For a better tomorrow
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Annual Report
2023
Acknowledgement of Country
Downer acknowledges Aboriginal and Torres Strait
Islander peoples as the First Australians and the
Traditional Custodians across Australia.
We would like to acknowledge and pay our
respects to the Elders of the past, present
and future in maintaining the culture, country
and their spiritual connection to the land.
Whakataukī
Ko te whānau, ko te manaaki,
ko te kairangatira,
ko te ngākau pono ngā tikanga
tuku iho hei
korowai mo tatou.
Ko te Kauri i whakawhiwhi
haumaru, ko te Rimu i
whakawhiwhi taonga,
ko te Tōtara i whakawhiwhi
whanaungatanga,
ko te Kahikatea i whakawhiwhi
whakaaro matakite.
Ngā pou e wha i aumangea
ai te whakatauki
‘Mā te whanaungatanga ka angitū’.
Hui e! Taiki e!
We are held together
by our closely held values
of family and relationships,
care and respect,
excellence and integrity.
The Kauri connects
us to Safety, the Rimu
connects us to Delivery,
the Tōtara connects us
to Relationships and the
Kahikatea connects us
to Thought Leadership.
These are our four Pillars
upon which we build
‘Relationships creating success’.
United and ready to move forward!
In this report
Chairman’s letter
CEO’s letter
Highlights
Directors’ Report
Auditor’s Signed Reports
Auditor’s Independence Declaration
Independent Auditor’s Report
Financial Statements
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
2
4
6
8
60
61
71
72
73
74
A
About this
report
75-77
B
Business
performance
C
Operating
assets and
liabilities
D
Employee
benefits
E
Capital
structure
and financing
F
Group
structure
G
Other
78-90
B1
Segment
information
B2
Revenue
91-105
106-107
108-115
116-125
126-134
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
Controlled entities
G2
Capital and financial
risk management
G3
Other financial
assets and
liabilities
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
Other provisions
C9
Contingent liabilities
E3
Lease liabilities
E4
Commitments
E5
Issued capital
E6
Reserves
E7
Dividends
F3
Related party
information
F4
Parent entity
disclosures
F5
Acquisition
of businesses
F6
Disposal of
businesses
F7
Disposal group
held for sale
Directors’ Declaration
Corporate Governance
Information for Investors
135
136
146
A message from the Chairman, Mark Menhinnitt
I would like to begin by acknowledging the
significant challenges Downer faced in FY23
and reiterating the commitment of the Board
and management team to transform the
company and to deliver sustainable value
for shareholders.
We are united on the imperative for cultural change,
simplification of the business and a focus on operational
excellence and risk management, and we have taken decisive
action to improve Downer’s resilience and position the
company for long-term success.
Board evolution and focus
Over the past 12 months, Downer’s Board of Directors has
evolved significantly.
Following the retirement of Mark Chellew as Independent
Non-executive Chairman, I was honoured to be elected
Acting Chairman before being appointed Chairman on 9
March 2023. Since taking the Chair, my principal focus has
been to ensure the appropriate governance structures are
in place and to drive risk management accountability and
performance across the business.
In December 2022, Downer announced that Grant Fenn
would retire from his role of Chief Executive Officer after
12-and-a-half years in the role, handing the reins to
Chief Operating Officer, Peter Tompkins, who was appointed
an Executive Director on 1 February 2023.
Non-executive Director, Mark Binns, retired from the
Board in January 2023 due to conflicts of interest that
became increasingly complex to manage given Downer’s
broad customer base in New Zealand. Independent Non-
executive Director, Peter Watson, will retire from his role
effective 30 September 2023.
Steven MacDonald has been appointed Non-executive
Director, effective 1 September 2023. Steven is an experienced
public company director and senior executive with extensive
expertise in the water, power and transport sectors. He
has overseen engineering maintenance, services and
major infrastructure projects covering power generation,
transmission, transport and rail.
2 Annual Report 2023 | Downer EDI Limited
Steven’s diverse experience and expertise in both the
Australia and New Zealand markets will add significant value
to the Board.
Board renewal remains an important priority for the company,
and we will continue to be diligent in assessing the capability
of our Board. To this end, we are actively recruiting for a
New Zealand based Director.
Along with changes to the Board’s composition, we have also
reviewed the remit of two Board Committees with a focus on
strengthening our oversight of governance and performance.
From 1 July 2023, the Tender Risk Evaluation Committee
has evolved into the Project Governance Committee. This
committee’s responsibilities have expanded from approving
tender submissions to a broader project governance
remit. Opportunities of a certain size and/or risk profile are
considered at defined stage gates – pursue, prepare, submit
tender and execute contract – with portfolio performance to
be monitored throughout the project lifecycle.
The Board also determined it appropriate for the
Remuneration Committee’s remit to broaden and to dedicate
greater attention to leadership capability and depth, talent
management, employee attraction and retention and
workplace culture. Accordingly, it has been renamed the
People and Culture Committee.
We often hear from our shareholders that Directors need to
be more aligned and to have ‘skin in the game’. In response,
the Board has sought to reinforce Director alignment with
shareholder interests by introducing a minimum security
holding policy for Non-executive Directors, effective from
1 July 2023. Under the policy, each Director is required to
establish and maintain a minimum security holding equal to
or greater than 100 percent of their annual base fee.
Downer’s foundations are strong. We are leaders in attractive
markets leveraged to structural growth opportunities. We
have a talented team, an enviable pipeline with $36.3 billion
work-in-hand and a strategy we believe will deliver significant
long-term value for our people, customers and shareholders.
I believe in Downer, our management team and our people.
This is an iconic trans-Tasman organisation with a great
history and a bright future, and I look forward to reporting
back on our progress to shareholders over the next
12 months.
Mark Menhinnitt
Downer Chairman
ICAC inquiry
Downer’s reputation is one of our most important assets and
the integrity of our people is critical to our ongoing business
success. For Downer, it is imperative that all of our employees
uphold the values and behaviours set out in our Standards
of Business Conduct and demonstrate the highest level of
integrity. On 20 March 2023, the Independent Commission
Against Corruption (ICAC) commenced a public inquiry into
the conduct of employees of Inner West Council, Transport for
NSW (TfNSW), and others including some Downer employees.
Downer has a zero-tolerance policy in respect of any
dishonest or corrupt conduct. Those individuals who Counsel
Assisting referred to in his opening statement as facing
specific allegations are no longer employed by Downer.
Downer is taking the ICAC enquiry very seriously and has
commissioned a review, with the assistance of advice from
external independent procurement and probity experts,
into the relevant control environment with an emphasis on
corruption and fraud prevention. The first phase of the review
is already complete. Downer is presently considering areas
for continuous improvement and the implementation of
appropriate measures to strengthen the control environment.
Downer will also consider any recommendations from the
ICAC findings, when made available.
A bright future
Downer’s FY23 full year results were below our expectations,
but we are encouraged by our improvement in the second
half and the good momentum we are carrying into FY24.
As a Board, we are committed to working collaboratively
with our CEO Peter Tompkins and the Executive Leadership
Team to improve contract performance, enhance Downer’s
risk management framework, and improve margins to our
target of at least 4.5% EBITA margin in FY25. The Board
strongly supports Peter’s vision and strategy to transform
the company.
3
A message from the CEO, Peter Tompkins
Financial Year 2023 has involved significant
change for the Downer Group.
On Monday, 27 February 2023, I had the proud
honour of taking over as Chief Executive Officer
and Managing Director from Grant Fenn, who
had served in that role for more than 12 years.
I have enormous faith in Downer, our strategy and our
people. Downer has a portfolio of outstanding businesses
with market leading positions and exposure to economic
and social trends including decarbonisation, urbanisation,
national security, the reinvigoration of Australia and
New Zealand’s local industrial base, population growth
and government outsourcing.
However, our FY23 performance did not reflect the potential
of our organisation, nor did it meet our expectations.
Since taking over as Chief Executive Officer, I have worked
closely with our Board and Executive Leadership Team to
understand the factors that led to these results and develop
solutions to improve our performance.
We are united in our commitment to make the operational
and cultural change necessary to drive value for our people,
customers and shareholders.
Transforming Downer
On 27 February 2023, I announced a new Executive
Leadership Team and a Group-wide transformation program.
The transformation is driven by three key focus areas,
which I believe will position the company for long-term
sustainable success.
These areas of focus are to:
§ Reset Downer’s operating model by integrating
our Australian and New Zealand businesses to be
sector-led, to enable better customer solutions and
reduce our cost base
§ Simplify Downer’s portfolio to create a business
with a narrower focus on core markets
§ Improve margins and enhance our focus on risk
management.
4 Annual Report 2023 | Downer EDI Limited
We have already made considerable progress. In July
we implemented our new operating model, creating five
trans-Tasman Business Units of scale, focused on the
Transport, Facilities and Utilities sectors. This new structure
will improve efficiency and accountability, reduce complexity
and duplication, and enable further portfolio simplification.
Our transformation program is a multi-year journey to drive
higher performance and unlock our potential. We know that
we must convert our pipeline of opportunities and enviable
market positions to become an organisation that is more
resilient to external factors, more disciplined in our delivery,
and ultimately more profitable.
Updating our Purpose
As we embark on this phase of transformational change,
our Purpose, Promise and Pillars will be crucial in guiding
our people and setting a vision for our organisation that they
connect with.
With that in mind, our original Purpose, which was ‘to create
and sustain the modern environment’, has been updated to
articulate a higher ambition and emphasise the vital role that
Downer plays in society.
We influence our communities in a profound way, delivering
essential services and infrastructure that will leave a
lasting legacy for our communities and future generations.
We enable communities to thrive – this is our new and
enduring Purpose.
FY23 performance
Downer’s financial performance in FY23 was mixed. After
a disappointing first half result with significant parts of the
organisation impacted by weather and labour productivity,
there were encouraging signs of recovery in H2.
For the year, revenue was up 5.4% to $12.6 billion. Underlying
NPATA was $174.2 million, and our Underlying EBITA was
$323.4 million. Our cashflow performance recovered well after
a challenging H1, with underlying cash conversion of 110% in
H2 and full year conversion of 64.9%. The Group is in a strong
financial position with net debt to EBITDA of 2.0x. The Board
declared a final unfranked dividend of 8.0 cents per share.
An employee in our Utilities business died in December 2022
while undertaking meter reading duties on a property south
of Brisbane, and a long-term Downer employee in New Zealand
died in August 2022 following a motor vehicle event. Downer
has extended our sincerest condolences to the employees’
families and colleagues and continues to support them following
these tragic incidents.
Our focus is on selecting the right jobs, improving the
underperforming contracts and driving a culture of
accountability that permeates throughout the entire organisation.
In FY23, Downer continued to focus on the divestment of
non-core businesses to shape a portfolio that is less capital
intensive and with a reduced risk profile. On 20 June 2023,
Downer announced we had completed the sale of the
Australian Transport Projects business to DT Infrastructure
Pty Ltd, a Gamuda Berhad company. The sale price represents
an enterprise value of $212 million, and is an important milestone
in our portfolio simplification strategy. Downer’s focus in the
transport sector will now be to concentrate on enhancing its
market leading positions in rollingstock, road maintenance
and New Zealand infrastructure delivery.
Protecting our people
While there have been significant changes at Downer over the
past 12 months, one thing that has not changed is our steadfast
commitment to Zero Harm. Protecting our people, communities
and environments will always be Downer’s number one priority.
Downer’s Total Recordable Injury Frequency Rate for FY23 was
below target at 2.66, however, our Lost Time Injury Frequency
Rate (LTIFR) was at target at 0.90. Downer’s performance
remains superior to industry benchmarks published by Safe
Work Australia for all industries in which Downer operates.
Sadly, Downer recorded two workplace fatalities in FY23.
Progress on climate
In FY23 we continued to focus on our decarbonisation pathway.
While our absolute carbon emissions increased by 2%, our
Scope 1 and 2 GHG emissions intensity reduced from 31.11
tCO2-e/AUD$m in FY22 to 30.0 tCO2-e/AUD$m in FY23. We
are committed to our operational emissions as per Downer’s
transition pathway to being Net Zero by 2050. An important
step to reaffirm Downer’s commitment to being industry leaders
in environmental sustainability was the production of our first
Climate Change Report, which was released in November 2022
and is available on our website. The report outlines Downer’s
response to the risks that climate change poses and the
opportunities that addressing climate change presents, and
covers our decarbonisation journey to date, our pathway to net
zero and the pivotal role Downer has the opportunity to play in
the energy transition.
I want to thank our people, customers and shareholders for
your support over the past 12 months. I am very confident
that the changes we have implemented in FY23 will start
delivering positive results for all of Downer’s stakeholders in
FY24 and beyond.
Peter Tompkins
Chief Executive Officer
5
Highlights
FY23 was a challenging year for Downer. After a disappointing
first half result impacted by weather, difficult market conditions
and contract losses in Utilities and New Zealand, there were
encouraging signs of stabilisation and recovery in the second
half with an improvement in margins and cash conversion.
The stabilisation of performance and underlying strength of
the balance sheet enabled the Board to declare a final dividend
of 8 cents per share, taking total dividends for the year to
13 cents per share unfranked.
The Group’s portfolio simplification is progressing well, with
the sale of the Australian Transport Projects business a key
milestone achieved during the period.
Downer reported a statutory net loss after tax of $385.7 million
and an underlying NPATA of $174.2 million.
The statutory loss was impacted by $541.5 million (after-tax)
of impairment charges primarily relating to impairment of
goodwill in the Utilities and Facilities businesses. Downer’s
revenue grew by 5.4% to $12.6 billion, and the cash conversion
after a difficult first half improved to 64.9%.
The Downer Portfolio
Transport
Utilities
Facilities
Road Services
Telecommunications
Government
Rail and Transit Systems
Water
Health and Education
Projects
Power and Gas
Defence
Industrial and Energy
6 Annual Report 2023 | Downer EDI Limited
2023 in numbers
Downer’s Board has endorsed commitments and targets.
Our performance for FY23 against these is as follows:
Total Revenue1
$12.6bn
Statutory EBITA (loss)
Underlying2 EBITA
($227.3m) $323.4m
Statutory net loss after tax
Underlying2 NPATA
($385.7m)
$174.2m
Operating cash flow
Underlying cash conversion
$318.2m
64.9%
1. Total revenue is a non-statutory disclosure and includes revenue from joint ventures, other alliances and other income.
2. 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 pages 13 and 14.
7
Directors’ Report
for the year ended 30 June 2023
The Directors of Downer EDI Limited submit the
Annual Financial Report of the Company for the
financial year ended 30 June 2023. In compliance
with the provisions of the Corporations Act 2001
(Cth), the Directors’ Report is set out below.
Board of Directors
Peter John Tompkins (44)
Managing Director and Chief Executive Officer
since February 2023
Mr Tompkins was formerly Chief Operating Officer of Downer
and prior to that was CEO and Managing Director of Spotless
Group Holdings Limited.
Mr Tompkins joined Downer in 2008 and was appointed
General Counsel in 2010.
Mr Tompkins has represented Downer on numerous Boards
including Keolis Downer, Evolution Rail and Reliance Rail.
Mr Tompkins has qualifications in law and commerce from
Deakin University.
Mr Tompkins lives in Sydney.
Mark John Menhinnitt (58)
Chairman since March 2023
Independent Non-executive Director since March 2022
Mr Menhinnitt is an experienced Non-executive Director and
senior executive with extensive domestic and international
experience in large infrastructure development and urban
regeneration, investment management, construction, asset
services, operations and maintenance.
Mr Menhinnitt held several senior roles over a 30-year
career with Lendlease, including as Chief Executive Officer
of Lendlease Australia.
Mr Menhinnitt is currently a Non-executive Director of
The GPT Group, a Non-executive Director of Sunshine Coast
Airport Pty Ltd (retiring 18 August 2023) and Chairman of
Fluent Property Pty Ltd.
Mr Menhinnitt holds a Bachelor of Engineering (Mechanical)
and Master of Business (Applied Finance), both from the
Queensland University of Technology. He is a member of
the Australian Institute of Company Directors and a Fellow
of the Governance Institute of Australia.
Mr Menhinnitt lives on the Sunshine Coast.
8 Annual Report 2023 | Downer EDI Limited
Teresa Gayle Handicott (60)
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 the Chairman of listed company PWR
Holdings and the State President 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.
Nicole Maree Hollows (52)
Independent Non-executive Director since June 2018
Ms Hollows has 25 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,
mine development, people and culture, accounting and
finance, mergers and acquisitions, capital management and
corporate governance.
Ms Hollows is the Non-executive Chairman of Jameson
Resources Limited, a Non-executive Director of Qube
Holdings Limited, and Director, Chairman of the Membership
Committee and Chairman of the Finance Audit Risk
Committee of Chief Executive Women.
Ms Hollows 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 and
Managing Director of AMCI Australia and South East Asia.
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.
Ms Hollows lives in Brisbane.
9
Directors’ ReportAuditor’s ReportsFinancial StatementsNotes to the consolidated financial statementsCorporate GovernanceInvestor Information Dr Adelle Maree Howse (53)
Independent Non-executive Director since April 2022
Dr Howse has extensive senior executive and non-executive
experience in the infrastructure, energy and resources,
construction, data centres, telecommunication and
property sectors.
Dr Howse held several senior roles with CIMIC, including
Chief Strategy Officer.
Dr Howse is currently a Non-executive Director of Macquarie
Telecom Group, Sydney Desalination Plant Pty Limited and
Frequency Infrastructure Australia Holdings Pty Limited.
Dr Howse has previously served on the boards of Devine
Group, Design Studio Group, Ventia, Nextgen Holdings and
Manila North Tollroads Corporation.
Dr Howse holds a Bachelor of Science and Doctor of
Philosophy (Mathematics) from the University of Queensland,
an executive MBA from IMD, Switzerland and a Graduate
Diploma of Applied Finance and Investment. She is a member
of the Australian Institute of Company Directors.
Dr Howse lives in Sydney.
Peter Lawrence Watson (66)
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 which is owned by Ventia) 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 the Non-executive Chairman of
BG&E Group Limited.
Mr Watson is a former Chairman of LogiCamms Limited
(now known as Verbrec), 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 and independent Chair of Ross River
Solar Farm.
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.
Mr Watson lives on the Sunshine Coast.
Retired Directors
Mark Peter Chellew
Independent Non-executive Director from 1 September 2021,
Chairman from 1 October 2021. Retired 3 March 2023.
Mark James Binns
Independent Non-executive Director
from 1 March 2022 to 31 January 2023.
Grant Anthony Fenn
Managing Director and Chief Executive Officer
from 1 July 2010 to 27 February 2023.
10 Annual Report 2023 | Downer EDI Limited
Directors’ Report 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
M J Menhinnitt
P J Tompkins1
T G Handicott
N M Hollows
A M Howse
P L Watson
Number of Fully Paid
Ordinary Shares
Number of Fully Paid
Performance Rights
Number of Fully Paid
Performance Options
71,748
286,004
31,000
40,538
5,000
17,933
–
239,758
–
–
–
–
–
–
–
–
–
1.
Performance rights granted to Mr Tompkins are subject to performance and/or service period conditions over the period 2020 to 2025. 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.
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 a
major Australian law firm 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 20 years.
Review of Operations
Principal Activities
Downer EDI Limited (Downer) is a leading provider of
integrated services in Australia and New Zealand. Downer
employs approximately 32,000 people, mostly in Australia
and New Zealand.
Downer operates in sectors that are closely connected to
the investment that is being driven by population growth and
urbanisation. These sectors include roads, rail, light rail, other
public transport, power, gas, water, telecommunications, health,
education, defence and other government sectors.
These sectors are served by Transport, Utilities and Facilities.
Divestments during the reporting period
In the year ended 30 June 2023, Downer completed the
divestment of the Australian Transport Projects business to a
wholly owned subsidiary of Gamuda Berhad, a large engineering
and construction company listed in Malaysia. There remains
a number of customer consents outstanding at the date of
completion, some of which remain outstanding as at the date
of this report. These contracts will remain with Downer until the
consents are received, which is expected by the end of calendar
year 2023.
The Australian Transport Projects business financials are
reported under the Transport segment for the period.
Refer to note F6 for further detail on divestments.
11
Directors’ Report Sustainability
At Downer, sustainability means being environmentally
sustainable as well as prioritising the safety of our
people, achieving sustainable growth, building trusted
relationships and ensuring we have a diverse and inclusive
workforce. Downer’s commitments to sustainability are
outlined in its policies, which are accessible from the
Downer website (www.downergroup.com). The Group’s
2023 Sustainability Report details Downer’s sustainability
related performance for the financial year ended
30 June 2023 and can be found on the Company website
(www.downergroup.com/2023sustainabilityreport).
As Downer embarks on a phase of change through the
transformation program, Downer’s Purpose, Promise and Pillars
will be pivotal in setting a vision for the organisation and its
people. With that in mind, we have evolved our Purpose and
Promise and updated our Pillars. In FY23, Downer changed its
Purpose to articulate a higher ambition. With sustainability at
the forefront of how organisations build strategy, allocate capital
and contribute to activities that support energy transition, it was
important for Downer to articulate our ambition in a way that
resonates more meaningfully with all stakeholders.
Downer embeds sustainability in the way we deliver our services
and operate our business across the Tasman. Downer’s new
Purpose is: ‘Enabling communities to thrive’. With Downer’s
services impacting millions of lives every day, the sustainability
of the Group’s operations is paramount – for its people, partners,
shareholders, customers and their customers. Downer delivers
these services while managing the impacts of its activities on
people, the environment and the communities in which the
Group operates whilst working collaboratively with its supply
chain. Downer’s capability is well placed for the energy transition
and decarbonisation effort that is required to meet Australia and
New Zealand’s net zero emissions target. For further information
please refer to Downer’s 2022 Climate Change Report.
The Climate Change Report has been prepared to provide
shareholders and potential shareholders with information
on Downer’s net zero targets, approach to climate risks and
opportunities as well as our climate-related plans, activities, and
disclosures in accordance with the Taskforce for Climate related
Financial Disclosures (TCFD).
Group Financial Performance
The main features of the result for the 12 months ended
30 June 2023 were:
§ Total revenue1 of $12.6 billion, up 5.4%
§ Statutory EBITA2 loss of $227.3 million, down from earnings
of $341.3 million at 30 June 20223
§ Underlying4 EBITA earnings of $323.4 million, down 15.5%
from $382.5 million
§ Underlying EBITA margin of 2.6%, down from 3.2% at
30 June 2022
§ Statutory loss before interest and tax (EBIT) of $253.5 million,
down from earnings of $306.5 million at 30 June 2022
§ Statutory net loss after tax and before amortisation of
acquired intangible assets (NPATA) of $367.3 million,
down from $164.8 million profit,
§ Statutory net loss after tax (NPAT) of $385.7 million,
down from profit of $140.4 million.
Total revenue, excluding contribution from divested Mining
and Hospitality businesses in FY22, increased by 9.0%. This
was led by Rail and Transit Systems in the Transport segment,
Telecommunications in the Utilities segment and Government
and Health & Education in the Facilities segment.
Despite the strong revenue growth, underlying EBITA has been
negatively impacted by losses in the Utilities business.
Underlying Cash conversion for the period was 64.9%,
attributable to weak cash conversion in the first half, driven
primarily by timing of supplier payments on the completion
of the Sydney Growth Trains (SGT) project and settlement
of prior period project claims. Cash conversion in the second
half improved meaningfully to 110%. Weak operating cash flow
performance and the statutory loss were the primary drivers for
the increase in gearing, up 5.3% to 23.1% since June 2022.
Net finance costs increased by $2.6 million or, 3.0%, to
$88.0 million driven by an increase in average debt drawn as a
result of lower operating cash flows.
The underlying effective tax rate of 25.5% is lower than the
statutory corporate tax rate of 30.0% primarily due to the impact
of non-taxable distributions from joint ventures and lower tax
rates in overseas jurisdictions (e.g. New Zealand).
Individually Significant Items (ISIs) totalled a $550.7 million loss
before interest and tax for the year, ($541.5 million loss after-
tax). Additional information is provided on the following pages of
the Review of Operations and in Note B3 to the Financial Report.
Power maintenance contract
On 8 December 2022, Downer announced that it had
identified the historical misreporting of revenues and work in
progress in one of its maintenance contracts in its Australian
Utilities business.
The contract is for the supply and maintenance, new
connections, faults and capital works services.
As a result of the historical misreporting, post-tax earnings were
overstated by a total of $22.2 million between April 2020 and
30 June 2022, of which $1.7 million relates to FY20, $8.9 million
relates to FY21 and $11.6 million relates to FY22. Downer is
working on a number of initiatives to return the contract to an
overall profitable position by the end of the contractual term.
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not
proportionately consolidated.
2 Earnings before interest, tax and amortisation of acquired intangibles (EBITA).
3
4
FY22 have been restated following certain accounting adjustments identified as described in Note A to the Financial Report.
The underlying result is a non-IFRS measure that is used by management to assess the performance of the business. Non-IFRS measures have not been subject to
audit or review.
12 Annual Report 2023 | Downer EDI Limited
Directors’ Report Changes to segment reporting
Following the restructure of the Group and the creation of a Trans-Tasman operating model, the Hawkins building business in
New Zealand has transitioned from the Facilities segment to the Transport segment to align with how the businesses are managed
and reported internally to the Group CEO.
Power Systems transitioned from the Transport segment to the Utilities segment as reported at 31 December 2022 following
a change in internal management structure.
Underlying EBITA and reconciliation to Statutory NPAT
The table below provides a comparison of the underlying1 earnings for FY23 versus the results for FY22 and a reconciliation to
statutory NPAT.
Underlying1 EBITA (A$m)
Reporting Segment
Transport
Utilities
Facilities
Facilities/All other segments
Unallocated
Transport2,3
Utilities2
Facilities2
Urban Services Businesses
Business disposed4
Corporate
Group Underlying EBITA5
Amortisation of acquired intangibles (pre-tax)
Underlying EBIT
Net interest expense
Tax expense
Underlying NPAT
Amortisation of acquired intangibles (post tax)
Underlying NPATA5
Items outside of underlying NPATA
Tax effect on items outside underlying NPATA
Statutory NPATA
Amortisation of acquired intangibles (post tax)
Statutory NPAT
FY23
288.9
(10.3)
162.1
440.7
–
(117.3)
323.4
(26.2)
297.2
(88.0)
(53.4)
155.8
18.4
174.2
(550.7)
9.2
(367.3)
(18.4)
(385.7)
FY226
269.4
59.9
162.1
491.4
(8.4)
(100.5)
382.5
(34.8)
347.7
(85.4)
(73.0)
189.3
24.4
213.7
(41.2)
(7.7)
164.8
(24.4)
140.4
Variance
(%)
7.2%
>(100%)
–
(10.3%)
100.0%
(16.7%)
(15.5%)
24.7%
(14.5%)
(3.0%)
26.8%
(17.7%)
(24.6%)
(18.5%)
>(100)%
>100%
>(100%)
24.6%
>(100%)
1.
The underlying result is a non-IFRS measure that is used by Management to assess the performance of the business. Non-IFRS measures have not been subject to
audit or review.
FY22 Transport, Utilities and Facilities contribution have been restated as a result of the change in operating segments (refer to Note B1).
2.
3. The Australian Transport Projects business disposed during the period is included in the Transport segment.
4. Represents the contribution of Mining ($8.1 million) and Hospitality (loss $16.5 million) businesses disposed in prior period.
5. Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense.
6.
FY22 results have been restated (refer to Note A for further details).
13
Directors’ Report Statutory Earnings
Statutory loss before interest and tax (EBIT) of $253.5 million, down from a profit of $306.5 million.
Statutory EBITA loss of $227.3 million, down from a profit of $341.3 million.
Underlying EBITA of $323.4 million, down 15.5% from $382.5 million
A reconciliation of the FY23 underlying result to the statutory result is provided in the table below:
A$m
Underlying result
Fair value on Downer Contingent Share
Options (DCSO)1
Divestments and exit costs
Portfolio restructure costs
Regulatory reviews and shareholder class
action related costs
Impairment and other asset write-downs
Total items outside underlying results
Statutory result – loss
EBITA
323.4
10.0
20.8
(25.4)
(6.5)
(549.6)
(550.7)
(227.3)
Net Interest
expense
Tax
expense
NPATA
Amortisation
of acquired
intangibles
(post-tax)
(88.0)
(61.2)
174.2
(18.4)
–
–
–
–
–
–
(88.0)
–
(18.6)
7.6
1.9
18.3
9.2
(52.0)
10.0
2.2
(17.8)
(4.6)
(531.3)
(541.5)
(367.3)
–
–
–
–
–
–
(18.4)
NPAT
155.8
10.0
2.2
(17.8)
(4.6)
(531.3)
(541.5)
(385.7)
1 The Downer Contingent Share Options (DCSO) issued as part of the acquisition of the minority interest in Spotless in August 2020 are required to be recorded at
fair value with changes in fair value recorded through profit or loss. Since 30 June 2022, the fair value of the DCSO has decreased by $10.0 million, which has been
recognised in ‘Other income’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income during the year. This income is driven by the decrease
in Downer’s share price from $5.05 at 30 June 2022 to $4.11 at 30 June 2023.
Refer to Note B3 to the Financial Report for further details.
Expenses
Total expenses increased by 10.6%, or $1.2 billion, compared
to the prior corresponding period (pcp). Included in total
expenses is $605.1 million of ISIs ($153.7 million in pcp).
Excluding the impact of ISIs, total expenses increased by 6.5%,
or $699.9 million.
Downer’s cost base (including ISIs) by type of expense
compared to the pcp is as follows:
Employee benefits expenses increased by 1.6%, or $58.8 million,
to $3.6 billion and represents 30.3% of Downer’s cost base.
Subcontractor costs increased by 11.0%, or $487.3 million,
to $4.9 billion and represents 41.0% of Downer’s cost base.
Labour market conditions have resulted in increased reliance
on subcontractor labour, increasing the mix in total personnel
costs. Compounding this, was the exit of Mining and Hospitality
in the comparative period which had a relatively low reliance on
subcontractor labour.
FY23 (%)
5.4
11.2
12.1
FY22 (%)
5.7
7.8
30.3
12.7
33.0
41.0
40.8
Employee benefits expense
Subcontractor
Raw materials and
consumables used
Plant and equipment,
depreciation and amortisation,
impairment of assets
Other expenses
Raw materials and consumables costs increased by 5.6%, or
$76.9 million, to $1.5 billion and represents 12.1% of Downer’s
cost base. The increase is mainly due to mix of raw materials
used in line with increased activities in Projects (Transport
segment), and in Water (Utilities segment) together with
increase in Bitumen prices impacting the Road Services
(Transport segment).
Plant and equipment costs remained stable at $0.5 billion and
represents 3.9% of Downer’s cost base. Total depreciation and
amortisation decreased by 1.8%, or $6.0 million, to $0.3 billion
and represents 2.8% of Downer’s cost base.
Impairment of non-current assets of $539.5 million represents
$483.0 million impairment of goodwill and $56.5 million of other
non-current assets. Refer to Note B3 for additional information.
14 Annual Report 2023 | Downer EDI Limited
Directors’ Report Balance sheet
Since 30 June 2022, the net assets of the Group decreased by
$522.0 million.
Movement in Net Assets
3,000
2,500
2,000
m
$
’
1,500
1,000
500
0
2,811.8
(84.1)
111.3
11.9
2,289.8
(561.1)
Opening
Net Assets
Increase
in net
debt
Intangibles Net total
receivables
and payables
Other
Closing
Net Assets
Increase
Decrease
Total
Net debt is calculated as borrowings (excluding lease liabilities)
less cash and cash equivalents. Net debt has increased by
$84.1 million mainly driven by $234.7 million higher borrowings
since 30 June 2022 as a result of lower operating cash flows in
the period.
Intangibles have declined by $561.1 million to $2.2 billion,
primarily due to the $483.0 million impairment of goodwill,
$41.3 million of goodwill associated with business disposals,
together with the net movement associated with amortisation
and additions during the period.
Net total receivables and payables, which includes current trade
receivables and contract assets, in addition to current trade
payables and contract liabilities, increased by $111.3 million
mainly driven by increase in contract assets from new projects
including QTMP.
Total Equity decreased by $522.0 million as a result of the
statutory loss after tax of $385.7 million, $17.8 million in shares
bought back and $125.4 million dividends paid during the period.
Other expenses from ordinary activities, which includes
communication, travel, professional fees and occupancy costs,
increased by 6.0% or $36.7 million and represents 5.4% of
Downer’s cost base. This was primarily due to $40.5 million of
individually significant items (pre-tax) as described in Note B3
of the Financial Report.
Cash Flow
Operating Cash Flow
Operating cash flow of $318.2 million represents an
underlying cash conversion of 64.9% of adjusted earnings
before interest, tax, depreciation and amortisation (EBITDA).
Weak cash conversion in the first half offset strong second
half performance.
The softer cash conversion and decrease in operating cash flow
was predominantly driven by timing of supplier payments on the
completion of the SGT project and settlement of prior period
project claims.
Investing Cash Flow
Total investing cash outflow of $86.7 million includes
$160.5 million proceeds from the disposal of Australian
Transport Projects during the year net of cash disposed.
Excluding proceeds from the disposal of businesses, investing
cash outflow would have increased by 19.4% or $40.2 million
to $247.2 million largely due to lower proceeds from disposals
of PP&E in the period ended 30 June 2023 compared to the
prior period.
Debt and bonding
The Group’s performance bonding facilities totalled
$2,244.5 million at 30 June 2023 with $727.3 million undrawn.
There is sufficient available capacity to support the ongoing
operations of the Group.
As at 30 June 2023, the Group had liquidity of $1.9 billion
comprising cash balances of $889.1 million and undrawn
committed debt facilities of $1.0 billion.
During the period, a total of 3.8 million shares were purchased as
part of the share buyback programme, for a total consideration
of $17.8 million. The purchase of these shares occurred in the
period between September and November 2022.
The outlook on the Group’s BBB credit rating was revised from
Stable to Negative by Fitch in December 2022.
15
Directors’ Report Segment financial performance
Transport
Transport comprises Downer’s Road Services, Rail and Transit
Systems and Projects businesses.
Total revenue1 (FY23)
EBITA2 (FY23)
54.7%
65.5%
Transport
1 Total revenue is a non-statutory disclosure and includes revenue, other
income and notional revenue from joint ventures and other alliances not
proportionately consolidated.
2 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%.
Transport revenue increased by 10.3%, or $641.5 million,
to $6.9 billion, while EBITA increased by 7.2% or $19.5 million
to $288.9 million. The Roads Services business continued to
be adversely impacted by wet weather (primarily in the first
half), labour market challenges and increased transport and
logistics costs. This was offset by strong revenue and margin
performance on long-term Rail maintenance contracts and an
uplift in Transport Projects margin in Australia.
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 50,000 kilometres of roads in Australia
and in New Zealand.
Downer creates and delivers solutions to its 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.
Rail and Transit Systems
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 its 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.
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, Adelaide
Metro 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.
Projects
Downer delivers multi-disciplined infrastructure solutions
through services such as, the design and construction of light
rail, heavy rail, signalling, track and station works, rail safety
technology, bridges, roads and vertical construction (through
Downer’s Hawkins business in New Zealand). Downer has a
long history of delivering infrastructure projects under a variety
of contracting models. Downer’s integrated capabilities enable
intelligent transport solutions, road network management
and maintenance.
In the year ended 30 June 2023, Downer completed the
divestment of the Australian Transport Projects business to a
wholly owned subsidiary of Gamuda Berhad, a large engineering
and construction company listed in Malaysia. Downer retains
a strong presence in New Zealand in infrastructure project
services, in both transport and vertical construction.
Utilities
Downer offers a range of services to customers across
the power and gas, water, telecommunications and
renewables sectors.
Total revenue1 (FY23)
EBITA2 (FY23)
18.0%
(2.3)%
Utilities
1 Total revenue is a non-statutory disclosure and includes revenue, other
income and notional revenue from joint ventures and other alliances not
proportionately consolidated.
2 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%.
Utilities revenue increased by 11.2%, or $227.9 million, to
$2.3 billion, while EBITA decreased $70.2 million to a loss of
$10.3 million. Despite the Telecommunications business in both
Australia and New Zealand performing well (both revenue and
EBITA), the Utilities segment EBITA was heavily impacted by
losses in a Power Maintenance contract, underperformance
across the portfolio of Water construction projects and in a
renewable windfarm project in New Zealand together with
losses in the meter reading business associated with labour
availability, productivity and weather-related challenges.
16 Annual Report 2023 | Downer EDI Limited
Directors’ Report Power and Gas
Downer’s services include planning, designing, constructing,
operating, maintaining, managing and decommissioning
transmission and distribution power assets as well as gas
network assets. A collaborative approach has made Downer
a benchmark end-to-end service provider to owners of
utility assets.
Downer constructs and maintains electricity and gas networks,
provides asset inspection and monitoring services, connects
tens of thousands of new power and gas customers each year
and provides meter, energy and water efficiency services for
governments, utilities and corporations.
Water
Downer is dedicated to delivering complete water lifecycle
solutions for municipal and industrial water users.
Downer’s expertise includes water treatment, wastewater
treatment, water and wastewater network design
construction, maintenance and rehabilitation, desalination and
biosolids treatment.
As a 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.
Telecommunications
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 designing, engineering, consulting,
maintenance, operations and smart metering.
Facilities
The Facilities segment operates in Australia and New Zealand
across a range of industry sectors including education, health,
government, defence and industrial and energy.
Total revenue1 (FY23)
EBITA2 (FY23)
27.3%
36.8%
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 revenue increased by 0.5%, or $18.4 million, to
$3.4 billion, with an increase in EBITA of 11.3% to $162.1 million.
The increase in EBITA was primarily driven by the non-recurring
impact of Hospitality losses in the prior period, with this
business exited during FY22. Excluding the impact of losses
from businesses disposed, EBITA was flat year on year. Solid
growth in Government and Health & Education (including the
reset of the reviewable services at Royal Adelaide Hospital and
Bendigo Hospital on 1 July 2022) was offset by softer earnings
in the Defence business as a result of a slowdown in Defence
spending on minor capital works and from a contract loss in
Industrial & Energy due to a subcontractor default.
Government and Health & Education
Downer is the largest integrated facilities management services
provider in Australia and New Zealand, delivering property and
facilities management services to government departments,
agencies and authorities at the Federal, State and municipal
level. With 21 Public Private Partnership projects across the
defence, education, health and leisure sectors, Downer provides
innovative management of its customers’ assets across
their lifecycle.
Downer has a 40-year history of supporting the daily operations
of hospitals across Australia and New Zealand, delivering a
range of services that create a safe environment for hospital
staff, patients and their guests. At leading schools and tertiary
institutions, Downer helps to create world-class learning
environments through integrated services such as catering,
building and grounds maintenance, conserving energy
with air-conditioning and lighting solutions and ensuring a
secure environment.
Defence
Downer provides a broad range of professional services, base
and estate management and estate development and base
upgrade services to the Australian Defence Force, the New
Zealand Defence Force and other government agencies.
We have a whole of Defence Capability Life Cycle offering and
mindset. Our Sovereign Industry Capability delivers to the needs
of Defence, National Security organisations, the major primes
and other government agencies.
Industrial & Energy
Downer is a leading provider of asset maintenance and
specialist services to Australia’s critical economic infrastructure
including the oil and gas, power generation and industrial
sectors. As a trusted partner with a leading safety record,
Downer optimises the reliability, efficiency and whole-of-life
costs of its customers’ assets through long-term relationship-
based contracts. Through its Mineral Technologies business,
Downer is the world leader in fine physical mineral separation
solutions, including spiral gravity concentrators and magnetic
and electrostatic separation technology.
17
Directors’ Report All other segments
All other segments reflect the contribution of divested business
units of Mining and Hospitality in the prior corresponding
period. As these divestments were completed in FY22, there was
no contribution to the Group results during the period ended
30 June 2023.
Dividends
The Downer Board resolved to pay a final dividend of 8.0 cents
per share, unfranked, payable on 21 September 2023 to
shareholders on the register at 24 August 2023. The portion of
the unfranked dividend amount that will be paid out of Conduit
Foreign Income (CFI) is 17%.1
The Board also determined to continue to pay a fully imputed
dividend on the ROADS security, which having been reset on
15 June 2023 has a yield of 9.81% per annum payable quarterly
in arrears, with the next payment due on 15 September 2023.
As this dividend is fully imputed (the New Zealand equivalent of
being fully franked), the actual cash yield paid by Downer will be
7.06% per annum until the next reset date.
Consistent with the prior year, the Company’s Dividend
Reinvestment Plan remains suspended.
Zero harm
Downer’s Lost Time Injury Frequency Rate (LTIFR) increased to
0.90 from 0.82 and its Total Recordable Injury Frequency Rate
(TRIFR) increased to 2.68 from 2.35 per million hours worked.2
The decline in the performance of these lagging indicators in
FY23 is due to an overall increase in injuries that required time
off work of one or more shifts, primarily in our Facilities and
Asset Services business and in the Australian Road Services
business, relative to the hours worked compared to FY22. In
addition, our New Zealand Transport, Australian Road Services
and Utilities businesses had increases in injuries requiring
medical treatment which impacted the TRIFR performance.
Incidents are investigated with actions to prevent recurrence
identified and tracked to closure. Relevant lessons are shared
across Business Units. Trends are reviewed and addressed
at Business Unit level and are considered by Communities of
Practice, as relevant.
Tragically, there were two workplace fatalities this year.
A long-term Downer employee in New Zealand died in August
2022 when he was struck by a motor vehicle while assisting a
member of the public on a arterial road. Downer is treating this
as a workplace fatality, although the employee was assisting a
member of the public at the time. This event is an unfortunate
reminder of the need to remain strongly focused on risk
management during any activities that may lead to harm.
In December 2022, an employee from Downer’s Utilities
business was undertaking meter reading duties on a property in
Greenbank, south of Brisbane, when fatally attacked by dogs on
the property.
Downer extends its sincere condolences to both workers’
families and colleagues, and continues to support them
following these tragic incidents.
In FY22, Downer disclosed a reportable fatality in its New
Zealand business following an unfortunate fall from height
incident. At the time, the cause of death was unconfirmed,
and Downer treated this event as a workplace fatality. With
the fullness of time, we understand the cause to relate to an
unexpected medical event. Therefore, Downer has restated its
FY22 safety performance to record zero fatalities.
Downer Group Safety Performance (12-month rolling frequency rates)
3.00
2.50
2.35
I
R
F
R
T
2.00
1.50
0.82
2.68
0.90
2.00
1.50
1.00
0.50
R
F
T
L
I
2
2
-
n
u
J
2
2
-
l
u
J
2
2
-
g
u
A
2
2
-
p
e
S
2
2
-
t
c
O
2
2
-
v
o
N
2
2
-
c
e
D
3
2
-
n
a
J
3
2
-
b
e
F
3
2
-
r
a
M
3
2
-
r
p
A
3
2
-
y
a
M
3
2
-
n
u
J
LTIFR
TRIFR
1
2
This is relevant only for non-resident shareholders. The effect is that the portion of the unfranked dividend paid out of CFI is not subject to Australian dividend
withholding tax.
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 plus medically treated injuries (MTIs) for employees and
contractors. Total Recordable Injury Frequency Rate (TRIFR) is the number of TRIs per million hours worked.
18 Annual Report 2023 | Downer EDI Limited
Directors’ Report Group Business Strategic objectives and prospects for future Financial Years
Downer’s Purpose, Promise and Pillars Our Purpose,
Promise and Pillars reflect our commitment to do the right thing
for our customers, our people and our shareholders.
Downer’s Purpose is Enabling Communities to Thrive.
Our Promise is that our customers’ success is our success.
Alongside our Purpose and Promise, our Pillars represent the
way we do things and underpin everything we do:
§ Sustainability: Safety is our first priority. Zero Harm to our
people, communities and environment is embedded in our
culture. We will leave a positive legacy for future generations.
§ 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 with our customers, our people and our
communities, 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 and prospects, underpinned by
our Purpose, Promise and Pillars, are set out in the table below.
Refer to the Principal Business Risks and Risk Management
Strategies section for further details on risks associated with the
pursuit of Downer’s strategic objectives and prospects.
Downer’s core Transport, Utilities and Facilities businesses are
diversified across capabilities, markets and geography, and
are underpinned by Downer’s strong market position across
all categories.
Strategies to realise value for shareholders
As part of the half-year 2023 financial results, Downer
announced its strategies to realise value for shareholders.
These strategies and current focus of the business are enablers
in achieving Downer’s target EBITA margin of at least 4.5% in
FY25. These strategies fell under three focus areas:
§ Reset operating model and cost base;
§ Continue to simplify current portfolio; and
§ Operational excellence and risk management.
Key components of the above include:
§ Targeting benefits of at least $100 million per annum in
FY25, through the merging of Australian and New Zealand
operating units to establish sector led, stand-alone, Trans-
Tasman businesses, operating model optimisation, and
through systems, fleet and property rationalisation and other
cost-out initiatives;
§ Simplification of the Downer portfolio to focus on businesses
which align with the Group’s strategic objectives;
§ Disciplined approach to risk management through adherence
to The Downer Standard and Downer’s Delivery Management
Methodology, defining risk appetite via the 5 C’s (Capacity,
Capability, Counterparty, Contract & Compensation) and
establishing effective organisational accountability and
monitoring through the three lines of defence; and
§ Structural and cultural reset on performance accountability,
enhanced by the new organisational design to drive a focus
on operational excellence.
Strategic Objective
Prospects
Sustainability pillar
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, including mental health and wellbeing, and safety of its people
and allows it to deliver its business activities in an environmentally sustainable manner and advance
the communities in which it operates.
There is a strong commitment to Downer’s Zero Harm objectives across all levels of the business.
A core objective of The Downer Standard program is to unify the way Downer manages Zero Harm
and performs its work. In an important step, Downer achieved centralised third-party accreditation
to the International Standards ISO 45001 (Safety), ISO 9001 (Quality) and ISO 14001 (Environment).
This gives Downer a single system of work for safety, quality and environment, and a framework to
develop, implement and monitor The Downer Standard. Establishing this consistent single platform
means Downer can deliver consistent best practice information and work processes to its frontline
employees, helping them to better manage risk and change in their dynamic workplaces.
19
Directors’ Report Strategic Objective
Prospects
Sustainability Pillar
Strengthen Downer’s
position as an employer
of choice by fostering
a diverse and inclusive
workplace culture
Sustainability Pillar
Mitigate climate-related
risks and capture growth
opportunities presented
by decarbonisation
Delivery Pillar
Embed asset management
and standardisation
Relationships Pillar
Focus on engagement with
customers and suppliers
Thought Leadership Pillar
Utilise technology in core
service offerings
For Downer to deliver the best possible outcomes for its customers, it needs a workforce that is
diverse, inclusive, capable and engaged. Downer’s actions are guided by its Inclusion and Belonging
(I&B) Strategy, which promotes a culture where employees feel a sense of belonging.
Downer’s talent attraction and retention strategy focuses on providing opportunities for employees
to grow their careers, offering benefits that are competitive with the market, and creating channels
for engagement and feedback.
Downer is focused on maintaining the work-life balance of its people and supports flexible working
arrangements, where possible, to meet the growing expectations of its current and future workforce.
Downer also understands that mental health is a growing societal issue and has developed and
implemented its accredited Mental Health First Aid program to arm its people with the knowledge
and skills to support their own mental health as well as the mental health of their friends and family.
As society shifts towards a net zero emissions future, Downer is seeing increasing interest in
decarbonisation across its customer base. Downer is uniquely positioned with its skills, experience
and technical capabilities to play a pivotal role in the energy transition.
Downer believes its own pathway to net zero is essential in adding credibility to the services it
delivers to help customers decarbonise their own operations. Downer has committed to an absolute
near-term target of 50% reduction of its Scope 1 and 2 GHG emissions by 2032 and an absolute near-
term target of 30% reduction of its Scope 3 emissions by 2032. Downer has set a long-term target
to be net zero in Scope 1, 2 and 3 GHG emissions by 2050, subject to future available technologies.
Both the near-term and the long-term targets have a base year of 2020.
In FY22, Downer completed a detailed review of its most material climate-related risks and
opportunities in line with the Taskforce for Climate-related Financial Disclosures (TCFD), utilising
Scenario Analysis. This work built on Downer’s previous TCFD analysis in 2019 and reaffirmed that
climate change presents considerable opportunities for Downer, if appropriately acted upon. The
analysis determined that Downer’s material exposures to transition risk are its asphalt plants as well as
its light and heavy vehicle fleet. Downer has decarbonisation strategies and plans to minimise exposure
to transition risks. For further information refer to Downer’s 2022 Climate Change Report and 2023
Sustainability Report.
In addition, Downer has undertaken a review of its capital allocation process to integrate climate
thinking and considerations. This led to the creation of a centralised decarbonisation fund to support
initiatives that will help achieve Downer’s net zero commitments.
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 through standardised processes, data analytics and lifecycle
performance analytics. A number of these investments have Group-wide application in addition to
their bespoke customer benefits.
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.
Relationships creating success continues to underpin Downer’s approach to customer relationships
and 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.
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
provision of cyber secure technology in the services Downer provides. Customer operations are
growing in complexity in an ever-changing threat landscape, and this creates opportunities for
Downer to connect securely, manage, monitor and report on core services and infrastructure.
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. Downer remains
firmly focused on continuously protecting against evolving cyber risks and threats, demonstrating
credibility and trust through secure cyber stewardship and custody.
20 Annual Report 2023 | Downer EDI Limited
Directors’ Report The following table provides an overview of the key prospects relevant to each of Downer’s service lines and summarises Downer’s
intended strategic response across each sector to maximise the Company’s performance and realise future opportunities.
Service line
Prospects
Downer’s response
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
Facilities
Growth across utility markets
is multi-faceted with a good
pipeline of prospects in both
Australia and New Zealand.
Downer’s customers
are actively investing in
decarbonisation projects.
The facilities management
market is characterised by
long-term contracts which
are tendered infrequently.
However, as property and
facilities owners look to
decarbonise their assets, this
is expected to form a growth
market in coming years.
In the Industrial & Energy
market portfolio there
is a strong pipeline of
opportunities on the short-
to-medium-term horizon as
Downer’s customers actively
invest in decommissioning and
decarbonisation projects.
Downer is a market leader in road services in both Australia and
New Zealand. The Group is well positioned through its integrated national
asset footprints to be a trusted service provider to local, state and national
customers in maintaining and providing pavement products for road
networks. With increasing customer focus on sustainability objectives,
Downer is seeing increased demand for its circular economy products
like ReconophaltTM, a sustainable asphalt product made from up to 100%
recycled materials.
Downer also 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. Downer has a breadth of capabilities
covering rollingstock design, manufacturing and through-life-support
allowing Downer to provide trusted support to critical passenger train assets
across Australia.
More extreme weather events and their damaging impacts on infrastructure
assets present opportunities for Downer to assist in recovery and rebuilding
efforts. This includes road and pavement repairs across both Australia and
New Zealand. Downer has also formed an Alliance to support the rebuilding
of critical infrastructure across the east coast of New Zealand’s North Island,
following extensive damage caused by Cyclone Gabrielle.
Downer has market leading positions in the power, gas, water and
telecommunications sectors in both Australia and New Zealand. We are
strongly positioned to take advantage of the growth opportunities available
in these sectors.
Downer is also one of the largest and most experienced providers in the
renewable energy market and power systems sectors. Downer has strong
technical capabilities in installation of commercial scale solar panels and
transmission line construction, meaning the Group is well placed to assist
our customers with their decarbonisation journey.
In all these areas, Downer is focusing its effort on customers and project
types where we can add value through its whole of life approach to asset
development and sustainment with a balanced approach to risk sharing.
Downer is a major player in facilities management across both Australia
and New Zealand with leading positions in key sectors including defence,
health, education and government. The Group’s scale enables us to invest in
class leading asset management capability, build new positions in front line
services and leverage upside in procurement and asset optimisation.
Downer also has strong market positions across the industrial, energy and
future energy areas and is a trusted partner to some of Australia’s most
important and largest industrial customers. Our technical capability and
delivery reliability enables us to differentiate our offering through focus
on value delivered. Downer is investing in its expertise and capability in
anticipation of clean hydrogen becoming a key energy source for our
customers and has also supported customers in delivering carbon capture
underground storage systems.
21
Directors’ Report Material risks and risk management strategy
Downer actively manages a range of principal risks which have the potential to materially impact on the Group and its ability to
achieve its strategic objectives and opportunities. We apply a robust risk management framework to identify, assess and manage
risks which could adversely impact the future performance of the Group. Downer’s material risks, which include both risks specific
to the Group as well as general business and macroeconomic risks, are outlined below in no particular order.
Overview of risk and potential impact
Risk mitigation and management strategies
Key contracts, competition and customer retention
There is a risk that material contracts that Downer enters
may not be renewed, renewed on less favourable terms
or cancelled.
Furthermore, some of the markets in which Downer
operates are highly competitive. Increased competition
and/or market changes can impact on Downer’s ability to
renew and/or win new contracts. If such events take place
this may lead to a decrease in work-in-hand, profitability
and earnings.
In addition, some of the contracts that Downer enters
have pricing that is ‘fixed’ or ‘not to exceed’. To the extent
that the cost of delivering on its contractual obligations
exceeds the estimated price, Downer could incur losses
that are not recoverable from its customers.
Brand and reputation
Downer relies on its reputation to win and retain work,
attract and retain employees, secure ongoing access to
capital markets and maintain our social license to operate.
Building trust among stakeholders and maintaining our
reputation is critical for our business operations. Failing to
maintain this trust could lead to negative media attention,
which might damage our reputation and adversely impact
the support of our stakeholders.
The negative media attention associated with the ICAC
inquiry into conduct of employees of Downer during
the period highlights the risk of brand and reputation
damage. This could impact on Downer’s perception
among customers and require additional disclosure and
comfort to be provided in tenders and rebid processes.
There is a risk that reputational impacts could lead to
loss of contract renewals and participation in new tenders
for Downer.
Project management and bid governance
The nature of the industries in which Downer operates
and the size of some of Downer’s contracts mean there
is the possibility that material losses could be incurred if
project management and bid governance processes are
not followed correctly.
Project losses incurred in FY23, particularly in the Utilities
business, highlight the potential impact of poorly applied
project management and bid governance process.
22 Annual Report 2023 | Downer EDI Limited
§ Downer maintains its focus on forming strong relationships with
customers across a range of different markets and delivering
successful outcomes for its customers, strategic partnerships and
joint ventures with leading technology and knowledge providers
and a strong focus on its Customer Relationship Management
(CRM) system.
§ To address competition risk, Downer collaborates with customers to
understand and meet their evolving needs. Downer focuses on the
delivery of high-quality services and thought leadership to support
recontracting of existing key customers.
§ Downer undertakes thorough bid governance processes to ensure
that projects within risk appetite parameters are appropriately
estimated and there is a strong focus on costs, supply chain
management and project management controls.
§ Downer’s focus on risk management and operational excellence is
looking to address performance issues which have occurred in FY23.
The strategies to improve this focus will look to improve delivery of
tendered margin and tighten the bell curve of project outcomes and
reduce variability.
§ Significant engagement, correspondence and outreach to key
customers to update them on issues and provide assurance on
Downer’s commitment to the highest standards of conduct.
§ Recurring/coordinated internal communication and employee
webcasts to bring Downer team members together and unify them
under our common Purpose and Promise.
§ In response to public and regulatory scrutiny during the period,
Downer deemed it important to strengthen our mechanisms to
measure, monitor and protect its corporate image. Downer engaged
an external corporate reputation research expert to conduct
a diagnostic review of Downer’s brand and reputation among
customers. This research, and subsequent strategic interpretation
and advice, will seek to protect Downer’s reputation and strengthen
its position in the marketplace.
§ Downer has sought to implement robust project risk management
processes and systems across its business, as well as additional bid
governance relating to tenders for large projects.
§ Downer’s integrated management system, known as The Downer
Standard, provides policy framework, governance and consistency in
our approach to risk and opportunity management.
§ Downer’s Tenders and Contracts Committee and Tender Risk
Evaluation Committee provide bid governance oversight.
§ Downer’s Delivery Management Methodology guides all stages of the
delivery lifecycle.
Directors’ Report Overview of risk and potential impact
Risk mitigation and management strategies
Key suppliers, subcontractors and partners
Where Downer is reliant on one or a small set of
specialist suppliers or subcontractors to provide goods
and services, the performance of these suppliers or
subcontractors may impact Downer’s ability to achieve
budgeted project outcomes.
Where suppliers or subcontractors do not fulfil
contractual obligations or do not renew existing
contracts, the ability of Downer to complete projects and
win new work may be adversely affected.
There are particular suppliers with whom Downer
has a long-term relationship which support Downer’s
business activities. A change in relationship with these
suppliers and partners could negatively impact Downer’s
financial performance.
In addition, instances of conflicts of interest, fraud
or corruption may be present within the operations
of suppliers, subcontractors or partners which may
adversely impact Downer.
Macroeconomic conditions including level of government spending
Downer is susceptible to major changes in
macroeconomic conditions through sudden and/or
prolonged deterioration in the economy, which may
impact the industries on which Downer is dependent and
could have a material negative impact on operational and
financial performance.
Public authorities and Government departments
in Australia and New Zealand are major customers
of Downer. Changes in prioritisation of government
spending, or restrictions on the level of spending
undertaken by governments, could impact the level of
earnings generated by Downer. For example, in relation
to the most recent Defence Strategic Review, it is
anticipated that Government spending will be focused
on expansion of capability and a reduction in spend
on sustainment.
Cost escalation
Downer is exposed to cost escalation and inflationary
pressures which may be above budgeted levels across
all elements of our cost base. If Downer is not able
to offset these cost pressures through contractual
inflation recovery mechanisms or planned cost out,
this could adversely impact Downer’s profitability and
financial performance.
§ Downer works closely with key suppliers to assess and manage
supply chain resilience.
§ Downer’s standardised Procurement Framework is closely aligned
to the principles of ISO 20400 – Sustainable Procurement and
is supported by a range of tools and platforms. The framework is
designed to ensure we are engaging with the right suppliers and
subcontractors to achieve our business, ethical, environmental, safety
and social objectives.
§ In FY23, Downer commissioned a review, with the assistance
of advice from external independent procurement and probity
experts, into the relevant control environment with an emphasis
on corruption and fraud prevention. The first phase of the review
is already complete and, while it identifies several areas for
improvement, the independent advice that Downer has received
to date is that the relevant procurement control environment is
generally comprehensive and supported by well-considered policies
and procedures promoting business integrity and supported by
training. Downer is currently considering the areas for continuous
improvement which have been identified, and their implementation.
§ Downer has a large and diversified book of secured work with long-
term contracts. The long-term nature of these contracts underpins
earnings from these projects.
§ Downer delivers essential maintenance services to critical
infrastructure assets. The essential nature of these services helps
mitigate both the impact of changing government spending priorities
and the duration of any decline in spending.
§ Downer’s operations are diversified across end-markets and
government department customers. This diversification assists in
mitigating the impact of a reduction in budget or spend from changes
in spending profile from individual customers.
§ Escalation clauses in customer contracts provide a degree of
protection against increasing costs of service delivery through
indexation for example, CPI and WPI) or other cost escalation
mechanisms. Pain/gain share clauses are another form of contractual
term, which Downer includes where possible in customer contracts to
offset the risk of cost escalation above what has been budgeted.
§ Commercial management reviews our contracts for appropriateness
given prevailing market conditions, including inflation pressures,
supply shortages and other potentially disruptive events which may
increase cost to serve.
§ Downer employs disciplined cost management of both project and
overhead costs.
23
Directors’ Report Overview of risk and potential impact
Risk mitigation and management strategies
Talent, labour availability/productivity and employee relations
Attracting and retaining talent and engaging our
workforce underpins successful delivery of Downer’s
strategic objectives.
§ Downer is committed to fostering a workplace environment that
prioritises inclusion and belonging, supports the health and wellbeing
of our people, and provides opportunities for their professional
growth and development.
§ Initiatives that Downer has in place to foster a positive workplace
include our Own Different (Inclusion & Belonging), Own Respect
(Standard of Business Conduct and Workplace Behaviours),
THRIVE (Diversity and equity) and Indigenous inclusion and
awareness programs.
§ Downer has in place talent attraction and retention strategies
which include career progression pathways, remuneration and
other incentives, and through investment in learning and internal
development opportunities.
§ Further details relating to Downer’s management of Talent, labour
availability and employee relation risks, and its performance are
outlined in Downer’s 2023 Sustainability Report.
§ Downer has undertaken climate scenario analysis in accordance with
the TCFD incorporating transition and physical risks to inform and
stress test the resilience of Downer’s strategy.
§ To mitigate the potential impact of identified transition risks, Downer
has set a science based aligned GHG emissions reduction target
across Scopes 1, 2 and 3, with the aim of Net Zero by 2050. This
target is supported by a detailed decarbonisation plan across
Downer’s key emissions sources.
§ Downer’s risk mitigation and management strategies relating to
physical risk include:
– Integrating physical risk factors into business decisions.
– Ensuring appropriate commercial terms and pricing mechanisms,
taking into consideration insurance policy limitations. This
includes, where possible, implementing pain/gain share
arrangements in contracts to help mitigate Downer’s cost to serve
and fixed cost recovery in the event of extreme weather adversely
impacting operations.
– Adhering to environmental and land use planning approvals to
mitigate location specific risks and hazards (for example, bushfire
buffer zones).
– Monitoring weather forecasts and conditions for potential extreme
weather events and, where necessary, implementing appropriate
resilience measures to limit risks to employees’ health and safety,
delivery disruption and asset or site damage.
– Implementing Zero Harm policies, standards and procedures
including the modification or suspension of work regimes where
there is risk of harm from extreme weather events or natural
disaster.
§ Further details relating to Downer’s assessment of environment,
climate and weather risks are outlined in Downer’s 2022 Climate
Change Report and 2023 Sustainability Report.
Downer’s growth and profitability may be limited by
the loss of key management, the inability to attract
new suitably qualified personnel, a decline in labour
productivity or by increases in remuneration costs
associated with attracting and retaining personnel.
Downer is dependent on the availability of suitably skilled
personnel to provide its services and, therefore, access to
labour can sometimes represent a risk in some parts of
the business.
Environment, climate and weather
Downer is committed to developing solutions to reduce
its energy consumption and greenhouse gas emissions
and is supporting the transition to a low carbon economy.
There is a risk that these strategies cause increases to
Downer’s cost structure or that Downer will be unable
to satisfy future regulatory requirements relating to
these matters.
There is a risk that Downer’s business operations may
incur liability under applicable environmental laws and
regulations that could result in fines, penalties and/or
compensation to those affected being payable. There is
also a risk that any such event may have adverse impacts
on project completions and result in reputational damage
to Downer.
Periods of extreme weather have the potential to
adversely impact Downer’s performance through
interruption to operations, disruption to the workforce
with associated declines in productivity, increase in costs
to serve and lower fixed cost recovery.
24 Annual Report 2023 | Downer EDI Limited
Directors’ Report Overview of risk and potential impact
Risk mitigation and management strategies
Workplace health and safety
Downer recognises that its activities can result in harm
to its people with the risk of serious injury or death. A
workplace fatality has significant negative impacts on
Downer’s operations, employees and the communities
in which we operate. In addition, in the event Downer is
found to have failed to comply with applicable health or
safety legislative requirements, fines, penalties and/or
compensation to those affected may be payable.
§ Downer’s commitment to the safety, health and wellbeing of our
people and our communities is expressed in strong leadership,
engagement with our workforce and stakeholders, and a continual
focus on identifying and managing risks.
§ Downer maintains a rigorous focus on Zero Harm to its people,
communities and environment. We focus on understanding,
controlling and verifying to effectively manage risks that have the
potential to cause serious harm to our people, the environment
or the communities in which we operate. We are committed to
rethinking and improving our processes, continuously improving our
management systems, applying lessons learnt, and adopting and
adapting practices that aim to achieve zero work-related injuries and
unintentional harm to the environment.
§ To drive consistency and efficiency, Downer has integrated our ISO
45001 certified health and safety management system into The
Downer Standard, which also meets Office of the Federal Safety
Commissioner requirements, and maintenance audits.
§ Downer maintains a rigorous focus on Zero Harm to its people,
communities and environment. As part of this focus, Downer seeks to
assess, understand and mitigate the critical risks facing Downer and
implementing ‘Cardinal Rules’ which provide direction and guidance
on these critical risks and high potential incidents.
§ Downer promotes consistency of approach to Zero Harm across
its lines of business through our integrated management system,
‘The Downer Standard’.
§ Downer upholds third-party certifications to internationally
recognised standards such as ISO 45001 (Safety), as well
as other accreditations including the Office of the Federal
Safety Commissioner.
§ Further details relating to Downer’s management of Health and
Safety risks, and its performance are outlined in Downer’s 2023
Sustainability Report.
Cyber security and reliance on information technology
Downer relies on IT infrastructure and systems, and
the efficient and uninterrupted operation of core
technologies. Downer’s core technologies and other
systems and operations could be exposed to damage
or interruption from system failures, computer viruses,
cyberattacks, power or telecommunication provider’s
failure, or human error.
§ Downer has established Technology and Cyber Risk management
practices and has a framework in place to mitigate and reduce the
negative impact of information security and technology risks.
§ Downer maintains an ISO 27001:2013 certified Information Security
Management System describing the standards, controls and
procedures in place to ensure the confidentiality, integrity and
availability of critical information assets.
Any interruptions to these operations would impact
Downer’s ability to operate and could result in business
interruption, loss of customers and revenue, reputational
damage and weakening of competitive position.
In the event of a cyberattack, there is a risk that any
data security breaches or Downer’s inadvertent failure to
protect confidential information could result in a loss of
information integrity, breaches of Downer’s obligations
under applicable laws or customer arrangements, system
outages and the hacking of Downer systems. Each of
these has the potential to have a materially adverse
impact on Downer’s reputation and financial performance.
§ Key controls include: Threat and vulnerability management
identification and remediation; Security Operations Centre with a
focus on security incident response and planning; User awareness
and simulation; management and mitigation of third-party risk
brought on by vendors and business partners; continuous
improvement and ongoing control maturity and uplift with priority
on Essential 8 controls; back-ups and resilience for key systems; and
internal and external audit and assurance regimes.
§ Further details relating to Downer’s management of Cyber
security risks, and its performance are outlined in Downer’s 2023
Sustainability Report.
25
Directors’ Report Overview of risk and potential impact
Risk mitigation and management strategies
Guarantees, indemnity and liability
Downer and certain of its controlled entities are called
upon to give guarantees and indemnities in respect of
the performance by counterparties, including controlled
entities and related parties, of their contractual and
financial obligations.
There is a risk that Downer may fail to fulfil its statutory
and contractual obligations in relation to the quality of its
products or services, which could give rise to contractual
damages claims or statutory penalties.
Some entities in the Downer Group are subject to
normal design liability in relation to completed design
and construction projects. The liability may include
claims, disputes and/or litigation against Downer Group
companies and/or joint venture arrangements in which
the Downer Group has an interest. The liabilities may also
include an obligation on Downer to rectify the design
defects at its own cost.
Regulation and compliance
Downer’s business is affected by a range of industry
specific and general legal and regulatory controls.
Changes in these types of controls can have an adverse
effect on Downer’s financial performance. Further,
any major shift in regulatory policy may impact on the
profitability of Downer and its customers.
§ Downer has in place diversified bonding facilities for when
guarantees are required to be provided in respect of performance to
address underlying customer credit risk.
§ The Group has in place insurance policies to cover potential liabilities.
However, the availability of insurance at an appropriate term and
price is not guaranteed and it is possible that the occurrence of an
event may not be fully covered, or covered at all, by insurance.
§ Downer takes legal advice in respect of claims and where relevant
makes provisions for such claims in its financial statements.
§ Processes are in place to ensure Downer is fulfilling its statutory
and contractual obligations. The Group has in place standards,
management reviews and verification processes to address this risk.
§ Downer has compliance frameworks, operational compliance plans
and assurance programs in place which support and monitor
conformity with relevant regulatory requirements.
§ Dedicated Legal and Compliance teams partner with the business to
advise on and monitor legal, regulatory and public policy changes, in
addition to legal issues and claims.
§ Standards of Business Conduct and associated policies.
§ Downer also has a formal ‘whistleblower’ policy in place to report
breaches of the Standards of Business Conduct including any
inappropriate, unethical, corrupt or illegal behaviour, misconduct, or
any other improper state of affairs or circumstances. Downer has
both internal and external processes that allow for the reporting of
breaches, including ‘Our Voice’, which is an external and independent
service that allows employees to anonymously report such potential
breaches. Downer encourages its employees, subcontractors and
partners to voice their concerns if they identify potentially unethical
practices. Downer will not tolerate victimisation of a whistleblower
and is committed to providing support and protection against any
reprisal for reporting a breach or potential breach. Any employee
found to have victimised another will be subject to disciplinary action.
§ New starter and regular employee compliance training programs.
26 Annual Report 2023 | Downer EDI Limited
Directors’ Report Overview of risk and potential impact
Risk mitigation and management strategies
Financial markets and treasury
Downer is subject to various forms of financial market
risk including liquidity risk, interest rate risk and foreign
exchange risk.
To the extent that additional equity or debt funding is not
available from time to time on acceptable terms, Downer
may not be able to operate its business in the ordinary
course, take advantage of acquisition and other growth
opportunities, develop new business or respond to
competitive pressures.
Rising interest rates may adversely impact Downer’s
interest payments on its floating rate borrowings.
Disruptions in financial markets may affect the availability
and cost of hedging, which may have a material adverse
impact on the financial performance and position
of Downer.
Downer operates internationally and faces foreign
exchange rate risks associated with foreign currency
denominated debt, input costs and offshore earnings.
Transformation
Downer is currently undergoing an enterprise-wide
transformation program, driven by three areas of focus, to
position the company for long-term sustainable success.
These areas of focus are to:
§ Reset Downer’s operating model by integrating our
Australian and New Zealand operations
§ Financial markets risk is governed by a Board-approved Treasury
Policy, which sets strict parameters governing all such risks including
liquidity risk, interest rate risk and foreign exchange risk.
§ Funding risk is managed by maintaining and ensuring continued
access to a diverse array of funding sources including the domestic
and international debt capital and bank loan markets.
§ Funding risk is further mitigated by establishing committed term
funding from investment grade rated banks that is spread over a
variety of tenors to minimise refinancing risk.
§ The Treasury Policy stipulates minimum and maximum hedging
requirements for floating rate borrowings that reduce the Group’s
exposure to interest rate volatility. Interest rate hedge counterparties
are selected based on their credit strength and markets capability to
ensure continued availability of efficient hedging sources.
§ The Treasury Policy stipulates minimum and maximum hedging
requirements for foreign exchange exposures that reduce the Group’s
exposure to foreign exchange rate risks.
§ Downer worked with external business transformation experts to help
design, implement and embed the transformation model.
§ Downer has established a Transformation Office, to orchestrate,
coordinate and support delivery of the transformation ambition
and targets, as outlined, and ensure these capabilities are built and
embedded within Downer.
§ Simplify Downer’s portfolio to create a business with a
§ Ownership and accountability for the execution of transformation
narrower focus on core markets
§ Improve margins and enhance our focus on
risk management.
Failure to successfully manage, execute and deliver on
the initiatives identified as a part of this transformation
program could adversely impact Downer’s business
operations, strategic objectives, profitability, returns to
shareholders, credit rating and market confidence.
initiatives sits with the relevant individual functions and
business units. Each function and business unit has allocated
dedicated Transformation Leads to oversee the delivery of
improvement initiatives.
§ Downer is enabling effective change delivery by building
transformation capabilities across the business, fostering Group-wide
learning and shared accountability.
§ Further details relating to Downer’s Transformation are outlined in
Downer’s 2023 Sustainability Report.
27
Directors’ Report Outlook
FY24 is an important transition year in our turn-around
program as we address areas of underperformance, stabilise
and reposition the business for future profitable growth. The
external market conditions remain challenging for Downer
in areas including ongoing cost escalation, labour availability
and productivity issues, however we are observing signs of
stabilisation.
In relation to our FY24 performance we note the following:
§ We start the year with a high percentage of secure revenue
and are targeting continued improvement in EBITA margin
for FY24
§ Downer’s 1H24 will be affected by the run-off of existing low
margin contracts and the timing of our Utilities recovery,
with stronger earnings targeted in the 2H24
§ Confidence in achieving $100 million of cost out, with full run
rate into FY25.
We will give a further update at the AGM in November 2023.
Subsequent events
As communicated at Downer’s Investor Day in April, a review
of Downer’s Australian Mechanical and Electrical Commercial
Projects business (Business) and other businesses that do not
match Downer’s preferred sector and customer characteristics
has been completed. Downer announced on 10 August 2023
it has entered into an agreement to sell the remaining part of
the Business.
The Business (which was part of the Facilities CGU) has
been wound down progressively since Downer announced
its exit from the Australian commercial construction and
projects market in 2020. The Business generated revenue
of approximately $200 million and a small EBIT loss in FY23.
The transaction, purchased by existing managers of the
business, is at an agreed purchase price of $10.5 million and
approximately cash neutral after net debt and working capital
adjustments, and will result in a pre-tax loss of approximately
$14 million in FY24. This transaction now completes
Downer’s exit from the Australian commercial Projects
(construction) market.
Outside the above, at the date of this report, there is no other
matter or circumstance that has arisen since the end of the
financial year, that has 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 an important component of
Downer’s Zero Harm philosophy. 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.
Effectively managing its environmental aspects and impacts is
fundamental to Downer’s approach to delivering its services in
an environmentally responsible manner. Downer puts significant
emphasis on its critical risk program ensuring effective controls
are implemented and continuous improvement through lessons
learned. Downer’s 10 Environmental Principles are critical
to ensuring its employees and broader stakeholder groups
are engaged and aware of its environmental commitments,
including meeting and exceeding its environmental obligations.
Downer’s environmental management system is accredited
to AS/NZ ISO14001:2015 and is integrated into its Group-wide
management system, known as The Downer Standard. The
Downer Standard ensures a consistent approach to identifying
and controlling environmental aspects and impacts, and
managing the Company’s environmental performance across
the organisation. The environment management system
is audited, both internally and externally by independent
third parties.
Downer’s ability to manage the impacts of its activities
on the natural and built environment is fundamental to its
long-term success.
Downer is conscious of its social licence to operate – and
responds to this by improving the sustainability of its operations,
aiming to achieve Zero Harm to its people, minimising harm
to the environment, and always striving to enhance Downer’s
reputation, business value and ultimately shareholder wealth.
Suitably qualified environment and sustainability professionals
support each of the Business Units. Each Business Unit has
Sustainability Improvement Plans aligned to specific United
Nations Sustainable Development Goals with year-on-year
actions and deliverables. In addition, each Business Unit has a
customised Climate Change and Decarbonisation Plan. These
plans detail the actions and deliverables required to contribute
towards Downer’s net zero commitments. Progress is monitored
and reported throughout the year and assessed as part of the
Business Units annual performance, which is linked to the short-
term incentive program.
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 2023 or 30 June 2022.
There are no performance rights or performance options, in
relation to unissued shares, that are outstanding.
28 Annual Report 2023 | Downer EDI Limited
Directors’ Report Directors’ meetings
The following table sets out the number of Directors’ meetings (including meetings of Board Committees) held during the 2023
financial year and the number of meetings attended by each Director (while they were a Director or Board Committee member).
During the year, nine scheduled Board meetings, 18 unscheduled Board meetings, seven Audit and Risk Committee meetings,
seven People and Culture Committee meetings, four Zero Harm Committee meetings and two Nominations and Corporate
Governance Committee meetings were held in addition to 17 ad hoc meetings attended by various Directors in relation to tender
reviews and major projects.
Director
M J Menhinnitt
P J Tompkins2
M P Chellew3
G A Fenn4
M J Binns5
T G Handicott
N M Hollows
A M Howse
P L Watson
Director
M J Menhinnitt
P J Tompkins2
M P Chellew3
G A Fenn4
M J Binns5
T G Handicott
N M Hollows
A M Howse7
P L Watson
Board – Scheduled
Board – Unscheduled
Audit and Risk
Committee
Held1
Attended
Held1
Attended
Held1
Attended
9
5
5
5
4
9
9
9
9
9
5
5
5
4
9
9
9
9
18
11
12
12
7
18
18
18
18
18
10
11
7
6
16
18
18
18
–
–
–
–
–
7
7
7
7
–
–
–
–
–
7
7
7
7
People and Culture
Committee
Zero Harm Committee
Nominations and Corporate
Governance Committee
Held1
Attended
Held1
Attended
Held1
Attended
7
–
3
–
–
7
7
7
–
66
–
3
–
–
7
7
7
–
1
1
–
3
3
–
–
–
4
1
1
–
3
3
–
–
–
4
2
–
–
–
–
2
2
–
–
2
–
–
–
–
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 Tompkins joined the Board on 1 February 2023.
3. Mr Chellew retired on 3 March 2023.
4. Mr Fenn retired on 27 February 2023. Mr Fenn did not attend unscheduled Board meetings relating to CEO succession matters.
5. Mr Binns retired on 31 January 2023.
6. Mr Menhinnitt was an apology for one unscheduled People and Culture Committee meeting.
7. Ms Howse joined the Nominations and Corporate Governance Committee on 19 April 2023.
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 8 to 11, 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.
29
Directors’ Report A copy of the auditor’s independence declaration is set out on
page 60 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 services
2023
$
24,150
16,694
40,844
2022
$
248,596
96,679
345,275
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.
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 136 to 145
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.
30 Annual Report 2023 | Downer EDI Limited
Directors’ Report Remuneration Report
Chairman’s Letter
Dear Shareholders,
Downer’s 2023 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 2023 financial year.
At the last Annual General Meeting on 3 November 2022,
55.8% of all votes cast by shareholders were against the
2022 Remuneration Report, resulting in a first strike against
the report. As such, we have taken steps to review the
effectiveness of the remuneration framework and we outline
the Board’s response to the strike in section 1.1 of this report.
A year of disappointing Company performance and
shareholder returns is reflected in no STI award being made
for FY23 and the EPS, relative TSR and Earnings measures
being missed in the FY21 LTI plan tested in August 2023,
resulting in 83.3% of performance rights being forfeited.
The Board determined during the year that given the
criticality of staff retention, engagement and development
to the success of the organisation, it was important to
broaden the remit of the Remuneration Committee to also
oversee people and culture. Adelle Howse was appointed as
Chair of the newly formed People & Culture Committee in
January 2023.
Overview of the year
The 2023 financial year was challenging for Downer, with
significant parts of our business impacted by underperformance
of certain contracts in the Australian and New Zealand Utilities
businesses, weather, supply chain disruptions and the labour
productivity hangover from COVID-19. Downer’s Board of
Directors and Executive Leadership Team are responding to the
current challenges with energy and are committed to improving
the company’s resilience against external factors.
Against this challenging backdrop, our Executives and broader
team have continued to execute our strategy and simplify our
portfolio. Our key financial and non-financial highlights for
FY23 were:
§ Commenced Downer’s transformation program, which is a
significant Group-wide change designed to position Downer
for long-term sustainable success. Key focus areas of the
transformation are to: reset Downer’s operating model by
integrating our Australian and New Zealand businesses;
simplify Downer’s portfolio to narrow our focus on core
markets; and improve margins and enhance our focus on risk
management. We have already made considerable progress,
with the new trans-Tasman operating model coming into
effect on 1 July 2023
§ Achieved contractual close on the multi-billion dollar
Queensland Train Manufacturing Program (QTMP).
Under the contract, Downer will design, manufacture and
commission 65 passenger trains and simulators with our key
subcontractor, Hyundai Rotem. We will design, construct
and commission a train manufacturing facility on the Fraser
Coast and a maintenance facility on the Gold Coast. We will
also deliver through-life-support and maintenance of the new
fleet for an initial term of 15 years up to a potential term of
35 years. This is a significant contract for Downer, which will
cement our position as the largest passenger rollingstock
maintainer in Australia for the next 30 years
§ Continued to simplify our portfolio with the sale of the
Australian Transport Projects business to Gamuda Berhad on
20 June 2023. The sale price represents an enterprise value
of $212 million, and is an important milestone in our portfolio
simplification strategy. Downer’s focus in the transport sector
will now be to concentrate on enhancing its market leading
positions in rollingstock, road maintenance and New Zealand
infrastructure delivery.
31
Directors’ Report The Board has determined that for the former CEO and
former CFO:
§ The second tranche of the FY21 Deferred STI be reduced by
12% being the reduction under the plan based on the restated
FY21 accounts
§ No payment of deferred components be made for the first
deferred component of the FY22 plan.
In accordance with the terms of the plan, the Board will consider
the second deferred component of the FY22 Deferred STI when
it becomes eligible for consideration.
Long-term incentive (LTI) outcomes
During the year testing of the 2020 LTI Plan was performed.
Downer’s performance against the relative Total Shareholder
Return (TSR), Earnings per Share (EPS), Earnings and Free
Cash Flow (FFO) did not meet the targets. Accordingly, no
vesting occurred.
The 2021 Plan has now been tested. The TSR, EPS and Earnings
measures were not met however the FFO performance was
strong at 118.2% of target, meaning 16.7% of rights granted under
the plan are eligible for vesting subject to satisfaction of the
remaining additional service period and Board approval.
Further detail can be found at section 7.3.4.
Non-executive Director (NED) shareholding
requirement and remuneration
As detailed in section 11.2 the Board has introduced, from
1 July 2023, a minimum security holding policy for non-
executive directors of equal to or greater than 100 percent
of their annual base fee. This requirement is to be met within
four years of their appointment or the commencement of
the policy.
In 2021 Downer embarked on a Board renewal program. Under
the leadership of former Chairman Mark Chellew several new
Directors were appointed during 2022 and the program will
continue throughout 2023.
To ensure that Downer remains competitive to attract and
retain suitably qualified NEDs to oversee the Company’s
strategic objectives and transformation, and to support the
board renewal process, an external benchmarking review of
fees paid to NEDs was undertaken. As a result of the review,
increases to base fees and committee fees for the Chair and
NEDs applied from 1 July 2022 (refer to section 11.1 for detail).
Executive KMP changes
After an extensive succession process, Peter Tompkins was
appointed as Executive Director effective 1 February and
Chief Executive Officer (CEO) and Managing Director (MD)
effective 27 February 2023, following the retirement of Grant
Fenn, who held the position of CEO since 2010. Mr Tompkins
joined Downer in 2008, having served as Downer’s Chief
Operating Officer (COO) since 2021.
On 1 December 2022, the Board announced Mr Tompkins’
service agreement with the following key terms:
§ Ongoing agreement with no fixed term
§ Fixed remuneration of $1.55 million
§ Maximum annual STI opportunity of 100% of
fixed remuneration
§ Maximum annual LTI opportunity of 130% of fixed
remuneration, with his first LTI grant being put to
shareholders at the 2023 AGM.
Remuneration was benchmarked against ASX 51-150
companies with comparable scale and complexity.
Mr Tompkins was benchmarked at the 60th percentile.
Malcolm Ashcroft commenced with Downer on 1 June 2023
as Chief Financial Officer Elect and effective 1 July 2023
was appointed as Chief Financial Officer (CFO), following
the resignation of Michael Ferguson. Mr Ashcroft is an
accomplished leader with significant financial and senior
executive experience in publicly listed entities covering
the infrastructure services, construction, health, and
education sectors.
Summary of FY23 remuneration outcomes
Short-term incentive (STI) outcomes
Downer’s STI plan requires that a minimum level of earnings
performance is required in order for Executives to receive an
award assessed against the balanced scorecard.
In FY23, this minimum performance level was not met and
accordingly there were no STI awards for KMP.
Under the terms of the plan, each year the Board considers
whether deferred awards made in prior periods should be paid.
Prior to the Board considering the Deferred STI, the current
CEO requested that the Board not consider his entitlement
to payment of deferred components under the FY22 plan and
has voluntarily forgone these components as demonstration
of alignment between shareholders and management on
performance outcomes.
In assessing deferred awards from FY21 and FY22 that were
eligible to vest this year, the Board considered:
§ The performance of the Company across FY21, FY22
and FY23
§ The events that have come to light subsequent to the
exercise of its discretion for the FY22 STI award
§ That part of the FY21 and FY22 STI awards have already
been paid to the former CEO and former CFO.
32 Annual Report 2023 | Downer EDI Limited
Directors’ Report The Board remains committed to a remuneration framework
that supports Downer’s long-term strategic objectives,
effectively aligns pay with performance, reflects good
governance and risk management, and fairly rewards and
retains key executive talent to execute our transformation.
We highly value the feedback of our shareholders and other
key stakeholders, and we look forward to ongoing dialogue
with you. We thank you for your support and welcome your
feedback at the AGM.
M J Menhinnitt
Chairman
A M Howse
People and Culture
Committee Chairman
Response to first strike against the 2022
Remuneration Report
Following the strike against our 2022 Remuneration Report,
the Board engaged extensively with major shareholders
and proxy advisors to understand key concerns with our
remuneration framework and its application.
The primary areas of concern identified by external
stakeholders included the following:
§ The Board’s exercise of discretion to make FY22 STI awards
was misaligned with shareholder outcomes
§ Inadequate disclosure of STI targets for individual KMP
§ The former MD/CEO’s deferred STI award was made
in cash
§ The former MD/CEO’s fixed remuneration was high.
With support from external advisors, the Board conducted
a robust review of Downer’s remuneration frameworks and
disclosures with a view to addressing the key concerns
holistically within the context of our broader strategy and
operating context. Section 1.1 details the primary concerns
raised by stakeholders and how we have responded to
them, including the exercise of discretion in relation to the
remuneration scheme for the Executive KMP, deferred
payments for FY21 and FY22 STI plans where relevant.
Looking ahead to FY24
Since the 2022 AGM, the Board has undertaken a
comprehensive review of the existing remuneration
framework to ensure that it:
§ Considers feedback and expectations of key stakeholders
§ Continues to align with our strategy, including our
multi-year Transformation program
§ Remains aligned to the long-term interests of shareholders.
As a result of the review, the Board has introduced the
following remuneration changes for FY24:
§ Introduction of an additional Portfolio & Performance
measure in the STI focused on net financial benefits
derived from measurable transformation initiatives, to
complement existing NPATA and FFO metrics.
§ Increasing the weighting of the Employee Engagement
measure from 5% to 10% in the STI with the 5% Learning
and Development measure removed.
§ The NPATA and FFO scorecard measure of the LTI
(Balanced Scorecard) to be enhanced with a requirement
to achieve a minimum EBITA Margin.
§ A positive TSR gateway to apply to Relative TSR metric in
the LTI.
33
Directors’ Report
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 2023. 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
34 Annual Report 2023 | Downer EDI Limited
Directors’ Report
1. Year in Review
1.1 Key issues raised regarding the 2022 Remuneration Report
The Board has considered feedback from shareholders. Set out below is a summary of the Board’s responses to the key issues
raised by some shareholders in relation to the 2022 Remuneration Report.
Feedback
Response
Discretionary Short-
term incentive (STI)
plan awards
The Board’s exercise of
upwards discretion to
make FY22 STI awards
was misaligned with
shareholder outcomes.
Incentive plan
targets plan
There could be more
detail disclosed
in relation to the
STI targets for
individual KMP.
Form of deferred
STI awards
The former Managing
Director’s deferred STI
award was made in cash.
Long-term incentive
(LTI) plan
The relative TSR
measure can be
achieved with a
negative TSR result.
Whilst stakeholders generally acknowledged that the 2022 financial year was challenging with severe
weather events, the coronavirus pandemic and ongoing supply chain disruption, the exercise of upwards
discretion to make STI awards was misaligned with shareholder outcomes.
Several stakeholders were supportive of making STI awards however considered that there was
inadequate disclosure of STI targets to provide better understanding of the level of discretion exercised
or preferred that they be targeted at retention with a focus on deferred equity-based reward.
No discretionary awards have been made in 2023, however the feedback of stakeholders will inform any
consideration of future decisions and disclosure of the exercise of discretion.
The Board has exercised discretion in relation to the remuneration scheme for the Executive KMP.
Further detail on deferred STI outcomes is at section 7.3.3.
While acknowledging that disclosure in relation to the STI plan is comprehensive, it was noted by some
stakeholders that specific financial and commercial targets at Divisional and Corporate levels were not
disclosed due to commercial sensitivity.
Additional disclosure of Group level targets for FY23 has been included in this year’s report.
Under Downer’s Deferred STI plan, the Board determines whether deferred awards are paid in equity or
cash, in its sole and absolute discretion.
In making its determination on the form of payment the Board:
§ Considered the level of the former Managing Director’s shareholding, which at the time was 5 times
the value of his minimum shareholding requirement of 12 months’ fixed remuneration
§ Recognised that the former Managing Director was generally in possession of price sensitive
information and therefore generally unable to sell shares to cover tax liabilities
§ Recognised that in the event the former Managing Director was able to sell an award made in shares,
there could be an unwarranted negative market perception should he do so.
Due to the value of the Managing Director’s shareholding in Downer significantly exceeding the
minimum shareholding requirement of 12 months’ fixed remuneration, the Board determined it was
appropriate to pay the award in cash.
While the Board determines whether deferred awards are paid in equity or cash, in its sole and absolute
discretion, the default position absent special circumstances will continue to be that deferred STI awards
for the Managing Director and Executive KMP will be delivered in equity.
Payment of deferred awards if achieved at the end of FY24 will be made in equity.
For the 2024 LTI Plan onwards, a positive TSR requirement has been added to the relative TSR measure.
This means that irrespective of the relative TSR result, the tranche will only vest where Downer’s
TSR over the period is positive and the relative performance level is achieved. This aims to increase
alignment between long-term executive reward and the experience of our shareholders, whom we
acknowledge have seen an erosion in shareholder value in FY23.
35
Directors’ Report Feedback
Response
Managing Director’s
remuneration
The Managing
Director’s fixed
remuneration is high.
Grant Fenn was appointed as Managing Director in June 2010. The total remuneration package at
the time of appointment was 23% lower than the remuneration paid to his predecessor and remained
unchanged from 2012 up to his retirement as Managing Director in February 2023.
Peter Tompkins was appointed as Managing Director in February 2023.
Mr Tompkins fixed remuneration was benchmarked against ASX 51-150 companies with comparable
scale and complexity. Mr Tompkins was benchmarked at the 60th percentile.
The fixed remuneration for Mr Tompkins is 22.5% lower than the remuneration paid to Mr Fenn and
maximum total remuneration is 14.8% lower.
1.2 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 for 2023
Short-term incentive
(STI) plan
Zero Harm measures
The environmental sustainability and critical risk measures for the Zero Harm element 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, in addition to existing
requirements through:
§ Introducing a requirement to undertake a minimum number of critical risk observations, improve three
critical controls and maintain an active audit and inspection program
§ Including Scope 3 targets and initiatives into decarbonisation plans
§ Achieving greenhouse gas emission intensity targets.
People measure
FY23 introduced a Learning and Development measure that required the achievement of minimum
completion rates of training in Downer’s project delivery and governance methodology. The measure
reflected the significant focus of the Company on delivery management and project governance as a driver
of improved project performance and contract margins. The Learning and Development measure has been
removed in FY24 and the Employee Engagement measure has been increased from 5% to 10%.
Further detail on the measures for the STI plan are set out at section 6.4.1.
Policy
Enhancements for 2024
Short-term incentive
(STI) plan
The overall structure of the STI plan will continue with some changes to relative weightings and the
introduction of an additional Financial measure.
§ Allocation to Portfolio and Performance (financial) measures will be increased from 60% to 70% for the
FY24 year. This will allow the inclusion of an additional Portfolio and Performance measure focused on net
financial benefits derived from measurable transformation initiatives. This measure will form 20% of the
scorecard alongside the profitability measure (NPATA) of 25% and a Cash measure of 25%.
§ The transformation incentive will be calculated as the financial benefit in FY24 less costs incurred. The
purpose of driving in year benefits is to incentivise savings to be taken as early as possible to maximise the
benefit in the year, and to support the cost out target. For the measure to be achieved, the expected FY25
impact will be considered to ensure transformation net benefits are sustainable beyond FY24.
§ The Zero Harm measure will be reduced in weighting to 20% from 30% of the STI Scorecard and will cover
both safety and sustainability.
§ The Learning and Development measure will be replaced with an increased focus on Employee
Engagement with the people measure of 10% based on the Employee Engagement survey to drive a focus
that seeks to achieve a high performance culture.
§ Financial and Zero Harm gateways will remain unchanged.
36 Annual Report 2023 | Downer EDI Limited
Directors’ Report Policy
Enhancements for 2024
Long-term incentive
(LTI) plan
The overall structure of the LTI plan will continue with some changes to the performance hurdles.
§ The relative TSR measure will require the absolute TSR to be positive.
§ The EPS growth baseline will be adjusted to take account of elements of underperformance in FY23.
§ The balanced scorecard measure will be enhanced with the inclusion of a minimum EBITA margin
measure from FY25 onwards in order to be eligible for any vesting under the Scorecard condition.
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
M J Menhinnitt
M P Chellew
P J Tompkins
G A Fenn
M J Binns
T G Handicott
N M Hollows
A M Howse
P L Watson
Role
Chairman, Independent Non-executive Director (commenced as Acting Chairman 3 March 2023,
Chairman from 9 March 2023)
Chairman, Independent Non-executive Director (retired 3 March 2023)
Managing Director and Chief Executive Officer (commenced role on 27 February 2023)
Managing Director and Chief Executive Officer (retired 27 February 2023)
Independent Non-executive Director (retired 31 January 2023)
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director (retiring 30 September 2023)
Executive KMP
The named persons held their current executive position for the whole of the most recent financial year, except as noted.
Executive
P J Tompkins
M R Ashcroft
M J Ferguson
Role
Chief Operating Officer to 26 February 2023, Managing Director and Chief Executive Officer
(from 27 February 2023)
Chief Financial Officer Elect (commenced 1 June 2023)
Chief Financial Officer (ceased 30 June 2023)
37
Directors’ Report 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 equal to
12 months fixed remuneration
§ 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.
38 Annual Report 2023 | Downer EDI Limited
Directors’ Report 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
§ Managing risk within an approved ‘risk appetite’ framework
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:
§ Emphasis on Zero Harm measures across safety
performance, critical risk and environmental and social
sustainability and setting safety and environmental gateways
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
§ 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
§ Incorporating performance metrics that focus on reducing
overhead costs and drive efficiencies in the business model
§ 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
§ 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 reward 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)
with a minimum requirement of positive TSR
§ Group NPATA
§ Divisional EBITA
§ EBITA margin
§ Transformation net cost benefits
§ 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.
39
Directors’ Report 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 2023. Relative TSR is a measure in Downer’s LTI plan. Performance is reflected in TSR outcomes of the 2020 and
2021 LTI plans, where this measure was not achieved. Further detail is at section 7.3.4.
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
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r
a
h
S
l
l
a
t
o
T
250
200
150
100
50
0
Jun
2020
Dec
2020
Jun
2021
Dec
2021
Jun
2022
Dec
2022
Jun
2023
Downer EDI TSR
S&P/ASX 100 median TSR
* S&P/ASX 100 companies as at 30/06/2020
The graphs below illustrate Downer’s performance against key financial and non-financial performance indicators over the last five years.
Downer has identified certain accounting adjustments in its Australian Utilities business involving historical misreporting of revenue
and contract assets in one of Downer’s maintenance contracts. As a consequence, the Group identified accounting adjustments
to prior periods, including financial years 2020, 2021 and 2022 in relation to the measure of progress. The adjustments have been
corrected by restating each of the affected financial statement line items for prior periods.
Net profit after tax
Free cash flow5
300
200
100
0
m
$
’
-100
-200
-300
-400
-500
258.31
226.72,3
166.52,3
(157.5)3
(385.7)4
431.57
429.36
47.56
m
$
’
500
400
300
200
100
0
-100
-200
-300
185.76
(219.1)
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
1. Adjusted for material unbudgeted transactions by $18.0 million net decrease.
2. Adjusted for material unbudgeted transactions and individually significant items.
5. Following the adoption of AASB 16 Leases which resulted in a change in
accounting policy from FY20, historical Free Cash Flow was not restated.
2021: $51.8 million net increase, 2022: $26.1 million net increase.
3. Restated for certain accounting adjustment in its Australian Utilities business
(refer to Note A to the consolidated financial statements).
4. Represents statutory NPAT.
6. Adjusted for material unbudgeted transactions. 2019: $65.2 million net increase,
2022: $104.5 million net decrease and 2023: $184.0 million net decrease related
to the divestment of the Australian Transport Project Business.
7. Adjusted for material unbudgeted transactions, including the payment for
Spotless shares. 2021: $313.1 million net decrease.
Basic earnings per share8
Safety
e
r
a
h
s
r
e
p
s
t
n
e
C
60
40
20
0
-20
-40
-60
-80
42.1
24.13
19.63
(26.4)3
(59.0)
2019
2020
2021
2022
2023
8. Historical basic earnings per share for 2019 were restated as a result of
106.6 million shares issued from the capital raising as part of the acquisition of the
remaining shares in Spotless. The weighted average number of shares (WANOS) to
calculate EPS was adjusted by an adjustment factor of 0.9817.
40 Annual Report 2023 | Downer EDI Limited
s
r
u
o
h
0
0
0
0
0
0
,
1
,
r
e
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1.2
1.0
0.8
0.6
0.4
0.2
0.0
0.99
0.90
0.82
0.67
0.57
2019
2020
2021
2022
2023
LTIFR
TRIFR
12
10
8
6
4
2
0
s
e
i
r
u
n
j
l
I
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p
Directors’ Report
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 People and Culture Committee previously the Remuneration
Committee and the Nominations and Corporate Governance Committee.
The interaction with the Board, other committees, management, and other stakeholders is shown in the diagram below.
Consultation with
shareholders and
other stakeholders
§ Management may seek
its own independent
advice with respect
to information and
recommendations
relevant to
remuneration
Management
§ Provides information
relevant to the
remuneration
decisions and makes
recommendations to
the PCC
§ Obtains remuneration
information from
external advisors to
assist the PCC (i.e.
market data, legal, tax
and accounting advice)
Board
The Board is responsible for:
§ Approving Downer’s remuneration strategy
§ Determining the quantum of remuneration for
Non-executive Director and MD & CEO
The Board has overarching discretion with respect to
any awards made under the Company’s incentive plans.
People and Culture Committee (PCC)
The PCC is delegated responsibility by the Board to
review and, where relevant, make recommendations on:
§ 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 plans
§ Superannuation arrangements
§ Recruitment, retention, performance 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
During the period,
the PCC retained
Guerdon Associates,
Morrow Sodali and
SW Corporate as its
advisors. Guerdon
Associates and SW
Corporate do not
provide services to
management and
are considered to
be independent.
Nominations and
Corporate Governance
Committee is
responsible for
recommending and
reviewing remuneration
arrangements
for the Executive
Director and Non-
executive Directors of
the Company.
Remuneration
consultants and other
external advisors
§ Provide independent
advice, information
and recommendations
relevant to
remuneration decisions.
§ The PCC may seek
independent advice
from external advisors
on various remuneration
related matters.
§ Any advice provided
by external advisors is
used to assist the Board
– it is not a substitute
for the Board and PCC
procedures.
§ Each Committee has
the authority to engage
external professional
advisors without
seeking approval of the
Board or management.
41
Directors’ Report 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 – Peter Tompkins
Former Managing Director – Grant Fenn
Other Executive KMP
Target STI
% of fixed
remuneration
Maximum STI
% of fixed
remuneration
Maximum LTI
% of fixed
remuneration
75
75
56.25
100
100
75
130
100
50
Maximum total
performance
based pay as a
% of fixed
remuneration
230
200
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 Remuneration benchmarking
Remuneration is benchmarked against roles of similar scope and complexity in relevant industries, using independently obtained
market data. This market data is regularly updated and reviewed. The benchmarking approach is designed to consider the size
and nature of Downer’s businesses and will take into account global markets for talent where appropriate for key roles, as well as
individual factors, such as location, economic environment and remuneration trends. This enables Downer to remain competitive in
setting remuneration for executives.
Downer is a diverse Company operating in many market sectors. This means that identifying a select group of peers of comparable
size and nature is challenging. The TSR comparator group under the LTI plan includes the companies, excluding financial
services companies, in the ASX 100 index. 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.
While market levels of remuneration are monitored on a regular basis, there is no contractual requirement or expectation that any
adjustments will be made.
42 Annual Report 2023 | Downer EDI Limited
Directors’ Report 6.3 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.
Peter Tompkins commenced as Managing Director on 27 February 2023. Mr Tompkins fixed annual remuneration of $1,550,000
was benchmarked against ASX 51-150 companies of comparable scale and complexity. Mr Tompkins was benchmarked at the
60th percentile.
The fixed remuneration for Mr Tompkins is 22.5% lower than the remuneration paid to former CEO Mr Fenn and maximum total
remuneration is 14.8% lower.
6.4 Short-term Incentive
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 2023.
The basis of the plan is designed to align STI outcomes with financial results.
6.4.1 STI tabular summary
The following table outlines the major features of the 2023 STI plan.
Purpose of STI plan
Minimum performance
‘gateways’ before any
payments can be made
Maximum STI that can
be earned
Percentage of STI that can
be earned on achieving
target expectations
Individual Performance
Modifier (IPM)
§ Focus performance on drivers of shareholder value over a 12-month period
§ Improve Zero Harm and people related results
§ Ensure a part of remuneration varies with the Company’s 12-month performance.
Achievement of a gateway based on 90% of budgeted Group NPATA for corporate executives and
Divisional EBITA for divisional heads.
This minimum is set 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.
Further independent gateways apply to the Zero Harm element.
Should a workplace fatality or serious environmental incident occur, 50% of the Zero Harm element is
foregone, with 100% foregone should both occur.
§ Managing Director: up to 100% of fixed remuneration
§ KMP: up to 75% of fixed remuneration.
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 no greater than 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.
Performance period
Performance assessed
STI Deferral
Payment timing
1 July 2022 to 30 June 2023.
August 2023, following audit of accounts.
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 subject to the satisfaction of a continued
employment condition. This requires the executive to remain employed at the time of payment.
September 2023 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.
43
Directors’ Report Form of payment
Cash for initial payment.
The value of deferred components will be settled in shares or cash, net of personal tax.
Deferred components will generally be settled in shares. 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.
An eligible leaver’s deferred components will be settled in shares or in cash in the sole and absolute
discretion of the Board.
No dividend entitlements are attached to the deferred components during the vesting period.
The Board may exercise 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
§ 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, with the intended default approach being shares
§ Vary from policy in exceptional circumstances. However, any variation from policy and the reasons
for it will be disclosed.
All or part of the deferred components that are due to vest may be reduced in value 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.
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.
Dividend equivalent
payments
Board discretion
Malus and clawback
New recruits
Terminating executives
44 Annual Report 2023 | Downer EDI Limited
Directors’ Report Performance requirements
Zero Harm, People and Portfolio and Financial measures
Zero Harm
Zero Harm reflects Downer’s commitment to safety, environment, social and governance matters.
The Zero Harm element underscores Downer’s commitment to customers, employees, regulators and
the communities in which it operates.
Performance is assessed on the following measures:
Safety
Total Recordable Injury Frequency Rate (TRIFR): the number of recordable injuries per million hours
calculated over 12 months.
Lost Time Injury Frequency Rate (LTIFR): the number of lost time injuries per million hours calculated
over 12 months.
Critical Risk
Completion of all actions arising from high potential incidents within a defined timeframe.
Lead and finalise a Group-wide Community of Practice (CoP) focusing on better control of one critical
risk. The CoP must deliver a set of minimum deliverables identified in the STI Guide.
The CoP must conduct a Downer Standard gap analysis, identify practice guidance and control
standard requirements, define master risks and controls and produce a training package.
Undertake detailed analysis to understand the top three controls requiring improvement within an
area of responsibility and completion of projects to improve them.
Sustainability
Review of the Sustainable Development Goal Improvement Plans developed in 2021 and revised in
2022, and achievement of the final year goals from those plans.
Incorporate Scope 3 initiatives and targets into decarbonisation plans.
People
Achievement of a set percentage of FY23 GHG emissions intensity targets.
Performance is assessed on measures of employee engagement, and learning and development.
Financial
Employee engagement requires the achievement of an overall engagement score against a defined
range in the annual group-wide employee engagement survey.
Learning and development requires the achievement of minimum completion rates of training in
Downer’s project delivery and governance methodology.
This measure was selected due to the significant focus of the Company on delivery management and
project governance as a driver of improved project performance and contract margins.
Performance is assessed on Group NPATA, Divisional EBITA and FFO performance against
the budget.
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
§ 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 less investing cash flow.
STI plan incentive
calculation
Fixed
remuneration
X
Maximum
STI opportunity X
Scorecard
result
X
Individual
Performance
Modifier
=
STI payment
45
Directors’ Report Weightings applied to the 2023 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)
6.5 Long-term Incentive
6.5.1 LTI tabular summary
The following table outlines the major features of the 2023 LTI plan.
Purpose of LTI plan
§ Focus performance on drivers of shareholder value over a 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 varies with the Company’s longer-term performance.
§ Managing Director: 130% of fixed remuneration
§ Former Managing Director 100% of fixed remuneration
§ KMP: 50% of fixed remuneration.
1 July 2022 to 30 June 2025. Performance assessed August 2025.
Performance rights for which the relevant performance vesting condition is satisfied will not vest
unless executives remain employed with the Group on 30 June 2026.
Maximum value of equity
that can be granted
Performance period
Additional service period
after performance period for
shares to vest
Performance rights vest
Form of award and payment Performance rights.
Performance conditions
July 2026.
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 on 1 July 2022, measured over the three years to 30 June 2025.
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%
46 Annual Report 2023 | Downer EDI Limited
Directors’ Report Performance conditions
EPS growth
The EPS growth performance condition is based on the Company’s compound annual EPS growth
over the three years to 30 June 2025.
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%
Above 5% to < 10%
10% or more
0%
30%
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%
100%
Scorecard
The Scorecard performance condition is based on the Group’s NPATA and FFO for each of the
three years to 30 June 2025. 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%
Above 90% to < 110%
110% or more
Percentage of performance rights subject to
Scorecard condition that qualify for vesting
0%
30%
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%
100%
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 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.
How performance rights
and shares are acquired
The rights are issued by the Company and held by the participant subject to the satisfaction of
the vesting conditions. The number of rights held may be adjusted pro-rata, consistent with ASX
adjustment factors, for any capital restructures.
Treatment of dividends
and voting rights on
performance rights
Restriction on hedging
Restriction on trading
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.
Hedging of entitlements under the plan by executives is not permitted.
After vesting, any shares will remain subject to a trading restriction that is governed by the
Company’s Securities Trading Policy.
47
Directors’ Report New participants
Ceasing executives
Change of control
Malus and clawback
New executives (either new starters 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.
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.
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.
6.5.2 Post-vesting shareholding guideline
The Managing Director is required to continue to hold 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 current Managing Director’s shareholding is approximately 76% of the guideline level.
The guideline requirement has been developed to reinforce alignment with shareholder interests. The People and Culture
Committee has discretion to allow variations from this guideline requirement.
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.
6.6 Treatment of major transactions
Downer has 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 being 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 period due to the complexity of the implementation or the maturity profile of the
acquired business, the Board will consider an extension to a more appropriate period.
6.7 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.
48 Annual Report 2023 | Downer EDI Limited
Directors’ Report 7. Details of Executive Remuneration
7.1 Remuneration received in relation to the 2023 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.
The table below lists the remuneration actually received in relation to the 2023 financial year, comprising fixed remuneration, cash
STIs relating to 2023, deferred STIs payable in 2023 in respect of prior years and the value of LTI grants that vested during the 2023
financial year. This information differs to that provided in the statutory remuneration table at section 7.2 which shows the share
based payment accounting expense for LTIs and deferred STIs determined in accordance with accounting standards rather than
the value of LTI grants that vested during the year.
P J Tompkins
G A Fenn6
M R Ashcroft6
M J Ferguson
Fixed
Remuneration1
$
1,346,666
1,379,578
84,647
1,024,840
3,835,731
Cash Bonus
paid or
payable in
respect of
current year2
$
Deferred
Bonus paid
or payable
in respect of
prior years4
$
–
–
–
–
–
155,737
378,750
–
142,031
676,518
Other
Benefits5
$
268,391
(37,945)
6,610
38,736
275,792
Total
payments
$
1,770,794
1,720,383
91,257
1,205,607
4,788,041
Equity that
vested during
20233
$
Total
remuneration
received
$
–
–
–
–
–
1,770,794
1,720,383
91,257
1,205,607
4,788,041
Fixed remuneration comprises salary and fees, payment of leave entitlements, non-monetary benefits and superannuation payments.
1.
2. Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2023 financial year.
3. Represents the value of performance rights granted in previous years that vested during the year, calculated as the number of performance rights that vested
multiplied by the closing market prices of Downer shares on the vesting date.
4. Deferred Bonus represents the deferred bonus amount to be paid in September 2023, being the second deferred component of the 2021 award, adjusted as set
out in section 7.3.3. This represents a reduction in the award of $52,000 for G A Fenn, $19,500 for M J Ferguson and $4,875 for P J Tompkins. The first deferred
component of the 2022 award was reduced to nil from $325,000 for G A Fenn and $121,875 for M J Ferguson. P J Tompkins chose to voluntarily forgo his 2022
deferred components, each of which is valued at $121,875.
5. Negative movement in other benefits indicates leave taken during the year exceeded leave accrued during the current year.
6. Amounts represent the payments relating to the period during which the individuals were Key Management Personnel (KMP). G A Fenn ceased as a member of the
KMP on 27 February 2023. M R Ashcroft became a member of the KMP on 1 June 2023.
7.2 Remuneration of executive key management personnel required under the Corporations Act 2001 (Cth)
2023
Short-term employee benefits
Long-term
employee
benefit
Post-employment benefits
Cash
Bonus
paid or
payable
in respect
of current
year2
$
Deferred
Bonus
paid or
payable4
$
Non-
monetary
$
Other
long-term
benefits5
$
Super-
annuation
$
Other
benefits
$
Term-
ination
benefits
$
Subtotal
$
Share-
based
payment
transac-
tions3
$
Total
$
–
–
–
–
–
154,532
48,663
52,365
60,721
5,432
–
37,903
34,344
143,728 250,232
153,487
21,646
1,178
16,243
192,554
25,292
18,969
6,323
25,292
75,876
–
–
–
–
–
97,004
1,548,816
1,461,945 (323,499)
–
(497,988)
1,645,820
–
1,138,446
–
85,825
–
577,439
–
– 4,172,013 (724,483) 3,447,530
85,825
1,075,427
Salary
and fees
$
1,166,842
1,308,244
72,892
961,645
3,509,623
P J Tompkins
G A Fenn1
M R Ashcroft1
M J Ferguson
1.
Amounts represent the payments relating to the period during which the individuals were Key Management Personnel (KMP). G A Fenn ceased as a member of the
KMP on 27 February 2023. M R Ashcroft became a member of the KMP on 1 June 2023.
2. Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2023 financial year. These comprise the 50% cash component of
the award.
3. 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 8.2 and an estimate of the fair value of the
grant to be made to P J Tompkins in respect of the 2023 financial year attributable to the period. Vesting of the majority of securities remains subject to significant
performance and service conditions as outlined in section 6.5.
4. Deferred Bonus represents the value of deferred components attributable to the 2023 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.
5. This includes the net movement in Long Service Leave provision over the reporting period.
49
Directors’ Report 2022
Short-term employee benefits
Post-employment benefits
Cash
Bonus
paid or
payable
in respect
of current
year1
$
Deferred
Bonus
paid or
payable3
$
Non-
monetary
$
Super-
annuation
$
Other
benefits
$
Term-
ination
Benefits
$
Subtotal
$
Share-
based
payment
transac-
tions2
$
650,000
243,750
243,750
376,147
629,792
12,042
236,172
20,295
235,406
1,137,500 1,101,370 408,484
23,568
23,568
27,496
74,632
–
–
–
–
– 3,370,939 395,888
110,153
– 1,479,922
– 1,479,156
98,974
– 6,330,017 605,015
Total
$
3,766,827
1,590,075
1,578,130
6,935,032
G A Fenn
M J Ferguson
P J Tompkins
Salary
and fees
$
1,691,432
964,390
952,209
3,608,031
1.
Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2022 financial year. These comprise the 50% cash component
of the award.
2. 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 8.2. Vesting of the majority of securities
remains subject to significant performance and service conditions as outlined in section 6.5.
3. Deferred Bonus represents the value of deferred components attributable to the 2022 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.
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 2023 that are performance and non-
performance related and the proportion of STIs that were earned during the year ended 30 June 2023 due to the achievement
of the relevant performance targets.
P J Tompkins
G A Fenn
M R Ashcroft2
M J Ferguson
Proportion of 2023
remuneration
2023 Short-term incentive
Performance
Related1
%
Non-
performance
Related
%
9
0
N/A
0
91
100
N/A
100
Paid
%
0
0
N/A
0
Forfeited
%
100
100
N/A
100
Performance related portion includes the reversal of expense for forfeited equity incentives described in section 6.5.
1.
2. M R Ashcroft did not participate in the 2023 incentive plans.
50 Annual Report 2023 | Downer EDI Limited
Directors’ Report 7.3.2 2023 Group STI Scorecard and Outcomes
Performance is assessed for each scorecard measure based on the actual outcomes compared to the performance levels
defined below.
The scorecard measures are Downer’s priorities and performance requirements are set at challenging levels to drive organisational
performance and continued improvement of the business.
Whilst the minimum performance gateway was not achieved by KMP, meaning no STI awards were made for FY23, the actual
performance achieved for each measure is set out in the table below.
Measure
Description
Weighting
%
Min Target Max
Outcome
Element
Zero Harm
Total Recordable Injury
Frequency Rate (TRIFR)
Lost Time Injury Frequency
Rate (LTIFR)
Critical risk
Sustainability
Achieve TRIFR below 3.5
Achieve TRIFR below 0.9
High Potential Incident
action closure
Critical risk observations
Audit and inspection program
Critical control improvement
Sustainable Development Goals
Greenhouse gas emission
intensity reduction
Including Scope 3 targets and
initiatives into decarbonisation plans
Achieve an overall Employee
Engagement Score between
68 and 72
People
Employee engagement
Portfolio and
Performance
Learning and development Achieve minimum completion
rates for training on Downer’s
project delivery methodology
and governance
Achieve budget of $240.0 million
to $265.0 million
Net Profit After Tax and
before Amortisation of
acquired intangibles
Free cash flow
Achieve budget of $205.0 million
to $230.0 million
2.5
2.5
10
15
5
5
30
30
50%
50%
50%
50%
0%
100%
0%
0%
For 2023, the IPM was not applied to the members of the KMP as no STI awards were made.
7.3.3 Deferred STI Outcomes
Under the terms of the plan, each year the Board considers whether deferred awards made in prior periods should be paid.
Prior to the Board considering the Deferred STI, the current CEO requested that the Board not consider his entitlement to payment
of deferred components under the FY22 plan and has voluntarily forgone these components as demonstration of alignment
between shareholders and management on performance outcomes.
In assessing deferred awards from FY21 and FY22 that were eligible to vest this year, the Board considered:
§ The performance of the Company across FY21, FY22 and FY23
§ The events that have come to light subsequent to the exercise of its discretion for the FY22 STI award
§ That part of the FY21 and FY22 STI awards have already been paid to the former CEO and former CFO.
The Board has determined that for the former CEO and former CFO:
§ The second tranche of the FY21 Deferred STI be reduced by 12% being the reduction under the plan based on the restated
FY21 accounts
§ No payment of deferred components be made for the first deferred component of the FY22 plan.
In accordance with the terms of the plan, the Board will consider the second deferred component of the FY22 Deferred STI when it
becomes eligible for consideration.
51
Directors’ Report
7.3.4 LTI performance outcomes
The table below summarises LTI performance measures tested and the outcomes for each executive.
Relevant
executives1
G A Fenn,
M J Ferguson,
P J Tompkins
G A Fenn,
M J Ferguson,
P J Tompkins
Relevant LTI measure
Performance outcome
% LTI tranche that vested
Actual performance ranked at
the 26th percentile based on
a TSR result of –18.3%.
Actual performance was –4.1%.
Actual performance was 57.6%
for NPAT and 62.9% for FFO.
2020 plan – performance period 1 July 2019 to 30 June 2022
TSR tranche – percentile ranking of
Downer’s TSR relative to the constituents
of the ASX 100 over a three-year period.
EPS tranche – compound annual earnings
per share growth against absolute targets
over a three-year period.
Scorecard tranche – sustained NPAT and
FFO performance against budget over a
three-year period.
2021 plan – performance period 1 July 2020 to 30 June 20232
TSR tranche – percentile ranking of
Downer’s TSR relative to the constituents
of the ASX 100 over a three-year period.
EPS tranche – compound annual earnings
per share growth against absolute targets
over a three-year period.
Scorecard tranche – sustained NPATA and
FFO performance against budget over a
three-year period.
Actual performance was 84.4%
for NPATA and 118.2% for FFO.
0% became provisionally
qualified. 100% were forfeited.
0% became provisionally
qualified. 100% were forfeited.
0% became provisionally
qualified. 100% were forfeited.
qualified. 100% were forfeited.
16.7% became provisionally
qualified and remain subject
to Board approval. 83.3%
were forfeited.
Actual performance ranked at
the 15th percentile based on
a TSR result of –5.03%.
Actual performance was –9.88% 0% became provisionally
0% became provisionally
qualified. 100% were forfeited.
Relevant executives refers to members of the KMP who are participants in the plan tested.
1.
2. Test outcomes for the 2021 plan are provisional and will be confirmed following release of the Company’s audited 2023 results. Accordingly, the outcomes are not
reflected in the disclosures in section 8.
7.4 Major transactions and significant items
In 2023 there were two major unbudgeted transactions and four unbudgeted significant items. Each of these items is described
below at sections 7.4.1 and 7.4.2 of this report.
7.4.1 Major transactions
In 2023 Downer continued to optimise its portfolio in keeping with its Urban Services strategy through restructuring, partnering,
acquisition and divestment.
Downer undertook two major unbudgeted transactions during 2023. These transactions were the divestments of the Australian
Transport Projects business and the Asset & Development Services (ADS) business being held for sale.
Downer’s approach to adjustments for major transactions is disclosed in section 6.6.
In FY23, as the profit gateway for the STI was not met and no award was made, no adjustments were made to the STI. There were
no adjustments made in relation to the LTI either.
Where adjustments are made in future years, these will be disclosed in the relevant remuneration report.
7.4.2 Significant items
During the year, five unbudgeted items had a significant impact. These items were the fair value adjustment on the Downer
Contingent Share Options, portfolio restructure costs, regulatory review and shareholder class action related costs, goodwill
impairment and other assets impairment.
Downer’s approach to adjustments for major transactions is disclosed in section 6.7.
In FY23, as the profit gateway for the STI was not met and no award was made, no adjustments were made to the STI. There were
no adjustments made in relation to the LTI either.
Where adjustments are made in future years, these will be disclosed in the relevant remuneration report.
52 Annual Report 2023 | Downer EDI Limited
Directors’ Report 7.4.3 Future periods
For major transactions completed in 2023, the impact on operational performance is included in the 2024 budget and accordingly
no adjustments are expected in respect of FY24 operational performance.
7.5 Variations from policy
There were no variations from policy in 2023.
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 2022
No.
Net Change
No.
Balance at
30 June 2023
No.
Balance at
1 July 2022
No.
Net Change
No.
Balance at
30 June 2023
No.
286,004
2,049,772
–
103,973
–
–
–
(103,973)
286,004
2,049,772
–
–
225,622
902,492
–
225,622
14,136
56,539
–
(225,622)
239,758
959,031
–
–
P J Tompkins
G A Fenn1
M R Ashcroft
M J Ferguson
1. G A Fenn. The balance of equity holdings at 30 June 2023 represents the balance held at the date of cessation as a KMP on 27 February 2023.
8.2 Options and rights
No performance options were granted by Downer EDI Limited or exercised during the 2023 financial year.
As outlined in section 6.5.1, the LTI plan for the 2023 financial year is in the form of performance rights. Relief from certain regulatory
requirements was applied for and has been received from the Australian Securities and Investments Commission. During the year,
grants of performance rights were made to KMP in respect of the 2022 financial year.
A grant of performance rights has not been made to Mr Tompkins in respect of the 2023 financial year. It is expected that a
resolution will be put to shareholders at the 2023 Annual General Meeting to make a grant to Mr Tompkins.
Consistent with the ASX Listing Rules for the adjustment of the quantity of rights and options on issue at the time of new share
issues, the quantity of unlapsed rights granted to executives under the 2020 plan was adjusted by the ASX Adjustment Factor of
0.9812 in respect of the bonus element of the accelerated non-renounceable entitlement offer made during the 2021 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.
2020 Plan
2021 Plan
Number of
performance
rights1
Vested
%
Forfeited
%
Number of
performance
rights2
Vested
%
Forfeited
%
79,543
318,175
79,543
–
–
–
100
100
100
146,079
584,317
146,079
–
–
–
83.3
83.3
100
P J Tompkins
G A Fenn
M J Ferguson
1. Grant date 21 October 2020. Expiry date is 1 July 2023. The fair value of shares granted was $4.36 per share for the EPS and Scorecard tranches and $1.14 per share for
the TSR tranche.
2. Grant date 30 September 2021. Expiry date is 1 July 2024. The fair value of shares granted was $5.73 per share for the EPS and Scorecard tranches and $3.86 per share
for the TSR tranche.
53
Directors’ Report 2022 Plan
2023 Plan
Number of
performance
rights1
93,679
374,714
93,679
Vested
%
Forfeited
%
–
–
–
–
–
100
Number of
performance
rights2
541,837
466,625
–
Vested
%
Forfeited
%
–
–
–
–
–
–
P J Tompkins3
G A Fenn
M J Ferguson4
1. Grant date 30 September 2022. Expiry date is 1 July 2025. The fair value of shares granted was $3.85 per share for the EPS and Scorecard tranches and $1.80 per share
for the TSR tranche.
2. Grant date 31 May 2023. Expiry date is 1 July 2026. The fair value of shares granted was $5.73 per share for the EPS and Scorecard tranches and $3.86 per share for the
TSR tranche.
3. A grant has not been made to P J Tompkins under the 2023 Plan. It is expected that a resolution will be put to shareholders at the 2023 Annual General Meeting to
make a grant to Mr Tompkins.
4. A grant has not been made to M J Ferguson under the 2023 Plan as Mr Ferguson ceased employment with the Company on 30 June 2023.
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:
Maximum number of shares for the vesting year
P J Tompkins
G A Fenn
M J Ferguson
2024
24,347
97,387
–
2025
93,679
374,714
–
2026
541,837
466,625
–
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 2023 plan an estimated expense has been
recognised for P J Tompkins that will be trued up following formal valuation after the grants have been made.
P J Tompkins
G A Fenn
M J Ferguson
2024
402,183
755,767
–
2025
320,318
–
–
2026
291,238
–
–
8.3 Remuneration consultants
Guerdon Associates, Morrow Sodali and SW Corporate were engaged by the Board’s People and Culture Committee to provide
remuneration advice in relation to KMP, but did not provide the Board’s People and Culture 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 KMP to whom the advice may relate, because
strict protocols were observed and complied with regarding any interaction between the advisors and management, and because
all remuneration advice was provided to the Board Chairman or People and Culture Committee Chairman.
54 Annual Report 2023 | Downer EDI Limited
Directors’ Report 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
Termination
notice period
by employee
12 months
6 months
12 months
6 months
Termination
payments
payable under
contract
12 months
6 months
Downer can elect to either require executives to provide service during their notice period or make a payment in lieu.
Termination payments are calculated based upon total fixed remuneration at the date of termination. No payment is made for
termination due to gross misconduct.
9.2 Managing Director and Chief Executive Officer of Downer’s employment agreement
P J Tompkins
Mr Tompkins was appointed as the Managing Director of Downer commencing on 27 February 2023. The following table sets out
the key terms of the Managing Director’s employment agreement.
Term
Fixed
remuneration
STI
opportunity
Until terminated by either party.
$1.55 million per annum.
Fixed remuneration includes superannuation and non-cash benefits.
Mr Tompkins 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 Tompkins 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 Tompkins.
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 Tompkins is eligible to participate in the annual LTI plan and the value of the award is 130% of
fixed remuneration.
LTI
opportunity
Mr Tompkins’ performance requirements have been described in section 6.5.
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 Tompkins can resign:
(a) By providing twelve months’ written notice; or
(b) By providing thirty days’ written notice in circumstances where there is a fundamental change in his role or
responsibilities. In these circumstances, Mr Tompkins is entitled to a payment in lieu of 12 months’ notice.
Downer can terminate Mr Tompkins’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 Tompkins fixed annual remuneration).
If Mr Tompkins resigns he will be subject to a twelve-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 Tompkins.
55
Termination
Other
Directors’ Report G A Fenn
Mr Fenn was appointed as the Managing Director of Downer commencing on 30 July 2010 and retired as Managing Director
and Chief Executive Officer on 27 February 2023. The following table sets out the key terms of Mr Fenn’s employment agreement.
Fixed
remuneration
STI
opportunity
LTI
opportunity
Termination
$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 was eligible to receive an annual STI and the maximum STI opportunity is 100% of fixed remuneration.
No STI was awarded in respect of FY23. Mr Fenn is not eligible to receive a STI in FY24.
Mr Fenn was 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 is not eligible to receive a LTI in FY24.
Mr Fenn’s performance requirements have been described in section 6.5.
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.
Other
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.
56 Annual Report 2023 | Downer EDI Limited
Directors’ Report Separation
Arrangements
Grant Fenn stood down as Group Chief Executive and Managing Director on 27 February 2023 and by mutual
agreement will cease employment with the Group on 27 February 2024. He will be paid his contractual 12 months’
notice through that period. During the notice period Mr Fenn is available to assist the Board and the new Group
Chief Executive as required in relation to the affairs of the Group’s business.
Having served as Managing Director and Chief Executive Officer for the majority of the year Mr Fenn remained
available for an FY23 STI. No STI awards for the FY23 year were made as set out in section 7.3 of this report.
As mentioned earlier in this report, the Board has exercised discretion in relation to the 2021 and 2022 Deferred STI
Plan rights due to vest at the end of FY23. Details of the relevant awards and the discretion exercised are set out in
section 7.3.3 of the report.
The 584,317 rights Mr Fenn holds under the 2021 LTI grant were provisionally tested following the end of the
financial year, 16.7% of the grant being provisionally qualified and remain subject to Board approval in 2024.
The 374,714 rights he holds under the 2022 LTI grant and the 466,625 rights he holds under the 2023 LTI grant will
be tested at the end of the 2024 and 2025 financial years respectively.
The maximum amount of termination benefits that Mr Fenn may receive in connection with ceasing employment,
including rights under LTI grants that vest, is limited to the maximum amount that can be provided pursuant to
the Corporations Act and any benefits that might have otherwise accrued to Mr Fenn in excess of that limit will
be forfeited.
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.
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.
Non-executive Directors are not entitled to retirement benefits. Shareholders approved an annual aggregate cap of $2.4 million for
Non-executive Director fees at the 2022 AGM, an increase from the $2.0 million cap approved 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 total fees paid in FY23 was $1.7 million (FY22: $1.4 million).
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 fee of $454,000 per annum (inclusive of all Committee fees). The other Non-executive Directors each
receive a base fee of $180,000 per annum.
57
Directors’ Report Additional fees are paid for Committee duties:
§ $43,500 for the chairman of the Audit and Risk Committee; and $35,000 for the chairman of each of the People and Culture
Committee, Tender Risk Evaluation Committee and Zero Harm Committee
§ $20,000 for members of the Audit and Risk Committee; and $17,500 for the members of each of the People and Culture
Committee, Tender Risk Evaluation Committee and Zero Harm Committee.
The former Chairman, Mike Harding, initiated a review of Non-Executive Director fees in advance of a Board renewal process, which
included appointment of a new Chairman, to test the market competitiveness of Director fees and to ensure that Downer attract
the best candidates for future appointments. The review found that base fees paid to the Chairman and Non-executive Directors
remained appropriate however fees paid for chairing or serving as a member of a committee were well below market levels an
inconsistent with market practice. Accordingly, as foreshadowed in the 2021 Remuneration Report, the following changes in fees
were applied from 1 July 2021:
§ Fees were calculated to a fixed value inclusive of superannuation, rather than a fee plus superannuation at the superannuation
guarantee rate. There was no change to total base remuneration before Committee fees as a result of this change.
§ Increase in the annual Chairman fees for the Zero Harm and People and Culture Committee to $27,000 from $16,425
§ Increase in the annual Chairman fees for the Zero Harm Committee to $27,000 from $16,425
§ Increase in the annual Chairman fees for the Tender Risk Evaluation Committee to $17,000 from $16,425
§ Introduction of fees for committee members at the rate of 50% of the respective committee Chairman fee.
In 2021 Downer embarked on a Board renewal program. Under the leadership of former Chairman Mark Chellew several new
Directors were appointed during 2022 and the program will continue throughout 2023. To ensure that Downer remains competitive
to attract and retain suitably qualified NEDs to oversee the Company’s strategic objectives and transformation, an external
benchmarking review of fees paid to NEDs was undertaken in FY22.
The review was conducted through benchmarking by Guerdon Associates against 15 comparable ASX-listed companies. The review
considered the size and complexity of the Company through factors of revenue, market capitalisation, total assets and number of
employees. As a result of the review, the following changes were applied from 1 July 2022:
§ Increase in annual fees for the role of Chairman to $454,000 from $410,625 and Non-executive Directors to $180,000
from $164,250
§ Increase in the annual Chairman fees for the Audit and Risk Committee to $43,500 from $38,325 and member fees to $20,000
from $19,163.
§ Increase in the annual Chairman fees for the Zero Harm and People and Culture Committees to $35,000 from $27,000 and
member fees to $17,500 from $13,500.
§ Increase in the annual Chairman fees for the Tender Risk Evaluation Committee to $35,000 from $17,000 and member fees to
$17,500 from $8,500.
11.2 Non-executive Director minimum securityholding policy
The Board has introduced a minimum securityholding policy for non-executive directors, effective from 1 July 2023.
Under the policy, each non-executive director is required to establish and maintain a minimum security holding equal to or greater
than 100 percent of their annual base fee. The requirement is to be met within four years after the latter of the date of their
appointment or the commencement of the Policy.
The guideline requirement has been developed to reinforce alignment with shareholder interests.
The Board retains the right to vary from policy in exceptional circumstances.
58 Annual Report 2023 | Downer EDI Limited
Directors’ Report 11.3 Non-executive Directors’ remuneration
The table below sets out the remuneration paid to Non-executive Directors for the 2023 and 2022 financial years.
Short-term benefits
Post-employment benefits
M J Menhinnitt
M P Chellew1
R M Harding1
M J Binns1
P S Garling1
T G Handicott
N M Hollows
A M Howse
P L Watson
Board
fee
$
Committee
fee
$
Total
fees
$
Super-
annuation
$
Termination
benefits
$
252,853
49,773
290,465
302,736
–
93,324
95,023
53,640
–
149,318
162,896
149,318
162,896
149,318
162,896
37,330
162,896
149,318
22,834
4,017
–
–
–
–
20,765
2,348
–
22,500
43,175
41,966
71,041
54,841
40,535
3,617
76,587
57,421
275,687
53,790
290,465
302,736
–
93,324
115,788
55,988
–
171,818
206,071
191,284
233,937
204,159
203,431
40,947
239,483
206,739
22,861
5,379
18,969
18,920
–
9,332
2,694
1,345
–
17,182
21,637
19,128
24,563
20,416
21,360
4,095
24,945
20,674
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
298,548
59,169
309,434
321,656
–
102,656
118,482
57,333
–
189,000
227,708
210,412
258,500
224,575
224,791
45,042
264,428
227,413
Year
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
1.
Amounts represent the payments relating to the period during which the individual was a Non-executive Director.
11.4 Equity held by Non-executive Directors
The table below sets out the equity in Downer held by Non-executive Directors for the 2023 and 2022 financial years.
M J Menhinnitt
M P Chellew
M J Binns
T G Handicott
N M Hollows
A M Howse
P L Watson
2023
2022
Balance at
1 July 2022
Net change
Balance at
30 June 20231
Balance at
1 July 2021
Net change
Balance at
30 June 2022
21,748
18,000
–
21,100
25,538
5,000
17,933
50,000
–
–
9,900
15,000
–
–
71,748
18,000
–
31,000
40,538
5,000
17,933
–
–
–
20,047
15,538
–
17,933
21,748
18,000
–
1,053
10,000
5,000
–
21,748
18,000
–
21,100
25,538
5,000
17,933
1.
Balance at 30 June 2023 for M P Chellew and M J Binns represents the number of shares held as at retirement date.
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.
M J Menhinnitt
Chairman
Sydney, 10 August 2023
59
Directors’ Report
Auditor’s Independence Declaration
for the year ended 30 June 2023
60 Annual Report 2023 | Downer EDI Limited
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 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 2023 there have been: i.no contraventions of the auditor independence requirements as set out in theCorporations Act 2001 in relation to the audit; andii.no contraventions of any applicable code of professional conduct in relation to the audit.PM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Nigel Virgo Partner Sydney 10 August 2023 Directors’ Report Auditor’s Reports Financial Statements Notes to the consolidated financial statements Corporate Governance
Investor Information
Independent Auditor’s Report
for the year ended 30 June 2023
61
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 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 theGroup’s financial position as at 30June 2023 and of its financialperformance for the year ended onthat date; and•complying with Australian AccountingStandards and the CorporationsRegulations 2001.The Financial Report comprises: •Consolidated statement of financial position as at 30June 2023•Consolidated statement of profit or loss and othercomprehensive income, Consolidated statement ofchanges in equity, and Consolidated statement ofcash flows for the year then ended•Notes including a summary of significant accountingpolicies•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 (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. Independent Auditor’s Report – continued
for the year ended 30 June 2023
62 Annual Report 2023 | Downer EDI Limited
Auditor’s ReportsKey Audit Matters The Key Audit Matters we identified are: •Recognition of revenue•Goodwill impairmentKey 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. Recognition of revenue Refer to Note B2 ‘Revenue’ to the Financial Report ($11,640.4m) and Note A ‘Restatement of comparative balances’ 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 financialstatements;•Large number of contracts with numerousestimation events potentially occurring overthe course of the contract’s life. Thisresults in complex and judgementalrevenue recognition from rendering ofservices and construction contracts andtherefore significant audit effort is requiredto gather evidence; and•Significant impact of the restatement ofprior year amounts using AASB 108Accounting Policies, Changes in AccountingEstimates and Errors, which we consider tobe fundamental to users understanding ofthe financial report.We focused on the Group’s assessment of the following elements of revenue recognition for rendering of services and construction contracts, as applicable: •The Group’s assessment of the contractaccounting adjustments required in itsAustralian Utilities business and therestatement of comparative balances dueto the reassessment of the measure ofprogress. We increased our focus on therisk of management bias, fraud or error inOur procedures included: •We obtained an understanding of the Group’s process of accounting for rendering of services and construction contract revenues and recognition of contract assets;•We assessed the Group’s accounting policy for rendering of services and construction contract revenues, including variations and claims and variable consideration, and recognition of contract assets against the requirements of the accounting standards;•We undertook a sample of site visits (to both contract sites and commercial offices) across the Group’s major divisions and geographies to obtain a detailed understanding of the Group’s contract processes and to understand the variety of risk elements of the contracts;•We tested key controls such as:oManagement’s approval of information underlying key bids, including estimated project milestones, projected Earnings Before Interest and Tax (EBIT), Net Present Value (NPV), Return On Funds Employed (ROFE), and potential legal risks; andoEvidence of customer acceptance prior to issuing an invoice. 63
Auditor’s Reportsthe measure of progress applied to contract accounting, in our identification of higher risk contracts for testing, and in challenging the Group’s significant judgements; •Estimating total expected costs tocomplete at initiation of the contract,including cost contingencies for contractingrisks, which have a high level of estimationuncertainty;•Revisions to total expected costs forcertain events or conditions occurringduring the performance of the contract, orthat are expected to occur to complete thecontract, which are difficult to estimate;•When a modification to the contract scopeand/or price for variations and claims isapproved and enforceable. The Group’sconsideration of the enforceability orapproval may include evidence which iswritten, oral or implied by customarybusiness practice and therefore requires adegree of judgement. The Group’sassessment of the enforceability ofvariations and claims can drive differentaccounting treatments, increasing the riskof inappropriately recognising revenue; and•The Group’s policy for the determination ofthe amount of revenue recognised fromvariable consideration which is highlyprobable of not reversing. Variableconsideration is contingent on the Group’sperformance and includes key performancepayments, abatements offsetting revenueunder the contract and liquidated damages.The Group's determination that variableconsideration is highly probable requires adegree of estimation and judgement. Thisincreased the audit effort we applied togather evidence.We involved senior team members including our technical accounting specialists. •Using the results from relevant design andeffectiveness testing of key controls weselected a statistical sample of revenuerecognised and checked to evidence of theservice being performed;•We used data analytic routines to assist inselecting a sample of higher risk contracts fortesting based on a number of quantitative andqualitative factors identified from our riskassessment procedures. In addition to thefeatures from the Utilities contractadjustments matter, these factors includedcontracts with significant deterioration inmargin, significant variations and claims orvariable consideration. We also includedfactors which indicated to us a greater level ofjudgement was required by the Group basedon the estimates developed for current andforecast contract performance. For thesamples selected, where relevant:owe read the selected contract terms andconditions to evaluate the individualcharacteristics of each contract reflectedin the Group’s estimate of revenue;owe assessed the estimation of totalexpected costs, including costcontingencies for contracting risks, bychallenging the Group’s project andfinance managers on their estimations.We checked key forecast costassumptions to sources and underlyingdocumentation such as inflation,Enterprise Bargaining Agreements forwage rates, salary costs and agreementswith subcontractors;owe assessed the measure of progresschosen for each contract against theGroup’s performance in delivering valueto the customer. We did this bychallenging the nature of the good orservice that the Group has promised totransfer to the customer and assessingwhether the most relevant and reliablemeasure of progress had been used, andchallenging the Group where differencesexisted;ofor the Utilities contract adjustmentsmatter we challenged the Group’sinvestigation scope and findings. We Independent Auditor’s Report – continued
for the year ended 30 June 2023
64 Annual Report 2023 | Downer EDI Limited
Auditor’s Reportstested completeness through interrogating the work order management system used across the relevant time periods, and re-performing a sample of evaluations of the measure of progress; owe evaluated the Group’s assessment of when a modification to the contract scope and/or price for variations and claims is approved or 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;owe evaluated the Group’s legal 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; andowe assessed the scope, competency and objectivity of the legal experts engaged by the Group.•We evaluated the method applied by theGroup to estimate the highly probable amountof the key performance payments, liquidateddamages and abatements against the specificcontract terms. This included gatheringunderlying evidence in relation to the Group’sperformance against the terms of thecontract. We then recalculated the amount ofvariable consideration. We compared therecalculated amounts to the amountsrecorded by the Group as offsets to revenue;and•We assessed the Group’s disclosures to ourunderstanding obtained from our testing andthe requirements of the accounting standards,including AASB 108 Accounting Policies,Changes in Accounting Estimates and Errorsfor the restatement of prior year amounts. 65
Auditor’s ReportsGoodwill impairment Refer to Note C7 ‘Intangible assets’ to the Financial Report ($1,762.8m) The key audit matter How the matter was addressed in our audit The goodwill and associated impairment is a key audit matter due to the significant size of the balance and the impairments booked, and the audit effort arising from: •The Group having multiple groups of CashGenerating Units (CGUs) for which theimpairment of goodwill was assessed usingboth Fair Value Less Cost of Disposal(FVLCOD) and Value in Use (VIU) models;•The Group reorganising its internalreporting structure from 1 July 2023,necessitating the performance of additionalimpairment modelling on the reorganisedGroups of CGUs. These changes to theGroup’s organisational reporting structureand composition of the Group’s CGUsincreased our testing with a specific focuson unbiased outcomes for FY23 results;•The Group recorded an impairment chargeof $350.0m against goodwill in the SocialInfrastructure & Citizen Services CGU and$133.0m in the Utilities CGU, increasingthe sensitivity of the Group’s models tosmall changes in key assumptions; and•the total enterprise value of all CGUs in theGroup initially exceeded its marketcapitalisation at year end. This increasedour audit effort in this area.We focused on the following key forward looking assumptions in the Group’s FVLCOD and VIU models: •Forecast cash flows including revenuegrowth rate and EBIT margin, with greaterfocus on the EBIT margin in the Utilitiesand Social Infrastructure & Citizen ServicesCGUs. The Utilities CGU has not met prioryear forecast, raising our concern over thereliability of the Group’s current forecastsincluding revenue and improvement in EBITmargin in forecast years. The SocialInfrastructure & Citizen Services CGU has achallenge in achieving successfulOur procedures included: •Working with our valuation specialists, we evaluated and challenged the Group’s external expert’s report on the valuation of the Group’s CGUs prepared using both FVLCOD and VIU methodologies on the existing and reorganised reporting structures against the requirements in the accounting standard.•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 Group’s determination of their CGUs based on our understanding of the operations of the Group and how independent cash inflows were generated, against the requirements of the accounting standards.•We analysed the Group’s existing and reorganised reporting structure, and the Group’s internal reporting to assess the Group’s monitoring and management of activities, and the allocation of goodwill to Groups of CGUs.•We obtained the Group’s FVLCOD and Value In Use models and checked amounts to the Board approved FY24 budget. We challenged the Group’s projected cash flows by comparing the budget against our understanding of the business. We also compared the compound annual revenue growth rate in the models between FY23 and the terminal year to publicly available industry growth rates.•We assessed the accuracy of previous Group forecasting by comparing the Group’s actual performance for the year to the Board approved budget for the year. This assisted to inform our evaluation of forecasts included in the FVLCOD and VIU models. We applied increased scepticism to current period forecasts in areas where previous forecasts Independent Auditor’s Report – continued
for the year ended 30 June 2023
66 Annual Report 2023 | Downer EDI Limited
Auditor’s Reportsconversion of tenders and contract renewals. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for revenue growth assumptions along with those relevant to represent a market participant; •Discount rates – these are complicated innature and vary according to the conditionsand environment the specific CGU issubject to from time to time; and•Long-term growth rates – certain valuationsfor CGUs of the Group are highly sensitiveto 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. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. were not achieved. •We assessed the revenue growth rate and EBIT margin assumptions used by the Group in both the FVLCOD and VIU models to external information, such as publicly available industry trends.•For the Utilities CGU, we performed a range of sensitivity analyses to identify those assumptions with higher risk of bias or inconsistency in application. This included the Group’s assumption of the return in EBIT margin from the downturn in business performance in the year, the ability to secure new business and the cash flow opportunities a market participant would expect to generate.•For the Social Infrastructure & Citizen Services CGU, we performed a range of sensitivity analyses to identify those assumptions with higher risk of bias or inconsistency in application. This included the ability to secure new business opportunities and retain key contracts.•We compared cost savings included in the Group’s models to the Group’s Board approved restructuring plans.•Working with our valuation specialists we:oassessed the Group’s external expert’s analysis of the market capitalisation shortfall versus the total recoverable amount of CGUs. This included consideration of the market capitalisation range implied by recent share price trading ranges and broker target valuation ranges, to the Group’s latest internal enterprise valuation model. EBITDA multiples were also assessed against comparable companies;oindependently 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; andoassessed the long-term growth rate for each of the CGUs against publicly available market data, such as published studies of industry trends and independent macroeconmic information, and compared this to the Group’s 67
Auditor’s Reports assumption. • For the Social Infrastructure & Citizen Services and Utilities CGU we checked 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 from our testing against 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 and Company’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 and Company or to cease operations, or have no realistic alternative but to do so. Independent Auditor’s Report – continued
for the year ended 30 June 2023
68 Annual Report 2023 | Downer EDI Limited
Auditor’s ReportsAuditor’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 frommaterial 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration ReportOpinion In our opinion, the Remuneration Report of Downer EDI Limited for the year ended 30 June 2023, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 34 to 59 of the Directors’ report for the year ended 30 June 2023. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. _SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Nigel Virgo Partner Stephen Isaac Partner Sydney 10 August 2023 This page has been left blank intentionally.
69
Financial Statements
for the year ended 30 June 2023
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
71
72
73
74
Notes to the consolidated financial statements
D
A
Employee
About this
benefits
report
B
Business
performance
C
Operating
assets and
liabilities
E
Capital
structure
and financing
F
Group
structure
G
Other
75-77
78-90
91-105
106-107
108-115
116-125
126-134
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
Controlled entities
G2
Capital and financial
risk management
G3
Other financial
assets and
liabilities
B3
Individually
significant items
C3
Inventories
D3
Key management
personnel
compensation
E3
Lease liabilities
B4
Earnings per share
C4
Trade payables and
contract liabilities
D4
Employee discount
share plan
E4
Commitments
B5
Taxation
B6
Remuneration
of auditor
C5
Property, plant and
equipment
C6
Right-of-use assets
B7
Subsequent events
C7
Intangible assets
C8
Other provisions
C9
Contingent liabilities
E5
Issued capital
E6
Reserves
E7
Dividends
F3
Related party
information
F4
Parent entity
disclosures
F5
Acquisition
of businesses
F6
Disposal of
businesses
F7
Disposal group
held for sale
Directors’ Declaration
135
70 Annual Report 2023 | Downer EDI Limited
Directors’ Report Auditor’s Reports Financial Statements Notes to the consolidated financial statements Corporate Governance
Investor Information
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2023
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 will not be reclassified subsequently to profit or loss:
– Actuarial movement on net defined benefit plan obligations
– Income tax effect of actuarial movement on defined benefit plan obligations
– Change in fair value of unquoted equity investments
Items that may be reclassified subsequently to profit or loss:
– Exchange differences arising on translation of foreign operations
– Net gain on foreign currency forward contracts taken to equity
– Net (loss)/gain on cross currency and interest rate swaps taken to equity
– Income tax effect of items above
Other comprehensive income for the year (net of tax)
Other comprehensive income for the year is attributable to:
– Non-controlling interest
– Members of the parent entity
Other comprehensive income for the year
Total comprehensive (loss)/income for the year
Earnings per share (cents)
Basic earnings per share
Diluted earnings per share(ii)
Note
B2
B2
D1
C6
C5,C7
C5,C6,C7
F1(a)
B5(a)
D2
2023
$’m
11,640.4
88.6
11,729.0
(3,640.0)
(4,917.8)
(1,458.2)
(468.6)
(154.9)
(181.3)
(539.5)
(652.0)
(12,012.3)
29.8
(253.5)
7.8
(22.9)
(72.9)
(88.0)
(341.5)
(44.2)
(385.7)
–
(385.7)
(385.7)
2.6
(0.8)
0.2
8.5
0.3
(6.6)
1.9
6.1
–
6.1
6.1
(379.6)
Restated(i)
2022
$’m
10,972.3
165.5
11,137.8
(3,581.2)
(4,430.5)
(1,381.3)
(468.5)
(160.3)
(181.9)
(42.0)
(615.3)
(10,861.0)
29.7
306.5
2.4
(22.0)
(65.8)
(85.4)
221.1
(80.7)
140.4
0.4
140.0
140.4
6.8
(2.1)
0.2
(16.9)
2.4
41.1
(13.0)
18.5
(0.3)
18.8
18.5
158.9
Restated(i)
B4
B4
(59.0)
(59.0)
19.6
19.5
(i) June 2022 results have been restated (Refer to Note A for further details).
(ii) At 30 June 2023, the ROADS are anti-dilutive and consequently, diluted EPS remained at a loss of 59.0 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 75 to 134.
71
Consolidated Statement of Financial Position
as at 30 June 2023
ASSETS
Current assets
Cash and cash equivalents
Trade receivables and contract assets
Other financial assets
Inventories
Current tax assets
Prepayments and other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade receivables and contract assets
Equity accounted investments
Property, plant and equipment
Right-of-use assets
Intangible assets
Other financial assets
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
Current tax liabilities
Employee benefits provision
Other provisions
Liabilities associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Trade payables and contract liabilities
Borrowings
Lease liabilities
Other financial liabilities
Deferred tax liabilities
Employee benefits provision
Other provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Reserves
(Accumulated losses)/retained earnings
Parent interests
Non-controlling interest
Total equity
Note
C1(c)
C2
G3
C3
F7
C2
F1(a)
C5
C6
C7
G3
B5(b)
C4
E1
E3
G3
D1
C8
F7
C4
E1
E3
G3
B5(b)
D1
C8
E5
E6
Restated(i)
Restated(i)
30 June
2023
$’m
30 June
2022
$’m
1 July
2021
$’m
889.1
2,094.2
10.7
234.8
7.2
68.9
92.2
3,397.1
138.8
159.2
934.7
428.5
2,180.3
51.5
3.3
20.9
3,917.2
7,314.3
2,272.4
–
135.2
15.0
2.6
268.2
66.3
112.9
2,872.6
61.1
1,596.4
402.0
5.7
36.7
22.7
27.3
2,151.9
5,024.5
2,289.8
2,642.4
19.0
(371.6)
2,289.8
–
2,289.8
738.5
1,921.2
28.2
208.9
40.1
59.3
–
2,996.2
121.6
162.8
924.4
436.2
2,741.4
32.7
3.8
10.1
4,433.0
7,429.2
2,208.1
–
132.4
26.4
5.2
303.5
54.5
–
2,730.1
46.5
1,361.7
411.5
5.0
25.1
18.7
18.8
1,887.3
4,617.4
2,811.8
2,660.2
12.1
139.5
2,811.8
–
2,811.8
811.4
2,105.9
62.7
254.2
48.6
63.8
41.5
3,388.1
109.2
155.1
994.7
546.5
2,782.9
7.8
69.8
7.4
4,673.4
8,061.5
2,363.0
296.2
157.7
49.0
7.9
353.6
64.4
17.2
3,309.0
34.2
1,185.4
505.1
18.3
5.8
35.3
21.6
1,805.7
5,114.7
2,946.8
2,802.6
(31.2)
170.9
2,942.3
4.5
2,946.8
(i) Balances have been restated (Refer to Note A for further details).
The consolidated statement of financial position should be read in conjunction with the accompanying notes on pages 75 to 134.
72 Annual Report 2023 | Downer EDI Limited
Financial Statements Consolidated Statement of Changes in Equity
for the year ended 30 June 2023
2023
$’m
Restated balance at 30 June 2022
Loss after income tax
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Share-based employee benefits income
Income tax relating to share-based transactions during the year
Group on-market share buy-back
Payment of dividends(i)
Balance at 30 June 2023
(Accumulated
losses)/
retained
earnings
Reserves
12.1
–
6.1
6.1
(0.8)
1.6
–
–
19.0
139.5
(385.7)
–
(385.7)
–
–
–
(125.4)
(371.6)
Issued
capital
2,660.2
–
–
–
–
–
(17.8)
–
2,642.4
Total
2,811.8
(385.7)
6.1
(379.6)
(0.8)
1.6
(17.8)
(125.4)
2,289.8
(i) Relates to the 2022 final dividend, 2023 interim dividend and $10.7 million ROADS dividends paid during the financial year.
2022
$’m
Balance at 1 July 2021
Prior period restatement in relation to
revenue recognition(i)
Restated balance at 1 July 2021
Profit after income tax(i)
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Vested executive incentive share transactions
Vested Downer Contingent Share Options(ii)
Share-based employee benefits expense
Income tax relating to share-based transactions
during the year
Group on-market share buy-back
Disposal of business
Payment of dividends(iii)
Restated balance at 30 June 2022
Issued
capital
Reserves
Retained
earnings
Total
attributable
to owners of
the parent
Non-
controlling
interest
Total
2,802.6
(31.2)
181.5
2,952.9
4.5
2,957.4
–
2,802.6
–
–
–
0.2
–
–
–
(142.6)
–
–
2,660.2
–
(31.2)
–
18.8
18.8
(0.2)
16.0
4.2
(2.7)
–
7.2
–
12.1
(10.6)
170.9
140.0
–
140.0
–
–
–
–
–
–
(171.4)
139.5
(10.6)
2,942.3
140.0
18.8
158.8
–
16.0
4.2
(2.7)
(142.6)
7.2
(171.4)
2,811.8
–
4.5
0.4
(0.3)
0.1
–
–
–
–
–
(4.6)
–
–
(10.6)
2,946.8
140.4
18.5
158.9
–
16.0
4.2
(2.7)
(142.6)
2.6
(171.4)
2,811.8
(i) Balances have been restated (refer to Note A for further details).
(ii) On 24 August 2021, the Target Price Condition of Tranche 1 of the Downer Contingent Share Options (DCSO) was satisfied resulting in 2,499,264 shares exercised at
$6.382 per share.
(iii) Relates to the 2021 final dividend, 2022 interim dividend and $5.9 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 75 to 134.
73
Financial Statements Consolidated Statement of Cash Flows
for the year ended 30 June 2023
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
GST proceeds on disposal of business(i)
Distributions from equity accounted investees
Net cash generated by operating cash flow before interest and tax
Interest received
Interest paid on lease liabilities
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 of deferred consideration on acquisition of businesses
Payments for acquisition of businesses (net of cash acquired)
Proceeds from sale of business (net of cash disposed)
Payments for investments
Advances (to)/from equity accounted investments
Net cash (used in)/generated by investing activities
Cash flows from financing activities
Group on-market share buy-back
Proceeds from borrowings
Repayments of borrowings
Payment of principal of lease liabilities
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes
Cash and cash equivalents at the end of the year
Note
2023
$’m
2022
$’m
12,687.4
(12,333.3)
23.5
33.4
411.0
7.1
(22.9)
(70.0)
(7.0)
318.2
25.2
(230.6)
(32.4)
–
(0.1)
160.5
(8.1)
(1.2)
(86.7)
(17.8)
16,118.0
(15,890.5)
(165.0)
(125.4)
(80.7)
150.8
738.5
(0.2)
889.1
F1(a)
C1(a)
F5
F6
G3
E5
C1(b)
C1(c)
12,416.3
(11,845.2)
–
21.9
593.0
2.2
(22.0)
(61.9)
(15.9)
495.4
99.6
(243.3)
(36.5)
(0.1)
(24.0)
245.4
(7.5)
4.8
38.4
(142.6)
11,413.0
(11,535.6)
(163.6)
(171.4)
(600.2)
(66.4)
811.4
(6.5)
738.5
(i) $23.5m GST proceeds on the disposal of the Australian Transport Project business were subsequently remitted to the Australian Taxation Office in July 2023.
The consolidated statement of cash flows should be read in conjunction with the accompanying notes on pages 75 to 134.
74 Annual Report 2023 | Downer EDI Limited
Financial Statements Directors’ Report Auditor’s Reports
Financial Statements Notes to the consolidated financial statements Corporate Governance
Investor Information
Notes to the consolidated financial statements
for the year ended 30 June 2023
A
About this report
Statement of compliance
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 issued by
the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001 (Cth). The Financial Report also complies
with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB).
The Financial Report was authorised for issue by the Board of
Directors on 10 August 2023.
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
measured at fair value, assets held for sale and non-current
assets measured at the lower of carrying value and fair value
less costs to sell and defined benefit plans measured at fair
value. Cost is based on the fair values of the consideration given
in exchange for assets. All amounts are presented in Australian
dollars, unless otherwise noted.
Certain comparative balances have been reclassified to
ensure consistency with the classification in the 30 June 2022
Financial Report.
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
2022, 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.
Accounting estimates and judgements
The preparation of the Financial Report requires management
to make judgements, estimates and assumptions about
future events which may differ from the actual results while
also needing to exercise judgement in applying the Group’s
accounting policies.
The following table provides an overview of the areas that
involved a higher degree of judgement or complexity. Detailed
information about each of these judgements are included in the
following notes:
Accounting judgements
Note
Page
Revenue recognition
Income taxes
Useful lives of right-of-use assets
Impairment of assets
Other provisions
Employee benefits obligations
Lease liabilities
B2
B5
C6
C7
C8
D1
E3
84
88
97
99
104
106
111
Information about assumptions and estimation uncertainty
at the reporting date that has a significant risk of resulting in
a material adjustment to the carrying amount of assets and
liabilities within the next financial year are included in the
following notes:
Accounting estimates
Note
Page
Revenue recognition
Recognition of deferred
tax assets
Credit risk
Useful lives
Recoverable value of
right-of-use assets
Impairment of assets
Other provisions
Employee benefits obligations
Lease liabilities
B2
B5
84
88
C2
C5 to C7
C6
94
95, 97, 99
97
C7
C8
D1
E3
99
104
106
111
75
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.
Foreign exchange gains and losses resulting from translation are
recognised in the Consolidated Statement of Profit or Loss and
Other Comprehensive Income, 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:
(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 date as control of the subsidiary ceases.
Inter-company transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the transferred asset.
(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
Non-monetary assets and
liabilities carried at fair value
Date of transaction
Reporting date
Date fair value
is determined
Foreign currency amount
Applicable exchange rate
Income and expenses
Monetary 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 discounts on provisions, cost to establish financing facilities
(which are expensed over the term of the facility), losses on
ineffective hedging instruments that are recognised in profit
or loss and finance lease charges.
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use
or sale.
Other borrowing costs are expensed in the period in which they
are incurred.
76 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Restatement of comparative balances
Downer has identified certain accounting adjustments in its Australian Utilities business involving historical misreporting of revenue
and contract assets in one of Downer’s maintenance contracts. As a consequence, the Group identified accounting adjustments
to prior periods in relation to the measure of progress. The adjustments have been corrected by restating each of the affected
financial statement line items of the corresponding prior periods.
The following tables summarises the impacts on the Group’s Consolidated financial statements.
i. Impact on Consolidated Statement of Financial Position
Trade receivables and
contract assets (Current)
Deferred tax assets
Other assets
Total assets
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets
Retained earnings
Other equity
Total equity
Note
C2
B5(b)
B5(b)
30-Jun-22
Reported
$’m
Adjustment
$’m
30-Jun-22
Restated
$’m
1-Jul-21
Reported
$’m
Adjustment
$’m
1-Jul-21
Restated
$’m
1,953.0
3.8
5,504.2
7,461.0
34.7
4,592.3
4,627.0
2,834.0
161.7
2,672.3
2,834.0
(31.8)
–
–
(31.8)
(9.6)
–
(9.6)
(22.2)
(22.2)
–
(22.2)
1,921.2
3.8
5,504.2
7,429.2
25.1
4,592.3
4,617.4
2,811.8
139.5
2,672.3
2,811.8
2,121.0
65.3
5,885.8
8,072.1
5.8
5,108.9
5,114.7
2,957.4
181.5
2,775.9
2,957.4
(15.1)
4.5
–
(10.6)
–
–
–
(10.6)
(10.6)
–
(10.6)
2,105.9
69.8
5,885.8
8,061.5
5.8
5,108.9
5,114.7
2,946.8
170.9
2,775.9
2,946.8
ii. Impact on Consolidated Statement of Profit or Loss and Other Comprehensive Income
Revenue
Other income
Total revenue and other income
Total expenses
Share of net profit of joint ventures and associates
Earnings before interest and tax
Net finance cost
Profit before income tax
Income tax expense
Profit after income tax
Other comprehensive income for the year
Total comprehensive income for the year
iii. Impact on total earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
There is no impact on the total operating, investing or financing cash flows.
Note
B2
B5(a)
30-Jun-22
Reported
$’m
Adjustment
$’m
30-Jun-22
Restated
$’m
10,989.0
165.5
11,154.5
(10,861.0)
29.7
323.2
(85.4)
237.8
(85.8)
152.0
18.5
170.5
(16.7)
–
(16.7)
–
–
(16.7)
–
(16.7)
5.1
(11.6)
–
(11.6)
10,972.3
165.5
11,137.8
(10,861.0)
29.7
306.5
(85.4)
221.1
(80.7)
140.4
18.5
158.9
30-Jun-22
Note
Reported Adjustment
30-Jun-22
Restated
B4
B4
21.3
21.2
(1.7)
(1.7)
19.6
19.5
77
Notes to the consolidated financial statements 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
B5. Taxation
B6. Remuneration of auditor
B7. Subsequent events
B1. Segment information
Identification of reportable segments
An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur
expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker in order to effectively
allocate Group resources and assess performance.
The Group has identified its operating segments based on the internal reports that are reviewed and used by the Group CEO in
assessing performance and in determining the allocation of resources. The operating segments are identified by the Group based
on the nature of the services provided. Discrete financial information about each of these operating businesses is reported to the
Group CEO on a recurring basis.
The reportable segments are based on a combination of operating segments determined by the similarity of the services provided,
the sources of the Group’s major risks that could therefore have the greatest effect on the rates of return and their quantitative
contribution to the Group’s results. The Power Systems business unit transitioned to the Utilities Division to consolidate
Utilities work under a single division creating synergies and further opportunities in the Power, Water and Renewables sectors.
Consequently, Power Systems now forms part of the Utilities segment (previously reported as part of the Transport segment).
Following the restructure of the Group and the creation of a Trans-Tasman operating model, the Hawkins building business
has transitioned from the Facilities segment to the Transport segment. This restatement has been made to align with how the
businesses are reported internally to the Group CEO.
As a result, prior year comparative segment information has been restated.
The reportable segments identified within the Group are outlined as follows:
Segment
Segment description
Transport
Utilities
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. Transport also provides building and construction solutions across a variety of
sectors in New Zealand.
Comprises the Group’s power, gas, water 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; and end-to-end technology and communications solutions including design,
civil construction, network construction, operations and maintenance across fibre, copper and radio networks.
78 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Segment
Segment description
Facilities
Facilities provides outsourced facility services to customers across a diverse range of industry sectors including:
defence; education; government; healthcare; resources; leisure; assets services and hospitality. Facilities provides
technical and engineering services; maintenance and asset management services including shutdowns, turnaround
and outage delivery; operations maintenance, refrigeration solutions and ongoing management of strategic assets
across a range of sectors. It also provides feasibility studies; engineering design; procurement and construction;
commissioning and decommissioning services; and design and manufacture of mineral process equipment.
All other
segments
Prior year comprises of the Group's Mining operating segment. The Mining divestment was completed with
Otraco and Open Cut Mining East disposed of during the financial year ended 30 June 2022.
2023
$’m
Transport Utilities Facilities
All other
segments Unallocated
Total
Segment revenue and other income
Share of sales revenue from joint ventures and associates(i)
Total revenue including joint ventures and
other income(i)
Share of net profit from joint ventures and associates
Depreciation and amortisation
6,050.1
802.4
2,258.2
–
3,413.0
–
6,852.5
29.4
217.4
2,258.2
–
30.7
3,413.0
–
41.6
Total reported segment results – EBIT before
amortisation of acquired intangibles (EBITA)
Amortisation of acquired intangibles
Earnings before interest and tax (EBIT)
Net finance costs
Total loss before income tax
Acquisition of segment assets
Segment assets
Segment liabilities
Carrying value of equity accounted investees
288.9
(4.5)
284.4
(10.3)
(0.3)
(10.6)
162.1
(5.0)
157.1
205.7
3,518.5
1,680.5
130.4
13.6
1,179.9
575.1
–
17.9
2,019.1
792.1
–
–
–
–
–
–
–
–
–
–
–
–
–
7.7
88.3
11,729.0
890.7
96.0
0.4
46.5
12,619.7
29.8
336.2
(668.0)
(16.4)
(684.4)
32.5
596.8
1,976.8
28.8
(227.3)
(26.2)
(253.5)
(88.0)
(341.5)
269.7
7,314.3
5,024.5
159.2
2022 Restated(ii)
$’m
Transport Utilities Facilities
segments Unallocated
Total
All other
Segment revenue and other income
Share of sales revenue from joint ventures and associates(i)
Total revenue including joint ventures and
other income(i)
Share of net profit from joint ventures and associates
Depreciation and amortisation
5,448.9
762.1
2,030.3
–
3,393.0
1.6
6,211.0
34.6
190.3
2,030.3
–
28.2
3,394.6
0.1
51.5
Total reported segment results – EBIT before
amortisation of acquired intangibles (EBITA)
Amortisation of acquired intangibles
Earnings before interest and tax (EBIT)
Net finance costs
Total profit before income tax
Acquisition of segment assets
Segment assets
Segment liabilities
Carrying value of equity accounted investees
269.4
(5.1)
264.3
59.9
(0.3)
59.6
145.6
(5.0)
140.6
249.8
3,305.4
1,471.7
134.4
8.3
978.0
529.8
–
12.2
2,552.6
862.9
–
248.2
–
248.2
–
19.7
8.1
–
8.1
7.6
5.5
12.8
–
(i) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.
(ii) Restated to reflect the changes in operating segments described above and to include the accounting adjustment as described in Note A.
17.4
68.9
86.3
(5.0)
52.5
11,137.8
832.6
11,970.4
29.7
342.2
(141.7)
(24.4)
(166.1)
32.5
587.7
1,740.2
28.4
341.3
(34.8)
306.5
(85.4)
221.1
310.4
7,429.2
4,617.4
162.8
79
Notes to the consolidated financial statements B1. Segment information – continued
Reconciliation of segment EBIT to net profit after tax:
Segment EBIT
Unallocated:
Fair value movement on DCSO liability
Divestments and exit costs
Portfolio restructure costs
Regulatory reviews and shareholder class action related costs
Impairment and other assets write-downs
Probuild credit loss
Bid costs
Gain on sale of property, plant and equipment
Amortisation of Spotless and Tenix acquired intangible assets
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
(i) June 2022 results have been restated (refer to Note A for further details).
Segment assets by geographical location
Geographical location(i)
Australia
New Zealand and Pacific
Rest of the world
Total
Segment results
2023
$’m
Restated(i)
2022
$’m
430.9
472.6
10.0
20.8
(25.4)
(6.5)
(549.6)
–
–
–
(16.4)
(117.3)
(684.4)
(253.5)
(88.0)
(341.5)
(44.2)
(385.7)
3.7
(75.8)
(7.6)
–
–
(34.6)
(12.7)
85.8
(24.4)
(100.5)
(166.1)
306.5
(85.4)
221.1
(80.7)
140.4
Note
B3
B3
B3
B3
B3
B3
B3
B3
B5(a)
Segment assets
Non-current(ii)
2023
$’m
2022
$’m
3,147.4
566.9
0.9
3,715.2
3,747.2
521.8
0.5
4,269.5
Acquisition of
segment assets
Non-current
2023
$’m
197.7
71.5
0.5
269.7
2022
$’m
255.6
54.3
0.5
310.4
(i) Assets are allocated based on the geographical location of the legal entity.
(ii) Total of non-current assets other than deferred tax assets, financial instruments, post-employment benefit assets and trade and other receivables.
80 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements B2. Revenue
Revenue and other income
2023
$’m
Rendering of services
Construction contracts
Sale of goods
Total revenue from contracts
with customers
Other revenue
Total revenue
Government grants(i)
Insurance recoveries
Gain on sale of property, plant
and equipment
Gain on disposal of business
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)
2022
Restated(iv)
$’m
Rendering of services
Construction contracts
Sale of goods
Total revenue from contracts
with customers
Other revenue
Total revenue
Government grants(iii)
Insurance recoveries
Gain/(loss) on sale of property, plant
and equipment
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)
Transport
Utilities
Facilities
All other
segments Unallocated
3,240.6
2,456.9
268.6
5,966.1
7.2
5,973.3
0.5
13.1
19.2
44.4
(0.4)
76.8
6,050.1
1,892.4
358.1
6.8
2,257.3
0.1
2,257.4
0.4
–
0.3
–
0.1
0.8
2,258.2
3,383.5
–
28.6
3,412.1
–
3,412.1
0.1
–
0.7
–
0.1
0.9
3,413.0
802.4
–
–
6,852.5
2,258.2
3,413.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
8,516.5
2,815.0
304.0
11,635.5
4.9
11,640.4
1.0
13.2
20.2
44.4
9.8
88.6
11,729.0
–
–
–
–
(2.4)
(2.4)
–
0.1
–
–
10.0
10.1
7.7
88.3
890.7
96.0
12,619.7
Transport
Utilities
Facilities
All other
segments Unallocated
2,797.9
2,286.3
213.5
5,297.7
6.7
5,304.4
9.9
9.6
120.0
5.0
144.5
5,448.9
1,708.6
309.5
4.0
2,022.1
0.7
2,022.8
6.0
–
1.1
0.4
7.5
2,030.3
3,367.5
–
19.1
3,386.6
0.7
3,387.3
2.3
–
0.3
3.1
5.7
3,393.0
241.9
–
0.7
242.6
6.2
248.8
–
–
(0.5)
(0.1)
(0.6)
248.2
–
–
–
–
9.0
9.0
–
3.3
1.2
3.9
8.4
17.4
Total
8,115.9
2,595.8
237.3
10,949.0
23.3
10,972.3
18.2
12.9
122.1
12.3
165.5
11,137.8
762.1
–
1.6
–
68.9
832.6
6,211.0
2,030.3
3,394.6
248.2
86.3
11,970.4
(i) Government grants represents incentives received under the New Zealand Government’s COVID leave support scheme available to eligible businesses impacted by the
COVID-19 pandemic, as well as in relation to the New Zealand Government’s apprentice boost scheme.
(ii) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.
(iii) Government grants represents incentives received under the New Zealand Government’s wage subsidy scheme, COVID leave support scheme available to eligible
businesses impacted by the COVID-19 pandemic as well as in relation to the New Zealand Government’s apprentice boost scheme.
(iv) Revenue disclosures have been restated to reflect the changes in operating segments described in Note B1 and to include the accounting adjustment as described in
Note A.
81
Notes to the consolidated financial statements B2. Revenue – continued
Revenue from contracts with customers by geographical location
2023
$’m
Transport
Utilities
Facilities
All other
segments Unallocated
Total
Geographical location(i)
Australia
New Zealand and Pacific
Rest of the world
Total revenue from contracts
with customers
2022
Restated(ii)
$’m
Geographical location(i)
Australia
New Zealand and Pacific
Rest of the world
Total revenue from contracts
with customers
3,590.5
2,375.6
–
1,732.9
524.4
–
3,031.2
342.8
38.1
5,966.1
2,257.3
3,412.1
–
–
–
–
–
–
–
–
8,354.6
3,242.8
38.1
11,635.5
Transport
Utilities
Facilities
All other
segments Unallocated
Total
3,297.1
2,000.6
–
1,524.8
497.3
–
3,065.3
295.0
26.3
229.0
–
13.6
5,297.7
2,022.1
3,386.6
242.6
–
–
–
–
8,116.2
2,792.9
39.9
10,949.0
(i) Revenue is allocated based on the geographical location of the legal entity.
(ii) Revenue disclosures have been restated to reflect the changes in operating segments described in Note B1 and to include the accounting adjustment as described in
Note A.
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 (AASB 15). Revenue is measured
at 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
§ Rollingstock maintenance and rail asset
management services
§ Engineering and consultancy services
§ Facilities management
Typically, under the performance obligations of service
contracts, the customer consumes and receives the benefit
of the service as it is provided. As such, service revenue is
recognised over time as the services are provided.
(ii) Construction contracts
The contractual terms and the way in which the Group operates
its construction contracts are predominantly derived from
projects containing one performance obligation. Under these
82 Annual Report 2023 | Downer EDI Limited
performance obligations, performance creates or enhances
an asset that the customer controls as the asset is created,
or performance does not create an asset with an alternative
use to the Group and the Group has an enforceable right to
payment for performance completed to date. Therefore, 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 primarily includes insurance recoveries,
government grants, gains on sale of property, plant and
equipment, and gain on disposal of business.
Insurance recoveries relate to insurance refunds received
for claims lodged that met the recoverability criteria of being
‘virtually certain’ following confirmation of indemnity received
from insurers.
Government grants relate to income received under the New
Zealand Government’s COVID leave support scheme available
to eligible businesses that were adversely impacted by the
COVID-19 pandemic as well as in relation to the New Zealand
Government’s apprentice boost scheme, while the prior year
government grants additionally includes the New Zealand
Government’s Wage Subsidy Scheme. The Group elects to
present these subsidies in ‘Other income’ as allowed under
AASB 120 Accounting for Government grants and disclosure of
Government assistance.
Notes to the consolidated financial statements The gain on sale of property, plant and equipment in the prior
year primarily relates to the compulsory acquisition of Downer’s
land at Rosehill.
Gain on disposal of business relates to the divestment of
Transport Projects. For more details see Note B3.
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.
Measure of progress
The Group recognises revenue using the measure of progress
that best reflects the Group’s performance in satisfying the
performance obligation over time. The different methods
of measuring progress include an input method (e.g. costs
incurred) or an output method (e.g. time elapsed). The same
method of progress will be consistently applied to similar
performance obligations.
As a practical expedient where the Group has a right to invoice
the customer at an amount that corresponds directly with its
performance to date, then the Group recognises revenue at
that amount.
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 the ‘highly probable’
thresholds have 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 these services is expected to be one year or less.
Remaining performance obligations
As of 30 June 2023, the aggregate amount of the transaction
price allocated to the remaining performance obligations
is $19,458.2 million (2022: $15,973.1 million). The Group will
recognise this revenue when the performance obligations
are satisfied. Approximately ~45% of remaining performance
obligations are expected to occur within the next five years;
with the remaining ~55% related to long-term service/
maintenance contracts ranging up to 39 years.
The remaining performance obligations balances for both
30 June 2023 and 30 June 2022 presented above relate to the
revenue expected to be recognised from ongoing contracts with
an expected duration of more than 12 months.
During the current financial year revenue of $2,682.9 million has
been recognised in relation to performance obligations satisfied
or partially satisfied in previous periods.
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 (e.g. 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.
In making this assessment, the Group considers the performance
of a contract cumulatively life to date, in the most recent
reporting period, and updates the final forecast at completion.
In circumstances where contracts have incurred losses, either
cumulatively life to date or in the reporting period, and the
final forecast margin anticipates improvements in contract
performance to deliver an overall profitable outcome on the
contract, detailed reviews are completed to assess the basis
and reasonableness of the expected turnaround. In these
circumstances an onerous contract is not recognised.
83
Notes to the consolidated financial statements B2. Revenue – continued
Key estimate and judgement: Revenue recognition
Measure of Progress
Management uses judgement in selecting an appropriate measure of progress towards completing satisfaction of an obligation.
The selected method considers the nature of the good or service that the Group has promised to transfer to the customer.
Stage of completion
Determining the stage of completion based on a percentage of costs to complete 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 expense, forming part of the unallocated segment are relevant to an understanding of the Group’s
financial performance:
2023
$’m
Other income
Gain on disposal of business
Impairment of non-current assets
Employee benefits expense
Raw materials and consumables used
Other expenses from ordinary activities
Loss/(profit) before interest and tax
Income tax expense/(benefit)
Loss/(profit) after income tax
Fair value
movement on
DCSO liability
Divest-
ments
and exit
costs
Portfolio
restructure
costs
Regulatory
reviews and
shareholder
class action
related costs
Impairment
and other
assets
write-downs
(10.0)
–
–
–
–
–
(10.0)
–
(10.0)
–
(44.4)
0.7
10.4
–
12.5
(20.8)
18.6
(2.2)
–
–
-
9.7
–
15.7
25.4
(7.6)
17.8
–
–
–
–
–
6.5
6.5
(1.9)
4.6
–
–
538.8
–
5.0
5.8
549.6
(18.3)
531.3
Total
(10.0)
(44.4)
539.5
20.1
5.0
40.5
550.7
(9.2)
541.5
Divestments and exit costs
During the year, divestment and exit costs were recognised
in relation to Australian Transport Projects – On 20 June
2023, Downer completed the sale of its Australian Transport
Projects business to DT Infrastructure Pty Ltd, a Gamuda
Berhad group company (Gamuda). There remains a number
of customer consents outstanding at the date of completion,
some of which remain outstanding as at the date of this report.
These contracts will remain with Downer until the consents
are received.
Fair value movement on Downer Contingent Share
Options (DCSO) liability
As part of the consideration to acquire the shares in Spotless
that it did not already own, in 2020 the Group granted three
tranches of 2.5 million share options to the previous minority
interest shareholders which are exercisable within four years
of issue on achievement of three prescribed share price
targets (the Downer Contingent Share Options or DCSO). The
fair value at issue date of these options was recognised as a
liability arising on the acquisition of the shares. The DCSO are
classified as a liability, with subsequent changes in the fair value
recognised in the Consolidated Statement of Profit or Loss and
Other Comprehensive Income. Since 30 June 2022, the fair
value of the DCSO has decreased by $10.0 million, which has
been recognised through ‘Other income’ in the Consolidated
Statement of Profit or Loss and Other Comprehensive Income
during the year. This income is driven by the decrease in
Downer’s share price from $5.05 at 30 June 2022 to $4.11 at
30 June 2023.
84 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Impairment and other assets write-downs
Following the identification of possible impairment indicators,
the Group undertook an assessment of the carrying value of
the Utilities Australia and Facilities Group of CGUs. As a result
of this assessment, a goodwill impairment of $483.0 million
($133.0 million related to Utilities Australia and $350.0 million
related to Facilities) was recognised as at 30 June 2023.
Refer to Note C7 for further details.
Impairment of assets by $66.6 million (pre-tax) relates to
adjustment in the carrying value of:
§ Carrying value of fixed assets and inventory in the Rail
business;
§ Shut down, relocation and consolidation of asphalt plants
in Australia;
§ IT and other assets that will no longer be utilised or provide
future economic benefit as a result of business restructuring,
divestments and transformation; and
§ Office space being surplus to requirements and vacated
as a result of business restructuring, divestments and
transformation.
In addition to transaction related costs incurred during the
period, assets previously utilised by the business which will
no longer be required by the Group have been written off.
The material elements of divestment and exit costs include:
§ $44.4 million pre-tax gain (including disposal costs) from the
disposal of the Australian Transport Project business. Refer
to Note F6.
§ $23.6 million pre-tax exit costs, relating to impairments of IT
infrastructure and applications, transaction-related employee
benefit expenses, costs provision for defect liability periods
and other exit costs.
§ A net income tax expense of $18.6 million mainly arising on
the gain on divestments and includes the tax impact of non-
deductible goodwill disposed.
Portfolio restructure costs
Represents restructuring costs incurred during the year
following Downer’s commencement of the Transformation
program to restructure its operating model and includes
restructuring expenses, redundancy and costs associated
with establishing and running the Transformation program.
Regulatory reviews and shareholder class action
related costs
Regulatory review and shareholder class action related costs
of $6.5 million were incurred in relation to:
§ Responding to regulatory reviews by certain
regulatory authorities;
§ The review of the Australian Utilities maintenance
contract; and
§ Defending the shareholder class actions filed against Downer
during the financial year. These claims have been disclosed
as a contingent liability. Refer to Note C9.
Prior Year
The Group recognised the following items as individually significant items as at 30 June 2022:
2022
$’m
Revenue and other income
Loss on disposal of businesses
Impairment of non-current assets
Employee benefits expense
Subcontractors costs
Other expenses from
ordinary activities
Loss/(profit) before interest
and tax
Income tax expense
Loss/(profit) after income tax
Fair value
movement
on DCSO
liability
Divest–
ments
and exit
costs
Portfolio
restructure
costs
Probuild
credit loss
Bid costs
Gain
on sale
of PP&E
(3.7)
–
–
–
–
–
(3.7)
–
(3.7)
–
17.3
38.8
6.8
–
12.9
75.8
(5.0)
70.8
–
–
–
7.6
–
–
7.6
(2.3)
5.3
–
–
–
–
–
34.6
34.6
(6.9)
27.7
(4.0)
–
–
4.3
12.2
0.2
12.7
(3.8)
8.9
(104.8)
–
–
–
–
19.0
(85.8)
25.7
(60.1)
Total
(112.5)
17.3
38.8
18.7
12.2
66.7
41.2
7.7
48.9
85
Notes to the consolidated financial statements unrecoverable Probuild costs in the AE Smith Construction tax-
consolidated group as a consequence of the change in strategic
direction of these companies.
Bid costs
In the process of tendering for the State of Queensland Train
Manufacturing Program, Downer incurred a net of $12.7 million
in bid costs.
Gain on sale of Property, Plant and Equipment
Downer received notice from Sydney Metro of its intention
to compulsorily acquire Downer’s land at 1A Unwin Street,
Rosehill for the purposes of the Sydney Metro West project.
The site was used to operate Downer’s primary Asphalt and
recycling operations in Sydney.
Sydney Metro and Downer reached agreement under the
Land Acquisition (Just Terms Compensation) Act on the
compensation payable to Downer for the acquisition.
The transaction has resulted in Sydney Metro reimbursing
Downer, on a like-for-like basis, for the actual costs incurred on
the construction and commissioning of a replacement facility.
Downer completed the construction of a replacement facility,
also in Rosehill, without any disruptions to its operations.
The difference between the historical written-down book
value of the existing facility, the reimbursement of costs
for the replacement facility and relocation costs has been
recognised as a $60.1 million after-tax gain for the year ended
30 June 2022.
B3. Individually significant items – continued
Fair value movement on Downer Contingent Share
Options (DCSO) liability
Since 30 June 2021, and primarily driven by the movement
in Downer’s share price from $5.59 at 30 June 2021 to $5.05
at 30 June 2022, the fair value of the DCSO decreased by
$3.7 million, which has been recognised in ‘Other income’
in the Consolidated Statement of Profit or Loss and Other
Comprehensive Income during the year.
Divestments and exit costs
The divestment program was completed following the disposal
of Otraco on 1 December 2021, the sale of Open Cut Mining
East (OCE) on 17 December 2021, and the exit from a number
of Hospitality contracts. Assets previously utilised by those
businesses which will no longer be utilised by the Group have
been written off. The material elements of divestment and exit
costs include:
§ $17.3 million net pre-tax loss (including disposal costs) from
the disposal of Otraco and OCE. Refer to Note F6.
§ $58.5 million pre-tax exit costs, relating to impairments of IT
infrastructure and applications ($25.5 million); impairment of
right-of-use assets and leasehold improvements for leased
properties ($13.3 million); and inventory write-offs and other
exit costs totalling $19.7 million.
§ A net income tax benefit of $5.0 million arising on divestment
and exit costs. This is comprised of an income tax benefit
of $22.6 million on divestment costs offset in part by
income tax expense of $17.6 million on derecognition of
deferred tax balances in the AE Smith Construction tax-
consolidated group due to a change in strategic direction
of these companies.
Portfolio restructure costs
As a result of the divestment program, Downer has
reduced management overhead with restructuring costs
of $7.6 million expensed.
Probuild credit loss
In November 2018, the Group entered into contracts with
Probuild Constructions (Australia) Pty Ltd (Probuild) as a
subcontractor for the provision of mechanical and electrical
services for the new Victoria Police building in Melbourne. On
23 February 2022 Probuild entered into voluntary administration
and appointed an Administrator. The Practical Completion of
services was achieved on 9 July 2020.
Outstanding claims which are unpaid by Probuild, of
approximately $29.4 million, had previously been recognised
as a contract asset by the Group. Recovery became subject to
risk due to the administration. The total expense recognised
in the prior year of $34.6 million includes the impairment of
this contract asset, trade receivables balances as well as legal
costs incurred.
The net income tax benefit arising on the Probuild credit loss
is $6.9 million. No income tax benefit has been recognised on
86 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements B4. Earnings per share
Basic earnings per share
The calculation of basic earnings per share (EPS) is based on the profit/loss attributable to ordinary shareholders and the
weighted-average number of ordinary shares outstanding.
(Loss)/profit attributable to members of the parent entity ($’m)
Adjustment to reflect ROADS dividends paid ($’m)
(Loss)/profit attributable to members of the parent entity used in calculating basic EPS ($’m)
Weighted average number of ordinary shares (WANOS) on issue (m’s)(ii)
Basic earnings per share (cents)
2023
(385.7)
(10.7)
(396.4)
671.5
(59.0)
Restated(i)
2022
140.0
(5.9)
134.1
684.2
19.6
Diluted earnings per share
The calculation of diluted earnings per share is based on the following profit/loss attributable to ordinary shareholders and the
weighted-average number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares.
(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)(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)
2023
Restated(i)
2022
(385.7)
140.0
671.5
44.3
715.8
(59.0)
684.2
32.2
716.4
19.5
(i) June 2022 results have been restated (refer to Note A for further details).
(ii) The WANOS on issue has been adjusted by the weighted average effect of on-market share buy-back and the unvested 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 $183.8 million (2022: $180.4 million), divided
by the average market price of the Company’s ordinary shares for the period 1 July 2022 to 30 June 2023 discounted by 2.5% according to the ROADS contract terms,
which was $4.15 (2022: $5.60).
(iv) At 30 June 2023 the ROADS were deemed anti-dilutive and consequently, diluted EPS remained at a loss of 59.0 cents per share.
B5. Taxation
(a) Reconciliation of income tax expense
The prima facie income tax (benefit)/expense on the pre-tax result for the year reconciles to the income tax expense in the
financial statements as follows:
(Loss)/Profit before income tax(i)
Tax using the Company’s statutory tax rate(i)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Profits and franked distributions from joint ventures and associates
Non-assessable income
Impairment of goodwill
Tax effect of divestments
Tax effect of previously unrecognised capital losses
(Benefit)/expense of unrecognised temporary differences
Other items
(Over)/under provision of income tax in previous year
Total income tax expense
Current tax expense
Deferred tax expense
(i) June 2022 results have been restated (refer to Note A for further details).
2023
$’m
(341.5)
(102.5)
(0.9)
0.7
(7.3)
(3.0)
144.9
14.0
(2.3)
(0.5)
3.3
(2.2)
44.2
35.9
8.3
Restated(i)
2022
$’m
221.1
66.2
(1.8)
4.1
(6.8)
(3.9)
-
-
(2.6)
17.6
3.7
4.2
80.7
23.9
56.8
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.
87
Notes to the consolidated financial statements 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 estimates and judgements:
Recognition of deferred tax assets
Deferred tax assets are recognised for deductible temporary
differences, unused tax and capital losses and tax offsets,
to the extent it is probable that sufficient future taxable
profits will be available to utilise them. Estimation is required
to determine the amount of deferred tax assets that can be
recognised, based upon the likely timing, nature and 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.
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 and capital losses and tax
offsets, to the extent that it is probable that sufficient taxable
profits will be available to utilise them.
However, deferred tax assets and liabilities are not
recognised for:
§ Temporary differences that arise from the initial recognition
of assets or liabilities in a transaction that is not a business
combination which affects neither taxable income nor
accounting profit
§ Temporary differences relating to investments in subsidiaries,
associates and joint ventures to the extent that the Group
is able to control the timing of the reversal of the temporary
differences and it is probable that they will not reverse in the
foreseeable future
§ Taxable temporary differences arising from goodwill.
An estimated capital loss of $101.0 million is expected to arise
on an asset held for sale for which a deferred tax asset has not
been recognised as it is not probable that a future capital gain
will arise.
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.
88 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements .
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T
Notes to the consolidated financial statements
B6. Remuneration of auditor
Audit and review of financial statements
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.
2023
$
2022
$
5,218,698
4,938,095
65,500
253,702
319,202
24,150
16,694
40,844
20,000
445,278
465,278
248,596
96,679
345,275
B7. Subsequent events
As communicated at Downer’s Investor Day in April, a review of Downer’s Australian Mechanical and Electrical Commercial Projects
business (Business) and other businesses that do not match Downer’s preferred sector and customer characteristics has been
completed. Downer announced on 10 August 2023 it has entered into an agreement to sell the remaining part of the Business.
The Business (which was part of the Facilities CGU) has been wound down progressively since Downer announced its exit from the
Australian commercial construction and projects market in 2020. The Business generated revenue of approximately $200 million
and a small EBIT loss in FY23.
The transaction, purchased by existing managers of the business, is at an agreed purchase price of $10.5 million and approximately
cash neutral after net debt and working capital adjustments, and will result in a pre-tax loss of approximately $14 million in FY24.
This transaction now completes Downer’s exit from the Australian commercial Projects (construction) market.
Outside of the above, at the date of this report, there is no other matter or circumstance that has arisen since the end of the
financial year, that has 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.
90 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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. Other provisions
C9. Contingent liabilities
C1. Reconciliation of cash and cash equivalents
(a) Reconciliation of cash flows from operating activities
(Loss)/Profit after tax for the year(i)
Adjustments for:
Share of joint ventures and associates' profits net of distributions
Depreciation on leased assets
Depreciation and amortisation of other non-current assets
Impairment of other non-current assets
Amortisation of deferred borrowing costs
Net (gain)/loss on sale of property, plant and equipment
Net (gain)/loss on disposal of businesses
Movement in current tax balances
Movement in deferred tax balances(i)
Movements on net defined benefit plan obligation
Share-based employee benefits (income)/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(i)
Current inventories
Other current assets
Non-current trade receivables and contract assets
Other non-current assets
Increase/(decrease) in liabilities:
Current trade payables and contract liabilities
Current financial liabilities
Current provisions
Non-current trade payables and contract liabilities
Non-current financial liabilities
Non-current provisions
Net cash generated by operating activities
(i) Balances have been restated (refer to Note A for further details).
Note
F1(a)
C6
C5,C7
F6
D2
D1
2023
$’m
Restated(i)
2022
$’m
(385.7)
140.4
3.6
154.9
181.3
539.5
3.9
(20.2)
(44.4)
28.7
8.3
1.5
(0.8)
1.0
857.3
(289.4)
(26.6)
(10.6)
(17.1)
(10.7)
186.3
(14.4)
(2.1)
15.4
0.8
15.0
(153.4)
318.2
(7.8)
160.3
181.9
42.0
4.4
4.1
17.3
6.1
56.8
1.6
4.2
–
470.9
78.6
2.8
3.5
(13.7)
(3.6)
(172.7)
34.9
(27.5)
11.8
(13.4)
(16.6)
(115.9)
495.4
91
Notes to the consolidated financial statements C1. Reconciliation of cash and cash equivalents – continued
(b) Reconciliation of liabilities arising from financing activities
2023
$’m
Interest bearing loans
Lease liabilities
Total liabilities from
financing activities
2022
$’m
Interest bearing loans
Lease liabilities
Total liabilities from
financing activities
(c) Cash and cash equivalents
1 July
2022
Net cash
flows
Lease net
additions and
remeasure
Other
non-cash
changes
1,361.7
543.9
227.5
(165.0)
1,905.6
62.5
–
159.4
159.4
7.2
3.8
11.0
Disposal of
businesses
and held
for sale
–
(4.9)
30 June
2023
1,596.4
537.2
(4.9)
2,133.6
Net cash
flows
Lease net
additions and
remeasure
Other
non-cash
changes
Disposal of
businesses
30 June
2022
1 July
2021
1,481.6
662.8
(122.6)
(163.6)
2,144.4
(286.2)
–
107.2
107.2
2.7
(21.7)
–
(40.8)
1,361.7
543.9
(19.0)
(40.8)
1,905.6
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
Trade receivables
Contract assets(ii)
Other receivables
Loss allowance on trade receivables and contract assets arising from contracts with customers
Total trade receivables and contract assets
Included in the financial statements as:
Current(ii)
Non-current
(i) Balances have been restated (refer to Note A for further details).
(ii) Current contract assets: $1,336.5 million (2022: $1,231.2 million).
2023
$’m
861.9
27.2
889.1
2023
$’m
677.8
1,474.6
2,152.4
113.8
(33.2)
2,233.0
2,094.2
138.8
2022
$’m
716.2
22.3
738.5
Restated(i)
2022
$’m
682.9
1,351.8
2,034.7
40.5
(32.4)
2,042.8
1,921.2
121.6
92 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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 and loss allowance is presented below:
Government – not due
Government – less than 90 days past due
Government – more than 90 days past due
Private – not due
Private – less than 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
2023
$’m
894.2
30.5
7.8
1,157.6
44.5
17.8
2,152.4
29.0
4.2
33.2
Restated(i)
2022
$’m
831.2
29.8
23.8
1,064.8
62.4
22.7
2,034.7
29.8
2.6
32.4
(i) Balances have been restated (refer to Note A for further details).
The Group has policies to manage its overall exposure to credit
risk as set out in Note G2(e).
In assessing lifetime expected credit losses (ECL) as at 30 June
2023, the Group has considered the risk arising from the general
economic environment such as persistent inflation, rising
interest rates, economic impacts of COVID-19 and potential
defaults occurring within the construction environment in which
Downer partially operates. 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 Company
defines counterparties as ‘Government’ if the contract is with a
Federal, State or Local Government body. Any counterparties
other than those defined as ‘Government’, are classified as
‘Private’, and includes sectors heavily regulated by Government
organisations (such as Gas and Electricity), Blue-Chip listed
companies, contracts run under the Public-Private-Partnership
model ((PPPs) for which Government organisations are
often the end customer), 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 (2022: negligible) due to the high
creditworthiness of the counterparties. No ‘Government’ related
balances are currently in default.
For ‘Private’ balances, the Group has assessed the potential
credit risk of default on key customers utilising credit ratings
provided by financial institutions. For those ‘Private’ receivables/
contract assets that are ultimately backed by the Government
or a Government body, the credit risk is considered to be low or
negligible. For those counterparties that are currently in default
or a risk of default is determined, the Group has recognised
specific impairment/credit allowances. As at 30 June 2023, the
$33.2 million (2022: $32.4 million) loss allowance includes a
specific provision of $28.4 million (2022: $29.4 million) in relation
to Probuild Pty Ltd as this customer went into administration
in 2022.
Based on the above methodology and in reference to past
default experience, the ECLs have increased from $2.6 million
at 30 June 2022 to $4.2 million at 30 June 2023.
Credit losses on ‘Private’ counterparty balances have historically
averaged less than 1%. The allowance for credit losses,
excluding specific provisions, is 0.3% (2022: 0.2%) of the trade
receivables and contract assets.
Recognition and measurement
Trade receivables
Trade receivables and other receivables are held with the
objective of collecting contractual cash flows and 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.
93
Notes to the consolidated financial statements C2. Trade receivables and contract assets
– continued
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 trade receivables and contract assets are
considered to represent their fair values.
Impairment
The Group has applied the simplified approach to recognise
lifetime expected credit losses for trade receivables and
contract assets 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 rising interest rates and
inflation) affect the 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).
Key estimate: 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.
94 Annual Report 2023 | Downer EDI Limited
C3. Inventories
Current
Raw materials
Work in progress
Finished goods
Components and spare parts(i)
Total inventories
2023
$’m
46.1
5.3
59.2
124.2
234.8
2022
$’m
39.2
3.9
55.6
110.2
208.9
(i) Write-down of inventories to their net realisable value amounted to $5.0 million
(2022: nil) at one of Rail & Transit Systems’ maintenance facilities. Refer to
Note B3.
Recognition and measurement
Inventories are valued at the lower of cost and net realisable
value. Net realisable value represents the estimated selling price
less all estimated costs of completion and costs to be incurred
in marketing, selling and distribution.
C4. Trade payables and contract liabilities
Trade payables
Contract liabilities
Accruals
Other payables
Total trade payables
and contract liabilities
Included in the financial
statements as:
Current
Non-current
2023
$’m
817.4
359.5
931.6
225.0
2022
$’m
785.0
364.6
949.1
155.9
2,333.5
2,254.6
2,272.4
61.1
2,208.1
46.5
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 Company’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 $364.6 million at 30 June
2022, substantially all of this revenue 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.
Notes to the consolidated financial statements C5. Property, plant and equipment
2023
$’m
Balance as at 1 July 2022
Additions
Disposals at net book value
Disposal of businesses
Depreciation expense
Impairment charge(i)
Transferred to disposal group assets held for sale
Net foreign currency exchange differences at net book value
Net book value as at 30 June 2023
Cost
Accumulated depreciation and impairment
2022
$’m
Balance as at 1 July 2021
Additions
Acquisition of businesses
Disposals at net book value
Disposal of businesses
Depreciation expense
Impairment charge(ii)
Net foreign currency exchange differences at net book value
Net book value as at 30 June 2022
Cost
Accumulated depreciation and impairment
Freehold
land and
buildings
Plant,
equipment
and leasehold
improvements
Note
F6
B3
F7
87.5
77.6
(25.0)
–
(2.2)
–
–
(0.2)
137.7
170.8
(33.1)
836.9
151.8
(6.9)
(36.7)
(126.1)
(25.2)
(0.4)
3.6
797.0
1,751.7
(954.7)
Freehold
land and
buildings
Plant,
equipment
and leasehold
improvements
Note
F6
B3
67.1
29.0
6.3
(12.3)
–
(2.2)
–
(0.4)
87.5
118.6
(31.1)
927.6
221.5
9.3
(18.4)
(164.7)
(122.5)
(10.4)
(5.5)
836.9
1,748.0
(911.1)
Total
924.4
229.4
(31.9)
(36.7)
(128.3)
(25.2)
(0.4)
3.4
934.7
1,922.5
(987.8)
Total
994.7
250.5
15.6
(30.7)
(164.7)
(124.7)
(10.4)
(5.9)
924.4
1,866.6
(942.2)
(i)
(ii)
Impairment relates to the adjustment to the carrying value of assets at one of Rail & Transit Systems’ maintenance facilities, and to other assets in Australia following a
strategic review. Refer to Note B3.
Impairment includes $7.2 million in relation to leasehold improvements write-off as a result of divestments (Note B3) and to assets damaged following the flooding/wet
weather events in Queensland.
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
Freehold land
Buildings
Leasehold improvements
Plant and equipment – power and gas
Plant and equipment – other
Useful life
n/a
20 to 50 years
Lease term
Working hours
3 to 25 years
Depreciation method
No depreciation
Straight-line
Straight-line
Based on hours of use
Straight-line
Key estimate: Useful lives
The estimation of the useful lives 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 are made when
considered necessary.
95
Notes to the consolidated financial statements 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:
2023
$’m
Note
Leasehold
property
Motor
vehicles
Plant and
equipment
Balance as at 1 July 2022
Additions
Remeasure
Depreciation expense
Impairment charge(i)
Transferred to disposal group assets held for sale
Disposals at net book value
Disposal of businesses
Net foreign currency exchange differences at net
book value
Net book value as at 30 June 2023
Cost
Accumulated depreciation and impairment
B3
F7
F6
242.3
23.7
25.3
(53.1)
(7.8)
(1.5)
(0.2)
(0.3)
1.6
230.0
453.4
(223.4)
110.1
67.7
(1.3)
(62.1)
–
(1.0)
(1.3)
(1.4)
0.2
110.9
283.6
(172.7)
83.8
30.9
21.8
(39.7)
–
(0.1)
(10.5)
–
1.4
87.6
204.9
(117.3)
2022
$’m
Note
Leasehold
property
Motor
vehicles
Plant and
equipment
Balance as at 1 July 2021
Additions
Remeasure
Depreciation expense
Impairment charge(ii)
Disposals at net book value
Disposal of businesses
Net foreign currency exchange differences at net
book value
Net book value as at 30 June 2022
Cost
Accumulated depreciation and impairment
B3
F6
281.6
17.0
11.2
(56.0)
(7.0)
(1.9)
–
(2.6)
242.3
418.0
(175.7)
120.3
47.3
7.2
(61.2)
–
(2.0)
(0.7)
(0.8)
110.1
258.8
(148.7)
144.6
15.9
8.6
(43.1)
–
(1.5)
(38.8)
(1.9)
83.8
177.2
(93.4)
(i)
(ii)
Impairment recognised largely as a result of consolidating the Group’s property footprint. Refer to Note B3.
Impairment relates to Property rationalisation as a result of divestments.
Total
436.2
122.3
45.8
(154.9)
(7.8)
(2.6)
(12.0)
(1.7)
3.2
428.5
941.9
(513.4)
Total
546.5
80.2
27.0
(160.3)
(7.0)
(5.4)
(39.5)
(5.3)
436.2
854.0
(417.8)
Recognition and measurement
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 reflect 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.
96 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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 carrying value of the asset is 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 estimates and judgements 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, estimation 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.
For surplus and vacated right-of-use assets an impairment test is performed for the individual right-of-use asset, including
consideration of estimated sub-lease income.
C7. Intangible assets
2023
$’m
Balance as at 1 July 2022
Additions
Amortisation expense
Impairment charge(i)
Disposal of businesses
Net foreign currency exchange
differences at net book value
Net book value as at 30 June 2023
Cost
Accumulated amortisation
and impairment
2022
$’m
Balance as at 1 July 2021
Additions
Acquisition of businesses
Amortisation expense
Impairment charge(ii)
Net foreign currency exchange
differences at net book value
Net book value as at 30 June 2022
Cost
Accumulated amortisation
and impairment
Note
Goodwill
Customer
contracts and
relationships
Brand
names on
acquisition
Intellectual
property on
acquisition
Software
and system
development
Total
B3
F6
2,285.0
–
–
(483.0)
(41.3)
2.1
1,762.8
2,563.2
172.5
–
(22.2)
–
–
–
150.3
515.2
58.7
–
(3.9)
–
–
0.2
55.0
78.8
1.5
–
(0.1)
–
–
–
1.4
2.4
223.7
2,741.4
40.3
(26.8)
(23.5)
(2.8)
40.3
(53.0)
(506.5)
(44.1)
(0.1)
210.8
2.2
2,180.3
529.4
3,689.0
(800.4)
(364.9)
(23.8)
(1.0)
(318.6)
(1,508.7)
Note
Goodwill
Customer
contracts and
relationships
Brand
names on
acquisition
Intellectual
property on
acquisition
Software
and system
development
F5
2,280.8
–
7.8
–
–
(3.6)
2,285.0
2,602.4
203.2
–
–
(30.7)
–
–
172.5
515.1
63.0
–
–
(4.0)
–
(0.3)
58.7
78.5
1.6
–
–
(0.1)
–
–
1.5
2.4
Total
2,782.9
36.5
7.8
(57.2)
(24.6)
234.3
36.5
–
(22.4)
(24.6)
(0.1)
223.7
(4.0)
2,741.4
504.6
3,703.0
(317.4)
(342.6)
(19.8)
(0.9)
(280.9)
(961.6)
(i) $483.0 million impairment is as a result of assessment of the carrying value of the Group’s CGUs. Refer to the recoverable amount section in Note C7 and to Note B3.
$23.5 million relates to IT assets that will no longer be utilised or provide future economic benefit as a result of business restructuring, divestments and transformation.
Refer to Note B3.
Impairment relates to ERP systems write-off as a result of divestments. Refer to Note B3.
(ii)
97
Notes to the consolidated financial statements C7. Intangible assets – continued
Recognition and measurement
Goodwill
Goodwill acquired in a business combination is measured at
cost and subsequently measured at cost less any impairment
losses. The cost represents the excess of the cost of a business
combination over the fair value of the identifiable assets,
liabilities and contingent liabilities acquired.
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 and trademarks) and software are
initially recognised at cost, and subsequently measured at cost
less accumulated amortisation and any impairment losses.
Development costs that are directly attributable to the design
and testing of identifiable internally generated intangible asset
controlled by the Group are recognised as an intangible asset
where the following criteria are met:
§ It is technically feasible to complete the intangible asset
so that it will be available for use
§ Management intends to complete the intangible asset
and use or sell it
§ There is an ability to use or sell the intangible asset
§ It can be demonstrated how the internally generated
intangible asset will generate probable future
economic benefits
§ Adequate technical, financial and other resources to
complete the intangible asset are available, and
§ The expenditure attributable to the intangible asset during
its development and testing can be reliably measured.
The costs capitalised include consulting and direct labour costs.
Costs incurred in determining project feasibility are expensed
as incurred.
Capitalised development costs are recorded as intangible assets
and amortised from the point at which the asset is ready for use.
Software-as-a-Service (SaaS) arrangements
SaaS arrangements are service contracts providing the Group
with the right to access the cloud provider’s application software
over the contract period. As such the Group does not receive a
software intangible asset at the contract commencement date.
For SaaS arrangements, the Group assesses if the contract will
provide a resource that it can ‘control’ to determine whether
an intangible asset is present. If the Group cannot determine
control of the software, the arrangement is deemed a service
contract and any implementation costs including costs to
configure or customise the cloud provider’s application software
are recognised as operating expenses when incurred.
Amortisation
Intangible assets with finite useful lives are amortised on a
straight-line basis over their useful lives. The estimated useful
lives are generally:
Item
Customer contracts and relationships
Brand names
Intellectual property acquired
Software and system development
Other intangible assets
Useful life
1-20 years
20 years
15-20 years
5-15 years
20 years
The estimated useful life and amortisation method are reviewed
at the end of each annual reporting period.
Impairment of assets
The Group assesses at each reporting date, whether there are
any indicators that assets may be impaired. If any indicators
exist, the entity shall estimate the recoverable amount of
the asset.
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.
In addition to the requirement to test goodwill annually for
impairment, management has identified impairment indicators
in relation to the increase in discount rates (WACC), Downer’s
net asset value of the Group exceeding market capitalisation at
times during the year, and below budget performance for some
CGUs. Further disclosures are provided below in relation to the
impairment testing of goodwill.
98 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements In relation to the Group’s non-current assets, as a result of
the Group’s Transformation program, a number of impairment
indicators were identified prior to the testing of CGUs. These
assets were, therefore, tested individually for impairment.
The impairment charges recognised are described in Note B3.
Allocation of goodwill to Groups of Cash-Generating
Units (CGUs)
Goodwill has been allocated for impairment testing purposes
to Groups of CGUs (hereafter ‘CGUs’) that represent the lowest
level within the Group at which goodwill is monitored for internal
management purposes.
In February 2023, Downer announced a reorganisation of its
business and leadership team, effective from 1 July 2023. The
restructure involves a transformation to managing the business
into a new sector-led structure simplified for scale, efficiency
and growth.
Downer also completed the divestment of the Australian
Transport Projects business (presented in Note F6), enabling
further operational change.
The reorganisation and divestment impacted the Group’s
internal reporting structure, and the level at which performance
and goodwill is monitored. This resulted in a change in the
manner in which impairment testing of goodwill is performed.
For the current year impairment testing has been performed
on the identified CGUs both prior and subsequent to
the reorganisation.
The primary impacts of the reorganisation were in the formation
of the Industrial & Energy CGU and the Social Infrastructure &
Citizen Services CGU from the former Facilities CGU and the
dissolution of the New Zealand CGU.
The Group has reassessed its Groups of CGUs with six CGUs
(previously five) identified. The goodwill allocation to each of the
Groups of CGUs is presented below:
Previous CGUs
Transport Australia
Rail & Transit Systems
Utilities Australia
New Zealand
Facilities
Carrying
value of
consolidated
goodwill
2022
$’m
435.8
55.3
294.4
193.1
1,306.4
2,285.0
The goodwill allocation to each of the Groups of CGUs following
the reorganisation and impairment charges is presented below:
Current CGUs
Transport & Infrastructure
Rail & Transit Systems
Utilities(i)
Social Infrastructure & Citizen Services(i)
Industrial & Energy
NZ Building
Carrying
value of
consolidated
goodwill
2023
$’m
327.0
55.3
350.8
813.7
154.0
62.0
1,762.8
(i) The Utilities and Social Infrastructure & Citizen Services CGUs goodwill
balances are shown net of impairments of $133.0 million and $350.0 million
respectively. Refer to ‘results of impairment testing’ section below.
Key estimates and judgements:
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 revenue
growth rate and EBIT margin, and the long-term growth rate.
Estimation of useful life
The estimation of the economic useful life 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 cost of disposal’ (FVLCD).
The recoverable amount of the Transport & Infrastructure,
Rail & Transit Systems, Social Infrastructure & Citizen Services,
Industrial & Energy and New Zealand Building CGUs have been
assessed using a VIU methodology. In 2022, the recoverable
amounts of all CGUs were determined on a VIU basis.
The recoverable amount for Utilities been determined based
on a FVLCD basis (2022: VIU) as this provided the higher
recoverable amount. The recoverable amount for Social
Infrastructure & Citizen Services has been determined based
on a VIU basis as this provided the higher recoverable amount.
99
Notes to the consolidated financial statements C7. Intangible assets – continued
Value in use calculation
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 Group determines the recoverable amount, using cash flow
projections based on the FY24 budget (as approved by the
Board) and business plan for the years ending 30 June 2025
and 2026. For FY27 onwards, the Group assumes a long-term
growth rate of 2.5% to reflect the organic growth expectations
of the industry.
Cash flow projections are determined utilising budgeted
Earnings Before Interest and Tax (EBIT) less capital
maintenance spending, corporate cost allocation, tax payments
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.
Fair value less costs of disposal
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 Utilities and Social Infrastructure
& Citizen Services CGU
For the Transport & Infrastructure, Rail & Transit Systems,
Industrial & Energy and New Zealand Building CGUs, 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.
For the Utilities and Social Infrastructure & Citizen Services
CGUs, impairments of $133.0 million and $350.0 million
respectively have been identified.
Utilities CGU
The forecast cash flows for the Utilities CGU have been
adversely impacted by a number of issues including recent
underperformance of the business, secured work-in-hand
which includes loss-making and low margin projects and a
reassessment of the unsecured opportunity pipeline following
a reset of Downer’s risk appetite in the market. Consequently,
the present value of future expected cash flows has reduced
and no longer supports the carrying value of the operating
assets of the CGU.
The recoverable amount of the Utilities CGU has been
determined to be $441.0 million. As a result, an impairment
of $133.0 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
Consolidated statement of profit or loss, and disclosed
as an Individually Significant Item in Note B3.
100 Annual Report 2023 | Downer EDI Limited
The reduction of the recoverable amount of the Utilities CGU
(relative to 30 June 2022) was the result of:
§ An increase in the post-tax discount rate from 8.8% to 9.5%
applied to forecast cash flows
§ Consideration of recent underperformance of the business
§ A reduction in the addressable pipeline of tendering
opportunities in the short to medium term following a reset
of Downer’s risk appetite for lump sum capital projects
and tightening Downer’s minimum commercial parameters
associated with renewables opportunities.
Social Infrastructure & Citizen Services CGU
The forecast cash flows for the Social Infrastructure & Citizen
Services CGU have been adversely impacted by uncertainties
associated with the impact of current market conditions on our
secured work-in-hand, our renewal profile of existing contracts
and unsecured pipeline forecasts.
One of the impacts has come from recent changes in
Defence spending priorities which has impacted our level of
programmatic work in the short to medium term. Whilst the
Defence Strategic Review will offer Downer opportunity in the
future, in the more immediate term there is uncertainty over the
impact on expenditure allocation on existing programs and for
new programs.
Consequently, the present value of the future expected cash
flows has reduced and no longer supports the carrying value
of the operating assets of the CGU.
The recoverable amount of the Social Infrastructure & Citizen
Services CGU has been determined to be $1,055.2 million.
As a result, an impairment of $350.0 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 Consolidated statement of profit or loss, and
disclosed as an Individually Significant Item in Note B3.
The reduction of the recoverable amount of the Social
Infrastructure & Citizen Services CGU (relative to 30 June 2022)
was the result of:
§ An increase in the post-tax discount rate from 8.7% to 9.3%
applied to forecast cash flows
§ A revised market growth expectation under the prevailing
market conditions, including consideration of the trend
towards government insourcing of expenditure and recent
changes in Defence spending priorities which has impacted
and will impact the level of programmatic work in the short
to medium term
§ Contract extension/renewal risks associated with existing
contracts with Defence
§ Uncertainties arising from the Defence Strategic Review and
the potential for changes/deferrals to expenditure allocation
on existing and new programs.
The reorganisation resulted in the transfer of the Industrial
& Energy business from the Facilities CGU to a new CGU
which reduced its value contribution to the recoverable
amount assessment.
Notes to the consolidated financial statements Sensitivities
For all CGUs, sensitivities were made around discount rate, long-term growth rate and cash flow assumptions as discussed in the
Sensitivity section below.
For all CGUs, except Utilities and Social Infrastructure & Citizen Services, 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 Utilities and Social Infrastructure & Citizen Services CGUs, as impairments have been recognised the recoverable amount is now
equal to the carrying amount. Any adverse movement in the key assumptions noted below would lead to further impairment.
The forecast cash flows for the Utilities CGU assume a performance turnaround and return to profitability for the business over
the forecast period. This assumes a stabilisation of the underperforming contracts and securing new profitable work over the
forecast period.
Within the forecast cash flows for the Social Infrastructure & Citizen Services CGU, Downer has significant existing contracts which
will be subject to tender processes where there are contract renewal risks and/or potential risks of scope modification. The loss of
these tenders would result in further impairment.
Should the scale of any CGU decline as a result of change in a key assumption, it is likely that the Group would review the corporate
and overhead structures to ensure they are appropriate for the scale of business and opportunities available.
Recoverable amount testing – Key assumptions
The table below summarises the key assumptions utilised in the VIU and FVLCD discounted cash flow models.
Transport Australia
Rail & Transit Systems
Utilities Australia
New Zealand
Facilities
Transport & Infrastructure(a)
Rail & Transit Systems
Utilities
Social Infrastructure & Citizen Services
Industrial & Energy
NZ Building(b)
2022
Revenue
Growth(i)
EBIT
margin(ii)
Long-term
growth rate
3.9%
8.2%
3.7%
2.1%
6.4%
6.3%
5.4%
4.7%
5.7%
5.9%
2023
2.50%
2.50%
2.50%
2.50%
2.50%
Revenue
Growth(iii)
EBIT
margin(ii)
Long-term
growth rate
(0.6%)
1.8%
2.9%
2.1%
6.3%
(2.7%)
8.0%
5.6%
4.7%
5.1%
6.8%
2.1%
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
Discount
rate
(post-tax)
8.5%
8.7%
8.8%
8.9%
8.7%
Discount
rate
(post-tax)
9.0%
9.1%
9.5%
9.3%
9.3%
9.7%
(a) Transport & Infrastructure budgeted revenue reduction is driven by lower revenue from the completion of non-recurring contracts.
(b) NZ Building budgeted revenue impacted by large-scale contracts completed not fully replaced.
(i) Revenue growth for 2022 is expressed as the compound annual growth rate (CAGR) from FY22 to terminal year forecast based on the CGUs business plan.
(ii) EBIT margin represents the terminal year forecast margin based on the CGUs business plan. EBIT is calculated prior to the allocation of corporate costs.
(iii) Revenue growth for 2023 is expressed as the compound annual growth rate (CAGR) from FY23 to terminal year forecast based on the CGUs business plan.
(i) Projected cash flows – including budgeted revenue and EBIT margin
Value in use calculations
Cash flow forecasts
The cash flow projections through to the terminal year are based on the Group’s past experience and assessment of economic
and regulatory factors affecting the business in which the Downer businesses operate.
In preparing the impairment models at 30 June 2023, the Group considered the experience in the last 12 months’ results in
developing the cash flow forecasts.
101
Notes to the consolidated financial statements C7. Intangible assets – continued
Specifically, for each CGU:
§ Transport & Infrastructure has been negatively impacted
by persistent wet weather caused by La Niña resulting
in lower earnings and margins in FY23. The reduction in
budgeted revenue is driven by lower revenue following the
completion of non-recurring contracts. With the assumption
that climatic conditions improve, and easing of bitumen
pricing pressures, it is expected to benefit from combined
activity/volume growth in road infrastructure as a result of the
wet weather events (e.g. from flood recovery work) and from
increased Government investment in regional areas across
Australia and New Zealand.
§ Rail & Transit Systems outlook is expected to benefit from
a range of opportunities on new rail fleet and associated
maintenance contracts (including the award of the QTMP
contract), increased opportunities in freight, consulting and
digital services, as well as from new opportunities for the
maintenance of existing fleets.
§ Social Infrastructure & Citizen Services is the
consolidation of the Health & Education, Government,
Defence, New Energy and New Zealand Facilities businesses.
Ongoing performance is expected to benefit from a pipeline
of opportunities across its operations including:
– Increased Government spend to fulfil growing structural
demand for health and education services as well as from
contract renewals/extensions
– Growth opportunities to service an increasing public
sector asset base.
As highlighted above, our Defence business whilst having
significant scale, relationships and technical capability will need
to navigate changes in Defence spending and renewal extension
risks for existing secured contracts.
§ Industrial & Energy sector is well placed to capitalise on
the opportunities the energy transition will bring, such as
the decarbonisation of energy generators as well as from a
rebound in activity following deferrals of plant shutdowns
and maintenance and from opportunities linked to long-term
relationships with key customers.
§ New Zealand Building cash flows forecast reflects the short-
term impact of large-scale contracts completed not being
fully replaced which is expected to be offset by an increased
investment in infrastructure in New Zealand.
Inflation and price escalation
The Group’s exposure to inflationary pressures in labour and
other costs in its contracts is partially mitigated by contractual
mechanisms and allowances for price movements.
Fair value less cost of disposal calculation
In determining FVLCD for the Utilities 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 FY24 budget
and the business plan for FY25 and FY26, was utilised. For FY24
onwards, the Group assumes a long-term growth rate of 2.5% 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 certain projects with a higher risk
associated, that are not aligned with Downer’s risk appetite
but that a market participant may recognise as value-adding.
Utilities has been negatively impacted in the year by contract
performance in a Power maintenance contract, in water
construction projects, deferral of transmission line contract
awards together with productivity challenges arising from
weather, absenteeism and labour shortages. Downer has also
reset its risk appetite in some markets which has impacted our
work-in-hand and unsecured pipeline forecasts in the short to
medium term. Benefits are anticipated from FY24 onwards from
an increase in activities in transmission lines as well as in the
Water sector; however Downer will be seeking to achieve an
improved balance of risk transfer and sustainable commercial
terms for service providers.
(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. The Group assumes a long-term growth rate of
2.50% (FY22: 2.50%) to allow for organic growth on the existing
asset base.
(iii) Discount rates
Discount rates 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 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.
Compared to 30 June 2022, WACCs have increased between
40 to 70 basis points for the Australian CGUs and 80 basis
points for the New Zealand group of CGUs. This resulted in
post-tax discount rates at 30 June 2023 to be between 9.0%
and 9.7% (June 2022: between 8.5% and 8.9%). The increase
reflects the inflationary Australian/New Zealand environment
of the last six months.
(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.
102 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Impact of climate change
The Group recognises that an integrated approach to managing
risks and opportunities is essential. The Downer Board, through
its oversight functions, has ensured Downer appropriately
considers Environmental, Social and Governance (ESG) risks,
including those related to climate change. Climate-related
risks and opportunities are incorporated into Downer’s broader
corporate strategy, planning and risk management processes.
This includes through the development of decarbonisation
strategies, plans to mitigate exposure to physical and transition
risks, and consideration of embedding emissions reduction
targets into capital allocation and decision-making processes.
Downer is committed to decarbonising its operations,
recognising 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 guide its ambition, Downer has set an absolute near-term
target of 50% reduction of its Scope 1 and 2 GHG emissions by
2032 and an absolute near-term target of 30% reduction of its
Scope 3 emissions by 2032. Downer has set a long-term target
to be Net Zero1 in Scope 1, 2 and 3 GHG emissions by 2050.
Both the near-term and the long-term targets have a base year
of 2020.
In FY22, Downer completed a detailed review of its most
material climate-related risks and opportunities in line with
the Taskforce for Climate-related Financial Disclosures
(TCFD)4. Scenario analysis was used to assess and quantify
the estimated financial impact of different climate scenarios
across Downer’s operations and value chain, including potential
mitigation costs arising from physical and transitional risks, and
the opportunities arising from new and existing business lines.
To assess the physical risks, Downer used a moderate emission
scenario (rise between 2°C and 3°C by 2100), and a high
emission scenario (rise above 4°C by 2100). To assess the
transitional risk, Downer chose two of the Network for Greening
the Financial System (NGFS) 1.5°C aligned scenarios consisting
of the Net Zero 20502 scenario and the Divergent Net Zero3
scenario. The NGFS climate scenarios have been selected
to provide insights into the risks and opportunities of the
transition to a low carbon future. The NGFS dataset contains
multiple parameters (e.g. emissions trajectory, carbon price
and fuel mix) at the sub-sectoral and country levels for each of
the geographies being investigated, allowing the comparison
of difference across geographies within the same plausible
future scenario.
Not all assumptions used in scenario modelling (for TCFD
purposes) are appropriate for incorporation in impairment
models required by accounting standards. The modelled
scenarios set out below were not included in the Group’s
impairment model assumptions relating to asset values or cash
flow. However, the scenario analysis performed considered the
following impacts to asset values and cash flows:
§ Physical risks to Downer’s non-current assets, including key
sites and locations, from events such as extreme heat, an
increased frequency and severity of bushfires, and extreme
weather events. The scenario analysis quantified physical
risk is not material to the Group’s future cash flows. The
analysis also confirmed that the expected useful economic
lives of non-current assets remain appropriately disclosed
in Note C5. It is noted that a number of significant weather
events impacted Downer’s financial performance this year,
such as Cyclone Gabrielle, and significant wet weather across
the east coast of Australia. However, the scenario analysis
showed that Downer is resilient to physical risks as potential
events are currently incorporated within management
systems and covered through insurance and/or contract
pass-through mechanisms. Downer’s diverse range of
services across differing sectors and geographic locations
means that the portfolio remains resilient in the event of local
acute exposures.
§ Transition risks are primarily associated with decarbonising
Downer’s carbon intensive non-current assets, in the
Transport & Infrastructure CGU’s asphalt manufacturing
process, and transitioning from internal combustion engines
to electric engines for the light and heavy vehicle fleets.
Transition risks associated with these may include the
impact of carbon pricing legislation, direct price increases of
equipment and fuel usage. The scenario analysis determined
that transition risk is not material to the Group’s future cash
flows. The analysis also confirmed that the expected useful
economic lives of non-current assets remain appropriately
disclosed in Note C5.
§ Currently, there is no carbon pricing legislation in place, nor is
there one that is reasonably expected to be in place, that will
materially impact on the Group’s future cash flows.
§ Alternative fuels to significantly decarbonise the asphalt
manufacturing process are not yet available at scale, nor is
there any certainty on if/when these will be available.
§ Light vehicle fleet replacement from internal combustion
engines to electric vehicles is anticipated to occur from
2025 onwards, with heavy vehicle replacements anticipated
to commence from 2030 onwards. Management continues
to assess options for fleet replacement in the short term;
however, any acceleration from these dates is limited by
technology and global supply constraints. There is no
planned acceleration of fleet replacement to meet our
climate change objectives.
The modelled impact on cash flows would not be material to
the Group, with the analysis reaffirming that the anticipated
response to climate change presents a net opportunity for
Downer, if appropriately acted upon. This net opportunity is
likely to increase as efforts to decarbonise accelerate, due to the
significant opportunities for Downer’s business lines to support
both new and existing customers’ decarbonisation transitions.
1
Net Zero is defined as the mitigation of direct emissions to as low a level as possible and offsetting the remainder through carbon removals. Downer has utilised the
Science-Based Target Initiative’s threshold of a 90% reduction in its emissions as being ‘as low a level as possible’.
2 NGFS Net Zero 2050 is an ambitious scenario that limits global warming to 1.5°C through stringent climate policies and innovation, reaching net zero CO2 emissions
around 2050. This scenario assumes that ambitious climate policies are introduced immediately.
3 NGFS Divergent Net Zero reaches net zero by 2050 but with higher costs due to divergent policies introduced across sectors and a quicker phase-out of fossil
fuels. This scenario differentiates itself from Net Zero 2050 by assuming that climate policies are more stringent in the transportation and buildings sectors,
while decarbonisation of energy supply and industry is less stringent.
4 Refer to Downer’s 2022 Climate Change Report for details of the assessment undertaken and underlying assumptions that form the basis of the statements
made in this subsection, Impact of Climate Change.
103
Notes to the consolidated financial statements C8. Other provisions
2023
$’m
Balance as at 1 July 2022
Additional provisions recognised
Unused provisions reversed
Utilisation of provisions
Transferred to disposal group assets held for sale
Balance as at 30 June 2023
Included in the financial statements as:
Current
Non-current
Decomm-
issioning
and
restoration
Note
Onerous
contracts
Warranties
and other
F7
26.2
1.3
(0.4)
(3.2)
(0.7)
23.2
9.3
13.9
15.9
12.4
–
(12.6)
–
15.7
15.6
0.1
31.2
50.6
(3.0)
(23.1)
(1.0)
54.7
41.4
13.3
Total
73.3
64.3
(3.4)
(38.9)
(1.7)
93.6
66.3
27.3
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) Onerous contracts
Provisions include amounts recognised in relation to onerous customer 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. The onerous contract provision is measured using the full cost method, based on
incremental costs and an allocation of other direct costs.
(iii) Warranties and other
Provisions primarily includes amounts recognised for warranties and divestment related provisions. Warranties provisions are made
for the estimated liability on all products still under warranty and provisions for defect liabilities at balance sheet date.
Key estimates and judgements: Other 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) Onerous contracts
These provisions have been calculated based on management’s best estimate of 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.
(iii) Warranties and other
The provision is estimated having regard to previous claims experience.
104 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements (vi) Downer New Zealand, an entity in the Group, has been
named as co-defendant in a ‘leaky building’ claim.
The leaky building claim where the Group entity is
co-defendant relates to water damage arising from
historical design and construction methodologies (and
certification) for residential and other buildings in New
Zealand during the early to mid 2000s. The Directors are
of the opinion that disclosure of any further information
relating to the leaky building claim would be prejudicial to
the interests of the Group.
(vii) In December 2022, Downer received correspondence
notifying an alleged stray current defect in the depot
constructed by Downer for the High Capacity Metro Trains
Project, requiring Downer to advise how it will address
the rectification of that issue and alleging that Downer is
responsible for the costs of rectification. The Directors are
of the opinion that disclosure of any further information
relating to this matter would be prejudicial to the interests
of the Group.
(viii) Four competing shareholder class actions have been filed
against Downer following announcements it published
with the ASX on 8 December 2022 and 27 February
2023. Each class action alleges a breach of Downer’s
continuous disclosure obligations and that it engaged in
misleading or deceptive conduct by making and/or failing
to correct or qualify various statements in connection with
a maintenance contract in its Australian Utilities business
and Downer’s financial performance.
The four class actions are competing and overlapping: they
raise similar claims on behalf of shareholders who acquired
Downer shares across similar periods of time. The various
plaintiff firms have made applications to the Courts to
determine which proceeding or proceedings should
proceed and in what form. Until that issue is resolved,
the Court has formally noted that no orders should be
made for the service of a defence by Downer to any of the
plaintiffs’ claims.
Downer intends to vigorously defend whichever claim or
claims proceed.
C9. Contingent liabilities
Bonding
Note
2023
$’m
2022
$’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
1,517.2
1,372.9
The Group is called upon to give guarantees and indemnities to
counterparties, relating to the performance of contractual and
financial obligations (including for controlled entities and related
parties). Other than as noted above, these guarantees and
indemnities are indeterminable in amount.
Other contingent liabilities
(i) The Group is subject to design liability in relation to
completed design and construction projects. The Directors
are of the opinion that there is adequate insurance to
cover this area.
(ii) The Group is subject to product liability claims. Provision
is made for the potential costs of carrying out rectification
works based on known claims and previous claims history.
(iii) Controlled entities have entered into various joint
arrangements under which the controlled entity is jointly
and severally liable for the obligations of the relevant
joint arrangements.
(iv) The Group carries the normal contractors’ and consultants’
liability in relation to services, supply and construction
contracts (for example, liability relating to professional
advice, design, completion, workmanship and damage), as
well as liability for personal injury/property damage during
the course of a project. Potential liability may arise from
claims, disputes and/or litigation/arbitration by or against
Group companies and/or joint venture arrangements in
which the Group has an interest. The Group is currently
managing a number of claims, arbitration and litigation
processes in relation to services, supply and construction
contracts as well as in relation to personal injury and
property damage claims arising from project delivery.
(v)
In the ordinary course of business, contingent liabilities
exist in respect of claims and potential claims against
entities in the consolidated entity. The consolidated entity
does not consider that the outcomes of any such claims
known to exist at the date of this report, either individually
or in aggregate, are likely to have a material effect on its
operations or financial position.
105
Notes to the consolidated financial statements
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
D3. Key management personnel compensation
D4. Employee discount share plan
D1. Employee benefits
Employee benefits expense:
– Defined contribution plans costs
– Share-based employee benefits (income)/expense(i)
– Employee benefits
– Defined benefit plan costs
Total employee benefits expense
Employee benefits provision:
– Current
– Non-current
Total employee benefits provision
2023
$’m
2022
$’m
207.3
(0.8)
3,432.0
1.5
3,640.0
268.2
22.7
290.9
200.3
4.2
3,375.1
1.6
3,581.2
303.5
18.7
322.2
(i) Share-based payments net benefit for the year includes the reversal for the 2021 and 2022 Long-term Incentive Plan performance rights due to forfeiture.
Recognition and measurement
The employee benefits liability represents accrued wages and salaries, leave entitlements and other incentives recognised in
respect of employees’ services and redundancy costs 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 estimates and judgements: 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.
106 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements D2. Defined benefit plan
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 2023, the fair value of plan assets (comprising Investment Funds) was $61.8 million. The plan obligation balance was
$53.4 million. The net asset of $8.4 million (2022: $5.4 million) is included in Non-current prepayments and other assets. These
balances were subject to an independent actuarial review as at 30 June 2023.
The main movements during the year were $1.5 million of services costs expensed to the profit and loss, $0.2 million of net interest,
$2.6 million of actuarial gains on the obligation recorded were recorded in equity, and the Group contributions of $1.7 million (all pre-
tax amounts).
Key actuarial assumptions used in determining the values were a discount rate of 5.5% 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 3.6%, and a
0.5 percentage point increase in the expected salary increase rate would increase the obligation by 3.3%.
D3. Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments(i)
Total
2023
$
2022
$
5,468,445
212,905
192,554
(724,483)
5,149,421
7,645,200
191,103
55,895
605,015
8,497,213
(i) Share-based payments net benefit for the year includes the reversal for the 2021 and 2022 Long-Term Incentive Plan performance rights due to forfeiture.
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 2023 and 30 June 2022.
107
Notes to the consolidated financial statements 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.
E5. Issued capital
E6. Reserves
E7. Dividends
E1. Borrowings
E2. Financing facilities
E3. Lease liabilities
E4. Commitments
E1. Borrowings
Non-current
Unsecured:
– Bank loans
– USD private placement notes
– AUD private placement notes
– AUD medium term notes
– JPY medium term notes
– Deferred finance charges
Total non-current borrowings
Total borrowings
Fair value of total borrowings(i)
(i) Excludes lease liabilities.
2023
$’m
2022
$’m
812.0
150.8
30.0
506.4
104.3
(7.1)
1,596.4
1,596.4
1,603.2
582.0
145.2
30.0
508.6
106.4
(10.5)
1,361.7
1,361.7
1,384.5
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 companies with a BBB credit rating.
108 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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
Summary of borrowing arrangements
The Group’s borrowing arrangements are as follows:
2023
$’m
830.0
145.0
975.0
75.1
652.2
727.3
2022
$’m
1,010.0
195.0
1,205.0
61.7
530.1
591.8
Bank loan facilities
Bilateral loan facilities:
The Group has a total of $387.0 million in bilateral loan facilities which are unsecured, committed facilities.
Syndicated loan facilities:
The Group has $1,400.0 million of syndicated bank loan facilities which are unsecured, committed facilities.
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:
§ $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 $6.4 million over the 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 2024 to 30 June 2025
1 July 2025 to 30 June 2026
1 July 2026 to 30 June 2027
1 July 2027 to 30 June 2028
1 July 2032 to 30 June 2033
Total
Bilateral
Loan
Facilities
Syndicated
Loan
Facilities
USD Private
Placement
Notes
AUD
Private
Placement
Notes
245.0
142.0
–
–
–
387.0
500.0
–
600.0
300.0
–
1,400.0
–
150.8
–
–
–
150.8
–
30.0
–
–
–
30.0
Medium
Term
Notes
–
500.0
–
–
104.3
604.3
Total
745.0
822.8
600.0
300.0
104.3
2,572.1
109
Notes to the consolidated financial statements E2. Financing facilities – continued
E3. Lease liabilities
Contractual undiscounted
cash flows
– Within one year
– Between one and five years
– Greater than five years
Total undiscounted
lease liabilities
– Current
– Non-current
Total lease liabilities
2023
$’m
2022
$’m
156.7
309.3
156.4
622.4
135.2
402.0
537.2
148.2
305.2
169.5
622.9
132.4
411.5
543.9
Recognition and measurement
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 Group 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.
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 EBITA and Group Total
Tangible Assets.
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 Board meetings. Reporting of financial covenants
to financiers occurs semi-annually for the rolling 12-month
periods to 30 June and 31 December. Downer Group was in
compliance with all its financial covenants as at 30 June 2023.
Bank guarantees and insurance bonds
The Group has $2,244.5 million of bank guarantee and
insurance bond facilities to support its contracting activities.
$1,341.8 million of these facilities are provided to the Group on a
committed basis and $902.7 million on an uncommitted basis.
The Group’s facilities are provided by a number of banks and
insurance companies on an unsecured and revolving basis.
$1,517.2 million (refer to Note C9) of these facilities were utilised
as at 30 June 2023 with $727.3 million unutilised. These facilities
have varying maturity dates between financial years 2024, 2025
and 2026.
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 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 guarantee capacity.
Refinancing requirements
The Group will negotiate with existing and, where required,
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 2023, the Group has no debt
facilities maturing within the 12 months to 30 June 2024.
Credit ratings
In December 2022, the outlook on the Group’s external credit
rating was revised by Fitch Ratings from BBB (Outlook Stable)
to BBB (Outlook Negative). The Negative Outlook was affirmed
by Fitch in March 2023 following release of the Group’s results
for the half year ended 31 December 2022. The rating remains
Investment Grade. 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.
110 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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 and right-of-use
assets), and variable lease expenses is outlined below:
E4. Commitments
Capital expenditure commitments
Plant and equipment and other
– Within one year
– Between one and 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
2023
$’m
2022
$’m
30.1
3.7
33.8
60.3
2.0
62.3
1.7
6.9
–
8.6
2.0
6.3
0.8
9.1
Lease expenses
Land and buildings
– Low value
Plant and equipment
– Low value
– Short term
– Variable
Total lease expenses
2023
$’m
2022
$’m
3.2
18.6
5.2
15.9
42.9
2.0
20.4
3.7
19.3
45.4
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.
111
Notes to the consolidated financial statements E5. Issued capital
Jun 2023
Jun 2022
No.
$’m
No.
$’m
Ordinary shares
Unvested executive incentive shares
Redeemable Optionally Adjustable Distributing Securities (ROADS)
Total
671,573,679
1,193,978
200,000,000
2,471.1
(7.3)
178.6
2,642.4
675,425,623
1,193,978
200,000,000
2,488.9
(7.3)
178.6
2,660.2
(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
Group on-market share buy-back
Vested Downer Contingent Share Options(i)
Balance at the end of the financial year
2023
2022
m’s
$’m
m’s
$’m
675.4
(3.8)
–
671.6
2,488.9
(17.8)
–
2,471.1
696.9
(24.0)
2.5
675.4
2,631.5
(142.6)
–
2,488.9
(i) On 24 August 2021, the Target Price Condition of the Tranche 1 Series Downer Contingent Share Options was satisfied resulting in 2,499,264 shares exercised at
$6.382 per share. Refer to Note E6.
(b) Unvested executive incentive shares
Unvested executive incentive shares
Balance at the beginning of the financial year
Vested executive incentive share transactions(ii)
Balance at the end of the financial year
2023
2022
m’s
1.19
–
1.19
$’m
m’s
$’m
(7.3)
–
(7.3)
1.25
(0.06)
1.19
(7.5)
0.2
(7.3)
(ii) June 2022 figures relate to the second deferred component of the 2019 STI award of 55,277 vested shares for a value of $252,571.
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.
(c) Redeemable Optionally Adjustable Distributing Securities (ROADS)
Balance at the beginning and at the end of the financial year
2023
m’s
200.0
$’m
178.6
2022
m’s
200.0
$’m
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 2023 is 9.81% per annum (2022: 8.14% per annum) which is equivalent to the
one year swap rate on 15 June 2023 of 5.76% per annum plus the step-up margin of 4.05% per annum.
112 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements (d) Share options and performance rights
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. During the financial year 2,711,709 performance rights (2022: 2,585,870) in relation
to unissued shares were granted to senior executives of the Group under the LTI plan. There are three performance conditions
applicable to the 2021, 2022 and 2023 LTI plan years.
§ Total shareholder return (TSR) – this 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 exercise date. The performance rights 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.
§ Earnings per share (EPS) – this condition is based on the Company’s compound annual EPS growth over the three years
to exercise date. The performance rights 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 10% and 100% at 10% compound annual EPS growth.
§ Scorecard – this condition is based on the Group’s net profit after tax and amortisation (NPATA) and funds from operations (FFO)
for each of the three years to exercise date. The performance rights will vest on a pro-rata basis from 30% upon meeting the
minimum three-year average component performance level of 90% to 110% of target and 100% at the capped maximum three-
year average component performance level of 110% or more of target.
The variables in the table below are used as inputs into the model to determine the fair value of performance rights.
Grant date(i)
Performance period
Exercise date
Expected volatility(ii)
Expected dividend yield
Risk-free interest rate
Fair value at grant date
2023 Plan
2022 Plan
2021 Plan
31 May 2023
1 July 2022 to 30 June 2025
1 July 2026
30%
6.50%
3.71%
$3.59
30 September 2022
1 July 2021 to 30 June 2024
1 July 2025
30%
6.23%
3.53%
$4.57
30 September 2021
1 July 2020 to 30 June 2023
1 July 2024
27%
4.35%
0.19%
$6.46
(i) Grant date represents the date of shared understanding of the Option Deed between parties.
(ii) The expected volatility is based on the volatility of Downer’s share price calculated based on the historical three year normalised rolling volatility.
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.
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.
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 the Employee benefits reserve.
113
Notes to the consolidated financial statements E6. Reserves
2023
$’m
Balance at 1 July 2022
Foreign currency translation difference
Actuarial movement on net defined benefit
plan obligations
Income tax effect of actuarial movement on
defined benefit plan obligations
Change in fair value of cash flow hedges
(net of tax)
Change in fair value of unquoted
equity investments
Total comprehensive income for the year
Share-based employee benefits income
Income tax relating to share-based transactions
during the year
Balance at 30 June 2023
2022
$’m
Balance at 1 July 2021
Foreign currency translation difference
Actuarial movement on net defined benefit
plan obligations
Income tax effect of actuarial movement on
defined benefit plan obligations
Change in fair value of cash flow hedges
(net of tax)
Change in fair value of unquoted
equity investments
Total comprehensive income for the year
Vested executive incentive share transactions
Vested Downer Contingent Share Options
Share-based employee benefits expense
Income tax relating to share-based transactions
during the year
Disposal of business
Balance at 30 June 2022
Foreign
currency
translation
reserve
Hedge
reserve
Employee
benefits
reserve
Equity
reserve
Fair value
through
OCI reserve
Total
attributable
to the
members of
the Parent
7.4
–
–
–
(4.4)
–
(4.4)
–
–
3.0
(39.1)
8.5
–
–
–
–
8.5
–
–
(30.6)
(23.1)
–
(29.7)
(16.6)
–
–
30.5
–
30.5
–
–
–
–
–
7.4
–
–
–
–
(16.6)
–
–
–
–
7.2
(39.1)
20.7
–
2.6
(0.8)
–
–
1.8
(0.8)
1.6
23.3
14.7
–
6.8
(2.1)
–
–
4.7
(0.2)
–
4.2
(2.7)
–
20.7
25.5
–
(2.4)
–
–
–
–
–
–
–
–
25.5
9.5
–
–
–
–
–
–
–
16.0
–
–
–
25.5
–
–
–
0.2
0.2
–
–
(2.2)
(2.6)
–
–
–
–
0.2
0.2
–
–
–
–
–
(2.4)
12.1
8.5
2.6
(0.8)
(4.4)
0.2
6.1
(0.8)
1.6
19.0
(31.2)
(16.6)
6.8
(2.1)
30.5
0.2
18.8
(0.2)
16.0
4.2
(2.7)
7.2
12.1
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.
114 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Employee benefits reserve
The employee benefits 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 gain/loss arisen on the defined benefit plan (refer to Note D2).
Equity reserve
The equity reserve accounts for the difference between the fair value of, and the amounts paid or received for, equity transactions
with non-controlling interests.
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.
E7. Dividends
(a) Ordinary shares
Dividend per share (in Australian cents)
Franking percentage
Cost (in $’m)
Dividend record date
Payment date
2023
Final
8.0
0%
53.7
24/8/23
21/9/23
2023
Interim
5.0
0%
33.6
13/3/23
11/4/23
2022
Final
12.0
0%
81.1
31/8/22
28/9/22
2022
Interim
12.0
0%
81.8
24/2/22
24/3/22
Recognition and measurement
A liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of
the entity, before or at the end of the financial year but not distributed at balance sheet date.
The final 2023 dividend has not been declared at the reporting date and therefore is not reflected in the consolidated
financial statements.
(b) Redeemable Optionally Adjustable Distributing Securities (ROADS)
2023
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Dividend per ROADS (in Australian cents)
New Zealand imputation credit percentage
Cost (in A$’m)
Payment date
1.29
100%
2.6
15/9/22
1.37
100%
2.7
15/12/22
1.37
100%
2.7
15/3/23
1.35
100%
2.7
15/6/23
2022
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
0.76
100%
1.5
15/9/21
0.75
100%
1.5
15/12/21
0.74
100%
1.5
15/3/22
0.72
100%
1.4
15/6/22
(c) Franking credits
The franking account balance as at 30 June 2023 is $10.7 million (2022: nil).
Total
5.38
100%
10.7
Total
2.97
100%
5.9
115
Notes to the consolidated financial statements F
Group structure
This section explains significant aspects of Downer’s Group structure, including joint arrangements where the Group has
interest in its controlled entities and how changes have affected the Group structure. It also provides information on business
acquisitions and disposals made during the financial year as well as information relating to Downer’s related parties, the extent
of related party transactions and the impact they had on the Group’s financial performance and position.
F1. Joint arrangements and associate entities
F2. Controlled entities
F3. Related party information
F4. Parent entity disclosures
F5. Acquisition of businesses
F6. Disposal of businesses
F7. Disposal group held for sale
F1. Joint arrangements and associate entities
(a) Interest in joint ventures and associate entities
Interest in joint ventures at the beginning of the financial year
Share of net profit
Share of distributions
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
Interest in associates at the end of the financial year
Total interest in joint ventures and associates
2023
$’m
31.9
20.1
(12.9)
–
39.1
130.9
9.7
(20.5)
120.1
159.2
2022
$’m
24.1
21.5
(13.6)
(0.1)
31.9
131.0
8.2
(8.3)
130.9
162.8
The Group has interests in the following joint ventures and associates which are equity accounted:
Ownership interest
Name of arrangement
Principal activity
Principal place
of business
2023
%
2022
%
Asphalt plant
Joint Ventures
New Zealand
Allied Asphalt Limited
Australia
Bitumen Importers Australia Joint Venture Bitumen importer
Bitumen importer
Bitumen Importers Australia Pty Ltd
Australia
EDI Rail-Alstom Transport Pty Ltd(i)
Sale and maintenance of railway rollingstock Australia
Emulsion plant
Emulco Limited
Manufacture and supply of asphalt
Isaac Asphalt Limited
Repurpose It Holdings Pty Ltd
Waste recycling
Associates
Keolis Downer Pty Ltd
New Zealand
New Zealand
Australia
Australia
Operation and maintenance of Gold Coast
light rail, Melbourne tram network, Adelaide
metro, and bus operations
Laundries services
Australia
HT HoldCo Pty Ltd
50
50
50
50
50
50
45
49
30
50
50
50
50
50
50
45
49
30
(i) EDI Rail-Bombardier Transportation Pty Ltd changed its name to EDI Rail-Alstom Transport Pty Limited during the financial year ended 30 June 2023.
116 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements
There are no material commitments held by joint ventures and associates. All joint ventures and associates have a statutory
reporting date of 30 June.
The Group’s share of financial information from joint ventures and associates is presented below.
The Group does not disclose the details of the other individual joint ventures and associates on the basis these are
individually immaterial.
The Group’s share of the carrying amounts:
2023
$’m
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Goodwill
Adjustment to align accounting policies
Carrying amounts
Profit for the year
Total comprehensive income for the year
2022
$’m
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Goodwill
Adjustment to align accounting policies
Carrying amounts
Profit/(loss) for the year
Total comprehensive income/(loss) for the year
Repurpose
It
Keolis
Downer
HT
HoldCo
Bitumen
Importers
Australia
Other
Total
12.5
67.2
(19.9)
(38.9)
20.9
7.0
–
27.9
8.1
8.1
9.3
42.6
(16.1)
(23.1)
12.7
7.0
–
19.7
6.7
6.7
215.3
119.6
(148.5)
(100.2)
86.2
–
4.9
91.1
9.3
9.3
234.9
119.2
(150.5)
(105.8)
97.8
–
4.5
102.3
13.1
13.1
15.0
87.5
(17.2)
(56.5)
28.8
–
–
28.8
0.4
0.4
13.8
90.2
(15.4)
(60.2)
28.4
–
–
28.4
(5.0)
(5.0)
10.9
10.7
(3.7)
(13.7)
4.2
–
–
4.2
5.4
5.4
13.2
10.8
(2.6)
(15.1)
6.3
–
–
6.3
7.1
7.1
23.0
11.3
(5.9)
(21.2)
7.2
–
–
7.2
6.6
6.6
18.0
9.4
(5.6)
(15.7)
6.1
–
–
6.1
7.8
7.8
276.7
296.3
(195.2)
(230.5)
147.3
7.0
4.9
159.2
29.8
29.8
289.2
272.2
(190.2)
(219.9)
151.3
7.0
4.5
162.8
29.7
29.7
Recognition and measurement
Equity accounting
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the
Group’s share of the post-acquisition profits or losses of the investee in the Consolidated Statement of Profit or Loss, and the
Group’s share of movements of the investee’s other comprehensive income in the Consolidated Statement of Other Comprehensive
Income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount
of the investment.
Where the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any
other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the other entity.
(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.
117
Notes to the consolidated financial statements F1. Joint arrangements and associate entities – continued
(b) Interest in joint operations
The Group recognises its interest in the assets, liabilities, revenue and expenses of joint operations.
Ownership interest
Principal place
of business
2023
%
2022
%
Name of joint operation
Ausenco Downer Joint Venture
Bama Civil Pty Ltd & Downer EDI Works Pty Ltd
Cameron Road Joint Venture
China Hawkins Construction JV
City Rail JV
Concrete Pavement Recycling Pty Ltd (ii)
Confluence Water JV
CPB Contractors Pty Ltd & Spotless Facility
Services Pty Ltd
CPB Downer Joint Venture
CRL Construction Joint Venture
Dampier Highway Joint Venture
Downer BMD Joint Venture
Principal activity
Enabling works for
Carrapateena Project
Civil Infrastructure design and/or
construction activities
Cameron Road construction
Building construction
Enabling works for Auckland City
Rail Link
Road maintenance
Sydney Water services
Riverina Redevelopment Program
Australia
Australia
New Zealand
New Zealand
New Zealand
Australia
Australia
Australia
Parramatta Light Rail construction
Construction of the City Rail Link
Alliance Project
Highway construction and design
West Camden Water Recycling Plant
Upgrade
Australia
New Zealand
Australia
Australia
Waurn Ponds Duplication
Downer EDI Works Pty Ltd & CPB Contractors Pty Ltd Warringah Freeway Upgrade Project Australia
Downer EDI Works Pty Ltd & McConnell Dowell
Australia
Constructors (Aust) Pty Ltd (iv)
Downer Electrical GHD JV (iii)
Downer FKG JV
Downer HEB Joint Venture (Te Ara Tupua) (i)
Downer Fulton Hogan Joint Venture
(Wakatipu Transport Alliance) (i)
Downer HEB Joint Venture (iRex Project) (i)
Downer HEB Joint Venture (Memorial Park Alliance)
Traffic control infrastructure
Major civil and roadworks
Te Ara Tupua Alliance
Wakatipu Transport Alliance
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
iRex Ferry Construction project
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
Australia
Gold Coast Asset Lifecycle Services Australia
New Zealand
New Zealand
Downtown infrastructure
development program
Rail build supplier
Operation of water recycling plant
at Mackay
Rail construction
Road construction
Road construction
Construction activities as part of
Perth’s METRONET program
New Zealand
Australia
Australia
New Zealand
New Zealand
New Zealand
Australia
Downer HEB Joint Venture (Mt Messenger Project)
Downer MCD Wynyard Edge JV
(Americas Cup Project)
Downer Seymour Whyte JV
Downer Utilities Australia Pty Ltd &
Ventia Utility Services Pty Ltd (Gold Coast
Infrastructure Solutions) (i)
Downtown Infrastructure Development Project JV
HCMT Supplier JV
John Holland Pty Ltd & Downer Utilities
Australia Pty Ltd Partnership
Macdow Downer Joint Venture (Connectus)
Macdow Downer Joint Venture (CSM2)
Macdow Downer Joint Venture (Russley Road)
NEWest Alliance (iv)
118 Annual Report 2023 | Downer EDI Limited
50
50
50
50
50
(ii)
43
50
50
30
50
50
33
50
90
50
50
50
50
50
50
50
50
50
33
50
50
50
50
50
50
50
50
50
50
50
49
43
50
50
30
50
50
33
50
90
50
–
–
–
50
50
50
50
–
33
50
50
50
50
50
50
Notes to the consolidated financial statements Name of joint operation
Principal activity
Ownership interest
Principal place
of business
2023
%
2022
%
North Canterbury Transport Infrastructure Economic
Recovery Alliance ‘NCTIER’ JV
Safety Focused Performance JV
Thiess VEC Joint Venture
Utilita Water JV
VEC Shaw Joint Venture
Wiri Train Depot Joint Venture
Kaikoura earthquake works
New Zealand
Water and sewerage capital works
Highway construction
Plant maintenance
Road construction
Construction of the Wiri train depot New Zealand
Australia
Australia
Australia
Australia
25
45
50
50
50
50
25
45
50
50
50
50
(i) Joint operation entered into during the year ended 30 June 2023.
(ii) Following the acquisition of the remaining interest in Concrete Pavement Recycling Pty Ltd, this joint operation is now 100% controlled by the Group.
(iii) Contractual arrangement prevents control despite ownership of more than 50% of this joint operation.
(iv) Joint operations in the process of novation to DT Infrastructure Pty Ltd as a result of the sale of the Australian Transport Project business.
Recognition and measurement
The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly
held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the
appropriate headings.
F2. Controlled entities
The controlled entities of the Group listed below were wholly owned during the current and prior year, unless otherwise stated:
Australia
A E Smith & Son (NQ) Pty Ltd (v)
A E Smith & Son (SEQ) Pty Ltd (v)
A.E. Smith & Son Proprietary Limited (v)
AE Smith Building Technologies Pty Ltd (v)
A.E. Smith Service (SEQ) Pty Ltd (v)
A.E. Smith Service Holdings Pty Ltd (v)
A.E. Smith Service Pty Ltd (v)
ACN 009 173 040 Pty Ltd
Airparts Fabrication Pty Ltd (v)
Airparts Fabrication Unit Trust (v)
Airparts Holdings Pty Ltd (v)
Aladdin Group Services Pty Limited
Aladdin Laundry Pty Limited
Aladdin Linen Supply Pty Limited
Aladdins Holdings Pty. Limited
ASPIC Infrastructure Pty Ltd
Asset Services (Aust) Pty Ltd
Berkeley Challenge (Management) Pty Limited
Berkeley Challenge Pty Limited
Berkeley Railcar Services Pty Ltd
Berkeleys Franchise Services Pty Ltd
Bonnyrigg Management Pty. Limited
Cleandomain Proprietary Limited
Cleanevent Australia Pty. Ltd.
Cleanevent Holdings Pty. Limited
Cleanevent International Pty. Limited
Cleanevent Technology Pty Ltd
Concrete Pavement Recycling Pty Ltd (iv)
DM Road Services Pty Ltd
DMH Electrical Services Pty Ltd
DMH Maintenance and Technology Services Pty Ltd
DMH Plant 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-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 Professional Services Pty Ltd (vi)
Downer QTMP Pty Ltd (vii)
Downer Utilities Australia Pty Ltd
Downer Utilities Holdings Australia Pty Ltd
Downer Utilities New Zealand Pty Ltd
Downer Utilities SDR Pty Ltd
Downer Victoria PPP Maintenance Pty Ltd
EDI Rail PPP Maintenance Pty Ltd
EDICO Pty Ltd
Emerald ESP Pty Ltd (v)
Emoleum Partnership
Emoleum Road Services Pty Ltd
Emoleum Roads Group Pty Ltd
Envar Engineers and Contractors Pty Ltd (v)
Envar Holdings Pty Ltd (v)
Envar Installation Pty Ltd (v)
Envar Service Pty Ltd (v)
Envista Pty Limited
Errolon Pty Ltd
Evans Deakin Industries Pty Ltd
Fieldforce Services Pty Ltd
119
Notes to the consolidated financial statements F2. Controlled entities – continued
Australia – continued
Fowlers Asphalting Pty. Limited
Gippsland Asphalt Pty. Ltd.
Infrastructure Constructions Pty Ltd
International Linen Service Pty Ltd
LNK Group Pty Ltd
Lowan (Management) Pty. Ltd.
Maclab Services Pty Ltd
Mineral Technologies (Holdings) Pty Ltd
Mineral Technologies Pty Ltd
Monteon Pty Ltd
Nationwide Venue Management Pty Limited
New South Wales Spray Seal Pty Ltd
NG-Serv Pty Ltd
Nuvogroup (Australia) Pty Ltd
Pacific Industrial Services BidCo Pty Ltd
Pacific Industrial Services FinCo Pty Ltd
Primary Producers Improvers Pty. Ltd.
Rail Services Victoria Pty Ltd
Riley Shelley Services Pty Limited
Roche Services Pty Ltd
RPC Roads Pty Ltd
RPQ Asphalt Pty. Ltd.
RPQ Mackay Pty Ltd
RPQ North Coast Pty. Ltd.
RPQ Pty Ltd
RPQ Services Pty. Ltd.
RPQ Spray Seal Pty. Ltd.
Skilltech Consulting Services Pty. Ltd.
Skilltech Metering Solutions Pty Ltd.
Smarter Contracting Pty Ltd
Southern Asphalters Pty Ltd
Sports Venue Services Pty Ltd
Spotless Defence Services Pty Ltd
Spotless Facility Services Pty Ltd
Spotless Financing Pty Limited
Spotless Group Holdings Limited
Spotless Group Limited
Spotless Investment Holdings Pty Ltd
Spotless Management Services Pty Ltd
Spotless Property Cleaning Services Pty Ltd
Spotless Securities Plan Pty Ltd
Spotless Services Australia Limited
Spotless Services International Pty Ltd
Spotless Services Limited
Spotless Treasury Pty Limited
SSL Asset Services (Management) Pty Ltd
SSL Facilities Management Real Estate Services Pty Ltd
SSL Security Services Pty Ltd
Tarmac Linemarking Pty Ltd
Taylors Two Two Seven Pty Ltd
Trenchless Group Pty Ltd
Trico Asphalt Pty. Ltd.
UAM Pty Ltd
Utility Services Group Holdings Pty Ltd
Utility Services Group Limited
VEC Civil Engineering Pty Ltd
VEC Plant & Equipment Pty Ltd
120 Annual Report 2023 | Downer EDI Limited
New Zealand and Pacific
AF Downer Memorial Scholarship Trust
DGL Investments Limited
Downer Construction (Fiji) Pte 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 Limited
Downer New Zealand Projects 2 Limited
Downer Utilities New Zealand Limited
Green Vision Recycling Limited
Hawkins Limited
Hawkins Project 1 Limited
ITS Pipetech Pacific (Fiji) Pte Limited
Richter Drilling (PNG) Limited
Spotless Facility Services (NZ) Limited
Spotless Holdings (NZ) Limited
Techtel Training & Development Limited
The Roading Company Limited
Waste Solutions Limited
Works Finance (NZ) Limited
Africa
Downer EDI Mining – Ghana Limited
Downer Mining South Africa Proprietary Limited (iii)
MD Mineral Technologies Africa (Pty) Ltd
MD Mining and Mineral Services (Pty) Ltd (i)
Asia
Chang Chun Ao Hua Technical Consulting Co Ltd
Cleanevent Middle East FZ LLC (ii)
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 (iii)
Americas
Mineral Technologies Comercio de Equipamentos para
Processamento de Minerais LTD
Mineral Technologies, Inc.
Otraco Brasil Gerenciamento de Pneus Ltda (iii)
United Kingdom and Channel Islands
KHSA Limited
Sillars (B. & C.E.) Limited (ii)
Sillars (TMWD) Limited (ii)
Sillars Holdings Limited (ii)
Sillars Road Construction Limited (ii)
Works Infrastructure (Holdings) Limited (ii)
Works Infrastructure Limited (ii)
(i) 70% ownership interest.
(ii) Entity is currently undergoing liquidation/dissolution.
(iii) Entity dissolved/de-registered during the financial year ended 30 June 2023.
(iv) Entity acquired during the financial year ended 30 June 2023.
(v) These Spotless controlled entities do not form part of the tax-consolidated
group of which Downer EDI Limited is the head entity.
(vi) AGIS Group Pty Limited changed its name to Downer Professional Services
Pty Ltd during the financial year ended 30 June 2023.
(vii) Entity incorporated during the financial year ended 30 June 2023.
Notes to the consolidated financial statements F3. Related party information
(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 F4.
(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 F2.
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.
(c) Controlling entity
The parent entity of the Group is Downer EDI Limited.
F4. Parent entity disclosures
(a) Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Retained earnings
Reserves
Employee benefits reserve
Equity reserve
Total equity
Company
2023
$’m
2022
$’m
8.7
2,665.1
2,673.8
10.2
–
10.2
2,663.6
2,463.8
171.1
12.7
16.0
2,663.6
24.1
2,774.8
2,798.9
30.1
5.8
35.9
2,763.0
2,481.6
253.5
11.9
16.0
2,763.0
The parent entity was in a net current liabilities position largely due to the recognition of the fair value on the Downer Contingent
Share Options (DCSO) of $3.7 million financial instrument at reporting date which would be settled in equity. The parent entity
can meet all its financial obligations when they fall due since it has the ability to control the timing of the funding from its
controlled entities.
(b) Financial performance
Profit for the year
Total comprehensive income
Company
2023
$’m
32.3
32.3
2022
$’m
228.7
228.7
121
Notes to the consolidated financial statements F4. Parent entity disclosures – continued
(c) Guarantees entered into by the parent entity in
relation to the 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
2023 (2022: nil) other than those disclosed in Note C9 to the
financial statements.
(e) Commitments for the acquisition of property, plant
and equipment by the parent entity
The parent entity does not have any commitments for
acquisition of property, plant and equipment as at 30 June 2023
(2022: nil).
F5. Acquisition of businesses
Current year acquisition
Concrete Pavement Recycling Pty Ltd
On 14 April 2023, the Group acquired the remaining 50.5%
interest in Concrete Pavement Recyling Pty Ltd (“CPR”) for
consideration of $0.1 million.
The acquisition accounting for CPR remains provisionally
accounted at 30 June 2023.
Prior year acquisition
Fowlers
On 30 November 2021, the Group acquired 100% of Fowlers
Asphalting Pty. Limited, Gippsland Asphalt Pty. Ltd. and Tarmac
Linemarking Pty Ltd (‘Fowlers’) for total consideration of
$25.9 million. Total consideration for this acquisition comprised
$24.0 million cash paid (net of $0.6 million cash balances
acquired) and $1.3 million deferred consideration. The fair value
of the acquired net assets amounts to $18.1 million resulting
in goodwill of $7.8 million being recognised. Fowlers is an
asphalting and civil construction business operating in the
Gippsland area of Victoria.
The Group has concluded the acquisition accounting process
for this acquisition and there was no material change arising
from finalisation.
Goodwill from acquisition
The goodwill resulting from the above acquisition represents
the 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.
122 Annual Report 2023 | Downer EDI Limited
Measurement of fair values
The valuation techniques used for measuring the fair value of
material assets acquired were as follows:
Asset/liability
acquired
Trade
receivables and
contract assets
Property, plant
and equipment
Valuation technique
Cost technique – considers the expected
economic benefits receivable when due.
Market comparison technique and cost
technique – the valuation model considers
quoted market prices for similar items
when available and current replacement
cost when appropriate.
Intangible assets Multi-period excess earnings method –
considers the present value of net cash
flows expected to be generated by the
customer contracts and relationships,
intellectual property and brand names,
excluding any cash flows related to
contributory assets. For the valuation of
certain brand names, discounted cash
flow under the relief from royalty valuation
methodology has been utilised.
Cost technique – considers the expected
economic outflow of resources when due.
Cost technique – considers the expected
economic outflow of resources when due.
Cost technique – considers the probable
economic outflow of resources when the
obligation arises.
Trade payables and
other payables
Borrowings
Provisions
Recognition and measurement
Business combinations
The acquisition method of accounting is used to account
for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration
transferred for the acquisition of a subsidiary comprises the:
§ Fair values of the assets transferred
§ Liabilities incurred to the former owners of the
acquired business
§ Equity interests issued by the Group
§ Fair value of any asset or liability resulting from a contingent
consideration arrangement, and
§ Fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values
at the acquisition date. The Group recognises any non-
controlling interest in the acquired entity on an acquisition-by-
acquisition basis either at fair value or at the non-controlling
interest’s proportionate share of the acquired entity’s net
identifiable assets.
Acquisition-related costs are expensed as incurred.
Notes to the consolidated financial statements (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. 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).
F6. Disposal of businesses
Current year divestments
Transport Projects
On 20 June 2023, Downer completed the sale of its Australian Transport Projects business to DT Infrastructure Pty Ltd, a
Gamuda Berhad group company (Gamuda). The sale price represents an enterprise value of $212 million. There remains a number
of customer consents outstanding at the date of completion, some of which remain outstanding as at the date of this report.
These contracts will remain with Downer until the consents are received and Downer has agreed to defer $20.0 million of the
proceeds until the remaining customer consents are received and the contracts novated. As at June 2023, net proceeds (after
transaction costs) of $160.5 million had been received with a $44.4 million pre-tax gain on disposal.
The below table summarises the impact of divestments during the 2023 financial year:
2023
$’m
Note
Transport
Projects
Proceeds on disposal (net of transaction costs)
Less cash disposed
Proceeds net of disposal costs (as per the Consolidated Statement of Cash Flows)
Consideration for divested contracts (net of transaction costs)
Cash and cash equivalents
Trade receivables and contract assets
Property, plant and equipment
Right-of-use assets
Goodwill/Intangible assets
Inventories
Deferred tax assets
Assets disposed
Trade payables and contract liabilities
Lease liabilities
Employee benefits provision
Liabilities disposed
Net assets disposed
Gain on disposal before tax
214.9
(54.4)
160.5
164.9
54.4
70.5
36.7
1.7
44.1
0.9
3.5
211.8
77.7
1.8
11.8
91.3
120.5
44.4
123
B3
Notes to the consolidated financial statements F6. Disposal of businesses – continued
Prior year divestments
Disposal of Mining businesses
Open Cut Mining East business
On 11 October 2021, Downer entered into an agreement to sell its Open Cut Mining East business to an Australian subsidiary of
PT Bukit Makmur Mandiri Utama (BUMA), a large Mining services provider in Indonesia, for gross proceeds of $150 million. The
sale included the transfer of assets (including fleet and inventory) and liabilities; and the novation of the existing contracts to
BUMA. Downer received an initial deposit of $16 million at that date. On 17 December 2021, the sale of Open Cut Mining East was
completed and Downer received the remaining purchase price. As at 30 June 2022, net proceeds (after transaction costs) of
$131.0 million had been received with a $64.7 million pre-tax loss on disposal recognised.
Otraco business
On 26 April 2021, an agreement was reached for the sale of Mining’s tyre management business (Otraco) to Bridgestone
Corporation (Bridgestone). Otraco was disclosed as a disposal group held for sale in the Group’s 2021 Annual Report.
On 1 December 2021, the sale of Otraco was completed and Downer received net proceeds (after transaction costs) of $75.1 million
and recorded a net pre-tax gain on disposal of $47.4 million.
The below table summarises the impact of divestments during the 2022 financial year:
2022
$’m
Proceeds on disposal (net of transaction costs)
Less cash disposed
Proceeds net of disposal costs(i)
Proceeds on disposal (net of transaction costs)
Cash and cash equivalents
Trade receivables and contract assets
Property, plant and equipment(ii)
Right-of-use assets(iii)
Intangible assets(iv)
Inventories
Current tax assets
Deferred tax assets
Prepayments and other assets
Assets disposed
Trade payables and contract liabilities
Lease liabilities(v)
Employee benefits provision
Other provisions
Liabilities disposed
Net assets disposed
Add non-controlling interest disposed
Less FCTR held on businesses disposed
(Loss) on disposal before tax
Mining
Divestments
Note
221.8
(15.7)
206.1
221.8
15.7
40.4
174.1
41.7
0.5
40.3
1.7
9.2
0.7
324.3
5.9
43.2
38.5
0.2
87.8
236.5
4.6
7.2
(17.3)
B3
(i) A further $39.3 million proceeds in relation to Open Cut Mining West and Blasting businesses disposed during FY21 have been received during the year.
Total divestment proceeds received as at 30 June 2022 amounts to $245.4 million.
(ii) A further $9.4 million of Otraco assets classified as Assets Held for Sale at 30 June 2021 were also disposed. Refer to Annual Report 2021.
(iii) A further $2.2 million of Otraco assets classified as Assets Held for Sale at 30 June 2021 were also disposed. Refer to Annual Report 2021.
(iv) $0.5 million of Otraco intangible assets classified as Assets Held for Sale at 30 June 2021 were also disposed. Refer to Annual Report 2021.
(v) A further $2.4 million of Otraco lease liabilities classified as Liabilities Held for Sale at 30 June 2021 were also disposed. Refer to Annual Report 2021.
124 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements F7. Disposal group held for sale
Transport Projects
On 20 June 2023, Downer announced it had completed the sale of its Australian Transport Projects business to DT Infrastructure
Pty Ltd, a Gamuda Berhad group company (Gamuda). There remains a number of contracts with customer consents outstanding
at the date of completion, some of which remain outstanding as at the date of this report. These contracts will remain with Downer
until the consents are received.
Asset and Development Services
Downer has entered into an agreement to sell the remaining part of its Australian Mechanical and Electrical Commercial Projects
business (‘Asset & Development Services’) to existing managers of the business. The transaction is expected to be completed
in FY24.
The assets and liabilities of the contracts to be divested have been reclassified as current assets and liabilities held for sale at
30 June 2023.
At 30 June 2023, the disposal groups were stated at the lower of its carrying amount and fair value less costs of disposal, and
consisted of the following assets and liabilities:
2023
$’m
Trade receivables and contract assets
Inventories
Current tax assets
Prepayments and other assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Assets held for sale
Trade payables and contract liabilities
Lease liabilities
Current tax liabilities
Employee benefits provision
Other provisions
Deferred tax liabilities
Liabilities held for sale
Note
Transport
Projects
Asset and
Development
Services
42.8
–
–
0.7
–
0.6
–
44.1
54.8
0.6
–
3.0
0.5
(1.0)
57.9
41.2
0.2
2.0
0.5
0.4
2.0
1.8
48.1
42.7
2.5
0.2
8.4
1.2
–
55.0
C5
C6
B5(b)
C8
B5(b)
Total
84.0
0.2
2.0
1.2
0.4
2.6
1.8
92.2
97.5
3.1
0.2
11.4
1.7
(1.0)
112.9
Recognition and measurement
Disposal groups are recognised when a sale is considered highly probable. The assets and liabilities of these disposal groups
are disclosed separately on the basis that their value is expected to be realised through a sale event rather than continued use.
Disposal group assets are presented at the lower of their carrying value or the value expected to be realised through the sale.
Any impairment to the carrying value of the assets is recognised through the Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
The Assets held for sale do not include any recognition of divestment and exit costs.
125
Notes to the consolidated financial statements 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
2022, as follows:
§ AASB 2020-3 Amendments to Australian Accounting
Standards – Annual Improvements 2018-2020 and
Other Amendments, including:
– Amendments to AASB 137 – Onerous Contracts – Cost of
Fulfilling a Contract.
– Amendments to AASB 116 – Property, Plant and
Equipment: Proceeds before Intended Use.
– Reference to the Conceptual Framework (Amendments
to AASB 3).
Based on AASB 137 Provisions, Contingent Liabilities and
Contingent Assets, the full cost approach was utilised
and hence there was no impact on measurement of
onerous contracts.
None of the above new and amended accounting standards
have had a significant impact on the Group’s consolidated
financial statements.
(b) New accounting standards and interpretations
not yet adopted
The following standards, amendments to standards and
interpretations are relevant to current operations. They are
available for early adoption but have not been applied by the
Group in this Financial Report.
§ AASB 2020-1 and 2020-6 Classification of liabilities as
current or non-current.
§ AASB 2021-2 Amendments to Australian Accounting
Standards – Disclosure of Accounting Policies and Definition
of Accounting Estimates.
§ AASB 2021-5 Amendments to Australian Accounting
Standards – Deferred Tax related to Assets and Liabilities
arising from a Single Transaction.
§ AASB 17 Insurance Contracts.
§ AASB 2020-5 Amendments to Australian Accounting
Standards – Insurance Contracts.
§ AASB 2022-1 Amendments to Australian Accounting
Standards – Initial Application of AASB 17 and
AASB 9 Comparative Information.
§ AASB 2022-5 Amendments to AASB 16 Leases –
Lease Liability in a Sale and Leaseback.
§ AASB 2014-10 Amendments to Australian Accounting
Standards – Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture.
§ AASB 2022-7 Editorial Corrections to Australian
Accounting Standards and Repeal of Superseded and
Redundant Standards.
§ AASB 2022-6 Amendments to Australian Accounting
Standards – Non-current Liabilities with Covenants.
§ AASB 2023-1 Amendments to Australian Accounting
Standards – Supplier Finance Arrangements.
§ AASB 2023-2 Amendments to Australian Accounting
Standards – International Tax Reform – Pillar Two
Model Rules.
AASB 17 Insurance Contracts (AASB 17) will be first applicable
to the Group for the financial year commencing 1 July 2023
and must be applied retrospectively. Insurance contracts
are defined as contracts ‘under which one party (the issuer)
accepts significant insurance risk from another party (the
policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event (the insured event) adversely
affects the policyholder’. AASB 17 establishes the principles for
the recognition, measurement, presentation and disclosure of
insurance contracts.
Management is in the process of determining the impact and no
material items have been identified to date.
126 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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.
A buy-back of Downer’s shares was announced to the market
on 27 April 2021 and the buy-back commenced on 8 June
2021. As of 30 June 2023, the buy-back has ended and a total
of 32,217,939 shares were purchased for total consideration of
$185.0 million, funded by the Group’s cash reserves.
(b) Financial risk management objectives
The Group’s Treasury function manages the funding, liquidity
and financial risks of the Group that are managed under a Board
approved Treasury Policy. These risks include foreign exchange,
interest rate, commodity and financial counterparty credit risk.
The Group enters into a variety of derivative financial
instruments to manage its exposures including:
(i) Forward foreign exchange contracts to hedge the exchange
rate risk arising from cross-border trade flows, foreign
income and debt service obligations
(ii) Cross-currency interest rate swaps to manage the interest
rate and currency risk associated with foreign currency
denominated borrowings
(iii) Interest rate swaps to manage interest rate risk
(iv) 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:
Financial assets(i)
Financial liabilities(i)
2023
$’m
2.3
0.5
2022
$’m
1.3
0.6
2023
$’m
0.2
0.1
2022
$’m
–
2.3
US Dollar (USD)
Euro (EUR)
(i) The above table shows foreign currency financial assets and liabilities in
Australian dollar equivalent.
127
Notes to the consolidated financial statements G2. Capital and financial 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:
Weighted average
exchange rate
Outstanding contracts
2023
2022
Foreign currency
Contract value
Fair value
2023
FC’m
2022
FC’m
2023
$’m
2022
$’m
2023
$’m
2022
$’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
Buy JPY / Sell AUD
Less than 3 months
3 to 6 months
Later than 6 months
Sell JPY / Buy AUD
Less than 3 months
3 to 6 months
Later than 6 months
Buy NZD / Sell AUD
Less than 3 months
Sell NZD / Buy AUD
Less than 3 months
Buy GBP / Sell AUD
Less than 3 months
Later than 6 months
Total
0.6807
0.7287
0.6929
0.7217
0.7305
0.7387
0.6768
0.6888
0.6514
0.7194
0.7431
0.7225
0.6328
0.6198
0.6201
0.6530
0.6304
0.6260
3.1
2.1
3.9
9.1
0.9
8.2
7.6
16.7
0.8
0.5
0.6
1.9
7.2
9.6
7.5
24.3
3.5
12.4
8.8
24.7
3.8
1.0
0.8
5.6
85.32
87.65
84.48
86.14
89.82
82.77
435.1
164.6
560.9
1,160.6
584.6
75.6
342.4
1,002.6
90.50
80.88
87.83
87.97
–
80.02
25.0
70.2
21.4
116.6
515.9
–
51.3
567.2
4.6
2.9
5.6
13.1
1.3
11.8
11.6
24.7
1.3
0.9
1.0
3.2
5.1
1.9
6.6
13.6
0.3
0.9
0.2
1.4
10.0
13.1
10.1
33.2
4.9
16.7
12.2
33.8
5.9
1.6
1.2
8.7
6.8
0.8
4.1
11.7
5.9
–
0.6
6.5
0.1
0.3
0.2
0.6
–
(0.4)
0.3
(0.1)
0.1
–
–
0.1
(0.6)
(0.1)
(0.4)
(1.1)
–
0.1
–
0.1
0.5
0.8
0.7
2.0
(0.2)
(1.2)
(0.5)
(1.9)
(0.2)
(0.1)
–
(0.3)
(0.6)
–
(0.4)
(1.0)
0.4
–
0.1
0.5
1.0854
1.0992
40.0
45.0
36.9
40.9
(0.1)
(0.3)
1.0895
–
20.0
–
18.4
–
–
–
0.5669
0.5291
–
–
–
0.4
0.7
1.1
–
–
–
0.6
1.3
1.9
–
–
–
–
(0.5)
–
–
(0.1)
(0.1)
(1.1)
128 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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)
2023
%
2022
%
Weighted average
exchange rate
2023
2022
Contract value
Fair value
2023
$’m
2022
$’m
2023
$’m
2022
$’m
5.9
5.9
0.7739
0.7739
129.2
129.2
17.3
14.7
5.2
5.2
83.12
83.12
120.3
120.3
(9.9)
(7.8)
Outstanding contracts
Buy USD / Sell AUD
1 to 5 years
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), New Zealand dollar (NZD) and Japanese Yen (JPY)
arising from cross-border trade and intercompany flows.
The following table details the Group’s sensitivity to movements in the Australian dollar against relevant foreign currencies. The
percentages disclosed below represent the Group’s assessment of the possible changes in spot foreign exchange rates (i.e.
forward exchange points and discount factors have been kept constant). The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation at the period end for a given percentage change in foreign
exchange rates.
A positive number indicates a before-tax increase in profit and equity and a negative number indicates a before-tax decrease in
profit and equity.
Profit/(loss)(i)
Equity(ii)
2023
$’m
2022
$’m
2023
$’m
2022
$’m
USD impact
- 15% rate change
+ 15% rate change
NZD impact
- 15% rate change
+ 15% rate change
JPY impact
- 15% rate change
+ 15% rate change
0.4
(0.3)
–
–
–
–
0.2
(0.1)
–
–
–
–
(1.9)
1.4
6.5
(4.8)
1.9
(1.4)
(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.
(0.2)
0.2
7.2
(5.3)
1.2
(0.9)
129
Notes to the consolidated financial statements
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 utilising cross-currency interest rate swaps and 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 – income and 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)
Total fair value exposure
Weighted average AUD
equivalent interest rate
(including credit margin)
Liability/(asset)
2023
%
2022
%
2023
$’m
2022
$’m
5.3
2.3
5.0
5.9
5.8
3.6
1.8
0.3
2.0
5.9
5.8
3.6
587.0
(889.1)
(302.1)
221.8
133.5
30.0
620.5
1,005.8
7.0
(738.5)
(731.5)
568.0
130.5
30.0
622.9
1,351.4
(i) The marked to market 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.
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 principal and interest amounts on USD private placement notes and JPY medium term notes have
been fully hedged against the Australian dollar through cross-currency interest rate swaps. 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
Weighted average
interest rate
Notional principal amount
Fair value
2023
%
3.3
–
2022
%
0.7
3.3
2023
$’m
225.0
–
225.0
2022
$’m
575.0
225.0
800.0
2023
$’m
2022
$’m
3.2
–
3.2
5.4
1.5
6.9
130 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements 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 cash flows 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 investment
grade rated financial counterparties and by the early refinancing
of debt facilities to ensure continued access to capital over the
medium term.
As at 30 June 2023, the Group has no debt facilities maturing
within the 12 months to 30 June 2024. The maturity profile
and quantum of the Group’s debt facilities 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.
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 based on the current observable market
environment for variable rate instruments, cross-currency
interest rate swaps and interest rate swaps. An increase or
decrease in interest rates of 100 basis points on the unhedged
position (mostly cash and cash equivalents) will increase or
decrease interest expense by $3.0 million (2022: $7.3 million)
respectively for the next 12 months.
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 $1.4 million (2022: $5.8 million) and $1.2 million (2022:
$5.6 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 risk assessment is performed at
the onset of material contracts to assess the financial condition
of the counterparty and reviewed annually 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 a 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 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.
131
Notes to the consolidated financial statements G2. Capital and financial risk management – continued
Liquidity risk tables
The following tables detail the contractual maturity of the Group’s financial liabilities. The tables are based on the undiscounted
cash flows of financial liabilities and include both interest and principal cash flows.
2023
$’m
Bank loans(i)
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(ii)
Trade payables and accruals
Lease liabilities
Total financial liabilities
2022
$’m
Bank loans(i)
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(ii)
Trade payables and accruals
Lease liabilities
Total financial liabilities
Less than
1 year
45.7
6.9
1.7
19.7
74.0
5.8
(2.5)
4.8
8.1
1,749.0
156.7
1,987.8
Less than
1 year
13.8
6.6
1.7
19.7
41.8
6.0
(5.4)
1.8
2.4
1,734.1
148.2
1,926.5
1 to 2
years
403.9
6.9
1.7
19.7
432.2
5.8
(0.9)
0.2
5.1
–
115.0
552.3
1 to 2
years
112.1
6.6
1.7
19.7
140.1
6.0
(1.5)
0.1
4.6
–
111.8
256.5
2 to 3
years
162.2
154.3
30.9
519.7
867.1
(16.2)
–
–
(16.2)
–
86.1
937.0
2 to 3
years
190.6
6.6
1.7
19.7
218.6
6.1
(0.4)
(0.1)
5.6
–
80.4
304.6
3 to 4
years
4 to 5
years
More than
5 years
18.0
–
–
1.2
19.2
5.1
–
–
5.1
–
63.0
87.3
3 to 4
years
7.2
148.5
30.9
519.7
706.3
(10.5)
–
–
(10.5)
–
64.1
759.9
307.4
–
–
1.2
308.6
5.1
–
–
5.1
–
45.2
358.9
–
–
–
110.0
110.0
41.5
–
–
41.5
–
156.4
307.9
4 to 5
years
More than
5 years
7.8
–
–
1.2
9.0
5.1
–
–
5.1
–
48.9
63.0
302.4
–
–
113.5
415.9
44.2
–
–
44.2
–
169.5
629.6
(i) $812 million (2022: $582 million) of the bank loan liabilities relate to loan principal obligations with the balance relating to interest obligations for the current drawn
profile. These interest obligations are set by reference to the relevant quarterly or monthly floating interest rate at the reporting date. Note that the principal and
interest obligation are subject to change based on the actual drawn profile and changes in market interest rate.
(ii) Includes assets and liabilities. The derivative instruments are subject to change as interest rates and exchange rates change.
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 at 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. These are presented as
current assets or liabilities to the extent they are expected to settle within 12 months after the end of the reporting period. There
were no fair value hedges in the year ended 30 June 2023.
132 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Hedge accounting
AASB 9 aligns the accounting for hedging instruments 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 includes requirements on rebalancing hedge relationships and prohibiting
voluntary discontinuation of 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.
G3. Other financial assets and liabilities
2023
$’m
At amortised cost(i):
Current
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
Downer Contingent Share Options (DCSO) financial instrument
Level 3
Unquoted equity investments – Fair value through OCI
Total
Financial assets
Financial liabilities
Current Non-current
Current Non-current
3.4
4.2
–
7.6
0.8
2.3
–
3.1
–
–
10.7
14.4
–
–
14.4
0.5
18.6
–
19.1
18.0
18.0
51.5
–
3.6
1.3
4.9
1.5
4.9
3.7
10.1
–
–
15.0
–
–
–
–
0.3
5.4
–
5.7
–
–
5.7
(i) Due to the short-term nature of the other current receivables, their carrying amount is considered to be the same as their fair value. For the majority of the non-current
receivables, the fair values are also not significantly different from their carrying amounts.
133
Notes to the consolidated financial statements G3. Other financial assets and liabilities – continued
2022
$’m
At amortised cost(i):
Current
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
Downer Contingent Share Options (DCSO) financial instrument
Level 3
Unquoted equity investments – Fair value through OCI
Total
Financial assets
Financial liabilities
Current Non-current
Current Non-current
15.7
0.3
4.5
20.5
2.2
5.5
–
7.7
–
–
28.2
5.6
–
–
5.6
0.4
17.0
–
17.4
9.7
9.7
32.7
–
3.6
0.2
3.8
3.6
5.3
13.7
22.6
–
–
26.4
–
–
1.3
1.3
0.3
3.4
–
3.7
–
–
5.0
(i) Due to the short-term nature of the other current receivables, their carrying amount is considered to be the same as their fair value. For the majority of the non-current
receivables, the fair values are also not significantly different from their carrying amounts.
Reconciliation of Level 3 fair value measurements of financial assets
The fair value of Level 3 investments has increased by $8.3 million from prior year due to the $6.0 million investment in Evolution
Rail (HCMT project), $2.1 million investment in a virtual reality technology company and $0.2 million investment revaluation.
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.
Calculated using forward exchange rates
prevailing at the balance sheet date.
Calculated based on the Group’s interest in
the net assets of the unquoted entities.
Not applicable.
Not applicable.
Assumptions are made with regard to future expected
revenues and discount rates. 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.
134 Annual Report 2023 | Downer EDI Limited
Notes to the consolidated financial statements Directors’ Declaration
for the year ended 30 June 2023
In the opinion of the Directors of Downer EDI Limited:
(a) The financial statements and notes set out on pages 71 to 134 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
M J Menhinnitt
Chairman
Sydney, 10 August 2023
P J Tompkins
Managing Director and Chief Executive Officer
135
Notes to the consolidated financial statements
Corporate Governance
for the year ended 30 June 2023
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.
136 Annual Report 2023 | Downer EDI Limited
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 2023, 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.
Inclusion and Belonging 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 Inclusion and Belonging (I&B) Policy which outlines
the Company’s commitment to developing a diverse and
inclusive workforce.
The I&B Policy is available on the Downer website
at www.downergroup.com.
ASX diversity recommendations – diversity statement
This diversity statement outlines Downer’s performance
throughout 2023 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 2023
§ An outline of Downer’s measurable gender diversity
objectives for 2023.
Gender representation metrics
As at 30 June 2023, Downer’s female gender representation
metrics were as follows:
Board
Senior Executive1
Management2
Workforce
50%
20.2%
18.3%
30%
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.
Directors’ Report Auditor’s Reports
Financial Statements Notes to the consolidated financial statements Corporate Governance Investor Information
Looking back: 2023 measurable objectives
Focus Area
Objective
Targets
Initiatives
FY23 Outcomes
3% Aboriginal
and Torres Strait
Islander employees.
Aboriginal,
Torres Strait
Islander and
Māori Peoples
Educate and embed
best practice cultural
heritage monitoring
within large scale
on-country project
deliveries. Support
engagement and
partnership with Iwi,
Local Traditional
Owner groups and
Registered Native
Title bodies.
Focus on talent and
sourcing pipelines,
Employee Value
Proposition, retention
and engagement.
§ Develop and deliver a series of
§ Delivered Inclusion and Belonging
information sessions, awareness
packs and other resources to the
business about Aboriginal, Torres
Strait Islander and Māori history
and cultures, such as Cultural
Learning Bites.
§ Develop and endorse inclusive
‘optional’ mentoring programs for
Aboriginal and Torres Strait Islander
employees, to ensure supported
ongoing ‘Cultural Safety’ in their roles.
§ Develop internal Indigenous
pre-employment and internship
programs in Australia, through the
consultation, education, engagement
and collaboration with Business Units
across Downer.
§ Identify and implement pipeline
activities for potential candidates
from Aboriginal, Torres Strait
Islander and Māori heritage. Develop
innovative programs and approaches
to reach a wider range of recruitment
platforms and diverse communities.
§ Develop a strategic and inclusive
Diversity Attraction, Employment,
Engagement and Retention Plan.
§ Continue to deliver Downer’s Māori
Leadership Development program,
Te Ara Whanake.
monthly reports, lunch ’n’ learn online
sessions and resource packs about
Aboriginal and Torres Strait Islander
culture and days of significance,
including NAIDOC Week and National
Reconciliation Week.
§ Work has commenced on how to
leverage the Graduate Mentoring
Support Program with tailored
components to support Indigenous
employees. This will form part of
the overarching Downer Indigenous
Employment Program (DIEP) to be
launched in FY24.
§ The Walu pilot program outcomes
have been reviewed as a pre-
employment framework to partner
with external Indigenous employment
agencies. Building on the pilot
program, a holistic approach will be
captured as part of DIEP.
§ Re-signed partnership agreements
with NRL Cowboys House and Stars
Foundation, organisations that help
support young Indigenous people. An
Indigenous Careers recruitment video
is under development to increase
our reach in promoting Downer as a
culturally safe place for young people
to start their career journey.
§ A plan has been developed with
the focus being on DIEP. This will
encompass pre-employment, talent
acquisition, upskilling, mentoring
and career development to ensure
onboarding and retention outcomes
as a sustainable Group-wide approach.
§ Te Ara Whanake continues to be a
flagship program with 46 participants
completing in FY23. An alumni event
for 148 graduates was hosted by the
NZ Executive.
§ Continue to deliver the Te Ara
§ Te Ara Maramatanga was delivered to
Maramatanga program to Non-Māori
leaders which gives them a deeper
understanding of Māori history,
culture and tikanga.
another 17 participants in FY23.
§ Create and maintain identified
§ Positions are identified in projects
positions for Aboriginal and Torres
Strait Islander people.
and contracts that can be specifically
filled by Aboriginal and Torres Strait
Islander people.
137
Looking back: 2023 measurable objectives
Focus Area
Objective
Targets
Initiatives
FY23 Outcomes
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.
§ 40% women in
the workforce
by 2023;
§ 25% women in
management
positions by
2023;
§ 25% women
in executive
positions by
2023; and
§ 30% women
Directors on
the Board.
Cultural and
Linguistic
Diversity
To improve
opportunities for
employees from
different cultural and
linguistic backgrounds.
Increase employees
who identify to be
from cultural and
linguistically diverse
backgrounds.
§ Analyse the WGEA reporting data
§ WGEA data was shared with the
and use the learnings as key inputs to
develop ongoing strategy, programs
and initiatives.
§ Develop a strategic and inclusive
Diversity Attraction, Employment,
Engagement and Retention Plan.
§ Conduct self-assessment against
criteria and standards outlined in
the Workplace Equality and Respect
Standards and Gender Equality
Act 2020 (Vic), reporting on areas
for improvement.
§ Continue to deliver THRIVE, our
women’s personal and professional
growth program; and New Zealand’s
Women In Leadership Downer
Program (WILD).
§ Develop a strategic and inclusive
Diversity Attraction, Employment,
Engagement and Retention Plan.
P&C community for use within the
I&B Committees.
§ I&B Committees each hold their
own plans which are shared through
representation on the COP. Initiatives
include Wahine Kotahitanga in
NZ, to provide young females with
development, support and a voice.
§ Through the Women on Track (WoT)
paid traineeship program we have
trainees undertaking Certificate II
training. With 10 women having
completed the program, it will now
be extended across Rail.
§ We are an endorsed WORK180
employer which allows us to promote
Downer as a preferred employer
for women.
§ Not yet completed.
§ THRIVE is a 12-month program based
around five blocks of learning and
collaboration. The second cohort
of 117 participants have graduated
this year. The third cohort of 130
participants commenced in March.
§ Pacific Peoples was identified as a
target group and a pre-employment
program developed and delivered in
partnership with the NZ Ministry of
Pacific Peoples.
§ Develop and deliver information
sessions, awareness packs and other
resources to the business in relation
to the awareness and understanding
of different cultures and languages.
§ Delivered Inclusion and Belonging
monthly reports, lunch ’n’ learn
online sessions and resource packs
about Harmony Week, Māori cultural
awareness and multiculturalism.
§ Identify new partnerships and
opportunities for sourcing and
recruiting employees from under-
represented cultural groups.
§ We continue to engage with
CareerSeekers to support the
recruitment of interns from migrant
and refugee backgrounds. One
CareerSeeker has interned with
Downer Utilities in FY23 so far.
§ The GROW program at Bendigo
Health focused on recruiting
and training people from diverse
backgrounds and has provided
employment opportunities for over
70 new employees since its inception.
138 Annual Report 2023 | Downer EDI Limited
Corporate Governance Focus Area
Objective
Targets
Initiatives
FY23 Outcomes
Generational
Diversity
Increase the
number of graduate
and apprentice
employees
year-on-year.
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.
LGBTIQA+
Increase
confidence
of employees
to identify as
LGBTIQA+.
Create a welcoming
and safe environment
for all employees who
identify as lesbian, gay,
bisexual, transgender,
intersex, queer, asexual
and other diverse
genders, sexes and
sexualities.
Disability and
Neurodiversity
Providing a safe and
inclusive workplace
that enables people of
all abilities to realise
their full potential
and make valued
contributions.
Increase
confidence of
employees to
identify employees
with a disability.
§ Develop a strategic and inclusive
Diversity Attraction, Employment,
Engagement and Retention Plan.
§ Continue to build a talent pipeline by
investing in entry-level programs that
align to our generational diversity
focus and priority areas, including:
– Downer Graduate
Development Program
– Cadetships and further
undergraduate programs
– Apprenticeships and traineeships
(mature-age opportunities,
recognition of prior learning for
experienced workers without
formal qualifications)
– Internships
– CSO pre-employment
programs (NZ).
§ Apprentices and Trainees number
420 in AU and 403 in NZ. There are
two apprenticeship intakes per year.
§ Career Pathways for main trades
now available on L&D Hub to
show the progression pathway to
apprenticeship and beyond.
§ Graduate program participants
number 29 (AU) and 24 (NZ).
§ Cadetship programs continue,
including focus on mature applicants
looking to retrain.
§ Continuing partnerships with
preferred Universities to bolster
talent pipeline, including selected
sponsorship of diverse student groups
(female, rainbow and Indigenous).
§ Collaborated with New Zealand
graduates to trial Trans-Tasman
Design Thinking Challenge.
§ Develop and deliver information
§ Delivered Inclusion and Belonging
sessions, awareness packs and other
resources to the business in relation
to LGBTQIA+ communities.
§ Identify new partnerships and
opportunities for sourcing and
recruiting employees from the
LGBTQIA+ community.
§ Identify new partnerships and
opportunities for sourcing and
recruiting employees with a disability.
§ Autism recruitment pilot within
a specific Business Unit. Identify
target roles and seek a recruitment
exemption from the Anti-
Discrimination Board (Australia).
§ Develop and deliver information
sessions, awareness packs and other
resources to the business in relation
to disability workplace accessibility
and inclusion.
monthly reports containing
information about LGBTQIA+
significant days, including Wear
it Purple Day. Rainbow Training
provided, especially focusing on
P&C and Recruitment.
§ Volunteering opportunity for Downer
colleagues to support Beyond Blue
at the 2023 Sydney Gay and Lesbian
Mardi Gras.
§ NZ retained Rainbow Tick
accreditation, enhancing employee
brand with community.
§ StandOut Rainbow community group
supported including first community
conference held.
§ Initial scoping undertaken, and two
potential work areas identified for
further investigation including BSC
(AU) and WMC (NZ).
§ Work continuing with BSC to evaluate
opportunity and to identify partner to
support initiative.
§ Delivered Inclusion and Belonging
monthly newsletters containing
information about Disability and
Neurodiversity. Learning session
delivered about Deaf awareness
and the Deaf community as well
as utilisation of sign language for
NZ values.
139
Corporate Governance
Looking ahead: 2024 measurable objectives
Focus Area
Objective
Targets
Initiatives
Aboriginal,
Torres Strait
Islander and
Māori Peoples
Gender
Diversity
Develop and lead an
Employment Program
for Aboriginal and
Torres Strait Islander
people at Downer.
Partner with
Indigenous businesses
to build relationships,
promote Best Practice
procurement and
increase supplier
diversity.
Streamline data
collection and
reporting and
communication of ISG
Strategy, outcomes
and metrics internally
and externally.
To improve
opportunities for
women to reach their
potential through
an inclusive work
environment while
positioning Downer
Group as a preferred
employer for women.
Cultural and
Linguistic,
Disability and
Neurodiversity
Diversity
To improve
opportunities for
employees from
different cultural and
linguistic backgrounds.
Generational
Diversity
LGBTQIA+
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.
Create a welcoming
and safe environment
for all employees who
identify as lesbian, gay,
bisexual, transgender,
intersex, queer, asexual
and other diverse
genders, sexes, and
sexualities.
§ 3% Aboriginal
and Torres
Strait Islander
employees.
§ Develop an internal overarching approach to achieve employment target. This
will encompass processes and resources for talent acquisition, onboarding,
career development, mentoring and retention – delivered through the Downer
Indigenous Employment Program (DIEP).
§ Develop and deliver a series of information sessions, awareness packs and other
resources to the business about Aboriginal, Torres Strait Islander and Māori
history and cultures, such as Cultural Learning Bites.
§ Establish and maintain mutually beneficial relationships with Aboriginal and
Torres Strait Islander stakeholders and organisations. Promote and share
outcomes and achievements with the business.
§ Develop an Indigenous Business Inclusion Strategy to increase spend and build
meaningful relationships enabling greater Supplier Diversity.
§ Continue to deliver Downer’s Māori Leadership Development program,
Te Ara Whanake.
§ Continue to deliver the Te Ara Maramatanga program to Non-Māori leaders
which gives them a deeper understanding of Māori history, culture and Tikanga.
Provide this opportunity to Australian-based leaders as well.
§ Deliver Indigenous Cultural Awareness training for all NZ-based CEO-2 in
Trans-Tasman business.
§ 40% women in
the workforce
by 2026.
§ Analyse the WGEA reporting data and provide to each of the I&B Committees
to use the learnings as key inputs to develop ongoing strategy, programs
and initiatives.
§ 25% women in
management
positions by
2026; and
§ 28% women
in executive
positions
by 2026.
§ Increase
employees
who identify
to be from
cultural and
linguistically
diverse
backgrounds.
§ Increase the
number of
graduate and
apprentice
employees’
year-on-year.
§ Support the Wahine Kotahitanga female network group and provide opportunity
to share learnings across NZ and AU.
§ Continue to deliver THRIVE, our women’s personal and professional growth
program, encompassing NZ participants.
§ Establish the THRIVE Alumni framework.
§ Rebuild and launch the Inclusion and Belonging SharePoint as a central hub of
resources, particularly to support the broader focus areas of I&B.
§ Develop resources for establishment of network/community groups based on
the StandOut model.
§ Develop and deliver information sessions, awareness packs and other resources
to the business in relation to the awareness and understanding of different
diverse groups.
§ Identify new partnerships and opportunities for sourcing and recruiting
employees from under-represented groups.
§ Engage a new sourcing channel to attract youth.
§ Develop a flexible working framework that supports retention of employees
approaching retirement age.
§ Continue to build a talent pipeline by investing in entry-level programs that align
to our generational diversity focus and priority areas, including:
– Graduate Development Programs
– Cadetships and further undergraduate programs
– Apprenticeships and traineeships (mature-age opportunities, recognition
of prior learning for experienced workers without formal qualifications)
– Internships
– CSO pre-employment programs.
§ Increase
confidence
of employees
to identify
as LGBTQIA+.
§ Develop and deliver information sessions, awareness packs and other resources
to the business in relation to LGBTQIA+ communities, leveraging relationship
with the Rainbow Tick.
§ Identify new partnerships and opportunities for sourcing and recruiting
employees from the LGBTQIA+ community.
§ Leverage the work of the StandOut forum in NZ by providing wider access
to their sharepoint site and initiatives.
140 Annual Report 2023 | Downer EDI Limited
Corporate Governance Principle 2: Structure the Board
to be effective and add value
Throughout the 2023 financial year, the Board was comprised
of a majority of independent Directors.
The Board is currently comprised of the Chairman (Mark
Menhinnitt, an independent, Non-executive Director), four
other independent, Non-executive Directors and an Executive
Director (the Group CEO, Peter Tompkins). 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 8 to 59 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 and 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
Chair
Members
Audit and Risk
Zero Harm
Nominations and
Corporate Governance
People and Culture
Disclosure
Tender Risk Evaluation
N M Hollows
T G Handicott
A M Howse
P L Watson
M J Menhinnitt
P J Tompkins
M J Menhinnitt T G Handicott
P L Watson
A M Howse
N M Hollows
A M Howse
T G Handicott
N M Hollows
M J Menhinnitt
M J Menhinnitt
P J Tompkins
M J Menhinnitt N M Hollows
P J Tompkins
P L Watson
T G Handicott
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 29.
The Tender Risk Evaluation Committee’s primary purpose is
to oversee tenders and contracts that exceed the delegation
of the Group CEO. From 1 July 2023, Downer’s Tender Risk
Evaluation Committee has evolved into a Project Governance
Committee, with expanded responsibilities from approving
tender submissions to a broader project governance remit
where opportunities are considered at defined stage gates
(pursue, prepare, submit tender and execute contract) and
monitoring of project performance. The Committee is chaired
by an independent Director and comprises four members,
including the Group CEO.
During the period, the Board determined it was appropriate
that the Remuneration Committee transform to a broadened
people and culture remit, and accordingly it was renamed as
the ‘People and Culture Committee’.
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.
141
Corporate Governance 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
Professional qualifications
Business, finance and economics
Technical*
Legal
0.0
1.0
2.0
3.0
4.0
5.0
* Comprises construction, engineering, metallurgy and science.
Industry experience
Professional services*
Resources and energy
Transport and infrastructure
0.0
1.0
2.0
3.0
4.0
5.0
* Includes banking, finance and legal.
as Directors.
Tenure (years)
9+
6–9
3–6
0–3
0.0
1.0
2.0
3.0
Gender diversity
3
3
Male
Female
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.
Downer’s Board renewal program is ongoing. The Board has
identified engineering and operational expertise in utilities,
in particular power and water infrastructure, maintenance
and services, experience in senior executive roles, as well as
knowledge and experience of the New Zealand markets, as key
skills required for future.
On 30 June 2023, Downer announced the appointment of
Steven MacDonald as a Director, effective from 1 September
2023. Mr MacDonald is an experienced Non-executive Director
and senior executive with extensive experience in the water and
power sectors delivering engineering maintenance, services
and major infrastructure projects ranging from power plants to
tunnels to freeways and rail, and has worked in both Australia
and New Zealand.
The chart following 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.
142 Annual Report 2023 | Downer EDI Limited
Corporate Governance From time to time, Downer engages external specialists to
assist with the selection process as necessary, and the Chairman,
Board and Group CEO meet with candidates as part of the
appointment process.
Nominations for re-election of Directors are reviewed by the
Nominations and Corporate Governance Committee and
Directors are re-elected in accordance with the Downer
Constitution and the ASX Listing Rules.
As part of its commitment to leading corporate governance
practice, the Board undertakes improvement programs, including
externally facilitated periodic reviews of its performance and that
of its Committees and Directors. The last review was completed
during FY22 and included 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:
§ Downer’s financial position, strategies, operations and risk
management policies
§ 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.
Principle 3: Instil a culture of acting lawfully,
ethically and responsibly
Downer’s Purpose is to Enable Communities to Thrive.
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 Sustainability,
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 reported 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.
143
Corporate Governance 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.
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 FY23, together with the individual
attendances of members at the meetings, is set out in the
Directors’ Report on page 29.
The Audit and Risk Committee Charter is available on the
Downer website at www.downergroup.com.
144 Annual Report 2023 | Downer EDI Limited
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
§ 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.
Corporate Governance 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, environmental 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 2022. The Board
reviews the Group risk profile twice each year and considers
other risk matters, such as business resilience, tender review
processes, risk appetite and specific risk areas, on a regular
basis, as well as regular reports from senior management, the
internal audit team and the external auditor.
Downer’s annual Sustainability Report provides a detailed
overview of Downer’s approach to managing its environmental
and social risks. The Sustainability Report is available on the
Downer website at www.downergroup.com/sustainability.
The Company’s internal audit function objectively evaluates and
reports on the existence, design and operating effectiveness of
internal controls. Downer’s internal audit team is independent
of the external auditor and reports to the Audit and
Risk Committee.
Downer’s Audit and Risk Committee assists the Board in
its oversight of Downer’s risk profile and risk policies, the
effectiveness of the systems of internal control and Risk
Management Framework and Downer’s compliance with
applicable legal and regulatory obligations. The Audit and
Risk Committee Charter is available on the Downer website
at www.downergroup.com.
Management reports regularly to the Audit and Risk Committee
on the effectiveness of Downer’s management of its material
business risks and on the progress of mitigation treatments.
Principle 8: Remunerate fairly and responsibly
The Board has established a People and Culture Committee and
has adopted the People and Culture 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 People and Culture Committee is responsible for reviewing
and making recommendations to the Board about:
§ People, culture and conduct
§ Talent management and succession
§ Inclusion and belonging
§ 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 People and Culture 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 People and
Culture Committee.
The maximum aggregate fee approved by shareholders that can
be paid to Non-executive Directors is $2.4 million per annum.
This cap was approved by shareholders on 3 November 2022.
Further details about remuneration paid to Non-executive
Directors are set out in the Remuneration Report at page 31.
Retirement benefits are not paid to Non-executive Directors.
Non-executive Directors do not participate in any equity
incentive schemes.
The remuneration structure for Executive Directors and senior
executives is designed to achieve a balance between fixed and
variable remuneration taking into account the performance of
the individual and the performance of the Company. Executive
Directors receive payment of equity-based remuneration as
short-term and long-term incentives.
Executive Directors and senior executives are prohibited from
entering into transactions in associated products which limit
the economic risk of participating in unvested entitlements
under any of the Company’s equity-based remuneration
schemes, as set out in the Securities Trading Policy. A copy of
the Securities Trading Policy is available on the Downer website
at www.downergroup.com.
Further details about the remuneration of Executive Directors
and senior executives are set out in the Remuneration Report
at page 31 and details of Downer shares beneficially owned by
Directors are provided in the Directors’ Report at page 11.
145
Corporate Governance Information for Investors
for the year ended 30 June 2023
Downer shareholders
Downer had 25,012 ordinary shareholders as at 30 June 2023, of
which 23,297 shareholders had a registered address in Australia.
The largest shareholder, HSBC Custody Nominees (Australia)
Limited, held 31.30% of the 671,573,679 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.
Share registry
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 3000
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.
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.
146 Annual Report 2023 | Downer EDI Limited
Directors’ Report Auditor’s Reports
Financial Statements Notes to the consolidated financial statements Corporate Governance Investor Information
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 2023
Number of holders of equity securities:
Ordinary share capital
671,573,679 fully paid listed ordinary shares were held by 25,012 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 2023:
Shareholders
L1 Capital Pty Ltd and L1 Capital Strategic Equity Management Pty Ltd
Allan Gray Australia Pty Ltd and its related bodies corporate
Pendal Group Limited
Dimensional Fund Advisors LP and its related bodies corporate
State Street Corporation and subsidiaries
The Vanguard Group, Inc. and its controlled entities
T Rowe Price Associates, Inc.
First Sentier Investors Holdings Pty Limited and its related bodies corporate
Distribution of holders of quoted equity securities
Shareholder distribution of quoted equity securities as at 30 June 2023 is as follows:
Ordinary
shares held
80,179,543
61,204,402
41,010,826
40,335,725
35,407,595
35,082,734
34,158,001
33,760,188
% of issued
shares
11.94
9.11
6.07
6.00
5.27
5.09
5.08
5.03
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
Shareholders
%
Ordinary
shares held
13,331
8,505
1,903
1,211
62
25,012
1,732
53.30
5,552,670
34.00
20,351,642
7.61
13,803,053
26,378,409
4.84
0.25 605,487,905
671,573,679
Shares
%
0.83
3.03
2.06
3.93
90.15
100.00
147
Twenty largest shareholders
Downer’s 20 largest shareholders of ordinary fully paid shares as at 30 June 2023 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
ARGO INVESTMENTS LTD
BNP PARIBAS NOMINEES PTY LTD
NETWEALTH INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED <143212 NMMT LTD A/C>
BNP PARIBAS NOMS (NZ) LTD
MR GRANT ANTHONY FENN
UBS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CPU SHARE PLANS PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
ESTATE LATE BARRY SYDNEY PATTERSON + MRS GLENICE MARGARET PATTERSON
POWERWRAP LIMITED
MR JOHN WILLIAM HARBOT
Total for top 20 shareholders
Shares held
210,223,879
159,105,952
130,158,245
31,419,040
27,052,008
13,315,059
4,100,182
3,298,771
3,016,826
2,058,133
1,999,772
1,773,787
1,721,664
1,574,996
1,392,376
1,079,890
986,810
891,642
687,879
612,922
596,469,833
% of issued
shares
31.30
23.69
19.38
4.68
4.03
1.98
0.61
0.49
0.45
0.31
0.30
0.26
0.26
0.23
0.21
0.16
0.15
0.13
0.10
0.09
88.81
148 Annual Report 2023 | Downer EDI Limited
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