures included:
• We obtained an understanding of the Group’s
process of accounting for rendering of services
and construction contract revenues. We
considered the appropriateness of the Group’s
accounting policy for rendering of services and
construction contract revenues, including
variations and claims and variable consideration,
against the requirements of the accounting
standards. 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;
‒ Management’s review of key contracts
where events or conditions have occurred
that require changes to revenue
recognition;
‒ The Group’s requirement to obtain
customer acceptance prior to billing an
invoice.
• We selected a statistical sample of revenue
recognised and checked to customer approval
of the service being performed or cash
received.
• 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 or variable consideration. We also
included factors which indicated to us a greater
level of judgement was required by the Group
Annual Report 2020 53
Independent Auditor’s Report – continued
for the year ended 30 June 2020
•
The Group’s policy for the determination of
the amount of revenue recognised from
variable consideration which is highly
probable of not reversing. Variable
consideration is contingent on the Group’s
performance and includes key performance
payments, abatements offsetting revenue
under the contract and liquidated damages.
The Group's determination that variable
consideration is highly probable requires a
degree of estimation and judgement. This
increased the audit effort we applied to
gather sufficient audit evidence.
when assessing the revenue recognition based
on the estimates developed for current and
forecast contract performance. For the samples
selected, where relevant:
‒ we read the selected contract terms and
conditions to evaluate the individual
characteristics of each contract reflected in
the Group’s estimate of revenue;
‒ 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, salary costs 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 the
highly probable amount of revenue for
variations and claims. This included
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
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 method applied by the Group
to estimate the highly probable amount of the
54 Downer EDI Limited
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.
Value of goodwill
Refer to Note C7 ‘Intangible assets’ ($2,281.3m)
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 26.3% 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;
Significantly higher estimation uncertainty
continuing from the business disruption
impact to the Spotless CGU arising from
the COVID-19 global pandemic;
• A recorded impairment charge of $165m
against goodwill in the Spotless CGU,
increasing the sensitivity of the model to
small changes in key assumptions.
We focused on the following key forward
looking assumptions in the Group’s value in use
models and fair value less cost of disposal
models including:
•
Forecast cash flows including budgeted
EBIT - the Group experienced significant
business disruption in the Spotless CGU as
a result of the COVID-19 pandemic and
announced restructuring. The uncertainty
continuing from the business interruption
of the COVID-19 pandemic increases the
risk of inaccurate forecasts or a significantly
wider range of possible outcomes for us to
consider. We focused on what the Group
considers to be the future Spotless
business model when assessing the
feasibility of the CGU’s forecast cashflows.
• Discount rates – these are complicated in
nature and vary according to the conditions
and environment the specific CGU is
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 the budget by management and the
Board.
• We considered the appropriateness of the value
in use and fair value less cost of disposal
(FVLCOD) methods applied by the Group to
perform the annual test of goodwill for
impairment against the requirements of the
accounting standards.
• We assessed the integrity of the value in use
and FVLCOD models used, including the
accuracy of the underlying calculation formulas.
• We assessed the accuracy of previous Group
forecasting to inform our evaluation of forecasts
included in the value in use and FVLCOD
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.
• We obtained the Group’s value in use models
and FVLCOD model and checked amounts to
the Board approved FY21 budget and the FY22-
FY23 business plan. We challenged the Group’s
projected cash flows by comparing the budget
and business plan to our understanding of the
business. We compared actual performance in
FY20 to the budget for FY20. We also compared
the compound annual growth rate between
FY19 and the terminal year in the models to
further challenge the projected cash flows in a
COVID-19 economic environment.
Annual Report 2020 55
Independent Auditor’s Report – continued
for the year ended 30 June 2020
subject to from time to time; and
•
•
Long-term growth rates – certain valuations
for CGUs of the Group are highly sensitive
to changes in this assumption.
Using forward-looking assumptions tends to be
prone to greater risk for potential bias, error and
inconsistent application. These conditions
necessitate additional scrutiny by us, in
particular to address the objectivity of sources
used for assumptions, and their consistent
application.
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.
56 Downer EDI Limited
For the Spotless CGU we challenged the
Group’s assessment of cash flow synergies a
market participant would expect to generate
following the acquisition of the minority interest
in Spotless. We compared cost savings to the
Group’s Board approved restructuring plans
following the acquisition.
• We considered the sensitivity of the models by
varying key assumptions including budgeted
EBIT, long-term growth rates and discount
rates, within a reasonably possible range. We
considered the interdependencies of key
assumptions when performing the sensitivity
analysis. We did this to identify those CGUs at
higher risk of impairment and those
assumptions at higher risk of bias or
inconsistency in application to focus our further
procedures.
•
For the Spotless CGU, we further challenged
the Group’s significant forecast cash flow
assumptions including impacts of COVID-19 and
expected rate of recovery, what the Group
considers as their future business model and
budgeted EBIT for the CGU. We compared
forecast cash flows to authoritative published
studies of industry trends and expectations, and
considered differences for the Group’s
operations.
• We checked the consistency of the forecast
cash flows to the Group’s business plans and
our experience regarding the feasibility of these
in the industry and COVID-19 economic
environment in which they operate.
• 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;
independently assessed the long term
growth rate for each of the CGUs against
publicly available market data for
comparable entities and compared this to
the Group’s assumption; and
compared the implied multiples from
comparable market transactions to the
implied multiple from the Group’s FVLCOD
model.
•
For the Spotless CGU we recalculated the
impairment charge against the recorded
amount.
• 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.
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 2020 57
Independent Auditor’s Report – continued
for the year ended 30 June 2020
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Downer EDI Limited for the year ended 30 June
2020, 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 24 to 50 of the Directors’ report for the
year ended 30 June 2020.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
KPM_INI_01
KPMG
Cameron Slapp
Partner
Sydney
12 August 2020
Stephen Isaac
Partner
58 Downer EDI Limited
Financial Statements
for the year ended 30 June 2020
Page 60
Page 61
Page 62
Page 63
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 64-65
Page 66-78
Page 79-91
Page 92-94
Page 95-102
Page 103-111
Page 112-124
B1
Segment
information
B2
Revenue
C1
Reconciliation of
cash and cash
equivalents
D1
Employee benefits
E1
Borrowings
F1
Joint arrangements
and associate
entities
G1
New accounting
standards
C2
Trade receivables
and contract assets
D2
Defined benefit
plan
E2
Financing facilities
F2
Acquisition of
businesses
B3
Individually
significant items
C3
Inventories
D3
Key management
personnel
compensation
B4
Earnings per share
C4
Trade payables and
contract liabilities
D4
Employee discount
share plan
B5
Taxation
B6
Remuneration of
auditor
C5
Property, plant
and equipment
C6
Right-of-use assets
B7
Subsequent events
C7
Intangible assets
C8
Lease receivables
C9
Other provisions
C10
Contingent
liabilities
E3
Lease liabilities
F3
Controlled entities
F4
Related party
information
F5
Parent entity
disclosures
E4
Commitments
E5
Issued capital
E6
Non-controlling
interest (NCI)
E7
Reserves
E8
Dividends
Page 125 Directors’ Declaration
Other information
Page 126 Sustainability Performance Summary 2020
Page 130 Corporate Governance
Page 140
Information for Investors
G2
Capital and financial
risk management
G3
Other financial
assets and liabilities
Annual Report 2020 59
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2020
Revenue
Other income
Total revenue and other income
Employee benefits expense
Subcontractor costs
Raw materials and consumables used
Plant and equipment costs
Depreciation on leased assets
Other depreciation and amortisation
Impairment of non-current assets
Other expenses from ordinary activities
Total expenses
Share of net profit of joint ventures and associates
Earnings before interest and tax
Finance income
Lease finance costs
Other finance costs
Net finance costs
(Loss) / profit before income tax
Income tax expense
(Loss) / profit after income tax
(Loss) / profit for the year is attributable to:
– Non-controlling interest
– Members of the parent entity
(Loss) / profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
– Actuarial movement on net defined benefit plan obligation
– Income tax effect of actuarial movement on defined benefit plan obligation
Items that will be reclassified subsequently to profit or loss:
– Exchange differences arising on translation of foreign operations
– Net loss on foreign currency forward contracts taken to equity
– Net loss on cross currency and interest rate swaps taken to equity
– Income tax effect of items above
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
Note
B2
B2
D1
C6
C5,C7
F1(a)
B5(a)
D2
2020
$’m
2019
$’m
12,669.4
73.3
12,742.7
(4,217.3)
(4,406.0)
(2,157.7)
(660.6)
(151.8)
(365.5)
(212.0)
(632.5)
(12,803.4)
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)
19.4
(41.3)
6.0
(26.4)
(91.6)
(112.0)
(153.3)
(2.4)
(155.7)
(5.4)
(150.3)
(155.7)
0.7
(0.2)
(14.6)
(3.3)
(5.3)
2.9
(19.8)
(1.0)
(18.8)
(19.8)
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)
Total comprehensive (loss) / income for the year
(175.5)
274.5
Earnings per share (cents)
– Basic earnings per share
– Diluted earnings per share(i)
B4
B4
(26.6)
(26.6)
42.9
42.3
(i) At 30 June 2020, the ROADS are anti-dilutive and consequently, diluted EPS remained at a loss of 26.6 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 64 to 124.
60 Downer EDI Limited
Consolidated Statement of Financial Position
as at 30 June 2020
ASSETS
Current assets
Cash and cash equivalents
Trade receivables and contract assets
Other financial assets
Inventories
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
Right-of-use assets
Intangible assets
Other financial assets
Lease receivables
Deferred tax assets
Prepayments and other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables and contract liabilities
Borrowings
Lease liabilities
Other financial liabilities
Employee benefits provision
Other provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade payables and contract liabilities
Borrowings
Lease liabilities
Other financial liabilities
Employee benefits provision
Other 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
30 June
2020
$’m
Restated(i)
30 June
2019
$’m
588.5
2,315.9
26.2
334.0
18.5
65.2
56.4
3,404.7
95.2
110.6
1,350.2
592.6
2,896.1
21.4
48.3
141.5
11.9
5,267.8
8,672.5
2,497.4
1.4
168.9
45.8
377.1
74.1
11.0
3,175.7
28.8
2,049.9
594.3
14.4
55.0
39.4
94.5
2,876.3
6,052.0
2,620.5
2,429.7
(47.7)
94.3
2,476.3
144.2
2,620.5
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
100.9
18.7
4,850.7
8,015.4
2,405.5
14.6
–
47.4
365.3
107.0
15.4
2,955.2
51.3
1,688.9
–
20.0
45.1
84.5
137.6
2,027.4
4,982.6
3,032.8
2,425.1
(27.5)
481.4
2,879.0
153.8
3,032.8
Note
C1(c)
C2
G3
C3
C8
C2
F1(a)
C5
C6
C7
G3
C8
B5(b)
C4
E1
E3
G3
D1
C9
C4
E1
E3
G3
D1
C9
B5(b)
E5
E7
E6
(i) June 2019 balances have been restated following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations (Refer to Note D1).
The consolidated statement of financial position should be read in conjunction with the accompanying notes on pages 64 to 124.
Annual Report 2020 61
Consolidated Statement of Changes in Equity
for the year ended 30 June 2020
2020
$’m
Restated balance at 30 June 2019
Opening balance adjustment on application
of AASB 16(i) (net of tax)
Balance at 1 July 2019
Loss 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
Declared dividends(ii)
Balance at 30 June 2020
Issued
capital
Reserves
Retained
earnings
Total
attributable
to owners of
the parent
Non-
controlling
interest
Total
2,425.1
(27.5)
481.4
2,879.0
153.8
3,032.8
–
2,425.1
–
–
–
4.6
–
–
–
2,429.7
–
(27.5)
–
(18.8)
(18.8)
(4.6)
4.8
(1.6)
–
(47.7)
(62.8)
418.6
(150.3)
–
(150.3)
–
–
–
(174.0)
94.3
(62.8)
2,816.2
(150.3)
(18.8)
(169.1)
–
4.8
(1.6)
(174.0)
2,476.3
(3.2)
150.6
(5.4)
(1.0)
(6.4)
–
–
–
–
144.2
(66.0)
2,966.8
(155.7)
(19.8)
(175.5)
–
4.8
(1.6)
(174.0)
2,620.5
(i) Refer to Note G1 for details on opening balance adjustments made on application of new accounting standard AASB 16.
(ii) Relates to the 2019 final dividend and $7.4 million ROADS dividends paid during the financial year. The payment of 2020 interim dividend of $83.3 million was deferred to
25 September 2020 (Refer to Note E8).
2019
Balance at 30 June 2018
Adjustment on restatement of employee
obligations (net of tax)(i)
Restated balance at 1 July 2018
Opening balance adjustment on application
of AASB 15 (net of tax)(ii)
Restated 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(iii)
Restated balance at 30 June 2019
Reserves
Retained
earnings
Total
attributable
to owners of
the parent
Non-
controlling
interest
Total
(26.9)
–
(26.9)
–
(26.9)
–
(0.9)
(0.9)
(3.2)
4.0
(0.5)
–
(27.5)
655.1
3,050.1
155.0
3,205.1
(15.3)
639.8
(245.3)
394.5
261.8
–
261.8
–
–
–
(174.9)
481.4
(15.3)
3,034.8
(245.3)
2,789.5
261.8
(0.9)
260.9
–
4.0
(0.5)
(174.9)
2,879.0
(2.1)
152.9
(12.7)
140.2
14.5
(0.9)
13.6
–
–
–
–
153.8
(17.4)
3,187.7
(258.0)
2,929.7
276.3
(1.8)
274.5
–
4.0
(0.5)
(174.9)
3,032.8
Issued
capital
2,421.9
–
2,421.9
–
2,421.9
–
–
–
3.2
–
–
–
2,425.1
June 2019 balances have been restated following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations (Refer to Note D1).
Refer to Annual Report as at 30 June 2019 for details on opening balance adjustments made on application of new accounting standard AASB 15.
(i)
(ii)
(iii) Payment of dividend relates to the 2018 final dividend, 2019 interim dividend and $8.3 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 64 to 124.
62 Downer EDI Limited
Consolidated Statement of Cash Flows
for the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Distributions from equity accounted investees
Operating cash flow before interest and tax
Interest received
Interest paid on lease liabilities(i)
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 businesses, net of cash acquired
Investment in joint venture entities
Divestment of Freight Rail
Advances to joint ventures
Purchases of assets as a lessor
Recovery on acquisition of business
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Payment of principal of lease liabilities(ii)
Dividends paid
Net cash generated by / (used in) financing activities
Net (decrease) / increase 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
2020
$’m
2019
$’m
13,841.5
(13,518.3)
17.2
340.4
4.7
(26.4)
(82.0)
(57.9)
178.8
21.9
(290.7)
(61.7)
(29.8)
–
–
(3.6)
(34.0)
–
(397.9)
7,411.9
(7,063.2)
(152.9)
(90.7)
105.1
(114.0)
710.7
(8.2)
588.5
F1(a)
C1(a)
F2
F1(a)
C1(b)
C1(c)
14,177.4
(13,442.8)
22.4
757.0
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
(i)
The Group has classified:
– cash payments for the interest portion of lease payments as operating activities consistent with the presentation of other interest payments
– short-term lease payments and payments for leases of low-value assets as operating activities.
(ii) The Group has classified cash payments for the principal portion of lease payments as financing activities.
The consolidated statement of cash flows should be read in conjunction with the accompanying notes on pages 64 to 124.
Annual Report 2020 63
Notes to the consolidated financial statements
for the year ended 30 June 2020
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).
The Financial Report was authorised for issue by the Board of
Directors on 12 August 2020.
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 value of the consideration given in
exchange for assets. All amounts are presented in Australian
dollars, unless otherwise noted.
The accounting policies used 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
2019, 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.
During the current reporting period the Group completed
a review of employment arrangements relating to Spotless.
This review identified an underpayment of employee
entitlements relating to current and previous years.
The comparative balances have been voluntarily restated under
AASB 101 Presentation of Financial Statements in respect of
these adjustments as described in Note D1.
64 Downer EDI Limited
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
Income taxes
Credit risk
B2
B5
B5
C2
Useful lives and residual values
C5 to C7
Impairment of assets
Other provisions
Employee benefits obligations
Valuation of the defined benefit plan assets
and obligations
Lease liabilities
Acquisition of businesses
C7
C9
D1
D2
E3
F2
73
76
76
82
83
86
90
93
94
98
108
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.
A. About this report – continued
In preparing the Financial Report, all intercompany balances
and transactions, and unrealised profits arising within the
consolidated entity, are eliminated in full.
(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 on 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 lease charges.
(iv) Non-current assets held for sale and
discontinued operations
On 22 August 2019, the Group announced it was undertaking a
review of its Mining and Laundries businesses.
As a consequence of market volatility caused by the COVID-19
pandemic, these businesses have not met the definition of assets
held for sale under AASB 5, as any potential disposal is not
considered highly probable of occurring at the reporting date.
Annual Report 2020 65
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. Individually significant items
B4. 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.
B5. Taxation
B6. Remuneration of auditor
B7. Subsequent events
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.
66 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 B1. Segment information – continued
The reportable segments identified within the Group are outlined as follows:
Service line
Segment description
Transport
Utilities
Facilities
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.
Engineering,
Construction
and Maintenance
(EC&M)
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.
Mining
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; and mine closure and rehabilitation.
Annual Report 2020 67
B1. Segment information – continued
2020
$’m
Transport Utilities Facilities
EC&M
Mining
Un-
allocated
Total
Segment revenue and other income
4,081.1
2,688.0
3,308.4
1,168.0
1,493.1
4.1
12,742.7
Share of sales revenue from joint ventures
and associates(i)
Total revenue including joint ventures and
other income(i)
611.2
–
7.3
–
56.7
–
675.2
4,692.3
2,688.0
3,315.7
1,168.0
1,549.8
4.1
13,417.9
Share of net profit from joint ventures and associates
Depreciation and amortisation
EBIT before amortisation of acquired intangibles
and historical contract claims adjustments
Historical contract claims adjustments(ii)
EBIT before amortisation of acquired
intangibles (EBITA)
Amortisation of acquired intangibles
Total reported segment results (EBIT)
15.3
150.2
235.6
–
235.6
(10.9)
224.7
–
40.1
114.6
–
114.6
(2.6)
112.0
0.3
109.8
114.3
(9.9)
104.4
(9.8)
94.6
–
15.3
(42.1)
(8.9)
(51.0)
–
(51.0)
3.8
119.2
79.0
–
79.0
–
79.0
–
82.7
(452.6)
–
(452.6)
(48.0)
(500.6)
Net finance costs
Total loss before income tax
Acquisition of segment assets
Segment assets
Segment liabilities
Carrying value of equity accounted investees
98.3
2,649.1
1,278.6
101.1
34.9
1,193.6
478.5
–
68.5
2,624.2
1,751.2
1.2
3.8
617.4
345.6
–
107.0
939.0
339.8
8.3
30.2
649.2
1,858.3
–
19.4
517.3
48.8
(18.8)
30.0
(71.3)
(41.3)
(112.0)
(153.3)
342.7
8,672.5
6,052.0
110.6
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(iii)
Segment liabilities(iii)
Carrying value of equity accounted investees
228.0
2,126.0
925.0
99.1
24.0
1,268.9
566.5
–
101.5
2,787.7
1,591.7
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
8,015.4
4,982.6
108.8
(i) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.
(ii) Relates to historical Spotless contracts on foot at the time of Downer acquisition which are separately monitored by the Group’s Chief Operating Decision Maker.
(iii) June 2019 balances have been restated following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations (Refer to Note D1).
68 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 B1. Segment information – continued
Reconciliation of segment EBIT to net (loss) / profit after tax:
Segment EBIT
Unallocated:
Portfolio restructure and exit costs
Payroll remediation costs
Goodwill impairment
Spotless Shareholder class action
Legal settlement
Murra Warra wind farm loss
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
(Loss) / profit before income tax
Income tax expense
(Loss) / profit after income tax
Segment assets by geographical location:
Segment results
Note
B3
B3
B3
B3
B3
B3
B5(a)
2020
$’m
459.3
(142.4)
(16.3)
(165.0)
(34.0)
(9.5)
–
(48.0)
–
(85.4)
(500.6)
(41.3)
(112.0)
(153.3)
(2.4)
(155.7)
2019
$’m
635.6
–
–
–
–
–
(45.0)
(47.0)
17.0
(98.4)
(173.4)
462.2
(82.4)
379.8
(103.5)
276.3
Geographical 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.
(ii) Total of non-current assets other than deferred tax assets and financial instruments.
Segment assets
Non-current(ii)
2020
$’m
2019
$’m
4,394.7
559.2
7.5
4,961.4
4,222.5
404.4
4.6
4,631.5
Acquisition of
segment assets
Non-current
2020
$’m
273.1
64.8
4.8
342.7
2019
$’m
545.0
46.4
0.3
591.7
Annual Report 2020 69
B2. Revenue
Revenue and other income
2020
$’m
Service revenue
Construction contracts
Sale of goods
Total revenue from
contracts with customers
Other revenue
Total revenue
Government grants(i)
Other
Other income
Total revenue
and other income
Share of sales revenue
from joint ventures
and associates(ii)
Total revenue including
joint ventures and
other income(ii)
2019
$’m
Service revenue
Construction contracts
Sale of goods
Total revenue from
contracts with customers
Other revenue
Total revenue
Other income
Total revenue
and other income
Share of sales revenue
from joint ventures
and associates(ii)
Total revenue including
joint ventures and
other income(ii)
Transport
Utilities
Facilities
EC&M
Mining
Un-
allocated
2,837.0
1,025.2
191.7
4,053.9
2.9
4,056.8
21.1
3.2
24.3
1,730.4
936.7
1.1
2,668.2
1.1
2,669.3
17.1
1.6
18.7
2,425.8
749.7
108.5
3,284.0
–
3,284.0
24.4
–
24.4
833.5
315.4
13.9
1,162.8
3.7
1,166.5
–
1.5
1.5
1,446.1
–
42.6
1,488.7
–
1,488.7
–
4.4
4.4
4,081.1
2,688.0
3,308.4
1,168.0
1,493.1
–
–
–
–
4.1
4.1
–
–
–
4.1
Total
9,272.8
3,027.0
357.8
12,657.6
11.8
12,669.4
62.6
10.7
73.3
12,742.7
611.2
–
7.3
–
56.7
–
675.2
4,692.3
2,688.0
3,315.7
1,168.0
1,549.8
4.1
13,417.9
Transport
Utilities
Facilities
EC&M
Mining
2,628.4
936.9
204.4
3,769.7
5.2
3,774.9
1,441.7
1,061.5
1.2
2,504.4
1.4
2,505.8
2,381.7
821.6
180.5
3,383.8
–
3,383.8
914.6
767.0
14.9
1,696.5
6.9
1,703.4
1,363.5
–
57.0
1,420.5
0.9
1,421.4
0.8
0.9
0.9
1.2
2.1
Un-
allocated
(1.4)
–
–
(1.4)
1.5
0.1
17.4
Total
8,728.5
3,587.0
458.0
12,773.5
15.9
12,789.4
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
(i) Government grants represents incentives received under the New Zealand Government’s wage subsidy scheme available to eligible businesses impacted by the
COVID-19 pandemic.
(ii) 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 2020 B2. Revenue – continued
Revenue from contracts with customers by geographical location:
2020
$’m
Geographical location(i)
Australia
New Zealand and Pacific
Rest of the world
Total revenue from
contracts with customers
2019
$’m
Geographical 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
2,883.8
1,170.0
0.1
2,098.1
570.1
–
2,549.5
734.5
–
1,124.5
–
38.3
1,429.2
–
59.5
4,053.9
2,668.2
3,284.0
1,162.8
1,488.7
Transport
Utilities
Facilities
EC&M
Mining
–
–
–
–
Un-
allocated
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)
–
–
10,085.1
2,474.6
97.9
12,657.6
Total
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
(i) Revenue is allocated based on the geographical location of the legal entity.
Recognition and measurement
Revenue
The Group recognises revenue when a customer obtains control
of the goods or services, in accordance with AASB 15 Revenue
from Contracts with Customers. 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
– Facilities management.
Typically, under the performance obligations of a service
contract, 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.
(iv) Other revenue
Other revenue primarily includes rental income.
(v) Other income
Other income for the current year primarily relates to
government grants received under the New Zealand
Government’s Wage Subsidy Scheme available to eligible
businesses that were adversely impacted by the COVID-19
pandemic. The Group elects to present these subsidies in “Other
income” as allowed under AASB 120 Accounting for Government
grants and disclosure of Government assistance.
Annual Report 2020 71
B2. Revenue – continued
Recognition and measurement – continued
Contract modifications
For services and construction contracts, revenue from variations and claims is 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 may also 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 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 the services is
expected to be one year or less.
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.
72 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 B2. Revenue – continued
Recognition and measurement – continued
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.
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 estimates or judgements could have a material impact on the financial statements of the Group.
B3. Individually significant items
The following material items of expenses, forming part of the unallocated segment, are relevant to an understanding of the Group’s
financial performance:
2020
$’m
Employee benefits expense
Raw materials and consumables
used
Impairment of non-current assets
Other expenses from ordinary
activities
Loss before interest and tax
Income tax benefit
Loss after income tax
Portfolio
restructure
and exit costs
Payroll
remediation
costs
Goodwill
impairment
Spotless
shareholder
class action
Legal
settlement
42.1
9.7
46.6
44.0
142.4
(42.2)
100.2
8.9
–
–
7.4
16.3
(4.5)
11.8
–
–
165.0
–
165.0
–
165.0
–
–
–
34.0
34.0
(10.2)
23.8
–
–
–
9.5
9.5
(2.7)
6.8
Total
51.0
9.7
211.6
94.9
367.2
(59.6)
307.6
Portfolio restructure and exit costs
Represents restructuring costs incurred following management’s decision to scale back the Group’s construction service offerings
as well as costs associated in rightsizing the business to reflect the new business model and remain competitive in a post-COVID-19
environment. The material elements of the costs associated with the portfolio restructure program are as follows:
– The Hospitality business has been the most acutely affected part of the Group through COVID-19 with all major event venues
and other customer premises either closed or running at a fraction of capacity. The business has effectively been placed into
hibernation, awaiting demand to recover, with cost plus arrangements in place for those customers requiring service. Downer is
not eligible for the Federal Government’s JobKeeper subsidy. Restructure costs of $46.4 million have been expensed to cover
redundancies, asset impairments, stock write-offs, onerous contracts and other exit costs.
– The Group has exited the resource based electrical and mechanical major construction market within the Engineering and
Construction (E&C) business unit. Restructure costs of $15.0 million have been expensed to cover redundancies and other exit
costs. Spotless has exited the facilities based electrical and mechanical major construction market within the Infrastructure and
Construction (I&C) business unit. Restructure costs of $9.3 million have been expensed to cover redundancies and other exit costs.
Annual Report 2020 73
Goodwill impairment
Following the identification of possible impairment indicators,
the Group undertook an assessment of the carrying value of
the Spotless Group of CGUs. As a result of this assessment,
a goodwill impairment of $165.0 million was recognised as at
30 June 2020. Refer to Note C7 for further details.
Spotless Shareholder class action
This represents the expense (net of insurance recoveries) to
settle the shareholder class action commenced against Spotless
in the Federal Court of Australia in May 2017. The settlement
was without admission of liability and includes interest and costs
to the Applicant. This claim has previously been disclosed as a
contingent liability.
Legal settlement
Downer has entered into a settlement agreement in relation
to a legacy leaky building claim in New Zealand. The amount
represents the costs of remediation works to be undertaken in
excess of the insurance cover. This claim has been previously
disclosed as a contingent liability.
2019
The Group recognised $45.0 million as an individually significant
item in relation 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 provision related to the
credit risk assumed by Downer to complete the contract as
Downer and Senvion shared 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.
B3. Individually significant items – continued
Portfolio restructure and exit costs – continued
– Downer has reduced management overhead across the
Group through reduction in management layers, head-count,
property footprint, systems and discretionary spend to
better reflect the new operating model. Restructure costs of
$35.6 million have been expensed.
– Transaction costs of $10.0 million relating to the portfolio
review of Mining and Laundries have been expensed in FY20.
– The carrying value of information systems has been impaired
by $26.1 million. The impairment relates to applications and
infrastructure in businesses that are being wound down.
Payroll remediation costs
During the year, Spotless commenced a review of the applicable
Enterprise Agreements (EAs) and Modern Award obligations,
together with the assumptions regarding their interpretation and
application in its payroll systems in order to validate the correct
application of pay rates to employees as well as identify historical
underpayments and overpayments. The process is ongoing.
On 1 July 2020, Spotless lost a Federal Court case with respect
to Ordinary and Customary Turnover of Labour rate (OCTL)
redundancy payments for employees made redundant on
cessation of specific contracts.
Spotless has recognised an employee benefits provision of
$41.1 million in relation to these matters, including interest and
other remediation costs. Of this amount, $24.8 million relating
to the EAs and Modern Award obligations that should have
been incurred in previous years, has been recognised as a prior
period error in opening retained earnings (Refer to Note D1),
with $16.3 million being recognised as an expense in the period.
The $16.3 million comprises all the estimated OCTL redundancy
amounts and EAs and Modern Award obligation amounts
relating to FY20.
The expected liability is the Group’s best estimate of the shortfall
at this time, and has required assumptions regarding complex
variables including the assessment of large volumes of payroll
data and the interpretation of a number of applicable EAs and
Modern Award obligations. Changes to any of these variables
have the potential to result in further adjustments to the
calculation of the shortfall, which could result in a further liability
and expense being required in subsequent reporting periods.
Downer is committed to ensuring its people are paid in
accordance with their employment agreements and the law
and has a dedicated team investigating Spotless and Downer
practices, systems and processes.
74 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 B4. Earnings per share
Basic earnings per share
The calculation of basic earnings per share (EPS) is based on the result attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding.
2020
2019
(Loss) / profit attributable to members of the parent entity ($'m)
Adjustment to reflect ROADS dividends paid ($'m)
(Loss) / profit attributable to members of the parent entity used in calculating EPS ($’m)
Weighted average number of ordinary shares (WANOS) on issue (m’s)(i)
Basic earnings per share (cents)
(150.3)
(7.4)
(157.7)
592.3
(26.6)
Diluted earnings per share
The calculation of diluted EPS is based on the result attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares.
2020
(Loss) / profit attributable to members of the parent entity used in calculating basic EPS ($’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)(iv)
(150.3)
593.0
29.4
622.4
(26.6)
261.8
(8.3)
253.5
591.2
42.9
2019
261.8
592.2
26.9
619.1
42.3
(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 $186.9 million (2019: $191.2 million), divided by the
average market price of the Company’s ordinary shares for the period 1 July 2019 to 30 June 2020 discounted by 2.5% according to the ROADS contract terms, which was
$6.37 (2019: $7.10).
(iv) At 30 June 2020, the ROADS are anti-dilutive and consequently, diluted EPS remained at a loss of 26.6 cents per share.
B5. Taxation
(a) Reconciliation of income tax expense
The prima facie income tax expense on the pre-tax result for the year reconciles to the income tax expense / (benefit) in the financial
statements as follows:
2020
$’m
(Loss) / 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
Impairment of goodwill
Non-taxable gains
Other items
Under provision of income tax in previous year
Total income tax expense
Current tax expense
Deferred tax (benefit) / expense
(153.3)
(46.0)
(1.4)
0.9
(4.2)
49.5
–
2.9
0.7
2.4
45.0
(42.6)
2019
$’m
379.8
113.9
(1.7)
0.8
(6.8)
–
(5.1)
0.1
2.3
103.5
63.4
40.1
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.
Annual Report 2020 75
B5. Taxation – continued
(a) Reconciliation of income tax expense – continued
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; this 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.
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
– 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.
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.
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.
76 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 B5. Taxation – continued
(b) Movement in deferred tax balances
2020
$’m
Trade receivables and
contract assets
Property, plant and equipment,
right-of-use assets and
lease liabilities
Intangible assets
Income tax losses
Trade payables and
contract liabilities
Employee benefits and
other provisions
Other
Net deferred tax assets/
(liabilities)
Set-off of DTA against DTL
Net tax assets / (liabilities)
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
Employee benefits and
other provisions(i)
Other
Net deferred tax assets/
(liabilities)
Set-off of DTA against DTL
Net tax assets / (liabilities)
At
30 June
2019
(Restated)
Application
of AASB 16
At 1 July
2019
Recognised
in profit
or loss
Recognised
in other
comprehen-
sive income
Net foreign
currency
exchange
differences
Acquis-
ition and
disposal
Net
balance
at
30 June
2020
Deferred
tax
assets
Deferred
tax
liabilities
(63.4)
–
(63.4)
(70.3)
–
0.4
–
(133.3)
–
(133.3)
28.9
–
–
(12.0)
(153.7)
28.3
(29.9)
34.6
68.3
(40.9)
(153.7)
28.3
27.9
154.0
11.1
–
–
–
–
–
–
–
(0.2)
0.1
–
0.1
0.5
(1.0)
27.9
9.1
37.1
37.1
154.0
11.1
27.4
3.4
(0.2)
1.3
11.2
–
192.9
14.8
192.9
14.8
–
–
–
(42.1)
(119.0)
96.6
–
–
96.6
(42.1)
(119.0)
–
–
–
–
–
(36.7)
28.9
(7.8)
42.6
1.1
(0.1)
11.2
47.0
At
30 June
2018
Application
of AASB 15
and balance
restatement(i)
At 1 July
2018
(Restated)
Recognised
in profit
or loss
Recognised
in other
comprehen-
sive income
Net foreign
currency
exchange
differences
Acquis-
ition and
disposal
47.0
Net
balance
at
30 June
2019
(Restated)
341.4 (294.4)
199.9
(94.5)
(199.9)
141.5
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
33.0
–
162.4
6.6
(1.7)
(0.7)
(94.7)
116.2
21.5
(40.1)
–
–
–
–
–
–
–
3.8
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
154.0
11.1
154.0
11.1
–
–
–
(0.2)
(21.7)
(36.7)
(36.7)
221.3
(120.4)
100.9
(258.0)
120.4
(137.6)
(i)
1 July 2018 balances have been restated by $7.4 million following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations (Refer
to Note D1). The remaining $25.6 million relates to the adjustment on adoption of AASB 15.
Annual Report 2020 77
B6. Remuneration of auditor
B7. Subsequent events
2020
$
2019
$
Audit and review of
financial statements
5,224,180
5,402,736
Assurance services:
Regulatory assurance services
Other assurance services
Total assurance services
Other services:
Tax services
Advisory services
Total other services
The auditor of the Group is KPMG.
50,000
340,211
390,211
–
452,044
452,044
242,148
468,318
710,466
338,957
275,000
613,957
On 21 July 2020, the Group announced the launch of a
$400 million equity raising to support the acquisition of the
remaining shares in Spotless and provide flexibility for continued
investment in Downer’s core business.
Downer has also announced it has made an unconditional offer
to acquire all of the issued share capital of Spotless not already
owned for an upfront cash consideration of approximately
$134.5 million, plus a maximum of 7.5 million Downer shares to be
issued on exercise of the Downer Contingent Share Option.
Downer has entered into a call option deed with Coltrane
Master Fund, L.P. under which it has a call option over 2.99%
of Spotless shares, which on exercise will increase Downer’s
ownership above the 90% threshold required to proceed to
compulsory acquisition.
Outside of the above, 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.
78 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 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. Right-of-use assets
C7.
Intangible assets
C8. Lease receivables
C9. Other provisions
C10. Contingent liabilities
C1. Reconciliation of cash and cash equivalents
(a) Reconciliation of cash flows from operating activities
(Loss) / profit after tax for the year
Adjustments for:
Share of joint ventures and associates’ profits net of distributions
Depreciation on right-of-use of assets
Depreciation and amortisation of other non-current assets
Impairment of goodwill
Impairment of other non-current assets
Amortisation of deferred borrowing costs
Net gain on sale of property, plant and equipment
Termination of right-of-use assets / lease liabilities
Fair value gain on revaluation of existing interest in Downer Mouchel Joint Venture
Unrealised exchange gains
Movement in current tax balances
Movement in deferred tax balances
Movements on net defined benefit plan obligation
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:
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
Shareholder class action payable
Current provisions
Non-current trade payables and contract liabilities
Non-current financial liabilities
Non-current provisions
Net cash generated by operating activities
Note
F1(a)
C6
C5,C7
C7
C5,C6,C7
F2
D2
D1
C4
2020
$’m
(155.7)
(2.2)
151.8
365.5
165.0
47.0
6.7
(5.7)
(0.2)
–
(0.1)
(11.9)
(43.7)
7.0
4.8
0.1
684.1
(315.1)
(31.9)
(4.3)
(21.0)
8.1
15.8
4.8
34.0
(18.8)
(22.3)
8.3
(7.2)
(349.6)
178.8
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
Annual Report 2020 79
C1. Reconciliation of cash and cash equivalents – continued
(b) Reconciliation of liabilities arising from financing activities
$’m
Interest bearing loans
Lease liabilities(i)
Total liabilities from
financing activities
1 July
2019
1,693.3
10.2
AASB 16
Transition
adjustment
–
717.6
Net cash
flows
348.7
(152.9)
Lease net
additions and
remeasure
–
193.5
Amortisation
and foreign
exchange
movement
9.3
(5.2)
30 June
2020
2,051.3
763.2
1,703.5
717.6
195.8
193.5
4.1
2,814.5
(i)
Upon adoption of AASB 16 Leases, the 30 June 2019 lease liabilities that were disclosed as finance leases in the comparative figures have been presented as part of the
lease liability balances in Note E3.
(c) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprises:
Cash
Short-term deposits
Total cash and cash equivalents
C2. Trade receivables and contract assets
2020
$’m
567.9
20.6
588.5
2019
$’m
663.2
47.5
710.7
Trade receivables
Contract assets(i)
Other receivables
Loss allowance on trade
receivables and contract
assets arising from
contracts with customers
Total
Included in the
financial statements as:
Current(i)
Non-current
2020
$’m
792.1
1,573.5
2,365.6
64.7
2019
$’m
888.0
1,084.4
1,972.4
111.0
(19.2)
2,411.1
(17.5)
2,065.9
2,315.9
95.2
1,991.5
74.4
(i) Current contract assets: $1,482.9 million (2019: $1,074.8 million).
Allowance for credit losses:
The Group’s trade receivables and contract assets are
disaggregated based on their expected credit risks between
Government and Private (non-government) customers. An analysis
of the balances is presented below:
Government – not due
Government – 0 to 90 days past due
Government – more than
90 days past due
Private – not due
Private – 0 to 90 days past due
Private – more than 90 days past due
Total gross carrying amount
Credit impaired – specific allowance
Not credit impaired –
lifetime expected credit loss
Loss allowance on trade receivables
and contract assets arising from
contracts with customers
2020
$’m
1,193.7
43.5
46.5
1,013.3
42.8
25.8
2,365.6
6.9
12.3
19.2
2019
$’m
1,058.0
34.7
44.4
754.8
42.9
37.6
1,972.4
11.9
5.6
17.5
The Group has policies to manage its overall exposure to credit risk
as set out in Note G2(e).
80 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020
C2. Trade receivables and contract assets – continued
In assessing lifetime expected credit losses (ECL) as at 30 June
2020, the Group has considered the increased risk arising from
the economic impacts of the COVID-19 pandemic. The Group has
assessed ECLs by segmenting the portfolio of trade receivables
and contract assets by customer (i.e. Government and private)
as well as by geography to better assess inherent credit risk.
The Group defines counterparties as “Government” if the contract
is with a National, Federal, State or Local Government body, or
an agency or entity that is owned, controlled or guaranteed by
such bodies. Any counterparties other than those defined as
“Government”, are classified as “Private”, and include Blue-Chip
listed companies, PPPs, large multinational companies, network
infrastructure companies as well as other private sector businesses.
The credit risk associated with Government balances is
considered to be negligible (FY19: negligible) due to the high credit
worthiness of the counterparties. No Government balances are
currently in default.
For “Private” balances, the Group has recorded specific
impairment losses for counterparties that are currently in default.
The $19.2 million loss allowance as at 30 June 2020 includes a
specific provision of $6.3 million for a customer following the entity
entering administration.
The remaining ECLs have increased from $5.6 million at 30 June
2019 to $12.3 million at 30 June 2020 reflecting additional credit
risk in the current portfolio of trade receivables and contract assets
mainly from the effect of the economic downturn caused by the
COVID-19 pandemic is expected to have on private counterparties.
Credit losses on “Private” counterparty balances have historically
averaged less than 1%. The allowance for credit losses, excluding
specific provisions, is 1.1% (2019: 0.7%) of the private trade
receivables and contract assets.
Remaining performance obligations
As of 30 June 2020, the aggregate amount of the transaction
price allocated to the remaining performance obligations
is $13,466.1 million (2019: $14,514.3 million). The Group will
recognise this revenue when the performance obligations
are satisfied. Approximately ~46% of remaining performance
obligations are expected to occur within the next five years; with
the remaining ~54% related to long-term service/maintenance
contracts ranging up to 42 years.
The remaining performance obligations balances for both
30 June 2020 and 30 June 2019 presented above relate
to the revenue expected to be recognised from ongoing
construction type contracts with an expected duration of more
than 12 months.
During the current financial year revenue of $1,372.0 million has
been recognised in relation to performance obligations satisfied
or partially satisfied in previous periods.
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 obtain or 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 (AASB 9) contains a 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).
Fair value
Due to the short-term nature of these financial rights, the
carrying amounts of the trade receivables and contract assets are
estimated to represent their fair values.
Impairment
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.
The Group considers the relevant credit risk associated
with disaggregated portions of the financial assets and after
considering specific provisions against counterparties and
defaults, applies an expected credit loss (ECL) percentage derived
from recorded historic credit losses associated with specific
population. The key disaggregation of the balances is between
those that are backed by Government funding and those that
are not and, between those that are current or are overdue less
than 90 days or become more than 90 days overdue. The Group
exercises considerable judgement about how economic factors
(such as the economic downturn triggered by the COVID-19
pandemic) affect this ECL of each of the disaggregated balances
independently, and applies a premium as deemed appropriate to
adjust the historically determined default rates to present the total
expected credit losses on the current balances.
This impairment model applies to financial assets measured
at amortised cost or FVOCI (except for investments in
equity instruments).
Annual Report 2020 81
C2. Trade receivables and contract assets – continued
Key estimate and judgement: Credit risk
Credit risk represents the risk that a counterparty will fail to perform an obligation causing a financial loss to the Group. The Group
minimises credit risk by undertaking transactions with a large number of customers in various industries and geographical areas.
A credit risk management policy is in place and exposure to credit risk is monitored on an ongoing basis.
The Group uses historical information as a basis for the estimation of expected credit losses and then adjusts its assessment of credit risk
based on current macro/micro economic conditions however, judgement is applied in doing this assessment.
C3. Inventories
Current
Raw materials
Work in progress
Finished goods
Components and spare parts
Total inventories
2020
$’m
134.6
1.3
57.7
140.4
334.0
2019
$’m
127.0
7.3
56.2
114.1
304.6
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
Shareholder class action payable
Dividends payable
Other payables
Total trade payables and contract liabilities
Included in the financial statements as:
Current
Non-current
Note
B3
E8
2020
$’m
697.7
497.7
1,034.4
34.0
83.3
179.1
2,526.2
2,497.4
28.8
2019
$’m
810.6
501.5
1,007.2
–
–
137.5
2,456.8
2,405.5
51.3
Recognition and measurement
Trade payables, accruals and other payables
Trade payables, accruals and other payables 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.
Of the Contract liabilities balance of $501.5 million at 30 June
2019, substantially all has been recognised in the current year.
Fair value
Due to the short-term nature of these financial obligations, their
carrying amounts are estimated to represent their fair values.
82 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 C5. Property, plant and equipment
2020
$’m
Balance at 30 June 2019
Opening balance adjustment on application of AASB 16
Balance at 1 July 2019
Additions
Disposals at net book value
Depreciation expense
Impairment charge(i)
Net foreign currency exchange differences
at net book value
Net book value as at 30 June 2020
Cost
Accumulated depreciation and impairment
2019
Carrying amount as at 1 July 2018
Additions
Disposals at net book value
Acquisition of businesses
Depreciation expense
Reclassifications at net book value
Reclassified as intangible assets
Net foreign currency exchange differences
at net book value
Net book value as at 30 June 2019
Cost
Accumulated depreciation and impairment
Freehold
land and
buildings
Plant,
equipment
and leasehold
improvements
Equipment
under
finance
lease(ii)
Laundries
rental
stock
124.0
–
124.0
4.0
(0.2)
(4.4)
–
(0.3)
123.1
155.1
(32.0)
118.8
10.5
(3.0)
0.1
(2.9)
–
–
0.5
124.0
152.8
(28.8)
1,196.2
–
1,196.2
248.7
(19.1)
(225.6)
(6.8)
(5.5)
1,187.9
2,748.7
(1,560.8)
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)
9.0
(9.0)
–
–
–
–
–
–
–
–
–
14.1
2.3
(2.3)
–
(4.8)
(0.4)
–
0.1
9.0
24.5
(15.5)
44.1
–
44.1
33.5
–
(35.0)
(3.3)
(0.1)
39.2
139.0
(99.8)
41.2
35.2
–
–
(32.5)
–
–
0.2
44.1
105.9
(61.8)
Total
1,373.3
(9.0)
1,364.3
286.2
(19.3)
(265.0)
(10.1)
(5.9)
1,350.2
3,042.8
(1,692.6)
1,280.4
353.3
(13.8)
12.1
(260.0)
–
(0.8)
2.1
1,373.3
3,005.3
(1,632.0)
Impairment relates to leasehold improvement assets as a result of the portfolio restructure.
(i)
(ii) These assets, previously disclosed as Property, plant and equipment have been derecognised on application of AASB 16 and are now presented separately within Right-of-
use assets (refer to Note C6).
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
Laundries rental stock
n/a
20 to 50 years
Life of lease
Working hours
3 to 25 years
18 months to 5 years
No depreciation
Straight-line
Straight-line
Based on hours of use
Straight-line
Straight-line
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 leasehold improvements) and turnover policies. In addition, the condition of
the assets is assessed at least annually and considered against the remaining useful life. Adjustments to useful lives and residual
values are made when considered necessary.
Annual Report 2020 83
C6. Right-of-use assets
The Group leases many assets including property, motor vehicles and plant and equipment. Information about leased assets for which
the Group is a lessee is presented below:
2020
$’m
Plant and
Equipment
Leasehold
Property
Motor
Vehicles
Total
Balance recognised on adoption of AASB 16
Additions
Remeasure
Depreciation charge for the period
Impairment charge(i)
Disposals at net book value
Net foreign currency exchange differences at net book value
Net book value as at 30 June 2020
Cost
Accumulated depreciation and impairment
385.5
57.5
(24.1)
(60.8)
(13.0)
(1.5)
(2.7)
340.9
413.9
(73.0)
101.7
56.4
9.2
(56.0)
–
(0.9)
(1.3)
109.1
164.8
(55.7)
83.4
86.1
10.1
(35.0)
–
(1.2)
(0.8)
142.6
176.8
(34.2)
570.6
200.0
(4.8)
(151.8)
(13.0)
(3.6)
(4.8)
592.6
755.5
(162.9)
(i)
Impairment recognised as a result of the impact that the portfolio restructure had on property footprint across the businesses (refer to Note B3).
Recognition and measurement
Right-of-use assets
The right-of-use assets are initially measured at cost,
which comprises:
– The amount of the initial measurement of the lease liability
– Any lease payments made at or before the commencement
date, less any lease incentives and any initial direct costs
incurred by the lessee
– An estimate of the costs to dismantle and remove the
underlying asset or to restore the underlying asset.
Subsequently the right-of-use asset is measured at cost less any
accumulated depreciation and impairment losses and adjusted
for certain remeasurements of the lease liability.
The right-of-use asset is depreciated over the shorter period
of the lease term and the economic useful life of the underlying
asset. If a lease transfers ownership of the underlying asset or
the costs of the right-of-use asset reflects that the Group will
exercise a purchase option, the asset will be depreciated from
the commencement date to the end of the useful life of the
underlying asset. The depreciation starts at the commencement
date of the lease.
Where the initially anticipated lease term is subsequently
reassessed, any changes are reflected in a remeasurement of the
lease liability and a corresponding adjustment to the asset.
If the recoverable amount of a right-of-use asset is less than its
carrying value, an impairment charge is recognised in the profit or
loss, and the carry value of asset written-down to its recoverable
amount. Should the recoverable amount increase in future periods
the carrying value may be adjusted to the lower of the recoverable
value or the amortised cost of the asset had it not been impaired.
Key estimate and judgement: Useful lives/lease term and recoverable value
The estimation of the useful lives has been based on the assets’ lease terms. There are a number of judgements made in
determining the lease terms as noted in the Key estimate and judgement section of Note E3.
The expected useful life of the asset includes a judgement as to whether available extension changes will be exercised.
Changes to this assessment are reflected as a remeasurement, with a corresponding adjustment for the liability.
In assessing whether a right-of-use asset is impaired, judgement is required to determine the recoverable value of the asset.
For corporate right-of-use assets, impairment is assessed against the recoverable amount of cash generating units to which
they are allocated.
84 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 C7. Intangible assets
2020
$’m
Carrying amount as at 1 July 2019
Additions
Disposals at net book value
Business acquisition adjustments
Amortisation expense
Impairment charge(i)
Net foreign currency exchange differences
at net book value
Net book value as at 30 June 2020
Cost
Accumulated amortisation and impairment
2019
Carrying amount as at 1 July 2018
Additions
Disposals at net book value
Acquisition of businesses
Reclassifications at net book value
Amortisation expense
Net foreign currency exchange differences
at net book value
Net book value as at 30 June 2019
Cost
Accumulated amortisation and impairment
Customer
contracts
and
relationships
Goodwill
Brand
names on
acquisition
Intellectual
property on
acquisition
Software
and system
development
2,454.5
–
–
(5.5)
–
(165.0)
(2.7)
2,281.3
2,598.7
(317.4)
2,351.5
–
–
98.2
–
–
4.8
2,454.5
2,606.9
(152.4)
345.0
2.7
–
–
(67.1)
–
–
280.6
494.7
(214.1)
381.1
–
–
30.2
–
(66.3)
–
345.0
494.1
(149.1)
71.3
–
–
–
(4.0)
–
(0.3)
67.0
79.1
(12.1)
74.7
–
–
–
–
(3.9)
0.5
71.3
79.4
(8.1)
2.0
–
–
–
(0.2)
–
–
1.8
2.4
(0.6)
2.2
–
–
–
–
(0.2)
–
2.0
2.4
(0.4)
257.9
61.4
(0.2)
–
(29.2)
(23.9)
(0.6)
265.4
478.0
(212.6)
241.2
45.3
(0.3)
–
0.8
(29.6)
0.5
257.9
419.3
(161.4)
Total
3,130.7
64.1
(0.2)
(5.5)
(100.5)
(188.9)
(3.6)
2,896.1
3,652.9
(756.8)
3,050.7
45.3
(0.3)
128.4
0.8
(100.0)
5.8
3,130.7
3,602.1
(471.4)
(i) $165.0 million impairment as a result of assessment of the carrying value of the Spotless group of CGUs (Refer to recoverable amount section in Note C7 and to Note B3).
$23.9 million impairment of capitalised Information Systems (including applications and IT infrastructure), in CGUs that are being wound down as part of the portfolio
restructure (Refer to Note B3).
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.
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.
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.
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.
Annual Report 2020 85
C7. Intangible assets – continued
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
Intellectual property acquired
Customer contracts and relationships
Other intangible assets
Useful Life
5 to 15 years
20 years
15 to 20 years
1 to 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 or groups of CGUs (“CGUs”) 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.
Consistent with prior year, eight independent CGUs have been
identified across the Group against which goodwill has been
allocated and for which impairment testing has been undertaken.
The goodwill allocation to each CGUs is presented below:
Carrying value of
consolidated goodwill
2020
$’m
275.1
335.0
55.3
53.7
69.3
62.2
1,276.3
154.4
2,281.3
2019
$’m
283.6
335.0
55.3
53.7
70.5
63.7
1,438.3
154.4
2,454.5
Transport Australia(i)
Utilities Australia
Rail
Defence
Downer NZ Services
Building Projects NZ
Spotless(i) (ii)
EC&M
Total
(i)
Included in this amount is the adjustment of goodwill for certain acquisitions
made during the year ended 30 June 2019, for which the acquisition accounting
has been finalised.
(ii) FY20 balance is net of an impairment of $165.0 million. Refer to results of
impairment testing section.
Key estimate and judgement:
Estimation of useful life
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, budgeted EBIT growth rate and
long-term growth rate.
The estimation of the economic useful lives of software
is initially determined based on historical experience.
The useful lives of intangible assets recognised on business
combinations is independently determined based on detailed
reviews of similar assets and underlying factors. These useful
lives are regularly reassessed for indicators of any change
to the initial assessments. If the economic useful lives are
determined to have changed, the amortisation of the assets is
adjusted to reflect the new expected useful life, impacting the
future amortisation recognised.
Recoverable amount testing
The recoverable amount of the identified CGUs has been
assessed using the higher of “value in use” (“VIU”) and “fair value
less costs of disposal” (“FVLCD”).
In assessing VIU, the estimated future cash flows are discounted
to their present value using a discount rate that uses current
market assessments of the time value of money and the risks
specific to the CGU.
The carrying value of the Transport Australia, Utilities Australia,
EC&M, Rail, Defence, Building Projects NZ and Downer NZ
Services CGUs have been assessed using a VIU model,
consistent with prior periods.
As an impairment has been identified for the Spotless CGU, the
recoverable amount of the Spotless CGU has been assessed
based on both a ‘VIU’ and a ‘FVLCD’ methodology. The
recoverable amount has been determined based on a FVLCD
basis (2019: VIU) as this provided the higher recoverable amount.
86 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 C7. Intangible assets – continued
Recoverable amount testing – continued
In determining the FVLCD, a discounted cash flow model is
used. These calculations, classified as level 3 on the fair value
hierarchy, are compared to valuation multiples, or other fair value
indicators where available, to ensure reasonableness.
Results of impairment testing
All CGUs, except the Spotless CGU
For all CGUs, with the exception of the Spotless CGU, the
recoverable values (based on the present value of future cash
flows) are greater than the carrying value of the operating assets
and no impairment has been identified.
Spotless CGU
The forecast cash flows for the Spotless CGU have been
adversely impacted by a number of issues, including declining
margins and contract base, poor performance on certain
contracts, and more recently, the impact of COVID-19 particularly
on its Hospitality business. Consequently, the present value of
future expected cash flows has reduced and no longer support
the carrying value of the operating assets of the CGU.
The recoverable amount of the Spotless CGU has been
determined to be $1,721.0 million.
As a result, an impairment of $165.0 million has been recognised
against the goodwill allocated to the CGU. The impairment
amount has been recognised in “Impairment of non-current
assets” in the statement of profit or loss and disclosed as an
individually significant item in Note B3.
The reduction in the recoverable amount of the Spotless CGU
was the result of:
– An increase in the post tax discount rate from 8.1% to 8.3%
applied to forecast cash flows
– A reduction in the terminal growth rate from 2.5% to 2.25%
due to the macro-economic environment
– The impact of COVID-19 on future earnings
particularly in Hospitality
– A reduction in earnings from the Infrastructure &
Construction (I&C) division (Nuvo and AE Smith) as that
business repositions away from major construction exposure.
Recoverable amount testing – Key assumptions
The table below summarises the key assumptions utilised in the VIU and FVLCD calculations.
2020
2019
Budgeted
EBIT(i)
Long-term
growth rate
Discount
rate
(post-tax)
Budgeted
EBIT(i)
Long-term
growth rate
Discount
rate
(post-tax)
4.7%
(2.6)%
0.3%
16.8%
3.9%
(2.0)%
1.8%
1.8%
2.25%
2.25%
2.25%
2.25%
2.25%
2.25%
2.25%
2.25%
9.0%
8.2%
9.1%
10.3%
8.3%
9.5%
8.3%
9.7%
5.4%
(0.5)%
(10.1)%
16.9%
2.5%
(3.7)%
5.2%
7.8%
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%
Transport Australia
Utilities Australia
Rail
Defence
Downer NZ Services
Building Projects NZ
Spotless
EC&M
(i) Budgeted EBIT for both 2019 and 2020 is expressed as the compound annual growth rates (CAGR) from FY19 actual to terminal year forecast based on the CGUs business plan.
The impact of COVID-19 and return to a steady state of
performance by the terminal year is a key assumption as detailed
below for each CGU. The EBIT CAGR shown above is based on
FY19 to terminal year to ‘normalise’ for the impacts of COVID-19
on the current year results.
For all CGUs the FY21 budget and the business plan for FY22
and FY23 have included consideration of the impact of climate
risk. The impact of climate risk is not a key assumption in the
“value in use” or “fair value less cost of disposal” calculations.
(i) Projected cash flows – budgeted EBIT and the impact of
COVID-19 pandemic
Value in use calculation
The Group determines the recoverable amount, using three-year
cash flow projections based on the FY21 budget (as approved
by the Board) and the business plans for the years ending
30 June 2022 and 2023. For FY24 onwards, the Group assumes
a long-term growth rate of 2.25% to reflect the organic growth
expectations of the industry.
Cash flow projections are determined utilising the budgeted
Earnings Before Interest and Tax (EBIT) 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.
Annual Report 2020 87
C7. Intangible assets – continued
(i) Projected cash flows – budgeted EBIT and the impact
of COVID-19 pandemic – continued
COVID-19 Impact on projected cash flows
Budgeted EBIT 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. The
COVID-19 pandemic has impacted the Group business lines to
varying degrees, with impacts including forced lockdown in New
Zealand, event cancellations, travel restrictions, supply chain
restrictions and general productivity constraints.
Whilst the near-term future health and economic consequences
of COVID-19 remain uncertain, the experience to date of the
impacts of COVID-19 on FY20 has been taken into consideration
in the preparation of the projected cash flows for the FY21
budget and the business plans for FY22 and FY23.
Generally speaking, the Transport Australia, Utilities Australia,
Rail and Defence CGUs were resilient with FY20 performance
on or near budget, mainly as their customer base includes
Government Agencies or Government-owned corporations.
The Building Projects NZ and Downer NZ Services business
units were supported through the level 4 restrictions in New
Zealand through both wage subsidies and recognition that
COVID-19 was a valid cause for delay and disruption claims.
Through FY20 the EC&M CGU experienced several large
contract losses in relation to construction contracts as well
as some deferral of activity in relation to long term Asset
Maintenance contracts as a result of COVID-19. Due to the
critical nature of these maintenance activities this activity is
anticipated to return in FY21.
The above impacts have been considered in forming the FY21
budget in the discounted cash flow models.
Ongoing cash flow forecasts
The FY22 through to terminal year cash flow projections assume
a return from the current economic position consistent with
economic projections, with the terminal year reflecting a steady-
state performance. Specifically for each CGU:
– 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 in fixed telecommunication networks,
electricity and water sectors, partially offsetting the
reduction in EBIT following completion of the current nbn
construction contracts.
– Rail is expected to be relatively stable over the medium term
following the transition from construction to the Through Life
Support (TLS) phase with the timing of overhauls impacting
the short-term cash flows.
– The Defence business has grown following acquisitions
in 2018. From a low EBIT is expected to benefit from an
88 Downer EDI Limited
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 current and new customers. A
higher discount rate reflects the risk in achieving the growth
projections and the relatively smaller CGU.
– Downer New Zealand Services is expected to benefit
from increased investment in infrastructure, particularly in
transport and utilities.
– Building Projects New Zealand is expected to continue to
deliver on opportunities, particularly government-linked
expenditure in the vertical build area.
– EC&M revenue and EBIT growth assumptions has been
normalised for contract losses incurred in 2019 as Downer
has exited the resource based electrical and mechanical
major construction market within the Engineering and
Construction (E&C) business unit. Normalising for these
losses, the business shows a stable growth assumption,
reflecting the revised focus on Asset Maintenance Services
long-term service agreements where ongoing growth
is expected across Oil & Gas, Power Generation and
Industrial sectors.
Fair value less cost of disposal calculation
In determining FVLCD for the Spotless CGU, a discounted cash
flow model was used. Similarly to the other CGUs, a three-year
cash flow projection, based on the EBIT as per the FY21 budget
and the business plan for FY22 and FY23 was utilised. For FY24
onwards, the Group assumes a long-term growth rate of 2.25% to
allow for organic growth on the existing asset base. Adjustments
are made to these projections to include assumptions that a
market participant would make, such as cash flows relating to
restructuring and integration, following Downer obtaining 100%
control of Spotless.
The Spotless CGU has been the most acutely affected part of
the Group through COVID-19 with all major Hospitality event
venues and other customer premises either closed or running at
a fraction of capacity, as well as a reduction in Laundries volumes
through the deferral of elective surgeries.
Spotless’ revenue and EBIT assumptions assume an ongoing
decline in the Hospitality business unit through FY21 and FY22
due to anticipated reduction in events being held at key venues
such as the Melbourne Cricket Ground and Perth Convention
and Entertainment Centre. The model for Hospitality assumes
a return to pre-COVID-19 levels of activity by FY23. The overall
Spotless projections assume an overall EBIT compound annual
growth rate from FY19 (i.e. pre-COVID-19 levels) to the terminal
year of 1.8%, which is consistent with economic projections that
COVID-19 will have a long term sustained impact on economic
growth, and particular challenges in the Hospitality sector.
Consistent with assumptions a market participant would make,
the forecast also includes $10 million per annum (risk adjusted)
of synergies that can be realised from 100% ownership of
Spotless, offset by the premium paid to acquire the remaining
interest in Spotless and costs of implementation.
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 C8. 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
Included in the
financial statements as:
Current
Non-current
2020
$’m
20.6
50.9
–
71.5
(4.7)
66.8
2019
$’m
14.2
40.7
0.2
55.1
(4.0)
51.1
18.5
48.3
12.4
38.7
There were no guaranteed residual values of assets leased under
finance leases at reporting date (2019: nil). However, some of the
leased assets serve as a guarantee against these receivables.
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 lease receivables.
A 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. Lease income is recognised to reflect
a constant periodic rate of return on the Group’s remaining net
investment in respect of the lease.
C7. Intangible assets – continued
(ii) Long-term growth rates
The long-term annual growth rates, applicable for the periods
after which detailed forecasts have been prepared, are based on
the long term expected GDP rates for the country of operation,
adjusted as necessary to reflect industry specific considerations
including the impact that COVID-19 may have.
(iii) Discount rates
Post-tax discount rates of between 8.2% and 10.3% reflect the
Group’s estimate of the time value of money and risks associated
with 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. The post-tax
discount rate is applied to post-tax cash flows that include an
allowance for tax based on the affected 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 expected 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.
(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.
Sensitivities
For all CGUs, except the Spotless CGU, management believes
that any reasonable change in the key assumptions would
not cause the carrying value of the CGUs to exceed their
recoverable value amount.
For the Spotless CGU, as the recoverable amount is now equal
to the carrying amount, any adverse movement in the key
assumptions noted above would lead to further impairment.
Annual Report 2020 89
C9. Other provisions
2020
$’m
Balance at 30 June 2019
Opening balance adjustment on application of AASB 16
Balance at 1 July 2019
Additional provisions recognised
Unused provisions reversed
Utilisation of provisions
Business acquisition adjustments
Net foreign currency exchange differences
Balance at 30 June 2020
Included in the financial statements as:
Current
Non-current
Note
G1
Decomm-
issioning and
restoration
Warranties
and contract
claims
Onerous
contracts
and other(i)
28.1
–
28.1
3.4
–
(2.8)
0.5
(0.1)
29.1
8.9
20.2
23.7
–
23.7
24.0
(0.1)
(9.9)
–
–
37.7
31.3
6.4
139.7
(37.1)
102.6
28.3
(22.3)
(61.9)
1.0
(1.0)
46.7
33.9
12.8
Total
191.5
(37.1)
154.4
55.7
(22.4)
(74.6)
1.5
(1.1)
113.5
74.1
39.4
(i) Onerous lease contracts as at 1 July 2019 have been reflected as Impairment to the opening right-of-use asset cost on adoption of AASB 16.
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,
technology and estimates of inflation.
(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. Any change in the assessment of
provisions impacts the results of the business.
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
– 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 and supply contracts.
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.
90 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 C10. Contingent liabilities
Bonding
Note
2020
$’m
2019
$’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
1,439.8
1,323.2
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.
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.
vi) Certain recent court decisions, not involving Spotless,
regarding the correct application of various employee
entitlements may have a financial impact on the Group.
The Group does not consider the majority of the principles
relating to these Court decisions directly apply to the Group’s
employment arrangements. No provision has therefore been
recognised in relation to these matters at 30 June 2020.
Other contingent liabilities
i)
ii)
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.
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.
Annual Report 2020 91
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. Defined benefit plan
D1. Employee benefits
Employee benefits expense:
– Defined contribution plans costs
– Shared-based employee benefits
expense
– Employee benefits
– Redundancy costs
– Defined benefit plan costs
Total
Employee benefits provision:
– Current(i)
– Non-current(ii)
Total
2020
$’m
2019
$’m
262.3
258.2
4.8
3,885.8
57.4
7.0
4,217.3
377.1
55.0
432.1
4.0
4,065.6
12.6
-
4,340.4
365.3
45.1
410.4
(i) June 2019 balances have been restated following review of the Group’s
(ii)
compliance with Enterprise Agreements (EAs) and Modern Award obligations.
Included in the non-current employee benefit provision is the net obligation of
the defined benefit plan (Refer to Note D2).
D3. Key management personnel compensation
D4. Employee discount share plan
Payroll remediation costs
During the year, Spotless commenced a review of the applicable
Enterprise Agreements and Modern Awards, together with the
assumptions regarding their interpretation and application in its
payroll systems in order to validate the correct application of pay
rates to employees as well as identify historical underpayments
and overpayments.
While the review to determine the extent of the remediation
continues, the Group has estimated the likely underpayments
relating to the period prior to 1 July 2018 was $24.8 million
before tax. The annual amounts were not material to profit either
cumulatively or for any of the individual years to which they
related. Nonetheless, the Group has elected to restate opening
retained earnings to enhance year on year comparability.
As a result, the opening balance of the employee benefits
provision has been increased by $24.8 million, with
corresponding adjustments to retained earnings, deferred
tax assets and to the non-controlling interest. The impact of
these changes on the opening position for these balances
has flowed through to the closing balances for the year ended
30 June 2019. The Consolidated Statement of Profit or Loss and
Other Comprehensive Income, and the Consolidated Statement
of Cash Flows comparatives for FY19 are unchanged.
In addition, the Group has recognised an expense of $16.3 million
before tax in 2020 relating to remediation costs and redundancy
payments for employees made redundant on cessation of
specific contracts (refer to Note B3).
Critical estimates and judgements have been made in the
calculations as to the impacted employees, allowance payments
and assumed work patterns. Any revisions of the estimates will
be recognised in the period the revisions are identified.
92 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 The following table presents the impact of the 1 July 2018 restatement on the comparative information presented in the prior
year’s Annual Report:
Balances as at 30 June 2019:
Employee benefits provision
Deferred tax asset
Other net assets
Net assets
Retained earnings
Non-controlling interest
Other equity balances
Total equity
Note
B5(b)
E6
As previously
reported
$’m
(385.6)
93.5
3,342.3
3,050.2
496.7
155.9
2,397.6
3,050.2
Adjustment
$’m
As restated
$’m
(24.8)
7.4
–
(17.4)
(15.3)
(2.1)
–
(17.4)
(410.4)
100.9
3,342.3
3,032.8
481.4
153.8
2,397.6
3,032.8
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
– 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.
Interpretation of Enterprise Agreements (EAs) and Modern Awards
Management estimates any potential expenses in relation to payroll remediation matters.
Each identified matter is currently in the process of final validation and quantification. In the case of redundancy costs arising
from Ordinary and Customary Turnover of Labour rate (OCTL), the quantification and ultimate liability will also be subject to the
outcome of any appeal.
The work involved in calculating the provision has been time consuming, complex and is the Group’s best estimate of its liability.
The estimate is based on an assessment of substantial volumes of payroll data and where employee, payroll and/or rostering
data has been missing or incomplete, assumptions have been made by the reviewing team in relation to known gaps. The
estimate also relies upon the correct interpretation of the applicable EAs and Modern Awards in calculating the shortfalls, and for
redundancy payments whether an employee should be considered casual or permanent.
Changes to any of the variables (including the reviewing period and numbers of employees affected), assumptions (including the
roles that employees were originally hired to perform in the case of redundancy payment) or inputs have the potential to result
in further adjustments to the calculation of the shortfall, which would result in further provisioning being required in subsequent
reporting periods.
The Group is committed to ensuring its people are paid in accordance with their legal entitlements and will keep the dedicated
reviewing team in place until it is satisfied that the above matters have been addressed.
Annual Report 2020 93
D2. Defined benefit plan
D3. Key management personnel compensation
The Group participates in the Equipsuper Defined Benefit Scheme
which provides participants (< 100 employees) with a lump sum
benefit on retirement, death, disablement or withdrawal. The
scheme operates under the Superannuation Industry legislation,
and is governed by The Scheme Trustees, in compliance with
Australian Prudential Regulation Authority framework. The scheme
is closed to new employees.
As at 30 June 2020, the fair value of plan assets (comprising
Investment Funds) was $53.0 million. The plan obligation balance
was $58.4 million. The net liability of $5.4 million is included
in Employee benefits provisions (Refer to Note D1). These
balances were subject to an independent actuarial review as
at 30 June 2020.
As part of a five-year contract with AusNet Services to provide
operational and maintenance services on the electricity distribution
network in Victoria, the Group recognised $51.1 million of assets
and equal obligations with onboarding of new employees from a
pre-existing plan, $7.0 million of service costs expensed to profit or
loss, $0.7 million of actuarial gain on the obligation, and the Group
contributions of $0.9 million.
Key actuarial assumptions used in determining the values were
a discount rate of 2.6% and an expected salary increase rate of
3.0%. Sensitivity analysis shows a 0.5 percentage point reduction
in the discount rate would increase the obligation by 5.1% and a
0.5 percentage point increase in the expected salary increase rate
would increase the obligation by 4.5%.
Key estimate and judgement: Valuation
of the defined benefit plan assets
and obligations
There are a number of estimates and assumptions
used in determining the defined benefit plan assets,
obligations and expenses. These include salary increases,
future earnings, and the returns on fund investments.
Any difference in these assumptions or estimates will
be recognised in other comprehensive income and not
through the income statement. The net of the plan assets
and obligations recognised in the statement of financial
position will be affected by any movement in the returns on
the investment or the rate of interest.
2020
$
2019
$
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
7,914,786
244,055
1,878,243
10,037,084
12,804,694
1,298,516
2,415,989
16,519,199
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.
D4. Employee Discount Share Plan
No shares were issued under the Employee Discount Share Plan
during the years ended 30 June 2020 and 30 June 2019.
94 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 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. Lease liabilities
E4. Commitments
E1. Borrowings
Current
Secured:
– Lease liabilities(i)
Unsecured:
– Bank loans
– USD private placement notes
– Deferred finance charges
Total current borrowings
Non-current
Secured:
– Lease liabilities(i)
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
E5. Issued capital
E6. Non-controlling interest (NCI)
E7. Reserves
E8. Dividends
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 loan facilities
Syndicated bank
guarantee facilities
Bilateral bank guarantees and
insurance bonding facilities
Total unutilised
bonding facilities
2020
$’m
960.0
310.0
1,270.0
2019
$’m
770.0
297.0
1,067.0
102.5
314.9
492.5
505.0
595.0
819.9
2020
$’m
2019
$’m
–
2.8
5.4
–
(4.0)
1.4
1.4
6.1
10.0
(4.3)
11.8
14.6
–
7.4
982.2
145.7
30.0
762.8
135.3
(6.1)
2,049.9
2,049.9
2,051.3
833.4
142.6
30.0
550.0
132.4
(6.9)
1,681.5
1,688.9
1,703.5
Fair value of total borrowings(ii)
2,230.4
1,798.4
(i) Upon adoption of AASB 16 Leases, the 30 June 2019 lease liabilities that were
disclosed as part of borrowings in the comparative figures above have been
presented as part of the lease liability balances in Note E3.
(ii) Excludes finance lease and hire purchase liabilities.
Annual Report 2020 95
E2. Financing facilities – continued
Summary of borrowing arrangements
Bank loan facilities
Bilateral loan facilities:
The Group has a total of $477.4 million in bilateral loan facilities
which are unsecured, committed facilities with maturities in
financial years 2021, 2022 and 2023.
Syndicated loan facilities:
The Group has $1,780.2 million of syndicated bank loan facilities
which are unsecured, committed facilities and comprised of
Australian Dollar and New Zealand Dollar tranches with maturities
in financial year 2022, 2023 and 2024.
USD private placement notes
USD unsecured private placement notes are on issue for a total
amount of US$100.0 million with a maturity date of 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
– $500.0 million maturing April 2026
– JPY 10.0 billion maturing May 2033.
The carrying value of the AUD MTN maturing April 2026
includes a premium of $12.8 million over face value owing to
the differential between the coupon rate for that instrument
and the prevailing market interest rate at the date of issue.
The JPY denominated principal and interest amounts have
been fully hedged against the Australian dollar through a
cross-currency interest rate swap.
The above loan facilities and note issuances are supported by
guarantees from certain Group subsidiaries.
The maturity profile of the Group’s borrowing arrangements by financial year is represented in the below table by facility limit:
Maturing in the period ($’m)
1 July 2020 to 30 June 2021
1 July 2021 to 30 June 2022
1 July 2022 to 30 June 2023
1 July 2023 to 30 June 2024
1 July 2025 to 30 June 2026
1 July 2032 to 30 June 2033
Total
Bilateral
Loan
Facilities
Syndicated
Loan
Facilities
USD Private
Placement
Notes
AUD Private
Placement
Notes
Medium
Term Notes
5.4
145.0
327.0
–
–
–
477.4
–
200.0
1,120.2
460.0
–
–
1,780.2
–
–
–
–
145.7
–
145.7
–
–
–
–
30.0
–
30.0
–
250.0
–
–
500.0
135.3
885.3
Total
5.4
595.0
1,447.2
460.0
675.7
135.3
3,318.6
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 monthly and reported
at the Downer and Spotless Board meetings. 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 2020.
Bank guarantees and insurance bonds
The Group has $2,034.8 million of bank guarantee and insurance
bond facilities to support its contracting activities. $1,125.5 million
of these facilities are provided to the Group on a committed
basis and $909.3 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.
$1,439.8 million (refer to Note C10) of these facilities were
utilised as at 30 June 2020 with $595.0 million unutilised. These
facilities have varying maturity dates between financial years
2021, 2022 and 2023.
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.
96 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 E2. Financing facilities – continued
Refinancing requirements
The Group will negotiate with existing and, where required, with
new financiers to extend the maturity date or refinance facilities
maturing within the next 12 months. 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. As at 30 June 2020, the Group has no significant
financings maturing within the 12 months to 30 June 2021.
Refer to Note G2(f) for liquidity risk management including the
Group’s response to the COVID-19 pandemic.
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.
E3. Lease liabilities
Contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities
Current
Non-current
Total lease liabilities
2020
$’m
193.1
402.2
292.5
887.8
168.9
594.3
763.2
Included in the lease liabilities is $2.8 million of current and
$7.4 million of non-current lease liabilities that had previously
been disclosed as part of Secured Borrowings at 30 June 2019
(refer to Note E1).
Lease liabilities
The lease liability is initially measured at the present value of
future lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or if
this rate cannot be readily determined the Group’s incremental
borrowing rate. Generally, the Group uses its incremental
borrowing rate as the discount rate.
Lease payments included in the measurement of the lease
liability comprise:
– Fixed payments (including in-substance fixed payments),
less any lease incentives receivable
– Variable lease payments that depend on an index or a rate
– The exercise price of a purchase option if the lessee is
reasonably certain to exercise that option
– The amount expected to be payable under a residual
value guarantee
– Payments of penalties for termination of the lease, if the
lease term reflects the lessee exercising an option to
terminate the lease.
Variable lease payments not included in the initial measurement
of the lease liability are recognised directly in profit or loss.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) and by reducing the carrying
amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use
asset) whenever:
– The lease term has changed or there is a significant event
or change in circumstances resulting in a change in the
assessment of exercise of a purchase option, in which case
the lease liability is remeasured by discounting the revised
lease payments using a revised discount rate
– The lease payments change due to changes in an index or
rate or a change in the amount expected to be payable under
a residual value guarantee
– A lease contract is modified, and the lease modification is
not accounted for as a separate lease, in which case the
lease liability is remeasured based on the lease term of the
modified lease by discounting the revised lease payments
using a revised discount rate at the effective date of
the modification.
The expense charged to profit or loss for low value and
short-term leases (excluded from lease liabilities) is analysed as:
Lease expenses
Land and buildings
Plant and equipment
Total lease expenses
2020
$’m
2.4
36.5
38.9
Where the Group is a lessor:
The accounting policies applicable to the Group as a lessor are
unchanged from those under AASB 117, and as such the Group is
not required to make any adjustments on transition to AASB 16
for leases in which it acts as lessor. However, the Group has
applied AASB 15 Revenue from contracts with customers to
allocate consideration in the contract to each lease and non-
lease component. Revenue from lease components has been
classified within Other Revenue (refer to Note B2).
Annual Report 2020 97
E3. Lease liabilities – continued
Key estimate and judgement: Lease liabilities
(i) Extension option
In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included
in the lease term if the lease is reasonably certain to be extended (or not terminated).
(ii) Incremental borrowing rate
In determining the present value of the future lease payments, the Group discounts the lease payments using an incremental
borrowing rate (IBR). The IBR reflects the financing characteristics and duration of the underlying lease. Once a discount rate has
been set for a leased asset (or portfolio of assets with similar characteristics), this rate will remain unchanged for the term of that
lease. When a lease modification occurs, and it is not accounted for as a separate lease, a new IBR will be assigned to reflect the
new characteristics of the lease.
E4. Commitments
Capital expenditure commitments
Plant and equipment and other
Within one year
Between one and five years
Greater than five years
Total
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
Total
2020
$’m
2019
$’m
72.1
15.5
0.4
88.0
24.3
35.2
3.7
63.2
103.5
24.3
1.3
129.1
27.8
55.5
5.9
89.2
98 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 E5. Issued capital
Ordinary shares
Unvested executive incentive shares
Distributing Securities (ROADS)
Total
Jun 2020
No.
594,702,512
2,231,632
200,000,000
$’m
2,263.1
(12.0)
178.6
2,429.7
Jun 2019
No.
594,702,512
3,385,446
200,000,000
(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
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
2020
m’s
$’m
594.7
594.7
2,263.1
2,263.1
3.4
(1.2)
2.2
(16.6)
4.6
(12.0)
2019
m’s
594.7
594.7
4.2
(0.8)
3.4
$’m
2,263.1
(16.6)
178.6
2,425.1
$’m
2,263.1
2,263.1
(19.8)
3.2
(16.6)
(i) June 2020 figures relate to the 2016 LTI plan, second deferred component of the 2017 STI award and first deferred component of the 2018 STI award totalling 1,153,814
vested shares for a value of $4,608,778.
June 2019 figures relate 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.
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.
Annual Report 2020 99
E5. Issued capital – continued
2020
m’s
$’m
2019
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 2020 is 4.32% per annum (2019: 5.49% per annum) which is equivalent to the
one-year swap rate on 15 June 2020 of 0.27% per annum plus the step-up margin of 4.05% per annum.
Share options and performance rights
During the financial year nil performance rights (Jun 2019: 1,044,363) 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.
E6. Non-controlling interest (NCI)
The following table summarises the NCI in relation to the Group’s subsidiaries:
Current assets
Non-current assets(i)
Current liabilities(i)
Non-current liabilities
Net assets
NCI percentage
Net assets attributable to NCI
Jun 2020
Jun 2019
Spotless(ii)
$’m
563.9
2,407.3
(738.3)
(1,087.4)
1,145.5
12.198%
139.7
Other
$’m
18.4
0.3
(1.4)
(0.1)
17.2
26.0%
4.5
Total
$’m
Spotless(i)
$’m
582.3
2,407.6
(739.7)
(1,087.5)
1,162.7
144.2
566.6
2,290.7
(627.3)
(1,004.5)
1,225.5
12.198%
149.5
Other
$’m
22.3
1.2
(7.0)
(0.1)
16.4
26.0%
4.3
Total
$’m
588.9
2,291.9
(634.3)
(1,004.6)
1,241.9
153.8
(i) June 2019 balances have been restated following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations (Refer to Note D1).
(ii) Consistent with Group policy the goodwill impairment loss has been recognised on consolidation and does not impact the NCI.
100 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 E7. Reserves
2020
$’m
Foreign
currency
translation
reserve
Hedge
reserve
Employee
benefits
reserve
Fair value
through OCI
reserve
Total
attributable
to the
members of
the Parent
Balance at 1 July 2019
Foreign currency translation difference
Change in fair value of cash flow hedges (net of tax)
Actuarial movement on defined benefit plan obligations
Income tax effect of actuarial movement on defined benefit
plan obligations
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 2020
(24.0)
–
(5.4)
–
–
(5.4)
–
–
–
(29.4)
(16.7)
(13.9)
–
–
–
(13.9)
–
–
–
(30.6)
15.8
–
–
0.7
(0.2)
0.5
(4.6)
4.8
(1.6)
14.9
(2.6)
–
–
–
–
–
–
–
–
(2.6)
(27.5)
(13.9)
(5.4)
0.7
(0.2)
(18.8)
(4.6)
4.8
(1.6)
(47.7)
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
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)
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. This reserve also includes the
actuarial gains or losses arising on the defined benefit plan (Refer to Note D2).
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.
Until the assets are derecognised or reclassified, this amount is reduced by the amount of loss allowance.
Annual Report 2020 101
E8. Dividends
(a) Ordinary shares
Dividend per share (in Australian cents)
Franking percentage
Cost (in $’m)
Dividend record date
Payment date
2020
Final
–
–
–
–
–
2020
Interim
14.0
0%
83.3
26/2/20
25/9/20
2019
Final
14.0
50%
83.3
4/9/19
2/10/19
2019
Interim
14.0
50%
83.3
21/2/19
21/3/19
Recognition and measurement
A liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the
entity, before or at the end of the financial year but not distributed at balance date.
There will be no final dividend declared/paid for the year ended 30 June 2020. Downer has deferred the unfranked interim dividend
which was originally due to be paid on 25 March 2020. This will now be paid on 25 September 2020 and has been recorded as dividend
payable in Note C4.
(b) Redeemable Optionally Adjustable Distributing Securities (ROADS)
2020
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Dividend per ROADS (in Australian cents)
New Zealand imputation credit percentage
Cost (in A$’m)
Payment date
2019
Dividend per ROADS (in Australian cents)
New Zealand imputation credit percentage
Cost (in A$'m)
Payment date
0.92
100%
1.8
16/9/19
0.95
100%
1.9
16/12/19
0.96
100%
1.9
16/3/20
0.92
100%
1.8
15/6/20
Quarter 1
Quarter 2
Quarter 3
Quarter 4
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
Total
3.75
100%
7.4
Total
4.18
100%
8.3
(c) Franking credits
The franking account balance as at 30 June 2020 is nil (2019: nil).
102 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 F
Group structure
This section explains significant aspects of Downer’s Group structure, including joint arrangements where the Group has interests
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. Related party information
F2. Acquisition of businesses
F3. Controlled entities
F5. 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
2020
$’m
31.5
18.2
(17.2)
–
(0.4)
32.1
77.3
1.2
–
–
78.5
2019
$’m
21.2
17.1
(15.6)
8.5
0.3
31.5
74.8
13.3
(6.8)
(4.0)
77.3
Interest in joint ventures and associates
110.6
108.8
Annual Report 2020 103
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
Joint ventures
Allied Asphalt Limited
Bitumen Importers Australia Joint Venture Construction of bitumen storage facility
Bitumen Importers Australia Pty Ltd
Bama Civil Pty Ltd & Downer EDI
Works Pty Ltd(i)
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
RTL Mining and Earthworks Pty Ltd
Waanyi Downer JV Pty Ltd
ZFS Functions (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
Bitumen importer
Civil Infrastructure design and/or
construction activities
Catering for functions at Eden Park
Ownership interest
Country of
operation
2020
%
2019
%
New Zealand
Australia
Australia
Australia
New Zealand
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Australia
50
50
50
50
50
50
50
50
50
44
50
50
50
50
50
–
50
50
50
50
50
44
50
50
Associates
Keolis Downer Pty Ltd
Operation and maintenance of Gold Coast light rail,
Melbourne tram network and bus operation
Australia
49
49
(i) Joint venture entered into during the year ended 30 June 2020.
There are no material commitments held by joint ventures or associates. All joint ventures and associates have a statutory reporting
date of 30 June.
The Group’s share of aggregate financial information from joint ventures and associates is presented below.
The Group does not disclose the details of the individual joint ventures and associates on the basis these are individually immaterial.
The Group’s share of the carrying amounts:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Goodwill
Adjustment to align accounting policies
Carrying amount
Profit for the year
Total comprehensive income
104 Downer EDI Limited
2020
$’m
229.1
149.0
(144.7)
(132.7)
100.7
7.0
2.9
110.6
19.4
19.4
2019
$’m
209.2
153.5
(115.0)
(146.9)
100.8
7.0
1.0
108.8
30.4
30.4
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 F1. Joint arrangements and associate entities – continued
(a) Interest in joint ventures and associates – continued
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.
(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
2020
%
2019
%
Enabling works for Carrapateena Project
Building construction
Enabling works for Auckland City Rail Link
Road maintenance
Sydney Water services
Parramatta Light Rail construction
Construction of the City Rail Link Alliance Project
Highway construction and design
Management of run of mine and ore
rehandling services
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
Design and build on Americas Cup Project
Road construction
Tramline extension
Downtown infrastructure development program
Ausenco Downer Joint Venture
China Hawkins Construction JV
City Rail JV
Concrete Paving Recycling Pty Ltd
Confluence Water JV(iii)
CPB Downer Joint Venture
CRL Construction Joint Venture
Dampier Highway Joint Venture
Downer-Carey Mining JV(ii)
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 Seymour Whyte JV
Downer York Joint Venture
Downtown Infrastructure
Development Project JV
Gumala Downer Joint Venture
Hatch Downer JV
HCMT Supplier JV
John Holland Pty Ltd & Downer Utilities
Australia Pty Ltd Partnership
Macdow Downer Joint Venture (Connectus) Rail construction
Macdow Downer Joint Venture (CSM2)
Macdow Downer Joint
Venture (Russley Road)
NEWest Alliance(iii)
Road construction
Road construction
Contract mining services
Australia
Design and construction of solvent extraction plant Australia
Australia
Rail build supplier
Australia
Operation of water recycling plant at Mackay
Australia
New Zealand
New Zealand
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
50
50
50
49
43
50
30
50
46
90
50
50
50
50
50
50
33
50
50
50
50
50
50
50
50
50
50
49
–
50
30
50
46
90
50
50
50
50
50
50
33
50
50
50
50
50
50
50
Construction activities as part of Perth’s
METRONET program
Australia
50
–
Annual Report 2020 105
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
Safety Focused Performance JV
Thiess VEC Joint Venture
Utilita Water JV
VEC Shaw Joint Venture
Waanyi ReGen JV
WDJV Unit Trust
Wiri Train Depot Joint Venture
Principal activity
Kaikoura earthquake works
Water and sewerage capital works
Highway construction
Plant maintenance
Road construction
Rehab contract services
Contract mining services
Construction of the Wiri train depot
(i) Contractual arrangement prevents control despite ownership of more than 50% of this joint operation.
(ii) Joint operation is currently undergoing liquidation / de-registration.
(iii) Joint operation entered into during the year ended 30 June 2020.
F2. Acquisition of businesses
Cash outflow in relation to acquisitions
Gross purchase consideration
Deferred consideration paid(i)
Less: Net cash acquired
Less: Deferred and contingent consideration
Total cash consideration
(i) The deferred consideration paid relates to acquisitions made prior to 1 July 2019.
2020 acquisitions
There were no new acquisitions during the year.
Ownership interest
Country of
operation
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
2020
%
25
45
50
50
50
50
50
50
2020
$’m
–
29.8
–
–
29.8
2019
%
25
45
50
50
50
50
50
50
2019
$’m
100.7
15.6
(35.9)
(17.4)
63.0
2019 acquisitions
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 was provisionally accounted for as at 30 June 2019 and has now been finalised in the current year, with
no material changes.
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 was provisionally accounted for as at 30 June 2019 and has now been finalised in the current year, with
no material changes.
106 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 F2. Acquisition of businesses – continued
2019 acquisitions – continued
KHSA Limited
On 21 December 2018, the Group executed a Share Sale Deed to acquire 100% of the shares in the DM Roads 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 Roads Joint Venture (alongside Downer’s existing 50% interest),
Downer Mouchel Roads Joint Venture became 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 was reported as other income in the statement of profit or loss in the year
ended 30 June 2019.
The acquisition was provisionally accounted for as at 30 June 2019 and has now been finalised in the current year.
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 was provisionally accounted for as at 30 June 2019 and has now been finalised in the current year, with no
material changes.
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 has been finalised with an additional $3.0 million of goodwill being recognised.
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 was provisionally accounted for as at 30 June 2019 and has now been finalised in the current year, with no
material changes.
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 was provisionally accounted for as at 30 June 2019 and has now been finalised in the current year, with no
material changes.
Annual Report 2020 107
F2. Acquisition of businesses – continued
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets / liabilities acquired were as follows:
Asset / liability acquired
Valuation technique
Trade receivables and contract assets
Cost technique – considers the expected economic benefits receivable when due.
Property, plant and equipment
Intangible assets
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.
Trade payables and contract liabilities
Cost technique – considers the expected economic outflow of resources when due.
Borrowings
Provisions
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.
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.
108 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 F3. Controlled entities
The controlled entities of the Group listed below were wholly owned during the current and prior year, unless otherwise stated:
Australia
AGIS Group Pty Ltd
ASPIC Infrastructure Pty Ltd
Dean Adams Consulting Pty Ltd(iv)
DMH Plant Services Pty Ltd
DMH Maintenance and Technology Services Pty Ltd
DMH Electrical Services Pty Ltd
DM Road Services Pty Ltd
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(iv)
Downer Utilities New Zealand Pty Limited
Downer Utilities Projects Pty Ltd(iv)
Downer Utilities SDR Australia Pty Ltd(iii)
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(iv)
Envista Pty Limited
Evans Deakin Industries Pty Ltd
LNK Group Pty Ltd
Lowan (Management) Pty. Ltd.
Maclab Services Pty Ltd
Mineral Technologies Pty Ltd
Mineral Technologies (Holdings) Pty Ltd
New South Wales Spray Seal Pty Ltd
Otraco International Pty Ltd
Otracom Pty Ltd
Primary Producers Improvers Pty Ltd
QCC Resources Pty Ltd
Australia (continued)
Rail Services Victoria Pty Ltd
REJV Services Pty Ltd(iii)
Roche Bros. Superannuation Pty. Ltd.
Roche Services Pty Ltd
Rock N Road Bitumen Pty Ltd
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(iv)
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(iii)
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
Underground Locators Limited
Waste Solutions Limited
Works Finance (NZ) Limited
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
Annual Report 2020 109
Asia
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(iv)
United Kingdom
KHSA Limited
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
Airparts Fabrication Pty Ltd
Airparts Fabrications Units Trust
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 Middle East FZ LLC(iii)
110 Downer EDI Limited
Spotless(v) (continued)
Cleanevent Technology Pty Ltd(vi)
Emerald ESP Pty Ltd
Envar Installation Pty Ltd
Envar Service Pty Ltd
Envar Holdings Pty Ltd
Envar Engineers & Contractors Pty Ltd
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(iii)
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
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 Laundries Limited
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 is currently undergoing liquidation/dissolution.
(iv) Entity dissolved/de-registered/liquidated during the financial year ended
30 June 2020.
(v) The ownership interest in Spotless is 87.8% as at 30 June 2020.
(vi) These Spotless controlled entities all form part of the tax consolidated group of
which Spotless Group Holdings Limited is the head entity.
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 F4. Related party information
F5. Parent entity disclosures
(a) Transactions with controlled entities
Aggregate amounts receivable from and payable to controlled
entities by the parent entity are included within total assets and
liabilities balances as disclosed in Note F5.
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 F3.
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.
(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
2020
$’m
2019
$’m
46.5
2,343.9
2,390.4
111.8
4.1
115.9
2,274.5
58.3
2,427.8
2,486.1
40.2
61.2
101.4
2,384.7
2,251.1
9.0
2,246.5
122.4
14.4
2,274.5
15.8
2,384.7
53.2
53.2
131.8
131.8
(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
2020 (2019: nil) other than those disclosed in Note C10.
The parent entity does not have any commitments for
acquisition of property, plant and equipment as at 30 June
2020 (2019: nil).
Annual Report 2020 111
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
During the year, the Group has applied a number of new
and revised accounting standards issued by the Australian
Accounting Standards Board (AASB) that are mandatorily
effective for an accounting period that begins on or after 1 July
2019, as follows:
– AASB 16 Leases
– AASB 2017-4 Amendments to Australian Accounting
Standards – Uncertainty Over Income Tax Treatments
– AASB 2017-6 Amendments to Australian
Accounting Standards – Prepayment Features with
Negative Compensation
– AASB 2017-7 Amendments to Australian Accounting
Standards – Long Term Interest in Associates and
Joint Ventures
– AASB 2018-1 Annual Improvements 2015-2017 Cycle
– AASB 2018-2 Amendments to Australian Accounting
Standards – Plan Amendment, Curtailment or Settlement
– Interpretation 23 Uncertainty Over Income Tax Treatments
Changes in significant accounting policies
The impact of the adoption of AASB 16 Leases (AASB16) which
resulted in a change in accounting policies is discussed in detail
below. The other amendments listed above did not have an
impact on the amounts recognised in the current or prior periods
and are not expected to significantly impact future periods.
AASB 16 – Leases
The Group has adopted AASB 16 using the “modified
retrospective approach” from 1 July 2019 and therefore the
comparative information has not been restated as permitted
under the specific transition provisions in the standard.
Upon transition to AASB 16, the Group recognised right-of-use
assets of $570.6 million and lease liabilities of $727.8 million
as at 1 July 2019. The subsequent movements in the
right-of-use assets as reflected in Note C6 includes
$151.8 million depreciation charges for the year. The resulting
lease liabilities (Refer to Note E3) gave rise to finance costs of
$26.4 million for the year.
For the impact of AASB 16 on segment assets and segment
liabilities refer to Note B1.
112 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 G1. New accounting standards – continued
(a) New and amended accounting standards adopted by the Group – continued
The table below presents the impact of the adoption on the balance sheet as at 1 July 2019:
Property, plant and equipment
Right-of-use assets
Borrowings
Lease liabilities (current and non-current)
Other provisions
Trade payables and contract liabilities
Deferred tax balances
Non-controlling interest
Retained earnings
Restated
30 June 2019(i)
$’m
AASB 16
Transition
Adjustments
$’m
Opening
Balance
1 July 2019
$’m
1,373.3
–
(1,703.5)
–
(191.5)
(2,456.8)
(36.7)
(153.8)
(481.4)
(9.0)
570.6
10.2
(727.8)
37.1
24.0
28.9
3.2
62.8
1,364.3
570.6
(1,693.3)
(727.8)
(154.4)
(2,432.8)
(7.8)
(150.6)
(418.6)
(i) June 2019 balances have been restated following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations (Refer to Note D1).
The total adjustment to equity upon transition to AASB 16 was $66.0 million including non-controlling interests.
AASB 16 replaces previous lease accounting guidance and contains significant changes to the accounting treatment applied to leases.
It requires a single accounting model to be applied to all types of leases, with the primary change being a requirement for lessees to
recognise assets and liabilities for all leases, with the exception of short-term leases (with a duration of less than 12 months) and leases
of low-value assets.
At transition, for leases previously classified as operating leases under the superseded standard (AASB 117), lease liabilities were
measured and recognised at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate
as at 1 July 2019.
In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:
– Applying a single discount rate to a portfolio of leases with reasonably similar characteristics
– Relying on previous assessments of whether leases are onerous as an alternative to performing an impairment review
– Accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases
– Excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application
– Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The reconciliation between the operating lease commitments presented in the 30 June 2019 financial statements and the lease liability
recognised as at 1 July 2019 is as follows:
Disclosed operating lease commitments at 30 June 2019
Lease commitments for which lease liability arises after 1 July 2019
Recognition exemption for:
Short-term leases
Low value leases
Recognition of leases embedded in customer contracts
Extension options reasonably certain to be exercised
Discounting using the incremental borrowing rate at 1 July 2019
Lease liabilities already recognised at 30 June 2019
Lease liabilities recognised at 1 July 2019
1 July 2019
$’m
795.6
(42.1)
(11.1)
(5.5)
0.7
119.0
(139.0)
10.2
727.8
Annual Report 2020 113
(b) Other new accounting standards that were adopted
During the year, the Group has also chosen to adopt
AASB 2020-4 Amendments to Australian Accounting Standards
– Covid-19-Related Rent Concessions. The main impact of this
amendment is that it exempts lessees from the need to account
for COVID-19 related rent concessions as a lease modification.
As such, lease concessions are treated as a remeasurement
to the lease liability, with a corresponding adjustment to
the right-of-use assets provided other terms of the lease
agreement are materially unchanged.
(c) 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.
The following new or amended standards are not expected
to have a significant impact on the Group’s consolidated
financial statements:
– Amendments to References to Conceptual Framework
in IFRS Standards
– Definition of Business (Amendments to AASB 3)
– Definition of Material (Amendments to AASB 101
and AASB 8).
G1. New accounting standards – continued
(a) New and amended accounting standards adopted
by the Group – continued
On adoption of AASB 16, the Group:
– Recognised Lease liabilities measured at the present
value of future minimum lease payments, discounted
using the incremental borrowing rate. The weighted
average rate was 3.5%
– Recognised the associated right-of-use assets at the
carrying amounts as if AASB 16 had always been applied,
discounted using the incremental borrowing rates at the date
of initial application
– Ensured that payments made before the commencement
date and incentives received from the lessor are included in
the carrying amount of the right-of-use asset
– Recognised depreciation on right-of-use assets and interest
on lease liabilities in the Consolidated Statement of Profit or
Loss and Other Comprehensive Income
– Recognised the principal portion of the lease payment as
a financing cash flow and the interest portion of the lease
payment as an operating cash flow in the Consolidated
Statement of Cash Flows.
Impact of new definition of a lease
The Group assesses whether a contract is or contains a lease, at
the inception of the contract. The Group recognises a right-of-
use asset and a corresponding lease liability with respect to all
lease arrangements in which it is the lessee, except for short-
term leases (defined as leases with a lease term of 12 months
or less) and leases of low value assets. For these leases, the
Group recognises the lease payments as an operating expense
on a straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in
which economic benefits from the leased assets are consumed.
The Group has also elected not to reassess whether a contract
is or contains a lease at the date of initial application of AASB 16.
Instead, for contracts entered into before the transition date,
the Group relied on its assessment made applying AASB 117
and Interpretation 4 Determining whether an Arrangement
Contains a Lease.
114 Downer EDI Limited
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 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:
– 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
– Interest rate swaps to manage interest rate risk
– Commodity forward contracts to manage commodity price movements in contracts.
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 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)
2020
$’m
2.7
2019
$’m
10.1
2020
$’m
1.2
2019
$’m
5.5
Annual Report 2020 115
G2. Capital and financial risk management – continued
(c) Foreign currency risk management – continued
Foreign currency forward contracts
The following table summarises, by currency pairs, the Australian dollar value (unless otherwise stated) of forward exchange contracts
outstanding as at the reporting date:
Outstanding contracts
2020
2019
Weighted average
exchange rate
Foreign currency
Contract value
Fair value
2020
FC’m
2019
FC’m
2020
$’m
2019
$’m
2020
$’m
2019
$’m
Buy USD / Sell AUD
Less than 3 months
3 to 6 months
Later than 6 months
Sell USD / Buy AUD
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
Sell EUR / Buy 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
Later than 6 months
Buy NZD / Sell AUD
Less than 3 months
Buy GBP / Sell AUD
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
3 to 6 months
Buy EUR / Sell NZD
Less than 3 months
Buy ZAR / Sell AUD
Less than 3 months
Buy CNY / Sell AUD
Less than 3 months
Total
116 Downer EDI Limited
0.6552
0.6670
0.6403
0.6955
0.7142
0.7101
0.6949
0.6846
0.6814
0.6985
0.7073
0.7194
0.5960
0.6060
0.5902
0.6210
0.6147
0.6188
0.5987
0.5973
0.6081
73.46
73.75
68.92
70.96
73.32
–
–
–
77.68
77.88
76.95
76.40
–
76.40
52.3
29.2
10.5
92.0
33.9
34.1
4.8
72.8
3.7
7.1
5.2
16.0
0.2
0.6
1.6
2.4
5.2
1.3
0.9
7.4
12.1
0.8
37.1
50.0
0.3
3.0
3.4
6.7
–
–
–
–
770.8
46.9
64.5
882.2
31.9
98.8
130.7
1,648.3
255.9
215.2
2,119.4
289.5
–
289.5
79.9
43.9
16.4
140.2
48.8
50.0
7.0
105.8
6.2
11.6
8.8
26.6
0.4
1.1
2.6
4.1
10.5
0.6
0.9
12.0
0.4
1.3
1.7
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
3.8
–
3.8
(3.7)
(1.3)
(1.1)
(6.1)
(0.5)
0.3
–
(0.2)
(0.1)
–
(0.2)
(0.3)
–
–
–
–
–
–
(0.1)
(0.1)
–
–
–
1.0659
1.0493
112.0
18.0
105.1
17.2
(0.4)
0.4812
0.5367
0.5511
0.5532
–
–
0.2
0.5
0.4
1.1
0.9182
–
3.7
0.9052
0.9093
–
0.5717
11.83
–
–
–
–
5.1
5.1
10.2
0.5
24.3
1.2
–
–
1.2
–
–
–
–
–
–
–
4.9383
–
6.0
0.4
0.9
0.7
2.0
4.0
5.7
5.6
11.3
0.9
2.1
–
2.2
–
–
2.2
–
–
–
–
–
–
1.2
(0.1)
–
–
(0.1)
(0.1)
0.2
0.2
0.4
–
–
–
(6.9)
(0.1)
–
–
(0.1)
0.1
–
(0.9)
(0.8)
–
–
0.1
0.1
–
–
–
–
0.6
0.1
0.1
0.8
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
0.1
Notes to the consolidated financial statements – continuedfor the year ended 30 June 2020 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)
2020
%
2019
%
Weighted average
exchange rate
2020
2019
Contract value
Fair value
2020
$’m
2019
$’m
2020
$’m
2019
$’m
–
–
5.9
7.8
–
5.9
–
–
0.7739
0.7168
–
0.7739
–
–
129.2
129.2
9.8
–
129.2
139.0
–
–
13.2
13.2
0.2
–
2.5
2.7
5.2
5.2
83.12
83.12
120.3
120.3
(12.4)
(6.3)
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 movement in United States dollar (USD), Euro (EUR), Japanese Yen (JPY), New Zealand dollar
(NZD) and Canadian dollar (CAD).
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.
Annual Report 2020 117
G2. Capital and financial risk management – continued
(c) Foreign currency risk management – continued
Foreign currency sensitivity analysis – continued
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
CAD impact
– 15% rate change
+ 15% rate change
Profit / (loss)(i)
2020
$’m
2019
$’m
Equity(ii)
2020
$’m
0.3
(0.2)
0.8
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.0
(4.5)
4.4
(3.3)
1.9
(1.4)
18.5
(13.7)
(1.2)
0.9
2019
$’m
(10.4)
7.7
(1.6)
1.6
4.3
(3.2)
3.0
(2.2)
–
–
(i) This is mainly as a result of the changes in the value of unhedged foreign currency denominated financial asset and liabilities.
(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 2020 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 cross-currency interest rate swaps, 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)
2020
%
2019
%
2020
$’m
1.3
0.8
2.6
5.9
5.8
3.9
–
2.8
1.1
3.6
6.0
5.8
4.3
5.5
333.7
(588.5)
(254.8)
662.3
132.5
30.0
910.4
–
1,735.2
2019
$’m
288.0
(710.7)
(422.7)
556.4
149.9
30.0
688.7
10.2
1,435.2
(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 cross-currency interest rate swaps and 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 values 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:
Outstanding floating to fixed swap
contracts
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
1 to 2 years
2 to 3 years
Weighted average
interest rate
2020
%
2019
%
1.2
1.2
1.3
–
–
1.5
–
2.1
1.2
1.2
1.3
2.2
–
1.5
Notional principal amount
Fair value
2020
$’m
150.0
270.0
135.0
–
555.0
–
100.0
–
100.0
2019
$’m
2020
$’m
2019
$’m
450.0
150.0
270.0
135.0
1,005.0
100.0
–
100.0
200.0
(0.2)
(3.7)
(2.9)
–
(6.8)
–
(1.7)
–
(1.7)
(2.4)
(0.2)
(0.9)
(0.7)
(4.2)
(0.3)
–
(0.3)
(0.6)
Annual Report 2020 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 $2.5 million (2019: $4.6 million
profit) to the profit or loss; a similar decrease in interest rates
will generate a loss of $2.5 million (2019: $4.6 million 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 $6.9 million (2019: $10.7
million) and $6.6 million (2019: $10.4 million) respectively.
(e) Credit risk management
Credit risk refers to the risk that a financial counterparty will
default on its contractual obligations in respect of a financial
instrument, resulting in a potential loss to the Group.
Trade receivables and contract assets arise from a large number
of customers, spread across diverse industries and geographical
areas. A credit evaluation is performed at the onset of material
contracts to assess the financial condition of the counterparty
and a credit evaluation is maintained over the life of the
contract to take account of any changes in the risk profile of the
counterparty. Where possible, a bank guarantee or performance
bond, or parent guarantee from creditworthy counterparty
is sought to secure a counterparty’s contractual payment
obligations. Refer to Note C2 for details on credit risk arising from
trade receivables and contract assets.
Financial counterparty credit limits and the related credit
acceptability of financial counterparties are set by a Board
approved Treasury Policy that is subject to annual review to
ensure it remains relevant to the external environment and
reflects the Group’s risk appetite at all times. The Treasury
Policy sets clear parameters for determining acceptable financial
counterparties and limits the exposure the Group may have at
any one time to any individual financial counterparties to mitigate
financial loss due to a default by a counterparty. No material
exposure is considered to exist by virtue of the non-performance
of any financial counterparty.
Credit risk on derivative financial instruments and cash balances
held with financial counterparties is managed by Group Treasury
with transactions only made with approved counterparties that
have a minimum investment grade rating from Standard & Poor’s
of A- (or equivalent from Moody’s or Fitch rating agencies).
In limited circumstances, surplus cash may be held in foreign
jurisdictions with financial counterparties that do not meet the
minimum rating threshold where there is no other alternative.
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 is the risk that the Group is unable to meet its
financial obligations as and when they fall due. The Group’s
liquidity risk is managed under a Board approved Treasury Policy
that sets clear parameters governing the Group’s continued
access to liquidity.
The Group manages liquidity risk by ensuring a minimum level
of liquidity is available to meet the Group’s financial obligations
in the form of available liquid cash balances and access to
committed undrawn debt facilities and other forms of capital,
monitoring forecast and actual cashflows and matching the
maturity profile of financial assets and liabilities.
The Group seeks to mitigate its exposure to liquidity risk
by ensuring that debt facilities are provided by strong and
investment grade rated financial counterparties and by the early
refinancing of debt facilities to ensure continued access to capital
over the medium term.
During the year ended 30 June 2020, the Group was successful in
renegotiating the maturity dates of a significant portion of its debt
facilities and establishing $787.8 million of new committed debt
facilities, $500 million of which was established in direct response
to the global COVID-19 pandemic to ensure the Group’s liquidity
strength was maintained during a period of heightened global
uncertainty and volatility. In addition, the Group deferred payment
of the 2019 interim dividend of $83.3 million to further augment its
strong liquidity position.
On 21 July 2020, the Group announced the launch of a
$400 million equity raising to support the acquisition of the
remaining shares in Spotless and provide flexibility for continued
investment in Downer’s core business.
The Group now has no material debt facilities maturing in
the 12 months to 30 June 2021 and a strong liquidity position
which will assist in mitigating any further market volatility. The
Group’s debt facility maturities will continue to be monitored and
refinanced in advance subject to credit market conditions and the
support of its financial counterparties. 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 2020 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.
2020
$’m
Trade payables
Dividend payable
Shareholder class action payable
Lease 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)
Total
2019
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)
Total
(i)
Includes assets and liabilities.
Less than
1 year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
697.7
83.3
34.0
193.1
10.9
6.7
1.7
31.3
50.6
5.7
5.8
7.1
18.6
–
–
–
139.9
153.1
6.7
1.7
281.3
442.8
5.7
3.7
–
9.4
–
–
–
105.8
532.3
6.7
1.7
20.0
560.7
5.7
0.3
–
6.0
–
–
–
86.4
300.0
6.7
1.7
20.0
328.4
5.7
–
–
5.7
–
–
–
70.1
–
6.7
1.7
20.0
28.4
5.7
–
–
5.7
More
than 5
years
–
–
–
292.5
–
149.1
30.9
665.8
845.8
6.9
–
–
6.9
1,077.3
592.1
672.5
420.5
104.2
1,145.2
810.6
3.2
18.4
16.8
1.7
23.8
60.7
5.7
3.5
(0.6)
8.6
–
6.9
540.1
6.5
1.7
23.8
572.1
5.9
1.4
0.5
7.8
–
0.4
315.4
6.5
1.7
273.8
597.4
5.9
0.4
–
6.3
–
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
–
–
–
152.3
32.6
467.6
652.5
19.4
–
–
19.4
883.1
586.8
604.1
26.8
26.7
671.9
Annual Report 2020 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 introduced 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.
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 2020 G3. Other financial assets and liabilities
2020
$’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
Commodity forward contracts – Fair value through profit or loss
Cross-currency and interest rate swaps – Cash flow hedge
Level 3
Unquoted equity investments – Fair value through OCI
Total
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
Reconciliation of Level 3 fair value measurements of financial assets
Level 3 investments remained unchanged from prior year (2019: no change).
Financial assets
Financial liabilities
Current Non-current
Current Non-current
19.0
4.5
–
23.5
1.7
1.0
–
2.7
–
–
26.2
5.7
–
–
5.7
–
–
13.7
13.7
2.0
2.0
21.4
–
15.6
14.4
30.0
8.6
–
7.2
15.8
–
–
45.8
–
–
0.2
0.2
–
–
14.2
14.2
–
–
14.4
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
Annual Report 2020 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)
– 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 2020 Directors’ Declaration
for the year ended 30 June 2020
In the opinion of the Directors of Downer EDI Limited:
(a) The financial statements and notes set out on pages 60 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, 12 August 2020
Annual Report 2020 125
Sustainability Performance Summary 2020
Downer’s sustainability 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 operates.
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.
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 at
www.downergroup.com/sustainability
Downer makes a positive contribution in industry sectors such
as utilities, renewables, public transport, infrastructure, facility
management, mining services 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’s ESG reporting approach
Downer prepares its Sustainability Report with reference to 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
126 Downer EDI Limited
and stakeholder inclusiveness. A key focus is to demonstrate
how Downer delivers sustainable returns while managing risk
and being responsible in how it operates.
Downer seeks to identify the issues that have the greatest
potential to impact its future success and returns to
shareholders. Last year Downer revisited its materiality
assessment in line with the GRI Standards via a rigorous
independent lead 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 material issues by economic, social,
environmental and governance.
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.
The material issues ranked in order of business impact for
Downer consisted of:
1. Health, safety and wellbeing
2. Governance and ethics
3. Contractor management
4. Operational performance
5. Financial performance
6. Attraction and retention of skilled people
7. Partnerships and stakeholder engagement
8. Customer expectations and adding value
9. Business resilience
10. Climate change
11. Diverse and inclusive workforce
Further information including the process undertaken is available
on Downer’s website and within the 2019 Sustainability Report
located at www.downergroup.com/sustainability
Governance and risk management
The Downer Board, through its oversight functions has verified
that Downer appropriately considers Environmental Social
and Governance (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.
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 2020.
ESG risks and opportunities are governed as part of Downer’s
Group Risk and Opportunity Management Framework and
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. 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 critical risk controls and
embedding them into 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.
Downer
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2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
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LTIFR
TRIFR
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
0.87
0.66
0.55
0.78
0.67
0.57
2015
2016
2017
2018
2019
2020
s
r
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0
0
0
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Project Risk Management Framework. Downer identifies,
manages and discloses material climate-related risks as part
of Downer’s 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. During the 2021 financial year, Downer will
transition to certification to ISO45001 for health and safety.
The Board’s Zero Harm Committee oversees the strategy and
monitors the development and implementation of Downer’s Zero
Harm management systems, improvement and performance
reporting systems, and monitors Downer’s Zero Harm
performance. Effective monitoring occurs 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 2020 is summarised
below. More comprehensive information is provided in Downer’s
2020 Sustainability Report which will be available on the
Downer website.
Health and safety
Downer’s business is founded on a deeply held value of Zero
Harm. Health and safety is Downer’s highest priority, its top
material issue and the first of its strategic pillars. Zero Harm
is embedded in Downer’s culture and is fundamental to future
success. Downer’s managers, supervisors and employees
bring this core principle to fruition and actively live it every day,
vigilantly protecting the health and safety of themselves and
others in and around its workplaces.
Downer’s approach to health and safety is built on leading,
innovating, managing risk, rethinking processes, applying lessons
learnt, and adopting and adapting practices that aim to achieve
zero work-related injuries. Downer’s integrated lifecycle approach
is a market differentiator, and enables its people to work safely in
industry sectors that may be inherently hazardous. In everything
it does, the health and safety of its people and communities that
it works within is always its top priority.
Annual Report 2020 127
Sustainability Performance Summary 2020 – continued
Environmental Sustainability
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
– 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 2020.
In FY20, Downer incurred three penalty infringement notices
for environmental breaches. These consisted of two fines
totalling AUD $5,338 relating to the same event in its Australian
Operations. The breaches consisted of connecting to water
infrastructure without written consent and withdrawal of water
from an un-approved source without approval. The other
fine occurred in New Zealand, for the amount of NZD $750.
This fine was issued for exceeding turbidity limits specified
within a Resources Consent whilst carrying out work activities
within a creek.
At the time of writing this report the Downer Seymour Whyte
Joint Venture was in the process of finalising an Enforceable
Undertaking with the New South Wales Environment Protection
Authority for three consecutive pollute waters licence breaches
that occurred from August to September 2019 on the Berry to
Bomaderry Princes Highway upgrade project.
Noteworthy achievements for FY20 include:
– Recognised by the Australasian Reporting Awards with
a Bronze Award for Downer’s 2019 Annual Report and
Sustainability Report
– Improved Carbon Disclosure Project (CDP) score to a B
which puts Downer higher than the Oceania regional and
industrial support services sector average of C.
– Awarded an “Excellent” Infrastructure Sustainability (IS)
“As Built” rating by the Infrastructure Sustainability Council of
Australia (ISCA) for the Newcastle Light Rail Project.
– Achieved the first Infrastructure Sustainability (IS)
Operations rating for a road maintenance contract for the
Northwest Tasmanian Road Maintenance contract which
achieved a “Commended Operations” rating by ISCA.
– In an Australian-first, Downer’s road surfacing material,
Reconophalt, which incorporates recycled soft plastics,
has been approved for use by the NSW Environment
Protection Authority (EPA) under a resource recovery
order and exemption.
Climate change and Downer’s TCFD Response
Climate change presents a challenge to sustaining the modern
environment, enhancing livability, the natural environment and
Downer’s business. While Downer’s business portfolio is diverse,
it has limited exposure to the effects of climate change through
fixed, long lived capital assets. Downer’s diverse portfolio allows
it to be flexible and agile to redeploy its 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 Intergovernmental Panel on Climate Change
(IPCC) assessment of the science related to climate change
and supports the Paris Agreement in transitioning to net-zero
emissions by 2050. Downer considers climate change to be one
if its material issues – refer to the materiality assessment.
In FY19, Downer implemented the recommendations of the
Taskforce on Climate-related Financial Disclosures (TCFD) in
assessing the financial implications of climate change on Downer.
In its implementation of the TCFD recommendations, Downer
used climate scenario analysis as a key step to understand the
resilience of the business under different climatic futures.
Global scenarios were used to inform a top-down assessment
of how the physical climate might change, the hazards that
its workforce might be exposed to, and how the services
provided to key sectors and markets may change. This was
particularly important to Downer as its purpose is to create
and sustain the modern environment by building trusted
relationships with customers. The scenario analysis informed
strategic planning processes by looking longer-term to critically
assess the products and services provided by the business in
changing markets.
The scenario analysis was fed directly into Board strategy
sessions and to Executive forums, where it remains a permanent
consideration of the Board strategy. Further to the scenario
analysis outcomes, broader sustainability issues are discussed at
Board level. From a tactical perspective, Downer undertakes an
annual exercise to test its strategic position on the back of the
scenario analysis.
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
The outcomes of the scenario analysis contributed to the change
in the overall strategy of the business. In February 2020, Downer
announced it would shift investment in high-capital intensive
activities to lower-intensive and lower-carbon activities. Climate
change and sustainability was also elevated to retain market
share and to secure new customers. This strategic shift will
support Downer’s decarbonisation pathway and market position
in a low-carbon economy.
GHG emission reduction target
Downer acknowledges that climate change mitigation is a shared
responsibility and to support the transition to a low-carbon
economy in an equitable manner, Downer recognises the need
to develop emissions reduction targets that 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.
To demonstrate Downer’s commitment, in 2019 Downer set an
ambitious science-based target (aligned to a 1.5°C pathway) and
committed to the decarbonisation of its absolute Scope 1 and 2
GHG emissions by 45-50 percent by 2035 from a FY18 base year
and being net zero in the second half of this century.
Downer will track its progress towards its emissions reduction
target and review its emission reduction approach in line with
Intergovernmental Panel on climate change (IPCC) updated
scientific reports, whilst considering other developments in
low-emissions technology, to ensure a practical and affordable
transition towards this commitment.
Downer recognises the uncertainties, challenges and
opportunities that climate change presents and despite the
recent impacts of COVID-19, Downer remains committed to
partnering with its customers and supply chain to achieve its
long-term GHG emission reduction target.
Refer to Downer’s Sustainability Report located at
www.downergroup.com/sustainability for further disclosures
on Downer’s response to climate change and how it has
specifically addressed the TCFD recommendations.
Annual Report 2020 129
Corporate Governance
for the year ended 30 June 2020
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
– 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
– Reviewing, ratifying and monitoring systems of risk
management and internal control, codes of conduct and
legal compliance.
Before appointing a Director or senior executive, the Board
undertakes appropriate checks.
The Board 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 2020, 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 and Inclusion (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 and Inclusion Policy is available on the Downer
website at www.downergroup.com.
ASX diversity recommendations – diversity statement
This diversity statement outlines Downer’s performance
throughout 2020 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 2020
– An outline of Downer’s measurable gender diversity
objectives for 2021.
Gender representation metrics
As at 30 June 2020, Downer’s female gender representation
metrics were as follows:
– Board
– Senior Executive1
– Management2
– Workforce
29%
22%
23%
35%
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.
130 Downer EDI Limited
Looking back: 2020 measurable objectives
Focus Area Objective
Targets
Outcome
Flexibility,
Diversity
and
Inclusion
To continue developing
Downer’s commitment
to representing the
businesses and
communities in which
we serve through a
focus on D&I.
Report quarterly
to the Executive
Committee on
progress towards
targets and
objectives.
Achieved:
– Partnership with Work180 as an endorsed employer continues, with
utilisation of job boards for targeted roles. In FY20 there were 133
female applicants.
Progressing:
– An induction review project is underway with the Welcome to Downer
module having been refreshed.
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
our industry.
37% women in
the workforce by
2020.
23% women in
management by
2020.
22% women
in executive
positions by
2020.
30% women on
Board.
Suspended:
– Divisional Diversity Committees were disbanded following an
organisational restructure during 2020. Governance resides with the
Executive General Managers and General Managers of People and
Culture of the new organisation. Steering Committees and Tactical
Plans are being established under their leadership with Group Divisional
Steering Committee oversight and governance.
Achieved:
– A Flexible Working Arrangements pilot program where all employees,
except for field staff, in a business unit worked from home was
conducted. Results included no loss in productivity along with positive
anecdotal results. This case study is shared with all participants of the
Lead a Remote Team training program
– Various manager guides have been created, including Lead a Remote
Team and Inclusive Language guides.
Progressing:
– A manager toolkit for supporting primary carers on parental leave
before, during and as part of return to work was developed and will be
launched in 2021
– On-track to meet Downer’s WGEA Pay Equity Ambassador
commitments. Aspects of this involved face to face events scheduled
for March which were delayed due to COVID-19. These are planned to
be completed in 2021
– The development of an unconscious bias online learning module will be
prioritised in 2021
Suspended:
– A second intake of the Downer mentoring program was planned for late
2020. Due to COVID-19 disruptions, this program was put on hold.
– The development and launch of a Female Network also did not
commence but will be progressed in 2021.
Annual Report 2020 131
Focus Area Objective
Targets
Outcome
3% Aboriginal
and Torres
Strait Islander
employees by
2020.
Achieved:
– Progress on Downer’s Innovate Reconciliation Action Plan (RAP)
endorsed by Reconciliation Australia, which outlines Downer’s
reconciliation vision, strategy and targeted initiatives, continues with
completion due in 2021
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.
– Spotless is currently consulting with Reconciliation Australia on
its Stretch RAP
– Downer has exceeded RAP commitments by establishing relationships
with labour hire companies, employment agencies and other
Indigenous organisations. 2020 spend in this regard increased by 40%
compared with 2019
– An Indigenous Cultural Awareness Training module for Australian
employees was developed and rolled-out
– Evolved the Maori Leadership program, Te Ara Whanake, into a program
specifically designed for non-Maori leaders, with 63 leaders from across
Downer NZ completing Te Ara Maramatanga, a cultural competence
program which includes an overnight on a Marae.
Progressing:
– Downer’s Indigenous Cultural Awareness Training program continues to
be progressively rolled-out and allocated to Supervisors and above, with
77% of this cohort in Downer Australia having completed the training
– Partnerships have been developed and continue with market
specialists for placing migrant workers in employment along with Job
Active agencies.
Achieved:
– Downer continues to build its pipeline of talent by investing in youth
through the Downer Graduate program, which is now well embedded
with a robust and unified attraction, selection, development and
management framework.
Progressing:
– Full implementation of a governance structure and framework for the
Downer Apprentice and Trainee program is planned for 2021
– Partnerships have been developed with market specialists to
explore opportunities for ex-Veteran employment along with Job
Active agencies.
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.
132 Downer EDI Limited
Corporate Governance – continuedfor the year ended 30 June 2020 Looking ahead: 2021 measurable objectives
Focus Area Objective
Targets
Initiatives
Flexibility,
Diversity
and
Inclusion
To continue developing
Downer’s commitment
to representing the
businesses and
communities in which
we serve through a
focus on D&I.
Report quarterly to the
Executive Committee
on progress towards
targets and objectives.
– Governance structure embedded through Group Diversity
Steering Committee and business Steering Committees and
Tactical Plans. Reporting via Quarterly Business Report to the
Executive Committee
– Launch the Own Different campaign across the business to
celebrate our commitment to Inclusion
– Report on Flexible Working Arrangements trial and further
operational pilots. Share learnings broadly
– Maintain endorsed referral programs (i.e. refer a female friend
and refer an Indigenous friend)
– Establish strategic partnerships with human resource
organisations to enable attraction of diverse, disadvantaged
and/or minority groups
– Establish strategic supplier relationships with social enterprises
to participate in contracted works.
Gender
Diversity
Cultural
Diversity
Generational
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
our industry.
40% women in the
workforce by 2023.
– Extend the talent management and succession planning
framework cohort from CEO-2 to CEO-3 for females
25% women in
management positions
by 2023.
– Investigate partnership opportunities with organisations that
support women into trades-based employment in skilled
trades that are male-dominated, with a view to a formal
partnership and pilot
25% women in executive
positions by 2023.
– Build the unconscious bias capability of operational managers
and recruitment specialists via an online learning module
30% women on the
Board.
– Develop and launch a Female Network to highlight
opportunities and networking
– Women in Leadership programs (Australia and New Zealand).
To build on Downer’s
commitment to
Aboriginal and
Torres Strait Islander
peoples and the
Maori people, through
the development of
strategic partnerships
with Indigenous
organisations and
community and
increased workforce
participation.
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.
3% Aboriginal and
Torres Strait Islander
employees.
– Close out actions and report on Downer’s Innovate RAP
and consult to develop and obtain endorsement for
Downer’s Stretch RAP.
Maintain or increase
the number of graduate
employees year-on-year.
– Share learnings and coordinate where practicable from Downer
and Spotless RAPs
– Review, consult and enhance the current Aboriginal and Torres
Strait Islander Employment and Retention Strategy through
identifying barriers and implementing recommendations
for improvement
– Work with Indigenous NGO networks to further develop
opportunities for Aboriginal and Torres Strait Islander
employees, apprentices and trainees.
Continue to build a talent pipeline by investing in entry level
programs that align to our generational diversity focus and priority
areas, including:
– The Downer Graduate development program.
– Cadets and further undergraduate programs.
– Harmonisation of processes across Australia for Apprentices
and Trainees that supports strategic attraction, selection,
development, management and retention.
Annual Report 2020 133
Principle 2: Structure the Board to be
effective and add value
Throughout the 2020 financial year, the Board was comprised of
a majority of independent Directors.
The Board is currently comprised of the Chairman (Mike
Harding, an independent, Non-executive Director), four 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 50 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.
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.
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.
Board Committee
Audit and Risk
Zero Harm
Chairman
N M Hollows
P L Watson
Nominations and Corporate Governance
R M Harding
Remuneration
Disclosure
Rail Projects
T G Handicott
T G Handicott
P S Garling
Tender Risk Evaluation
P L Watson
134 Downer EDI Limited
Members
T G Handicott
P L Watson
G A Fenn
P S Garling
T G Handicott
N M Hollows
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
N M Hollows
Corporate Governance – continuedfor the year ended 30 June 2020 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 and executive experience
across engineering, construction and scientific disciplines as well
as services activities and professional services when considering
the appointment of a new Director.
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 four
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, Board Committees 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)
– Recommending the engagement of nominated
persons as Directors.
Annual Report 2020 135
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.
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
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 and Downer intends to undertake a
review in 2021, which will include consideration of the skills and
knowledge of Directors.
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:
Transport and infrastructure
– Downer’s financial position, strategies, operations and risk
management policies
0.0
1.0
2.0
3.0
4.0
5.0
– The respective rights, duties and responsibilities and roles of
the Board and senior executives
– 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.
*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
2
4
Male
Female
136 Downer EDI Limited
Corporate Governance – continuedfor the year ended 30 June 2020 Principle 3: Instil a culture of acting lawfully,
ethically and responsibly
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
– 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 breaches of the Standards of Business
Conduct through reporting of incidents under the whistleblower
policy, investigations of allegations of fraud and breaches of
Downer’s Zero Harm Cardinal Rules.
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
– 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 the integrity
of corporate reports
The Company has in place a structure of review and
authorisation which independently verifies and safeguards the
integrity of its financial reporting.
An external limited assurance engagement is performed
on selected sustainability information in Downer’s annual
Sustainability Report. Downer also follows a comprehensive
internal verification process to ensure the integrity of the
Sustainability Report and other periodic corporate reports which
are not audited or reviewed by the external auditor, including
the Directors’ Report, Corporate Governance Statement,
and Information for Investors. This process involves review
of reporting by relevant subject matter experts across the
organisation to ensure it is materially accurate, balanced and
provides investors with appropriate information.
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
– 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)
– 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.
Annual Report 2020 137
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.
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 FY20, 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
security holders
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
138 Downer EDI Limited
– Making it easy for shareholders to participate in
general meetings
– 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.
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 review of the Risk Management
Framework was completed in 2020. 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 2019 Sustainability Report is available on
the Downer website at www.downergroup.com/sustainability.
The Company’s internal audit function objectively evaluates and
reports on the existence, design and operating effectiveness of
Corporate Governance – continuedfor the year ended 30 June 2020 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 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
on page 24 and details of Downer shares beneficially owned by
Directors are provided in the Directors’ Report on page 6.
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
– 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.
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
– 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 on page 24.
Annual Report 2020 139
Information for Investors
for the year ended 30 June 2020
Downer shareholders
Share registry
Downer had 25,023 ordinary shareholders as at 30 June 2020, of
which 23,113 shareholders had a registered address in Australia.
The largest shareholder, HSBC Custody Nominees (Australia)
Limited, held 31.23% 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.
140 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 2020
Number of holders of equity securities:
Ordinary share capital
594,702,512 fully paid listed ordinary shares were held by 25,023 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 2020
Shareholders
FIL Limited
Sumitomo Mitsui Trust Holdings
L1 Capital Pty Ltd
T Rowe Price
The Vanguard Group
Ordinary
shares held
38,754,631
37,739,692
32,003,849
29,770,913
29,745,101
% of issued
shares
6.52
6.35
5.38
5.00
5.00
Distribution of holders of quoted equity securities
Shareholder distribution of quoted equity securities as at 30 June 2020 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
14,246
8,394
1,444
888
51
25,023
1,343
Shareholders %
56.93
33.55
5.77
3.55
0.20
Ordinary shares
held
6,214,042
19,231,319
10,413,910
19,296,143
539,547,098
594,702,512
Shares
%
1.04
3.23
1.75
3.24
90.73
100.00
Annual Report 2020 141
Information for Investors – continued
for the year ended 30 June 2020
Twenty largest shareholders
Downer’s 20 largest shareholders of ordinary fully paid shares as at 30 June 2020 are as follows.
Shareholders
HSBC Custody Nominees (Australia) Limited
Chase Manhattan Nominees Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
Argo Investments Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
CPU Share Plans Pty Limited
Sandhurst Trustees Ltd
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
Mr Grant Fenn
Mr Barry Sydney Patterson + Mrs Glenice Margaret Patterson
CPU Share Plans Pty Ltd
AMP Life Ltd
BNP Paribus Noms (NZ) Ltd
BNP Paribus Nominees Pty Ltd
Navigator Australia Limited
Total for top 20 shareholders
Shares held
185,717,949
146,284,045
81,954,474
62,359,874
20,792,447
10,611,149
6,159,538
5,626,345
3,895,289
2,561,695
2,266,995
1,716,354
1,158,794
961,478
891,642
773,889
395,728
353,490
318,956
311,618
535,111,749
% of issued shares
31.23
24.60
13.78
10.49
3.50
1.78
1.04
0.95
0.65
0.43
0.38
0.29
0.19
0.16
0.15
0.13
0.07
0.06
0.05
0.05
89.98
142 Downer EDI Limited
Annual Report 2020 143
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