ANNUAL REPORT 2018 TOGETHER WE DELIVER OUR PURPOSE TO BUILD, MAINTAIN AND IMPROVE OUR CUSTOMERS’ OPERATIONS THROUGH THE RELIABLE DELIVERY OF SAFE, COST EFFECTIVE AND CUSTOMER-FOCUSSED SOLUTIONS. OUR VISION OUR VALUES ABOUT THIS REPORT Monadelphous will achieve long- term sustainable growth by being recognised as a leader in our chosen markets and a truly great company to work for, to work with and invest in. We are committed to the safety, wellbeing and development of our people, the delivery of outstanding service to our customers and the provision of superior returns to our shareholders. OUR COMPETITIVE ADVANTAGE We deliver what we promise. The purpose of this Annual Report is to provide Monadelphous’ stakeholders, including shareholders, customers, employees, suppliers and the wider community, with information about the Company’s performance during the 2018 financial year. References in this Report to ‘the year’, ‘the reporting period’ and ‘the period’ relate to the financial year 1 July 2017 to 30 June 2018, unless otherwise stated. All dollar figures are expressed in Australian currency, unless otherwise stated. Monadelphous Group Limited (ABN 28 008 988 547) is the parent company of the Monadelphous group of companies. In this Report, unless otherwise stated, references to ‘Monadelphous’, ‘the Company’, ‘the division’, ‘we’, ‘its’, ‘us’ and ‘our’ refer to Monadelphous Group Limited and its subsidiaries. Safety and Wellbeing We show concern and actively care for others. We always think and act safely. Integrity We are open and honest in what we say and what we do. We take responsibility for our work and our actions. Achievement We are passionate about achieving success for our customers, our partners and each other. We seek solutions, learn and continually improve. Teamwork We work as a team in a cooperative, supportive and friendly environment. We are open-minded and share our knowledge and achievements. Loyalty We develop long-term relationships, earning the respect, trust and support of our customers, partners and each other. We are dependable, take ownership and work for the Company as our own. COVER IMAGES Top Tie-in conveyors at BHP’s Mining Area C mine, Pilbara region, Western Australia. Left Middle A Monadelphous employee assisting with the shutdown of Dragline 102 at Yancoal’s Mount Thorley Warkworth open cut mines, Mount Thorley, New South Wales. Right Middle 270MW Sapphire Wind Farm, New England region, New South Wales. Left Bottom A Monadelphous employee inspecting the polymer dosing skid, part of the biosolids treatment system, at the Bondi Waste Water Treatment Plant, Sydney, New South Wales. Right Bottom Monadelphous employees at BHP’s Olympic Dam mine near Roxby Downs in South Australia. CONTENTS OVERVIEW Our Vision, Competitive Advantage and Values About this Report About Monadelphous Our Services and Locations OPERATING AND FINANCIAL REVIEW 2017/18 Highlights Performance at a Glance Markets and Growth Strategy Chairman’s Report Managing Director’s Report Company Performance Board of Directors Engineering Construction Maintenance and Industrial Services Sustainability FINANCIAL REPORT Directors’ Report Remuneration Report Independent Audit Report Directors’ Declaration Consolidated Financial Statements Notes to the Consolidated Financial Statements Investor Information 2 2 4 6 8 10 12 13 14 16 17 18 22 26 33 37 49 54 55 60 95 ANNUAL GENERAL MEETING Shareholders are advised that the Monadelphous Group Limited 2018 Annual General Meeting (AGM) will be held at The University Club, University of Western Australia, Crawley, Western Australia, on Tuesday, 20 November 2018 at 10am (AWST). IMAGE Monadelphous’ 400 tonne crane jib. ABOUT MONADELPHOUS 5 Monadelphous is an Australian engineering group headquartered in Perth, Western Australia, providing construction, maintenance and industrial services to the resources, energy and infrastructure sectors. The Company builds, maintains and improves its customers’ operations through safe, reliable, innovative and cost effective service solutions. It aims to be recognised as a leader in its chosen markets and a truly great company to work for, work with and invest in. OUR HISTORY Monadelphous emerged from a business which started in 1972 in Kalgoorlie, Western Australia, providing general mechanical contracting services to the mining industry. The name Monadelphous was adopted in 1978 and by the mid-1980s the Company had expanded into a number of markets, both interstate and overseas, and its shares were traded on the second board of the Australian Stock Exchange. In the late 1980s, a major restructure of the Company took place with the business refocussing on maintenance and construction services in the resources industry. Monadelphous’ shares were relisted on the main board of the stock exchange during the 1990 financial year and the Company established the foundation for sustained growth with a new management team. The Company has continued to diversify and extend its reputation as a supplier of multidisciplinary construction, maintenance and industrial services to many of the largest companies in the resources, energy and infrastructure sectors. Monadelphous’ shares are included in the S&P/ASX 200 index. OUR OPERATIONS Monadelphous has two operating divisions working predominately in Australia, with overseas operations in New Zealand, China, Papua New Guinea, Mongolia and the United States. Engineering Construction The Engineering Construction division provides large-scale multidisciplinary project management and construction services. These include fabrication, modularisation, offsite pre-assembly, procurement and installation of structural steel, tankage, mechanical and process equipment, piping, plant commissioning, demolition, water and wastewater asset construction and maintenance, irrigation services, heavy lift and specialist transport, remediation works, electrical and instrumentation services, and engineering, procurement and construction services. Maintenance and Industrial Services The Maintenance and Industrial Services division specialises in the planning, management and execution of mechanical and electrical maintenance services, shutdowns, fixed plant maintenance services, access solutions, specialist coatings and sustaining capital works. The division provides an important source of recurring revenue through its long-term contracts with major customers. IMAGES Left Monadelphous employees accessing Cape Lambert A Wharf, Pilbara region, Western Australia. Right Top A 42 tonne water tank, pre-fabricated by SinoStruct, being transported for installation at BHP’s Mining Area C, Newman, Western Australia. Right Bottom Monadelphous employees assisting with the shutdown of Dragline 102 at Yancoal’s Mount Thorley Warkworth open cut mines, Mount Thorley, New South Wales. MONADELPHOUS ANNUAL REPORT 2018 OVE RVIE W MONADELPHOUS ANNUAL REPORT 2018 7 OUR SERVICES AND LOCATIONS UNITED STATES 9 13 HOUSTON Monadelphous operates predominantly in Australia, with overseas operations in New Zealand, China, Papua New Guinea, Mongolia and the United States. ENGINEERING CONSTRUCTION Market Sector MAINTENANCE AND INDUSTRIAL SERVICES Market Sector 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Amuri Irrigation Scheme - Supply, installation and commissioning of 130km water pipeline network Australia Pacific LNG - Wellhead Separator Skids - Supply, fabrication and assembly of wellhead separator skids and pressure vessels BHP - Various structural, mechanical, piping, electrical and instrumentation integrated packages BHP Iron Ore - Mining Area C Water Treatment Plant upgrade CWP Asset Management - Crudine Ridge Wind Farm - Design and construction of civil and electrical balance of plant, transport and erection CWP Asset Management - Sapphire Wind Farm - Civil and electrical balance of plant Fortescue Solomon, a wholly owned subsidiary of Fortescue Metals Group - Fixed plant maintenance crane services and shutdown crane services Goldwind Australia - Moorabool North Wind Farm - Balance of plant works Jacobs Engineering - Supply structural steel, fabricated spooling and pre-assembled modular pipe racks JKC Australia LNG (JKC) - Ichthys Project Onshore LNG Facilities - Mechanical Works - Utility and offsite JKC - Ichthys Project Onshore LNG Facilities - SMPE&I for completion of gas turbine generators and associated steam piping of combined cycle power plant Kawasaki Heavy Industries - Ichthys Project Onshore LNG Facilities - SMPE&I on the cryogenic tanks Kiewit Corporation - Structural steel and miscellaneous steel Lal Lal Wind Farms - Engineering, procurement, construction and commissioning of balance of plant works Structural, mechanical and piping works Oyu Tolgoi LLC - Oyu Tolgoi Underground Project - Mechanical decommissioning, demolition, civil, structural, mechanical, piping and electrical and instrumentation works Pukaki Irrigation Company Limited - Design, supply, installation and commissioning of gravity pressurised irrigation scheme Santos Ltd - Roma West Phase 2B Project - Structural, mechanical and piping works Santos Ltd - Supply, fabrication, assembly and delivery of wellhead separator skids Selwyn District Council - Upgrade to wastewater treatment plant Sydney Water Corporation - Network delivery management, delivery contractor panel for facilities and networks Talison Lithium - Design, construction and commissioning of new feed system to chemical grade plant Tilt Renewables - Salt Creek Wind Farm - Engineering, procurement, construction and commissioning Townsville City Council - Civil, structural, mechanical and electrical works to upgrade the Cleveland Bay Purification Plant 25 Unitywater - Design and construction of major upgrade to Kawana Sewage Treatment Plant Water Fabrication Services Iron Ore Water Renewable Energy Renewable Energy Iron Ore Renewable Energy Fabrication Services Oil and Gas Oil and Gas Oil and Gas Fabrication Services Renewable Energy Lead Copper, Gold Water Oil and Gas Fabrication Services Water Water Lithium Renewable Energy Water Water AngloGold Ashanti - Maintenance works BHP Coal - Maintenance works BHP Iron Ore - Shutdowns and turnarounds and sustaining capital works BHP Mitsubishi Alliance (BMA) Blackwater Mine - Dragline shutdowns BHP Nickel West - Maintenance and turnarounds BHP Olympic Dam - Maintenance and turnarounds Chevron Australia - Gorgon Project – LNG Facilities maintenance Chevron Australia - Wheatstone Project – LNG Facilities maintenance CITIC Pacific Mining - Sino Iron Project - Projects and turnarounds Incitec Pivot Limited - General Mechanical Contractor Services Gold Coal Iron Ore Coal Nickel Copper, Uranium, Gold Oil and Gas Oil and Gas Iron Ore Ammonia INPEX Operations Australia - Offshore maintenance services Oil and Gas 1 2 3 4 5 6 7 8 9 10 11 12 Lihir Gold - Maintenance works 13 Oil Search Limited - Field construction services / engineering, procurement and construction services 14 The Shell operated QGC project on Curtis Island 15 Queensland Alumina Limited - Maintenance and turnarounds 16 Rio Tinto Iron Ore - Maintenance and turnarounds 17 18 19 20 21 22 Shell Australia - Maintenance and turnaround services on Prelude FLNG facility South 32 - Worsley Alumina Refinery Synergy - Operation and maintenance of Collie Basin Coal Plant Infrastructure TechnipFMC - Piping modification and fabrication on hook- up and commissioning of Prelude FLNG facility The Pilbara Infrastructure, a wholly owned subsidiary of Fortescue Metals Group - Abrasive, cleaning and relining carbon steel ore wagons Tronox KMK - Cogeneration Plant operation and maintenance 23 Woodside - Karratha Gas Plant Karratha Life Extension program 24 Woodside - Maintenance, turnarounds and offshore brownfields implementation 25 Yancoal - Maintenance and turnarounds Gold Oil and Gas Oil and Gas Alumina Iron Ore Oil and Gas Alumina Power Oil and Gas Iron Ore Power Oil and Gas Oil and Gas Coal ULAANBAATAR BEIJING MONGOLIA 16 CHINA 2 9 13 19 PHILIPPINES MANILA 12 13 PAPUA NEW GUINEA 24 10 4 2 18 19 14 15 25 MACKAY GLADSTONE 6 BRISBANE 2 25 5 21 GUNNEDAH MUSWELLBROOK NEWCASTLE MT THORLEY SYDNEY 14 8 23 AUCKLAND NEW ZEALAND 17 1 20 CHRISTCHURCH PORT HEDLAND PILBARA COASTAL AND NORTH-WEST REGION 3 3 7 8 9 16 21 23 24 KARRATHA TOM PRICE NEWMAN 7 4 KALGOORLIE PERTH HEAD OFFICE BUNBURY 5 1 22 22 18 19 DARWIN 11 17 20 10 11 12 AUSTRALIA 6 15 ROXBY DOWNS LOCATIONS ENGINEERING CONSTRUCTION MAINTENANCE & INDUSTRIAL SERVICES OP E R ATIN G AND FINA NC IA L RE V I E W MONADELPHOUS ANNUAL REPORT 2018 9 2017/18 HIGHLIGHTS Monadelphous made good progress on its markets and growth strategy, maximising returns from core markets, securing further business in infrastructure and continuing to deliver core services to overseas markets. The Company saw a significant improvement in its safety performance and continued to focus on improving operational productivity through the development and implementation of technological solutions and innovative work practices. SECURED NEW CONTRACTS AND ADDITIONAL WORK VALUED AT APPROXIMATELY $600 MILLION. Ichthys Project Onshore LNG Facilities Monadelphous substantially completed work on the Ichthys Project Onshore LNG Facilities in Darwin, Northern Territory. An outstanding safety record and strong overall performance resulted in a significant amount of additional work being awarded throughout the duration of the project. Strengthened Maintenance Services Position A significant increase in demand for maintenance and sustaining capital works services across the resources and energy sectors positioned the Company as a leading maintenance services provider. Strong Growth in Zenviron Zenviron substantially completed the Sapphire Wind Farm Project in New South Wales and secured four new wind farm contracts, including the Salt Creek, Lal Lal, Crudine Ridge and Moorabool North wind farms. New Maintenance Services Embedded Services added in prior years, including corrosion management, protective coatings, marine maintenance and rope access, were successfully embedded into operations. Offshore Oil and Gas Maintenance Contracts Ramped Up Maintenance activity on the Company’s offshore oil and gas contracts with Woodside, INPEX Operations Australia and Shell Australia ramped up substantially. Increased Water and Irrigation Activity The Company continued to deliver water and irrigation projects in Australia and New Zealand, and was awarded a contract with Pukaki Irrigation Company Limited for the construction of a gravity pressurised irrigation scheme in New Zealand. Mondium Secured First EPC Contracts Mondium secured its first two EPC contracts at Talison Lithium’s Greenbushes Operations and Galaxy Lithium Australia’s Mt Cattlin project, both in Western Australia. Significant Improvement in Safety Performance Achieved a 23 per cent improvement in the 12-month total case injury frequency rate (TCIFR) by focussing on critical risk controls and enhancing behavioural safety. Geographical Expansion The Company expanded geographically with the acquisition of Newcastle-based maintenance services business, RIG Installations, and the establishment of workshop facilities in Newman. Commenced Work on Oyu Tolgoi in Mongolia Secured and commenced work on the Company’s first two packages of work on the Oyu Tolgoi Underground Project in Mongolia. Improving Operational Productivity Enhanced productivity and competitiveness through the application of new technology and innovative solutions. Copyright © 2018 Rio Tinto PERFORMANCE AT A GLANCE 11 SUMMARY OF 2018 PERFORMANCE Sales revenue for the year was $1.784 billion*, up 41 per cent on the previous period, as a result of strong demand for the Company’s services in its core markets in Australia, as well as growth from diversification into overseas and infrastructure markets. The Company’s strong performance was impacted by a surge in oil and gas construction activity and strengthened demand for maintenance services across both the resources and energy sectors. Financial SALES REVENUE* [ $ M ] NET CASH AT 30 JUNE [ $ M ] • Sales revenue of $1.784 billion*, up 41 per cent • NPAT of $71.5 million, up 24 per cent • EPS of 76.1 cents, DPS of 62 cents fully franked Operations • Oil and gas construction revenues strong • Maintenance and Industrial Services achieved record result • Growth in water and renewables Safety and Wellbeing • Significant improvement in safety performance • Focus on critical risk controls and behavioural safety • Maturing operations in new markets and environments Markets and Growth • Embedded new maintenance services and expanded geographically • Mondium successfully delivered its first EPC contract and secured further work • Zenviron awarded four new wind farm contracts • Commenced work on two packages on the Oyu Tolgoi Underground Project in Mongolia People and Culture • 5,828 people at year-end • Continued focus on developing and retaining people • Retention to remain a focus as employment market tightens Productivity and Innovation • New technologies implemented to improve operational productivity • Focussed on creation of innovative solutions for customers • Offshore support services centre in Manila continued to provide cost effective, project related services 2018 2017 2016 2015 2014 1,784.0 1,264.7 1,364.7 1,865.0 2,329.6 2018 2017 2016 2015 2014 187.8 228.1 186.0 186.6 180.8 EBITDA^ [ $ M ] EARNINGS PER SHARE# [ C ] 2018 2017 2016 2015 2014 119.0 98.2 113.6 168.0 221.2 2018 2017 2016 2015 2014 76.1 61.4 71.8 113.9 159.1 NET PROFIT AFTER TAX# [ $ M ] DIVIDENDS PER SHARE [ C ] 2018 2017 2016 2015 2014 71.5 57.6 67.0 105.8 146.5 2018 2017 2016 2015 2014 62.0 54.0 60.0 92.0 123.0 OPERATING CASH FLOW [ $ M ] EMPLOYEE NUMBERS [ # ] 2018 2017 2016 2015 2014 51.6 111.2 78.0 117.8 117.6 2018 2017 2016 2015 2014 5,828 6,164 4,438 4,536 5,321 GEOGRAPHY END CUSTOMER WA NT QLD Overseas NSW SA VIC 34.5% 33.4% 10.4% 9.2% 8.3% 4.0% 0.2% Oil and Gas 58.5% Other Minerals 13.5% Iron Ore Infrastructure Coal 12.2% 11.4% 4.4% IMAGE A Monadelphous employee prepares for paint and blast work at BHP’s Olympic Dam mine near Roxby Downs in South Australia. * Includes Monadelphous’ share of joint venture revenue – refer to reconciliation on page 16. ^Refer to page 16 for reconciliation of EBITDA. # Attributable to equity holders of Monadelphous Group Limited. The financial information contained in this section should be read in conjunction with the Financial Statements and accompanying notes. Financial Statements are prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards Board and other relevant standards, as outlined on page 60. MONADELPHOUS ANNUAL REPORT 2018 MARKETS AND GROWTH STRATEGY Monadelphous will grow earnings by maximising returns from its core markets, building its infrastructure business and delivering core services to overseas markets. IMAGES Left The Woodside-operated Goodwyn A gas platform, part of the North West Shelf Project, Western Australia. Middle Monadelphous employees reviewing biosolids at the Bondi Waste Water Treatment Plant, Sydney, New South Wales. Right The overland conveyor and coarse ore stockpile at Rio Tinto’s Oyu Tolgoi project, Mongolia. Image courtesy of Woodside Energy Ltd. Copyright © 2018 Rio Tinto DELIVER CORE SERVICES TO OVERSEAS MARKETS PROGRESS Secured initial packages of work on Oyu Tolgoi in Mongolia PRIORITIES Successfully deliver Oyu Tolgoi work and secure further packages Explore other overseas opportunities BUILD AN INFRASTRUCTURE BUSINESS PROGRESS Strong growth in renewable energy market Water and irrigation business awarded new work in Australia and New Zealand PRIORITIES Continue to grow water and irrigation business in Australia and New Zealand Successfully deliver renewable energy projects Progress options to enter other Australian infrastructure markets MAXIMISE RETURNS FROM CORE MARKETS PROGRESS Awarded significant additional oil and gas construction work due to performance and strong customer relationships Strengthened market position in maintenance, with work ramping up across a number of oil and gas contracts Mondium secured and executed first EPC contracts PRIORITIES Capitalise on major construction prospects Continue to improve competitiveness in core markets Secure further EPC projects through Mondium Deliver broader range of services to customers 13 focussed on the delivery of the large number of water and irrigation contracts awarded in the prior year. Monadelphous’ strategy to deliver core services to overseas markets was bolstered by the award of two packages of work on the Oyu Tolgoi Underground Project in Mongolia and, in support of this project and to assist in upskilling and developing the local workforce, Monadelphous established a registered training organisation in Ulaanbaatar. A strong balance sheet provides the capacity to invest in the right opportunities, and enables the Company to continue to progress its markets and growth strategy. Productivity improvements will maintain priority as competition levels remain high and customers continue to focus on cost competitive solutions. On behalf of the Board, I would like to take this opportunity to thank our shareholders, customers and employees for their ongoing loyalty and support. John Rubino Chairman CHAIRMAN’S REPORT Monadelphous continued to progress its markets and growth strategy throughout the year, substantially growing revenues in its core markets, expanding its geographical reach, embedding new services and strengthening its position in the infrastructure market. Sales revenue for the year was $1.784 billion*, an increase of 41.1 per cent on the previous year, as a result of a strong demand for the Company’s services in its core resources and energy markets in Australia, and growth from diversification into overseas and infrastructure markets. Construction revenues were particularly strong on the back of a surge in activity on the Company’s oil and gas projects, while demand for maintenance services strengthened across both the resources and energy sectors. Net profit after tax attributable to equity holders of the parent was $71.5 million, an increase of 24.2 per cent on the previous year, with the Company experiencing moderating margins resulting from continued high levels of competition. Earnings per share was 76.1 cents. The Board of Directors announced a final dividend of 32 cents per share, taking the full year dividend to 62 cents per share fully franked, giving a payout ratio of 82 per cent of net profit after tax. The Monadelphous Group Limited Dividend Reinvestment Plan will apply to the final dividend. The Company ended the year with a healthy cash balance of $208.8 million and a cash flow from operations of $51.6 million. Increased activity levels and working capital requirements resulted in a cash flow conversion rate for the period of 69.4 per cent. The total workforce at year end was 5,828, a slight decrease on 12 months earlier due to declining Engineering Construction activity towards the end of the year as a number of large contracts approached completion. This was largely offset by an increase in activity on the Company’s offshore oil and gas maintenance contracts and an overall general increase in maintenance services. Throughout the period, the Company maintained its focus on employee development and key talent retention, and will continue to do so as market conditions improve and the employment market tightens. Safety continued to be a focus across the business, and we achieved a significant improvement in safety performance. Monadelphous secured new contracts and additional work valued at approximately $600 million over the course of the year, including several contracts in the infrastructure market and in overseas locations. In line with the Company’s markets and growth strategy, work was substantially completed on the Company’s largest ever construction project, the Ichthys Project Onshore LNG Facilities in Darwin, Northern Territory, and maintenance services added in prior years were embedded into operations to support core activities. The Company also expanded geographically with the acquisition of RIG Installations, a Newcastle-based maintenance services business, and the establishment of workshop facilities in Newman. Mondium, which was established in conjunction with Lycopodium, continued to pursue opportunities in the mining and mineral processing market and secured its first two contracts during the year. The Company’s push into the infrastructure sector continued with increasing levels of activity in both the renewable energy and water and irrigation markets. Zenviron, the Company’s renewable energy business, secured a number of new wind farm contracts during the period and substantially completed work on the Sapphire Wind Farm. The Company also secured a contract for the Pukaki Irrigation Project in New Zealand and *Includes Monadelphous’ share of joint venture revenue – refer to page 16 for reconciliation. OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 15 MAINTENANCE AND INDUSTRIAL SERVICES The Maintenance and Industrial Services division continued to strengthen its position as a leading maintenance services provider, securing a number of new contracts and contract extensions, and reporting record sales revenue of $841.1 million, up 28.9 per cent on the previous year. Activity increased significantly on the division’s three offshore oil and gas maintenance contracts, coupled with a growing presence in the Pilbara, which was largely attributed to a high demand for its core services and services added in prior years, including corrosion management, specialist coatings, marine maintenance and rope access. The division focussed on maintaining strong relationships with key, long-term customers in the resources sector, which contributed to the award of contracts for fixed plant maintenance services for BHP and Rio Tinto’s inland operations, both located in the Pilbara, WA. The division’s safety performance remained on par with the prior year, and the division successfully managed the risk associated with a 26 per cent increase in man-hours. As always, safety remains a priority and the division continues to invest in a range of safety initiatives and programs to drive improvement. Throughout the period, the division maintained its focus on innovation and continuous improvement with the establishment of dedicated innovation teams, the deployment of a range of technologies across its operations and the continued use of the Company’s offshore services capability in Manila. OUTLOOK The outlook for Monadelphous looks good as conditions in the resources and energy sectors strengthen. Project pipeline visibility continues to improve with several major iron ore projects having entered the early stages of development, and an increasing number of opportunities in the base metals and lithium markets. Investment in infrastructure remains healthy, with good prospects in the water and irrigation market in Australia and New Zealand, while the Australian renewables market is expected to remain buoyant for the foreseeable future. In summary, Monadelphous is in good shape and well positioned to capitalise on the upcoming market conditions. Rob Velletri Managing Director IMAGES Maintenance activity is forecast to increase as production volumes remain high and essential maintenance works are undertaken. Oil and gas services revenue is expected to grow as LNG projects ramp up production and offshore work volumes increase. Left Cryogenic tanks at INPEX Operations Australia’s Ichthys Project Onshore LNG Facilities, Darwin, Northern Territory. Below A Monadelphous rope access technician assisting with a fender chain replacement on a Cape Lambert Dolphin, Pilbara region, Western Australia. MANAGING DIRECTOR’S REPORT The Company experienced strong revenue growth with an increase in oil and gas construction activity, growth in water and renewables and strengthened demand for maintenance services across all sectors. Monadelphous’ greatest asset continues to be its people. The Company remains committed to attracting, developing and retaining high calibre employees who live its values and actively contribute to its growth. During the period, Monadelphous’ Graduate Development Program was again recognised as one of Australia’s top ranking graduate programs, and the Company’s commitment to creating a more diverse and inclusive workplace, with equal opportunity for all, was bolstered by the launch of its third Reconciliation Action Plan. Subsequent to the end of the year, Monadelphous launched a Senior Leadership Capability Framework and Gender Diversity and Inclusion Plan. ENGINEERING CONSTRUCTION The Engineering Construction division reported sales revenue of $949.9 million*, an increase of 54.4 per cent on the previous year, reflecting an increase in oil and gas construction activity and growth in water and renewables. A significant focus on behavioural safety and enhancing partnerships with subcontractors contributed to an improved safety performance, with a 51 per cent reduction in the division’s TCIFR. The Company’s largest construction contract to date, the Ichthys Project Onshore LNG Facilities in Darwin, Northern Territory, neared completion at year end. The division achieved an outstanding safety record on the project and its strong overall performance resulted in the award of a significant amount of additional work throughout the duration of the project. Zenviron, the Company’s renewable energy business, secured four new wind farm contracts in Victoria and New South Wales during the period, and will continue to pursue further opportunities in the renewable energy sector. In addition, Monadelphous’ water and irrigation business continued to grow, performing work for Sydney Water Corporation, Townsville City Council and Unitywater. In New Zealand, it continued to execute key irrigation projects and was awarded a new contract on the Pukaki Irrigation Project in the Mackenzie Basin. The Company expanded its heavy lift capability and customer base, investing in its fleet to support current projects and future opportunities. Monadelphous experienced a surge in activity on the Company’s oil and gas projects, in particular on the Ichthys Onshore Project LNG Facilities in Darwin, Northern Territory. Demand for maintenance services strengthened across both the resources and energy sectors, and work ramped up on the Company’s offshore oil and gas contracts with Woodside, INPEX Operations Australia and Shell Australia. The Company achieved strong growth in infrastructure, particularly renewables and water and irrigation, securing a further four wind farm contracts through Zenviron, and continued to deliver various water and irrigation projects in both Australia and New Zealand. During the year, Monadelphous focussed on its critical risk controls and the enhancement of behavioural safety to improve safety performance across the business. This, combined with a number of other safety improvement initiatives, as well as the growing maturity of operations in the new markets and environments in which it entered in previous years, contributed to a 23.2 per cent improvement in its 12-month total case injury frequency rate (TCIFR) to 3.28 incidents per million man-hours worked. The lost time injury frequency rate (LTIFR) was 0.19 incidents per million man-hours worked. Improvements in productivity continued to be driven by a strong focus on developing and implementing technological solutions, and was supported by the ongoing development of the Company’s Innovation Framework, designed to enhance collaboration across the business and with its customers. In addition, the Company’s offshore support service centre in Manila continued to play a key role in driving cost effective business and project related services. * Includes Monadelphous’ share of joint venture revenue OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 COMPANY PERFORMANCE BOARD OF DIRECTORS 17 A review of the Company’s performance over the last five years is as follows: Statutory revenue EBITDA Profit before income tax expense Income tax expense Profit after income tax expense attributable to equity holders of the parent Basic earnings per share Interim dividends per share (fully franked) Final dividends per share (fully franked) 2018 $’000 2017 $’000 2016 $’000 2015 $’000 2014 $’000 1,737,632 1,249,085 1,368,849 1,869,505 2,332,960 119,046 102,845 30,570 71,479 76.11c 30.00c 32.00c 98,184 82,664 24,144 57,563 61.41c 24.00c 30.00c 113,630 95,610 28,702 167,975 147,041 41,216 221,242 205,203 58,693 67,014 105,825 146,510 71.77c 28.00c 32.00c 113.91c 159.05c 46.00c 46.00c 60.00c 63.00c Net tangible asset backing per share 415.86c 398.23c 390.64c 391.75c 387.22c Total equity and reserves attributable to equity holders of the parent Depreciation Debt to equity ratio Return on equity EBITDA margin 394,481 377,393 368,995 368,098 362,665 17,222 17,892 21,094 22,932 25,656 5.3% 18.1% 6.7% 3.6% 15.3% 7.8% 4.8% 18.2% 8.3% 6.3% 28.7% 9.0% 10.2% 40.4% 9.9% EBITDA is a non-IFRS earnings measure which does not have any standardised meaning prescribed by IFRS and therefore may not be comparable to EBITDA presented by other companies. This measure is important to management as an additional way to evaluate the Company’s performance. Reconciliation of profit before income tax to EBITDA (unaudited): Profit before income tax Interest expense Interest revenue Depreciation expense Amortisation expense Share of interest, depreciation, amortisation and tax of joint ventures # EBITDA Reconciliation of Statutory Sales Revenue: Total sales revenue including joint ventures Share of revenue from joint ventures ~ Statutory sales revenue 2018 $’000 102,845 452 (2,573) 17,222 625 475 2017 $’000 82,664 734 (3,848) 17,892 562 180 119,046 98,184 2018 $’000 2017 $’000 1,783,999 1,264,747 (49,118) (19,564) 1,734,881 1,245,183 #Represents Monadelphous’ proportionate share of the interest, depreciation, amortisation and tax of joint ventures accounted for using the equity method. ~Represents Monadelphous’ proportionate share of the revenue of joint ventures accounted for using the equity method. JOHN RUBINO Chairman ROB VELLETRI Managing Director PETER DEMPSEY Lead Independent Non-Executive Director John was appointed to the Board on 18 January 1991. John was the founder of United Construction which later became diversified services company UGL. Initially serving as Managing Director and Chairman of Monadelphous Group Limited, John resigned as Managing Director on 30 May 2003 and continued as Chairman. John has 52 years of experience in the construction and engineering services industry. Rob was appointed to the Board on 26 August 1992 and commenced as Managing Director on 30 May 2003. He joined Monadelphous in 1989 as General Manager after serving a 10 year career in engineering and management roles at Alcoa. Rob is a mechanical engineer with 39 years of experience in the construction and engineering services industry and is a Corporate Member of the Institution of Engineers Australia. Peter was appointed to the Board on 30 May 2003. During his 30 year career at Baulderstone, now part of the multinational group Lendlease, Peter held several management positions prior to serving as Managing Director for five years. He is a civil engineer with 46 years of experience in the construction and engineering services industry throughout Australia, Papua New Guinea, Indonesia and Vietnam. Peter is a Fellow of the Institution of Engineers Australia and a member of the Australian Institute of Company Directors. CHRIS MICHELMORE Independent Non-Executive Director DIETMAR VOSS Independent Non-Executive Director HELEN GILLIES Independent Non-Executive Director Chris was appointed to the Board on 1 October 2007. He was formerly a Director of Connell Wagner, having served 36 years with the company, which now trades globally as Aurecon. Chris is a civil and structural engineer with 46 years of experience in the construction and engineering services industry throughout Australia, South East Asia and the Middle East. Chris is a Fellow of the Institution of Engineers Australia. Dietmar was appointed to the Board on 10 March 2014. During his career, Dietmar has worked for a number of global mining and engineering businesses, including BHP, Bechtel and Hatch throughout Australia, the United States, Europe, the Middle East and Africa. He is a chemical engineer with 44 years of experience in the oil and gas, and mining and minerals industries. Dietmar holds a Master of Business Administration in addition to science and law degrees and is a member of the Australian Institute of Company Directors. Helen was appointed to the Board on 5 September 2016 and has previously served as a Director of global engineering company Sinclair Knight Merz and the Australian Civil Aviation Safety Authority. She has a strong background in risk, law, governance and finance, as well as extensive experience in mergers and acquisitions, and has 22 years of experience in the construction and engineering services industry. Helen holds a Master of Business Administration and a Master of Construction Law, as well as degrees in commerce and law. She is a Fellow of the Australian Institute of Company Directors. OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 ENGINEERING CONSTRUCTION 19 The Engineering Construction division, which provides large scale multi-disciplinary project management and construction services, continued to deliver key contracts in its core markets, expand its global footprint and strengthen its position in the infrastructure market. The division reported sales revenue of $949.9 million*, up 54.4 per cent on the prior year, reflecting an increase in oil and gas construction activity and growth in the water and renewables sectors. New contracts to the value of approximately $300 million were secured during the period. Safety performance improved significantly across the division, with a 51 per cent reduction in the total case injury frequency rate (TCIFR) compared to the previous period. This can be attributed to a strong focus on safety culture and significant improvements across markets entered in more recent periods. Safety cultural initiatives included the development and implementation of a new safety leadership coaching program, which sets clear safety expectations for leaders and focusses on driving behavioural change, as well as increased engagement with frontline employees through an inaugural Engineering Construction Safety Forum. The division had, by year end, substantially completed its work on the Ichthys Project Onshore LNG Facilities in Darwin, Northern Territory, achieving an outstanding safety record. Strong operational performance resulted in the award of a significant amount of additional work throughout the duration of the project. Highlighting the continuing expansion of core services overseas, the division secured its first packages of work on the Oyu Tolgoi Underground Project in Mongolia and, through SinoStruct, provided procurement and logistics support to the project. The Company’s engineer, procure and construct (EPC) joint venture with Lycopodium, Mondium, successfully delivered its first project during the year. The project included the design, construction and commissioning of a new feed system to the existing chemical grade plant at Talison Lithium’s Greenbushes Operations, in the south west of Western Australia (WA). * Includes Monadelphous’ share of joint venture revenue. Towards the end of the year, Mondium secured its second EPC contract with Galaxy Lithium Australia for the design, engineering, construction and upgrade of four circuits at the Mt Cattlin project in Ravensthorpe, WA. The contract, which includes the design and construction of concrete, structural, platework and electrical and instrumentation works, is expected to be completed towards the end of the 2018 calendar year. RESOURCES IMAGES During the period, the division secured and commenced work on two contracts at the Oyu Tolgoi Underground Project, located in the South Gobi region of Mongolia. The contracts include mechanical decommissioning, demolition, civil, structural, mechanical, piping, and electrical and instrumentation works associated with Shaft 1 and 2 Surface Infrastructure and Facilities. In support of these contracts, the division is developing project execution capability through the secondment of expatriate management and supervision, the provision of upskilling and development opportunities to local skilled employees and the establishment of relationships with local suppliers. During the period, the Company expanded its facilities in Ulaanbataar and established a registered training organisation. By the end of the period, approximately 500 people were employed on the Company’s work scopes in Mongolia. ENERGY Work on Monadelphous’ largest ever construction contract, the Ichthys Project Onshore LNG Facilities in Darwin, Northern Territory, neared completion at year end. The MEC-2 Project for JKC Australia LNG commenced in 2014, with strong performance leading to the award of additional packages of work in June 2017. New contracts included electrical and instrumentation works for the product loading jetty, a subcontract with Kawasaki Heavy Industries for structural, mechanical, Left INPEX Operations Australia’s Ichthys Project Onshore LNG Facilities, Darwin, Northern Territory. Above Monadelphous’ GMK6400 crane. OUR PROGRESS Renewables business secured an additional four contracts Overseas presence continued to grow with additional contracts secured Mondium’s first contract delivered with second contract secured MONADELPHOUS ANNUAL REPORT 2018 21 CASE STUDY SAPPHIRE WIND FARM Customer Representative – CWP Asset Management Location – New England region, NSW Sapphire Wind Farm is NSW’s largest wind farm, with a capacity of 270MW. Once operational, the wind farm will power 115,000 homes and displace approximately 700,000 tonnes of carbon dioxide. In December 2016, Zenviron, in consortium with Vestas, was awarded a $430 million contract to deliver the wind farm, with Zenviron delivering approximately 20 per cent of the works. By mid-2018, Zenviron had completed all civil and electrical balance-of-plant works. Vestas is currently supplying and installing the wind turbines and is due to be completed by the end of the 2018 calendar year. In the North Island of New Zealand, two critical contracts were completed for the Hastings District Council, located south of Auckland. HEAVY LIFT The division’s heavy lift business continued to strengthen its position as a specialist lifting solutions provider. Throughout the period, it improved its capability, increased its customer base and expanded its transport and crane fleet, acquiring a number of all-terrain cranes ranging from 25 tonnes to 400 tonnes. A three-year contract commenced with Fortescue Metals Group, to deliver fixed plant maintenance and shutdown crane services at Solomon Hub in the Pilbara region of WA, which expanded in scope with an increase in fixed plant requirements. In support of its customers’ evolving heavy lift requirements, the business opened a Heavy Lift Operations Centre in Port Hedland, WA. FABRICATION SERVICES China-based fabrication business, SinoStruct, continued to supply and fabricate wellhead skids for upstream coal seam gas developments in Queensland and secured a number of contract extensions from both Santos and APLNG. In addition, SinoStruct’s procurement and logistics expertise are being utilised on the Oyu Tolgoi Underground project in Mongolia. OUTLOOK The Engineering Construction division is experiencing high levels of tendering activity, with planned major resources construction projects expected to generate significant revenue opportunities in the future. Prospects for the Company are positive as this major resources construction work comes to market. In addition, the infrastructure market is expected to remain buoyant for the foreseeable future in both Australia and New Zealand, and Mongolia continues to represent strategic importance for the division internationally. piping and electrical and instrumentation work on the cryogenic tanks, and a contract for the completion of the gas turbine generators and associated steam piping of the combined cycle power plant. The large-scale project reached a peak workforce of close to 2,000 and the Company received numerous awards from JKC Australia LNG for its excellent safety performance. INFRASTRUCTURE Zenviron continued to strengthen its position in the renewable energy sector. In consortium with Vestas Australian Wind Technology, it substantially completed the civil and electrical balance-of-plant works on New South Wales’ (NSW) largest wind farm, the 270MW Sapphire Wind Farm, and secured two contracts for the provision of engineering, procurement, construction and commissioning services at the Salt Creek and Lal Lal Wind Farms in regional Victoria. In addition, Zenviron secured contracts with Goldwind Australia for the Moorabool North Wind Farm, located in regional Victoria, and, in a consortium with GE Renewable Energy, with CWP Renewables for the Crudine Ridge Wind Farm, in regional NSW. Work on Sydney Water Corporation’s Network and Facilities Renewals Program continued to gain momentum throughout the year. The contract includes mechanical, electrical and civil services for water treatment facilities, pumping stations, pipelines, reservoirs, chemical dosing facilities and odour control facilities. The unique working environment of these critical packages of work saw the division adopt an innovative approach to project delivery and safety, which included the development and implementation of a modified dumper. The specially designed dumper operates in a live sewer to remove silt and debris from the tunnels, uses 3D computer modelling to create site plans, enabling proactive community engagement, and minimises manual handling risks through the use of vacuum assisted lifting. The division also continued work on the major upgrade to Unitywater’s Kawana Sewage Treatment Plant on the Sunshine Coast, Queensland, and commenced work on the upgrade to the Cleveland Bay Purification Plant for Townsville City Council. In New Zealand’s South Island, construction of the Amuri Irrigation Scheme, located north of Christchurch, was completed and work commenced with Pukaki Irrigation Company Limited for the design, supply, installation and commissioning of a gravity pressurised irrigation scheme. IMAGES Above 270MW Sapphire Wind Farm, New England region, New South Wales. Right A Monadelphous employee working at BHP’s Mining Area C Water Treatment Plant, Newman, Western Australia. OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 MAINTENANCE AND INDUSTRIAL SERVICES 23 The Maintenance and Industrial Services division, which specialises in the planning, management and execution of multidisciplinary maintenance services, sustaining capital works and turnarounds, continued to strengthen its position as a leading maintenance services provider, successfully embedding new services into core operations and expanding geographically. The division reported a record sales revenue of $841.1 million, up 28.9 per cent on the previous year, due to increased levels of demand for its services in both the resources and energy sectors. During the period, approximately $300 million of new contracts and contract extensions were awarded. Activity increased significantly on the division’s three offshore oil and gas maintenance services contracts, namely the Woodside-operated gas production facilities contract, the contract associated with the INPEX-operated Ichthys LNG Project and Shell Australia’s Prelude Floating Liquefied Natural Gas (FLNG) facility. Services added to the division’s offering in prior years continued to support core activities and provide further expansion opportunities, including growing the division’s presence in Port Hedland. In addition, Newcastle-based maintenance services business, RIG Installations, was acquired, providing an opportunity to leverage a diverse range of services to RIG’s customer base. The division recorded a total case injury frequency rate (TCIFR) of 3.64 incidents per million man-hours, successfully managing the risk associated with a 26 per cent increase in man-hours. The division continues to invest in a range of safety initiatives and programs to drive improvement in this area, including the development and launch of a Health, Safety and Environment Strategic Plan for each business unit to ensure market and region-specific differences are effectively managed. Throughout the period, the division continued to focus on innovation and continuous improvement with the establishment of dedicated innovation teams, at both a divisional and business unit level and the piloting of LEAN training, before roll-out to its workforce. The Company’s offshore support service centre in Manila continued to provide a range of cost effective project related services, including directly supporting its customers’ operations in the areas of workforce planning and work packaging. In addition, the division developed and implemented technological solutions to improve productivity, including remote- operated inspection devices, 3D visualisation tools, new blast and paint technology, and the broader use of mobile devices to support data capture and improve the quality and timeliness of reporting and decision making. ENERGY With commissioning activities at several major, world-class oil and gas construction projects nearing completion, including Shell Australia’s Prelude FLNG facility and the INPEX-operated Ichthys LNG Project, and a number of shutdowns completed, the division saw a significant increase in work associated with the energy sector during the period. New contracts included a piping modification and fabrication contract on the hook-up and commissioning phase of Shell Australia’s Prelude FLNG facility by TechnipFMC, and a 12-month contract extension on the Woodside-operated Karratha Gas Plant Karratha Life Extension program through the division’s joint venture, MGJV, which included mechanical, electrical, access solutions, coatings and insulation services. Significant activity during the period included a shutdown at Shell operated QGC project on Curtis Island, Queensland, in May 2018, totalling more than 66,000 man-hours over approximately 20-23 days. The shutdown included internal modifications to the propane suction drums, a change-out of the molecular sieve desiccant and socket weld repairs, HV switching activities and vessel inspections. The division was also part of the delivery team on Woodside’s largest offshore turnaround in 14 years, at the Goodwyn Alpha Platform, which will extend the life of field. The scope included access solutions, and mechanical and electrical services, and was supported by concurrent train shutdown activity at Karratha Gas Plant. IMAGES Left Monadelphous employees inspecting a 3.3kV three phase motor to be installed at Alcoa’s Pinjarra Alumina Refinery, Pinjarra, Western Australia. Above A Monadelphous employee performing testing and commissioning of electrical installations at Alcoa’s Pinjarra Alumina Refinery, Pinjarra, Western Australia. OUR PROGRESS Significant increase in activity across energy market Acquisition of RIG Installations to expand geographical presence Contract extensions and new contract awards with core customers MONADELPHOUS ANNUAL REPORT 2018 New contract wins also included a three-year contract for the supply of rope access based mechanical maintenance, inspection and protective coating services for Dalrymple Bay Coal Terminal near Mackay, Queensland, a three-year contract for the operation and maintenance of the coal handling facility at the Muja Power Station for Synergy in Collie, WA, and a three-year contract to provide shutdown maintenance, breakdown and repair services, minor projects and ad hoc services for BHP at Mt Arthur Coal in the Hunter Valley, New South Wales. A two-year contract extension was secured for the supply of mechanical services for Queensland Alumina Limited in Gladstone, Queensland. OUTLOOK Activity in the maintenance sector is forecast to remain positive as production ramps up on newly commissioned LNG projects, and as levels of maintenance and support required on aging resources assets continues to increase. The division also continued to provide engineering, procurement and construction services, through its joint venture with Jacobs Engineering Group on Oil Search’s oil and gas production facilities in the Highlands region of Papua New Guinea. RESOURCES The division focussed on maintaining strong relationships with key, long-term customers in the resources sector and embedding new services, including corrosion management, specialist coatings, marine maintenance and rope access. The division continued to provide maintenance and shutdown support for BHP’s Olympic Dam operation near Roxby Downs in South Australia, including supporting a major shutdown which was undertaken during the period. In support of the customer, the division also expanded its service offering to include concrete remediation, asset integrity, blast and paint and electrical and instrumentation. Monadelphous has provided maintenance and shutdown services at Olympic Dam since 1988. In addition, the division secured a two-year contract to continue supplying fixed plant maintenance services with long-term customer, Rio Tinto, at its coastal and inland operations in the Pilbara, WA. A more collaborative contract model delivered improvements in the areas of people, processes and systems to support increased levels of activity under the contract during the period. IMAGES Above Shell Australia’s Prelude FLNG facility, Browse Basin, Western Australia. Right Monadelphous employees assisting with the shutdown of Dragline 102 at Yancoal’s Mount Thorley Warkworth open cut mines, Mount Thorley, New South Wales. Left A Monadelphous employee making structural repairs to Fortescue’s ore car fleet as part of a maintenance and relining contract in Port Hedland, Western Australia. 25 CASE STUDY PRELUDE FLNG Customer – Shell Australia Location – Browse Basin, WA Prelude is a Floating Liquefied Natural Gas (FLNG) project located approximately 475km north-north-east of Broome, WA. The facility, which is the first deployment of Shell’s FLNG technology, extracts, liquefies and stores gas at sea, before it is exported to customers around the globe. Monadelphous was awarded a major long-term maintenance and modification services contract for the project in 2015. The contract, with an initial seven-year term with a further two two-year extension options, includes the provision of maintenance, brownfield modifications and shutdown services to the LNG process plant, support utilities, hull and non- process infrastructure including accommodation and control rooms. With hook-up and commissioning nearing completion, the division expects to grow its core maintenance team when the facility is operational. OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 SUSTAINABILITY 27 Monadelphous recognises the importance of economic, environmental and social sustainability in driving long- term success for both the Company and its stakeholders. Its goal of zero harm to its people and the environment is at the forefront of everything it does. It strives to continually add value to the communities in which it operates, and recognises the value of working with a diverse and inclusive group of people. The Company has a unique, values-based culture which is evident in the way things are done and how decisions are made. A commitment to delivering quality work, improving productivity and implementing innovative solutions is underpinned by its pledge to “deliver what we promise”. PRODUCTIVITY AND INNOVATION Monadelphous is committed to enhancing its competitiveness and delivering value to its customers through the application of technological and innovative solutions. During the year, the Company focussed on developing and implementing solutions that improved operational performance and productivity levels. A variety of innovations were implemented which enabled more efficient work practices, including robotic welding technologies, remote-operated inspection devices and 3D visualisation tools, as well as a number of process automation and cloud collaboration technologies. In addition, the Company continued to enhance its purpose-built capability library and customer relationship management database in order to effectively store and manage data for tender submissions, and to support existing and future projects. Monadelphous continued to identify and embed opportunities to deliver operational support services within a centralised and standardised operating model. The Company’s offshore support service centre in Manila saw further growth over the course of the year and continued to provide a range of cost effective business and project related services, including directly supporting its customers’ operations. The Company is currently developing an Innovation Framework to facilitate enhanced collaboration across its business, including with its customers, to further encourage technologically advanced and innovative solutions. The Framework is expected to be launched by the end of the 2018 calendar year. PEOPLE Monadelphous recognises its greatest asset is its people, and remains committed to attracting, developing and retaining high calibre employees who live its values and actively contribute to the Company’s vision and strategic objectives. The number of employees at 30 June 2018 was 5,828, a slight decrease on 12 months earlier due to a number of large Engineering Construction projects approaching completion. This was largely offset by an increase in activity on offshore oil and gas maintenance contracts and an overall general increase in maintenance services activity. Learning & Development Job satisfaction, retention of key talent and maintaining the ‘Monadelphous way’ of delivering services are critical to the Company’s ongoing success. As a result, the Company continued to invest in the training and development of its people, maximising their capabilities and performance through improved skills, knowledge and operational readiness. Our Future Workforce Commitment Graduate Development Program As a nationally recognised program, the Monadelphous Graduate Development Program was once again identified as one of Australia’s top ranking programs, placing eleventh on the Australian Association of Graduate Employers (AAGE) 2018 Top Graduates Employers list, as voted by Graduates across Australia. In conjunction, its Vacation Program placed seventh on the AAGE 2018 Top Intern Program list, as voted by participating interns and vacation students. The Company’s 2018 Graduate Program received more than 1,600 applications, resulting in 40 new recruits. It was encouraging to see more than 40 per cent female participation at the Company’s graduate assessment centres, which were used to help assess candidates’ cultural IMAGES Left A Monadelphous employee with an employee from one of the Company’s sub- contractors, Koodaideri Contracting Services, at Fortescue Metals Group’s Solomon Hub mine, Mount Sheila, Western Australia. Above Monadelphous employees at prestart at Yancoal’s Mount Thorley Warkworth open cut mines, Mount Thorley, New South Wales. OUR PROGRESS Strong focus on key talent management and development Launch of the Managing Director’s Safety Innovation Award Indigenous employment targets achieved across the Company MONADELPHOUS ANNUAL REPORT 2018 29 alignment with the business. The 2019 Program is also set for success with over 1,600 applications received across Perth, Brisbane, Sydney and New Zealand. Apprenticeship Program Over the year, 25 new apprentices and trainees commenced their careers with Monadelphous, and nine apprentices completed their training becoming fully qualified boilermakers, mechanical fitters, electricians, heavy duty mechanics and carpenters. Traineeships covered both trade and office support roles, including surface preparation and coating, business administration and telecommunications. The Company’s Apprenticeship Program offers a range of entry pathways, including school-based, Indigenous, mature aged and fast-track options. Ongoing Development Employee Development Centre The Company’s Registered Training Organisation (RTO), based in Bibra Lake, Western Australia, continued to provide pre and post-mobilisation training for the Company’s workforce. With a focus on core skills and high risk disciplines, the RTO delivered more than 1,600 local and site- based courses, and facilitated over 6,200 training interactions across the business throughout the year. Certificate IV and Diploma of Leadership and Management During the year, Monadelphous successfully rolled-out the newest Certificate IV and Diploma of Leadership and Management courses. These courses aim to inspire change in behaviours relating to leadership, encourage creativity to develop and implement innovative solutions that address workplace challenges. These programs are an extension of the Monadelphous Safety Leadership Program and are available to new and existing leaders within the business. Leadership at Monadelphous Senior Leadership Framework A newly developed Senior Leadership Capability Framework (SLCF) is expected to be launched in late 2018. The Framework will assist the Company to identify and manage various senior leadership capabilities which are required across the business in order for the Company to achieve its strategy. Safety Leadership Program In recognition of the critical role supervisors and superintendents play in achieving health, safety and environmental success, the Company’s Safety Leadership Program was developed as a certified program which addresses core supervisory skills. As a mandated course across the business, participants are exposed to communication and risk management skills, an introduction to behaviourial based safety and the Company’s occupational health and safety obligations. Furthermore, this program is an introduction to the newly implemented Certificate IV and Diploma in Leadership and Management. Emerging Leaders Program Established in 2011, the Emerging Leaders Program, which focusses on behavioural leadership, provides the foundation for the development of high performing individuals who are new to, or on the cusp of leadership roles, to develop their leadership capabilities to match the business’ requirements. During the year, 31 emerging leaders participated in the Program, including a number of employees who joined as graduates within the last five years. involve a range of activities across various aspects of the business. A copy of the RAP is available on the Company’s website. In addition to the commitments outlined in the RAP, the Company believes its vendors, suppliers and industry partners are also accountable to contribute to improving opportunities for Aboriginal and Torres Strait Islander peoples, and is committed to ensuring transparency with its expectations and abilities to engage Indigenous businesses. Overall, the Company’s Indigenous employment targets were achieved with 2.5 per cent of its total workforce identifying as Aboriginal or Torres Strait Islander. In addition, the Company worked with Ngalla Maya to provide an opportunity for 22 Aboriginal people to participate in a behavioural and technical assessment for potential deployment to active contracts. To date, the Company has had nine successful candidates from this assessment centre deployed to sites in the Pilbara, including Newman, Paraburdoo, Eastern Ridge and Boddington in the South West of Western Australia. DIVERSITY Gender Equality Monadelphous strives to create a workplace where people of all backgrounds work together in an environment where each unique contribution is equally valued and recognised. By continuing to improve the workplace for all, the Company believes its people will be inspired to contribute their best efforts towards the goal of achieving Monadelphous’ vision. Formalised through its Diversity Policy, the Company has a longstanding commitment to workforce diversity with a focus on Indigenous engagement and gender equality. Indigenous Engagement Monadelphous continues to recognise and respect the traditional owners of the land upon which it operates, and considers traditional culture and heritage an important part of its business. This importance extends to the provision of fair and reasonable engagement opportunities for Aboriginal and Torres Strait Islander people, communities and businesses. During the period, the Company launched its Stretch Reconciliation Action Plan (RAP) for 2017 to 2020, which was endorsed by Reconciliation Australia. The Plan formalises the Company’s commitment to contributing to a sustainable and accessible future for Indigenous people. It identifies cultural, economic and employment targets, which The Company believes everyone should have the opportunity to achieve their greatest potential in workplaces where they feel included and valued, regardless of gender. Monadelphous submitted its 2017/18 Workplace Gender Equity Report, which can be found on the Workplace Gender Equality Agency and Monadelphous websites. By the end of the 2018 calendar year, the Company will have launched its Gender Diversity and Inclusion (GD&I) Plan which captures changes the Company is looking to make over the course of the next three years for women in its workplace. These actions include improvements to its Paid Parental Leave Scheme, diversity and inclusion training for the Company’s leadership team and a diversity and inclusion education program for line managers, recruiters and those with influence within the business. Targets around female attrition have been set at no greater than 10 per cent per annum with an additional intake target of 20 per cent or more of female engineers into the Company’s vacation and graduate programs. In conjunction with these targets, the Company is developing a female engineering cadetship which will aim to offer a minimum of five cadetships per annum. IMAGE Monadelphous General Manager - Business Services, Lorna Rechichi, provides a strategy update at the Perth head office. and environments entered in previous years, contributed to a 12-month total case injury frequency rate (TCIFR) improvement of 23.2 per cent compared to the previous period, to 3.28 incidents per million man-hours worked. The lost time injury frequency rate (LTIFR) for the year was 0.19 incidents per million man-hours worked. SAFETY Monadelphous executes work underpinned by the safety policy message The Safe Way is the Only Way and is committed to zero harm. During the year, the Company focussed on critical risk controls and the importance of enhancing behavioural safety, encouraging conscious reflection and modifications to behaviours to improve safety performance. The Company also undertook a number of other safety improvement initiatives identified through a business-wide safety survey and implemented the inaugural Managing Director’s Safety Innovation Award to promote and recognise health and safety innovations across the business. These initiatives, combined with the growing maturity of operations in the new markets OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 31 IMAGES Top Monadelphous employees inspecting a completed cable ladder installation at Alcoa’s Pinjarra Alumina Refinery, Pinjarra, Western Australia. Bottom Some of Monadelphous’ safety team reviewing safety documents after returning from site to the Perth head office. ENVIRONMENT COMMUNITY Monadelphous’ commitment and responsibility to the environments in which it operates are diligently considered in developing its broader approach to servicing customer needs and executing works in a responsible manner. The Company places a strong emphasis on respecting the sites and communities in which it operates and is committed to environmental sustainability through the identification and mitigation of risks and impacts to the environment and community heritage. The Company’s history of zero serious environmental incidents continued this year, in line with its target of zero harm. The Company acknowledges that the move towards a low-carbon economy will influence change in a number of industries within which it operates. Monadelphous is committed to the ongoing monitoring of the Company’s environmental risk profile and developing innovative climate change solutions in an effort to reduce emissions and energy consumption within the Company’s operations and those of its customers. Recognising the growing importance of renewable energy, Monadelphous’ growth in the renewables sector, with the award of a number of wind farm contracts during the year, is a vital step in the Company’s journey towards broader environmental, economic and social sustainability. Carbon Performance Monadelphous recognises its obligation to stakeholders to conduct its operations in an environmentally responsible manner. Its overall carbon footprint is deemed small considering the nature of its operations, however the Company continues to look for ways to reduce its emissions. The largest environmental impacts are those from energy consumption, gases used in welding processes, fuel used in vehicles, plant and equipment and electricity usage across the business. Monadelphous undertakes greenhouse and energy reporting under the National Greenhouse and Energy Reporting Act. The 2017/2018 period generated reportable scope 1 and 2 carbon emissions (CO2e) equivalent to 18,905 tonnes, significantly below the legislative reporting threshold of 50,000 tonnes CO2e. The Company’s total emissions were 45,922 tonnes CO2e. Monadelphous routinely collects and monitors carbon reporting data and has assessed that its current reporting is appropriate for all stakeholders in consideration of the risks, impacts and costs of reporting, and is consistent with the principles of the ESG Reporting Guide for Australian Companies (2015). Monadelphous has a strong sense of responsibility to the communities in which it operates. Over the year, the Company contributed significantly to its social investment activities which focussed on Indigenous outcomes, secondary and tertiary education, ranging from financial support for local Indigenous engagement activities through to philanthropic contributions and volunteering with local universities and high schools. Contributions for the year included the sponsorship of the Western Australian Under 15s AFL Schoolgirls Team, logistical support for Roy Hill’s fleet of pink ore cars in aid of Breast Cancer awareness, supporting the local community of Roebourne through the City of Karratha’s NAIDOC Week Concert and a new partnership with the University of Western Australia’s Girls in Engineering program. Other major community activities for the year included celebrating the Company’s 30 year anniversary in Roxby Downs, South Australia. Celebrations included employees from the Company’s Roxby Downs operations voting on their top five local community organisations and Monadelphous contributing $30,000 in support of these groups. Benefitting community groups included the Royal Flying Doctors Service, Roxby Junior Sports Academy, Andamooka Observatory, Roxby Downs Health Services and the Roxby Downs District Rotary Club. With the Company’s increasing diversification into markets with greater exposure to urban areas and the general public, systems and processes continue to be enhanced in order to manage and enhance stakeholder engagement and promote positive initiatives within the community. GOVERNANCE The Board of Directors of Monadelphous Group Limited is responsible for establishing the Company’s corporate governance framework having regard to the ASX Corporate Governance Council Principles and Recommendations. The Board guides and monitors the business and affairs of Monadelphous on behalf of the shareholders, by whom they are elected and to whom they are accountable. The Company has in place charters, policies and procedures which support the framework to ensure a high standard of governance is maintained. Monadelphous’ full Corporate Governance Statement, Board and Sub-Committee charters and the Company’s governance policies, are published on the Company’s website. Monadelphous has exposure to a number of material economic, environmental and social sustainability risks which are identified and managed within the Group’s Risk Management Framework. Mitigation of environmental risks includes the maintenance and implementation of a certified environmental management system (AS/ NZS ISO 14001) to ensure sustainable work practices and monitoring and minimising environmental impacts as far as practicable. Monadelphous has been certified to the AS/ NZ 4801 and OHSAS 18001 for occupational health and safety management systems, and ISO 9001 quality management systems. For more detail on the level of the Group’s risk exposure and management of risks, refer to the Corporate Governance Statement. OPERATING AND FINANCIAL REVIEWMONADELPHOUS ANNUAL REPORT 2018 FIN AN CIAL RE POR T 33 FINANCIAL REPORT CONTENTS Directors’ Report Directors’ Declaration Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 33 54 55 56 57 58 59 60 DIRECTORS’ REPORT Your directors submit their report for the year ended 30 June 2018. DIRECTORS The names and details of the directors of the Company in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Calogero Giovanni Battista Rubino Chairman Appointed 18 January 1991 Resigned as Managing Director on 30 May 2003 and continued as Chairman 52 years experience in the construction and engineering services industry Robert Velletri Managing Director Peter John Dempsey Lead Independent Non-Executive Director Appointed 26 August 1992 Mechanical Engineer, Corporate Member of Engineers Australia Appointed as Managing Director on 30 May 2003 39 years experience in the construction and engineering services industry Appointed 30 May 2003 Civil Engineer, Fellow of Engineers Australia, Member of the Australian Institute of Company Directors 46 years experience in the construction and engineering services industry Also a non-executive director of the following other publicly listed entity, Service Stream Limited (ASX: SSM) – appointed 1 November 2010 Christopher Percival Michelmore Independent Non-Executive Director Appointed 1 October 2007 Civil Engineer, Fellow of Engineers Australia Dietmar Robert Voss Independent Non-Executive Director Helen Jane Gillies Independent Non-Executive Director 46 years experience in the construction and engineering services industry Appointed 10 March 2014 Chemical Engineer, Member of the Australian Institute of Company Directors 44 years experience in the oil and gas, and mining and minerals industries Appointed 5 September 2016 Solicitor, Master of Business Administration and Construction Law, Fellow of the Australian Institute of Company Directors 22 years experience in the construction and engineering services industry Also a non-executive director of the following other publicly listed entity, Yancoal Australia Limited (ASX: YAL) – appointed 30 January 2018 COMPANY SECRETARIES Philip Trueman Company Secretary and Chief Financial Officer Kristy Glasgow Company Secretary Appointed 21 December 2007 Chartered Accountant, Member of Chartered Accountants Australia and New Zealand 18 years experience in the construction and engineering services industry Appointed 8 December 2014 Chartered Accountant, Member of Chartered Accountants Australia and New Zealand 13 years experience in the construction and engineering services industry IMAGE Monadelphous employees at the Parker Point Wharf completing an inspection of marine maintenance works, Dampier, Western Australia. MONADELPHOUS ANNUAL REPORT 2018 DIRECTORS’ REPORT DIRECTORS’ REPORT INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE CORPORATE INFORMATION (continued) As at the date of this report, the interests of the directors in the shares and options of Monadelphous Group Limited were: Nature of operations and principal activities Engineering Services Ordinary Shares Options over Ordinary Shares Monadelphous is a diversified services company operating in the resources, energy and infrastructure industry sector. Services provided include: 35 C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies EARNINGS PER SHARE Basic Earnings Per Share Diluted Earnings Per Share DIVIDENDS Final dividends declared – on ordinary shares Dividends paid during the year: Current year interim – on ordinary shares Final for 2017 – on ordinary shares CORPORATE INFORMATION Corporate structure Nil Nil Nil Nil Nil Nil 1,022,653 2,100,000 78,000 30,000 2,852 4,078 Cents 76.11 76.07 Cents $’000 32.00 30,115 30.00 28,199 30.00 28,174 • Fabrication, modularisation, offsite pre-assembly, procurement and installation of structural steel, tankage, mechanical and process equipment, piping, demolition and remediation works • Multi-disciplined construction services • Plant commissioning • Electrical and instrumentation services • Process and non-process maintenance services • Front-end scoping, shutdown planning, management and execution • Water and waste water asset construction and maintenance • Irrigation services • Construction of transmission pipelines and facilities • Operation and maintenance of power and water assets • Heavy lift and specialist transport • Access solutions • Dewatering services • Corrosion management services General Monadelphous operates from major offices in Perth and Brisbane, with regional offices in Sydney, Newcastle, Houston (USA), Beijing (China), Auckland and Christchurch (New Zealand), Ulaanbaatar (Mongolia) and Manila (Philippines), and a network of workshop facilities in Kalgoorlie, Karratha, Port Hedland, Newman, Tom Price, Darwin, Roxby Downs, Gladstone, Hunter Valley, Mackay, Bibra Lake and Bunbury. The consolidated entity’s revenue is earned predominantly from the resources, energy and infrastructure industry sector. There have been no significant changes in the nature of those activities during the year. Employees The consolidated entity employed 5,828 employees as of 30 June 2018 (2017: 6,164 employees). OPERATING AND FINANCIAL REVIEW Review A review of operations of the consolidated entity during the financial year, the results of those operations, the changes in the state of affairs and the likely developments in the operations of the consolidated entity are set out in the Operating and Financial Review section of the Annual Report. Monadelphous Group Limited is a company limited by shares that is incorporated and domiciled in Australia. Monadelphous Group Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year (refer note 19 in the financial report). Operating results for the year The registered office of Monadelphous Group Limited is located at: 59 Albany Highway Victoria Park Western Australia 6100 Revenue from services Profit after income tax expense attributable to equity holders of the parent 2018 $’000 2017 $’000 1,734,881 1,245,183 71,479 57,563 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no significant changes in the state of affairs of the parent entity or the consolidated entity during the financial year. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 DIRECTORS’ REPORT DIRECTORS’ REPORT 37 SIGNIFICANT EVENTS AFTER REPORTING PERIOD Dividends declared On 20 August 2018, the directors of Monadelphous Group Limited declared a final dividend on ordinary shares in respect of the 2018 financial year. The total amount of the dividend is $30,114,660 which represents a fully franked final dividend of 32 cents per share. This dividend has not been provided for in the 30 June 2018 financial statements. The Monadelphous Group Limited Dividend Reinvestment Plan will apply to the dividend. Other than the items noted above, no matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Refer to the Operating and Financial Review section of the Annual Report for information regarding the likely developments and future results. ENVIRONMENTAL REGULATION AND PERFORMANCE Monadelphous Group Limited is subject to a range of environmental regulations. During the financial year, Monadelphous Group Limited met all reporting requirements under any relevant legislation. There were no incidents which required reporting. The Company strives to continually improve its environmental performance. SHARE OPTIONS Unissued shares As at the date of this report, there were no unissued ordinary shares under options. Shares issued as a result of the exercise of options During the financial year, no employees and directors have exercised any options. No options have been exercised since the end of the financial year. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the Company has paid premiums in respect of a contract insuring all the directors of Monadelphous Group Limited against a liability incurred in their role as directors of the Company, except where: (a) the liability arises out of conduct involving a wilful breach of duty; or (b) there has been a contravention of Sections 182 or 183 of the Corporations Act 2001. The total amount of insurance contract premiums paid during the financial year was $432,614 (2017: $351,568). INDEMNIFICATION OF AUDITORS The Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against certain liabilities to third parties arising from the audit to the extent permitted by law. The indemnity does not extend to any liability resulting from a negligent, wrongful or wilful act or omission by Ernst & Young. No payment has been made to indemnify Ernst & Young during or since the audit. INTERESTS IN CONTRACTS OR PROPOSED CONTRACTS WITH THE COMPANY During or since the end of the financial year, no director has had any interest in a contract or proposed contract with the Company being an interest the nature of which has been declared by the director in accordance with Section 300(11)(d) of the Corporations Act 2001. REMUNERATION REPORT (AUDITED) The Remuneration Report for the year ended 30 June 2018 outlines the Key Management Personnel remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001. For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having the authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent Company. For the purposes of this report, the term ‘executive’ encompasses the Managing Director (MD), Chief Financial Officer (CFO) and Executive General Managers (EGM) of the Group. Details of Key Management Personnel (i) Directors C. G. B. Rubino Chairman R. Velletri Managing Director P. J. Dempsey Deputy Chair and Lead Independent Non-Executive Director C. P. Michelmore Independent Non-Executive Director D. R. Voss H. J. Gillies Independent Non-Executive Director Independent Non-Executive Director (ii) Senior executives D. Foti Z. Bebic Executive General Manager, Engineering Construction Executive General Manager, Maintenance & Industrial Services P. Trueman Chief Financial Officer and Company Secretary Remuneration Philosophy The performance of the Company depends predominantly and primarily upon the quality of its employees. To prosper, the Company must attract, motivate and retain highly skilled employees, which includes the directors and executives of the Company. To this end, the Company embodies the principles of providing competitive rewards to attract and retain high calibre executives, and the linking of executive rewards to the creation of shareholder value. Remuneration Committee The Remuneration Committee of the Board of Directors of the Company is responsible for determining and reviewing compensation arrangements for the directors and the executive management team. The Remuneration Committee utilises remuneration survey data compiled by a recognised remuneration research organisation across a range of industries and geographic regions. The remuneration survey data is updated every 6 months and is used to assess the appropriateness of the nature and amount of remuneration of directors and the executive management team. This assessment is made with reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. In determining the remuneration levels of directors and executives, the Remuneration Committee takes into consideration the performance of the Group, divisions and business units as well as that of the individual. Remuneration Structure In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 39 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) REMUNERATION REPORT (AUDITED) (continued) Executive remuneration Objective Fixed remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company so as to: • Reward executives for Group, divisional, business unit, and individual performance; • Align the interests of executives with those of shareholders; and • Ensure total remuneration is competitive by market standards. All executives have non-fixed term employment contracts. The Company or executive may terminate the employment contract by providing 3 months written notice. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Monadelphous has a structured approach aimed at delivering fixed remuneration which is market competitive and rewards performance. The Company participates in a number of respected remuneration surveys from which it receives quarterly or six-monthly market and forecast data, and its remuneration system is designed to analyse detailed market and sector information at various levels. The level of fixed remuneration is set to provide a base level of remuneration which is both appropriate to the position and competitive in the market, taking into account the individual’s skills, experience and qualifications. Fixed remuneration levels are considered annually by the Remuneration Committee having reviewed an individual’s performance, alignment with the Company’s values and comparative remuneration levels in the market. Structure Structure In determining the level and make-up of executive remuneration, the Remuneration Committee receives external survey data from a recognised remuneration research organisation and considers market levels for comparable executive roles when making its recommendations to the Board. Executive remuneration consists of a fixed remuneration element and a variable remuneration element. The variable remuneration element can be provided under the Combined Reward Plan and/or the Employee Option Plan. Remuneration Element Individual Components Purpose Link to Performance Fixed remuneration Comprises base salary, superannuation and other benefits. To provide market competitive fixed remuneration appropriate to the position and competitive in the market, taking into account the individual’s skills, experience and qualifications. Assessed at an individual level based on performance of responsibilities and cultural alignment with the Company’s values. Variable remuneration - Combined Reward Plan Comprises cash payment, and performance rights issued under the Monadelphous Group Limited Performance Rights Plan. To recognise and reward the senior leaders of the business who contribute to the Group’s success, to align these rewards to the creation of shareholder wealth over time and ensure the long term retention of employees. Performance assessed against financial, safety, people, customer satisfaction and strategic progress targets set by the Board on an annual basis. Vesting of awards is dependent on continuity of employment. Variable remuneration - Employee Option Plan Comprises options issued under the Monadelphous Group Limited Employee Option Plan. To retain and reward key employees in a manner aligned to the creation of shareholder wealth. Vesting of awards is dependent on exceeding EPS growth targets and continuity of employment. Historically, the variable component of remuneration for executives has been in the form of short term additional cash payments and long term share options. As disclosed in the 2016 and 2017 Financial Statements, Monadelphous undertook a review of its historical short term and long term incentive programs to identify the most appropriate incentive plan for both executives and other employees that is best aligned to delivering long term sustainable growth for the benefit of shareholders. The review lead to the implementation of the Combined Reward Plan (CR Plan) which combines the key elements of the previous short and long term incentive plans, while staying true to Monadelphous’ remuneration philosophy which has proven successful over many years. The CR Plan rewards performance of both the Company and the employee, acts as a retention mechanism and links rewards to the creation of shareholder value through long term share ownership. The review also concluded that the Monadelphous Group Limited Employee Option Plan should be retained, as an alternative or additional incentive scheme for the executive management team, for use as appropriate at the discretion of the Board. The proportion of fixed remuneration and variable remuneration is established for each member of the executive management team by the Remuneration Committee. Tables 1 and 2 on pages 43 and 44 of this report detail the proportion of fixed and variable remuneration for each of the executive directors and the senior executives of the Company. Executive team members are given the opportunity to receive their fixed remuneration in a variety of forms including base salary, superannuation and other benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The fixed remuneration component of the executives of the Company is detailed in Tables 1 and 2 on pages 43 and 44 of this report. Variable remuneration – Combined Reward Plan (CR Plan) Objective The objective of the Combined Reward Plan (the CR Plan) is to recognise and reward the senior leaders of the business who positively contribute to the Company’s success, to align these rewards to the creation of shareholder wealth over time and to ensure the long term retention of the Company’s key talent. The CR Plan includes service vesting conditions to ensure employee retention, and disposal restrictions to enable long term share ownership. Structure Under the CR Plan, the Board has the discretion to make awards on an annual basis subject to Company and individual performance. Awards are delivered in the form of a combination of cash and Performance Rights. For the year ended 30 June 2018 awards comprised of a 25% cash payment, which was paid shortly after award, with 75% of the award to be issued in the form of Performance Rights. The number of Performance Rights to be issued is calculated using the arithmetic average of the ten-day daily volume weighted average market price of the Company’s shares commencing on the second trading day after the record date in respect of the FY18 Final Dividend. This calculation is the same as that used to determine the undiscounted share price for the dividend reinvestment plan. The Performance Rights component vests into shares in equal installments, one, two and three years subsequent to award, subject to the employee remaining in the employ of the Company at those particular dates. The Performance Rights are exercisable into shares at those dates, with one share issued for each vested Performance Right. The total number of shares issued are held in escrow until a date three years after the Performance Rights were originally issued. Unvested Performance Rights remain subject to Monadelphous’ clawback policy. The Board has the discretion as to the circumstances that would result in a clawback of unvested Performance Rights. Factors resulting in material financial misstatement or under performance, gross negligence, material lack of compliance, significant personal under performance or behaviour that is likely to damage the Company’s reputation, would likely result in a clawback of unvested Performance Rights. Performance Requirements At the beginning of each financial year, the Board sets quantified, challenging, performance targets for the key performance areas of the business, taking into account the prevailing economic conditions for the year ahead, the Company’s strategic objectives and the key risk factors facing the business at that time. The targets are designed to focus the activities of the business on the key areas of performance that deliver long term sustainable growth for shareholders. For the year ended 30 June 2018, the Managing Director had a target opportunity of 40% of fixed remuneration, and a maximum opportunity of 60%. Executives had a target opportunity of 30% of fixed remuneration, and a maximum opportunity of 45%. The target opportunity is awarded for achieving the objectives set by the Board at the beginning of each financial year. In order for the maximum opportunity to be awarded, performance must be a clear margin above the planned targets that were set. At the end of each financial year, the Board assesses the Group’s net profit before tax performance against the budgeted target prior to any awards being considered under the CR Plan. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 41 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Variable remuneration – Combined Reward Plan (CR Plan) (continued) Performance Requirements (continued) Once the Board has approved that an award can be made under the CR Plan, executive performance is assessed against the relevant targets set at the beginning of the financial year at a Group, division, business unit and individual level. This assessment is taken into account when determining the amount, if any, of the award to be made to each individual under the CR Plan, with annual awards being subject to approval by the Remuneration Committee and Board. The following key performance areas (KPAs) are considered in the assessment process, covering a number of financial and non-financial, Group and divisional measures of performance. The table below provides an overview of these KPAs and the weighting applied when assessing performance. Earnings Performance Other Earnings per Share Divisional Contribution Group KPAs Divisional KPAs 60% 60% 30% - - 30% 40% - - - 40% 40% MD CFO EGM Other Group or divisional KPAs relate to: • Working capital management • Safety performance • People performance • Customer satisfaction • Strategic progress The Board determined, based on the financial performance of the Company for the year ended 30 June 2018, that an award could be made under the CR Plan. Post 30 June 2018, 89 employees were notified of their eligibility for Performance Rights under the CR Plan. Group and Divisional performance for the year ended 30 June 2018 was as follows: Earnings Performance Other REMUNERATION REPORT (AUDITED) (continued) Variable remuneration – Combined Reward Plan (CR Plan) (continued) Tables 1 and 2 on pages 43 and 44 of this report detail the proportion of fixed and variable remuneration for each of the executive directors and the senior executives of the Company for the financial year ended 30 June 2018, and includes the cash component of the awards detailed in the table on the previous page. The deferred Performance Right component of the award to be allocated early in the 2019 financial year will be amortised over the one to three year service periods. Further details of the Performance Rights to be issued will be provided in the 2019 financial report. Variable remuneration – Employee Option Plan Objective The objective of the Employee Option Plan is to retain and reward key employees in a manner which aligns this element of remuneration with the creation of shareholder wealth. As previously mentioned, the Company has utilised the CR Plan to reward executives and other employees for the year ended 30 June 2018, but retains the Employee Option Plan as an alternative or additional scheme for the executive management team. Structure Monadelphous Group Limited Employee Option Plan Equity-based grants to executives are at the discretion of the Remuneration Committee and Board, and may be delivered in the form of options. Should any issue of options be considered, the individual performance rating of each executive and the annual cost to the Company, on an individual basis, is taken into account when determining the amount, if any, of options granted. In accordance with the rules of the Monadelphous Group Limited Employee Option Plan, options may only be exercised in specified window periods (or at the discretion of the Board in particular circumstances): 25% 2 years after the options were issued 25% 3 years after the options were issued 50% 4 years after the options were issued In addition, the ability to exercise options during each applicable window period is subject to the financial performance of the Company during the option vesting period. The options shall only be capable of exercise during that window period where the prescribed performance hurdle has been achieved. If, however, this hurdle is not achieved for a particular window period, rather than lapsing, the options will be re-tested during all later window periods in respect of that issue and may become exercisable at that later date. There are currently no options on issue under the Monadelphous Group Limited Employee Option Plan. Divisional Contribution Working Capital Management Safety People Customer Satisfaction Strategic Progress Hedging of equity awards Group Engineering Construction Maintenance & Industrial Services Between target and maximum On target Between threshold and target EPS s s l n l s n n n l s n l l l l l l l l l The following table sets out the awards under the CR Plan for each executive for the financial year ended 30 June 2018: Executive R. Velletri P. Trueman D. Foti Z. Bebic Total Award Cash Component $ 419,700 183,200 251,700 238,700 $ (25%) 104,925 45,800 62,925 59,675 Performance Rights Component $ (75%) 314,775 137,400 188,775 179,025 % of Maximum Opportunity Earned 68% 77% 70% 74% The Company prohibits executives from entering into arrangements to protect the value of unvested equity-based awards. The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package. Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. The most recent determination was at the Annual General Meeting held on 22 November 2016 when shareholders approved an aggregate remuneration of $750,000 in the ‘not to exceed sum’ paid to non-executive directors. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers the fees paid to non-executive directors of comparable companies when undertaking the annual review process. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 DIRECTORS’ REPORT DIRECTORS’ REPORT 43 REMUNERATION REPORT (AUDITED) (continued) Non-executive director remuneration (continued) Non-executive director fees consist of base fees and committee chair fees. The Deputy Chair/Lead Independent Non-executive Director also receives an additional fee. The payment of committee chair fees recognises the additional time commitment required by non-executive directors to chair the Board committees. Committee members do not receive a separate fee for sitting on a committee. The table below summarises Board and Committee fees payable to non-executive directors for the financial year ended 30 June 2018 (inclusive of superannuation): Board Fees Non-executive Director fee Board Deputy Chair and Lead Independent Non-executive Director additional fee Committee Chair Fees Audit Remuneration Nomination $ 110,000 20,000 10,000 10,000 * * The Nomination Committee is chaired by the Executive Chairman. Non-executive directors have long been encouraged by the Board to hold shares in the Company (purchased by the director on-market). It is considered good governance for directors to have a stake in the Company. Fees for non-executive directors are not linked to the performance of the Company. The non-executive directors do not receive retirement benefits, nor do they participate in any incentive programs. The remuneration of non-executive directors for the year ended 30 June 2018 is detailed in Table 1 on page 43 of this report. Employment contracts All executives have non-fixed term employment contracts. The Company or executive may terminate the employment contract by providing 3 months written notice. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Company performance The profit after income tax expense and basic earnings per share for the Group for the last five years is as follows: 2018 $’000 2017 $’000 2016 $’000 2015 $’000 2014 $’000 Profit after income tax expense attributable to equity holders of the parent Basic earnings per share Share price as at 30 June 71,479 76.11c $15.06 57,563 61.41c $13.99 67,014 105,825 146,510 71.77c 113.91c 159.05c $7.46 $9.37 $15.71 A review of the Company’s performance and returns to shareholders over the last five years has been provided on page 16 of this report. REMUNERATION REPORT (AUDITED) (continued) Remuneration of Key Management Personnel Table 1: Remuneration for the year ended 30 June 2018 Short Term Benefits Post Employment Long Term Benefits Share-Based Payments Salary & Fees $ Non Monetary $ Cash STI $ Super- annuation $ Retirement Benefits $ Leave $ Options LTI $ Total Performance Related % Total $ Total Options Related % Non-Executive Directors P. J. Dempsey 127,854 C. P. Michelmore 109,589 D. R. Voss H. J. Gillies 100,457 100,457 7,753 6,645 6,092 6,092 Subtotal Non-Executive Directors Executive Directors 438,357 26,582 C. G. B. Rubino 433,802 26,306 - - - - - - 12,146 10,411 9,543 9,543 41,643 20,049 R. Velletri 914,398 65,671 104,925 20,049 Subtotal Executive Directors 1,348,200 91,977 104,925 40,098 Other Key Management Personnel D. Foti Z. Bebic 706,478 47,550 62,925 20,049 614,608 46,192 59,675 20,049 P. Trueman 459,440 35,328 45,800 20,049 Subtotal Other Key Management Personnel 1,780,526 129,070 168,400 60,147 Total 3,567,083 247,629 273,325 141,888 - - - - - - - - - - - - - - - - - - 8,640 30,322 - - - - - - 147,753 126,645 116,092 116,092 506,582 488,797 - - - - - - - 1,135,365 9.24 38,962 - 1,624,162 6.46 25,405 36,123 13,669 - - - 862,407 776,647 574,286 7.30 7.68 7.98 75,197 - 2,213,340 7.61 114,159 - 4,344,084 6.29 - - - - - - - - - - - - - FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Remuneration of Key Management Personnel Table 2: Remuneration for the year ended 30 June 2017 REMUNERATION REPORT (AUDITED) (continued) Additional disclosures relating to options and shares Table 5: Option holdings of Key Management Personnel 45 Short Term Benefits Post Employment Long Term Benefits Share-Based Payments Salary & Fees $ Non Monetary $ Cash STI $ Super- annuation $ Retirement Benefits $ Leave $ Options LTI $ Total Performance Related % Total $ Total Options Related % Non-Executive Directors P. J. Dempsey 124,201 C. P. Michelmore 103,653 D. R. Voss H. J. Gillies* 93,607 72,005 6,296 5,255 4,745 3,650 Subtotal Non-Executive Directors Executive Directors 393,466 19,946 C. G. B. Rubino 441,619 22,388 R. Velletri 914,543 53,929 Subtotal Executive Directors 1,356,162 76,317 Other Key Management Personnel D. Foti Z. Bebic 713,137 42,072 596,600 39,018 P. Trueman 436,603 29,407 Subtotal Other Key Management Personnel 1,746,340 110,497 Total 3,495,968 206,760 - - - - - - - - - - - - - 11,799 9,847 8,893 6,840 37,379 19,616 19,616 39,232 19,616 19,616 19,616 58,848 135,459 - - - - - - - - - - - - - - - - - - 8,013 17,377 - - - - - - 142,296 118,755 107,245 82,495 450,791 491,636 - 1,005,465 25,390 - 1,497,101 9,305 32,767 10,038 - - - 784,130 688,001 495,664 52,110 - 1,967,795 77,500 - 3,915,687 - - - - - - - - - - - - - - - - - - - - - - - - - - * H. Gillies was appointed as a Non-Executive Director on 5 September 2016. The balances shown in Table 2 comprise remuneration from the date of appointment. Table 3: Compensation options: Granted during the years ended 30 June 2018 and 30 June 2017 During the years ended 30 June 2018 and 30 June 2017, no options were granted as equity compensation benefits to Key Management Personnel. Table 4: Shares issued on exercise of compensation options during the year ended 30 June 2018 Options held in Monadelphous Group Limited Directors C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies Executives D. Foti Z. Bebic P. Trueman Total Shares held in Monadelphous Group Limited Directors C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies Executives D. Foti Z. Bebic P. Trueman Total Balance at Beginning of Period 1 July 2017 Granted as Remuneration Options Exercised and Lapsed Net Change Other Balance at End of Period 30 June 2018 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,022,653 2,100,000 78,000 50,000 2,852 - 359,316 - - 4,612,821 - - - - - - - - - - - - - - - - - - - - (1,000,000) - - (20,000) - 4,078 (230,000) 129,316 - - - - (1,245,922) 3,366,899 - - - - - - - - - - Balance at End of Period 30 June 2018 1,022,653 2,100,000 78,000 30,000 2,852 4,078 Table 6: Shareholdings of Key Management Personnel Balance at Beginning of Period 1 July 2017 Granted as Remuneration On Excercise of Options Net Change Other During the year ended 30 June 2018, no shares were issued on exercise of compensation options by Key Management Personnel. Loans to Key Management Personnel and their related parties No directors or executives, or their related parties, had any loans during the reporting period. Other transactions and balances with Key Management Personnel and their related parties There were no other transactions and balances with Key Management Personnel or their related parties. END OF REMUNERATION REPORT FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 47 DIRECTORS’ REPORT DIRECTORS’ REPORT DIRECTORS’ MEETINGS AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director are shown in the table below. Directors’ Meetings Audit Remuneration Nomination Meetings of Committees 12 11 12 12 11 12 12 7 - - 7 - 7 7 3 - - - 3 3 3 2 2 - 2 2 2 2 Number of meetings held: Number of meetings attended: C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies COMMITTEE MEMBERSHIP The directors have received an independence declaration from the auditor of Monadelphous Group Limited, as shown on page 48. The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance services Assurance related Signed in accordance with a resolution of the directors. $ 30,411 31,000 61,411 As at the date of this report, the Company had an audit committee, a remuneration committee and a nomination committee. Members acting on the committees of the Board during the year were: Audit Remuneration Nomination C. G. B. Rubino Chairman Perth, 20 August 2018 P. J. Dempsey (c) C. P. Michelmore (c) D. R. Voss H. J. Gillies D. R. Voss H. J. Gillies Note: (c) Designates the chair of the committee. ROUNDING C. G. B. Rubino (c) C. P. Michelmore P. J. Dempsey H. J. Gillies D. R. Voss The amounts contained in this report and in the financial report have been rounded to the nearest thousand dollars ($’000) (where rounding is applicable) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which the legislative instrument applies. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Monadelphous Group Limited support and have adhered to the principles of Corporate Governance. The Company’s Corporate Governance Statement is detailed on the Company’s website. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDIT REPORT Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au 49 Auditor’s Independence Declaration to the Directors of Monadelphous Group Limited As lead auditor for the audit of Monadelphous Group Limited for the financial year ended 30 June 2018, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. Ernst & Young D S Lewsen Partner 20 August 2018 Independent auditor’s report to the members of Monadelphous Group Limited Report on the audit of the financial report Opinion We have audited the financial report of Monadelphous Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2018 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DL:JT:MND:010 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DL:JT:MND:009 FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 INDEPENDENT AUDIT REPORT INDEPENDENT AUDIT REPORT 51 Recognition of revenues and profits on long-term contracts Information other than the financial report and auditor’s report thereon Why significant How our audit addressed the key audit matter The Group’s business involves entering into contractual relationships with customers to provide a range of services. A significant proportion of the Group’s revenues and profits are derived from long-term contracts. Revenue recognition involves a significant degree of judgement, with estimates being made to: We examined all key contracts and enquired with the Group for each of these contracts to understand the specific terms and risks, which in turn allowed us to assess the recognition of revenue. We evaluated and tested the relevant IT systems and assessed the operating effectiveness of controls over the recording of revenue recognised in the financial report, including controls relating to: ► Assess the total contract costs ► Assess the stage of completion of the contract ► Forecast the profit margin after taking into consideration additional revenue arising from variations to the original contract ► Appropriately provide for loss making contracts. The Group’s accounting policies and disclosures for revenue are detailed in General Information – Key Judgements – Revenue, Note 1 Revenue and Other Income and Note 7 Inventories of the financial report. ► Contract reviews performed by the Group that included estimating total costs, stage of completion of contracts, profit margin and evaluating contract profitability ► Revenue recording and billing processes ► Contract cost recording processes including the purchases, payments and payroll processes. For a sample of contracts with a delivery schedule of greater than 12 months we performed the following additional procedures: ► Understood the performance and status of the contracts through enquiries with the key executives having oversight over the various contract portfolios ► Assessed the contract status through the examination of externally generated evidence, such as approved variations and customer correspondence ► Analysed the Group’s estimates for total contract costs and forecast costs to complete, including taking into account the historical accuracy of such estimates ► Assessed the provisions for loss making contracts and whether these appropriately reflected the expected contractual positions ► Assessed the Group’s accounting policies and the adequacy of its related disclosures in the financial report. The directors are responsible for the other information. The other information comprises the information included in the Company’s 2018 Annual Report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon 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 and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: ► ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 INDEPENDENT AUDIT REPORT INDEPENDENT AUDIT REPORT 53 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young D S Lewsen Partner Perth 20 August 2018 ► ► ► ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Monadelphous Group Limited for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 DIRECTORS’ DECLARATION CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2018 In accordance with a resolution of the Directors of Monadelphous Group Limited, I state that: 1) In the opinion of the directors: (a) the financial statements, notes and the additional disclosures included in the Directors’ Report designated as audited, of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable; and (c) the financial statements and notes also comply with International Financial Reporting Standards as disclosed on page 60. Continuing Operations REVENUE Cost of services rendered GROSS PROFIT Other income 2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Business development and tender expenses Corporations Act 2001 for the year ended 30 June 2018. 3) In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in note 19 will be able to meet any obligations or liabilities to which they are or may become subject to, by virtue of the Deed of Cross Guarantee. On behalf of the Board C. G. B. Rubino Chairman Perth, 20 August 2018 Occupancy expenses Administrative expenses Finance costs Unrealised foreign currency gain/(loss) PROFIT BEFORE INCOME TAX Income tax expense PROFIT AFTER INCOME TAX ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT NON-CONTROLLING INTERESTS Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 55 Notes 2018 $’000 2017 $’000 1 1,737,632 1,249,085 (1,590,821) (1,119,327) 146,811 129,758 5,430 (17,221) (3,525) (29,871) (452) 1,673 6,865 (22,096) (3,305) (27,065) (734) (759) 102,845 82,664 (30,570) (24,144) 72,275 58,520 71,479 796 72,275 76.11 76.07 57,563 957 58,520 61.41 61.34 1 2 3 4 4 FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 57 NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that may be reclassified subsequently to profit or loss: Net gain on available-for-sale financial asset Income tax effect Foreign currency translation 2018 $’000 2017 $’000 72,275 58,520 905 (271) 634 267 (80) 187 (910) (134) OTHER COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR, NET OF TAX (276) 53 TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 71,999 58,573 ATTRIBUTABLE TO: EQUITY HOLDERS OF THE PARENT NON-CONTROLLING INTERESTS 71,203 796 71,999 57,616 957 58,573 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Property, plant and equipment Intangible assets and goodwill Investment in joint venture Deferred tax assets Other non-current assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Interest bearing loans and borrowings Income tax payable Provisions Total current liabilities Non-current liabilities Interest bearing loans and borrowings Provisions Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Non-Controlling Interests TOTAL EQUITY Notes 5 6 7 8 9 10 3 11 12 13 3 14 13 14 3 17 18 18 2018 $’000 2017 $’000 208,773 288,371 47,200 544,344 101,983 3,120 1,437 35,304 2,806 241,909 245,826 69,774 557,509 79,052 3,345 1,911 25,980 1,901 144,650 112,189 688,994 669,698 164,008 183,063 7,944 8,522 94,106 6,904 3,603 86,042 274,580 279,612 13,027 5,259 - 6,856 4,972 14 18,286 11,842 292,866 291,454 396,128 378,244 125,703 30,292 238,486 394,481 1,647 396,128 122,965 31,048 223,380 377,393 851 378,244 FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 59 Attributable to equity holders Issued Capital $’000 Share-Based Payment Reserve $’000 Foreign Currency Translation Reserve $’000 Retained Earnings $’000 Non-controlling Interests $’000 Available-for-sale Reserve $’000 Total $’000 378,244 (276) 72,275 187 634 - 634 71,999 - - - (480) 2,738 (56,373) At 1 July 2017 122,965 30,142 Other comprehensive income Profit for the period Total comprehensive income for the period Transactions with owners in their capacity as owners Share-based payments Dividend reinvestment plan Dividends paid At 30 June 2018 - - - - 2,738 - - - - (480) - - 719 (910) 223,380 - - 71,479 (910) 71,479 - - - - - (56,373) 851 - 796 796 - - - 125,703 29,662 (191) 238,486 1,647 821 396,128 Attributable to equity holders Issued Capital $’000 Share-Based Payment Reserve $’000 Foreign Currency Translation Reserve $’000 Retained Earnings $’000 Non-controlling Interests $’000 Available-for-sale Reserve $’000 Total $’000 At 1 July 2016 120,723 29,102 853 218,317 (106) - 368,889 Other comprehensive income Profit for the period Total comprehensive income for the period Transactions with owners in their capacity as owners Share-based payments - - - - Dividend reinvestment plan 2,242 Dividends paid - - - - 1,040 - - (134) - - 57,563 (134) 57,563 - - - - - (52,500) - 957 957 - - - 187 - 53 58,520 187 58,573 - - - 1,040 2,242 (52,500) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs Other income Income tax paid Dividends received Notes 2018 $’000 2017 $’000 1,873,522 1,430,396 (1,793,937) (1,305,002) 2,573 (493) 2,496 3,395 (705) 2,726 (32,692) (19,617) 178 - NET CASH FLOWS FROM OPERATING ACTIVITIES 5 51,647 111,193 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Repayment of loans to joint ventures and associates Payment of loans to joint ventures and associates Investment in available-for-sale financial asset Acquisition of controlled entities Other 3,442 (25,039) 1,833 (2,449) - (1,414) - 6,866 (12,368) 2,438 (3,753) (1,634) (5,433) 54 20 NET CASH FLOWS USED IN INVESTING ACTIVITIES (23,627) (13,830) CASH FLOWS FROM FINANCING ACTIVITIES Dividend paid Proceeds from borrowings Repayment of borrowings Payment of finance leases (53,635) (50,258) - (1,500) (6,400) 2,400 (2,400) (7,886) NET CASH FLOWS USED IN FINANCING ACTIVITIES (61,535) (58,144) At 30 June 2017 122,965 30,142 719 223,380 851 187 378,244 NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS Net foreign exchange differences Cash and cash equivalents at beginning of period (33,515) 379 39,219 (825) 241,909 203,515 CASH AND CASH EQUIVALENTS AT END OF PERIOD 5 208,773 241,909 FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GENERAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GENERAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 61 GENERAL INFORMATION The consolidated financial report of Monadelphous Group Limited (the Group) and its subsidiaries for the year ended 30 June 2018 was authorised for issue in accordance with a resolution of directors on 20 August 2018. Monadelphous Group Limited is a for profit company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The Group’s registered office is 59 Albany Highway, Victoria Park, Western Australia. The nature of the operations and principal activities of the Group are described in the Directors’ Report. Basis of preparation The financial report is a general purpose financial report, which: • has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (“AASB”) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board as applicable to a for-profit entity. • has also been prepared on a historical cost basis except for available-for-sale financial assets held at fair value. • is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which the legislative instrument applies. • adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the operations of the Group and effective for reporting periods beginning on or before 1 July 2017 (refer to note 31). • does not early adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective. Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2018. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Generally, there is a presumption that a majority of voting rights results in control. A list of controlled entities (subsidiaries) at year end is contained in note 19. Consolidation of the subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non- controlling interests, even if this results in the non-controlling interests having a debit balance. Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer. Acquisition-related costs are expensed as incurred. Foreign currency translation Functional and presentation currency Each entity in the Group determines its own functional currency. Both the functional and presentation currencies of Monadelphous Group Limited, its Australian subsidiaries and its Papua New Guinea subsidiary (Monadelphous PNG Ltd) are Australian dollars (A$). The functional currency is United States dollars (US$) for the Hong Kong subsidiary (Moway International Limited), the Singapore subsidiary (Monadelphous Singapore Pte Ltd) and the US subsidiaries (Monadelphous Inc. and Monadelphous Marcellus LLC). The functional currency of the Chinese subsidiary (Moway AustAsia Steel Structures Trading (Beijing) Company Limited) is Chinese Renminbi (RMB). The functional currency of the New Zealand subsidiary (Monadelphous Engineering NZ Pty Ltd) is New Zealand dollars (NZD). The functional currency of the Mongolian subsidiary (Monadelphous Mongolia LLC) is Mongolian Tugrik (MNT). GENERAL INFORMATION (continued) Foreign currency translation (continued) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Translation of Group companies’ functional currency to presentation currency As at the reporting date the assets and liabilities of the foreign operations are translated into the presentation currency of Monadelphous Group Limited at the rate of exchange ruling at the reporting date and the income statements are translated at the weighted average exchange rates for the year. Exchange variations arising from the translation are recognised in the foreign currency translation reserve in equity. Other accounting policies Significant and other accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements or at note 31. Key judgements and estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Management have identified the following critical accounting policies for which significant judgements, estimates and assumptions are made: Revenue Revenue and cost of sales are recognised in the income statement by reference to the stage of completion for construction contracts. Fundamental to the calculation of the percentage of completion is a reliable estimate of project revenues and project costs. Various factors contribute to the Group’s ability to reliably determine these estimates including, but not limited to, a thorough review process of all project costs and revenues, and the experience and knowledge of project management. In determining revenues and expenses for construction contracts, management make key assumptions regarding estimated revenues and expenses over the life of the contracts. Key assumptions regarding costs to complete contracts include estimation of labour, technical costs, impact of delays and productivity. Changes in these estimation methods could have a material impact on the reported results of the Group. Judgement is used in determining the point at which profit recognition commences. Generally the Group does not commence profit recognition on contracts in the early stages of completion. Taxation Judgement is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised in the consolidated statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised in the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustments, resulting in a corresponding credit or charge to the income statement. Impairment Refer to notes 8 and 9 for details. Workers Compensation Refer note 14 for details. Consolidation of MGJV Pty Ltd Refer to note 19 for details. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2018 1. REVENUE AND OTHER INCOME Rendering of services and construction contract revenue Finance revenue Dividends received Revenue Net gains on disposal of property, plant and equipment Other income Other income Recognition and measurement 2018 $’000 2017 $’000 1,734,881 1,245,183 2,573 178 3,848 54 1,737,632 1,249,085 2,934 2,496 5,430 4,139 2,726 6,865 Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Rendering of Services Where the contract outcome can be reliably measured revenue is recognised as services are rendered to the customer for maintenance contracts. For construction contracts refer to the accounting policy below. Where the contract outcome cannot be reliably measured contract costs are recognised as an expense as incurred, and where it is probable that the costs will be recovered, revenue is recognised only to the extent that costs have been incurred. This also applies to construction contracts. Construction contracts When accounting for construction contracts, the contracts are either combined or segmented if this is deemed necessary to reflect the substance of the agreement. Revenue arising from fixed price contracts is recognised in accordance with the percentage of completion method. Stage of completion is agreed with the customer on a work certified to date basis, as a percentage of the overall contract. Revenue from cost plus contracts is recognised by reference to the recoverable costs incurred plus a percentage of fees earned during the financial year. The percentage of fee earned during the financial year is based on the stage of completion of the contract. Where a loss is expected to occur from a construction contract the excess of the total expected contract costs over expected contract revenue is recognised as an expense immediately. Interest income Revenue is recognised as interest accrues using the effective interest method. 63 2018 $’000 2017 $’000 14 438 452 17,222 625 17,847 923,451 64,189 987,640 107 627 734 17,892 562 18,454 697,999 43,615 741,614 12,971 14,620 2. EXPENSES Finance costs Loans and overdrafts Finance charges payable under finance leases and hire purchase contracts Depreciation and amortisation Depreciation expense Amortisation of intangible assets Employee benefits expense Employee benefits expense Defined contribution superannuation expense Lease payments and other expenses Minimum lease payments – operating lease Government grants included in the income statement 2,501 6,028 Recognition and measurement Finance costs The Group does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with the qualifying assets would be capitalised. All other finance costs are expensed as incurred. Depreciation and amortisation Refer to notes 8 and 9 for details on depreciation and amortisation. Employee benefits expense Refer to note 14 for employee benefits expense and note 26 for share-based payments expense. Contributions to defined contribution superannuation plans are recognised as an expense as they become payable. Operating leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. The minimum lease payments of operating leases are recognised as an expense on a straight line basis over the lease term. Government Grants The Group recognises the excess of the research and development (R&D) tax offset over the statutory rate (the R&D offset) being an additional 8.5% deduction as a government grant when there is reasonable assurance it will be received and any attached conditions will be complied with. As the grant relates to R&D expenditure already incurred it is recognised in the income statement in the period it became receivable as a reduction to cost of sales. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2018 2018 $’000 2017 $’000 34,791 644 (4,865) 30,570 28,484 (360) (3,980) 24,144 271 80 102,845 30,854 240 (750) 226 30,570 82,664 24,799 440 (1,808) 713 24,144 3. INCOME TAX The major components of income tax expense are: Income statement Current income tax Current income tax charge Adjustments in respect of previous years Deferred income tax Temporary differences Income tax expense reported in the income statement Statement of Comprehensive Income Deferred tax related to items recognised in Statement of Comprehensive income during the year: Unrealised gain on Available-for-sale financial assets Tax reconciliation A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before income tax Income tax rate of 30% (2017: 30%) - Share based payment expense - R&D - Other Aggregate income tax expense Recognised deferred tax assets and liabilities Opening balance Charged to income Charged to equity Other / payments Closing balance Amounts recognised on the consolidated statement of financial position: Deferred tax asset Deferred tax liability 2018 $’000 Current Income Tax 2018 $’000 Deferred Income Tax 2017 $’000 Current Income Tax 2017 $’000 Deferred Income Tax (3,603) (35,435) - 30,516 (8,522) (1,124) (28,124) - 25,645 (3,603) 25,966 4,865 (271) 4,744 35,304 35,304 - 35,304 22,066 3,980 (80) - 25,966 25,980 (14) 25,966 65 2018 $’000 2017 $’000 29,709 1,425 4,875 36,009 (705) 35,304 - 705 705 (705) - 25,992 - 1,900 27,892 (1,912) 25,980 1,915 11 1,926 (1,912) 14 3. INCOME TAX (continued) Deferred income tax at 30 June relates to the following: Deferred tax assets Provisions Depreciation Other Gross deferred tax assets Set-off of deferred tax liabilities Net deferred tax assets Deferred tax liabilities Accelerated depreciation Other Gross deferred tax liabilities Set-off against deferred tax assets Net deferred tax liabilities Unrecognised temporary differences At 30 June 2018, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries, as the Group has no liability for additional taxation should unremitted earnings be remitted (2017: $nil). Tax consolidation Monadelphous Group Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 July 2003. Members of the tax consolidated group have entered into a tax funding agreement. The head entity, Monadelphous Group Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Monadelphous Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. Recognition and measurement Current taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred Taxes Deferred income tax is provided for using the full liability balance sheet approach on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists and they relate to the same taxable entity and the same taxation authority. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 67 4. EARNINGS PER SHARE The following reflects the income and share data used in the calculation of basic and diluted earnings per share: Net profit attributable to ordinary equity holders of the parent Earnings used in calculation of basic and diluted earnings per share Number of shares Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share Effect of dilutive securities Shares issuable associated with Arc West Group Pty Ltd acquisition (refer to note 20) Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 2018 $’000 2017 $’000 71,479 71,479 57,563 57,563 Number Number 93,916,738 93,730,313 49,372 119,031 93,966,110 93,849,344 Conversions, calls, subscriptions or issues after 30 June 2018: Since the end of the financial year, no holders of employee options have exercised the rights of conversion to acquire ordinary shares. Calculation of earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members of the parent, adjusted for: • costs of servicing equity (other than dividends); • the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 5. CASH AND CASH EQUIVALENTS For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Cash balances comprise: Cash at bank Short term deposits Reconciliation of net profit after tax to the net cash flows from operating activities Net profit Adjustments for Depreciation of non-current assets Amortisation and impairment of intangible assets Net profit on sale of property, plant and equipment Impairment of other non-current assets Share-based payment expense/(credit) Unrealised foreign exchange (gain)/loss Other Changes in assets and liabilities (Increase)/decrease in receivables (Increase)/decrease in inventories Increase in deferred tax assets Decrease in payables Increase/(decrease) in provisions Increase in income tax payable Decrease in deferred tax liabilities 2018 $’000 2017 $’000 183,773 25,000 208,773 156,909 85,000 241,909 72,275 58,520 17,222 625 (2,934) - (480) (1,673) 1,304 (40,086) 22,682 (9,252) (20,172) 7,231 4,919 (14) 17,892 943 (4,139) 236 1,040 759 2,211 79,482 (16,225) (3,773) (27,607) (418) 2,479 (207) Net cash flows from operating activities 51,647 111,193 Non-cash financing and investing activities Hire purchase transactions: During the year, the consolidated entity acquired plant and equipment by means of hire purchase agreements with an aggregate fair market value of $15,152,164 (2017: $4,069,735). Reconciliation of liabilities arising from financing activities Hire purchase liabilities Loan Recognition and measurement 2017 $ ’000 12,219 1,541 13,760 Cash flows $ ’000 (6,400) (1,541) (7,941) Non-cash changes New leases $ ’000 15,152 - 15,152 2018 $ ’000 20,971 - 20,971 Cash and cash equivalents in the consolidated statement of financial position comprise cash at bank and on hand and short term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 69 7. INVENTORIES Construction work in progress Cost incurred to date plus profit recognised Consideration received and receivable as progress billings Represented by: Amounts due to customers Amounts due from customers Amounts due to customers Notes 2018 $’000 2017 $’000 1,432,940 1,422,765 (1,451,339) (1,454,382) (18,399) (31,617) 12 65,599 47,200 101,391 69,774 Advances received for construction work not yet commenced or for committed subcontractor work not yet received are recognised as a current liability in trade and other payables. Refer note 12. Credit risk of amounts due from customers Details regarding credit risk of amounts due from customers are disclosed in note 22. Recognition and measurement Construction work-in-progress is stated at the aggregate of contract costs incurred to date plus profits recognised to date less recognised losses and progress billings. Costs include all costs directly related to specific contracts. 6. TRADE AND OTHER RECEIVABLES CURRENT Trade receivables Less allowance for impairment loss Other debtors Allowance for impairment loss Movements in the allowance for impairment loss were as follows: Balance at the beginning of the year Expense for the year reflected in administrative expenses in the income statement Balance at the end of the year Trade receivables past due not impaired At 30 June 2018, the ageing of trade receivables, past due but not considered impaired is as follows: 1-30 Days 31-60 Days 61+ Days TOTAL 2018 $’000 2017 $’000 217,611 (3,643) 213,968 74,403 288,371 166,660 (2,794) 163,866 81,960 245,826 2,794 849 3,643 2,508 286 2,794 33,706 9,054 19,332 62,092 33,904 9,470 10,160 53,534 The majority of the amounts past due at 30 June 2018 have been collected subsequent to year end. Payment terms on the remaining amounts have not been re-negotiated however credit has been stopped where the credit limit has been exceeded. In this case, payment terms will not be extended. Each business unit has been in direct contact with the relevant debtor and is satisfied that payment will be received. Receivables not impaired nor past due Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. The Group trades with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Publicly available credit information from recognised providers is utilised for this purpose where available. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Other debtors Other debtors include accrued sales which are non-interest bearing and have repayment terms between 30 to 60 days. Recognition and measurement Trade receivables, which generally have 30 to 60 days terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. Bad debts are written off when identified. Collectability of trade receivables is reviewed on an ongoing basis at a Company and business unit level. An impairment provision is recognised where there is objective evidence that the Group will not be able to collect the receivables. Financial difficulties of the debtor, default payments, historical bad debt performance or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 71 8. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Recognition and measurement Property, plant and equipment All classes of property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in the income statement as incurred. Depreciation is calculated on a straight line basis on all classes of property, plant and equipment other than freehold land. The estimated useful life of buildings is 40 years; plant and equipment is between 3 and 20 years. The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. An item of property, plant and equipment is de-recognised upon disposal or when no further future economic benefits are expected from its use or disposal. Impairment of non-financial assets other than goodwill We have performed an impairment assessment based on the policy below. No material impairment was noted. At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists or when annual impairment testing for an asset is required, the Group makes a formal estimate of the recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. 8. PROPERTY, PLANT AND EQUIPMENT Reconciliation of carrying amounts at the beginning and end of the period Property Plant and Equipment Freehold Land $’000 Buildings $’000 Leasehold Improvements $’000 Plant and Equipment $’000 Plant and Equipment Under Hire Purchase $’000 Year ended 30 June 2018 Net carrying amount at 1 July 2017 13,411 17,197 Additions Acquired through business combination Assets transferred Disposals Depreciation charge Exchange differences - - - - - - 278 11 - - (1,061) - Net carrying amount at 30 June 2018 13,411 16,425 At 30 June 2018 Gross carrying amount – at cost 13,411 26,499 Accumulated depreciation - (10,074) Net carrying amount 13,411 16,425 - - - - - - - - - - - Year ended 30 June 2017 Net carrying amount at 1 July 2016 13,411 16,660 696 Additions Acquired through business combination (Note 20) Assets transferred Disposals Depreciation charge Exchange differences - - - - - - 12 1,041 587 (31) - - (587) - - Net carrying amount at 30 June 2017 13,411 17,197 At 30 June 2017 Gross carrying amount – at cost 13,411 27,380 Accumulated depreciation - (10,183) Net carrying amount 13,411 17,197 Total $’000 79,052 40,191 683 - (508) 31,121 24,761 672 4,148 (508) 17,323 15,152 - (4,148) - (13,219) (2,942) (17,222) (213) - (213) 46,762 25,385 101,983 173,372 32,170 245,452 (126,610) (6,785) (143,469) 46,762 25,385 101,983 27,682 12,356 21,539 4,070 79,988 16,438 2,270 4,487 (2,696) - 3,311 (4,487) - - (2,727) (1,072) (109) (12,912) (3,799) (17,892) - - - - - (66) - (66) 31,121 17,323 79,052 150,237 25,275 216,303 (119,116) (7,952) (137,251) 31,121 17,323 79,052 Property, plant and equipment pledged as security Assets under hire purchase are pledged as security for the associated hire purchase liabilities. Assets pledged as security 2018 $’000 2017 $’000 25,385 17,323 FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 Intangible Assets $’000 Goodwill $’000 Total $’000 10. INTEREST IN JOINT VENTURES Mondium Pty Ltd 9. INTANGIBLE ASSETS AND GOODWILL Year ended 30 June 2018 At 1 July 2017 On business combination (Note 20) Amortisation At 30 June 2018 Year ended 30 June 2017 At 1 July 2016 On business combination (Note 20) Amortisation Impairment At 30 June 2017 625 - (625) - - 1,187 (562) - 625 2,720 400 - 3,120 2,947 154 - (381) 2,720 3,345 400 (625) 3,120 2,947 1,341 (562) (381) 3,345 Description of the Group’s intangible assets Intangible assets relate to the fair value of contracts acquired on acquisition of Arc West Group Pty Ltd. Intangible assets have been assessed as having a finite life and are amortised using the straight line method over a period of 19 months. Impairment testing of the Group’s intangible assets and goodwill Goodwill acquired through business combinations has been allocated to cash generating units (“CGU”) for impairment testing purposes. The CGUs are the entity Monadelphous Electrical & Instrumentation Pty Ltd, the Hunter Valley business unit, the entity Monadelphous Energy Services Pty Ltd, the entity Arc West Group Pty Ltd and the entity R.I.G. Installations (Newcastle) Pty Ltd. None of these CGUs are material to the Group. The recoverable amount of each CGU has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by management covering a five years period and applying a discount rate to the cash flow projections in the range of 12% to 15%. No reasonably possible changes in key assumptions would result in the carrying amount of the CGU exceeding its recoverable amount. Recognition and measurement Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the consideration over the fair value of the Group’s identifiable assets acquired and liabilities assumed. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination, is, from the acquisition date, allocated to each of the Group’s CGUs or groups of CGUs that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Impairment is determined by assessing the recoverable amount of the CGU (group of CGUs) to which the goodwill relates. If the recoverable amount of the CGU (group of CGUs) is less than the carrying amount, an impairment loss is recognised. Impairment losses recognised for goodwill are not subsequently reversed. Intangible assets The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be finite. The intangible assets are amortised over their useful life. Intangible assets are tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for the intangible assets is reviewed at least each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the assets are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets is recognised in the income statement in the expense category consistent with the function of the intangible asset. On 21 October 2016, a joint venture company, Mondium Pty Ltd was formed between Monadelphous and Lycopodium Ltd. The Group has a 60% interest in the joint venture. The principal activity of Mondium is to deliver engineering, procurement and construction services in the minerals processing sector. Zenviron Pty Ltd On 26 July 2016, a joint venture company, Zenviron Pty Ltd was formed between Monadelphous and ZEM Energy Pty Ltd. The Group has a 55% interest in the joint venture. The principal activity of Zenviron is to deliver multi-disciplinary construction services in the renewable energy market in Australia and New Zealand. At 30 June 2018, the Group’s interests in Mondium Pty Ltd and Zenviron Pty Ltd were not material individually or in aggregate. Commitments and contingent liabilities relating to Joint Ventures The Group’s share of insurance bond guarantees issued by Joint Ventures at 30 June 2018 was $9,823,596 (2017: $12,001,408). Joint ventures had no capital commitments at 30 June 2018 (2017: $nil). Recognition and measurement A joint venture is a type of arrangement whereby the parties that have joint control of the arrangement have the rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investments in its joint ventures are accounted for using the equity method. Under the equity method, the investment is initially recognised at cost. The carrying value of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. The income statement reflects the Group’s share of the results of the joint venture. 2018 $’000 2017 $’000 11. OTHER NON-CURRENT ASSETS Other non-current assets 2,806 1,901 Other non-current assets consist of investments as follows: Ordinary shares at fair value in Lycopodium Limited (ASX Code: LYL). The investment is classified as available-for-sale securities. Fair value is calculated using quoted prices in active markets. 12. TRADE AND OTHER PAYABLES CURRENT Trade payables Advances on construction work in progress – Amounts due to customers Sundry creditors and accruals 2018 $’000 2017 $’000 68,946 65,599 29,463 164,008 54,109 101,391 27,563 183,063 Recognition and measurement Trade and other payables are carried at amortised cost and are not discounted due to their short term nature. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured, non-interest bearing and are usually paid within 30 to 45 days of recognition. Sundry creditors and accruals are non-interest bearing and have terms of 7 to 45 days. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2018 13. INTEREST BEARING LOANS AND BORROWINGS CURRENT Hire purchase liability – secured Loan – unsecured NON-CURRENT Hire purchase liability – secured Terms and conditions 2018 $’000 2017 $’000 7,944 - 7,944 13,027 13,027 5,363 1,541 6,904 6,856 6,856 Hire purchase agreements have an average term of three years. The average discount rate implicit in the hire purchase liability is 4.09% (2017: 4.15%). The hire purchase liability is secured by a charge over the hire purchase assets. Defaults and breaches During the current and prior year, there were no defaults or breaches on any of the loans. Recognition and measurement Interest bearing loans and borrowings Interest bearing loans and borrowings are initially recognised at fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Gains or losses are recognised in the income statement when the liabilities are derecognised. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Finance leases Leases which effectively transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item are classified as finance leases. The financed asset is stated at the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. An interest bearing liability of equal value is also recognised at inception. Minimum lease payments are apportioned between the finance charge and the reduction of the lease liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the income statement. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. 75 2018 $’000 2017 $’000 67,837 26,269 94,106 59,621 26,421 86,042 5,259 4,972 26,421 8,739 (8,891) 26,269 14. PROVISIONS CURRENT Employee benefits Workers’ compensation NON-CURRENT Employee benefits – long service leave Movements in provisions Workers compensation Carrying amount at the beginning of the year Additional provision Amounts utilised during the year Carrying amount at the end of the financial year Recognition and measurement Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure to settle the present obligation at the reporting date using a discounted cash flow methodology. The risks specific to the provision are factored into the cash flows and as such a risk-free government bond rate relevant to the expected life of the provision is used as a discount rate. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Employee benefits includes liabilities for wages and salaries, rostered days off, vesting sick leave, project incentives and project redundancies. It is customary within the engineering and construction industry for incentive payments and redundancies to be paid to employees at the completion of a project. The provision has been created to cover the expected costs associated with these statutory and project employee benefits. Liabilities for short term benefits expected to be wholly settled within twelve months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liability is settled. Expenses for non-vesting sick leave are recognised when the leave is taken and are measured at the rates paid or payable. The liability for long term benefits is recognised and measured as the present value of the expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds, which have terms to maturity approximating the estimated future cash outflows. Workers’ compensation It is customary for all entities within the engineering and construction industry to be covered by workers’ compensation insurance. Payments under these policies are calculated differently depending on which state of Australia the entity is operating in. Premiums are generally calculated based on actual wages paid and claims experience. Wages are estimated at the beginning of each reporting period. Final payments are made when each policy is closed out based on the difference between actual wages and the original estimated amount. The amount of each payment varies depending on the number of incidents recorded during each period and the severity thereof. The policies are closed out within a five years period through negotiation with the relevant insurance company. The provision has been created to cover the expected costs associated with closing out each insurance policy and is adjusted accordingly based on the actual payroll incurred and the severity of incidents that have occurred during each period. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL STRUCTURE FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL STRUCTURE FOR THE YEAR ENDED 30 JUNE 2018 15. CAPITAL MANAGEMENT Capital is managed by the Group’s Chief Financial Officer in conjunction with the Group’s Finance and Accounting department. Management continually monitor the Group’s net cash/debt position and the gearing levels to ensure efficiency and compliance with the Group’s banking facility covenants, including the gearing ratio, operating leverage ratio and fixed charge coverage ratio. At 30 June 2018, the Group is in a net cash position of $187,802,000 (2017: $228,149,000) and has a debt to equity ratio of 5.3% (2017: 3.6%) which is within the Group’s net cash and debt to equity target levels. During the year ended 30 June 2018, management paid dividends of $56,373,000. The policy is to payout dividends of 80% to 100% of annual net profit after tax, subject to the working capital requirements of the business, potential investment opportunities and business and economic conditions generally. 17. CONTRIBUTED EQUITY Ordinary shares – Issued and fully paid Reserved shares The capital of the Company is considered to be contributed equity. Ordinary shares 77 2018 $’000 2017 $’000 126,972 (1,269) 125,703 124,234 (1,269) 122,965 16. DIVIDENDS PAID AND PROPOSED Declared and paid during the year Current year interim 2018 $’000 2017 $’000 Ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. 2018 2017 Number of Shares $’000 Number of Shares $’000 Interim franked dividend for 2018 (30 cents per share) (2017: 24 cents per share) 28,199 22,519 Previous year final Final franked dividend for 2017 (30 cents per share) (2016: 32 cents per share) 28,174 29,981 Beginning of the financial year Dividend reinvestment plan 93,928,264 124,234 93,703,963 180,047 2,738 224,301 End of the financial year 94,108,311 126,972 93,928,264 121,992 2,242 124,234 Unrecognised amounts Current year final Final franked dividend for 2018 (32 cents per share) (2017: 30 cents per share) 30,115 28,174 Franking credit balance Franking credits available for future reporting years at 30% adjusted for franking credits that will arise from the payment of income tax payable as at the end of the financial year Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period 53,356 45,103 (12,906) 40,450 (12,075) 33,028 Tax rates The tax rate at which paid dividends have been franked is 30% (2017: 30%). Dividends payable will be franked at the rate of 30% (2017: 30%). Recognition and measurement A provision for dividends is not recognised as a liability unless the dividends are declared on or before the reporting date. During the year ended 30 June 2018, no employees exercised options to acquire fully paid ordinary shares. Reserved shares Beginning of the financial year End of the financial year Recognition and measurement Contributed equity 2018 2017 Number of Shares $’000 Number of Shares $’000 85,500 85,500 (1,269) (1,269) 85,500 85,500 (1,269) (1,269) Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are recognised directly in equity as a deduction, net of tax, from the proceeds. Reserved shares The Group’s own equity instruments, which are reacquired for later use in employee share-based payment arrangements (reserved shares), are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL STRUCTURE FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE FOR THE YEAR ENDED 30 JUNE 2018 79 18. RESERVES AND RETAINED EARNINGS Foreign currency translation reserve Share-based payment reserve Available-for-sale reserve Retained earnings Movements in retained earnings Balance at the beginning of the year Net profit attributable to equity holders of the parent Total available for appropriation Dividends paid Balance at the end of the year Movements in reserves 2018 $’000 2017 $’000 (191) 29,662 821 30,292 719 30,142 187 31,048 238,486 223,380 223,380 71,479 294,859 (56,373) 238,486 218,317 57,563 275,880 (52,500) 223,380 Foreign Currency Translation Reserve $’000 Share-Based Payment Reserve $’000 Available-For-Sale Reserve $’000 At 1 July 2016 Foreign currency translation Share-based payment Net fair value gain of available-for-sale financial assets 853 (134) - - 29,102 - 1,040 - At 30 June 2017 719 30,142 Foreign currency translation Share-based payment Net fair value gain of available-for-sale financial assets (910) - - - (480) - At 30 June 2018 (191) 29,662 - - - 187 187 - - 634 821 Total $’000 29,955 (134) 1,040 187 31,048 (910) (480) 634 30,292 Nature and purpose of reserves Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from translation of the financial statements of foreign subsidiaries. Share-based payment reserve The share-based payment reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 26 for further details of these plans. Available-for-sale reserve The available-for-sale reserve is used to record the movement in fair value of available-for-sale financial assets. 19. SUBSIDIARIES The consolidated financial statements include the financial statements of Monadelphous Group Limited and subsidiaries: Name Parent: Monadelphous Group Limited Controlled entities of Monadelphous Group Limited: #Monadelphous Engineering Associates Pty Ltd #Monadelphous Properties Pty Ltd #Monadelphous Engineering Pty Ltd #Genco Pty Ltd #Monadelphous Workforce Pty Ltd #Monadelphous Electrical & Instrumentation Pty Ltd #Monadelphous KT Pty Ltd #Monadelphous Energy Services Pty Ltd #M Workforce Pty Ltd #M Maintenance Services Pty Ltd M&ISS Pty Ltd SinoStruct Pty Ltd Monadelphous Group Limited Employee Share Trust Monadelphous Holdings Pty Ltd MGJV Pty Ltd Evo Access Pty Ltd Monadelphous Investments Pty Ltd MWOG Pty Ltd MOAG Pty Ltd Monadelphous International Holdings Pty Ltd Arc West Group Pty Ltd (Refer to Note 20) R.I.G. Installations (Newcastle) Pty Ltd (Refer Note 20) RE&M Services Pty Ltd* Pilbara Rail Services Pty Ltd* Monadelphous PNG Ltd Moway International Limited Moway AustAsia Steel Structures Trading (Beijing) Company Limited Monadelphous Singapore Pte Ltd Monadelphous Mongolia LLC Monadelphous Inc. Monadelphous Marcellus LLC MKT Pipelines Ltd Monadelphous Engineering NZ Pty Ltd Monadelphous Sdn Bhd Country of Incorporation Percentage Held by Consolidated Entity Parent Entity Investment 2018 % 2017 % 2018 $’000 2017 $’000 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Papua New Guinea Hong Kong China Singapore Mongolia USA USA Canada New Zealand Malaysia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 70 ^ 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 70 ^ 100 100 100 100 100 100 - - - 100 100 100 100 100 100 100 100 100 100 26,132 1,941 4,066 342 370 5,343 15,729 4,434 - - - 125 - - - - - - - - 5,440 1,488 - - - 443 - 144 - 1,806 - - - - 67,803 26,132 1,941 4,066 342 370 5,343 15,729 4,434 - - - 125 - - - - - - - - 5,440 - - - - 443 - 144 - 1,806 - - - - 66,315 # Controlled entities subject to the Class Order (Refer to note 30) * Incorporated during the year ^ The Group considers that it controls MGJV Pty Ltd as it has a casting vote at Board Meetings. Ultimate parent Monadelphous Group Limited is the ultimate holding company. Material partly-owned subsidiaries There were no subsidiaries that have a material non-controlling interest during the year. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE FOR THE YEAR ENDED 30 JUNE 2018 81 20. BUSINESS COMBINATION Acquisition of R.I.G. Installations (Newcastle) Pty Ltd On 14 July 2017, Monadelphous Group Limited acquired 100% of the share capital of R.I.G. Installations (Newcastle) Pty Ltd for total cash consideration of $1.4 million. The acquisition is not material to the results of the Group. Acquisition of Arc West Group Pty Ltd On 23 September 2016, Monadelphous Group Limited acquired 100% of the share capital of Arc West Group Pty Ltd. The acquisition forms part of Monadelphous’ market growth strategy. The consideration comprised a cash payment of $5.4 million. The fair values of the identifiable assets and liabilities acquired from Arc West Group Pty Ltd as of the date of acquisition were: Cash Trade and other receivables Inventory Property, plant and equipment Intangible assets Trade and other payables Provisions Fair value of identifiable net assets Goodwill arising on acquisition Acquisition-date fair-value of consideration transferred: Cash paid Total consideration The cash outflow on acquisition is as follows: Net cash acquired with the business Cash paid Net consolidated cash outflow Fair Value at Acquisition Date $’000 7 1,325 114 3,311 1,187 5,944 570 88 658 5,286 154 5,440 5,440 5,440 7 (5,440) (5,433) Sales revenue and net profit from Arc West Group Pty Ltd for the period were not material. Key factors contributing to the $154,000 of goodwill are synergies expected to be achieved as a result of combining Arc West Group Pty Ltd with the rest of the Group. A deferred component is payable through the issue of Monadelphous ordinary shares up to a value of $2.3 million. The shares are issuable in six monthly installments over the period to September 2018. The issue of each remaining installment of shares is contingent on the former owners remaining as employees of Monadelphous. The shares are being treated as a remuneration payment. A share based payment expense is therefore being recognised over the period to September 2018 (refer to note 26). 21. INTEREST IN JOINT OPERATIONS Joint operations interests The Group’s interests in joint operations are as follows: Joint Arrangement Principal Activity Monadelphous Jacobs JV PNG Engineering, Procurement and Construction & Maintenance Support Work in PNG Principal Place of Business PNG Monadelphous Jacobs JV Engineering, Procurement and Construction & Maintenance Support Work Brisbane, QLD Group Interest 2018 % 65 65 2017 % - - Commitments and contingent liabilities relating to joint operations There were no capital commitments or contingent liabilities relating to the joint operations at 30 June 2018 (2017: $nil). Impairment There were no assets employed in the joint operations during the year ended 30 June 2018 (2017: $nil). Recognition and Measurement Joint arrangements are arrangements of which two or more parties have joint control. Joint control is the contractual agreed sharing of control of the arrangement which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement. To the extent the joint arrangement provides the Group with rights to the individual assets and obligations arising from the joint arrangement, the arrangement is classified as a joint operation and as such, the Group recognises its: • Assets, including its share of any assets held jointly; • Liabilities, including its share of any liabilities incurred jointly; • Revenue from the sale of its share of the output arising from the joint operation; and • Expenses, including its share of any expenses incurred jointly. To the extent the joint arrangement provides the Group with rights to the net assets of the arrangement, the investment is classified as a joint venture and accounted for using the equity method. Under the equity method, the cost of the investment is adjusted by the post- acquisition changes in the Group’s share of the net assets of the venture. 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise receivables, payables, loans, finance leases and hire purchase contracts, cash, short-term deposits and derivatives. The Group is exposed to financial risks which arise directly from its operations. The Group has policies and measures in place to manage financial risks encountered by the business. Primary responsibility for the identification of financial risks rests with the Board. The Board determines policies for the management of financial risks. It is the responsibility of the Chief Financial Officer and senior management to implement the policies set by the Board and for the constant day to day management of the Group’s financial risks. The Board reviews these policies on a regular basis to ensure that they continue to address the risks faced by the Group. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Group’s policy to minimise risk from fluctuations in interest rates is to utilise fixed interest rates in its loans, finance leases and hire purchase contracts. Cash and short term deposits are exposed to floating interest rate risks. The Group manages its foreign currency risk arising from significant supplier contracts in foreign currencies by holding foreign currency or taking out forward exchange contracts. Analysis is performed on a customer’s credit rating prior to signing contracts and analysis is performed regularly of credit exposures and aged debt to manage credit and liquidity risk. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2018 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) 83 The policies in place for managing the financial risks encountered by the Group are summarised below. (a) Risk exposures and responses Interest rate risk The Group’s exposure to variable interest rates is as follows: Financial assets Cash and cash equivalents Net exposure Notes 5 2018 $’000 2017 $’000 208,773 208,773 241,909 241,909 The Group utilises a number of financial institutions to obtain the best interest rate possible and to manage its risk. The Group does not enter into interest rate hedges. At 30 June 2018, reasonably possible movements in variable interest rates, based on a review of historical movements and forward rate curves for forward rates would not have had a material impact on the Group. Foreign currency risk As a result of operations in the USA, Papua New Guinea, China, Mongolia and New Zealand the Group’s statement of financial position can be affected by movements in the US$/A$, PGK/A$, RMB/A$, MNT/A$ and NZ$/A$ exchange rates. The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating entity in currencies other than the functional currency. Where possible, Monadelphous does not take on foreign exchange risk. At 30 June 2018, the Group had no forward contracts. The Group also mitigates its exposure to foreign currency risk by minimising excess foreign currency balances in overseas jurisdictions not required for working capital. At 30 June 2018, the Group had the following exposure to foreign currency: Year ended 30 June 2018 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net Exposure Year ended 30 June 2017 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net Exposure PGK AUD $’000 USD AUD $’000 Euro AUD $’000 6,041 3,545 (2,017) 7,569 11,562 4,582 (1,292) 14,852 15,290 9,272 (3,784) 20,778 11,537 27,886 (4,003) 35,420 5,176 - - 5,176 8,392 - - 8,392 (a) Risk exposures and responses (continued) Foreign currency risk (continued) At 30 June 2018, reasonably possible movements in PGK and Euro foreign exchange rates, based on a review of historical movements, would not have had a material impact on the Group. At 30 June 2018, if the USD foreign exchange rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Judgements of reasonably possible movements relating to financial assets and liabilities denominated in USD: +5% (2017: +5%) -5% (2017: -5%) Post Tax Profit Higher/(Lower) Other Comprehensive Income Higher/(Lower) 2018 $’000 (727) 727 2017 $’000 (1,240) 1,240 2018 $’000 - - 2017 $’000 - - The reasonably possible movements have been based on review of historical movements. Credit risk The Group trades with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Publicly available credit information from recognised providers is utilised for this purpose where available. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The Group minimises concentrations of credit risk in relation to accounts receivable by undertaking transactions with a number of customers within the resources, energy and infrastructure industry sector. There are multiple contracts with our significant customers, across a number of their subsidiaries, divisions within those subsidiaries and locations. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the Chairman, Managing Director or Chief Financial Officer. With respect to credit risk arising from the other financial assets of the Group, which comprises cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. The Group minimises its exposure to credit risk for cash and cash equivalents, by investing funds with counter parties rated A+ or higher by Standard & Poor’s where possible. The Group’s maximum exposure to credit risk is its cash and trade and other receivables representing $497,144,000 at 30 June 2018 (2017: $487,735,000). Since the Group trades with recognised third parties, there is no requirement for collateral. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2018 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) 22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (a) Risk exposures and responses (continued) Liquidity risk Financing facilities available (a) Risk exposures and responses (continued) Liquidity risk (continued) Maturity analysis of financial liabilities: At balance date the following financing facilities had been negotiated and were available Total facilities: - Bank guarantee and performance bonds - Revolving credit Facilities used at balance date: - Bank guarantee and performance bonds - Revolving credit Facilities unused at balance date: - Bank guarantee and performance bonds - Revolving credit 2018 $’000 2017 $’000 460,000 64,559 524,559 181,759 20,971 202,730 278,241 43,588 321,829 490,000 67,053 557,053 147,704 13,760 161,464 342,296 53,293 395,589 Year ended 30 June 2018 Financial liabilities Trade and other payables Hire purchase liability Net maturity Year ended 30 June 2017 Financial liabilities Trade and other payables Loan Hire purchase liability Net maturity 6 months or less $’000 6 months to 1 year $’000 1 year to 5 years $’000 Total Contractual Cash Flows $’000 Total Carrying Amount $’000 164,008 3,920 167,928 - 4,705 4,705 - 164,008 164,008 14,269 22,894 20,971 14,269 186,902 184,979 183,063 - 3,189 186,252 - 1,575 2,537 4,112 - - 7,007 183,063 183,063 1,575 12,733 1,541 12,219 7,007 197,371 196,823 Nature of bank guarantees and performance bonds The contractual term of the bank guarantees and performance bonds match the underlying obligation to which it relates. (b) Net fair values of financial assets and liabilities Nature of revolving credit The revolving credit includes hire purchase/leasing facilities. Refer to note 13 for terms and conditions. The Group’s objective is to manage the liquidity of the business by monitoring project cash flows and through the use of financing facilities. The Group currently utilises financing facilities in the form of hire purchase liabilities. The liquidity of the group is managed by the Group’s Finance and Accounting department. The table below reflects all contractually fixed pay-offs, repayments and interest resulting from financial liabilities as of 30 June 2018. The remaining contractual maturities of the Group’s financial liabilities are: The carrying amounts and estimated fair values of financial assets and financial liabilities at balance date are materially the same. Interest bearing liabilities with fixed interest rates: The fair value includes the value of contracted cash flows, discounted at market rates. Cash and cash equivalent: The carrying amount approximates fair value because of their short-term maturity. Receivables and payables: The carrying amount approximates fair value due to short term maturity. Available-for-sale financial assets: The carrying amount is equal to the fair value calculated using quoted prices in active markets. The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise: Level 1: The fair value is calculated using quoted prices in active markets. 2018 $’000 2017 $’000 Level 2: The fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Financial liabilities 6 months or less 6 – 12 months 1 – 5 years 167,928 4,705 14,269 186,902 186,252 4,112 7,007 197,371 Level 3: The fair value is estimated using inputs for the asset or liability that are not based on observable market data. There were no material financial assets or liabilities measured at fair value at 30 June 2018 or 30 June 2017. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: UNRECOGNISED ITEMS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: UNRECOGNISED ITEMS FOR THE YEAR ENDED 30 JUNE 2018 Notes 2018 $’000 2017 $’000 24. SUBSEQUENT EVENTS Dividends declared 87 23. COMMITMENTS AND CONTINGENCIES Hire purchase commitments Payable: - Within one year - Later than one year but not later than five years Minimum lease payments Less future finance charges Present value of minimum lease payments Current liability Non-current liability Hire purchase agreements have an average term of three years. Operating lease commitments Minimum lease payments - Within one year - Later than one year but not later than five years - Later than five years Aggregate lease expenditure contracted for at balance date but not provided for 13 13 2018 Other $’000 227 111 - 338 2018 Properites $’000 13,465 33,633 - 47,098 8,625 14,269 22,894 (1,923) 5,726 7,007 12,733 (514) 20,971 12,219 7,944 13,027 20,971 5,363 6,856 12,219 2018 Total $’000 2017 Total $’000 13,692 33,744 - 13,677 44,288 700 Other operating leases includes motor vehicles. Properties include the Victoria Park office lease, the Brisbane office lease and other rental properties. Other operating leases have an average lease term remaining of 24 months. Properties under operating leases have an average lease term remaining of less than one year. Capital commitments The consolidated group has capital commitments of $9,618,122 at 30 June 2018 (2017: $5,185,942). Guarantees Guarantees given to various clients for satisfactory contract performance 181,759 147,704 Monadelphous Group Limited and all controlled entities marked # in note 19 have entered into a deed of cross guarantee. Refer to note 30 for details. Contingent Liabilities The Group is subject to various actual and pending claims arising in the normal course of business. The Group has regular claims reviews to assess the need for accounting recognition or disclosure. The Directors are of the opinion that there is no material exposure to the Group arising from these various actual and pending claims. On 20 August 2018, the directors of Monadelphous Group Limited declared a final dividend on ordinary shares in respect of the 2018 financial year. The total amount of the dividend is $30,114,660 which represents a fully franked final dividend of 32 cents per share. This dividend has not been provided for in the 30 June 2018 financial statements. The Monadelphous Group Limited Dividend Reinvestment Plan will apply to the dividend. Other than the items noted above, no matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent financial years. Notes 2018 $’000 2017 $’000 25. PARENT ENTITY INFORMATION Information relating to Monadelphous Group Limited parent entity Current assets Total assets Current liabilities Total liabilities Net assets Contributed equity Share-based payment reserve Available-for-sale reserve Retained earnings Total equity 185,199 240,478 1,848,312 1,544,283 (1,643,210) (1,345,267) (1,656,557) (1,352,122) 191,755 192,161 125,703 28,675 821 36,556 191,755 122,965 28,943 - 40,253 192,161 52,676 53,310 34,743 34,930 47,436 58,665 Profit after tax Total comprehensive income of the parent entity Contingent liabilities Guarantees 23 181,759 147,704 2018 $’000 2017 $’000 Capital commitments The parent entity has capital commitments of $nil at 30 June 2018 (2017: $nil). Guarantees entered into by the Group are via the parent entity. Details are contained in note 23. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 89 2018 $ 2017 $ 254,534 209,764 30,411 31,000 27,264 - 315,945 237,028 27. AUDITORS’ REMUNERATION The auditor of Monadelphous Group Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young Australia for: - An audit or review of the financial report of the entity and any other entity in the consolidated entity - Other services in relation to the entity and any other entity in the consolidated entity - tax compliance - assurance related Ernst & Young has provided an auditor’s independence declaration to the Directors of Monadelphous Group Limited confirming that the provision of the other services has not impaired their independence as auditors. 28. RELATED PARTY DISCLOSURES Compensation of key management personnel Short term benefits Post-employment Long term benefits Total compensation Zenviron 2018 $ 2017 $ 4,088,037 3,702,728 141,888 114,159 135,459 77,500 4,344,084 3,915,687 At 30 June 2018, an amount totalling $nil (2017: $1,833,000) had been loaned to Zenviron Pty Ltd. The loan was repaid during the year. The Group had sales to the joint venture during the year totalling $10,213,000 (2017: $2,951,000) Mondium At 30 June 2018, an amount totalling $1,864,000 (2017: $511,000) had been loaned to Mondium Pty Ltd. The loan is included in the statement of financial position within Investment in Joint Venture. Interest is payable on the loan at a rate of 3.71% per annum. 26. SHARE BASED PAYMENT EXPENSE The Monadelphous Group Limited Employee Option Plan has been established where eligible directors and employees of the consolidated entity are issued with options over the ordinary shares of Monadelphous Group Limited. The options, issued for nil consideration, are issued in accordance with the guidelines established by the remuneration committee of Monadelphous Group Limited. The options issued carry various terms and exercising conditions. There are currently no directors or employees participating in these schemes. The following table illustrates the number and weighted average exercise prices of and movements in options granted, exercised and forfeited during the year. Balance at the beginning of the year Forfeited during the year Balance at the end of the year Exercisable during the next year 2018 2017 Number of Options 30,000 (30,000) - - Weighted Average Exercise Price Number of Options Weighted Average Exercise Price 17.05 17.05 - - 365,000 (335,000) 30,000 30,000 19.26 19.46 17.05 17.05 The share-based payment expense relating to the Monadelphous Group Limited Employee Option Plan for the year ended 30 June 2018 was a $nil (2017: $nil) for the consolidated entity. For the year ended 30 June 2018, the Group has recognised $800,000 of share-based payment expense in the Income Statement (2017: $1,466,617) relating to shares to be issued as part of the acquisition of Arc West Group Pty Ltd (refer to note 20). $1,280,000 (2017: $426,617) was satisfied as a cash payment during the year. Recognition and Measurement The Group provides benefits to employees (including Key Management Personnel) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). These benefits are provided through the Monadelphous Group Limited Employee Option Plan. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date on which they are granted. The fair value is determined by an external valuer using a binomial model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Monadelphous Group Limited (market conditions), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 29. OPERATING SEGMENTS Revenue is derived by the consolidated entity from the provision of engineering services to the resources, energy and infrastructure industry sector. For the year ended 30 June 2018, the Engineering Construction division contributed revenue of $949.9 million (2017: $615.4 million) and the Maintenance and Industrial Services division contributed revenue of $841.1 million (2017: $652.9 million). Included in these amounts is $7.0 million (2017: $3.5 million) of inter-entity revenue and $49.1 million (2017: $19.6 million) of revenue of joint ventures, which is eliminated on consolidation. The operating divisions are exposed to similar risks and rewards from operations, and are only segmented to facilitate appropriate management structures. The directors believe that the aggregation of the operating divisions is appropriate for segment reporting purposes as they: • have similar economic characteristics in that they have similar gross margins; • perform similar services for the same industry sector; • have similar operational business processes; • provide a diversified range of similar engineering services to a large number of common clients; • utilise a centralised pool of engineering assets and shared services in their service delivery models, and the services provided to customers allow for the effective migration of employees between divisions; and • operate predominately in one geographical area, namely Australia. Accordingly all services divisions have been aggregated to form one segment. The Group has a number of customers to which it provides services. The largest customer represented 28% of the Group’s revenue. One other customer individually contributed 11% of the Group’s revenue. There are multiple contracts with these customers, across a number of their subsidiaries, divisions within those subsidiaries and locations. Geographical Information Revenue from external customers Australia New Zealand Other overseas locations 30. DEED OF CROSS GUARANTEE 2018 $’000 2017 $’000 1,607,987 1,160,062 51,473 75,421 52,835 32,286 1,734,881 1,245,183 Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, relief has been granted to these controlled entities of Monadelphous Group Limited from the Corporations Act 2001 requirements for preparation, audit and publication of accounts. As a condition of the Class Order, Monadelphous Group Limited and the controlled entities subject to the Class Order, entered into a deed of indemnity on 9 June 2011, 1 June 2012, 9 June 2014 and 8 June 2016. The effect of the deed is that Monadelphous Group Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities. The controlled entities have also given a similar guarantee in the event that Monadelphous Group Limited is wound up. The consolidated income statement and statement of financial position of the entities that are members of the ‘Deed’ are as follows: Consolidated Income Statement and Comprehensive Income Profit before income tax Income tax expense Net profit after tax for the period Reconciliation of Retained Earnings Retained earnings at the beginning of the period Dividends paid Net profit after tax for the period Retained earnings at the end of the period 2018 $’000 2017 $’000 117,063 (31,422) 85,641 213,927 (56,373) 85,641 243,195 80,298 (20,907) 59,391 207,036 (52,500) 59,391 213,927 30. DEED OF CROSS GUARANTEE (continued) Consolidated Statement of Financial Position ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Investments in subsidiaries Property, plant and equipment Deferred tax assets Intangible assets and goodwill Other non-current assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Interest bearing loans and borrowings Income tax payable Provisions Total current liabilities Non-current liabilities Interest bearing loans and borrowings Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY 91 2018 $’000 2017 $’000 173,927 297,046 33,363 504,336 7,639 92,458 32,262 3,120 2,806 138,285 642,621 214,576 251,647 42,291 508,514 6,151 70,164 24,345 2,720 1,901 105,281 613,795 128,526 148,843 7,944 7,092 83,077 5,363 2,046 80,443 226,639 236,695 13,027 4,561 17,588 244,227 398,394 125,703 29,496 243,195 398,394 6,856 4,409 11,265 247,960 365,835 122,965 28,943 213,927 365,835 FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 31. OTHER ACCOUNTING STANDARDS Other accounting policies Goods and services tax (GST) 31. OTHER ACCOUNTING STANDARDS (continued) New accounting standards and interpretations (continued) Revenues, expenses and assets are recognised net of the amount of GST except: Reference Summary 93 Application date of standard Application date for Group 1 January 2018 1 July 2018 • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Changes in accounting policies Monadelphous Group Limited and its subsidiaries (‘the Group’) has adopted all new and amended Australian Standards and Interpretations mandatory for reporting periods beginning on or before 1 July 2017, including: • 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] • 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 The adoption of these standards and interpretations did not have any material effect on the financial position or performance of the Group. New accounting standards and interpretations Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective (including those below) have not been adopted by the Group for the annual reporting period ended 30 June 2018. The assessment of the impact of the relevant new or amended accounting standards and interpretations is set out below: Reference Summary Application date of standard Application date for Group AASB 9 Financial Instruments AASB 9 contains accounting requirement for financial instruments, replacing AASB 139. The standard: 1 January 2018 1 July 2018 (a) contains a simpler model for classification and measurement of financial assets; (b) a single, forward looking ‘expected loss’ impairment model that will require more timely recognition of expected credit losses; (c) a substantially reformed approach to hedge accounting including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. It is anticipated that the expected credit loss impairment model may result in earlier recognition of credit losses. The Group is in the process of finalising its assessment of the impact of the expected loss impairment model, however it is not expected to have a material impact on transition. AASB 2 Classification and Measurement of Share- based Payment Transactions This standard amends to AASB 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: • The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments • Share-based payment transactions with a net settlement feature for withholding tax obligations • A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. AASB 16 Leases The key features of AASB 16 are as follows: 1 January 2019 1 July 2019 Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. As at the reporting date, the Group has non-cancellable operating lease commitments as set out in note 23. The Group has not quantified the effect of the new standard, however the impacts will include: • Total assets and liabilities on the Statement of Financial Position will increase; and • Interest expense will increase due to the unwinding of the effective interest rate implicit in the lease. FINANCIAL REPORTMONADELPHOUS ANNUAL REPORT 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2018 INVESTOR INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 MONADELPHOUS ANNUAL REPORT 2018 95 31. OTHER ACCOUNTING STANDARDS (continued) New accounting standards and interpretations (continued) Reference Summary AASB 15 Revenue from Contracts with Customers The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Application date of standard Application date for Group 1 January 2018 1 July 2018 The new revenue standard will supersede all current revenue recognition requirements under Australian Accounting Standards. In particular, the standard replaces AASB 118 ‘Revenue’ and AASB 111 ‘Construction Contracts’, upon which the Group’s current revenue recognition policies are based. Either a full retrospective application or a modified retrospective application is required for the reporting period beginning on 1 July 2018. Management intend to adopt AASB 15 using the modified retrospective approach. As a result there may be an adjustment to the opening balance of the Group’s equity on the date of initial application. The Group has performed a detailed assessment of its contracts in 2018. Management has identified the following: (i) Performance Obligations It is anticipated that the majority of the Group’s construction contracts will be assessed to have one distinct performance obligation due to the significant integration and the highly related promises within each contract, with revenue being recognised over time. The majority of maintenance contracts are also expected to be treated as one distinct performance obligation due to the activities being a series of performance obligations that are substantially the same and have the same pattern of transfer to the client. (ii) Variable consideration and contract modifications AASB 15 provides new requirements for accounting for variable consideration as well as requiring claims and variations to be accounted as contract modifications, both of which impart a higher threshold for recognition. Variable revenue is recognised under the new standard when it is highly probable that a significant reversal of revenue will not occur. These higher recognition criteria might lead to a currently estimated adjustment reducing equity by approximately $5 million. (iii) Presentation and disclosure requirements In accordance with AASB 15, the Group will present its contract balances as a contract asset separately from its accounts receivable or as a contract liability. Contract assets and accounts receivable are both rights to consideration in exchange for goods or services that the Group has transferred to a customer, however the classification depends on whether such right is only conditional on the passage of time (accounts receivable) or if it is also conditional on something else (contract assets). Previously contract asset balances have been disclosed as Other Debtors or Inventories. A contract liability is the amount received by the Group that exceeds the right to consideration resulting from the Group’s performance under a given contract. Currently contract liabilities have been disclosed within Trade and Other Payables. Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The information is current at 10 September 2018. a) Distribution of equity securities The number of shareholders, by size of holding, in each class of share is: Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Total Total holders 6,418 4,518 800 624 38 12,398 The number of shareholders holding less than marketable parcels is 351. 6,875 shares are held in voluntary escrow, to be released in October 2018. b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: Rank Name 1. 2. 3. 4. 5. 6. 7. 8. 9. HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty LtdVelham Nominees Pty Ltd Wilmar Enterprises Pty Ltd Rubi Holdings Pty Ltd Citicorp Nominees Pty Limited 10. BNP Paribas Noms Pty Ltd 11. Warbont Nominees Pty Ltd 12. 13. HSBC Custody Nominees (Australia) Limited 3rd Wave Investors Ltd 14. Mrs Mary Teresa Erdash 15. 16. 17. 18. Neale Edwards Pty Ltd AMP Life Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA Borromini Pty Ltd 19. Marsden Holdings (Canberra) Pty Ltd 20. HSBC Custody Nominees (Australia) Limited - A/C 2 Number of Ordinary Shares 3,111,760 10,777,106 5,989,278 15,993,648 58,236,519 94,108,311 Number of Ordinary Shares 19,110,643 12,985,333 6,074,166 5,183,146 3,273,072 2,100,000 1,320,000 1,022,653 904,379 663,258 402,061 381,286 355,632 335,000 324,760 283,279 274,300 224,000 219,423 211,537 % of Issued Capital 3.31 11.45 6.37 16.99 61.88 100.00 % of Issued Capital 20.31 13.80 6.45 5.51 3.48 2.23 1.40 1.09 0.96 0.70 0.43 0.41 0.38 0.36 0.35 0.30 0.29 0.24 0.23 0.22 Total 55,647,928 59.14 FINANCIAL REPORT INVESTOR INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 INVESTOR INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 c) Substantial shareholders INFORMATION ABOUT MONADELPHOUS MONADELPHOUS ANNUAL REPORT 2018 97 Requests for specific information on the Company can be directed to the Company Secretary at the following address: Monadelphous Group Limited PO Box 600 Victoria Park, WA 6979 Telephone: +61 8 9316 1255 Facsimile: +61 8 9316 1950 MONADELPHOUS WEBSITE Further information about Monadelphous Group Limited is available on the company website: www.monadelphous.com.au The following shareholders have declared a relevant interest in the number of voting shares at the date of giving notice under Part 6C.1 of the Corporations Act 2001. Shareholder Pendal Group Limited Challenger Limited (and its entities) Ordinary Shares 4,924,115 7,198,673 % Held 5.23% 7.65% d) Voting rights Each ordinary shareholder present at a general meeting (whether in person, by proxy or by representative) is entitled to one vote on a show of hands, or on a poll, one vote for each fully paid ordinary share subject to any voting restrictions that may apply. e) Securities exchange listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Securities Exchange Limited. ANNUAL GENERAL MEETING The Annual General Meeting will be held at The University Club, University of Western Australia, Crawley, WA on Tuesday 20 November 2018 at 10.00am (AWST). Full details of the meeting are contained in the Notice of Annual General Meeting sent with this report. DIVIDENDS The following options are available regarding payment of dividends. i) By cheque payable to the shareholder; or ii) By direct deposit to a bank, building society or credit union account. Lost or stolen cheques should be reported immediately to the Share Registry, in writing. Electronic payments are credited on the dividend payment date and confirmed by a payment advice sent to the shareholder. Request forms for this service are available from the Company’s Share Registry at the address shown below. SHAREHOLDER ENQUIRIES All enquires should be directed to the Company’s Share Registry at: Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth Western Australia 6000 Telephone: 1300 364 961 (Australia) +61 3 9946 4415 (Overseas) Facsimile: +61 8 9473 2500 Email: Website: web.queries@computershare.com.au www.investorcentre.com All written enquires should include your Security Holder Reference Number or Holder Identification Number as it appears on your Holding Statement along with your current address. CHANGE OF ADDRESS It is very important that shareholders notify the Share Registry immediately, in writing, if there is any change to their registered address. LOST HOLDING STATEMENTS Shareholders should inform the Share Registry immediately, in writing, so that a replacement statement can be arranged. CHANGE OF NAME Shareholders who change their name should notify the Share Registry, in writing, and attach a copy of a relevant marriage certificate or deed poll. TAX FILE NUMBER (TFN) Although it is not compulsory for each shareholder to provide a TFN or exemption details, for those shareholders who do not provide the necessary details, the Company will be obliged to deduct tax from any unfranked portion of their dividends at the top marginal rate. TFN application forms can be obtained from the Share Registry, any Australian Post Office or the Australian Taxation Office. MONADELPHOUS PUBLICATIONS In an effort to reduce its impact on the environment Monadelphous will only post printed copies of this Annual Report to those shareholders who elect to receive one through the share registry. Shareholders may alternatively elect to receive an electronic copy of the Annual Report. Monadelphous Group Limited financial reports are also available on its website (refer to page 97). FINANCIAL REPORT CORPORATE DIRECTORY DIRECTORS Calogero Giovanni Battista Rubino Chairman Robert Velletri Managing Director Peter John Dempsey Lead Independent Non-Executive Director Christopher Percival Michelmore Independent Non-Executive Director Dietmar Robert Voss Independent Non-Executive Director Helen Jane Gillies Independent Non-Executive Director COMPANY SECRETARIES Kristy Glasgow Philip Trueman PRINCIPAL REGISTERED OFFICE IN AUSTRALIA 59 Albany Highway Victoria Park Western Australia 6100 Telephone: +61 8 9316 1255 Facsimile: +61 8 9316 1950 Website: www.monadelphous.com.au POSTAL ADDRESS PO Box 600 Victoria Park Western Australia 6979 SHARE REGISTRY Computershare Investor Services Pty Limited Level 11, 172 St George’s Terrace Perth Western Australia 6000 Telephone: 1300 364 961 (Australia) +61 3 9946 4415 (Overseas) Facsimile: +61 8 9473 2500 ASX CODE MND – Fully Paid Ordinary Shares BANKERS National Australia Bank Limited 100 St George’s Terrace Perth Western Australia 6000 HSBC 188-190 St George’s Terrace Perth Western Australia 6000 Westpac Banking Corporation 109 St George’s Terrace Perth Western Australia 6000 AUDITORS Ernst & Young 11 Mounts Bay Road Perth Western Australia 6000 SOLICITORS Johnson, Winter & Slattery Level 4, 167 St George’s Terrace Perth Western Australia 6000 CONTROLLED ENTITIES Monadelphous Engineering Associates Pty Ltd Monadelphous Engineering Pty Ltd Monadelphous Properties Pty Ltd Monadelphous Workforce Pty Ltd Genco Pty Ltd Monadelphous Electrical & Instrumentation Pty Ltd Monadelphous PNG Ltd Monadelphous Holdings Pty Ltd Moway International Limited SinoStruct Pty Ltd Moway AustAsia Steel Structures Trading (Beijing) Company Limited Monadelphous Group Limited Employee Share Trust Monadelphous KT Pty Ltd Monadelphous Energy Services Pty Ltd Monadelphous Singapore Pte Ltd Monadelphous Mongolia LLC M&ISS Pty Ltd M Maintenance Services Pty Ltd Monadelphous Engineering NZ Pty Ltd Monadelphous Marcellus LLC MKT Pipelines Limited Evo Access Pty Ltd Monadelphous Inc. MGJV Pty Ltd M Workforce Pty Ltd Monadelphous Investments Pty Ltd MWOG Pty Ltd Arc West Group Pty Ltd MOAG Pty Ltd Monadelphous International Holdings Pty Ltd Monadelphous Sdn Bhd R.I.G. Installations (Newcastle) Pty Ltd R E & M Services Pty Ltd Pilbara Rail Services Pty Ltd monadelphous.com.au PERTH HEAD OFFICE BRISBANE OFFICE MONADELPHOUS.COM.AU 59 Albany Highway Victoria Park Western Australia 6100 PO Box 600 Victoria Park Western Australia 6979 T +61 8 9316 1255 F +61 8 9316 1950 Level 6, 19 Lang Parade Milton Queensland 4064 PO Box 1872 Milton Queensland 4064 T +61 7 3368 6700 F +61 7 3368 6777 MONADELPHOUS GROUP LIMITED ABN 28 008 988 547